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Work to barely pay for returning mothers, inquiry told

June 18, 2018 - 16:11 -- Admin

The third and final stage of the government's proposed income tax cuts would overwhelmingly benefit men, late evidence presented to the Senate inquiry shows.

The inquiry will report on Monday that calculations prepared by the Parliamentary Budget Office show 1.894 million men would benefit from the final flattening of the tax scales and only 767,000 women.

The third stage lifts the threshold for the top rate from $120,000 to $200,000 and removes the 37 per cent rate, producing a flat marginal rate of 32.5 per cent between $41,001 to $200,000.

The PBO has previously told the inquiry the final stage would deliver $30.35 billion to men over four years and $11.25 billion to women.

It finds that the impact of the first two stages is much more even.

In a second piece of late evidence requested by the committee, Melbourne University tax expert Miranda Stewart reports that the effective marginal tax rate facing women considering returning to work after having children would remain as high as 95 per cent even after all three stages of the tax cuts and the changes to child care benefits due to begin on July 1.

Effective marginal rates include tax, the Medicare levy, lost family benefits and the cost of the childcare needed to return to work after government subsidies.

On July 1 the two existing childcare subsidies will be rolled into one providing a means tested subsidy of up to $11.77 per hour at an extra cost to the budget of $4 billion over four years.

Professor Stewart said at the moment the effective marginal tax rate for a second earner with two young children paying for childcare at that rate was 65 per cent when returning to work one day a week, 85 per cent on the second day, 95 per cent on the third day and 140 per cent and 160 per cent on days four and five, meaning those families lost income when mothers moved from working part time to full time.

"It was extraordinary that second earners went back to work full time at all," she said. "The reality has been that a proportion of women do go back to work, and the family is essentially bearing the net cost, unless they can use grandparents or friends for care or a cheaper option such as family day care.

The combination of the new childcare system and the first wave of the promised tax cuts would bring down the effective marginal rates to 45 per cent for day one, 65 per cent for day two, 90 per cent for day three, 95 per cent for day four and 90 per cent for day five.

"It means the returning mother will still only be able to keep $10 out of every $100 earned on day three, $5 on day four, and $10 out on day five," Professor Stewart said.

"It will certainly be worthwhile for a second earner, usually a mother, returning to work with young children to go back two days a week; however, for her to work three, four or five days a week would produce a negligible financial benefit."

A separate report to be released by the Australia Institute on Monday finds that since the tax changes that accompanied the introduction of the goods and services tax in 2000-01, most taxpayers have had all of so-called bracket creep returned in periodic tax cuts, whether bracket creep is calculated with reference to the consumer price index or the wage price index.

In real terms, high earners on $200,000 were up to $10,000 per year better off, low to middle earners on $40,000 up to $2000 better off, and middle earners on $70,000 only a few hundred dollars a year better off.

In The Age and Sydney Morning HeraldPeter Martin is economics correspondent for The Age and the Sydney Morning Herald.

He blogs at petermartin.com.au and tweets at @1petermartin.