Tax and Transfer System Reform – 2009 Economic and Social Outlook Conference
*** Check Against Delivery ***
I would like to acknowledge the traditional owners of the land where we meet. I also want to thank the organisers – the University of Melbourne and The Australian, for convening this session. I want to begin by speaking about something which, at first glance, may appear to have no obvious connection with the deliberations of the conference’s tax and transfer session. But to my mind, it crystallises why it’s such an important policy area.
In just over a week’s time the Australian Government will make a national apology to half a million Forgotten Australians and former child migrants – the children who were placed in institutions and foster homes during the last century. Through this apology, we are acknowledging that these children were deprived of love and care. They spent their childhoods in austere, authoritarian places where names were replaced by numbers, spontaneous play by regimented routine, education and learning by menial work. And this blighted their lives. We are acknowledging the failures of the past when there was an inadequate social safety net. No proper system to support them when a parent got sick or died; when fathers didn’t come back from war. No alternative for many mothers but to turn their children over to institutions and orphanages – into the care of the church and the state – because there was simply no way of putting food on the table or keeping a roof over their head. Of course, the lack of social support was by no means the only reason why the hundreds of thousands of Forgotten Australians experienced such a childhood. But it was the reason for some. The lack of an adequate social safety net ruined the lives of thousands of Australia’s children. There can be no more fundamental reason to have a strong social safety net, than to prevent this ever happening again.
Today there is a safety net for families and children. And Australia has a national government committed to a safety net which is both fair and adequate. Committed to innovative and responsive social policies – to support people, especially children, when they need it. Through the tough times. But also through times of change and transition.
Anticipating and preparing for the shifts that drive the social and economic life of the nation. Building the capacity of all Australians to provide for themselves and their families.
To do this, our support structures must be smart enough and flexible enough to deal with the modern reality of lives in transition. For families, many of these transitions are predictable – all part of the life cycle. Having kids, raising them, children leaving home, caring for elderly parents, growing older ourselves. Modern social policy anticipates and plans for these predicable events.
Like having a baby. Which is why for the first time we are introducing a Government-funded paid parental leave scheme – to give our children the best start in life during those early weeks and months which are vital for social, cognitive and physical development. Our scheme, means tested at $150,000 on the income of the primary carer, will have wide reach with 148,000 primary carers being eligible each year. Providing 18 weeks leave at the adult federal minimum wage – currently $543 a week. We estimate that by topping it up with other leave, most babies will be able to be cared for exclusively by their parents for the first six months of their lives. The national scheme will provide many low income women with access to paid parental leave for the first time. In 2007, less than one quarter of women on very low wages had access to paid maternity leave, compared to three quarters on high wages. Critically the scheme will help more women stay connected to the workforce.
And when you consider that by 2050 one in four Australians will be 65 or older – boosting women’s workforce participation is essential. Of course, for full-time mums not in paid work the Baby Bonus and Family Tax Benefits will continue to be available for eligible families. For example a stay at home mum with a partner on average earnings will continue to receive around $10,000 in Government assistance in the year after the birth of their first baby and around $12,000 in the year after the birth of a second child. When parents return to work we have also made historic commitments to early childhood education and child care.
Of course, ever changing social and economic dynamics mean that policy development must always be a work in progress. And fronting up to the hard realities, one legacy of the welfare state has been to provide some people with no incentive to move beyond its reach. We see this in the generations of children who grow up in households with no experience other than joblessness. Where welfare can entrench disadvantage rather than providing a pathway out.
Our tax and transfer system must improve these incentives. Achieving this is a delicate and complex policy balance – providing essential income support when it’s needed; providing support for parents to nurture their children, but also encouraging work. And while most parents do the right thing by their children, let’s face facts – in some cases parents do spend this money on the exact opposite of what it is intended. In some cases welfare and family payments are not spent for the benefit of children. This is an issue we need to both acknowledge and confront head on.
It’s also essential to take into account the changing shape and size of Australian families. While most children still grow up in a two parent family, families are getting smaller. In 2007, there were around 1.9 million couple families with children, about 520,000 lone parent families with children, and 174,000 blended or step families. Compared with 30 years ago, separation and re-partnering are much more common. Many people marry later, have fewer children and are older when they have their first child. And both parents work more.
At the heart of our support for families is the family payment system. To give you a sense of current scale: three quarters of all Australian families with dependant children receive Family Tax Benefit and in 2009-10 around 2.2 million families with 4.3 million children are expected to receive FTB at an estimated cost of $17.3 billion. Viewed alongside other developed economies, Australia is rated low-taxing, with a highly redistributive tax-transfer system and generous family payments. A high proportion of our assistance to families is provided in the form of cash transfers, rather than as tax deductions or government services. The most recent analysis shows our spending on cash family benefits was equal third highest in the OECD, at 2.2 per cent of GDP, well above the average of 1.3 per cent.
So the discussion of the future of our tax and transfer system needs serious and detailed consideration of family payments. This is a central part of the review of Australia’s Tax and Transfer system, headed by the Treasury Secretary Ken Henry – answering the fundamental question: how should government support Australian families, to nurture and care for children, to support parents balance their work and family commitments and respond to their changing needs?
We know that around half of mothers with partners return to work before their child is two years old – most of them part-time. For single parents it’s around 29 per cent. And by the time their youngest child is seven years old – 55 per cent of single parents and 64 per cent of parents with partners are back working, with half of them working at least 30 hours a week. For them, the family assistance model is not work or family. It is emphatically work and family. We need to consider how to appropriately balance supporting mothers who stay at home full-time or work part-time when their children are young while better recognising that most families opt for reduced work rather than no work and the preference of many mothers to keep their attachment to work.
Recently my Department conducted some focus group research into the family tax benefit system. Of those families surveyed:
- Most said that family assistance should be fair and focus on those in need;
- 71 per cent said family tax benefit was very important to their family; and
- One in five were discouraged by aspects of the family assistance system and its interaction with work.
Families were clear in their view that checks and balances are needed to make children benefit from family payments. The majority also described the system as complex and difficult to understand with many finding the income reporting requirements very difficult to meet. To keep the system fair we have introduced a means test for the Baby Bonus and Family Tax Benefit Part B, equivalent to $150,000 a year. And responding to concerns about the impact of the Baby Bonus paid as a lump sum – now more than $5000 – this payment is now paid in thirteen fortnightly payments. We have made changes that make definitions of income more equitable and consistent across Government payments. The cumulative effect of our family payment savings measures in the last two budgets has been to constrain expenditure by more than $3.5 billion over the forward estimates. This has been balanced by reform measures including paid parental leave, the education tax refund and the increase in the child care rebate. We are also working to make the transfer system easier for families to navigate:
- streamlining administration by directing all claims through Centrelink and the Family Assistance Office; and
- making dealing with the various arms of government simpler.
For example, currently the amount of time separated parents spend caring for their children is calculated separately by both Centrelink and the Child Support Agency. Same parents, same children, same Government, two different agencies – and often two different levels of care are determined.
So from July next year we’ll make this calculation once and use a single care determination in both Government agencies. It may sound like a small step, but for separating families, it removes one of the features of the current system that was frustrating and illogical.
We are also introducing new rules to reduce family payment debts and to make sure families are being paid the correct amount of benefits. Over the next two weeks around 50,000 families will receive a letter from Centrelink reminding them that they need to submit their 2007-08 tax return so they can continue to be paid their family tax benefits by fortnightly instalments.
Currently families can continue to receive family payments every fortnight even though they have not lodged their tax returns for previous years. After two years of non-lodgement, families have their entire amount of Family Tax Benefit raised as a debt against them, even the part they should be entitled to. This occurs because without a tax return, Centrelink has been unable to verify their correct taxable income. Families keep receiving payments, and those payments keep being raised as debts. Debts go up and up. Non-lodger debt now totals $397 million. We know that families who fail to lodge their tax returns and reconcile their family payments can also miss out on the end of year supplements they are entitled to. So from January next year, families who have yet to lodge their 2007-08 tax return – the one from almost two years ago – will have their fortnightly payments suspended until they lodge. Once these tax returns are lodged, debts are reconciled and then fortnightly payments resume. Families who are not required to lodge because, for example, they didn’t earn enough money, just need to let Centrelink know that simple fact.
Another key transition in a family’s life occurs when children move from being dependent, living in the family home, to being an independent adult in the workforce. The family payment and income support systems currently recognise this transition with different rules for children when they turn 16 – a remnant of a time when a much smaller proportion of young people went through to Year 12. Now when most children turn 16 – they still live at home, they’re still dependent on their parents and still in secondary school. In April this year, recognising the value of completing secondary school and of the impact that early school leaving has on a young person’s lifelong employment outcomes, the Council of Australian Governments agreed on a plan to increase young people’s participation in education and training. These changes include a Compact with Young Australians – that guarantees an education or training place for under 25s. In support of these initiatives, I have recently introduced legislation into the Parliament that will make secondary education a requirement for payment of Family Tax Benefits for young people aged over 16. From next year, a child aged 16 to 20 will have to be studying towards Year 12 or equivalent qualification, or have completed such a course, to be eligible for Family Tax Benefit Part A.
These are very significant changes. They are a clear statement that family payments are provided for a purpose. That is: they should be directed in the best interests of children. Education is a key driver of future success for children; our family payments system will support this policy goal.
At a more fundamental level the purpose of these payments is to feed and clothe children. To help provide the basics of life. That’s what drives our trials of income management to support child protection in Western Australia, the Family Responsibilities Commission in Cape York, and the system of income management in the Northern Territory. Ensuring that payments provided by the community are spent in the best interests of children. Early results are promising with many communities showing an increase in the purchase of fruit and vegetables, and other essentials. These are some of the new approaches that we are developing to address serious social issues.
The Government is determined to continue crafting a family payments system that is adequate, fair and simple. A system that underpins a social safety net that always puts the care and support of Australian children first. Which, at the same time, incorporates effective, targeted incentives to construct a system that, in itself, can be a pathway out of welfare. Our reforms have started, but much more remains to be done.