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Frydenberg’s mini-budget needs to measure up to this test

But the case for the needs of women being front-of-mind in the government’s budgetary response to the recession rests on more than gender fairness. In recessions, governments use their budgets not just to help those who lose their jobs and to bolster the economy at a time when even those who’ve kept their jobs are limiting their spending, but also to give the economy a positive boost. To get things moving again.

Morrison has already started talking about the need for reforms to the structure of the economy to encourage faster growth in the years ahead. (The unmentionable truth is that, in the months before the arrival of the virus, the economy had lost momentum and was growing only slowly. Ending the recession to return to that status quo is not an exciting prospect.)

If Morrison decides to bring forward either or both of the second and third stages of the tax cuts he promised in last year’s budget (presently legislated to take effect in July 2022 and July 2024) to immediately before the election, it’s a safe bet he’ll justify that not just as giving the economy an immediate boost but also improving incentives for people to work and invest in coming years.

It’s a nice idea. But it’s a nicer idea from the perspective of a well-paid male. From the perspective of less well-paid females, not so much. When the cuts are fully implemented, the income tax I and others on the top tax rate pay will have been cut by 6 cents in every dollar of earnings. Will this motivate me and other high income-earners to work a lot harder than we already do? Oh gosh yes. Please believe that.

By contrast, the total saving for most women working part-time or in typical jobs done by females will be no more than about 1 cent in the dollar. That will motivate no one.

When well-paid men think about reform, their thoughts go immediately to the enticing idea of paying less income tax. They see the world from their point of view and are quick to tell you that any women earning as much as they do will get the same tax cuts they get. Sorry, gender doesn’t apply to the tax scales.

Illustration: Simon Letch

Illustration: Simon LetchCredit:

Except that it does when you add in our means-tested social benefits system. As female tax economists have been trying to tell male econocrats and politicians for ages, the one really significant disincentive to working in our tax-and-transfer system applies to mothers (and the occasional house husband) who want to go from working part-time to working full-time.

Naturally, every extra hour they work is taxed. But because eligibility for the family benefit is based on the combined income of couples, they soon find that each extra dollar of wages cuts back the amount of family allowance.

Professor Miranda Stewart, of the University of Melbourne, calculates that “second earners” wanting to work more days a week face an effective marginal tax rate of roughly 90 cents in the dollar. Add the extra cost of childcare then working more days will often leave mothers actually out of pocket. That doesn’t affect incentives?

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If Morrison really wanted to change the structure of the economy in a way that, once the recession was behind us, would encourage faster economic growth, he’d drop his tax cuts for high earners and use this opportunity to remove a barrier to women putting their ever-higher levels of education to work in paid employment.

If that’s all too hard, he could do much good for women simply by making permanent his now-abandoned emergency measure of making childcare free. Too expensive? It would cost a lot less than his tax cuts for high (mainly male) income-earners.

Ross Gittins is the Herald’s economics editor.

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