Effective Marginal Tax Rates in Australia

Abstract

The households included in the 1988-89 ABS Household Expenditure Survey were grouped according to size, degree of labour force participation, and weekly household private income. Households at similar levels of income were then compared to determine the effect on disposable income of a small increase in labour market earnings, resulting in higher taxes paid and lower benefits received. A wide range of direct and indirect taxes and direct and indirect benefits was included in the calculation. Effective marginal tax rates were calculated as the ratio of increased taxes plus reduced benefits to the postulated increase in earnings. Effective marginal tax rates were found to be generally higher for households in the bottom half of the household disposable income distribution than in the top half.

The Cost of Income Redistribution in Australia

“…Our study adjusts for the low labour force participation rates of these groups by using decile average EMTRs, weighted by earnings shares, in the labour supply function for the average household in each decile. The unweighted EMTRs, which are reported in Campbell and Bond (1997a), are similar to those reported in Table I, except that they are significantly higher for the lowest gross income decile. The difference is explained by the relatively low level of labour force participation in this decile.…”

“…The difference is explained by the relatively low level of labour force participation in this decile. The Campbell and Bond (1997a) estimates are also generally higher than the unweighted average EMTRs published by Harding and Polette (1995). The reasons for the difference are discussed in the former paper.…”

“…The structure of the Australian tax-transfer system is estimated from data collected by the Household Expenditure Survey. Bond (1997a and1997b) have described in some detail how effective average and marginal tax rates can be derived from these survey data and the procedure is outlined only briefly here.…”

Effective Marginal Tax or Benefit? The Medicare Levy and Australian Defence Personnel

“…Gillian Beer, also from NATSEM, had previously reported on the heights and distribution of EMTRs in Australia in 1997 and 2002 (Beer, 1998 and Beer, 2003). Other studies looking at the size and distribution of EMTRs include those conducted by Ann Harding and Josh Polette in 1994 (Harding & Polette, 1995) and Campbell and Bond in 1997. The Productivity Commission included an appendix in its inquiry on Childcare and Early Childhood Learning, examining the interaction between childcare assistance payments and EMTRs (PC, 2014).…”