Family Tax Cuts: A Better Deal for Australian Families
The Australian Taxpayers’ Alliance (ATA) is calling for a renewed commitment to genuine tax reform from both major parties. The Stage 3 tax cuts took six years to implement, yet only compensated taxpayers for two years’ worth of bracket creep. More is needed, and the ATA will be releasing tax reform proposals every week in the lead-up to the next election.
A Smarter Approach to Family Taxation
Most developed countries recognise that a tax system should factor in family circumstances. In the United States, married couples can file taxes jointly and benefit from child tax credits. France uses income splitting for both spouses and children, while Germany increases the tax-free threshold for parents. Hungary has gone even further by exempting mothers with two or more children from income tax for life.
Australia should follow suit by adopting a tax system that better supports families. The ATA proposes the following reforms:
1. Joint Family Tax Treatment – Families (married with children) should have the option to file taxes jointly, with a combined tax-free threshold of $50,000, including the Medicare Levy. This would provide an effective benefit of up to $6,424 per year for families that opt in.
2. Child Tax Exemption – Parents should receive an additional $10,000 tax-free threshold per child, providing an effective benefit of up to $3,000 per child. A family with two children would have an effective tax-free threshold of $70,000 before paying any income tax.
3. Flexible Childcare Support – The current Childcare Subsidy should be replaced with a refundable tax credit of $1,000 per month per child under school age. This would give parents the flexibility to either fund professional childcare or use the money to support their own childcare needs. A family with two children under school age would have an effective tax-free threshold of $143,000 before paying net income tax.
4. Simplified Family Tax Benefit – Family Tax Benefit (FTB) should be replaced with a streamlined $6,000 welfare supplement per child, withdrawn at a consistent 30% rate once the family is no longer eligible for Newstart Allowance (or Parenting Payment). The child welfare supplement for two children would be fully phased out at an income level of approximately $110,000, at which point parents would instead benefit from joint family tax treatment and the child tax exemption.
Cutting Complexity and Reducing the Cost-of-Living Burden
These policies would significantly improve financial flexibility for families while simplifying the overly complex FTB system. They would also reduce poverty traps, where families face effective marginal tax rates (EMTRs) exceeding 90%—and in some cases, even 100%—due to overlapping tax and welfare withdrawals.
Most importantly, these reforms would ease the financial pressure on families, making it more affordable for young Australians to start a family and help struggling households navigate the cost-of-living crisis.
Australia desperately needs another round of tax cuts. By introducing a fairer family tax system, we can help parents manage rising costs while ensuring every Australian family has the freedom to thrive.