08 July 2013

A tail's tale

The maximum rate of Newstart allowance (NSA) has been the subject of much debate recently, but it’s not the only contentious aspect of that payment.  Another commonly raised issue is the effective marginal tax rates (EMTR) faced by NSA recipients (and those on payments with related income tests, such as partnered parenting payment) who have some private income, particularly earnings.  In truth, in most cases the EMTRs are actually quite a bit lower than they used to be – NSA once had an income test with a 100% withdrawal rate, whereas the highest taper these days is 60%.   There are, however, some persistent problem areas and one of these lies at the tail end of the income test for couples.  There, EMTRs remain stubbornly high and the reasons underlying this raise interesting issues involving differences in the fundamental basis of assessment between the tax system and the transfer system, and also the flow on effects of tinkering in different parts of the system.