EMTR’s affect the transition from unemployment to employment harder. They are called effective marginal tax rates because they combine the tax rate that people pay on income earnt and the loss of benefits. They are real and they do affect people’s choices.

The EMTR of overtime is simply your marginal rate of taxation, unless you are also receiving other means tested welfare. If your marginal tax rate is 45 cents in the dollar compared to 40 cents (or 40 cents compared to 30), you have to work that little bit longer to get the same reward. People are working to earn the extra net income, not the extra gross income. How much more overtime will be a function of the reward, with decreasing utility as the time required to earn it increases.

Again, that is the claimed objective of making super non-taxable from 60. But as I said, I’m not all that convinced that there will be a net increase in workforce participation (for example, if the people who work less because they are more easily able to achieve their target income outweigh those who work more because they get to keep a higher proportion of their income.)

You see, I think people obsess about EMTRs altogether too much - I’m not really convinced that they are such big drivers of people’s behaviour. Have you ever noticed that all of those people complaining about how highly their overtime is taxed are actually working the overtime anyway (presumably because they think they ‘need’ the money)? I accept that there must be a point where an EMTR is so high that there is no point working, but I don’t know how you would determine what that is and of course it is different for everyone.

But in the end, I think that most people are focused on whether they have ‘enough’ money in their pockets, not how much tax they are paying. And it’s their idea of how much is enough that motivates them to work more or less, rather than the EMTR.

Just to clarify something, I didn’t originally have the superannuation tax changes in mind, but just the very generous Senior Australians tax offset - the super changes are just icing on the cake for a small subset of senior Australians. And what motivates me is the idea that policy should be ‘fair’ - in this case between different demographic groups.

And I would agree with your observation that it is ‘poor’ childless people who get screwed around - as a group they are on the bottom of the pile for both sides of politics. But on the other hand, they are paying very little in tax, by definition, so they can’t really complain about that side of things.

Most people don’t run the numbers like an actuary might. However most people via a process of trial and error, observing what other people do, and simply in seeking life satisfaction and minimal personal pain will alter their behaviour to seek an optimal personal outcome given the policies that prevail.

I’m glad you don’t see anything perverse in people having the freedom to use their time as they please, be it working or whatever.

My argument was never about whether tax is a good or bad thing per se, just about whether it is justifiable for one group in society to pay so much less tax than other groups.

I would be more than happy to see the tax threshold raised across the board - all I was saying was that I can’t think of any really persuasive argument for giving old people a huge tax break relative to everyone else, who are likely to be doing things much harder overall.

I suspect that people who work past retirement age are of two kinds - people who need the money because they can’t live on the age pension, and people who enjoy working for its own sake. I suspect both of these groups would work regardless of the carrots dangled in front of their noses, whereas the people who have just been hanging out waiting to retire are unlikely to be enticed back into work, whatever you do.

BRG,

Change happens at the margin. If you don’t think straws can ever break camels backs then I think you are denying logic. Each of us have thresholds beyond which our behaviour will change. And obviously many people can carry a lot more additional burden before they will alter course. Whether it’s the “bullshit from the boss” threshold (or too much shit from the employees) or the “too much tax to bother” threshold. Sometimes it is just a matter of timing with some people putting up with the extra burden for a few years whilst some will tolerate it only for a few months. However if we deal with people in aggregate these things add up.

Those that argue for more government services readily argue that families are at “breaking point”, so the logic that marginal changes do have an impact is hardly an isolated idea.

You are probably right that older Australians are getting a pretty sweet deal on tax relative to many other groups in the community. It’s time the tax free threshold was raised for everybody across the board.

Regards,
Terje.