Effective Marginal Tax or Benefit? The Medicare Levy and Australian Defence Personnel

Abstract

Does the phase‐in of the Australian Medicare levy as family income increases always contribute to a high effective marginal tax rate (EMTR)? Or are there circumstances in which the targeted nature of the Medicare levy in Australia can result in an effective marginal benefit (EMB) to family income as the income of the secondary income earner increases? This paper explains the concept of an EMB, providing examples and estimating the impact across different income ranges. The paper concludes that the existence of EMBs may lessen the impact of high EMTRs to some extent for the families affected. This is of particular importance to Australian Defence Force families in which the secondary income earner moves in and out of employment as the family relocates due to the defence posting cycle.