There is an enormous disconnect at the heart of Australian society that is rarely acknowledged by Australia’s established political, bureaucratic, business and community leaders.
This disconnect is between the fundamental importance of the family as the foundation of society, and our tax system, which is based on recognising the economic contribution of individuals, not families.
This is no surprise, especially after the last four decades, when extreme individual autonomy has been central to social and health-policy advocacy and change (the sexual revolution, divorce, abortion, euthanasia, and transgenderism).
The focus on the individual has also been central to economic policy, where radical pro-competition, deregulatory industry and trade policies have been implemented with the aim of delivering individual consumers lower prices for goods and services, at the expense of the profitability of domestic businesses – especially primary producers, local manufacturers and service providers – thus harming their ability to grow without exporting employment to lower-wage countries wherever possible.
Blindness to essential role of families
This focus on the individual has meant that the politicians and the bureaucrats who design the tax system, and the business and community leaders who lobby to shape it for their benefit, are profoundly blind to the need for the tax system to recognise and support the central role of families to a healthy and sustainable society – to conceive and assume responsibility for rearing future generations.
The system is blind to the reality that in most instances it is profoundly beneficial for social cohesion and stability that children be reared and educated in the vital pre-school years by their own parents, and not by child-care businesses.
The system is blind to the reality that, for one spouse to be a full-time parent during a child’s pre-school years, and possibly a part-time parent and worker during the school years, the family needs to be treated as a single economic body for taxation purposes, not as an arbitrary grouping of individually taxed persons.
As Alan Kohler pointed out earlier this year in The Australian: “maybe there’s a case for averaging taxation across family members, especially in family businesses, but that’s not the way it (the income tax system) works.”
Reforming the tax system to recognise families with dependents as a single economic body would bring the tax system into line with the reality of how Australian society is actually structured, and would encourage social “buy-in” to a stable, secure and economically vibrant country.
At the time of the 2011 census, 73 per cent of all Australian households comprised families, or 5.68 million out of 7.8 million households. Furthermore, just under 90 per cent of these were intact biological families, as opposed to blended families (which include children from the current and at least one of preceding marriages) or step families (which include children of at least one of preceding marriages).
Moreover, the dominance of intact biological families was little changed over the preceding two decades, conclusively proving its undisputed role as the source of Australia’s social stability and cohesion.
Instead of appropriately acknowledging this important role by recognising the family as a single economic body, the tax system has treated families over decades as welfare clients, the recipients of various endowments, offsets and family tax benefits paid for out of the largesse of individual taxpayers.
However, as we saw during the federal budget season earlier this year, this largesse is being wound back in favour of increased child-care subsidies, which serve not only to prioritise the individual over the family, but also to nudge both parents into the workforce during their children’s pre-school and school years.
In contrast, serious consideration needs to be given to adopting an optional, family-based taxation system, also known as “income splitting”. This would involve pooling family income for taxation purposes, with each family unit submitting a single tax return.
As late Monash University scholar Stephen Smith pointed out, similar policies already exist in numerous OECD nations, including the United States, France, Germany, Belgium, Greece, Luxembourg, Portugal, Switzerland, Iceland, Ireland, Norway, Poland, Spain and the Netherlands. The rationale in each country was the same: the household, not the individual, is the basic economic unit of society, so the family should be treated as a single unit for taxation purposes.
Such a system would allow families on low to middle incomes to choose to have one parent stay home to rear their children while the other works, without any diminution to the family’s lifestyle due to Australia’s high costs of living and rates of personal taxation.
Furthermore, as Smith highlighted, such an approach offers numerous other benefits, not only to families but to society more broadly:
- It would eliminate the association in the current family tax benefit and other payments with welfare.
- It would require reform of the means-testing in the current tax system, which while designed to alleviate poverty may actually entrench poverty, particularly at low-income levels, where the system penalises low-income earners from earning extra income.
- It would simplify the complexity of the current family tax benefit and other payments system, whose complexity imposes a burden for many taxpayers, especially those with limited English language skills or poor numeracy.
- It would reduce the “churning” of taxes which are collected and held by Government, only to then be “handed back” in the form of family tax benefit and other payments or government services. As Smith argued: “the main problems with churning are that it is associated with the development of a welfare mind-set that lowers self-esteem and individual responsibility and encourages political rent-seeking.”
The proposal is for a family-based taxation system that is voluntary, “opt-in” choice for families. It would not be accessible to families that already enjoy a form of income-splitting through the use of discretionary family trusts.
Most importantly, giving families on low to middle incomes a better and fairer tax deal would ensure the benefits of future economic growth are spread widely throughout every level of society now and in the future, and not concentrated in the hands of those who are already well off and able to manage the costs and complexity of discretionary family trusts.
 Alan Kohler, “Family trusts run deep”, The Australian, July 31, 2017.
 Lixia Qu, Weston, Ruth, Australian households and families, Canberra, Australian Institute of Family Studies, July 2013; Australian families with children and adolescents, Canberra: Australian Institute of Family Studies, July 2013.
 Qu, Weston, 2013.
 Qu, Weston, 2013.
 Stephen Smith, “Restore the family wage by simplifying the tax system”, The Conversation, March 25, 2013.
 Smith, 2013.
 Smith, 2013.