Income tax rules are seldom a topic of discussion around the dinner table, even though most Australian families are adversely affected by them.
This is because the Australian Tax Office takes pay-as-you-go (PAYG) tax instalments from your wage, with no consideration of whether or not a spouse and any number of children may also be depending upon it.
A separate government department then hands back money in the form of “family tax benefits” in a partial attempt to remedy this inbuilt unfairness.
Earlier this month, newly-elected Liberal National Party (LNP) Senator Matthew Canavan (Queensland) called upon the Abbott government to look into reforming personal taxation so that it treats the family, rather than the individual, as the basic unit of taxation.
Under our current system, a massive amount of tax-welfare “churning” occurs, through the process of levying taxes on people and then returning those taxes to the same people in the form of assorted cash payments.
This disempowers families, because their heavy tax burden means they increasingly look to government for income support just to get by. Sometimes they even feel they are entitled to such support.
News Weekly readers may recall when Malcolm Fraser came close to introducing a form of family tax relief known as income-splitting or family-based taxation. Under the scheme, single-breadwinner two-parent households, by splitting their incomes for tax purposes, can reduce their tax bill and enjoy two tax-free thresholds (as has long been enjoyed by wealthier dual-income families).
The Fraser government’s proposed reform, however, suffered last-minute sabotage from a powerful feminist network, the Women’s Electoral Lobby (WEL).
Marian Sawer, in her book, Sisters in Suits: Women and Public Policy in Australia (Sydney: Allen & Unwin, 1990), claimed it was the greatest unsung victory of the feminist movement, and is documented alongside many other WEL achievements.
Senator Canavan has suggested that, once Joe Hockey succeeds in returning the federal Budget to surplus, he should introduce some form of family taxation. He has cited several countries whose income tax rules recognise dependants, such as the United States, Germany, France, Poland, Norway, Switzerland, the Czech Republic, Ireland, Spain, Portugal and Luxembourg.
In a speech in the Senate earlier this month, Senator Canavan said: “Our tax system right now actively encourages — indeed subsidises — mums and dads to go to work and let someone else look after their children.
“We have this the wrong way around. If anything, we should be encouraging mothers and fathers to spend more time with their children not less.”
Australia, he said, has one of the most “hostile tax systems in the world” for single-income families. A single-income family earning $120,000 pays $10,000 a year more than a double-income family earning the same amount (Senate: Hansard, September 3, 2014).
The cost of introducing family-based taxation could come from a reduction, or elimination, of the family tax benefit (FTB) payments. Once we provide tax relief to wage- and salary-earners, according to the number of their family dependants, the need for FTB payments diminishes or disappears. (There are, however, some important exemptions required for single parents).
A measured way to phase in family taxation would be, in the initial stage, to introduce limited income-splitting, say, up to an amount of $40,000 per couple.
Mothers and paid work
While income tax inequality between single-income and dual-income two-parent families is a significant issue, another glaring example of inequality is the ever-increasing amount of childcare-related payments (including paid parental leave) given to families on two full-time incomes.
This leaves families which choose home-based parental-care — still the most popular choice — with far less assistance than families that outsource the care to “approved” providers.
The wishes of unwaged at-home mothers are seldom heeded by government policy-makers.
By contrast, the wishes of powerful and vocal interest groups, such as superannuation firms and childcare-providers, which lobby for more government assistance for institutionalised childcare, receive favourable and widespread publicity and are supported by government departments and instrumentalities, such as the Treasury and the Australian Productivity Commission.
But the Australian Institute of Family Studies has published a report, Employment Characteristics and Transitions of Mothers in the Longitudinal Study of Australian Children (Australian Government, 2013), that provides conclusive data to debunk several strongly-held childcare myths widely believed by the major political parties, the Treasury, the childcare industry lobbyist and many others.
A graph, entitled “non-employed mothers’ reasons for not working by age of youngest child”, shows that the top reason given for mothers not being in paid work is “preference/too busy with family”, which is over 80 per cent until the youngest is five, and remains above 57 per cent until the youngest is 11.
The reason “would lose benefits” ranks lowest and ebbs below the 3 to 4 per cent mark. When the youngest is over five, “no suitable jobs” is the most common answer after “too busy with family”. “Other” gets up to 37 per cent when the youngest is 11, but “no suitable child-care” and “childcare costs” remain very low-ranking reasons throughout.
The graph shows that stay-at-home mothers overwhelmingly choose to be unpaid primary carers; that they are “too busy” in unpaid work to do paid work, and this is not due to a lack of subsidised child-care.
Therefore, the enormous government cash handouts earmarked for childcare subsidies and paid parental leave (the combined cost of which is estimated to soar to $21 billion within nine years, and expected to grow at 11 per cent each year) will only marginally increase mothers’ participation in paid employment, because the situation has clearly reached saturation point.
This is admitted even by opponents of home-based parental care such as leading Australian feminist Anne Summers. In her book, The Misogyny Factor (Sydney: NewSouth Publishing, 2013), she acknowledges that increases in childcare funding have not resulted in reciprocal increases in the uptake of childcare services.
There is a puzzling paradox here. We trust women to be able to pursue careers in law, medicine, merchant banking or other professional fields; yet official government policy does not trust women to be mothers.
It is self-evident that the family truly operates as the basic economic unit in society. The family naturally organises supplies, manages assets, coordinates paid and unpaid labour, care-giving, education, special interests, exercise, nutrition and accommodation. Governments, instead of ignoring this, should embrace it and support the family in tax law by affirming its existence, assisting it to be self-sufficient and reducing its need for explicit government support.
In fact, until your wage or salary is taxed after consideration has been given to how many family members are depending on it, you are victim to economic individualism and can rightfully claim that the government is literally stealing bread off the family table.
Luke McCormack is Queensland president of the National Civic Council.