Tax system that’s stifling the family

Everyone knows the family is in trouble these days, but what is not widely recognised is that one of the main reasons for this is changes made to the taxation system since the 1970s.

From 1950 to the mid-1970s, every family received tax deductions for a dependent spouse, children and family costs, but from 1975, all these were gradually stripped away and replaced with targeted payments such as income supplement and rental assistance.

To the extent that these changes improved the lot of the poorest families, and removed welfare from the richest, few would argue with them.  However, a new book by Lucy Sullivan, from the Centre for Independent Studies, argues that those in the middle—the average Australian family—actually suffered from the changes, to the extent that this has contributed to family breakdown and a lower birth rate.

In Taxing the Family, a timely publication given the current debate on television, Sullivan claims the above changes led to a general worsening of many wage earners’ income from all sources.

For an average wage earner with a dependent spouse and three children, post-tax wages plus welfare in 1950 represented 113 per cent of his gross earnings.  But by the early 1980s this had dropped by a quarter.  In 1997 the average wage earner was hanging on to just 91 per cent of his or her gross wage, once tax and welfare were taken into account.

In other words, most parents with young children have changed from people the rest of society helped financially to people expected to help out the rest of society.  So when people say life was easier for a typical family in the old days, they are not kidding.  No wonder families are having fewer children these days.

Sullivan also claims that, as well as receiving less income from all sources, the way it is received today also has an insidious effect on many families.  Where once the tax rebate system allowed the family to keep all or most of its wages and spend them as it wanted to, today a large number of families pay tax and then have to jump through bureaucratic hoops to get it back as welfare.  Such ‘churning’, she argues, is both demeaning and unnecessary.  It also leads to situations where people do not want to increase income (e.g. by a wife going out to work) because they will lose their welfare payments.

The result is that a large number of working Australians have now become enmeshed in the welfare system.

Sullivan proposes a return to tax rebates for children, pegged at the level of current social security payments.  It would restore pride and a sense of independence, and encourage people to seek work (because under her proposal, higher wages would not affect their rebates).  It might cost about a billion dollars more than the Government now pays, but if it encouraged people out of welfare dependency the eventual cost would be much less, maybe nil.

The above changes have forced many mothers to find jobs against their will.  They have been pushed to it by child-care subsidies, for which there is no equivalent for stay-at-home mothers.

Sullivan comments: ‘This suggests the espousal of a principle that only if parents are willing to relinquish the care of their infant children to strangers, so that both parents can work in the market economy, are they worthy of income protection.

‘But it is now questionable whether this policy is in the interests of the children themselves, of families, or of the society at large.  There is growing sociological, psychological and epidemiological evidence that as the family has [changed] the socialisation of children and their personal well-being have suffered.’

While the advocates of child care (usually upper middle-class feminists) claim it benefits the poor, in fact most of the money finds its way into the pockets of the better off.  As an example, Sullivan quotes figures showing that in 1998 a two-parent, two-child, single income family on $30,000 per year was entitled to $4,368 in welfare payments.

In comparison, the same family with both parents earning $30,000 a year (ie, $60,000 between them) and using child care, received $8,580 a year in welfare.  So, thanks to child care, the higher income family received twice the benefits of the lower income one.

Encouraging some domestic arrangements and penalising others like this is social engineering.  It’s difficult to think of how our governments could have done more damage to the family even if this had been their intention.

About the Author:
Michael Duffy is a columnist for The Daily Telegraph.