quintile mean and two dependent children pays an additional $930 in tax because she
not only has to pay the ML on her income but she also has to repay the exemption on
the primary earner’s income.18 In the case of a family in which both parents earn,
say, $31,000 and have one child under 5 and another under 13 years, the second
earner pays $4290 in income taxes, $930 ML and loses $7,867 in FTBs. The total is
$13,088, or 42.2 per cent of her income.
Among those especially disadvantaged are two-earner families in which both parents
work full time to earn around half the upper income limit of FTB-A, which is around
AWE for a family with two children. They pay twice as much in personal income
taxes as the single-earner family also on AWE, and they are denied FTBs. In
addition, they can be disadvantaged by the Medicare Safety Net because rebates for
OOP costs are dependent on eligibility for FTB-A.
It is well established empirically that male labour supplies are not especially sensitive
to tax rates, whereas female labour supplies are much more so.19 Taxes and safety
nets that reduce so significantly the net earnings of second earners across low and
average wage households can therefore be expected to have a strong negative effect
on female labour supply and, in turn, on the tax base and GDP. The system therefore
has the potential to create an ageing crisis by preventing the required reallocation of
resources from home to market production with declining fertility and, as well, with
technological change.
4 Labour supply, saving and health costs
Household survey data on hours of work indicate that Australia does not do well in
comparison with a number of comparable OECD countries. For example, in terms of
hours worked by married women aged from 25 to 64, Australia ranks below the US
and UK by over 10 percentage points, and below Sweden by over 20 percentage
points.20 Participation rates reported by the OECD for these countries in 2005 are
18 A primary income of $31,000 is below the lower joint income limit of $33,435 for the ML reduction
for a family with two dependent children. The upper income limit is $39,335. Because the ML
reduction is withdrawn on joint income, it is partly a joint income tax, rather than simply a flat rate tax.
19 For a survey, see Heckman (1993).
20 For data sources and further details, see Apps and Rees (2005).
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