An analysis of the impact of tax and welfare reform measures on effective marginal tax rates in Australia 1982-2002

This paper uses a microsimulation model that permits interactions between taxes,government benefits and housing assistance parameters and data from various releases of the Survey of Income and Housing Costs to illustrate how the distribution of effective marginal tax rates has varied between the years of 1982, 1996, 2000 and 2002. The policy impact of changes in the tax-benefit system on effective marginal tax rates is then assessed by applying the real tax-benefit parameters from 1982, 1996 and 2002 to the household composition and income data from a base year (2000). The findings indicate that effective marginal tax rates have increased over the long-term. Even when the impacts of tax-benefit changes are isolated from changes in the composition of the population, policy changes have been insufficient to counteract increases in effective marginal tax rates that have been caused by compositional changes.