05 August 2012

4 Parliaments - single income couple edition

This is the third episode of my 4 Parliaments series, comparing the tax-transfer system changes for different household types across the last 4 governments.  The first looked at single people aged under 55 years, the second, single parents.  This one features single income couples, and while I've already looked at them in a few earlier posts, none covered the 4 Parliaments thing.  So while this post might be single income couple overkill, it will enable comparisons with the other households should you feel so inclined.

In the following charts, both members of the single income couple are aged under 55 and there are no children involved. If this is your first foray into my 4 Parliaments posts, the idea is that you can look at a particular private income and see how the household type's disposable (after tax and transfer payment adjustments) changed from the beginning to the end of the government term of interest.

The private income is the same in July 2012 dollar terms at all times.  That means it's been CPI adjusted when looking at past periods to reflect the same dollar values.

First up, a line chart showing the change in disposable income caused by the tax-transfer system over the term of each of the last 4 governments (the current one up to 2012).  

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Here we have two almost opposing outcomes in Parliaments 41 and 43.  The 41st Parliament (the last under Howard) provided tax-transfer system gains at all income levels except at the very low (and zero) end.  In contrast Parliament 43 has provided gains at the low income end, and reductions almost everywhere else.  I'll look at each of these in more detail to show what made up these changes, but before doing so let's start with the (in comparison) deadly dull Parliament 40.

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There's really not much to say about this one, except to note the decline in the Newstart allowance (NSA) which looks like it gradually loses value as income rises.  This reflects the lack of any indexation of the NSA income test.  The maximum rates (at zero private income) are readjusted each 6 months in line with upward movements in the CPI  and so theoretically don't change in value across the Parliamentary term.  At the higher end we can see the effect of tax cuts, plus a short-run dip starting at around $125,000 which is due to the non-indexation of the medicare surcharge threshold (none of these families have private health cover).

In contrast, it's all happening during Parliament 41.

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Here we have tax cuts all the way, except for the very low income end (where income tax cuts had no effect because income tax wasn't being paid).  However, you can also see that increases in NSA, rather than tax cuts, are the main driver for the gains in disposable income for incomes up to roughly $40,000.  These increases stem from the relaxation of the NSA income test, rather than from changes in the maximum rates of NSA.  The gains are more extensive than for a single person simply because more of the couple's NSA was subject to the higher taper rate in the NSA income test (70 cents in the dollar) than was the case for a single person.  Consequently, single income couples had bigger gains when this taper was reduced to 60 cents in the dollar.

There is still a small reduction in NSA though, more or less right at the start of the income range.  This is because not all of the income test parameters were changed - the income test free area remained at $62 a fortnight, resulting in the slight loss of value shown here as inflation reduced its value over the term.

The next government - Rudd-Gillard - also had a tax cut agenda and the effect of those is the most prominent feature of the following chart.

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While not as substantial as the tax cuts under the preceding Parliament they are still significant.  Remember, these are CPI adjusted results - a positive value means that tax cuts were larger than required to offset inflation, giving a real increase in disposable income across equivalent income points.  There is also a noticeable gain from changes to the medicare levy surcharge - the threshold at which it cut in was increased significantly.

If you can be bothered comparing this chart to the one for the same period in my single people post (here) you'll notice that the tax cuts in the chart above are noticeably reduced at a little under $160,000. This reflects the introduction of the rule cutting of entitlement to the tax offset in respect of a spouse where the first earner's income exceeded $150,000. (The difference in the charted value and the original $150,000 is because all the charts are using July 2012 dollar values - $150,000 back then is worth more now).

At the low income end we see a continuation of the decline in Newstart flowing from non-indexation of the income test.  There's also an apparent decline at zero private income, implying a reduction in the maximum rates.  However, this is really an artefact of the election dates relative to the dates on which the indexation of NSA rates occurs, rather than an actual reduction.  The August 2010 election signalling the end of this Parliament was just before the CPI increase to rates (September).

Finally, we get to the other big change results - the current (or 43rd) Parliament.

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July 1st 2012, which is where this chart ends, saw the introduction of carbon pricing and the associated household compensation measures.  The bright green on the chart at the lower income end reflects the clean energy payments made to this type of household.  There is also a tax cut peaking at around the $20,000 private income mark.  However, at higher incomes the picture is dominated by the removal of the spouse offset mentioned above in relation to Parliament 42.

The apparent (and small) increase in NSA is the reverse of the effect mentioned earlier (Parliament 42) - an artefact of timing, not a real change.

Barring an early election, there is still over a year to run for this Parliament.  However, the flow-ons from carbon pricing are yet to appear in the CPI, but the effect will almost certainly be to pull the final disposable income (DI) change downward, albeit slightly.  With the exception of the very low income end of the spectrum, it's difficult to see this household type doing better from the tax-transfer system during the remaining term of the current Parliament.

There are plenty of other groups I could look at in this 4 Parliament series, but students and age pensioners are probably next.  But which?  Where's that coin...

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