Tax Fairness for Single Income Families

I want to talk today about tax policy and families. In the last few months, the Prime Minister has indicated that the government will focus on developing a policy for a fairer go for families in 2015, and I welcome that focus because one of our core objectives should always be to support families and make it as easy as possible for people to have kids.

I know—and I presume a lot of others would be in the same boat—that having children is the best thing that ever happened to me. The more barriers we can remove to people having children, the better, I think. One of those barriers at the moment is of course the cost of child care and there should, rightly, be a strong focus on that. Childcare fees, as most in this chamber would know, have risen considerably in the last few years. In The Australian on the weekend, there was a big write-up about childcare fees, and apparently they have risen by around 50 per cent since 2007. So it is a substantial increase and a large barrier for many families to having more children.

I do note that, despite those costs, we already spend $7 billion a year to help families access early childhood education or child care in the preschool years of children's lives. In a recent draft report, the Productivity Commission did make some recommendations to adjust or change that system; but, even with their adjustments, which according to the PC would cost about an additional billion dollars a year, it would only encourage an additional 47,000 mothers or fathers to enter the workforce. In other words, it would cost us around $20,000 per extra person in a job. In my view, such a high cost would be wasteful if the objective were solely to encourage more women or men into the workforce. Of course, funding for child care and early childhood education have broader objectives as well, and additional funding may be merited if we want to particularly focus on that early childhood education element.

But today I mainly want to talk about another form of child care, a form of child care that is often ignored, and that is the child care provided by stay-at-home parents. While childcare costs, as we know, are increasing, few recognise the fact that stay-at-home parenting is the most costly form of child care. It is a burden when two-income families today must pay 60 per cent or even more of their second incomes to put their child in child care, and I recognise that. But, by definition, a single-income family gives up 100 per cent of their second income to stay at home to look after their child.

Our tax system does not recognise these costs—or not as much as other countries do. Unlike many other developed countries, our tax system provides little recognition of the higher tax rates paid by single-income families. Currently, half of all OECD countries treat spouses separately for tax purposes or have joint taxation or some joint elements that provide tax relief and tax credits that are transferable between partners. We do not in our system, not at all. In our tax system, single-income families are the heavy lifters, because a disproportionate burden falls on them.

A single-income household with two kids, with an income of $120,000 from the one earner, pays tax of $34,700 currently. In contrast, a double-income household where each parent is earning $60,000 pays tax of $24,200 a year in our tax system. That is a difference of $10,500 per year, every year, between a single-income family and a double-income family. These two families have the same number of kids, the same household income and essentially the same cost-of-living pressures, yet the single-income family contributes $10,500 more every year to fund government services. The disparity carries right through all income levels. With a household income of $100,000, a single-income family pays $26,900 in tax, while a dual-income family pays only $17,000. With an income of $80,000, a single-income family pays $19,100 in tax—these are all with two children—whereas a dual-income family pays just $9,800 in tax. That is unfair. That is unfair because it breaches a basic tenet of horizontal equity which all tax systems should aspire to, and that basic principle is that people in similar circumstances should pay similar rates of tax. The two families I have mentioned here are in very similar circumstances but pay vastly different rates of tax. In my view, a fairer families policy needs to at least respond to this inequity. I have mentioned some of these figures before in the Senate but I wanted to restate them because the government is developing this policy.

I want to mention something additional, though, today, because I think another consideration in the development of that policy is that things have got worse for single-income families in the past few years rather than better. And when you think about those disparities in tax that I mentioned earlier, one of the key reasons for those disparities is the fact that a single-income family has access to just one tax-free threshold whereas a double-income family gets access to two tax-free thresholds, by merit of two people working. Until a few years ago, Australia had a tax-free threshold of only $6,000, so the disparity in that regard was not all that great. But a few years ago, when the former Labor government introduced the carbon tax, they increased the tax-free threshold substantially. It went up from $6,000 to $18,200, and in July this year it will rise again, to $19,400. The new government has kept those thresholds that high. That means that by the next financial year a double-income family can earn $38,400 a year before they pay any tax, whereas a single-income family will start paying tax after earning just $19,400.

This change has widened the gap between double-income and single-income families. And you can actually quantify that, because if we instead apply the old tax scales we had before 2012, before the carbon tax to people's income today—and I use that $120,000 family that I used initially—then the gap between the single-income family and the dual-income family would be $1,300 less. So, changing these thresholds, increasing them, is a move that this government supports. It has made the disparity between single-income and dual-income families $1,300 a year higher in the case of the $120,000 family. And of course that goes through all the income scales I mentioned before, and it is about $1,000 difference for most families by increasing the tax-free threshold.

And I think we should deal with this disparity, not make it worse. On this side of the chamber, we are the party of choice. We want people to be able to make their own choices in life about how they want to have a go in life. We want to support people who want to have a go, who want to have a family and start a business, who want to go out and develop new skills and go into new industry. We should promote that choice, not discriminate against it. But at the moment our tax system does discriminate against families who want to make the choice of stay-at-home parenting. And I do want to ask the question: what exactly is wrong with choosing to stay at home and look after your own children? To me, it is the most important job anyone can do, to look after their own children and have them develop. I do not spend enough time with my children—I recognise that—but I am lucky to have a wife who is happy to stay home and spend time with them. Regardless of what we do in our own lives, it is the most important thing we can do. Stay-at-home parenting does not necessarily reduce the amount of work done in the economy, either. That is often a basic error, because while more child care and more paid work lifts GDP, it does not necessarily change the amount of work done. Particularly if people just employ nannies, it just changes the mix of work, and whether it is paid or unpaid. A basic problem with economics is that GDP does not measure all the things that go on in our economy, but sometimes in this place we focus on it far too much.

There is also ample evidence that stay-at-home parenting improves child development outcomes, and the Productivity Commission mentioned those considerably in its paid parental leave report. And we spend billions of dollars on schools every year, sometimes on things that do not have a lot of evidence at all, particularly IT at schools. But we do not seem to want to spend any money on something that has clear evidence, and that is that stay-at-home parenting does deliver benefits.

But even with all the discrimination I have mentioned today, even with the tax system being so far against single-income families, there is still the fact that a third of families with children today rely on just one income, and more than 40 per cent of families rely on one person for more than 90 per cent of their income. We cannot have a fair families policy if we ignore a full 40 per cent of families and the inequitable burden that is currently placed on them.

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