Back to first principles on family benefits

The Australian Financial Review reported this week that Howard-era 'middle-class welfare' payments such as Family Tax Benefit (FTB) Part B may be subject to cuts, as part of the federal government's attempt to get the budget back to surplus within a reasonable timeframe.

Family benefits were excluded from the remit of the McClure welfare review. However, Joe Hockey indicated late last year that changes to family benefits could be on the table.

Though targeting FTB Part B as a savings measure is a necessary step, it also means that the intense cultural debate on family benefits is going to heat up once again.

As our family benefits system has changed and evolved over time, the philosophical and principled foundations for the system have increasingly become unsteady.

Once we had a system of tax concessions which recognised that children made claims on their parents' income, and a universal system of family payments were made regardless of circumstances (horizontal equity). Eventually, tax concessions were removed and universal child payments became means-tested by the Hawke government to reduce child poverty (vertical equity).

To the tension between the two forms of equity, we have added paid parental leave and subsidies for child care fees with the aim of improving female workforce participation and gender equity. The commentary surrounding both of these hot topics suggests the government won't be walking away from these aims anytime soon.

The growing salience of these objectives is what makes the announcement significant – and is why CIS research will continue to focus on these issues over coming months. FTB Part B is the last vestige of the attempt to keep family policy 'neutral': to not present families with different sets of financial incentives based on the choices they make about their work and family lifestyles.

Neutrality doesn't work in practice, as there is nothing (other than standard means-testing) that stops someone in receipt of FTB Part B from claiming child care subsidies. In trying to secure neutrality, the system buckles under the weight of trying to be all things to all people.

Trimming FTB Part B for the sake of fiscal prudence is wise, but the government should not lose sight of the foundational principles involved. A long-term solution to our family benefits problems simply must involve rethinking and clarifying the principles and objectives of a family benefits system.

Trisha Jha is a Policy Analyst at The Centre for Independent Studies.