The income unit in the Australian tax and social security systems

Abstract

This study describes and evaluates the different ways in which the individual, the married couple and the family are treated under Australia's personal income tax and social security systems. It also possible directions for change in makes suggestions on the treatment of the income unit in tax and social security policies. The criteria of efficiency, equity and simplicity are used to evaluate the appropriate income unit. Recent changes in the proportion of married women in paid employment and changes in marriage and divorce patterns are taken into account in the evaluation because of the effect that different definitions of the income unit have on decisions to work and to marry. The study challenges two conventional economic assumptions on which much existing tax and social security literature on the income unit is based. The first of these is that the ability to pay tax of a married taxpayer is reduced financially dependent on questions this as sump t ion home activities add to the if the taxpayer has a spouse him or her . . The thesis and points out ways in which ' full income' of individuals and families. The study confronts difficulties measuring imputed income from home activities and reaches the conclusion that Australia's tax and transfer systems could pay more attention to the productive nature of home activities and to an individual's capacity to earn income. The second assumption which is challenged is that husbands and wives pool their income and share equally in the benefits of that income so that the proportion in which husband and wife earn or receive the income is immaterial to their individual economic status. The thesis points out the lack of data to support this assumption and presents data collected from the _ candidate's own survey which suggests great diversity' in financial arrangements between husbands and wives. In its examination of efficiency and simplicity criteria and its reassessment of traditional equity criteria, the thesis comes to the conclusion that the individual as the unit in taxation is superior to the marital unit . The case for adopting the individual as the income unit for social security payments is found not to be as clear cut as it was found to be taxation unless other modifications to the social security system are made. The modifications considered necessary include the introduction of a living alone allowance and more generous payments for children. The conclusion reached is that equity criteria make it difficult to eliminate entirely marital status from the social security payment structure but to reduce emphasis on marital status would promote efficiency, equity and simplicity.The study attempts a systematic and comprehensive examination of the economic issues relevant to the choice of an income unit for the tax and social security systems but ultimately society's value judgements must determine the most appropriate unit. Show more