Level the Tax Field for Single Income Families

We are continually told that more mothers must work. The intergenerational report states that "Australia's female participation rates remain lower than some other advanced economies such as Canada and New Zealand, and more can be done to encourage women to enter and stay in the workforce."

When we hear this, we scratch our heads. One of us has been a proud stay-at-home mum, and the rest have wives who have been stay-at-home mums at some point. All stay-at-home mums work pretty damn hard, thank you very much.

Much is made of the higher rates of female workforce participation in New Zealand and Canada but when you look deeper, Australia's performance is not as dire as made out. For young women (below the age of 25), Australia has a higher rate of female workforce participation than Canada or New Zealand.

Above that age, Canada's female participation rate jumps higher – although that has probably got more to do with Canada's lower birth rate of 1.6 babies per woman, compared to more than 1.9 in Australia and New Zealand. As for New Zealand, its female participation rate only rises higher than Australia's for women above the age of 45, and its overall rate of female workforce participation is not that much higher anyway.

In any case, all of these comparisons are undermined by statistical quirks that disadvantage Australia. In Canada and New Zealand (and other OECD countries) women on paid or unpaid maternity leave are counted as employed, they are not in Australia.

Comparisons between Australia and other countries then, especially for women of child-rearing age, are flawed.

That is not to say there are not some issues in Australia. We do have much lower female workforce participation for families with children between 3 and 5 years old, and for single parent families. Greater investments in early childhood education could assist here.

Value overlooked

Yet in the rush to focus on paid work we overlook the value of the unpaid work that the around one million stay-at-home Mums and Dads perform. These parents form the little platoons in our communities that often chair parents and citizens' associations, coach sporting teams and help teachers in class. Their work may not be captured in economic statistics but the merit in what they do is too important to be reduced to mere numbers anyway.

Our tax and welfare system is biased against single income families. The OECD finds that we have the fifth most unattractive tax system for single income families. Two parents on an average income (of $60,000) pay $10,000 a year less net tax (after family benefits), than a single income family with the same household income of $120,000. How can it possibly be fair to have a tax and family benefits system that delivers a $10,000 a year difference between two families with the same pre-tax income?

This unfairness results because we have a very high tax-free threshold of $18,200. Double income families get this twice and don't pay tax until their income is above $36,400. Single income families start paying tax much sooner, after earning $18,200.

Why shouldn't all families with children benefit from two tax-free thresholds so there is a level playing field among all? More than half of OECD countries have some form of income splitting or income sharing arrangements for parents. We don't, but giving all families the ability to share their tax free threshold with their partners would rectify that.

Less than current childcare expenditure

The Parliamentary Budget Office estimates that such a policy would cost $1.5 billion per year. A lot of money in the current situation but a much lower amount than the $7 billion a year we already spend on childcare. Any tax-free threshold sharing policy could be made cheaper by applying means testing, or restricting it to families with children of a young age – where the benefits of stay-at-home parenting are greatest.

Most importantly, such a system would give due recognition to the work that stay-at-home Mums and Dads do. Such a policy would not fully remove the tax that is placed on the stay-at-home decision, but it would provide some relief and confirmation that our jobs as Mums and Dads are the most important jobs we will ever have.

Written by National Party Senators Matthew Canavan, John Williams, Bridget McKenzie and Barry O'Sullivan

Originally published in the Australian Financial Review 7 April 2015

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