SUMMARY
Our research shows that:
1. Since the 1980s the introduction of income tests on family payments has transformed Australia’s progressive individual income tax into a system with strong elements of joint taxation and a rate scale that has an inverted U-shaped profile – the highest marginal tax rates apply across low to average incomes and to the incomes of married mothers as second earners.
2. Personal Income Tax (PIT) cuts at high income levels and the expansion of the Low Income Tax Offset (LITO) over successive budgets have shifted the tax burden to average wage earners by replacing the strongly progressive rate scale of the PIT with one that is less progressive in general and no longer progressive over certain ranges.
3. The overall effect of income-tested family payments and the less progressive rate scale on personal incomes has been to fund tax reductions at top income levels by raising taxes on low to average wage working families, and with an especially heavy burden on working married mothers.
4. The set of policy measures to achieve this redistribution of the tax burden – income-tests on Family Tax Benefits (FTBs), the Medicare Levy (ML) and the LITO combined with tax cuts at high income levels – have resulted in an unnecessarily complex tax system. The changes amount simply to a change in the rate structure and base of the tax system that could have been made directly and openly.