Election 2022 is over, yet we’re still decades overdue for essential tax reform for families.
The Australian Catholic Council for Employment Relations recently called for the national minimum wage to be increased 6.5 per cent, given that a minimum wage dependent single-earner two-parent family of four now lives 18 per cent below the poverty line.
There are 4.2 million children under 14 years in Australia, with 82 per cent living in couple families (the vast majority in biological intact families), and 18 per cent in single parent families.
It is a firm principle of Catholic Social Teachings that the economy exists to serve families. This means a just and equitable economic system should provide a “family wage” that allows a couple to marry knowing they can live comfortably, buy a home, educate their children, cover their health costs and save for retirement, all on one bread winners income.
Yet for decades, the thrust of federal and state policies has been to limit assistance to families, effectively coercing women with dependent children into the paid workforce, while offering the carrot of state subsidised, institutional childcare in place of home care.
This is poor economics. It lowers national productivity (most part-time work has low output per worker) and means more state subsidies are required for work that was once done voluntarily (families with dependent children do the bulk of voluntary work in Australia).
Calls for family-based taxation
This one sized policy to fit all families, ignores the ground-breaking research twenty years ago by British sociologist, Catherine Hakim, who found that families varied widely from those where mothers wanted to return to full-time work after the birth of a child, to those who want to work only part-time to those who wanted to be full-time carers for their children.
So how can the economy be reset to focus on giving families choice?
First, introduced optional family-based taxation (FBT), or income-splitting. This income sharing arrangement allows a person to share their higher income with their lower/zero income spouse before tax, lowering the family’s tax burden. By leaving more income with the family, FBT gives families greater “choice” as to how they structure work commitments and family responsibilities, rather than just assuming that all families will want to have both parents in paid work with their dependent children in institutional childcare.
Recently, the National Civic Council conducted federal election polling which showed that 70 per cent of Australians supported FBT, including 75 per cent of married and de factos and 73 per cent of blue collar workers. Indeed, 86 per cent regarded financial stress as a catalyst for separation or divorce.
FBT recognises the great difference between a single person with no dependents and families where a main income earner is providing for a spouse, children and other dependents.
It resolves the anomaly whereby the family is the basis for family payments while the individual is the basis of taxation, regardless of how many dependents rely on an individual’s income.
It avoids “churning”, that is, taxing spouse only to make payments back to their family. This reduces overall family income by needlessly wasting resources on government bureaucracy.
Lessons from overseas
Many modern economies have optional, family-based taxation, including the United States, France (where total family income can be split between all members of the family), Germany, Belgium, Greece, Luxembourg, Portugal, Switzerland, Iceland, Ireland, Norway, Poland, Spain, Estonia, and the Netherlands.
Second, replace the current complicated family tax benefit payment schemes with a single lump-sum payment per child.
All existing family allowances, childcare subsidies, maternity allowances and other concessions for children in the current tax transfer system, should be replaced with a uniform, non-means-tested annual taxation concession, such as a tax credit or a cash allowance. If the payment is uniform, every family will receive the same monetary value per child.
As with FBT, the most compelling argument for this single payment is avoid fiscal churning – spending tax revenues from someone to provide income and government funded services ‘back’ to that same person.
Looking to the future
Making families jump through many hoops to gain an array of payments encourages a welfare mind-set that lowers self-esteem and individual responsibility and encourages political rent-seeking.
Third, extend the concessions give for superannuation contributions to allow people to save for buying a house, educating their children, while incentivising more people to take on their own health insurance.
Fourth, allow people to have tax free savings accounts up to about $250,000.
The family wage is not just so families can live as they please, it is to help them provide their own welfare safety net, making them as independent as possible of the welfare state.