Working mothers on middle and low incomes have been helping to fund a series of tax cuts for Australia’s highest income earners, according to new research by one of the world’s leading tax experts.
The research, by Patricia Apps, Professor of Public Economics at the University of Sydney Law School, found that a complex and interacting system of personal income tax and family benefits means second earners in average wage two-income families (usually women) are paying much higher marginal tax rates than high income earners (usually men).
“In the early 1980s Australia had a highly progressive, individual based income tax and families received support for dependent children in the form of universal family allowances,” says Professor Apps.
“The introduction of income tests for child support payments based on family income (now called Family Tax Benefit Part A), together with changes in the personal income tax scale, now means the highest marginal rates apply to average incomes and the incomes of second earners.”
“This new income tax system has shifted the overall burden of taxation towards two-income families on low and average wages and to working married mothers. If a father of a family with two young children is on $40,000 and the mother goes out to work and earns around $20,000, she can lose over 40 per cent of her income in taxes and lost benefits,” Professor Apps said.
Professor Apps also said Australia’s current tax policy has been driven by the same ideology that led to the collapse of the international finance markets: “The belief that high income earners and the capital they control are highly mobile has led to tax reform aimed at reducing taxes at high income levels and shifting the tax burden lower down the income distribution.”
For reasons of fairness and efficiency, and to reduce complexity and increase the transparency of tax reform, Professor Apps proposes a return to a strongly progressive individual based income tax system, and universal family payments for dependent children.
“A government seriously concerned to reduce complexity would begin with a revenue neutral reform that combined a more progressive personal income tax rate scale, universal family tax benefits, and the elimination of the Low Income Tax Offset and the Medicare Levy. The government could also focus on raising additional revenue by reducing opportunities for tax avoidance at upper income levels, in order to avoid high PIT rates,” said Professor Apps.
“Governments have argued that means testing certain benefits is important on equity and budgetary grounds, but a tax system that gives a transfer and then withdraws it at so many cents in the dollar is equivalent to (and unnecessarily more complex than) a system with a given universal payment and a particular structure of marginal tax rates. What matters is not the ‘universality’ of the payment, but the actual value of the payment and the structure of marginal tax rates that is adopted.”
The research is outlined in the recent paper, Tax reform, targeting and tax burden on women, prepared by Professor Apps for the National Foundation for Australian Women for submission to the Review of Australia’s Future Tax System.
For more information visit the NFAW website www.nfaw.org.au
Source: University of Sydney