Reform of family payments
The following changes to the indexation of family payment rates
were announced in the Budget:
- a longstanding linkage between the rate of Family Tax Benefit
Part A (FTBA) and the rate of the pension will be removed so that
FTBA will in future be increased in line with movements in the CPI
- the upper income thresholds for FTBA, Family Tax Benefit Part B
(FTBB), Baby Bonus (BB), the Dependant Spouse Rebate (DSR) and
other dependency rebates will be frozen at their present levels
until July 2012 when normal indexation will resume.
All of these changes require legislative amendments to the
family assistance and tax legislation before they can be
The Government rationale for these changes centres on improving
the sustainability of family assistance in the midst of a global
recession; improving the targeting of assistance to lower and
middle income families; and improving incentives to participate in
the workforce in conjunction with changes to the Low Income Tax
Indexation for family payments to movements in the Consumer
Price Index (CPI) was introduced on 1 January 1990. Rates
were also benchmarked to a proportion of the pension rate.
The rate for a child aged 0 to 12 years was benchmarked to 15
per cent of the combined couple rate of the pension. The benchmark
for 13 to 15 year olds was set at 20 per cent of the combined
couple rate of the pension. These benchmarks were part of the Hawke
Government policy announced in July 1987 to ensure that no child
need live in poverty by 1990.
This move ensured that ad hoc increases above normal indexation
to the CPI in the pension rate provided by the Labor Government in
1990 and 1993 flowed through to family payments. These increases
were delivered to keep the pension rate up with the 25 per cent of
average weekly earnings benchmark originally announced by the
Under the Howard Government pension indexation was changed from
1998 so that this 25 per cent benchmark for pensions was included
in the Social Security Act. The decade after this change saw
accelerated growth in average earnings and a lower rate of increase
for the CPI. Pension rates more often than not increased in line
with movements in average earnings rather than the growth in the
CPI. By 2008, the annual pension rate had increased by around $1500
more than would have been the case if indexed to movements in the
Family payment rates also increased ahead of the growth in the
CPI as a consequence of the benchmarks introduced in 1990. The
benchmarks were updated with the introduction of the Family Tax
Benefit in 2000. The benchmarks for 0 to 12 year olds and the 13 to
15 year olds increased to 16.6 per cent and 21.6 per cent of
average earnings respectively. This ensured that the higher rates
that came with FTBA were maintained.
Breaking the link with the pension is estimated to save over one
billion dollars over the next four years. This estimate is based on
the assumption that the CPI will grow less than average earnings.
While this is probably a reasonable assumption in the short term,
the history of these two measures by no means suggests that it will
always be the case.
A freeze on upper income test thresholds
This measure effectively reduces the access of higher income
families to a range of family payments and tax rebates. In this
respect it furthers the government push to rein in ‘middle
class welfare’. Those affected will be families with incomes
close to or above twice average weekly earnings. Average weekly
ordinary time earnings in the December quarter of 2008 were
slightly over $60 000 per annum. The thresholds to be frozen
- $150 000 per annum for FTBB and DSR
- $75 000 in the six months after the birth of the child for BB
- $94 316 per annum for FTBA.
The first two thresholds are ‘sudden death’
thresholds. Those with income below get a payment and those above
miss out. The FTBA threshold on the other hand is the point where
the base rate of payment starts to be reduced by 30 cents per
dollar of any income above the threshold. This effectively means
that families on incomes above the threshold get a reduced payment
up to income levels that vary according to the number and ages of
the eligible children in the families. For example a family with
two children aged under 18 years will get some payment up to an
income of $111 082 per annum.
The income level at which FTBA ceases to be paid is determined
by the threshold (now to be frozen) and the rate of payment (now to
be indexed at a reduced rate). So both measures will work together
to limit access to FTBA to higher income families.
This measure will save nearly $1.4 billion dollars over the next
Australian Government, Budget measures: budget paper no.2:
2009–2010, Commonwealth of Australia, Canberra, 2009,
J Macklin ( Minister for Families, Housing, Community Services and
Indigenous Affairs) and W Swan (Treasurer), Reform of Family
Payments, media release, 12 May 2009, viewed 20 May 2009,
B Howe (Minister for Social Security), A Fair Deal for
Families: Economic Statement April 1989, media release, 12
April 1989, p. 2.
Department of Families, Housing, Community Services and Indigenous
Affairs (FaHCSIA), Annual Report, 2007–08, FaHCSIA,
Canberra, 2008, p. 137.