Australian Council of Social Service Reforming family payments to improve adequacy, equity and sustainability Briefing to cross-bench Senators 10 November2015 Jacqueline Phillips Director of Policy

ACOSS policy objectives 1. To reduce child poverty 2. To ensure that support for the direct costs of children reflect the different costs of children at different ages 3. To ensure that assistance to families keeps pace with community living standards, which rise with wages 4. To provide adequate support for single parent families who are at high risk poverty 5. To improve incentives to work for second earners once children are at school

What’s wrong with the current system? 1. Payment rates are too low for single parent families. 2. Payment rates do not reflect the actual costs of raising children at different ages. 3. Payment rates are falling behind community living standards due to indexation changes. 4. The payment structure discourages workforce participation for some, particularly second earners in two income families.

Proposed reforms 1.To improve the adequacy of payments for single parents Replace Family Tax Benefit Part B for single parent families with a Sole Parent Supplement to provide adequate supplementation for the extra costs of raising a child alone regardless of paid workforce status. The Supplement should be set at least at the level of Part B for under 5’s – a $23 per week increase for those with older children.

Proposed reforms 2. To ensure the payment structure reflects the different costs of children at different ages Part A: introduce a ‘middle benchmark’ for children of primary school age (in addition to one for preschoolers and another for those of high school age): 0-5 years: $104 per week 5-12 years: $119 per week years: $145 per week

Proposed reforms 3. To ensure assistance to families keeps pace with community living standards while simplifying the system Index family payments to wage movements as well as the CPI, by restoring previous benchmarking of maximum rates of family payments to pension rates, which were based on the age of each child.

Proposed reforms 4. To improve workforce incentives a)Target Part B to couple households with younger children (e.g. under 12 years, instead of 18 years) to encourage second earners to return to workforce when children are school age b)Ensure low income couple families are compensated for any losses through increases to maximum rate of Part A (through a higher rate for older children and indexation) c)Retain FTB Part B for couples where one parent cares for a younger child ‘at home’.

Proposed reforms 5. To better target payments and simplify the system a)Convert the current end of year supplements into weekly equivalent increases to the maximum rate of the Part A and B payments + new Sole Parent Supplement, then phase out very slowly b)Ensure low income couple families are compensated for any losses from phase out of supplements and Part B age cut off through increases to maximum rate of Part A (through new rate for older children and indexation) c)Retain FTB Part B for couples where one parent cares for a young child ‘at home’.

Proposed reforms 5. To ensure payments are benchmarked to adequacy Establish an independent review of the adequacy and indexation of social security payments.

Packaging reforms The proposed package is one option for reform which could achieve the intended objectives We would consider other options that delivered similar outcomes: a better targeted, more adequate, equitable and sustainable family payments system We have strongly argued that the linking of family payment cuts to fund increased child care is problematic but have some major concerns about the child care changes We advocate a reduction in the child care subsidy for higher income households to 30% and the removal of activity requirements for those accessing 24 hours or less care a week

The child care package: unfair and unsustainable The proposed package is too generous at the top end and too harsh at the bottom end. The Government proposes to subsidise 50% of the child care costs of higher income households (>$170k), well above the PC’s recommended 20% of cost (or 30% in draft report) At the same time, stricter activity test will mean some families not in paid work will see access to ECEC half – from 24 to 12 hours per week

Contact us Thank you Contact Jacqueline Phillips, Director of Policy, ACOSS Phone: (02) Postal: PO Box 4777 Strawberry Hills NSW 2012