Supporting Australian families through a sustainable family payment system

The Gillard Government is making important changes to the family payment system to make it fairer and simpler, and ensure its long-term sustainability.

At the same time, the Government is providing more support for low and middle income families raising children through our election commitments to increase family assistance to support teenagers in school, make advance payments more flexible and encourage parents to get health checks for their children before they start school.

Finding room for these important measures in a Budget that makes substantial savings to return to surplus in 2012-13 shows the strength of the Government’s commitment to support Australians families.

Supporting families with teenagers

The Government recognises that the cost of raising children does not fall as children get older.

That is why from 1 January next year, the maximum rate of Family Tax Benefit (FTB) Part A for 16-17 year olds in secondary school will be increased by $4,208, and for 18-19 year olds in school by $3,741 per year.

This will help families with the cost of raising older teenagers and encourage teenagers to stay in school.

The change will align the maximum FTB rate with the 13-15 year old rate and ensure assistance for families does not fall when children turn 16.

FTB Part A will only be available for families where their teenager is in full time secondary study (or the vocational equivalent).

The families of around 650,000 teenagers turning 16 over the next five years could benefit from these substantial increases, if the young person stays in school. These changes will cost $771.9 million over five years.

Family Tax Benefit will be the primary payment for dependent full-time secondary students living at home. Youth Allowance will continue to be available for those children who meet other eligibility criteria.

Aligning FTB Part A eligibility with Youth Allowance age of independence

From 1 January 2012, the Government is also lowering the maximum age of eligibility for FTB Part A from 24 to 21, recognising that young people aged 22 and over are considered independent.

This will bring FTB Part A in line with the reduction in the Youth Allowance age of independence to 22 from 1 January 2012.

Young people aged 22 and over in full-time study may be able to access Youth Allowance independent of their parents’ income, subject to means testing and academic progress rules.

Together these reforms ensure the family payment system is focused on education and participation, by supporting families while their dependant children are in study or training.

This will deliver a saving of $29.2 million over four years.

More flexible advance payments

From 1 July 2011 families will have access to more flexible advance payments of FTB Part A. This will mean families facing unexpected costs – such as the family car breaking down – will have quick and easy access to advance payments and will not have to resort to high-interest loans or credit cards.

Families will be able to advance a maximum of 7.5 per cent of their total rate of FTB Part A payment, up to $1000. For example, a family with two children under 12 will be able to receive an advance payment of up to $644.

Families will be assessed to ensure they are able to repay the advance without falling into financial hardship.

The new flexible family payment advance arrangements will cost $62.4 million over five years, including $5.1 million in 2010-11.

Healthy start for school

To improve the health and wellbeing of Australian children, families on an income support payment will need to ensure their four year old child gets a health assessment prior to starting school, before payment of the end-of-year FTB Part A supplement can be made.

Health assessments help identify any physical health issues such as hearing or sight impairment, as well as developmental conditions and delays prior to starting school, so that children start school ready to learn.

This new requirement will start on 1 July this year and will help make sure 92,000 children each year get a pre-school health assessment. It will cost $12.1 million over five years, including $4.8 million in 2010-11.

Indexation of higher income limits

To ensure the family payment system is targeted to those who need it most, the Government is building on reforms introduced in the 2009-10 Budget that better targeted the family payment system to focus on low and middle income families.

To do this, the Government will extend indexation pauses on higher income limits for a further two years until 30 June 2014 in the following areas:

• the FTB Part B primary earner income limit will remain at $150,000;
• the income limit for receiving dependency tax offsets will remain at $150,000;
• the Baby Bonus eligibility limit will remain at $75,000 family income in the six months following the birth or adoption of a child (equivalent to $150,000 a year);
• the Paid Parental Leave income limit will stay at $150,000 for the primary carer in the previous financial year before the birth of the child; and
• the higher income free area of FTB Part A will remain constant. For example, this means the income cut-out for a family with two children under 18 will be limited to around $113,000 in 2014. Each family’s income limit depends on the number and age of their children.

Pausing the amount a family can earn before they are no longer eligible for family payments is a reform that limits growth, and improves targeting of family payments to low and middle income families. These changes will help to make the family payment system sustainable for the long-term, saving $1.2 billion over the forward estimates.

Fortnightly payment rates for Family Tax Benefit and the Baby Bonus will continue to be indexed every year to meet increases in the cost of living. The rate of Parental Leave Pay is linked to the National Minimum Wage and is not affected by this change.

The FTB Part A lower income free threshold (currently $45,114) and the FTB Part B secondary earner income threshold (currently $4,745) will continue to be indexed, providing support to low and middle income households.

In addition, the annual end of year Family Tax Benefit supplements will be held at the current levels for the next three years, delivering savings of $803.2 million over five years. The current supplement amounts are $726 per child for FTB Part A and $354 per family for FTB Part B.

The Family Tax Benefit end of year supplements were introduced in 2004 to address overpayments of family payments that arise from parents incorrectly estimating their income for the year. The proportion of families with a family payment overpayment has decreased from 32 per cent in 2002-03 to eight per cent in 2007-08.

Pausing indexation on the supplements will help make family payments more sustainable.

Australia’s spending on family payments is generous by international standards. The most recent analysis shows our spending on cash family benefits was 1.76 per cent of GDP in 2007, well above the average of 1.17 per cent.

Paid paternity leave for fathers

The Paid Parental Leave scheme began on 1 January 2011, and is already helping working mothers as they take time off to care for their newborns.

When introduced, Australia’s Paid Paternity Leave will also provide additional financial assistance at a time when family income is reduced, particularly if the father would otherwise be taking unpaid leave.

To ensure it is properly implemented, the scheme will begin on 1 January 2013, instead of 1 July 2012.

This will allow more time for consultation with businesses and families, and ensure legislation can be drafted and introduced into the Parliament during 2012.

This new start date will provide a saving of $33.3 million over five years.

These measures will deliver a fairer, sustainable and targeted family support system for low and middle income Australians that encourages participation and productivity.