Well budget night is over. Anyone hosting a Working Families budget party (you know, every guest has to down a highly taxed alcopop whenever Swan mentions “that phrase”) would have had a lot of mess to clean up and a sore head yesterday. But what else did it achieve?

The Working Families Support Package includes income tax cuts, education tax rebates, childcare tax rebates, support for carers and a housing affordability package — $55b in all. So where is all the “pain” we were promised?

Rudd and Swan pledged that they would slash “middle class welfare”, and as expected they have means tested several existing family payments. But these means tests can hardly be counted as a massive assault on welfare churn.

The Baby Bonus will be means tested for families with incomes over $150,000. This ensures that well over three quarters of families will still be eligible. The means test will apply to estimated income over the first six months after the child’s birth — when most families are likely to have only one income anyway.

According to Andrew Leigh, individuals with incomes of $150,000 fall somewhere between the 95th and 99th percentile of income distribution. So if we assume that most mums are on maternity leave for the first six months, the means test will exclude maybe 5% of families. In total, the means test is expected to save $354 million over four years – hardly a serious contribution to government savings.

The same scenario applies to Family Tax Benefit B. Up until now a non-working partner has been able to claim the full amount of $3,259.45 per year regardless of their working partner’s income. The new means test ensures that stay at home parents who have a partner earning $150,000 or more will no longer be eligible – again meaning that somewhere between 95% and 99% of families previously eligible for this payment will still receive it. This measure will save $543 million over five years.

The savings in these two measures will be more than offset by the increase in the Child Care Tax Rebate from 30% to 50% of out of pocket costs. This extra spending alone will cost the taxpayer $1.6 billion.

The Age reported earlier this month that a family on $150,000 will now be able to claim $6,682 per year in childcare tax rebate — an increase of over $1,600 on last year. The total amount that can be claimed will rise to $7,500, meaning high income families can still claim this benefit worth significantly more than either the Baby Bonus or Family Tax Benefit B.

The new means tests announced in the budget will do nothing to significantly improve the system of family benefits in Australia.

The government has promised a full scale review of the tax system, and is already undertaking an inquiry into paid maternity leave. This would have been the perfect time to review the whole system of family benefits to come up with a solution which is simple, doesn’t discriminate between one-earner and two-earner families, recognises the cost of having children, and significantly reduces welfare churn.

Tinkering around the edges of the existing layer cake system of family benefits will not fix the problem of middle class welfare, nor will it make the system more fair.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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