In June 2015, the Grattan Institute issued a paper titled Game Changers: Economic Reform Priorities for Australia. Two of the top three priorities in the paper were tax reform and female workforce participation. Each of these provides more than $20 billion of productivity benefits per annum, according to Grattan. These two, however, are strongly interrelated.
Our tax and transfer systems interact poorly, such that in some cases there are traps which provide effective marginal tax rates of between 70 percent and 80 percent for secondary earners, usually women seeking to move from, say 3 days a week to 4 days.
It is hoped the Assistant Treasurer, The Hon. Kelly O’Dwyer, will help drive this agenda, as will the Treasurer and Prime Minister.
Our recommendations cover, amongst other things, reform to family assistance and childcare including concessions in the FBT system for childcare. One of the current problems is using family income or joint income as basis for tapering off benefits. It is this which is responsible for the high marginal effective rates. Changing the system to focus on the child, rather than family income, will not be inexpensive, but it should give rise to long term productivity gains. This touches on our notions of individual capability and well-being, as well as family and relationships.
There are strong ethical and economic reasons for a reconsideration of family and childcare benefits.