Damning Budget analysis: Some women will be hit with an effective marginal tax rate of 100%

Damning Budget analysis shows some women will be hit with an effective marginal tax rate of 100%

Female representation
Remember how back in 1984 Australia led the world by introducing a Women’s Budget Statement, with the broad objective of limiting gender inequality?

We did but that was a very different time.

The rationale was for gender based analysis to identify the ways in which public policies affect men and women differently: the development of government programs could be tailored to ensure women were not adversely impacted.

In 2014 Tony Abbott, the then-Prime Minister and Minister for Women, abolished any pretence of interest in this exercise by abandoning the Women’s Budget Statement. It has not been re-introduced.

The National Foundation for Australian Women has stepped into the void and, with a team of researchers and academics volunteering, has produced comprehensive gender analysis of each budget since then.

It’s vital information but analysing policies after they have been introduced isn’t nearly as valuable as undertaking such an analysis while developing policies: and adjusting them accordingly.

If you need proof of why failing to consider the impact of any particular combination of policies can be  disastrous, consider this.

One of the key findings in the NFAW 2017-18 Gender Lens report, released today, is that the combination of various policy changes this year could lead to an effective marginal tax rates of 100% or higher for some women.

The “stacking together” of changes to the medicare levy, HECS and government benefits and different income tests, can create a very different effective tax rate.

Changes in this Budget mean a graduate earning $51,000 could have less disposable income than someone earning $32,000. Because women are overrepresented at lower income levels, changes to government benefits and increases in taxes have a disproportionate effect on women.

“Somebody should have been running this analysis and looking where the cumulative impact of changes would fit,” NFAW president Marie Coleman told Women’s Agenda.  “If they haven’t done the analysis, it’s derelict. And if they did the analysis and they didn’t care, then a lot of women should be asking hard questions.”

An effective marginal taxation rates (EMTRs) measures the proportion of each extra dollar of earnings that is lost to both income tax increases and decreases in government benefits (for example, Parenting Payment, Family Tax Benefit, the Age Pension).

The increase in the Medicare Levy will affect those on incomes greater than $21,644. For those with eligible children, FTB A payment rates are frozen for two years. Those who pay child care fees will continue to face high EMTRs. University graduates will start repaying loans when they reach income levels of $42,000 per year. These changes hit those on earning well below the average wage, and are particularly harsh for women.

Changes to penalty rates may also have a significant impact on some graduates if they are extended to the aged and health care sectors as well as the childcare sector. The point to note is not just the harsh effects on low income women but also that it is not discussed in the Budget papers, with no modelling of the exact EMTRs for different groups of women provided.

Coleman says that Treasury has its own in-house microsimulation tool to assess distributional impacts of measures.

“We are at a loss to understand how measures could have been introduced in different portfolios which come together to produce Effective Marginal Tax Rates of up to 100% or more when the Government continues to emphasise the need for greater productivity and to encourage female workforce attachment,” Coleman said in the foreword to the Gender Lens report.  “It is quite clear to us that notwithstanding the elevation of the Office for Women to full divisional status and its re-location in the Department of Prime Minister and Cabinet that there has not been any effective gender aware analysis in the formation of this Budget.”

If anything were to highlight the importance of gender aware budgeting, Coleman says a group of women being hit with a marginal effective tax rate of 100% or more, because of the combination of policies, “is there flashing in neon lights”.

Given the argument this government has put forward about the need to boost women’s workforce participation, this amounts to an own goal.

If a woman could go to work and earn $50,000 a year but end up with less disposable income than someone earning $30,000, then why would they do it?

“It won’t be worthwhile going back to work, that’s the simple thing,” Coleman says. “It doesn’t matter about the changes with childcare, if their net EMTR doesn’t make it worth it, they won’t. Everyone who has even an ounce of interest in workforce participation knows that EMTR’s are the killer.”

So the question is this. In the preparation of this Budget was this unknown? Or, was it known and not regarded as a problem? Neither scenario bodes well for women in Australia.


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