Reform of family payments
Dale Daniels
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 and
- 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.[1]
All of these changes require legislative amendments to the family
assistance and tax legislation before they can be implemented.
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 Offset.[2]
FTBA indexation
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.[3]
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 Whitlam Government.
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 CPI
alone.[4]
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 are:
- $150 000 per annum for FTBB and DSR
- $75 000 in the six months after the birth of the child for BB and
- $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 four years.
[1]. Australian
Government, Budget measures: budget paper no.2: 2009–2010, Commonwealth
of Australia, Canberra, 2009, pp. 238–239.
[2]. 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, http://www.jennymacklin.fahcsia.gov.au/internet/jennymacklin.nsf/
content/reform_family_payments_12may2009.htm
[3]. B Howe (Minister for Social
Security), A Fair Deal for Families: Economic Statement April 1989,
media release, 12 April 1989, p. 2.
[4]. Department of Families,
Housing, Community Services and Indigenous Affairs (FaHCSIA), Annual Report,
2007–08, FaHCSIA, Canberra, 2008, p. 137.
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