Media Release by The Hon Jenny Macklin MP

A more sustainable family payments system

The Gillard Government is delivering further reforms to secure a fair and sustainable family payments system for Australia’s future.

Labor believes in a strong family payments system that reflects the needs of modern families.

Since coming into Government, Labor has worked hard to modernise the family payments system. We have restructured and improved assistance to deliver more help to low and middle income families when the costs of raising children put the most pressure on the family budget.

We have delivered:

  • Australia’s first national Paid Parental Leave scheme;
  • an increase to the Child Care Rebate from 30 to 50 per cent of out of pocket costs up to $7,500 per child per year;
  • the Schoolkids Bonus to help families with the cost of their children’s education;
  • higher payments for families with teenagers to encourage them to stay in school;
  • family payment increases as part of our Household Assistance Package; and
  • tax cuts to millions of working families.

We have made responsible decisions over a number of Budgets to better target family payments, while also delivering record levels of assistance to low and middle income families who need it most.

The savings from these reforms will be redirected to deliver the Government’s National Plan for School Improvement so that our classrooms are in the top 5 in the world for reading, writing and maths by 2025. The Plan includes new funding arrangements to properly resource all our classrooms, teachers and kids for generations to come.

Abolishing the Baby Bonus – new family payment arrangements for newborns

New family payment arrangements will replace the Baby Bonus from 1 March 2014.
The Baby Bonus will no longer be available.

From 1 March 2014, families eligible for FTB Part A will receive an additional loading on their family payments when they have a new baby to help with upfront costs (if they are not accessing the Government’s Paid Parental Leave scheme).

The extra FTB Part A payments for families will total $2,000 for their first child (and all multiple births) and $1,000 for subsequent children. It will be paid as an initial instalment of $500, with the rest rolled into normal fortnightly payments over a three month period.

These new arrangements more closely reflect the essential upfront costs of having a baby and better targets assistance now that Australia has a national Paid Parental Leave scheme.

This decision delivers on a recommendation of the 2010 Australia’s Future Tax System Review (Henry Review) that “the Baby Bonus should be abolished and a small supplementary payment made in its place”.

The Henry Review found the Baby Bonus provides more assistance than is necessary to cover the costs associated with a new child, and recommended assistance be restructured when the Government delivered a national Paid Parental Leave scheme.

As part of this package, the Government is also making changes to the Paid Parental Leave scheme to make it easier for working mothers with children born close together to qualify for Paid Parental Leave for subsequent children.

Parents will be able to count periods of Government Paid Parental Leave as ‘work’ under the work test, just like employer-funded parental leave entitlements can be counted under current rules.

Together, these changes will save the Budget $1.1 billion over five years.

Continuing indexation pauses

The Government is continuing reforms started in the 2009-10 Budget to better target our family payment system to low and middle income families.

Indexation pauses will be extended on higher income limits for a further three years until 30 June 2017 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 Paid Parental Leave and Dad and Partner Pay individual income limits will remain at $150,000 in the financial year before the birth of the child; and
  • the current higher income free area of FTB Part A will also remain at current levels. For example, the income cut-out for a family with two children will remain at around $113,000. Each family’s income limit depends on the number and age of their children.

The Gillard Government is extending these pauses in indexation to make family payments more sustainable and to better target family payments to low and middle income families.

Fortnightly payment rates for the Family Tax Benefit will continue to be indexed every year to meet increases in the cost of living. The rate of Paid Parental Leave payments are linked to the national minimum wage and therefore are not affected by this change.

The FTB Part A lower income free threshold (currently $47,815) and the FTB Part B secondary earner income threshold (currently $5,037) will continue to be indexed, providing important support to low and middle income households.

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

Continuing the indexation pauses will save $1.2 billion over the forward estimates.

Change to age of eligibility for FTB Part A

From 1 January 2014, FTB Part A will only be paid to families up to the end of the calendar year that their teenager is completing school.

Youth Allowance will continue to be available for eligible young people who need financial support for post-secondary study or while they are looking for work.

With ‘learn or earn’ requirements requiring young people to participate in work, job search, study or training, Youth Allowance is a more appropriate payment to help young people transition from school and into work.

Exemptions will continue to apply for children who cannot work or study due to physical, psychiatric, intellectual or learning disability.

This change is expected to deliver estimated savings of $76.6 million over four years.

Reducing the claim period for family assistance lump-sum claims

Families that choose to wait until the end of the financial year to claim their FTB entitlement or Child Care Benefit (CCB) will now have a grace period of one year instead of two years.

This change will start for the 2012-13 entitlement year, meaning families will have 12 months at the end of the year (until 30 June 2014) to claim their payments.

Families will also have one year to lodge their tax returns in order to receive the end-of-year FTB supplements.

More than 90 per cent of families receive their family payments fortnightly throughout the year, and more than 90 per cent of families already lodge their tax returns within 12 months of the end of the financial year. These families will not be affected by this change.

Families will only be affected by this change if they wait longer than 12 months to claim FTB or CCB for the previous financial year, or to lodge their tax returns.

Families will be able to access extensions in exceptional circumstances, similar to arrangements for tax returns.

This change brings family payment claim periods more into line with time limits for lodging tax returns before penalties are incurred.

This change is estimated to save around $562 million over five years.

Changes to the rules for receiving payments overseas

From 1 July 2014, the length of time that families can be temporarily overseas and continue to receive family payments will reduce from three years to one year.

Currently, families can receive the base rate of FTB Part A and the Schoolkids Bonus as well as Paid Parental Leave payments if they have been temporarily living overseas for less than three years.

This change will ensure payments are targeted to families who need them most.

Members of the Australian Defence Force and Australian Federal Police who are deployed overseas will continue to be able to access these payments for up to three years.

This measure will deliver savings $20.1 million over four years.

This year, the Gillard Government is making sensible changes to our family payments system to ensure every Australian gets a fair go.

We are investing for the future, putting jobs and economic growth first and protecting the important services that Australians rely on.