$1 an hour - how working mums get dudded on tax

A young professional woman who has left work to have children is penalised heavily when seeking to resume her career. Her contemporary male co-workers whiz past her, gaining promotions while she is at home. And when she returns she faces punitive government-imposed disincentives to work beyond three days per week, further impeding her prospects for promotion. Australia couldn’t have designed a more inequitable tax and transfer system for working mothers if we tried. 

After decades of discussing women’s work rights, our underlying value system remains than blokes should have careers while the primary role of women is to look after the kids.

Australia’s tax and transfer system for working couples comprises a progressive income tax system based on individual incomes, combined with a family tax benefit system and a childcare subsidy based on the combined incomes of mother and father.

Notwithstanding the increasing availability of paid parental leave, when a professional woman in the public or private sectors takes time off to have babies the common household arrangement is that she will be the primary caregiver while the father, after taking a few weeks off, goes back to work to continue his career progression. Of course, there are exceptions where househusbands do most of the caring but they are rare.

This norm explains much of the gender pay gap in Australia. Despite having legislated equal pay for work of equal value decades ago, Australia has a gender pay gap in every occupational category, including those in which women dominate. As well as restricting the lifetime earnings of women compared with men, the gender pay gap leaves women with superannuation balances only a little over half those of men.

When women eventually return to work after raising children it would not be uncommon for them to be supervised by men who finished university at the same time as them, but whose careers were uninterrupted by having children. How galling.

Upon returning to work, women have to contend with their marginal income tax rates like everyone else. But if they are receiving family tax benefit based on family income, they will be penalised by their male partner’s income, such that the household will loses some family tax benefit for every extra hour the mother works. 

But that’s not all. If the family has children in childcare and are receiving childcare subsidy, chances are the household will lose part of that payment for every extra hour she works. Finally, the couple will need to take account of out-of-pocket childcare expenses after recept of childcare subsidy.

KPMG https://assets.kpmg/content/dam/kpmg/au/pdf/2018/achieving-better-deal-working-mothers.pdf has analysed these four disincentives for women seeking to increase their hours of work – her marginal tax rate, loss of family tax benefit, loss of childcare subsidy and extra out-of-pocket childcare expenses – and combined them into a single measure called the Workforce Disincentive Rate (WDR).

The KPMG analysis found punitive WDRs up and down the income scale. Consider the case of a father earning $100,000 per annum working full time while the mother earns $80,000 per annum working four days a week. If this professionally trained mother were to increase her working days from four to five per week, she would face a WDR of 120 per cent. That is, the family budget would shrink by 20 cents for every extra dollar she earned on the fifth day. By working the fifth day, this working mother would cost the family budget $85 a week. 

Let’s look at the case of a father working full time for $80,000 per annum while the mother earns the part‐time equivalent of $40,000 per annum. If she increases her working days from three to four, her WDR is 96 per cent.

KPMG found numerous cases of WDRs for women in the range 75-120 per cent. Professional men understandably complain about a marginal tax rate of 47 per cent, yet professional women can be expected to work for as little as $1.00 an hour by increasing their working days – or even lose money for each extra hour worked.

Not only is this system grossly unfair to women it is a shocking waste of talent.  

And the problem is not limited to professional women. If a couple is earning the minimum wage and the mother increases her days of work from three to four, her WDR is 88 per cent. That is, she keeps only 12 cents of every extra dollar she earns.

KPMG has proposed ways of reducing some of these punishing disincentives for mothers seeking to increase their hours of work, by adjusting the rates at which the childcare subsidy tapers off. But ultimately, it argues, a change of attitude is required: “The acceptance that men should work full time while women sideline their careers is damaging our economic potential and social advancement.”

We need to embrace a future where it is normal for the father to drop back his working days as the mother increases hers after having children, where parenting truly is a shared responsibility.

Source: https://www.afr.com/policy/tax-and-super/1...