The unsatisfactory nature of the Australian tax and welfare system was illustrated last week by the fate of the $12 pay rise for the lowest pay workers.
According to the director of Access Economics, Chris Richardson, taxation and lost family benefits would eat up most of the increase. Most people would get $1.50 in the hand out of the $12. A third would go on tax and half of it would go in lost family benefits.
It seems absurd that so many Australians are at once paying significant tax and at the same time getting it back in the form of family benefits. The threshold for both should be lifted.
Further the effective marginal tax rates for people on family benefits seems so high as to be a disincentive to earn more money or work extra hours. The costs in clothes and travel for extra days at work would eat virtually all that is earned.
As the GST package works its way through the Senate, the Government would do well to look at some of the elements of the negative tax regime put by Labor at the last election. That scheme ensured that no-one paid more than the top marginal rate of around 47 per cent as they did more work and got less welfare. The question should not be whose idea was it, but would it work. GST or not, the sort of disincentives illustrated by the latest pay rise should be ironed out of the system.