SMH - Mothers on low wages pay the most tax, says economist

[dibo]

From the SMH

Mothers on low wages pay the most tax, says economist
Stephanie Peatling and Yuko Narushima
June 5, 2009

AUSTRALIA has a sexist tax system that in effect forces higher taxes on working mothers to pay for tax breaks given to the top earners, research suggests.

Modelling by the economist Patricia Apps shows women earning low and middle wages are paying the most tax per dollar of income earned because of the complicated interaction between income tax and family payments.

"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," Professor Apps said.

"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."

The professor of public economics of the University of Sydney will meet the head of the Treasury, Ken Henry, today to discuss her modelling.

Professor Apps said the tax and payments system was so discriminatory that "the puzzle is why so many women work".

Mortgage repayments and wanting to maintain skills were the two reasons most often given when she interviewed women.

Professor Apps's modelling shows the combination of the income tax rates with the low income tax offset, family payments and the Medicare levy places a high tax burden on mothers who work part time.

For example, a woman working part time and earning $14,001 to $22,995 pays 56.5 cents tax for every dollar she earns, or 8.5 cents per dollar less than the top marginal rate of 45 cents.

This applies to the tens of thousands of families similar to those the Federal Government likes to use as its average family - a policeman married to a nurse or teacher with two children.

Professor Apps's work was commissioned by the National Foundation of Australian Women. She says the Government should make family payments universal and tax high-income earners at a higher rate.

Josie Byrne, a nurse, works three days a week to make the difference between a "mince and sausage" diet and going out once a month. She earns barely more than the cost of child care for her two children. Her income of $50,000 is about half of that of her husband but she pays a higher rate of tax. "It's another deterrent for women to work," she said.

 

[Capn Gus Bloodbeard]

What about if it was the father who worked part time and the mother who worked full time?  Wouldn't it be the same deal?

 

[dibo]

What about if it was the father who worked part time and the mother who worked full time?  Wouldn't it be the same deal?

you're right, but i think the point is that that's a very rare occurence.

what's happened is that to pay for giving hundreds of bucks a week to millionaires, we've left a system that between the withdrawal of family payments and income tax leaves a massive effective marginal tax rate.

56.5%! if the editorial staff of the australian were paying that it would be changed in the very next budget, but instead they focus on tax cuts for those who can only be described as the well off.

 

[FFC Mariner]

I wonder if this is an idealogical hangover from Reagonomics and the "trickle down" theory? I hope not.

It seems common sense that if you relieve the % tax burden on the lower paid, they spend it (and generate activity) and the work/benefits equation is tilted towards working

You would think that a Labour govt..............

 

[dibo]

I wonder if this is an idealogical hangover from Reagonomics and the "trickle down" theory? I hope not.

It seems common sense that if you relieve the % tax burden on the lower paid, they spend it (and generate activity) and the work/benefits equation is tilted towards working

You would think that a Labour govt..............

the government's got the 'henry review' of the tax system going, it's reviewing benefits as well. they've got an interim report out which i would have read were it not for exams. i would be surprised if there isn't some sort of big bang reform package that comes out of it that the ALP takes either to the next budget or to the next election. think of it as this government's big microeconomic reform.

there are some pretty serious imbalances in the system through the tax/welfare interactions and they have nasty side-effects like those mentioned above, they can be ironed out but it's going to take a 'crash through or crash' effort to do it. wayne swan and lindsay tanner have the opportunity to put themselves into the history books.

if they get it right, we'll get another boost to the participation rate just as the economy pulls up hard. with a big enough participation boost and the dividends from skills and education adding up we might be able to sustain 4% for a few years - in a fully industrialised economy that's stunning.

 

[FFC Mariner]

I'd be inclined to back Tanner to drive through reform. Swann..............oxygen thief

 

[dibo]

you know tanner would have signed off on all expenditure and tax measures since the election too, right? :

 

[FFC Mariner]

He would do what he's told as he's not one of the ruling Troika

Julia as PM with Tanner as treasurer.......