New research showing four in 10 families receive more in government handouts than they pay in tax highlights the need for reform, the Taxation Institute says.
Taxation Institute of Australia senior counsel Dr Michael Dirkis said this made a mockery of marginal tax rates.
"Because ultimately, depending upon your age, your family circumstances, you're going to either end up paying no tax or rates that on an average basis are quite low," he told ABC Radio.
News Limited published details of research by the Melbourne Institute of Applied Economic and Social Research which shows a record 4.113 million families receiving more in handouts than they pay in tax - a rise of 276,000 over the past four years.
That accounts for 42.2 per cent of all taxpayers. Yet others just outside the tax free zone are paying more tax as they move from the 30 cent to the 40 cent in the dollar tax bracket.
A spokesman for Treasurer Wayne Swan said the government's tax review was on the way.
Mr Swan said he had fought for years for tax relief which provided incentives and reward for low and middle income earners.
"So we're proud to have delivered on that front in the budget with all the workforce participation benefits this carries with it," he told News Limited.
