Rationalising the interaction of tax and social security - Part I: specific problem areas

Abstract

The government’s tax package (hereafter referred to as “NTS”: a New Tax System for Australia) addresses a number of issues for families raised in Ingles’ 1997 CEPR Discussion Paper “Low Income Traps for Working Families”, but leaves others unresolved and falls short of full-scale structural reform. For example, it reduces family payment tapers, but the new taper continue to overlap with those under the Youth Allowance Scheme. It reduces the many different family payments to two (three counting childcare), but allows these payments to abate simultaneously in some situations, which will particularly impact on the work decisions of a spouse. This paper proposes measures that address these specific problem areas. However another approach is a full-scale structural reform. The measures herein are all forms of harmonisation of the tax and social security systems; but ultimately more radical options (<I>integration</I> or <I>full separation</I>) might yield a system that is more rational and can produce a designed structure of effective tax rates. These options – along with the option of a Negative Income Tax – are canvassed in a separate paper – Part II (Discussion Paper 424). Show more