The Government must ensure that women have financial security across their lives and are increasingly building lifetime wealth and economic equality.
Immediate actions
6.1. Co-design a comprehensive financial support program for victim-survivors of domestic and family violence that enables them to leave violence, re-establish safe and stable housing and focus on recovery without incurring financial losses. This new program should build on the trial Escaping Violence Payment program. [38]
6.2. Ensure financial literacy programs are part of the curriculum for all high school students to enable young people to understand the basic concepts of managing personal finances, building personal wealth and the life states and choices that can have a significant impact on economic security.
Long-term actions
6.3. Review the taxation and transfer systems with a gender lens to identify negative gender biases and examine options to address the high Effective Marginal Tax Rates (EMTRs) experienced by women.
6.4. Require banks and financial services to continue to develop financial products and services specifically for the needs of women across their life course, that are free or very low-cost. This includes for women escaping domestic and family violence, buying a home, experiencing divorce and/or retirement planning. Introduce regulation and/or initiatives to ensure the needs of women are protected when using specific financial services, including those that have harsh penalties and consequences, such as Buy-Now-Pay-Later schemes.
6.5. Remove the Child Support Maintenance Income Test (MIT) from the Family Tax Benefit Part A (FTBA) calculation, to establish certainty of FTBA payments for financially vulnerable families and to prevent child support from being used as a tool of financial abuse.
6.6. Reduce the financial penalty from caring responsibilities, such as carers’ tax offsets upon re-entering paid work, and pausing indexation on HECS-HELP debts for periods of time away from paid work.
Supporting information
Women are more likely than men to face financial insecurity and instability later in life, due to the culmination of structural and societal challenges throughout their working lives. This financial insecurity and inequity have significant and lasting consequences, including risk of poverty, housing instability, increased risk of violence and poorer health outcomes.
Single mothers can face particularly acute challenges in relation to workforce participation and financial security which can have significant impacts for their lifetime earnings and retirement incomes.[151]
Develop financial literacy early in life
To change outcomes later in life, it is critical to make changes at earlier life stages. A National Financial Capability survey found young Australians and women did not perform as well on average on financial literacy.[152]
Instilling positive financial behaviours and habits in young Australians is critical to help them navigate ‘financial firsts’, such as a first job, first major purchases and moving out of home. These behaviours can provide the foundation for future financial decisions and can set up young Australians for future financial success and resilience.
Market research, commissioned by the Treasury in 2021, found that 82 per cent of young people reported that their understanding of financial concepts comes from conversations with parents and carers. However, the research also found that many parents did not realise the full value of discussing financial concepts with their children or lacked the knowledge and confidence themselves to effectively have these conversations.
There are additional challenges facing young people who may not have strong parental support or are experiencing disadvantage. This highlights the need for additional support to improve young people’s financial capability.[153]
Tax and transfer system
Families that work more often find they lose much of the extra income due to the ‘effective marginal tax rate’, or the EMTR. The EMTRs capture the percentage of a one dollar increase in income that is lost to income tax and the amount of Australian Government transfer payments lost due to income tests.
EMTRs demonstrate the interaction between extra earnings and policies including progressive personal income tax rates and the amount of Australian Government transfer payments lost due to income tests – such as the Medicare levy and the tapering of family and welfare benefits that reduce total take-home income. Individuals face different EMTRs based on their individual circumstances.
The combination of the tax and transfer system, welfare and social security settings and out-of-pocket childcare costs, known as the ‘workforce disincentive rate’ (WDR), can be a major disincentive for the fourth and fifth day of work for second-income earners, often the mother.
The WDR for second-income earners is more than 50 per cent for working two and three days a week; and between 65 and 110 per cent for fourth and fifth days, exceeding the top marginal income tax rate of 47 per cent.
The high WDR means that many women with young children take home very little on their fourth and fifth days of paid work. For example, for a family where both parents have potential to earn $60,000 per year if working full-time, the second earner would be working for about $2 per hour on their fourth day and for free on their fifth day.[154]
The financial impact of care work
Decisions made within families about how to balance work and care impact gender equality in Australia significantly. Following parenthood, women typically make significant and long-term adjustments to their paid employment, while men’s employment remains largely unchanged.
Women in Australia engage in 43 per cent less paid work than men. However, women spend 81 per cent more time in unpaid work than men and perform 50 per cent of the total value of Australia’s paid and unpaid work. Women in Australia face a ‘motherhood penalty’. Their earnings are reduced by an average of 55 per cent in the first five years of parenthood. Financial penalty persists even among women who continue to work – their incomes are about five per cent lower than if they had not had children.[155]
KPMG has proposed a Carers’ Income Tax Offset with similar design features to those of the Low and Middle Income Tax Offset. Their model involves a non-refundable tax offset, credited against any income tax payable upon people returning to work after caring for children, people with a disability or elderly parents.[156] Costs include reduced aggregate taxation received.[157]
The impacts of divorce
While relationship separation can happen at any age, its economic impact is often felt most sharply later in life. Separation has a cumulative and negative effect on women over time and comes with increased risks of poverty and housing insecurity as they approach retirement.
For example:
- Divorced mothers are much more likely than divorced fathers to experience financial stress.[158]
- Financial vulnerabilities of divorced women are long-lasting, even after five years of separation. More than a third of single mothers live in poverty compared to 18 per cent of single fathers.[159] Single women who do not own their home are at a greater risk of poverty in retirement.[160]
- The situation is worse for women leaving violent relationships, with seven in 10 leaving property or assets behind, and 90 per cent experiencing difficulty obtaining a property settlement. [161]
The Child Support Program (CSP) can contribute significantly to women’s economic security post-separation. The CSP aims to provide administrative support, advice and financial adjudication for separating parents. The CSP interacts with the family assistance system, family law and taxation systems.
A 2023 Swinburne University study [162] found the Australian Child Support Scheme can be used and abused to jeopardise the financial safety of recipient parents and their children. This abuse primarily affects women, who continue to carry the burden of unpaid care work in Australia (and internationally) and are over-represented as victim-survivors of family violence.
The Government provides financial assistance to families with children through the Family Tax Benefit Part A (FTBA). A person’s rate of payment for FTBA may be affected if they or their partner receive child support or spousal maintenance from a former partner or if they do not take reasonable action to obtain child support.
Under the Maintenance Income Test, each dollar of maintenance received over the maintenance income-free area may reduce the maximum rate by 50 cents for each child attracting maintenance. Maintenance income received for a child reduces the FTB paid for that child.[163]