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Is the budget pain being shared fairly?

18 May 2014

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Peter Whiteford is a Professor in the Crawford School. He works on child poverty, family assistance policies, welfare reform, and other aspects of social policy, particularly ways of supporting the balance between work and family life. He has published extensively on various aspects of the Australian and New Zealand systems of income support. He teaches Social Policy, Society and Change (POGO8024) and Social Policy Analysis (POGO8025).

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The Federal Budget asks some to contribute more than others write Peter Whiteford and Daniel Nethery.

The Treasurer, Joe Hockey, has once again declared the age of entitlement to be over.

In his Budget speech he said “it is only fair that everyone make a contribution” to reduce the deficit.

Most households will contribute through the $7 charge for standard GP consultations. Pharmaceutical co-payments will also increase.

Individuals earning more than $180,000 per year will see their marginal tax rate increase by 2 per cent for the next three years, and fuel excise tax indexation will be reintroduced.

Changes to government benefits will also deliver significant savings, but unlike the Temporary Budget Repair Levy, these changes will be permanent.

Some measures will affect relatively well-off families receiving Family Tax Benefit (FTB). Other changes will affect all benefit recipients. The Government proposes to freeze all income-test thresholds for most benefits for three years, and FTB payment rates for two. Freezing payment rates is regressive, since lower-income families bear proportionally higher cuts.

The most substantial cuts will involve those families who lose entitlement to FTB Part B, worth just over $3000 per year, when their youngest child turns six and is at school, although transitional arrangements will apply until July 2017. Low income lone parents will instead get a payment of $750 dollars a year per child aged 6 to 12 years.

There will be no transition for unemployed people under 25, who will receive Youth Allowance rather than Newstart. People under 30 will be required to wait for up to six months before getting unemployment benefits and then Work for the Dole.

The Budget papers make it difficult to tell how the savings will be spread. Since 2005, the Budget Overview has contained a table setting out how different household types stand to gain from policy changes. This year, the table is conspicuously absent.

Using the projections set out in the Budget, we have therefore replicated the methodology used in earlier Budget papers, comparing the impact on disposable incomes in 2017–18, when all of the measures have come into effect.

We find that people on benefits do the heaviest lifting. An unemployed 23-year-old loses $50 per week or 18 per cent of their disposable income. An unemployed lone parent with one 8-year-old child loses $60 per week or 12 per cent.

Lone parents earning around two-thirds of the average wage lose between 5.7 to 7.1 per cent of their disposable income. A single-income couple with two school-age children and average earnings loses nearly $90 per week or 6 per cent of their disposable income.

Compare this to the $29 or less than 1 per cent of disposable income paid through the Deficit Levy by an individual on three times the average wage – close to $250,000 by 2017–18. High-income couples could together bring in up to $360,000 per year and not contribute an extra cent.

These calculations do not take into account rent and child care. Nor do they include increased costs of health care and fuel or changes to education.

Households stand to save $550 per year if power prices fall due to the abolition of the carbon tax. This is likely to have a mildly progressive effect but this would offset less than one-fifth of the losses for the unemployed. The pain will be greatest for working-age people at the lowest income levels. The Treasurer has asked everyone to contribute, but some are being asked to contribute more than others.

This piece was originally published by Fairfax Media:

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