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Natural Chewing Instinct
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Parakeets, or budgies, have a natural instinct to chew. They'll chew anything they can, and that includes paper. Many people line the bottom of the bird's cage with paper because it's handy and cheap, and that's fine. But if the paper lining is wrinkled or creased so that it stands up in places, that pushes it closer to the wire bottom of the cage and more accessible to the bird. This is a curiosity to the bird, and it will happily spend its spare time figuring out what to do about that paper.
Boredom
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Birds such as parakeets are very active and like to play. If they are bored with their toys, or you have taken the toys away, they will make a toy out of whatever they have, and many birds have paper on the bottom of their cages to collect droppings.
Poor Cage Design
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If there is not enough room between the wire bottom of the cage and the bottom tray, the parakeet may be able to get to the paper that is lining the bottom. Make sure the paper is not twisted or sticking up at any points, because that will make it easier to reach. Parakeets see this as a fun challenge and they will play with the paper until they reach it, pull it up and chew on it.
Not Eaten, Not Harmful
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As long as your parakeet isn't actually ingesting the paper, there is no harm in the bird chewing it, except for the mess and the fact that it won't be protecting the bottom of the cage. You wouldn't want the bird to pull up droppings that might be on the paper, either. It is very dangerous for a parakeet to actually ingest paper, because it can become stuck in its tiny digestive tract. This would require surgery or the bird might die. Most of the time, though, the bird is just amusing itself by shredding the paper. The ink on newsprint, by the way, is not toxic.
Solutions
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To keep your parakeet from chewing paper, remove its access to paper and give the bird other things, such as wood toys, to chew on and play with. If it is a caged bird and does not come out to play, it's an easy solution. Just be sure the paper liner lies flat so the bird can't access it, or remove the paper altogether. If the parakeet comes out of its cage to explore and play, remove newspapers and other paper from the area. You should be supervising the bird's time out of the cage anyway, to protect it from other hazards, so you'll be able to see if it is finding paper to chew on.
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What Causes My Parakeet to Go to the Bottom of the Cage and Chew the Paper?
Parakeets are natural chewers. They will chew on anything within reach. Plastic toys and metal chains don't chew well, but wood and paper are great. Paper especially is easy to chew, shred and play with. Parakeets are also inquisitive, active and love to play. If you want to break any habit, including chewing paper, give the bird something else to do when it's by itself and it will be busy and happy.