Why the Henry Review Fails on Family Tax Reform
AbstractWhile acknowledging the importance of fairness and the need to avoid creating disincentives in the design of tax reform, the Henry Review recommends a simplified Personal Income Tax and child payments withdrawn on a single family income test. This paper shows that the proposed reforms would consolidate the existing family tax system, which clearly fails in terms of both fairness and disincentives. In the early 1980’s Australia had a highly progressive individual income tax and universal family payments. Since then family income tests on child payments and tax cuts at high income levels have transformed the system into one of joint taxation with the highest marginal rates on low and average wage two-earner families. Under the Review’s recommendations the same families would continue to face the highest tax rates. Data presented indicate strong negative effects on productivity and the tax base due to disincentive effects on labour supply and saving over the life cycle. The paper proposes a return to a strongly progressive individual based income tax and universal family payments.
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Bibliographic InfoPaper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 642.
Date of creation: Aug 2010
Date of revision:
Taxation; Family payments; Time allocation; Labour supply; Saving; Life cycle;
Find related papers by JEL classification:
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
- J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
This paper has been announced in the following NEP Reports:
- NEP-ACC-2010-09-11 (Accounting & Auditing)
- NEP-ALL-2010-09-11 (All new papers)
- NEP-PBE-2010-09-11 (Public Economics)
- NEP-PUB-2010-09-11 (Public Finance)
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