Quoc Ngu Vu

Improving Work Incentives and Incomes for Parents: The National and Geographic Impact of Liberalising the Family Tax Benefit Income Test

The effective tax rates and possible work disincentives created by Australia’s tax and welfare systems have been receiving extensive policy attention in recent years. Family Tax Benefit-Part A (FTB-A) is one of the key causes of high effective marginal tax rates for many families. This study uses national and spatial microsimulation models to evaluate the national and local impacts of a possible FTB-A reform option, which involves reducing the income test withdrawal rate associated with the FTB-A income test. The modelling suggests that the option would be an effective way to reduce high effective marginal tax rates for around 415,000 parents of FTB-A children, would benefit around 850,000 families, and would deliver additional assistance to middle income families living on the outskirts of our cities.

Trends in Effective Marginal Tax Rates in Australia from 1996-97 to 2006-07

This article reviews trends in effective marginal tax rates (EMTRs) from 1996–1997 to 2006–2007 for working-age Australians. Although sweeping income tax cuts reduced effective tax rates for many taxpayers, the extension of income-tested welfare payments and tax concessions worked in the opposite direction. The proportion of working-age Australians facing EMTRs of more than 50 per cent increased during the period, from 4.8 to 7.1 per cent, representing some 910,000 Australians. This article also provides the first international comparisons of how the distribution of EMTRs for earners in Australia compares with those prevailing in Europe.