Tax relief hope for women facing financial penalties on return to work

Higher taxes on “passive income” such as trust funds could be used by the federal government to pay for incentives to bring tens of thousands of women and those on welfare into a jobs market screaming out for more workers.

Treasury secretary Steven Kennedy on Monday revealed the government’s employment white paper, due in the second half of the year, is likely to canvass options to reduce the high financial penalties faced by women and those on welfare who want to work an extra day.

Treasury secretary Steven Kennedy has signalled this year’s employment white paper will canvass tax changes to help pay for financial incentives to bring women and those on welfare into the jobs market.Credit: Alex Ellinghausen

The white paper was promised out of last year’s jobs and skills summit to examine policy options to improve the nation’s employment market. Unemployment remains around a 50-year low of 3.5 per cent while there are almost as many people officially out of work as there are job vacancies.

Kennedy said about 70 per cent of Australian women held down a job, a proportion similar to women in the United States, Canada, New Zealand and the UK.

But Australian women were much less likely to work full time, with Kennedy arguing they faced substantial financial disincentives to pick up additional days.

A woman working part-time, receiving a full-time equivalent of $60,000 as the family’s secondary earner would lose 60 per cent of an extra day’s work to income tax, reduced family benefit payments and childcare fees.

For a fifth day of work, the woman would lose 80 per cent of extra earnings.

Kennedy said people on welfare who worked part-time faced similar financial penalties to take on more work.

“Secondary earners face high disincentives to take additional days of work, particularly the fifth day,” he said.

“Addressing these work disincentives requires making changes to current tax‑transfer settings, and this will have fiscal consequences in a tight budgetary environment.”

Kennedy said to get more people the work hours they wanted or encourage them to take on extra days, the government has to navigate the “iron triangle” of the adequacy of government support payments, the disincentives for people getting off those payments, and what it will cost taxpayers.

Despite a $20.5 billion improvement in the budget bottom line, the government is facing huge pressures on its finances.

Kennedy said given the fiscal challenges facing the country, any reforms could not cost the budget in the short term and over the longer term they should raise more revenue.

He said reforms that brought more people into the workforce would help the budget, but there were problems in the current tax system that needed to be addressed.

“It is easier to reduce tax on income from passive sources than it is for salary and wage income,” he said.

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