The Government and Opposition have agreed on amendments to secure passage of the Budget Savings (Omnibus) Bill 2016 that includes a new Family Tax Benefit (FTB) savings measure. The measure would see families with adjusted taxable income of $80,000 or more per year ineligible to receive the Family Tax Benefit Part A (FTB-A) supplement from 1 July 2016. The measure is expected to provide savings of $1.6 billion over the forward estimates.
The FTB-A supplement is paid at the end of the financial year once a families’ FTB-A entitlement for the year has been reconciled. It was introduced as part of an increase in FTB payment rates in 2004 and paid as a lump sum due to the large number of FTB recipients who ended up with small debts after their end of year reconciliation. The current rate of the supplement is $726.35 per child per year. The value of the supplement is included in a family’s total FTB-A entitlement calculation and can be reduced under the FTB-A income test.
Who will be affected?
The most recent statistics on FTB-A recipient families by income are from 2013–14 and indicate that there were 382,508 families with adjusted taxable income at $80,000 or above (around 22.3 per cent of recipient families):
Table 1: Family Tax Benefit Part A recipients by income range, 2013–14
|Adjusted taxable income
| $0 to <$20,000
| $20,000 to <$40,000
| $40,000 to <$60,000
| $60,000 to <$80,000
| $80,000 to <$100,000
| $100,000 to <$150,000
Source: Department of Social Services (DSS), Annual Report 2014–15, DSS, Canberra, 2015, p. 267.
This suggests that close to 400,000 families will lose the FTB-A supplement. A family with two children on an income of $80,000 would lose $1,453 per year as a result of this change.
Previous commitments relating to the supplement
At the 2016 Election, the Australian Labor Party committed to reduce the FTB-A supplement by 50 per cent for families with incomes over $100,000. The Coalition has been attempting to reduce or phase out the FTB-A and the Family Tax Benefit Part B (FTB-B) supplements for all recipients since the 2014–15 Budget. A Bill currently before the Parliament would phase out the supplements by 1 July 2018.
Measure is in addition to other family assistance savings in the Bill
The measure is not the only saving proposed from family payments in the Budget Savings (Omnibus) Bill 2016. Schedule 21 of the amended Bill will remove the Energy Supplement for all families who start receiving FTB after 20 September 2015. The original Bill proposed removing the Energy Supplement from all new welfare payment recipients but the amendments will restrict the measure to FTB recipients and Commonwealth Seniors Health Card holders. The Energy Supplement was introduced from 2013 as part of the compensation package for the introduction of the carbon price. For FTB-A recipients it is worth between $91.25 and $116.80 per year depending on the age of their children.
A separate measure will extend freezes on the indexation of FTB income test thresholds: the FTB-A higher income free area and the FTB-B primary income earner limit. These thresholds are normally indexed to movements in the Consumer Price Index to maintain their real value but a series of freezes have meant that the thresholds have not been indexed since July 2008. The measure in Schedule 17 of the Budget Savings (Omnibus) Bill 2016 will see the indexation freezes continue until 1 July 2020. According to the briefing notes provided to government backbenchers, the FTB-A higher income free area freeze is expected to see 93,300 families receive a reduced FTB-A rate and for 17,000 families to lose eligibility for FTB-A. The FTB-B income limit freeze will see an estimated 5,400 families lose eligibility for FTB-B.
Overall, the Budget Savings (Omnibus) Bill 2016, as amended, will derive more than $2 billion in savings from the FTB program. The savings from the new income limit for the FTB-A supplement will more than offset the savings that were expected from the closure of the Energy Supplement to new recipients of pensions and allowances.
Close to 400,000 families could be affected by the new income limit on the FTB-A supplement through reduced payment rates. The sudden-death nature of the limit will create high effective marginal tax rates around the new $80,000 threshold, which may lead to work disincentives for some families.
This change, together with the removal of the Energy Supplement, will further complicate the FTB system with very different payment rates for those below and above the $80,000 threshold, and different payment rates for those who commence payments prior to 20 September 2016 and those who commence at a later date. The Government’s other proposed FTB changes will also introduce a new rate structure to FTB-B.