The reforms to family tax benefits are the most significant since the current policies were first introduced as part of the GST reform package.
Family Tax Benefit Part B was designed for families with one main earner and single parents, with a slightly higher payment for those whose youngest child is under five. In the Budget, the primary earner income test has been brought down from $150,000 to $100,000. Income support customer statistics suggest this change would affect under 100,000 families. The major change is that new applicants whose youngest child is aged six or over are no longer eligible for FTB Part B at all. This would remove some of the workforce disincentives for secondary earners in couple families who have primary school-age children.
The changes also amount to a significant reduction in benefits for single parents. The new $750 supplement attached to the maximum rate of FTB Part A for single parents of children aged 6-12 is intended to ameliorate this, but the yearly loss is in the thousands.
The changes to FTB Part A represent a missed opportunity for real reform. The Commission of Audit recommended abolishing the second income test for the payment, which simplified four tiers of payment to just a maximum rate and a part rate which reduced to nil with a 20c taper. However, the government has gone for the blunter option and merely removed the per-child additional income threshold. At least 107,000 families will be cut off payments with the effect of trimming some fat, as payments will now cut out around $94,000 in income. Unfortunately, it does little to reduce complexity: there are still three tiers of payment because the part rate reduces to the base rate before the hard cut-off.
This budget was always going to be about cuts and not wholesale reform, but some progress has been made towards fixing perverse incentives.
Trisha Jha is a policy analyst at The Centre for Independent Studies.
Home > Commentary > Opinion > Some progress has been made towards fixing perverse incentives
Some progress has been made towards fixing perverse incentives
The reforms to family tax benefits are the most significant since the current policies were first introduced as part of the GST reform package.
Family Tax Benefit Part B was designed for families with one main earner and single parents, with a slightly higher payment for those whose youngest child is under five. In the Budget, the primary earner income test has been brought down from $150,000 to $100,000. Income support customer statistics suggest this change would affect under 100,000 families. The major change is that new applicants whose youngest child is aged six or over are no longer eligible for FTB Part B at all. This would remove some of the workforce disincentives for secondary earners in couple families who have primary school-age children.
The changes also amount to a significant reduction in benefits for single parents. The new $750 supplement attached to the maximum rate of FTB Part A for single parents of children aged 6-12 is intended to ameliorate this, but the yearly loss is in the thousands.
The changes to FTB Part A represent a missed opportunity for real reform. The Commission of Audit recommended abolishing the second income test for the payment, which simplified four tiers of payment to just a maximum rate and a part rate which reduced to nil with a 20c taper. However, the government has gone for the blunter option and merely removed the per-child additional income threshold. At least 107,000 families will be cut off payments with the effect of trimming some fat, as payments will now cut out around $94,000 in income. Unfortunately, it does little to reduce complexity: there are still three tiers of payment because the part rate reduces to the base rate before the hard cut-off.
This budget was always going to be about cuts and not wholesale reform, but some progress has been made towards fixing perverse incentives.
Trisha Jha is a policy analyst at The Centre for Independent Studies.
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