Reform 30/30: Rebuilding Australia’s Tax and Welfare Systems

John Humphreys
25 November 2005 | PM70
Reform 30/30: Rebuilding Australia’s Tax and Welfare Systems

While the announcement of tax simplification by the Government is a step in the right direction, it does not go far enough. A new paper offers a blueprint for where tax and welfare reform should be heading.

In this paper titled Reform30/30: Rebuilding Australia’s Tax and Welfare Systems, John Humphreys outlines a radical vision of how the tax and welfare systems could be refashioned to ensure that nobody loses more than 30 cents of any extra dollar they earn.

Humphreys proposes a single (flat) income tax rate of 30% (the Medicare levy would be scrapped).   The tax free threshold (TFT) would be increased to $30,000 per person, so nobody would pay the 30% tax until they earned above this amount.

Those earning below $30,000 would receive top-ups in the form of a Negative Income Tax (NIT), which would be paid at a rate of 30% (i.e. every dollar of income short of $30,000 would attract a top-up of 30 cents).  The NIT would replace all existing welfare payments and tax expenditures.

A key feature of this proposal is that it overcomes the problem of high effective marginal tax rates as people move from welfare to work.

‘By increasing the tax free threshold to $30,000 and only providing welfare to people with incomes below $30,000, there is no overlap between tax payers and welfare recipients. Not only does this remove the problem of overlapping work disincentives, but also it removes the pointless churning of money from taxpayers to bureaucrats back to the same taxpayers.’

Another advantage is that it removes the need for a minimum wage and therefore boosts employment opportunities:  ‘Instead of legislating for higher wages, the NIT allows wages to stay at their market rate and supplements low incomes with a welfare payment.’

Reform 30/30 is more equitable than our existing system.  It significantly reduces unemployment (and therefore poverty), and it ends discrimination against couples.  Humphreys calculates it could create 500,000 new jobs, a $90 billion bigger economy, higher growth rates, lower tax levels and a simpler, fairer tax/welfare system.
‘The biggest winners in this reform are the working poor who previously had the highest effective marginal tax rates (EMTRs) and who now get to keep more of their welfare benefits and are exempt from income tax.’

Latest Publications

The Kinship Conundrum: The Impact of Aboriginal Self-Determination on Indigenous Child Protection
Jeremy Sammut
08 December 2014 | PM144

This report argues that mainstreaming revolution in Indigenous policy should be extended to Indigenous child protection policy, and that Aboriginal exceptionalism—typified by the operation of Aboriginal Child Placement Principle (ACPP)—must cease. To help ‘Close the Gap’ in social outcomes between Indigenous and other Australians, Indigenous and non-Indigenous children should be treated the same, including by using adoption (or permanent guardianship)…

READ MORE
An Ounce of Prevention? A Toolkit for Evaluating Preventive Health Measures
Helen Andrews
26 November 2014 | PM143

Preventive health is a broad umbrella that includes such disparate services as vaccines for schoolchildren, blood pressure screenings, ad campaigns to discourage binge drinking, and special taxes on tobacco products. What all these programs have in common is an intention to spend money now in order to save money later—catching costly health problems before they arise or when they are…

READ MORE
Regulating for Quality in Childcare: The Evidence Base
Trisha Jha
05 November 2014 | PM142

The National Quality Agenda (NQA) endorsed by all states and territories in 2009 regulates childcare systems across Australia. It mandates increased minimum standards in various aspects provision of care and a ratings system with the goal of improving quality. The NQA mandates substantial and costly reforms to staff-to-child ratios and carer qualifications of care. This report details that the costs…

READ MORE
Complex Family Payments: What it Costs the Village to Raise a Child
Trisha Jha
06 August 2014 | PM141

In 2013–14, $32 billion was spent on family payments, amounting to 7.7% of total federal expenditure in that year, and 22% of total federal spending on social security and welfare. Family Tax Benefits (FTB) and child care fee assistance are the two areas in which spending is the most significant and, in the case of child care assistance, the most…

READ MORE
Lessons from Singapore: Opt-Out Health Savings Accounts for Australia
David Gadiel, Jeremy Sammut
28 July 2014 | PM140

Singapore’s distinctive health funding and service provision arrangements have delivered comparable First World standards of care and health outcomes at much lower cost. A new vision for funding health in Australia based on the Singapore model could be achieved by applying the principle of choice for those who wish for an alternative to Australia’s taxpayer-funded, universal health care system. This…

READ MORE