Improving work incentives for mothers: the national and geographic impact of liberalising the Family Tax Benefit income test

• Robert Tanton, Ann Harding, Quoc Ngu Vu, Yogi Vidyattama
• National Centre for Social and Economic Modelling

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08 October 2008The effective tax rates and possible work disincentives created by Australia's tax and welfare systems have been receiving extensive policy attention in recent years. The imminent mass retirement of the baby boom cohort and structural population ageing have caused many countries in the developed world to review whether their tax-transfer systems are adversely affecting incentives to work. Earlier research has identified Family Tax Benefit Part A as one of the key causes of high effective marginal tax rates for many families.



This study tests two possible FTB-A reform options, both of which involve reducing the income test withdrawal rates associated with the FTB-A income test. It examines both the national and small area impact of these policy shocks. The modelling suggests that the options would be an effective way to reduce high effective marginal tax rates for around 450,000 parents of FTB-A children, would benefit around 850,000 families, and would deliver additional assistance to middle income families living on the outskirts of our cities, many of whom have been adversely affected by recent interest rates and petrol price increases.