Maybe there is a case for being single after all?
A new OECD paper has looked at how tax systems, including Australia's, effectively discriminate against married women.
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How to bridge the gender pay gap
Heidi Sundin is a 36-year-old consultant who risked her job when she challenged a former employer to match her pay to that of a fellow male employee.
It suggests this be dealt with by options such as taxing the rich more.
The paper, which was worked on by the OECD's super-duper tax team including former Labor minister David Bradbury, suggests that most tax and transfer systems, including Australia's, have "implicit" gender biases built in.
The most common implicit gender bias? The greater disincentive for second-income earners – typically women – to return to work.
This is evidenced by much lower participation rates of women than men in our workforce.
And here's the real interesting bit, according to the paper, "Australia's individual-based tax system, together with the absence of any dependent spouse tax reductions, mean that a second earner without children entering employment in Australia will face the same average tax rate on their earnings as a single individual would".
For example, a second earner without children in Australia in 2015 entering employment earning 67 per cent of the average wage (with a partner earning the average wage) will face an average tax rate on that income of 18.5 per cent.
Single individuals in Australia also face an average tax rate of 18.5 per cent.
(In comparison, the average across all OECD countries for a second earner without children in 2015 was 25.8 per cent. And 24 of 34 OECD countries in 2015 imposed a higher average tax rate on the second earner than a single individual.)
The issue is worse when you throw in children.
A second earner in Australia with children will often face a higher average tax rate than a single individual, due to the loss of some of the family tax benefits they previously received on entry into employment.
For example, the same second earner as above, but with two children, would face an average tax rate of 35.2 per cent on re-entering formal employment.
This higher gap is due to the partial withdrawal of family tax benefit A and B.
Family tax benefit A is withdrawn as family income runs above $50,151.
Family benefit B is withdrawn as the second earner's income runs above $5,475.
Meanwhile, a single individual would still face an average tax rate of 18.5 per cent.
(In comparison, the average across all OECD countries for a second earner with two children in 2015 was 27.4 per cent and 32 of 34 OECD countries impose a higher average tax rate on the second earner than a single individual.)
This issue, the paper notes, is not just a gender equity problem.
The paper rightly states that it distorts economic behaviour and has a negative impact on GDP growth.
It also can exacerbate income inequality and child poverty.
Addressing such disincentives, would improve economic productivity and efficiency, it says.
It would also address demographic challenges associated with ageing populations globally.
But tax is just one part of the solution.
Other factors also influence the incentives for individuals to enter the workforce.
These include the cost and availability of child care, paid leave provisions (such as maternity leave, parental leave and sickness leave) and the existence of other unearned income (such as investment income, which is used by many wealthy people as a way to reduce their tax).
The OECD paper, entitled The impact of tax and benefit systems on the workforce participation incentives of women, suggests we redesign our tax system.
"The potential gains from reducing the disincentives faced by women are significant as female participation rates are lower than for men in all OECD countries," the paper says.
It recommends greater financial support for women with kids by applying a higher threshold where payments are phased out, or simply having lower statutory tax rates to reduce disincentives for all workers.
The disclaimer to both these options: they would come at a big cost and could end up benefiting higher-income women.
An alternative is to tax the rich more, it says, or look at new sources of tax revenue.
"A rate reduction at the lower end of the income distribution – where a significant proportion of second earners will be situated – could be funded as part of a broader revenue neutral tax reform by increasing rates further up the income distribution or by a shift toward other tax bases," it says.
This is not the first time policy wonks have recommend this be done.
University of Sydney professor Patricia Apps, in her paper, Gender equity in the tax-transfer system for fiscal sustainability, argued that changes to taxation of family benefits introduced during the Howard years, and continued under subsequent governments, has seen rising inequality in wages, income and wealth.
One of the main factors that has exacerbated the pay gap between men and women – the Workplace Gender Equality Agency data confirms that on average men still outearn women by $27,000 – is the fact that the tax system withdraws family payments for dependent children on the basis of joint income.
Whatever policy options are considered, engaging more women in work will have positive consequences for everyone.
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