Poverty Traps in the Australian Social Security System

Abstract

The term "poverty traps" refers lo circumstances where the income tests in the Australian social security system trap social security recipients into dependence on Government income support. This paper describes the ways in which the income test interacts with the income tax rate scalc and Medicare levy to produce high effective marginal tax rates, and provides evidence on the number of persons actually and potentially in the poverty trap. The paper also discusses factors other than income tests that may affect the decisions of social security recipients to engage in part-time work, and canvasses a range of policy options that may alleviate poverty traps for those of working age.