Case study: The effect of Hockey’s budget on families

For 28 years Australia has had a below replacement level fertility rate (currently at 1.88 children per woman’s lifespan).  Under Howard, Costello encouraged families to not stop at two children but consider a third or more to help lift Australia’s woeful birth rate.

Unfortunately, various tax, birth and child-care payment policies combine to form a massive financial disincentive for families considering trying for a third child. The recent Government budget and Labor's current discriminatory PPL scheme have significantly added to this problem.

 

Take for example a family of three children. To highlight the level of unfair treatment let’s compare the following families, each with three children aged 1, 3 and 6 years.  Both families have a total gross (pre-tax) income from wages of $110,000 per year.  They have no other type of income.

However, one family has DUAL incomes. The father earns $80,000 and the mother earns $30,000.  On two of those days she outsources the care of her 1 and 3 year old at a day-care facility.

The other family has a SINGLE source of income. The father earns $110,000 pa.  The mother works full-time, unpaid, caring for her own kids, the home, and to volunteer three times a week for various causes (included tuck-shop duty). She is able to drop and pick up the 6 year old from school and organise various activities with the 3 year old including early reading, writing and craft work. She was able to breast feed her baby for a full 12 months.

 

EXISTING INCOME TAX INEQUALITY

Before we even start on the recent budget, the Australian Tax Office treats these two families very differently.  In fact, each earner is taxed as though their spouse and children do not exist. There is no consideration of how many people actually depend on that income.

The DUAL income family get two tax free thresholds and lower effective tax brackets. The result is that the SINGLE income family will pay $8,820 more income tax than the DUAL income home (based on 2013-2014 rates). 

EXISTING BIRTH PAYMENT INEQUALITY

Both Labor and Coalition Government have discriminatory birth and ongoing child care funding policies. 

The DUAL income family received $11,500 of birth funding (PPL) from the government when the last baby arrived.  This is because the mother met the ‘paid work test’ of 8 hours a week (or so) of paid work over 10 months in the 13 months before the baby was born.  

The SINGLE income family received a mere $1,000 newborn payment because the baby’s mother had not shown enough loyalty to paid work in the 13 months prior to the birth. (In fact, she was the full-time carer for the then 2 year old, and doing the trips to kindy with child no.1 etc).

EXISTING ONGOING CHILD CARE PAYMENT INEQUALITY

In the last financial year the DUAL income family received from the government a total of $9,000 (of $15,000 max) in tax payer funded child care rebates for their two youngest kids (the 1 and 3 year old) who were placed in day-care while their mother worked 2.5 days a week to earn $30,000.

The only government payment recognising the unpaid child care work (and foregone income) of the SINGLE income family is Family Tax Benefit part B.  So the SINGLE income home received the maximum yearly amount of FTB part B of $4,172.

 

RECENT BUDGET

In Hockey’s recent budget the Government has capped FTB part B to families with less than $100,000 in total income, and it cuts off completely when the youngest turns six.  This means the Government offers ZERO assistance to the above SINGLE income family in relation to child care, but is happy to offer $7,500 per child per year in child-care rebates to the DUAL income family.

The Government plans to enact a more generous PPL scheme. This time the bare minimum goes up from the current scheme paying ~$11,500 up to around ~$16,500 and you can receive more (depending on the mother’s previous wages), as high as $50,000, of government PPL.

SUMMARY

Government payments/tax breaks

 

DUAL income family

3 kids, $110k(80k+30k)

SINGLE income family

3 kids, $110k

Income tax inequality

Pay $8,820 less due to dual tax free thresholds/brackets

 

Payments relating to ongoing child care costs

Received $9,000 in child care rebates (not means tested)

$4,172 of FTB part B

Birth funding

Current PPL scheme of $11,500 cash. Not means tested.

Current newborn payment of $1,000 ($500 of this is means tested).

TOTAL GOV. PAYMENTS/TAX BREAKS COMPARISON

in last year 2013-2014

(exc. FTB part A as there is no difference between two families)

$9,000 in CCR

$11,500 in PPL

$8,820 tax break from dual tax free thresholds etc.

TOTAL $29,320

 

 

$4,172 FTB part B

$1,000 newborn payment.

TOTAL $5,172

Discrimination ratio

 5.67

  1

RECENT BUDGET CHANGES

CCR left as is, remains non-means-tested.

DUAL income home offered bigger PPL between $16,500 to $50,000. Remains non-means-tested.

FTB part B cut to zero because family total income is over $100k.

 

 

EFFECT ON FAMILY

in 2014-2015

Will be eligible for the bigger PPL payment if new baby is born.

Lose $4,172 in cuts to FTB part B. Won’t be eligible for any PPL if new baby is born.

MAX POTENTIAL      GOV. PAYMENTS  COMPARISON in    future year 2014-15

(excludes FTB part A as there is no difference between two families)

$15,000 in CCR (max)

$8,820 tax break from dual tax free thresholds 

New baby, add $16,500 for new PPL scheme

TOTAL  $40,320

 

Not eligible for CCR

Not eligible for FTB part B 

Not eligible for PPL receives newborn  payment of $1,000

TOTAL  $1,000

 

Discrimination ratio

(birth year)

40

1

Conclusion: the Government's new budget measures increase the discrimination (financial penalty) against the single income family from a $24,000 loss to a $39,000 loss compared to the dual income family. 

 

Notes: For those interested, the FTB part A rates (current) would give each family (assuming no other forms of income, pension or child support payments) $13,496 per year (this includes FTB part A supplements). Keep in mind each earner's income is taxed as though their spouse and children did not exist. FTB part A is partly addressing this unfairness in the income tax system.

The summary for each family, if you add in income tax paid and FTB part A received, would look like this (projected into the future year with full potential gov. payments assumed, medicare levy/surcharges and GST not included):

 

DUAL income family, as above

SINGLE income family, as above

$15,000 in Child Care Rebate (max)

$13,496 FTB part A (inc. supplements)

less $19,827 income tax paid

BALANCE $8,669 from government

 

If new baby, add $16,500 minimum ($50,000 max).

*Not included: We estimate this household pays $5,500 pa in GST

 

$13,496 FTB part A (inc. supplements)

less $28,647 income tax paid

BALANCE -$15,151 family pays to government

 

If new baby, add $500 min (or $1,000 max)

*Not included: We estimate this household pays $5,500 pa in GST

As you can see the net effect of government policy is a wealth redistribution from single income homes, who generally do their own child care work, towards dual income homes that generally outsource their child care work.

 

  AFA (NSW) President Julie-Ann McLoughlin at protest outside Hockey's office.