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Removing Poverty Traps: Taxation and Welfare Reform in Australia

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  • M. Cashel
  • P. A. McGavin

Abstract

This article uses data on the interactions of income taxation and state welfare transfers on effective marginal tax rates (EMTRs) in Australia to argue policy reforms for removing poverty traps created by high EMTRs. This highlights the need for state welfare and income taxation reforms to target those elements of income taxation and social welfare interaction that are most significant for high EMTRs and for high EMTRs extending across wide incomes ranges. Proposed welfare changes involve simultaneous reductions in base-level state welfare transfer payments, along with eligibility for supplementary transfer payments for able persons that are proportional to market labour activity. Proposed taxation changes include removal of distinctions between taxable and tax-exempt state welfare transfers and a gradually-progressive revised taxation scale.

Suggested Citation

  • M. Cashel & P. A. McGavin, 1992. "Removing Poverty Traps: Taxation and Welfare Reform in Australia," The Economic and Labour Relations Review, , vol. 3(2), pages 98-114, December.
    • Handle: RePEc:sae:ecolab:v:3:y:1992:i:2:p:98-114
    DOI: 10.1177/103530469200300205
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    References listed on IDEAS

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    1. John G. Head, 1990. "Australian Tax Reform: Which Way Ahead?," The Economic and Labour Relations Review, , vol. 1(2), pages 81-107, December.
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