Australia has one of the most hostile tax systems in the world for single-income families. Double-income families have access to two tax-free thresholds whereas single-income households, by definition, have access to only one.
Senator Matt Canavan
A single-income household (with income of $120,000) pays about $10,000 more tax than does a double-income family with the same joint income of $120,000.
So two families, earning the same income and making the same contribution to the economy, are treated markedly differently under Australia’s taxation rules. This violates the key tax principle of horizontal
equity, that people with similar ways and means should pay similar amounts of tax.
And the current budget offers no redress. The government’s promised “families package” comprises a revamping of subsidies for commercial child care which will cost $657 million in 2015-16 but is planned to increase that to $813 million by 2018-19. Overall, there will be a $327 million increase in funding over four years.
And this new commercial “child-care package” is to be funded, in part, from cuts to Family Tax Benefits amounting to around $5 billion over four years. FTBs (along with the baby bonus, which has already been reduced and frozen) are the only government financial support for single-income families.
The Government wants to cut off Family Tax Benefit Part B when a family’s youngest child turns six. About
60 per cent of families with children under 16 receive the payment. These cuts are estimated to save $1.9 billion over five years. Further, the income threshold for FTB-B is to be lowered to $100,000, down from the present $150,000.
All FTBs are to be frozen for two years, which is estimated to save the Government $2.6 billion over four years.
These measures, which were introduced in last year’s budget, stalled before the Senate, with Labor opposing them as unfair.
Labor families spokeswoman Jenny Macklin said about these measures: “You can’t say to a family on $65,000 with two children that you’re going to take $6,000 off them. That is the real money impact of what this Government wants to do to families. It is not fair and Labor will oppose it.
“I would say to the Government, they found money for other things in this budget, they can find money for vulnerable children without holding families, low and middle-income families, to ransom.”
There are massive societal and child-development benefits from having a mum or dad stay at home to look after their young children. Why are huge taxpayer subsidies for commercial child care seen as what families need?
No simpler, no fairer
And the new system will not be any simpler than the present one. A $409 million Inclusion Support Program will provide more funding to mainstream child-care centres for staff and equipment for special needs children.
A $156 million Additional Child Care Subsidy will top up subsidies for child care to assist children at risk of serious abuse or neglect, irrespective of family income. Support will be provided for six weeks and then in 13-week blocks afterwards. It will also help families at financial risk and those in which the parent or parents are moving from welfare to work.
And, a $304 million Community Child Care Fund will help the geographically disadvantaged, such as remote indigenous communities. Assessing eligibility for payments under the different elements of the package will be as complicated as under the present child-care payments system.
Around a million Australian families rely on one parent for most of their income, according to the Parliamentary Budget Office. The budget child-care measures announced at the time of writing do nothing for these families.
These families are further discriminated against under the current tax system because they don’t benefit from access to two tax-free thresholds.
Some form of income splitting would restore equity between double-income and single-income families. Eighteen OECD countries, that is, about half, including France, Germany, Ireland, Luxembourg, Norway, Poland, Portugal, Spain and Switzerland, have some form of income splitting, as does the U.S.
It is not as though income splitting is unknown under the present tax system. It can be achieved for those who have sufficient income to make investments or buy rental premises. The income on the investment is treated as earned by the person in whose name the account into which it is paid is held. The account can be held by the lower or no-income earner to minimise tax. Why cannot similar allowance be made for single-income earners with dependent family, whose income is not such that they can make investments or buy rental premises, to split their income with a lower or no-income-earning spouse?
This year’s Intergenerational Report gives emphasis to boosting workforce participation. But work is not an end in itself. We work to live. Yet our tax system effectively punishes couples who choose to do their own child care by treating the individual income earner, and not the family, as the unit of taxation.
As Senator Matt Canavan asks: “Why are we designing a system that pays someone to look after another person’s kids but won’t support a parent to look after their own?”
Terri M. Kelleher is Victorian state president of the Australian Family Association.