1. Peter Davidson (Senior Policy Manager, ACOSS) Tax symposium, May 2009 Family allowances

2. Purposes of family assistance To reduce child poverty To supplement low pay and improve work incentives To help with the direct costs of children generally To reduce child care costs To support caring

3. Alternative forms of family assistance A single integrated cash payment for most mothers (e.g. FTB) OR Tax offsets or credits for taxpaying or wage earning families (e.g. earned income tax credit) AND Supplements to income support payments for jobless families (e.g. unemployment benefits)

5. Australian family assistance- an integrated system of child payments

6. The US earned income tax credit- for ‘working families’ only

7. The Hawke Govt’s. ‘by 1990, no child will be living in poverty’ package Brian Howe’s 1988 family package: Income tested family allowance supplement increased and extended from jobless families to low paid working families Purpose - to reduce poverty and boost incentives to move from joblessness to a full time job at same time Maximum rates of Family Allowance benchmarked to 15% and 20% of married pension rate (later increased) This linked family allowances with movements in average male earnings Impacts: Estimated to reduce child poverty by more than 25% Improved work incentives at the same time

8. Howard Govt 2000-04 From Howe to Howard: Replaced Family Allowances with FTB Part A Increased rates, eased income tests (from 50% to 20%) FTB Part B introduced for single income families, incl. sole parents Purpose: to extend higher payments to middle income families and support single income families No anti-poverty strategy – but a trickle down effect Impacts: Probably prevented child poverty from rising substantially over the last decade

9. Family payments for jobless and working families (couple, 2 chn) - marching in lock step Source: Oliver, 2003, Taxes, benefits and families in Australia - an historic perspective.

10. US Govt. spending on welfare and tax credits – marching in different directions Source: Burtless G 2003, Welfare reform, in Hard heads – soft hearts, Melbourne Institute conference, 2003.

11. Child poverty in Australia Sources: Whiteford 2008; Saunders Hill & Bradbury 2007. Note: 1999 and 2004 estimates not directly comparable

12. Overall poverty in Australia Source: Saunders Hill & Bradbury 2007, Estimates of poverty in Australia.

13. ‘Pensioners are the new families’ 2009-10 Budget: Single pension set at 28% of average earnings instead of 25% (excluding sole parents) But link between FTB and average wages broken, to be indexed to CPI only in future Purpose: to reduce ‘middle class welfare’ Impacts: Low income families will fall behind community living standards Child poverty (measured against a benchmark of median incomes) is likely to rise

14. Deprivation among different households Source: ACOSS 2008, ‘Missing Out’ from research on deprivation conducted by the SPRC.

15. Teenagers are costly

16. Work incentives In 1988, the maximum level of family allowances was extended to families with one low paid job = improved incentives to move from income support to a single wage, but reduced them for second earners Income tests were then eased substantially = improved incentives for second earners in low income families but reduced them for second earners in middle income families also, FTB was no longer effectively targeted to reduce child poverty

17. The unexpected effect of easing income tests – more people now face high effective marginal tax rates (>50%) Source: Harding 2008, Effective tax rates in Australia today, CEDA Tax Policy Forum March 2008 Note: % of households facing EMTRs over 50%

18. Spending on family payments doubled under Howard Govt

19. There’s not much room to move

20. What about Part B The old debate: Should Govt. support parents to provide fulltime care at home? Note: these costs are not the same (direct Vs indirect) The case to support parents to provide care is strongest for preschool age children, (especially under 3’s) and for low to middle income families: - E.g. Parenting Payment provides income support for a low income parent to care for preschoolers at home - Paid parental leave extends this to middle income families when children are very young The case is much weaker for older children: - E.g. FTB (Part B) extends to age 18.

21. Work disincentives for second earners First earner on $40,000; second earner loses 40% earnings, then 20% until s/he also earns $40,000

22. Conclusions Australia’s family payment system has served Australian families well It is effective in reducing poverty without undermining ‘welfare to work’ incentives The key is a single integrated system of cash payments for jobless and working families But there’s a tension between easing effective tax rates for middle income families and an effective focus on child poverty Main problems to resolve include inadequate support for the living costs of teenagers in low income families, and for the costs of formal child care and at-home care for preschool age children.