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Budget crunch time: should Tony Abbott pay for your children?

With the budget weeks away, Tony Abbott says families on $100,000 don’t need social security any more. What’s he hinting at, and is it a good idea?

Should middle-income and wealthy people who have children get more from the government than those without children? And should there be extra-special treatment if Mum doesn’t work?

Prime Minister Tony Abbott opened this can of worms in last night’s pre-budget speech, which was five pages of hints with few details. The Coalition’s first budget is on May 13.

Abbott entered the touchy debate on middle-class welfare when he said families on $100,000 should no longer get social security. It’s a change of heart from the Tony Abbott who accused Labor of “class war” when it reduced some family benefits for those on $150,000-plus three years ago, but these things are different in government. Last night Abbott said:

I know that most families are doing it tough, including many families with above-average incomes but heavy commitments. Not for a second would I label families as ‘rich’ just because they are earning $100,000 a year … But the best way to help families on $100,000 a year is long-term tax relief and more business and job opportunities, not social security.”

He gave no more details. So what is he hinting at? Crikey has taken a look at the options the Coalition may hand down in the budget …

Three experts Crikey talked to say the statement seems to be aimed at winding back Family Tax Benefit Part B. Dry bureaucratic names aside, that means a debate around how much special treatment should go to parents, and whether “traditional” families with one parent staying at home should get extra help.

This is how the Family Tax Benefit system works (and no, it’s not really part of the tax system — these are cash benefits paid via Centrelink). It has two parts, A and B. Part A is paid per child and is means-tested. The amount paid is a maximum of $224 per child per fortnight. That tapers off as parents’ income rises, particularly after about $95,000 joint income. But parents can get payments right up to a joint income of $234,000 (for that you need six kids, and even Social Services Minister Kevin Andrews — who has five — hasn’t managed that).

Part B is a separate payment (families can get both A and B). B is for families with only one income earner, and it doesn’t matter how many children you have, although the payment is less as children get older. So B goes to single parents and families where one parent works and one stays at home. This cuts out entirely when the sole income earner gets $150,000 a year. The maximum payment is $4172 per family per year.

Peter Whiteford, professor in the Crawford School of Public Policy at Australian National University, said of Abbott’s social security hint: “I think he’s talking about Part B.” He explains that the idea behind Part B was partly that families with two parents working got twice the tax-free threshold of $18,200, whereas a family with one parent earning only got it once.

So if the threshold is reduced to $100,000, is that fair? Whiteford says such a change would only affect about 100,000 families. “The impact won’t be gigantic,” he told Crikey. The key issue is: “Is it fair for people with dependents to have the same income after-tax as people without dependents? Some people would argue you have children as a choice so you should be prepared to bear the cost.”

It harks back to the nostalgia of the single-earner family with the second adult staying at home and keeping the house.”

However, Whiteford poses the counter view: that families on $110,000 or $120,000 with three children should not pay the same tax as a single person on that income. If they did, that could penalise the children by reducing their standard of living. And those children would grow up to pay taxes for old people who had chosen not to have children.

Chief executive of the Grattan Institute John Daley says cutting the threshold to $100,000 would “hit some families who are in fact doing it not particularly easy … If you have a lot of children, those children need to be looked after, too — they don’t have any choice in it at all.”

But David Richardson, senior research fellow at The Australia Institute, is more positive about scaling back Family Tax Benefit Part B. “It certainly addresses community concerns about middle-class welfare,” he told Crikey. Families should get some financial help for the costs of raising children, but not families on $150,000 — who are in the top 5% of income earners and are not in “genuine need”.

Richardson questions the role of Part B because it only goes to families with one parent working. “It harks back to the nostalgia of the single-earner family with the second adult staying at home and keeping the house.”

It’s worth noting that journalist Phil Coorey in the Australian Financial Review reckons the Coalition will likely scrap Part B, roll it into A and cap the lot at an income of $100,000.

Abbott may also be hinting at tightening childcare payments, although that’s seen as unlikely. Whiteford says there are a few relevant payments: a means-tested Child Care Benefit (which parents can choose to have paid straight to the childcare centre) and a separate Child Care Rebate. The latter pays half of all out-of-pocket childcare expenses, the rebate is capped at $7500 per child, and it is not means-tested.

Given that childcare is usually treated as a workplace entitlement (aimed largely at keeping women in the workforce) rather than social security, and given that Abbott has made more generous paid parental leave a signature reform, it’s not likely he’d move to reduce childcare rebates. John Daley says further means-testing childcare payments would “absolutely, no question” be a disincentive to women returning to work after having a child.

And speaking of PPL, that’s an obvious candidate for Abbott’s new threshold of $100,000. His proposed scheme would give women half their annual salary capped at an income of $150,000 (i.e. a payment of $75,000). If families on $100,000 don’t need social security any more, why give women means-tested PPL up to a salary of $150,000?

It’s an awkward question for Abbott, and the unpopularity of his PPL scheme with other parties (and some of his own MPs) could result in it being scaled back or cast aside, although probably not in next month’s budget.

Daley says if Abbott really wants to wind back welfare payments to people who don’t need them, he should rein in superannuation tax concessions, which allow people — especially older people — to put thousands into their super funds at a lower tax rate. But he acknowledges Abbott is unlikely to take his advice. David Richardson also points to super tax concessions as “massive” and says if it were a cash benefit and not a tax break, it would be easier to reduce.

UPDATE: The report from the government’s Commission of Audit, made public on May 1, recommended abolishing Family Tax Benefit Part B. Instead, a new supplement would be added to Part A, which would go to sole-parent families with a child under the age of eight (ie. families with one parent working and one at home would miss out). It would be paid at the same rate as the maximum for the current Part B.

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  • 1
    jmendelssohn
    Posted Tuesday, 29 April 2014 at 5:49 pm | Permalink

    Family Tax Benefit Part B is also the only extra assistance given to working sole parents after they come off the pension.

  • 2
    Suzanne Blake
    Posted Wednesday, 30 April 2014 at 8:36 am | Permalink

    What a mess Rudd, Gillard, Rudd, Swan left us.

    Its the same with ALP Governments leaving other Governments to sort out the mess and become unpopular.

    The problem is that some families have become addicted to the handouts, and will face a shock

  • 3
    Cathy Alexander
    Posted Wednesday, 30 April 2014 at 8:46 am | Permalink

    But wouldn’t they get Part A as well?

  • 4
    bushby jane
    Posted Wednesday, 30 April 2014 at 10:31 am | Permalink

    Rubbish Suzanne Blake. Most middle class welfare was created by Howard.

  • 5
    Pollystar
    Posted Wednesday, 30 April 2014 at 1:31 pm | Permalink

    It’s right that we should carefully examine all government payments and ensure they are allocated on the basis of genuine need.

    Children should not suffer because they are born into large families. Children with equal access to quality education and opportunity grow up to pay taxes that benefit all Australians, including those who elect not to have children.

    Let’s review and re-allocate government payments where necessary, but please let us not implement policies that disadvantage the poorest people (and I don’t mean middle-income) and further increase the gap between the rich and poor that is now evident in this country.

  • 6
    Jason Manu
    Posted Thursday, 1 May 2014 at 12:33 pm | Permalink

    Suzanne Blake said “What a mess Rudd, Gillard, Rudd, Swan left us. Its the same with ALP Governments leaving other Governments to sort out the mess and become unpopular.”

    In fact the ALP left us with an economy that is the envy of the world. An AAA economy that survived the global financial crisis; a crisis that literally bankrupted other countries. Our strong economy is owed in no small part to Labor’s unpopular - but correct - decision to increase public spending to balance the rapid decrease in private spending.

    I don’t blame you for your incorrect views. You are a victim of the sensationalist media and rich business interests. They rely on an uneducated and misinformed voting base. But I do invite you to learn more about what actually happened.

  • 7
    gill
    Posted Saturday, 3 May 2014 at 2:47 pm | Permalink

    amen Jason manu - and to add …http://www.crikey.com.au/2013/02/13/myth-of-coalition-govts-howard-the-biggest-spender-of-all/

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