There’s a bit of a stoush happening at the moment over Family Tax Benefit (Part B). Kim has addressed another angle of the debate here at LP, as has Nicholas at Club Troppo. I recommend you read both of them too – the Family Tax Benefits system is one big confusing mess, and, I think, the more written about it the better. Please note, though, that I have absolutely no economic credentials, so if you must correct me, please be nice!
The justification for the Part B payment is this: by having one parent stay at home, the couple suffers a tax disadvantage compared to two parents bringing in the same amount of income. It is basically a step towards income splitting. The maximum rate of Part B is $117.60 a fortnight. The $6,000 tax-free threshold is equivalent to $112 a week.
Income-splitting is regressive – the higher up the income scale you go, the more benefit you get from being allowed to split your income with your partner. For those at the lower levels, the only benefit they get from income-splitting is having two tax-free thresholds. So if we’re talking fairness, the Part B payment is more fair than what many people (most notably Family First) are calling for.
There are two main reasons that we should be criticising the Part B payment. The fact that rich families are getting it is not one of them. If we are to have a form of income splitting, better to have one that benefits stay-at-home parents equitably, rather than giving them a benefit that increases in value the more their partner earns.
But why should we have income-splitting? Ross Gittens wrote a great column last year explaining why, despite the fact that it sounds fair, it really isn’t:
It looks as though the two families are equal in all respects bar the amount of tax they pay but, when you think about it, they’re not. The single-income family has several advantages over the two-income family.
For a start, the single-income family avoids the additional costs of having a second spouse go out to work: costs of travel and working clothes.
More significantly, the single-income family has a lot more free time: time to do housework and time for leisure.
Have you heard that time is money? It’s true – but Family First hasn’t noticed. When stay-at-home wives (or, just occasionally, husbands) do all the work they do around the house, they’re producing goods and services of considerable value to themselves and their families.
If they went into the marketplace and sold those goods and services to outsiders, they’d have to pay tax on the income. But when they produce things for themselves and their families, and no money changes hands, their labour goes untaxed.
That’s the great – though invisible – tax advantage enjoyed by single-income families. Stay-at-home wives do lots of valuable work to enhance their families’ lives, but pay no tax.
You see the point if you look at it from the perspective of the two-income families. They have far less time for housework and even less time to relax. So they end up using a fair bit of the wife’s after-tax income to buy from the market services they no longer have time to provide for themselves.
There’s another huge problem with Part B payment that often gets overlooked, even though it actually causes much bigger problems for families. The payment is based the income of the second income-earner, but this is worked out over the financial year, rather than the calendar year.
The school year, on the other hand, is based on the calendar year. So mum stays at home until little Johnny starts school. She goes back to work full-time in January. Her yearly earnings go over the threshold, and then – because it’s based on yearly, rather than fortnightly earnings – she not only loses her Part B payment from the time she worked, she also has to pay back everything she received from July the previous year.
So if the Labor Party are going to guarantee that they are also going to stop flirting with income splitting, then I’m all for cutting payments to those at the top of the scale. But there are better reasons for doing so, and bigger problems that must be addressed. Working mothers deserve much better than this from the Labor Party. Let’s have some vision – please*?
(* Go on, Mr Swan, suprise us)
Thanks, Anna, that frames the issues nicely.
One aspect that Ross Gittens misses is that you can have a dual income family where both parents work part time on different days. So in effect you get the best of both worlds – income splitting, avoiding childcare costs and have someone around to do the housework all of the time.
When you compare that situation with a single income earner family, I think it does look inequitable. Though I’d also argue that its probably a better situation than having one person work full time and the other not at all, so perhaps should be encouraged by the tax system.
It’s still similar, Chris. If both people are working part-time, then there is still the equivalent of a full-time non-working parent, but there are still the work-related expenses.
Not to mention, there are very few part-time jobs available that will get you much higher than the average wage. Most couples in the situation you describe would be working pretty low-paid jobs. Your example last time was of two people each earning $30 00 a year working part-time. This is fairly unlikely.
Perhaps Chris is thinking of professionals who choose to work part time – ie solicitors. Actually, anecdotally, one of the reasons some women seek employment in the Queensland public sector and Brisbane City Council is that it’s not difficult to convert to part time for a while. But there’s still a big difference between say 50% pro rata of 62k as a senior policy officer or 50% pro rata of 38k as an admin officer or call centre person – and of course there’s a lot of vertical gender segregation in the public sector as anywhere else.
I’m racing so don’t have time to read the post properly, but the main horizontal equity issue I see (ie treating people in the same actual situation the same whatever one’s perception of their wealth or welfare) is not a working pair, but self employed people who simply declare dual incomes and there is no way for the tax office to work out whether they’re telling the truth or not.
The only way to address that is to allow a degree of income splitting. Of course you can argue that it’s too costly to address it. Fair argument I guess. But the issue is becoming progressively more important. Plenty of people earn income on top of their job, and for instance arrange to have investment income in their lower paid person’s name.
Owen Covic suggested something similar in a piece on taxation of trusts – namely giving everyone the right to similar tax structures or none. Here there is no way to stop a great many couples splitting their income. But its a difficult debate.
On Gittens’ point:
That rather underestimates the costs of working. There’s also meals. If you work in an area outside the CBD where there aren’t any foodcourts but only swanky cafes, you’ll know what I mean. But even a sandwich and a juice can cost ten bucks a day in a foodcourt. Then there’s coffee, chocolate, etc!
You could easily spend $75 a week feeding yourself. And of course when you’re working *and with kids* the time you have to shop and pre-prepare meals to take with you diminishes very starkly.
Are work related expenses that high? Travel would be no higher
than for one person working full time. Possibly extra cost in terms
of clothes (but then you’d wear them out slower and whether you work or not you generally still need to wear something
As for whether there are part time jobs that allow you to do this, I can’t really comment much. Its something I really want to do in a few years, though not for the tax break, but because I want to be able to spend a decent amount of time with the (future) kids. It might be different in the area I work in (IT) than the general workforce, but I don’t expect it will be that difficult for me (or my partner) to arrange to do.
Except that there’d be two people travelling to two different jobs, probably at two different times. Or, of they’re going at the same time, child-care costs for the kids.
I agree that this kind of arrangement is what we should be aiming for. But it’s certainly rare now, and I don’t think it’s much of a reason to support FTB(B) as it’s currently paid.
Oh, I know Naomi. Wayne Swan really does understand it, but either he’s not brave enough, or he’s being prevented, from coming up with something really good. I don’t know – maybe people won’t let him after the $600 thing.
But the FTB system really needs more than tinkering around the edges, and bitching about millionaires receiving a few hundred dollars extra. Swan knows that – so why is he getting cought up in all this stupidity?
You need a vision about what you want to acheive, then a system that’ll help do that. He’s tinkering with Howard’s vision at the moment.
You want women to stay at home? Then endorse FT-B. Why has the female full time participation rate regressed to 1967? FT-fucking-B, amongst childcare n shit. Get with the economics folks.
I doubt very much that FTB B has had the effects Paul claims. It’s (Labor) predecessor, basic Parenting Allowance, had a much more severe income test on the second earner, and like FTB B, no income test on the household. Hypocritical of politicians to complain now, but hey, they are politicians after all.
Also, the current settings for FTB B don’t favour stay at home families. They favour 1.3 to 1.5 income families – part-time second earners.
The so called poor participation rate for women is a mistake in the stats. The ABS made an error, it wasn’t picked up until after the OECD published it. Now it’s become an entrenched, but nonetheless bullshit, number.
All Wayne Swan has managed to demonstrate to me is that he too is a politician. These days I can scarcely think of a worse insult.
I think Paul is probably right … FTB (A) does appear to provide a disincentive to work. Combine it with a lack of available and affordable childcare and that is probably why you have a female labour participation rate that is 16 percentage points lower than men.
spog: why is the ABS figure bullshit? I am just looking at the ABS release from the other day at it looks pretty consistent at around 55 percent for women, 71 percent for men. See here: http://www.abs.gov.au/ausstats/abs@.nsf/94713ad445ff1425ca25682000192af2/3c257d3c2c4a346bca25703b0080ccd6!Open
Beg pardon for a really silly question, but… how do you pronounce this word ’stoush’? Is it stOWsh or stOOsh, or something strange I didn’t count on? (also, is there an amusing etymology for it?)
StOWsh
Gringo – do you mean FTB(B)? The part B payment is a definite disincentive for (usually) the woman. It is actually means-tested, but only the second earner’s income is means-tested, not the primary earner. (And the child’s income too, obviously – if the child earns enough, the parents don’t get paid too.)
The FTB(A) has lots of problems all of its own, mostly due to having to estimate the income for the year, leading to overpayments. Like all welfare payments, there can be disincentives to work over-time etc. when you are close to one of the cut-offpoints, due to EMTRs. But as it’s based on household income, it makes little difference which parent earns the money.
Anna: Arigato gozaimasita.
yes I did mean FTB(B) … sorry about that! (I sometime have a problem with p’s and q’s too).
Sprog, sure the ABS fucked up. 1.3 to 1.5 income families, what a crock of bollocks. Can you crank up your probability (of being caught talking tripe) engine and plop out a few numbers for Saturday’s lotto?
Paul,
(1) They did. But only the one time (as far as I know). Unfortunately, that figure found its way into an OECD report and has since been cited many times. I had assumed it was that figure that people were talking about in relation to Australia’s poor participation rate for women with children compared to other OECD countries.
(2) When the income test was changed for FTB a couple of years back, they wound down the taper rate from 30% to 20%, and increased the allowable income considerably. If you look at the effect this had on disposable incomes in couples, you will find that one and a bit income households do better than single income households, for household incomes up to about $50K. Prior to that, the incentive was more toward single income. Of course, at high enough incomes, the tax advantage of two incomes overwhelms FTB B. Then there are childcare costs, but that’s a different tale.
(3) No.
FTB-B spog. Second income earner mate. Earn money, get a high EMTR. Nuff said.
Well, 20% on its own is not a spectacularly high EMTR. It’s the combination with other things that does the damage. If it’s a combination, why pick particularly on one element (FTB B) rather than others?
One trouble I’m having with this series of comments is that I’m coming across as a supporter of FTB B. Personally, I don’t like it, although I am in favour of horizontal equity measures. FTB B is just poorly put together IMHO.
The whole FTB system is poorly put together IMHO, spog! It’s taken me a few years to get my head around how the damn thing works!
Well, it took a few years to get it into this state, so taking a few to understand it seems quite reasonable to me.
Many of the parent I know do not claim FTB(A) on a weekly basis because they got caught with huge debts that they had to repay.
The worst ‘debt’ case I came across were parents who in mid-september 2004 were sent a FTB cheque for $1,500 then in December 2004 were sent a letter saying they had to repay $3,000 in FTBs. I found the timing of these events interesting especially as the $1,5000 was sent based on the tax returns they had lodged and not on estimates.
Isn’t the reason it’s delivered like this to make people supposedly super grateful for government largesse?
That’s where a lot of the confusion comes in surely – it’s called a “tax benefit” but you don’t get it with your tax return – effectively it’s delivered through the welfare system with the same “shoot first, ask no questions” tactics Centrelink uses for everything else…
We don’t claim the weekly for fear of debt. As as a casual/contract type worker, I haven’t got a farkin’ clue what my annual income will be.
You can choose either, Kim. You can get it through Centrelink so that it’s helpful throughout the year; but you can also claim it as a tax deduction in your weekly wage, or wait and claim it through your tax return.
But as Zoe says, if you want it throughout the year (which many families do, because most kids tend to want to eat daily, rather than one big feast when the tax return arrives!) you have to accurately estimate your income for a whole year.
Because it’s yearly, there’s also the problem that I mentioned in the post about major increases to income mid-way through the year. You not only lose your entitlement from the time your income went up; sometimes it can be enough of an increase that you have to pay back money that you were actually entitled to during the first half of the year.
Not to mention the juggling to try to keep your income to 20-30 percent of the household income before the attack of the EMTRs.
Yikes. I’m feeling blessed to be single and childless right now.
What happens if you’re in a same-sex relationship with kids btw? Are you allowed to access this stuff or don’t you count as a “family”?
That’s one of the few times when you get to work the system in your favour. If they won’t recognise your partner, then you’re partnerless as far as parenting payment and FTB(B) go!
I thought that’d be the case!
All this makes me happy I don’t have an income. Wait a minute…
Great discussion by the way.
That’s my sister’s family Kim. It’s much simpler because you are treated as a single parent (even if you’ve tried to tell them you’re in a lesbian family).
Re-entering work is also simpler because your finances are “individual” when the gummint doesn’t
recognise your family.
Cheers, Zoe. I’ll keep that in mind for when I marry Bettany Hughes. I’m glad her huge literary and tv earnings won’t affect my eligibility for miserly Australian government payments.