How Labor’s stage three tax cuts flip will benefit women more

One aspect of Labor’s amendments to the stage three tax cuts that has received limited coverage so far is the differing impacts for workers by gender.

Shifting the substance of the tax cuts down the income scale was always going to benefit women more than men, because women tend to earn less than men. The carefully edited and prepared Treasury “advice” released by the government yesterday (rest assured it is nothing like the actual Treasury advice provided to Treasurer Jim Chalmers and cabinet) provides some more detail.

According to the Treasury document, “Women make up the majority of individuals in the bottom five [income] deciles, while only 30% of individuals in the top decile are women.” That’s why women do much better under a package that takes much of the gain to be enjoyed by high-income earners and hands it to low- and middle-income earners: “Under the recommended redesign, female taxpayers would receive an average tax cut of $1,649 compared with $1,278 under stage three settings.”

There’s no comparable figure for men in the document — suggesting it would be substantially lower once you factor in that 70% of the top income decile (more than $171,000 a year), which will lose the most under the changes, is male.

The skewing towards women is reinforced by a chart showing which occupations will get an increase in their tax cut (it’s a highly selective list — you can bet occupations like miners and many professional services would be far further down):

While managerial occupations — which generally earn higher incomes — on average gain less benefit, note the occupations that will see almost universal increases in tax cuts under the new package. Nursing support and personal care workers, teachers, aged and disability workers, child care workers — the very heart of the Australian service economy (tellingly, a key male service occupation, truck driving, is also high up).

This has an important consequence for the question everyone is focused on: will the amended package be more inflationary than the original stage three package?

Ostensibly the answer should be yes. Low- and middle-income earners are more likely to spend their tax cut than save it compared to high-income earners, so inevitably more money will make its way into the economy.

But Treasury points out that keeping more of your after-tax income (or, over the longer term, losing less of your income to bracket creep) provides an incentive to work, therefore driving higher workforce participation. “When faced with the same percentage change to after-tax wages, women — particularly women with children — are more responsive in the amount they work compared to men … Delivering a tax cut to high-income individuals is expected to increase overall participation by less than a tax cut that delivers an increase in after-tax wages for those on lower incomes.”

As a result, the new package will produce “a larger increase in labour supply, driven by increases in hours worked and participation of women with taxable income between $20,000 and $75,000. Overall, the recommended redesign sees an increase in labour supply of about 930,000 hours per week (0.25%), more than double stage three. Female labour supply is expected to increase by 0.37%.”

That means less inflation pressure from tight jobs markets. And that particularly applies to occupations like those female-dominated caring services, which also happen to be where Australia desperately needs more workers, and that need will only increase in coming years.

That’s coupled with the fact that the changes are overall not going to cost much different to stage three in its original form. In fact, while the package will cost $1.3 billion in total revenue over the forward estimates, it will actually increase the tax take by $1.3 billion in 2024-25 compared to stage three, representing a tiny reduction in inflationary pressure. And over the longer term, because high-income earners will still be stuck with the 37% tax bracket, extra bracket creep will lead to extra revenue.

Treasury thinks all that means, in net terms, the inflationary impact of the amended package won’t be noticeably different to stage three.

That the benefits will lead to an increase in participation in some of our most important caring sectors, however, suggests that, if we’re yet to find out if good policy is good politics, in this case fair policy is good economics.