Using the King–Fullerton method, the effects of a move to imputation on effective rates of tax on saving and investment options are examined by Freebairn (1988), Mayo (1989) and R. Jones (1993). Benge presents a model of an optimising firm and examines the effects of full imputation combined with CGT provisions, and presents numerical estimates of costs of capital under Australian depreciation provisions (Benge 1997, 1998).
Contrary to the common perception that we are highly taxed, Australia's tax–GDP ratio is one of the four lowest among OECD countries. But more important than the average level is the profile of tax burdens across different groups. Prior to the 1980s, Australia combined a highly progressive individual income-tax system with universal family allowances. Although the excessive use of tax minimisation schemes created an urgent need to reform the tax system, appropriate changes have never been at the centre of the tax-reform agenda, and promised reforms to the taxation of trusts have been abandoned. Instead the focus has been on increasing consumption taxes, reducing the progressivity of income tax, and switching to a highly targeted family-benefit system.The tax burden has shifted towards lower-income groups. The increased use of family income as the basis for phasing out benefits has moved the system away from its individual basis, increasing the tax burden on low and middle earners, particularly second earners in families.
Current debate suggests that future changes will involve more of the same. A wage–tax trade-off has been proposed as a means of reducing unemployment.The proposal (Dawkins, Lambert et al. 2000) involves a fall in pre-tax real wages for the low paid, compensated by an Earned Income Tax Credit (EITC) – a crucial feature being its withdrawal on the basis of family income.The effect is to extend targeting further across the income distribution, shifting the cost of welfare support for a growing group of working poor to families on low to middle incomes. In the US the EITC has been effective in increasing participation for low-wage sole parents. For married couples, however, the effect has been to increase work disincentives (Eissa and Hoynes 1999). Adverse effects on work disincentives for second earners would be more pronounced in Australia because the income-tax unit is the individual rather than the family.
Agrawal, N., G.A. Meagher and B.F. Parsell. 1990. 'Analysing options for fiscal reform in the presence of involuntary unemployment' in Flattening the Tax Rate Scale:Alternative Scenarios and Methodologies. Edited by J.G. Head and R. Krever, pp. 295–320. Melbourne: Longman Professional.
Ahmad, E., and N. Stern. 1984. The theory of reform and Indian indirect taxes. Journal of Public Economics 25:259–98.
Albon, R., C. Findlay and J. Piggott. 1984.The welfare costs of owner-occupier housing subsidies: Inflation, tax treatment, and interest rate regulation. Australian Economic Papers 23(43):206–18.
Allingham, M., and A. Sandmo. 1972. Income tax evasion: A theoretical analysis. Journal of Public Economics 1:323–38.