Why the Henry Review Fails on Family Tax Reform

Patricia Apps ()

No 642, CEPR Discussion Papers from Centre for Economic Policy Research, Research School of Economics, Australian National University

Abstract: While 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in the design of tax reform, the Henry Review recommends a simplified Personal Income Tax and child payments withdrawn on a single family income test.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.

Keywords: Taxation; Family payments; Time allocation; Labour supply; Saving; Life cycle (search for similar items in EconPapers)
JEL-codes: D91 H21 H31 J13 J16 J22 (search for similar items in EconPapers)
Date: 2010-08
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:auu:dpaper:642

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