Here is a simple case study that may blow your mind.
Neo-liberal economics is obsessed with things like “improving GDP”, which is an almost meaningless measure as it depends on what governments are trying to achieve. Should we encourage the family model that best suits parents and raising of children, or best suits employers and improves that squiggly line?
In Australia, the elephant in the room is our woeful birth rate and increasing dependence on skilled immigrants, their talent, their labour and spending to help mask the decline in our population profile. Healthy population age profiles have a somewhat pyramid-like shape, ours looks more like a roughly hewn totem pole.
For over 30 years, Australia has had a below replacement total fertility rate (TFR), in late 2019 the TFR was 1.74 children. A replacement birth rate would be around 2.1 for a country like Australia.
Yet in the later half of PM Howard’s government, birth rates were on the rise due to more equitable funding of families, yet birth rates start falling again soon after PM Rudd’s government introduced less equitable policies.
What is causing the downward trend?
Aren’t we supporting working families a lot already?
If you are minding a 3 year old at home, are you working?
Do stay-at-home parents contribute to the economy?
Are not dual-income families (you know, the stay-at-work parents) the ones truly helping lift the country?
To shed some light on the situation, I have written a case study that may blow your mind.
In Australia, various policies around income tax, birth and childcare support payments combine to form a significant financial disincentive for such families that wish or choose to have children, particularly, three or more children.
The data shows that typically for a parent(s) juggling some paid work and one or two children, life is busy but it is achievable, due in part to the financial incentives.
However, juggling paid work and a third or subsequent child becomes logistically and emotionally fraught, whether you attempt to use outsourced childcare or not.
Successive federal government budgets since 2007, have significantly added to this problem, with the most recent example being the Omnibus Savings Act of 2017 under Prime Minister Malcolm Turnbull, where any family, with gross family income of $80,000 or more, had their Family Tax Benefit Part A supplement cut by $750 per child per annum. Why increasingly cut more money from a family the more children they have?
A CASE STUDY
Let us take, for example, two families that both have three children aged 1, 3 and 6 years; one family has two parents in paid work, the other just one single breadwinner. Both families have a total pre-tax income equal to the median household income for 2017-2018 (ABS figures), that is, $86,000 per year.
We will examine one calendar year in their life, starting from the birth of their third child, who is now a 1 year old.
The DUAL-income family
The father earns $36,000 and the mother earns $50,000. On two and a half days a week (average), the parents outsource the care of their 1 and 3 year olds at a government-approved child day-care facility.
The SINGLE-income family
The father earns $86,000 per year and the mother works unpaid, full time, caring for her 1 and 3-year-old children and volunteers 10 hours a week for various causes, including school reading assistance.
The Australian Tax Office treats these two families very differently. Each earner is taxed as though their spouse and children do not exist. There is no consideration of how many people actually depend on that income.
The DUAL-income family gets two tax-free thresholds and lower effective tax brackets. The result is that the SINGLE-income family will pay $8,318 more income tax than the DUAL-income household (based on 2019-2020 rates).
The DUAL-income family received $13,330 of birth funding (Parental Leave Pay) from the government when the third baby was born. This is because the mother met the “paid work test” of 10 hours a week (or so) of paid work over 10 months in the 13 months before the baby was born.
The SINGLE-income family received a mere $560 newborn upfront payment because the baby’s mother had not shown enough loyalty to paid work in the 13 months before the birth. (In fact, she was the full-time carer for the then 2 year old, and doing the trips to kindergarten with the first child and much more).
Ongoing Childcare Support
The main source of ongoing support for families is Family Tax Benefit (FTB) Part A, which assesses the total family income and total number of dependent children, and therefore treats the two families equally. Family Tax Benefit was a more generous measure introduced around the year 2000, to compensate for the inherit unfairness in the income-tax system, which does not recognise dependents before PAYG tax is paid.
For the moment, FTB Part A will be ignored for this case study, but revisited in table (2) that shows whether the government is losing or gaining money.
Based on the family’s total income, the government will pay 79 per cent of their childcare fees. In one year, the DUAL-income family received a total of $17,570 (of an unlimited claimable amount) in tax-payer funded Child-Care Subsidy for their two youngest kids (the 1 and 3 year olds), who were placed in day-care while their mother worked approximately 2.5 days a week that year.
The only government payment that recognises the unpaid childcare work, and foregone income, of the SINGLE-income family is Family Tax Benefit Part B. In this case, the SINGLE-income family receive the maximum yearly amount of FTB Part B of $4,172.
Table (1) gross government payments (or tax breaks)
|Government payments / tax breaks||DUAL-income family|
3 kids, $86k ($50k+$36k)
3 kids, $86k
|Income tax||Pay $8,318 less due to dual tax-free thresholds and lower tax brackets|
|Birth funding||Parental Leave Pay of $13,330 (after tax $8,998)||Newborn upfront payment of $560|
|Payments relating to ongoing child care||Received $17,570 in childcare rebates (not taxable)||$4,117 of Family Tax Benefit Part B|
| COMPARISON |
(exc. FTB Part A as there is no difference between the two families)
$17,570 in CCS
$8,998 in PLP after tax
$8,318 less income tax
Total government spends on family $34,886
|$4,117 FTB Part B|
$500 Newborn pay.
Total government spends on family $4,617
What this means
The dual-income family is funded $34,886 in one year by the government, whereas the single-income family received only $4,617 in funds, despite both having the same number and age of children, and the same gross family income.
The funding ratio is 7.6 to 1, towards dual income family.
Table (2) net government gain/(loss)
|Government payments / tax breaks |
3 kids, $86k ($50k+$36k)
3 kids, $86k
|Income tax paid||$11,179||$19,497|
|Net Parental Leave Pay / Newborn pay||($8,998)||($560)|
|Child Care Subsidy||($17,570)||Nil|
|Family Tax Benefit|
|Family Tax Benefit|
|After estimates of GST and fuel levies per family per year||($18,149) |
Government effectively saves $30,209 in the SINGLE-income family model. In other words, the DUAL-income family model (dependent on two incomes and childcare subsidy) costs the government $30,209 more per year than the single-income family, even after taxes and levies are considered. For every $1 gained from the single-income family, a $1.50 is lost on the dual-income family.
What Australia needs is government policies that respect that families typically operate as a unit, and encourage couples to have their desired number of children and balance their home and paid work according to their best judgement, not under the coercion of distortive government policy.