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Singled out for tax slug

Elizabeth Colman, The Australian, January 20, 2006

CASUAL bartender and gaming machine operator Jamie Galea feels left behind. He has held positions for most of his working life in the hospitality industry and is ambivalent about his future. On his gross income of about $700 a week, he estimates he paid about $8700 in tax last year. Galea earns between $16.90 and $17.90 an hour, plus penalty rates on the weekend, working an average of 40 hours a week.

Galea is at the centre of a national debate about the rising tax burden on low-income singles in favour of families. While he has missed out on substantial tax cuts since the Howard Government introduced the GST in 2001, a family on his income pays no net tax.

“Tax gets pretty hard,” Galea, 28, says over a plate of bangers and mash during his lunch break at the pub where he works on the outskirts of Bondi Junction in Sydney. Wages aren’t enough in the service industry. Then when you have a long Sunday shift, you earn penalty rates but you get taxed more for that; why should you get taxed more? Maybe the higher income families should pay more tax; their tax threshold should be lower.”

Research by leading demographer Bob Birrell shows Galea’s wage and circumstances are typical of about one-third of Australian males aged between 25 and 44. His research, based on 2001 census data, shows 30.9 per cent of males in this age group earning between $600 and $999 a week. According to Birrell, government economic policy since 2001 has not been kind to the group. “These figures belie the superficial prosperity of Australia,” Birrell says. It partly reflects the human capital of the males: the ones who have got the least education are going to find it hardest in the new work force. They are predominantly those who don’t have professional, managerial and trade occupations, they have relatively limited post-school education.”

BALANCING THE BOOKS

Jamie Galea, 28:

Rachel Chapman, 20:

Birrell’s team of Monash University researchers believes these males are also responsible in large part for Australia’s declining population. “What we’re really struggling to say is, notwithstanding the boom in the Australian economy through most of the 1990s, it has still left behind quite large numbers of men whose earnings would be quite low in terms of their capacity to purchase a house, or to think about starting a family and having children,” Birrell says. “What we’ve found in our analysis of partnering is that these men had quite low rates of partnering … they can’t get to the starting gate: that is buying a house and getting married.” Partnering rates for women in the same socioeconomic category have dropped off as well, Birrell says, as they show declining interest in getting married and having children.

Rachel Chapman, 20, an administrative assistant at a western Sydney labour hire company, has no tertiary qualifications. On a full-time gross weekly wage of $510 a week, supplemented recently by weekend work at the local RSL club, Chapman is trying to save money by living at home, where she pays $50 a week board. She would like to travel, spending a year in London or in the US. She says it would be easier for single people such as her to save if they paid less tax. “Just because single people don’t have children, they shouldn’t pay high tax. Some people can’t have children; they’re being penalised for that. Besides, it’s your choice if you have children or not,” she says. However, low-income families “perhaps need the money more than I do, so I guess there’s two sides to it there”, she says.

Like Chapman, Emma Roberts, 21, who works in retail and lives with her mother in Drummoyne in Sydney’s inner west, does not want to go to university. She works 40 hours a week earning $13.75 an hour before tax. Roberts, who dropped out of beauty therapy school and has not yet decided what she wants to do next, says younger people on lower wages need government help too. “I think when you’re older, you’re going to be earning more money; when you’re younger it’s hard to pay so much,” she says.

Life is unlikely to get any easier for these singles. Two weeks ago Peter Costello took time out on a Sunday during his holidays to discuss plans to help Australian families. Pledging funds for parents in the May budget, the Treasurer said families would get “a helping hand in relation to tax and family assistance packages”. It was the second time since Christmas that Costello had sought to put a family stamp on this year’s budget. But this time, the announcement was not welcomed.

Parents of young children have received significant attention every year since the GST was introduced. The tax burden on singles, on the other hand, is rising almost as fast as the average-earning family’s net tax liability is falling.

Research compiled by federal Labor MP Craig Emerson and published in The Weekend Australian on Saturday shows a childless worker on $30,000 will pay $9720 in tax in the next two years, while a family earning $53,000 effectively pays nothing. Labourers, hairdressers, cleaners and clerks – among other low-income workers – will, by 2008, pay up to $45 a week more tax than they paid in 2001, as income tax rises faster than inflation.

Have singles been subsidising family tax breaks? Experts say not yet – family tax benefits are roughly revenue neutral – but another generous round of tax relief flagged by Costello could tip the balance.

In the wake of Costello’s announcement, the federal Opposition released figures compiled by the Parliamentary Library detailing the tax burden on parents. According to the data, a family in 2005-06 faces a $0 net tax liability if its annual earnings are less than $53,000. Below that threshold, benefits in fact outweigh taxes. Treasury Department modelling shows 40per cent of parents pay no net tax.

Rachel Lloyd, principal researcher at the University of Canberra’s National Centre for Social and Economic Modelling, says singles are bearing a disproportionate share of the tax burden. “A lot of the focus of the Government’s policies has been on helping families. There have been increasing benefits to families through the family tax benefits system: the thresholds have been increased and so have the payments,” she says. While a family’s tax liability is being roughly offset by government benefits – that is, families have so far paid for their own breaks – another generous round of benefits for families in the next budget could lead to singles subsidising families, Lloyd says. “In the current situation, it fairly benefits families; if more benefits go to that group, then single people will be subsidisers.”

If the situation continues as it is, Emerson predicts a tax revolt among digruntled singles who don’t receive tax benefits. Indeed, a survey by The Australian of childless workers up and down the income scale reveals a growing level of discontent: they say they should be able to decide how their income tax is spent, instead of the Government allocating it to families.

Joanne Dasborough, 45, a book-keeper who lives in Perth, has no children. She says she feels disadvantaged by the tax system on her fortnightly wage of $1950, less $478 tax. She owns a “modest home” with “very modest furnishings” in an “ordinary suburb” where she has lived for the past 25 years. Her expenses include car repayments and fuel. She says “family friendly” government policies are discriminatory. “For too long, both the Government and the Opposition have focused all their attention on families and ignored the tax impost on singles, especially those on lower incomes. You can’t have it all,” she says referring to parents who work and expect the Government to subsidise the family. “You had the child, you work out how to deal with it.” She says singles are also paying for “the discriminatory application of the Government’s safety net for pharmaceuticals and medical expenses”.

The first sign the Government was ready to commit to tax relief in the May budget came on Boxing Day when the Treasurer responded to Labor’s tax policy, unveiled in The Australian. “The timing is right for working at reducing the tax burden,” Costello said at the time. “We did it in 2003, we did it in 2004, we did it in 2005 and if we can do it again we will do that as well. I think the time is right, consistent with low interest rates. And that’s the caveat I put on this. I’m not just focusing on those in the top rate. I’m focusing on families: families that are doing it hard, mums and dads that are servicing a mortgage, that are looking after kids … that are educating kids. I think people … are interested in tax reform which will reduce the burden on average families.”

Responding to a question as to whether his May budget would reduce the top marginal personal income tax rate – 47 per cent for workers earning more than $125,000 a year – Costello said: “What we will do is this, we will make sure that when we lay down financial, tax, childcare, education and economic policies, families are the focus. That means low interest rates for their housing, good education for their children, availability of childcare when mum returns to work, and a helping hand in relation to tax and family assistance packages.” The Treasurer’s spokesman has since stressed that the Government has not committed itself to increasing family tax benefits.

Lloyd, who with NATSEM director Anne Harding published a paper titled “Redistribution, the Welfare State and Lifetime Transitions”, says low-income single people “did seem to be the ones who were struggling”. “At some point you have to question where it is fair and where you start tipping things over too much into one group and not another.”

Linked from 20/1/2006 Journal