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Removing Poverty Traps: Taxation and Welfare Reform in Australia

Published online by Cambridge University Press:  01 January 2023

M. Cashel  and
P. A. McGavin
M. Cashel
Affiliation:
Department of Finance, Canberra
P. A. McGavin
Affiliation:
Department of Economics and Management, University of New South Wales at the Australian Defence Force Academy, Canberra
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Abstract

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This article uses data on the interactions of income taxation and state welfare transfers on effective marginal tax rates (EMTRs) in Australia to argue policy reforms for removing poverty traps created by high EMTRs. This highlights the need for state welfare and income taxation reforms to target those elements of income taxation and social welfare interaction that are most significant for high EMTRs and for high EMTRs extending across wide incomes ranges. Proposed welfare changes involve simultaneous reductions in base-level state welfare transfer payments, along with eligibility for supplementary transfer payments for able persons that are proportional to market labour activity. Proposed taxation changes include removal of distinctions between taxable and tax-exempt state welfare transfers and a gradually-progressive revised taxation scale.

Type
Contemporary Issues
Information
The Economic and Labour Relations Review , Volume 3 , Issue 2 , December 1992 , pp. 98 - 114
Copyright
Copyright © The Author(s) 1992

Footnotes

**

Views expressed are entirely personal, and should not be attributed to the employers of the respective authors -the Department of Finance, Canberra, and the University of New South Wales at the Australian Defence Force Academy, Canberra. The paper has benefitted from comments from referees and editors of this journal.

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