Budget Review 2014–15 Index

Peter Yeend and Michael Klapdor

The 2014–15 Budget proposes a number of changes to the Family Tax Benefit (FTB) program. These changes were not unexpected given the impetus for reform in this program in recent years, particularly in regards to concerns about ‘middle class welfare’.[1] The National Commission of Audit recommended major changes to the FTB program to better target assistance to those most in need and to achieve significant Budget savings. [2] The FTB program is estimated to cost $20.1 billion in 2013–14.[3]

FTB changes in the Budget

The changes to the FTB program proposed in the 2014–15 Budget are:[4]

• better targeting of Family Tax Benefit Part B (FTB-B) by lowering the income cut-off point for sole-parents and primary earners in a couple from $150,000 down to $100,000
• introducing a new FTB allowance for single parents on maximum rate of FTB-A who have a child aged six to twelve years, worth $750 per child, to partially makeup for the loss of access to FTB-B
• limiting FTB-B to families with a child under age six years
• limiting the Family Tax Benefit Part A (FTB-A) Large Family Supplement to families with four or more children; currently it is provided to families with three or more children
• maintaining FTB payment rates for two years, that is, they will not be indexed
• removing the FTB-A ‘per child add–on’—currently under the FTB-A income test the second taper of 30 cents in the dollar commences at $94,316 for one child, but is increased by $3,796 each additional child. This will mean for all families, regardless of the number of children, the second step in the FTB-A income test taper will start at $94,316, and
• reducing the FTB end-of-year supplements to their original 2004 values of $600 for an FTB-A child and $300 for an FTB-B family—they are currently $726.35 per FTB-A child and $354.05 per family for FTB-B.

The Government has stated that it intends to ‘ensure the family payments system is sustainable in the long term’ and is ‘better targeted to support those who need it most’.[5] The net savings for the overall FTB program is $7.3 billion over four years; with the estimated annual outlays for the FTB program falling from $20.1 billion in 2013–14 to $16.8 billion in 2017–18.[6]

Changes do not constitute real reform

While the proposed changes to FTB-B will have a significant impact, the changes do not constitute a major reform to the FTB program. The National Commission of Audit report recommended collapsing FTB-B into FTB-A and reforming the income test so that a single 20 per cent taper rate applied to income over the income test free area.[7] A similar overhaul was also recommended by the 2009 Henry Review of Australia’s Future Tax System.[8]

The measures do not address a number of major issues with the FTB program such as the issue of vertical equity that was highlighted in the National Commission of Audit report.[9] Vertical equity is the concept that those with lesser means should receive higher levels of assistance. Under the current FTB-A rules, the same rate of FTB-A is paid across an income range from $64,350 to $94,316. The net result is that a family with one child aged 0–12 with income of $94,000 will receive the same assistance as a like family with income of $65,000. This issue has been in existence since the FTB program was introduced in 2000.[10]

The measures also fail to address participation disincentives inherent in the interaction between FTB, other government benefits and the tax system. Multiple family payments with separate withdrawal rates combine with tax rates to reduce returns on employment, particularly for second-earners in partner families.[11] The budget measures reduce payment rates and eligibility, reducing government expenditure, but these participation disincentives persist.

Impact on single parents

The group that will probably be most affected by the changes to FTB-B, and by a range of other measures in the Budget, will be single parents. In 2010–11, 643,000 single parents received FTB-B, many of whom were also reliant on income support such as Parenting Payment and Newstart Allowance.[12]

Those reliant on income support and family assistance will face significant financial pressures as a result of measures in this Budget: for example, around 85,000 single parents on Newstart Allowance with children aged six and over are set to lose the substantial support that FTB-B offers (currently $3,069.65 per year including the end of year supplement and Clean Energy Supplement).[13] These parents are also set to lose the Income Support Bonus ($215.60 per year) and the Schoolkids Bonus ($410.00 per year for a primary school child). [14] These parents will, however, receive the new FTB allowance worth $750 per child aged between six and 12. Other measures that will directly impact on these single parents are:

• the reduction in the end of year supplement amounts for FTB-A and the freezing of payment rates for two years
• the freezing of the income test thresholds for FTB, income support payments and Child Care Benefit as well as the annual cap for the Child Care Rebate[15]
• the termination of funding to the states and territories for the provision of concessions to Pensioner Concession Card—this could see a significant reduction in the concessions available to single parents who are card holders, but the potential impacts will vary between jurisdictions[16]
• the cessation of the Pensioner Education Supplement that single parents on income support can access if they return to study and
• the proposed patient contribution for medical services along with the proposed increases in the co-payments for prescribed pharmaceuticals under the Pharmaceutical Benefits Scheme.[17]

Groups such as single parents who are reliant on government assistance will face challenges on many fronts as a result of this Budget and the Government’s drive for savings.

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