June 18, 2012
After July 1 the Gillard Government's policy of trebling of the tax-free threshold comes into effect. This is a big change to the income tax system since the higher tax-free threshold will help those on low incomes and those who choose to return to work part time in lower-paid jobs. It may help increase workforce participation for women and older Australians.
So there is some movement on tax reform by the minority government that is in line with the Henry Review, which had proposed creating a large tax-free threshold of $25,000.
High effective tax rates are caused for low and middle income earners by phasing out welfare benefits as income is earned, combined with tax rates on low and middle earnings. This affects women caring for young children, the long-term unemployed, and older Australians who want to keep working. Women caring for young children especially face a tax-benefit squeeze when they go back to work, usually part-time and at low to middle wages.
We don't hear about this kind of tax reform---tax reform is usually about cutting the tax rates of corporations and high income earners and widening the GST to include education, health and fresh food.This is the tax reform supported by a massive public relations industry.
However, tax reform needs to be more than just encouraging more workforce participation and economic activity since almost 50 cents of every dollar spent by governments in Australia goes on social spending – either social security or health and community services. Increasing workforce participation trebling of the tax-free threshold brings us to the issue of dual income families, childcare and the high cost of child care for working families.