Budget Review 2013–14 Index

Michael Klapdor

The 2013–14 Budget includes a number of measures targeting family assistance, parental leave and child care payments, continuing a tradition of finding significant savings from relatively small changes. The measures are expected to save close to $4.5 billion over the forward estimates.[1] The Government has stated that these measures are to ‘secure a fair and sustainable family payments system for Australia’s future’ and form part of an ongoing effort to ‘modernise’ the system.[2]

Freeze on indexation

Indexation in the family assistance system is the automatic adjustment of certain amounts or limits in line with movements in prices, as measured by the Consumer Price Index (CPI). The budget measures propose to extend a freeze on the indexation of the following amounts until 1 July 2017:

• the upper income limit of $150,000 for Family Tax Benefit Part B (FTB-B)—if the  higher income earner in a couple or single parent has income over this limit they are not eligible for FTB-B
• the upper income limit of $150,000 for claimants of dependency tax offsets, Paid Parental Leave (PPL) Pay, and Dad and Partner Pay
• the FTB-A upper income free area of $94,316 (plus $3,796 for each child after the first)—payment rates reduce by 30 cents for each dollar above this ‘free area’ until they reach zero
• the FTB-A supplement ($726.35 per child) and the FTB-B supplement ($354.05 per family)—these supplements are paid to families at the end of the financial year and
• the annual Child Care Rebate (CCR) cap of $7,500—families can claim up to 50 per cent of their out-of-pocket costs for using approved child care up to this maximum cap.

The FTB-A upper income free area, the FTB-B upper income limit and the dependency tax offsets income limit have not been adjusted since July 2008. The FTB supplements were frozen for three years from 2011–12. The CCR cap was reduced from $7,941 to $7,500 in 2011–12 and has not been adjusted since. The new freezes are expected to save $1.3 billion over the forward estimates.

These freezes produce savings as a result of families gradually earning more income and moving above these limits, either losing eligibility or receiving a lower-rate of payment as a result. In the case of CCR, savings are produced by preventing entitlements rising as fees increase. In 2014–15, an estimated 127,000 families will receive a lower rate of FTB-A as a result of these changes while around 17,300 will lose eligibility for FTB-A and 2400 for FTB-B.[3] More than 75% of the two million families who received FTB in 2009-10 had annual incomes under $80,000 and will be largely unaffected by these changes.[4] However, concerns have been expressed by some that the push for savings risks the support the system currently enjoys and its effectiveness in reducing child poverty.[5]

Not proceeding with FTB-A increases

Savings of around $2.5 billion will be achieved following a decision not to go ahead with a 2012–13 budget measure to increase FTB-A from July 2013 by $300 per annum for families with one child and $600 for families with two or more children, as well as increases in the base rate. The measure has rarely been mentioned since last year’s Budget and no legislation was introduced to implement it.

Rule changes for FTB and child care payments

Savings of $562.0 million over five years are expected from a measure to reduce the time families have to reconcile their income, make lump sum claims and satisfy any requirements for the FTB supplements, from two years down to one. This will affect claims for FTB and child care assistance including Child Care Benefit and CCR. The measures are intended to bring the reconciliation period in line with the ‘usual arrangements for lodging tax returns’.[6] These are significant savings and will particularly affect those with income from businesses (who are more likely to need longer periods to reconcile income). Less than 10% of families receive these payments as lump sums and less than 10% take longer than a year to lodge their tax return.[7] The changes will simplify the current system and exemptions will be provided in certain circumstances.

Further savings of $76.6 million over four years are expected to be realised by amending the eligibility for FTB-A so that it is only payable in respect of children over the age of 16 until the end of the calendar year in which they finish school. Currently, young people aged 16 and 17, who have completed their Year 12 qualification, are still considered eligible children for the purposes of paying FTB-A. Those who no longer qualify their parent for FTB-A can instead test their eligibility for Youth Allowance, however, due to its much tighter means test a considerably smaller number would qualify. The age of eligibility for FTB-A has been gradually lowered: down from 24 to 21 in the 2011–12 Budget, and from 21 to 19 in the 2012–13 Budget. These measures have been aimed at making FTB-A the main form of assistance for school-aged and younger children and Youth Allowance the main payment for older young people and those no longer receiving support from their families.

A smaller measure to cut the length of time FTB, Schoolkids Bonus and PPL can be paid for those temporarily absent from Australia, from three years to one, will save around $20.1 million over four years. These rules allow eligible parents to continue to receive payments (though usually at a lower rate) while the family, the recipient or their eligible child is overseas temporarily. While Defence and Australian Federal Police deployed overseas will be exempt from this Budget measure, diplomatic staff and AusAID workers will not.

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