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Income Tax Deductions for Work‐related Expenses: The Rationale Examined
Author(s) -
Baldry Jonathan
Publication year - 1998
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/1467-8454.00005
Subject(s) - tax deduction , taxable income , equity (law) , economics , work (physics) , labour economics , public economics , income tax , gross income , consumption (sociology) , state income tax , tax reform , accounting , engineering , political science , mechanical engineering , law , social science , sociology
The Australian income tax permits taxpayers receiving wages to claim work‐related expenses (WREs) as deductions against taxable income. The rationale for the provision has never been stated. This paper examines the rationale in terms of equity and efficiency considerations. The analy sis suggests that deductibility of WREs is likely, at best, to have a neutral equity impact; at worst it will have a random impact. WRE deductibi lity is also likely to lead to distortions in both production and consumption. Taken together with the high compliance costs associated with the provision, these arguments justify abolition of WRE deductibility