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Proposals for the introduction of some form of broad-based consumption tax are a continuing theme in Australian taxation policy debates. This paper discusses methods of compensating low income groups for the effects of such a tax on their standard of living. The paper discusses the compensation proposals put forward in the Draft White Paper (DWP) on Reform of the Australian Tax System in 1985, and also analyses data on low income groups released by the Australian Bureau of Statistics from the 1985-86 Income Distribution Survey. The paper discusses the scope of compensation proposals, the level at which they are to operate, their timing, and the processes used to effect compensation. The paper concludes that the mechanisms proposed in the DWP to protect low income social security recipients were generally adequate in form. There are considerable complexities involved in protecting other low income persons outside the social security system, however; this particularly relates to the level of compensation and whether it should be the individual, the family income unit, the household or some broader grouping. The adequacy of any compensation proposals will depend upon which level is judged to be appropriate, but it is likely that there will continue to be disagreement about these issues.