Over the last decade a number of countries, notably the USA, theUK and Australia, have introduced new tax and welfare programs,or expanded existing programs, that have the effect of raising taxrates on the income of the second earner in the family. Examplesinclude the earned income tax credit (EITC) program in the USA,1the child tax credit (CTC) and working tax credit (WTC) programsin the UK, and the Family Tax Benefit (FTB) system in Australia.Since the second earner is typically the female partner, theseprograms also have the effect of increasing the net-of-tax genderwage gap. Many of the same countries have poorly developed, highcostchild care sectors, and so reducing the net wage of the secondearner can make child care unaffordable from her net earnings. Ina recent paper (Apps 2006a), I referred to this phenomenon as the‘new discrimination’. Unlike the ‘old discrimination’, which tookthe form of lower gross wage rates and poorer opportunities forwomen in the labour market, the new discrimination is located ingovernment policy.This paper investigates the extent to which the second earner inAustralian families has become subject to this new discrimination.The analysis compares effective tax rates on primary and secondincomes and identifies the changes introduced in the 2006–07Budget. A key finding of the study is that second earners in familieson less than average wages now face the highest average tax rates inthe economy. This outcome is identified as a consequence of aseries of changes in four key policy instruments used by governmentto set tax rates on family incomes: the personal income taxschedule, Family Tax Benefits, the Medicare Levy and the low income tax offset.
