Equity is important for the design of tax systems. Equity involves treating similar people the same (i.e. horizontal equity), but also adjusting taxes to allow for differences in the ability to pay taxes and in the benefits that people receive from government (i.e. vertical equity). Obviously there are large value judgements involved, and there is scope for heated debate about what is equitable. First-term Queensland Senator Matt Canavan has injected himself into this debate with a thought-provoking submission to the Australian Government’s tax review, calling for a second tax-free threshold for families where only one parent works. This is not full income splitting for taxation purposes, which was once advocated by John Howard, but a pragmatic and less costly alternative.

Senator Canavan’s proposal could provide single-income families up to $2,000 extra each year (at a total cost of $1.5 billion per annum). The Senator argues this would be much more equitable than the current system “because families with similar incomes can pay vastly different amounts of net tax.” For example, as noted in the submission:

A double income family could earn up to $172,000 a year before they pay the same average tax rate as a single income family on just $86,000 a year.

Senator Canavan is an ex-Productivity Commission economist, so you would expect a high quality and well-argued submission. The Senator will present his case at an upcoming Economic Society of Australia (Qld) event on Thursday 24 September, which, as the Secretary of ESA (Qld), I would encourage you to attend if you can make it. At the event, Dr Alex Robson from Griffith University will also provide some views on the Senator’s submission and presentation. Details are available on the ESA Qld website.