14 July 2012

4 Parliaments - single parent edition

In my last post I looked at how single people had fared under the tax-transfer system changes that have occurred over the lives of 4 successive Parliaments, ending with the current Gillard goverment  in Parliament 43.  This time I thought I'd take the same approach, but for single parents.

I can't think of a way to show what's happened to all the possible single parent household types, so instead this post will focus on a single parent with 2 children, aged 8 and 10.  I've picked this family because having the youngest child as an 8 year old brings to attention the significant change to single parent income support eligibility that occurred in Parliament 41 (the last Howard government).  That change involved lowering the age of the youngest "qualifying child" that could attract entitlement to parenting payment for a single parent (PPS) from 15 to 7.  Prior to the change, when the youngest child turned 16 the parent's entitlement to PPS was lost and some other income support - usually Newstart allowance (NSA) - had to be claimed if required.  Since July 2006 this change now occurs when the youngest child turns 8.

I'll use the same format as I did with the single person, and start with a "spaghetti" chart which compares the results for all 4 Parliaments at once.  And here it is:

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If we untangle this a little we can see that at zero private income (which is telling us what the change in maximum rates of assistance were), the Howard governments provided both the biggest gain (Parliament 40) and the biggest loss (Parliament 41).  Parliament 41 also provided the biggest jump in disposable incomes for those with private incomes of $60,000 a year or more.  All in all, Parliament 41 looks to have been a doozy!  Next, let's look at each Parliament in more detail to see what made up these changes.

First up, Parliament 40, the second-last Howard government.

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The first impression here is YELLOW.  Yellow is the key for Family Tax Benefit Part A (FTB A) in this chart and here we see the Howard government's fabled increase in assistance for families with children in action.  In comparison, tax cuts over this period were fairly minimal (but don't forget this government's term started in 2001, not long after they had reworked the tax scales as part of their GST implementation the year before).  Income support payments (in this case PPS) also increase in CPI adjusted terms because that payment is linked to wages growth rather than just the CPI.

The reason I left such a large unused area below the zero line in the chart becomes apparent when we switch to the next goverment in Parliament 41...

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Parliament 41 had a much more substantial impact on tax-transfer system outcomes for single parents than Parliament 40.  This session saw the change in the age of youngest qualifying child rule for PPS discussed at the beginning of this post.  It also has the largest tax cuts of the 4 Parliaments we are looking at.

The PPS change shows up as the large orange area in the negative region.  I should explain that this change was not actually inflicted on people already getting PPS, just new applicants.  Existing PPS recipients were protected, or "grandfathered" from the change.  So what we are seeing in the chart is the % difference in disposable income between a 2-child single parent coming onto payment at the start of this goverment and one coming onto payment at the end.  I mention this because of the current controversy over the budget changes to single parents, which will see those grandfathered cases become subject to the rules that have applied to all new cases since 1 July 2006.

Apart from the PPS change and the tax-cuts you can also see an increase to the other main family tax benefit component, FTB Part B.  There's also an increase to FTB A over a more limited income range which stems from changes to the income test free area for that payment, rather than payment rate increases as such.

The next government was tame in comparison...

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The story here is a continuation of tax cuts, albeit not as generous as in the previous period, but perhaps more significantly, a winding back of some of the family assistance payments at higher incomes.  The blue area shows the result of removing access to FTB B for those with incomes over $150,000 a year (it's higher than that in this chart because I'm using current $ value, and $150,000 back then was worth more than it is today).  There's also a decline in FTB A over a limited income range which is a consequence of suspending the indexation of the income test free area.   However, even with these reductions the overall story is an increase in income in CPI adjusted terms at almost every income level.

Finally we come to the current government.

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Obviously, this is not the full-term - there's still over a year to run before elections begin to fall due.  What we are looking at here is the outcome to date.

One thing to note is there are more bits and pieces in play than in the earlier charts.  1 July 2012 sees the start of clean energy payments, a new single income family supplement and the school bonus payments.  The clean energy payments (in bright green, of course) actually make up a signficant part of the overall increase in disposable incomes for those on lower, or no, private incomes.  The continued wind-back of family assistance at higher incomes also shows up as both FTB A and B have had reductions over the period due to indexation pauses.  The tax cuts, except for those under $40,000, don't seem to have been enough to offset inflation (so far).

The school bonus is a bit of a problem for me presentationally.  It's a replacement for the education tax refund (ETR) which I have not shown in the earlier charts.  I left it out because the old-form ETR was tied to expenditure (with its associated record keeping requirements) and, according to the rationale for its removal, was not being taken up at anything like the expected rate.  In contrast, the school bonus is paid "automatically" and so I have to include it.  But whether it is as much of a gain as is shown in the chart depends on the extent to which it was being taken up previously.  That's why I've chosen to give it the unusual colour scheme - to flag the uncertain nature of the actual improvement to disposable incomes that it contributes over the period.

A noticeable difference in the outcomes under the current goverment compared to the preceding 3 is that this is the first in which disposable incomes appear to have fallen consistently at higher incomes.  This was also the result for the single person cases I looked at in the previous post.  It's not a huge reduction - less than 1% for much of affected income range - and other factors will influence the final position of such households (eg, wages growth, the level of interest rates), but it is a distinguishing feature of the current government.  You might even say it's a little...redistributive.

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