Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.


 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate

Subscribe!
Subscribe





On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.
___________

Syndicate
RSS/XML


RSS 2.0

Family-friendly policies make for higher fertility rates

By Patricia Apps - posted Sunday, 15 September 2002


Husband and wife enter implicit contracts as to how earning income, housework and child rearing are divided between them, to derive a desired level of consumption and savings. Housework produces an output which is traded within the household. Much of this output can be substituted by purchases from the market sector: childcare, takeaway meals, home decorating services, cleaners.

The traditional family lobby often argues theoretical cases where the well paid professional couple each earn equal incomes alternating working two and a half days a week. Perusal of ABS's Income Distribution and Time Use data show that the number of such arrangements is negligible.

Very few married women earn as much from an hour's ordinary time work as their husband earn from an hour's overtime, or the promotion which comes from working extra hours in managerial and professional occupations, even after tax. (Only in the lowest quintile of family income distributions where women are the main or sole breadwinners do wives' incomes exceed their husbands in any meaningful numbers.) Thus, there is already a bias in favour of men working longer or taking second jobs - where travel between jobs is tax deductible, unlike travel to work for the second earner - and women working less.

Advertisement

Income tax (and the goods and services tax) distorts these decisions on a highly selective basis. Production in the household is not taxed. When a wife goes out to work her wages are taxed, and if she then uses the net income to purchase substitute services, say takeaway food, the price she pays incorporates GST and tax paid on the wages of the employees who produce it. A perhaps unintended consequence is to discourage specialisation of labour and reduce GDP growth.

However, it is with the Howard government's Family Tax Benefit and Baby Bonus that the real disincentive effects arise, especially for low-income earners. For example, a family with a husband earning $30,000 and a wife earning $26,000, both in full time work, has a second child.

If the wife returns to work the family will lose almost $8,000 of family benefits which, together with the wife's own tax and Medicare levy of $4,600 results in an effective average tax rate of 48 per cent on her income, higher than the highest income earner. Howard's "choice" for women is rather like Hobson's: you can stay home and receive large amounts of taxpayers' money, or you can go out to work and receive very little after tax and loss of benefits for all the extra effort.

This rather absurd situation results from the tight targeting of family payments by means testing on both the wife's and total family income. Australia is almost unique in this approach to family assistance. Britain is starting to move down this path, prompting this comment, as reported in The Economist, from an OECD researcher: "For women with children there are quite high costs for every extra hour of work, and you're giving them an incentive to work less." He could have added: "and to have fewer children."

In our earlier example of the two couples on joint incomes of $60,000 per year, the reality is that they are far from "equal". Australia, unlike most countries, does not run a separate contributory social insurance system. Social security was merged into the tax system half a century ago, so income tax now substitutes for separate contributions.

Actuarially, two-earner couples are much less likely than single-earner couples or single taxpayers to be able to claim social security unemployment or sickness benefits or family tax benefits, or indeed separate single rate age pensions. This occurs because of means testing on the joint incomes of couples.

Advertisement

Other countries recognise this through lower contribution rates for the second earner in a couple, or, as in America, pay unemployment benefits to anyone who loses a job. In Australia, a working married woman (and her husband) pay the same rates of tax as any of the individuals in the following households: mother and adult son, father and adult daughter, two spinsters, gay or lesbian couples in committed relationships, or a group of young men or women sharing. All of them benefit from the economies of shared households yet none of them is denied eligibility or offered reduced benefits based on the income status of other household members. And you never hear the traditional family lobby arguing that they should.

This principal has been extended into other government services funded out of taxes, such as the Jobs Network. When the scheme was set up, the then minister, David Kemp, attempted to deny the service to anyone who was not in receipt of unemployment benefits, which would have excluded any unemployed person with a working spouse.

After complaints, service providers can now allow them access to job information, but they still have a substantial financial incentive to hold jobs back for benefit recipients. Other perverse incentives remain. The TV programme, A Current Affair, reported the case of a long-term unemployed man who could not access Jobs Network assistance because his wife was working. She gave up her job and became a welfare recipient herself so that his needs could be met.

  1. Pages:
  2. 1
  3. Page 2
  4. 3
  5. All


Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

Share this:
reddit this reddit thisbookmark with del.icio.us Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Patricia Apps is a Professor in the Faculty of Law, at The University of Sydney. Her areas of specialisation include the analysis of tax policy, welfare programs, and pensions.

Related Links
Commonwealth Office of the Status of Women
Patricia Apps's home page
University of Sydney
Photo of Patricia Apps
Article Tools
Comment Comments
Print Printable version
Subscribe Subscribe
Email Email a friend
Advertisement

About Us Search Discuss Feedback Legals Privacy