Marty Corby says tax reform can help address Australia’s fertility issues. Photo: Supplied.
In the lead-up to the Federal Budget, one issue continues to be overlooked in Australia’s economic debate — the way our tax system treats families.
At a time when the cost of living is biting harder than it has in decades, housing affordability is under pressure, and birth rates are falling, it is worth asking a simple question: are we making it easier — or harder — to raise a family in Australia?
Right now, the answer is clear. For many households, particularly those relying on a single income, the system is stacked against them.
A system out of step with modern family life
Australia still operates largely as an individual-based tax system, despite the fact that families function as shared economic units.
This creates a glaring imbalance.
Two households earning the same total income can face vastly different tax burdens depending on how that income is split between partners.
A dual-income household benefits from two tax-free thresholds. A single-income household gets just one.
The result? Families making identical contributions to the economy are treated very differently by the tax office.
That imbalance hasn’t improved with time — in fact, it has deepened.
The increase in the tax-free threshold over the past decade, while beneficial in many respects, has widened the gap between single- and dual-income households. What was once a policy tweak has become a structural inequity.
Why this matters — especially in regional Australia
This issue hits regional communities hardest.
Across areas like the Riverina, single-income households remain far more common than in capital cities. Whether it’s due to childcare availability, job types, or family choice, many households rely on one primary income while the other parent takes on unpaid but essential work — raising children, running households, and supporting communities.
Yet that contribution is effectively ignored in the tax system.
At a time when families are already juggling higher grocery bills, fuel costs, insurance premiums and mortgage repayments, this imbalance is not just theoretical — it’s real money out of the pockets of working families.
The case for income splitting
One practical solution that has long been proposed is income splitting.
Income splitting allows a portion of one partner’s income to be allocated to the other for tax purposes, recognising the shared nature of household finances.
It doesn’t reduce total income. It simply ensures that taxation reflects the economic reality of family life.
The principle is straightforward: if families share income, the tax system should recognise that.
European countries leading the way
Australia is increasingly out of step with comparable nations.
Across Europe, governments are actively using tax policy to support families, encourage child-rearing, and address declining birth rates.
- Hungary has introduced some of the most pro-family policies in the world, including:
- Lifetime income tax exemptions for mothers with four or more children
- Substantial tax credits per child
- Housing subsidies tied to family size
- France operates a long-standing “family quotient” system, where tax liability is calculated based on household size, significantly reducing tax burdens for families with children
- Poland provides generous per-child tax offsets and direct payments, alongside reduced tax rates for families
- Italy has expanded family allowances and tax credits in recent years to combat one of Europe’s lowest birth rates.
Even outside Europe, countries including Canada have implemented targeted income-splitting measures for families with dependent children.
The common thread is clear: governments are recognising that strong families are the foundation of strong economies.
Australia’s demographic challenge
Australia is not immune to these pressures.
Fertility rates are now well below replacement level. At the same time, we are becoming increasingly reliant on migration to sustain population growth.
While migration has its place, it should not come at the expense of supporting Australian families to have children.
A tax system that penalises single-income households sends the wrong signal at the wrong time.
A question of fairness
This is not about favouring one type of family over another.
Dual-income households work hard and deserve support.
But so too do single-income families — many of whom make deliberate sacrifices so one parent can invest time in raising children during critical early years.
The current system effectively penalises that choice.
Two families. Same income. Same contribution.
Yet one pays significantly more tax.
That is not equitable.
Time for reform
Reform doesn’t have to be radical.
A capped income-splitting model — similar to Canada’s — would be a sensible starting point. Expanding family tax offsets or introducing child-based tax adjustments, as seen in Europe, could also help restore balance.
What matters most is acknowledging a simple truth: families are not just collections of individuals — they are economic units.
And our tax system should reflect that.
Backing families is backing Australia
At its core, this is about more than tax.
It’s about recognising the value of raising children.
It’s about supporting regional communities.
And it’s about ensuring Australia remains a country where starting and raising a family is achievable — not a financial disadvantage.
If we are serious about our economic future, then supporting families shouldn’t be an afterthought.
It should be front and centre.
