Abolishing the Tax-Free Threshold in Australia: Simulating AlternativeReforms
This paper examines the role of the tax-free income tax threshold in a complex tax and transfer system consisting of a range of taxes and benefits, each with their own taper rates and thresholds. Considering a tax and benefit system with benefit taper rates whereby some benefits are received by income groups other than those at the bottom of the distribution, it is suggested that a tax-free threshold is not a necessary requirement to achieve redistribution. Four alternative policy changes, each involving the elimination of the tax-free threshold in Australia and designed to achieve approximate revenue neutrality, were examined using the Melbourne Institute Tax and Transfer Simulator. A range of implications were examined, including labour supply responses to tax changes, and the effects of policy changes on inequality and social welfare. The results demonstrate that it is possible to eliminate the tax-free threshold under approximate overall revenue and distribution neutrality, but that it is impossible to improve labour supply incentives at the same time. In order to achieve improved incentives, either revenue or distribution neutrality has to be sacrificed.
|Date of creation:||2008|
|Contact details of provider:|| Postal: Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia|
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- John Creedy & Nicolas Herault & Guyonne Kalb, 2008.
"Comparing Welfare Change Measures withIncome Change Measures in Behavioural Policy Simulations,"
Department of Economics - Working Papers Series
1030, The University of Melbourne.
- John Creedy & Nicolas Hérault & Guyonne Kalb, 2007. "Comparing Welfare Change Measures with Income Change Measures in Behavioural Policy Simulations," Melbourne Institute Working Paper Series wp2007n21, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
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- John Creedy & Guyonne Kalb, 2003.
"Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation,"
Melbourne Institute Working Paper Series
wp2003n16, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
- John Creedy & Guyonne Kalb, 2005. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Journal of Economic Surveys, Wiley Blackwell, vol. 19(5), pages 697-734, December.
- John Creedy & Guyonne Kalb, 2003. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Treasury Working Paper Series 03/20, New Zealand Treasury.
- John Creedy & Guyonne Kalb & Rosanna Scutella, 2003. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Melbourne Institute Working Paper Series wp2003n21, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
- Binh, Tran Nam & Whiteford, Peter, 1990. "Household Equivalence Scales: New Australian Estimates from the 1984 Household Expenditure Survey," The Economic Record, The Economic Society of Australia, vol. 66(194), pages 221-234, September.
- John Creedy & Alan S. Duncan & Mark Harris & Rosanna Scutella, 2002. "Microsimulation Modelling of Taxation and the Labour Market," Books, Edward Elgar Publishing, number 2796.
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