FAMILY INCOME AND TAXATION
A well functioning family is the greatest asset of any nation. It produces and nurtures our most valuable resource, our children. It cares for elderly relatives and provides an emotional sanctuary for all its members. The benefits to society of a healthy family are demonstrated most clearly by the costs incurred when a family breaks down Ė social security, legal, accommodation, medical, etc.
Why should society support families in the raising of their children?
Some of the familyís economic activities include:
These economic functions are mainly carried out outside the money economy and the national accounts. Over and above the measure of annual production (GDP) the family contributes and amount of wealth estimated to be around 60% of GDP.
Until 1941, assistance to families in
†In 1976, Child Endowment and all tax concessions for children were replaced with a single payment direct to the primary carer, Family Allowance. Family Allowance was not means tested or indexed. This led to substantial erosion during a period of high inflation. At about the same time the Dependent Spouse Rebate replaced all previous deductions for spouses.
In 1983, the
Family Income Supplement was introduced. This was an income-tested per child payment
made to low-income families.† The
increasing emphasis on low-income families over these years, coupled with the
fact that Family Allowance was now worth very little in real terms, led to the
means testing of Family Allowance in 1987. This was the end of any form of
universal assistance to families for children in
In 1994, the Dependent Spouse Rebate was replaced by the Home Child Care Allowance, a payment made directly to a non-earning spouse. Also during the 1990ís, indexation of all family payments was introduced.
In 1997, the Howard Government returned to the concept of family assistance provided through the tax system, with the introduction of Family Tax Payment (Part A) for children, and (Part B), for a non-earning spouse, and Family Tax Assistance (Parts A and B) for low-income families. These payments could be taken either as direct payments, or as tax rebates.
Today, following the restructuring of the tax system in 2000, family payments have been somewhat simplified into three main payments:
The means-testing of FTB(A) creates a poverty trap for many low income families. In addition to tax of 30 cents in the dollar payable on† income earned over the threshold, they also lose 30 cents of FTB(B) out of the same dollar; an effective marginal tax rate (EMTR) of 60%.
Increasingly, middle income earners are finding themselves in higher and higher tax brackets. In fact, as incomes rise, in line with the cost of living, the value of the July 2001 tax cuts will be completely eroded. A study by Taxpayers Australia has concluded that by 2008, more than 35% of taxpayers will be in the highest tax bracket.
WAA believes that some form of tax indexation needs to be introduced, preferably based on a proportion of average weekly earnings, (eg: the tax free threshold applies to 15% of AWE, and so on up the scale).
This would provide a reasoned basis for the calculation of taxation, by recognising that, at a certain proportion of AWE citizens should not be required to pay tax, while at the other end, over a certain proportion (eg 175% ) the top tax rate should apply.
The redistribution of the tax burden in 2000, to encompass a greater reliance on indirect tax in the form of the GST, appears to have had a negative impact on many families, particularly those at the lower end of the income scale.
While recognizing that the package of assistance implemented at the time, particularly the Family Tax package, has gone some way to alleviate this burden for many families, WAA is concerned that there has been no authoritative research to assess the actual impact on families in real terms.
WAA further believes that one of the great burdens of the GST is its imposition on energy supplies (gas and electricity) and telephone services. The supply of energy and at least the provision of a single telephone landline service should be regarded as a necessity and be provided GST free.
Means testing of Family Tax Benefit Part A - is in contradiction to the very nature of the payment, which is intended to recognise in some small way the impact of the cost of raising children, and the social benefit which families provide in performing this task. The level of income is irrelevant in this case. The appropriate comparison is with a taxpayer on the same level of income without dependants. There should be a basic unmeanstested family tax benefit that applies to all families.
Without this a higher income taxpayer with several dependants (eg wife and three children) is required to pay almost the same amount of tax as a single earner with no dependants on the same higher income. This is plainly unfair and offends against horizontal equity.† Our current system fails to recognise the costs and responsibilities of child rearing to all parents and to accord every child some status within it.
The maximum rate of Family Tax Benefit Part B should not be reduced when the youngest child in the family reaches 5 years of age.† The reduction of this benefit when the youngest child turns five gives the strong impression that the Government believes that when there are no pre school children in the family the household work ceases & the motherís work is over.
We acknowledge that when children commence school many mothers seek some paid work, usually part time, to supplement the family income or to resume their professional careers.† We also acknowledge the Government's good intentions in easing the tax burden in the early years when the children are young and the mother is most likely to be at home full time.† However, most parents believe primary school aged children are too young to come home to an empty house and they have very realistic concerns about those in the lower years of high school doing so also.
The maximum rate of Family Tax Benefit Part B (i.e. the rate currently paid where there is a child under 5 year of age) should apply to any taxpayer who has a non earning spouse
The income test on the primary caregiver for FTB(B) is too stringent. One of the great inequities of the current system is that many families receive no benefit from either FTB(B) or the Child Care Benefit. These families, usually on one and a half incomes, structure their paid work structure so as to ensure that one parent is always home with the child. This usually occurs when the secondary earner works night shifts or weekends. These secondary earners would rightly regard their main job as that of primary caregivers, or mothers.
WAA believes the current income test on FTB(B)† does not take into account the reality of many womenís lives. It should be phased out much more slowly, to allow more mothers who work part time to have their primary role recognised.
PRINCIPLES WHICH SHOULD GOVERN FAMILY BENEFITS POLICY
WAA believes however that the tax and family payments system needs to be reviewed to simplify it and make it more equitable for all families regardless of how they structure their paid and unpaid roles.
∑ All family payments and tax benefits MUST take into account the number of dependants.
∑ The effect of the combination of tax and family payments should be neutral, ie: total net family income should as far as possible not be affected by the way that income is earned.
∑ A major priority at all times should be the reduction of poverty traps.
∑ Family payments and tax benefits should as far as possible be simplified and streamlined, taking into account the first three principles.
∑ As a matter of principle, WAA believes that a basic family payment and/or tax benefit should be available to ALL families with dependents regardless of income.
There are two possible methods of fulfilling these principles; the first through the transfer system, the second via the tax system.
Method 2: Family Unit Taxation: Under this method,
similar to that which operates currently in
Total family income would be divided among the number of units, and the tax would equal that payable on each individual unit multiplied by the number of units.
The system is
flexible enough to provide for different family types equitably. For example,