Working Women and the Parental Tax Credit
Keith Rankin, 29 May 1999
The "Family Plus" package announced in the 1999 budget includes the existing Independent Family Tax Credit (IFTC) and Guaranteed Minimum Family Income (GMFI) programmes. To those, it adds, as widely predicted, a "baby bonus" (PTC: parental tax credit) of $1,200.
The PTC comes into force in October, which means that most women who conceived their babies in the Christmas / New Year holiday period will miss out. If any new benefit should have been backdated to the beginning of the financial year, this was it.
What was not predicted or is yet well-understood is that the vast majority of PTC payments will go to women in traditional nuclear families following childbirth. Like the other components of Family Plus, the PTC is not payable to beneficiary families, and is means-tested on the combined gross parental income for the whole tax year.
The big problem is that most households in which a pregnant women is the main breadwinner will not qualify for the FTC; she will become a beneficiary for that period around childbirth. While this is obvious for pregnant working women without partners and for pregnant working women with unemployed partners, it is also true for such women whose partners are part-time or seasonal workers, or whose partners are 'househusbands'.
Consider an example of a couple expecting their first child. One parent-to be is earning $30,000 fulltime. The other is earning $10,000 part-time.
If the mother-to-be is the fulltime worker, then this independent family loses 75% of their gross income when she takes unpaid parental leave. She becomes a community wage beneficiary. Her benefit will be abated on account of her partner's part-time income. As a temporary beneficiary, she will not qualify for the PTC. Catch-22 is that female-led "independent" families lose their independence at the time of childbirth. Generally, if the father is anything other than a low income fulltime breadwinner, the mother will miss her bonus.
Now let's assume that it is the woman who was earning $10,000 (which could mean 25 hours per week at the minimum wage), and the man who was earning $30,000. The family will qualify for the baby bonus in full so long as she takes at least 8 months off work and she has her baby in April, May, June or July. The annual earnings threshold for the full PTC is just $33,576 which is closer to the average individual income than the average family income.
If the woman takes 5 months off work, the family's annual income will be around $35,576. They will only qualify for half of a baby bonus. They will have to repay $600. Their total penalty for raising their income from $33,576 to $35,576 will be $2,120: $600 (PTC repayment) plus $420 (extra income tax) plus $500 (lost Accommodation Supplement) plus $600 (lost Family Support).
Likewise, if the father gets some overtime and earns $32,000 instead of $30,000, the family will become $120 worse off.
If the mother has her baby in January, February or March, she will not qualify for any baby bonus.
If the father is a seasonal worker, she'll get the PTC baby bonus if she has her baby during the father's in-season, but will miss out if she has her baby in the father's off season. (We might note that non-permanent tertiary education teachers are seasonal workers. Even permanent university teachers face the prospect of 9-month per year teaching contracts in future.)
The baby bonus favours families based around the traditional housewife, and discriminates against families in which the principal caregiver will be the father. Paid parental leave was meant to be a step to support working mothers through a period of both physical and financial stress. The parental tax credit, on the other hand, is a benefit to the partners of working fathers.
The Family Plus package as a whole is a financial incentive designed by politicians and public servants with nostalgia for the family structures of the 1950s and 1960s. Even if we favour such family structures (and few of us today would openly admit that they think "women's place is in the home"), a return to the 1960s is quite impossible so long as we remain wedded to the fully flexible model of the labour market. In a flexible low-wage environment with a "natural unemployment" buffer, families need two wages, family incomes vary from week to week, families move on and off benefits, and annual family incomes are only knowable at the end of the tax year.
© 1999 Keith Rankin