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Tax and Transfer Incidence in Australia

Commission working paper

This paper was released on 7 October 2015. This paper sheds light on how Australia's tax and transfer system functions to distribute income across the population and over lifetimes. It:

  • provides a descriptive analysis of the flow of major taxes (personal income tax and GST) and transfers between families under existing policy settings
  • examines the direct impact of the tax and transfer system on returns to paid work
  • examines how families contribute to taxes and benefit from transfer payments over the course of their lives under various assumptions, and projects tax and transfer flows in the future.

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  • Contents summary

Chapter 2 provides an overview of the tax and transfer system in Australia, and develops a conceptual framework for examining income redistribution via the tax and transfer system.

Chapter 3 looks at the existing state of evidence on the incidence of taxes and transfers on both annual and life cycle bases. This includes a review of existing literature on: tax 'churn'; effective average and effective marginal tax rates; and the annual and life cycle distribution of taxes and transfers from Australia and overseas.

Chapter 4 analyses the results of the Commission's estimates of taxes paid and transfers received by different groups in a single year. It examines how tax and transfer flows vary with income, wealth and age and how different policies contribute to these flows.

Chapter 5 examines the effective marginal tax rates and participation tax rates faced by different groups.

Chapter 6 uses simple, illustrative approaches to investigate how the current tax and transfer system redistributes income over lifetimes and to explore how income growth and population ageing could affect tax and transfer flows in the future.