Media reports in the last few days have pointed out that some women face effective marginal tax rates above 100% under proposed changes to the HELP thresholds. But this is not new – the nature of the HELP repayment system is that for every HELP debtor, male or female, there are income zones that reduce take-home pay.

This is because as income reaches each threshold the debtor must repay a percentage of his or her entire income. Under the current thresholds, a debtor earning $54,868 in 2016-17 will repay nothing. But someone earning $54,869 will repay nearly $2,200. So up to an income of about $57,000 HELP repayments mean the debtor takes home less money than if he or she earned $54,868.

Of course, in most cases the debtor’s long-term financial position is not worse as their HELP debt is reduced. In this sense, HELP repayments are different from the welfare benefit phase-outs that normally contribute to high effective marginal tax rates – for the debtor, that is money lost to consolidated revenue, rather than improving their personal balance sheet. But for people concerned with immediate cash flow more than their long-term financial position, HELP repayments can cause problems.

Research by Richard Highfield and Neil Warren shows that HELP debtors manipulate their taxable income to avoid or delay repayment. They also make the point that this is costly for income tax revenues, even if the HELP debt is eventually repaid. Read More »