This paper investigates how the tax-transfer system replaces lost income after job loss. It uses e61’s tax calculator to estimate the lost income replaced by benefit payments and lower taxes paid following job loss (the income replacement rate).

Using this approach, the paper also explores what will happen to replacement rates if payment rates were changed. A $114 increase in the base JobSeeker payment (approximately a 29% increase for a single person without children) would double the proportion of eligible full-time employed individuals who would have over half their earnings replaced following job loss (from 18% to 36%).

Key findings

• An eligible full-time worker typically retains about one-third of their previous take-home pay after job loss (a 36% replacement rate).
• Although JobSeeker is a flat rate payment, differences in payments received are more important for explaining why replacement rates vary than differences in prior earnings.
• A high replacement rate does not imply that income is above a poverty line – those eligible with low prior labour earnings would experience high income replacement rates but may still fall below a poverty line.