9.5 Family Tax Benefit
Family payments provide an important means of financial support to families. However, years of iterative change have led to a system that attempts to meet mixed objectives that could be better targeted to those most in need and to better reflect the costs of children. Further, overlapping means tests in the system create disincentives for parents, particularly mothers, to participate in the workforce.
Australia’s Future Tax System (2010) (‘Henry Tax Review’) found that, in terms of meeting the costs of children, the current system was more than adequate for young children, with room for better alignment with what research shows about child costs increasing as children get older and the decreasing marginal costs of additional children.
Rationale for government intervention
The key rationale for government to provide assistance to families with the costs of children, as distinct from income support payments, is to ensure that children have an acceptable standard of living. Ensuring that families have adequate income to cover the costs of children also contributes to the broader objectives of poverty alleviation and social inclusion.
Addressing vertical and horizontal equity is also the rationale for the provision of family payments. Vertical equity is the concept that people with lesser means should receive greater assistance, while those with a greater capacity should shoulder a greater financial burden. It suggests that assistance be targeted to families who need it most, with less or no assistance going to families on higher incomes who are able to provide an acceptable standard of living for their children without additional support.
Horizontal equity is the concept that people with similar capacity to pay should pay a similar amount. Taking into account the costs of their dependent children, families do not have the same financial capacity as an individual or couple on the same income without children.
In designing family payments there are trade-offs between the adequacy of assistance; appropriate targeting to those in genuine need; and the desire to maintain incentives for parents to participate in the workforce, particularly secondary earners.
Current structure of the programme
Family Tax Benefit (FTB) is the primary government support to families, with the broad stated objective of supporting low and middle income families with the costs of raising children. It is delivered in two separate payments – FTB Part A
(FTB-A) and Part B (FTB-B). Families may be eligible for either or both payments. Unlike income earned in the workforce, FTB payments are exempt from income tax.
FTB-A is paid per child to assist with the direct costs of children (e.g. to cover their food, housing, clothing etc). Rates increase with the age of the child. The payment is income tested based on family income, and the higher income test threshold increases with each additional child. As shown in Chart 9.5.1, the maximum rate of FTB-A is $5,303 per annum for each child under 13 years, and $6,680 per annum for each child aged 13-15 or 16-19 and in full-time secondary school.
Chart 9.5.1: FTB-A income test for a family with two children under 13 years
Source: National Commission of Audit based on Department of Human Services, 2014.
Eligibility for FTB-A also provides eligibility for several health concessions, including access to the Health Care Card (HCC), reduced co-payments for medicines under the Pharmaceutical Benefits Scheme, access to the concessional threshold of the Extended Medicare Safety Net, more fully subsidised services under the Medicare Benefits Schedule and access to the new Child Dental Benefits Schedule (Grow Up Smiling), which commenced on 1 January 2014. Families receiving FTB-A may also be eligible for Rent Assistance.
FTB-B is targeted to single-income families and is designed to help with the indirect costs of children, that is to assist parents (including sole parents) who are not working as they are caring for children. It is also aimed at providing assistance to sole parents with their additional direct costs of children.
FTB-B is paid per family (regardless of the number of children) and has a two-part income test. To be eligible for FTB-B the primary earner’s income must be below $150,000. The rate of FTB-B that is received is determined by the secondary earner’s income (where applicable – sole parents receive the maximum rate). If it is below $5,183, the family receives the maximum rate, above which the family’s rate of FTB-B is reduced by 20 cents in the dollar until it reaches nil, as shown in Chart 9.5.2. The maximum rates of FTB-B are $4,241 per year for families with a child under five years, and $3,070 for families whose youngest child is aged between five and 18.Source: www.ncoa.gov.au