Population ageing, taxation, pensions and health costs, CHERE Working Paper 2007/10

families in which at least one parent earns above $15,000 per annum, earnings are
principally from wages and salaries, and neither parent has a negative income from
investments or unincorporated enterprises. The parent with the higher private income
is treated as the primary earner. ¹⁶ The male partner is the primary earner in over 87
per cent of records. All incomes are indexed to the 2006-07 financial year.

Given the assumption that the household decides first on the primary earner’s labour
supply and then chooses the labour supply of the second partner, the tax burden on the
primary earner can be calculated as the tax the family would pay if it had only one
earner, that is, if the second earner withdrew from work and therefore reported zero
earnings. The burden on the second earner is then calculated as the increase in the
family’s tax burden when her earnings are included in family income.

The upper panel of Table 1 presents the results that would hold for all families if the
second earner withdrew from work, by quintiles of primary income. Row 1 reports
data means for the incomes families would have under this assumption. The next row
reports average family tax burdens as net tax, calculated as the sum of income taxes
(including the LITO) and ML, less FTBs. The ATR in row 3 is calculated as the ratio
of net tax to the average income that families would have with only the primary earner
in work, expressed as a percentage. The lower panel of the table reports data means
for second earnings, net tax calculated as the increment in the family’s tax burden due
to the second earnings, and the resulting ATR on second earnings. The final row of
the table shows the average number of dependent children in each quintile.

Table 1 In-work families: Tax burdens and rates, by primary income

¹⁶ Private income is income from all non-government sources such as wages and salaries, profits,
investment income and superannuation. See ABS (2005).

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