While the rally cries of 'don't tax my vagina' are confronting and provocative, there is far less understanding concerning the gendered implications of how governments tax income, savings and wealth, and redistributes this using the transfer system.
While women clearly face a wide variety of circumstances that may affect their savings balances, decision to seek work, and superannuation payouts -- no single issue appears to affect the female experience as directly as the marginal costs of tax, welfare and childcare. As a result, tax and transfer policies (i.e. the money the government taxes its citizens and uses to transfer to the public interest) are a far larger concern than the media tends to make out.
On International Women's Day, no less, it is really important to get our facts straight. So let's start with what the typical female experience in Australia looks like;
- Australian women earn 83 cents for every dollar men earn;
- Middle-aged, full-time employed women have 77 percent less superannuation than men;
- 76 percent of women (9 percent higher than men) older than 65 are living on less than31,000 a year;
- Mothers face a 5 percent unexplained 'motherhood penalty' (lower wages growth) for the first child and a 9 percent for two or more;
- Women occupy many of the poorest households, comprising over 83 percent of sole parents, and more than 60 percent of households in public housing;
Such a reality is not simply because sexist men are in charge or all bosses are misogynist. It is because the current system was designed before women mattered, before it made sense for women to work for pay and before childcare services were readily available -- before we realized that women in the workforce not only matter but are needed. As a result (and this is the clincher), women are left with a tax and transfers system that just doesn't get it, a government who just can't see it, and reforms that just won't cut it.
It is for this reason I am launching a four-part article on tax this International Women's Day. While I recognise tax is not as sexy as Beyoncé, as empowering as Lean In, or as funny as Lena Dunham -- it is equally as important.
So for Part One -- let's start from the top. Why do I care and more importantly why should you?
Yes, it's true women can make a lot of money -- and, heck, I plan to. Female workforce participation has grown and I have always been taught that, as girl, I can do anything that a boy can do -- but better! However what is equally true is that not only will this money be harder to earn, to save, to invest and to accumulate -- it will also be taxed higher than men.
I bet you're thinking: wait -- we all get taxed at the same tax rate, how can this radfem claim that tax is gendered. But please, bear with me -- because I, like you, was sceptical. That is till I spent a few days with some of the most influential women (and men!) in the tax and transfer field. What I learnt was simple -- yet unfortunately not as obvious as a tax on tampons.
To put it bluntly, women have less income and assets than men, and women's wealth remains limited because the female working life is interrupted by care responsibilities. For this reason, the tax system should be seen as key to bridging the gender gap. A well-functioning and efficient tax and transfer system is supposed to even out the playing field -- not build mountains to climb over. It is supposed to recognise the work of the non-economic sector that does valuable things like raising children and caring for the elderly, by taxing the economic sector that has taken advantage of these sacrifices to get to where it is. A very simplistic example is the notion of taxing private health care, to provide public health research and support services. However, if structured incorrectly, tax and transfers, instead of acting to help alleviate pressure for women and supporting them in the workforce can work towards increasing disadvantage.
To get our grounding, before moving onto GST, Superannuation and Offsets in the next three parts, we need to understand the number one fact. Women have a higher effective marginal tax rate than men. We are therefore not taxed equally. While this sounds tricky, it's REALLY important.
Academics and researchers in this field refer to a concept called the Effective Marginal Tax Rate (lets just call it the Real Rate -- easier hey). The Real Rate is a measurement that takes into account how taxes and transfers work together. It is useful because everyone is not taxed equally, and everyone does not respond to taxes equally.
The Real Rate is kind of like how students on youth allowance work just the right amount of hours so as to not cut into their Centrelink payments and how sometimes working that second or third job at 50 percent tax just isn't worth it. In the same way -- a women seeking to move from three days a week to four days a week on a part time salary can face a 70 percent to 80 percent effective marginal tax rate jump.
The 2014 Productivity Commission report gives evidence that for some second earners (usually mothers) who return to work, the combination of the drop-off in the Family Tax benefit (as income rises), progressive income tax rates, reduced childcare benefits at higher income levels and a cap on childcare assistance can result in a Real Rate approaching 100 per cent. That means that women, as the second earner can often be working for no benefit. At all.
The government report itself concluded that
'The Australian Tax and Transfer system creates a strong disincentive for some parents to enter the workforce or to increase their hours of work.'
Here are the findings:
To put it into reality: a family with two parents earning $40,000 each per year, (that is the average Australian family) with one child in day care, will only take home around half of the second worker's earnings. That's almost the same as the highest income tax bracket.
And it gets worse! In a family where the first wage earner earns $70,000, and the second wage earner would earn $70,000 if working full time, and there are two children in day care, then the family only takes home 20 cents in each dollar earned by the second wage earner when working more than two days per week.
Even when families use little or no childcare -- whether because their children are older, or they have informal care arrangements -- effective take-home income can be relatively low. For low income earners, even without childcare costs, effective rates of take-home pay are still less than 60 cents in the dollar due to the impacts of Family Tax Benefit and welfare withdrawal.
So what's my point.
What the Australian tax system has done is institute a culture whereby women are rewarded for staying at home.
Why would a female (who is rational after all) go back to the workforce if they:
- Will have their benefits withdrawn as their income rises;
- Are taxed at a much higher rate; and
- Still have to pay the 10% GST regardless.
Faced with such high effective marginal tax rates women are forced to make a decision -- stay at work, earning less and getting no support or stay at home, save in child care costs for basically the same standard of living. This decision is made more gendered if you take into account not only the cultural role of the female but also that it makes more sense that a female who already took three (or so) months out of work to have a child and typically earns 18.3 percent less than males, should be the one to forgo time in the market place to raise a child.
And while yes in the short-term it is a rational decision, it has long-term impacts on superannuation, promotions, experience and overall wealth. Tax happens over a life time. Taking time out of the workforce means that you do not pay tax -- win right? Wrong! What this also means is that while you still pay tax on your land, rates, goods and services, you do not get your tax credits, superannuation, tax deductions and tax concessions. For women this is a big deal!
In fact it is not just an individual issue. If the tax and transfer system was used to encourage female workforce participation, the Australian economy would increase by $25 billion annually according to the Office for Women. Increasing not only Australian living standards but the amount of tax the government receives.
As the Henry Review notes, 'the longer-term capability costs of the decision not to work, for both the parent and for the children of such households, should be of concern to policy makers.'
So now we have the basics -- the following articles over the next week will hope to shed some light around areas that are often ignored like the GST, superannuation and offset regimes. Again, it may not sound sexy but it is really important. Put simply, taxation is taking money from the individual pocket and putting it in the government coffers. I am by no means against this - Medicare, roads, defence and public education are all services I am thankful for. However, what I do insist on is that the money comes out of not just a purse but a wallet too....
This post is part of a blog series produced by The Huffington Post in conjunction with International Women's Day, celebrated on March 8, 2016. A What's Working series, the posts address solutions tied to the United Nations' theme for International Women's Day this year: "Planet 50-50 by 2030: Step It Up for Gender Equality." To view all of the posts in the series, click here.