General tax issues

Why we want to change the tax system and why we want to hear from you

It has happened almost without anyone quite noticing, but over the past few decades, governments have been gradually shifting the tax burden from top income earners to middle income earners and, particularly, to women. Plotted on a graph, the effective tax rates we now pay on income are no longer progressive. Instead they follow an upside down U-shaped curve, with - as you'd expect - lower rates applying to very low incomes but - rather surprisingly - also to very high incomes. This has had the effect of raising the amount of tax taken from those on middle incomes relative to the amount taken from those on very high incomes. Two-earner families have been especially hard hit.

Changes to the tax system are gradually shifting the overall tax burden to middle income earners and ordinary working families

Effective tax rates taking account of changes to the Low Income Tax Offset

This seems particularly unfair when you consider the enormous changes that have taken place in our workplaces and households over the same period of time.

Changes to family allowances have had an adverse impact on women

Four decades ago, most women - once they had married and had children - were not in the paid workforce, and so were contributing very little, if anything, to tax revenue. They also received family allowances to support them raising their children, even if they continued working.

Nowadays most women with children, while they may take time out while their children are small, are in the paid workforce either full or part-time. As a result of more women working and working for longer, the taxes they pay from the incomes they earn have hugely increased the total amount of tax revenue our governments are able to collect.

In other words, the increase in women's participation in the workforce has increased the tax pie for everyone.

Moreover, because family allowances, now in the form of Family Tax Benefit Part A, are withdrawn on family income, once women return to work and earn anything above a very low income, they begin to lose the money the government used to pay them to help them raise their children. This is one of the main reasons why second earners - almost 90% of whom are women - pay the highest average tax rates, even if they only earn very moderate incomes.

The tax system penalises women for having children whether they go to work or stay at home

So, women returning to the workforce have both increased the amount of tax governments can collect, and decreased the amount of family allowances, or family tax benefits, governments have to pay out to families.

It seems particularly unfair that women, and especially working married mothers, have not been allowed to benefit from the extra tax revenue their work has generated. Instead their usually modest second incomes are effectively much more highly taxed than the incomes of others.

Ordinary working families are paying for tax breaks for the rich

Indeed, it is interesting to ask where all the extra female generated revenue has gone, together with the savings from their loss of family tax benefits. It clearly has not gone to women, whether in the paid workforce or not, or even to their families. It rather looks like it has actually gone into supporting tax cuts and tax avoidance schemes for the wealthy.

We believe that women struggling to support families on low to average incomes should not be the people who are the most heavily penalized by the tax system. Given how much work mothers routinely do at home it seems particularly mean spirited to then take a disproportionate amount of tax from them when they go out to work.

Complex tax rules make it harder for everyone to understand inequities in the system

All this rather begs the question as to why this steady increase in the tax burden on middle income earners and women has attracted so little attention. One explanation is that the changes in tax rates and family benefits have been introduced through measures designed deliberately to make the system more complex, in order to hide the way tax imposts have shifted over time. That is why we, the NFAW, welcome the federal government's current wholesale review of the tax system being undertaken by Dr Ken Henry, Secretary of Treasury.

Now we have an opportunity to stop penalizing mum for all her hard work and actually treat her just like everyone else in the workforce, so that she pays no more or less than her fair share of tax.

NFAW wants a fairer tax system for Australian women

On behalf of women, what the NFAW, will be recommending to the Henry Review is an individually based, progressive personal income tax system combined with universal family allowances. It will be simple to understand, simple (and therefore more cost effective) to administer and, most importantly of all, fair and transparent to all.

In order to develop our submission we have commissioned Professor Patricia Apps from the University of Sydney. Professor Apps is an international expert on taxation systems and she is providing technical advice.