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A clearer payments system needed to help families

Trisha Jha | 08 August 2014

jha-trishaCurrent budget conditions—including an estimated $50 billion deficit for 2013-14, spending increases from large new programs, and reduced revenues—necessitate spending cuts in the short term.
 
Over the next few decades, however, there will be further financial strain caused by an ageing population, increasing health spending, and a shrinking tax base. The state of the nation's finances mean that policy analysis and reform are needed, not just some trimming of spending. It is also imperative that policy reform be undertaken with a view to minimising the disincentives to work embedded within the system.
 
The conceptual basis of family payments is that families with children have different needs to those without and, consequently, should be treated differently in the tax and welfare systems. As values have shifted, the method by which we deliver assistance to families and the underlying rationales for this assistance has become more and more complex. It has also resulted in increased spending.
 
In real (inflation-adjusted) terms, family payments spending has increased from an average of $9,662 per family with dependent children in 2002-03 to $11,197 in 2009-10 (the latest available figures). On a per-child basis, spending has increased from $5,239 to $5,982 over the same period.
 
Real expenditure grew when the economy was doing well, and while the mining boom resulted in wage growth and low unemployment. In other words, times were good and although there was less need of generous spending, spending increased substantially. The consequence is that this unnecessary, high spending has become unsustainable as our economic fortunes decline.
 
Spending on family payments remained virtually unchanged during the Rudd-Gillard years even as spending cuts were made to reduce the budget deficit in the wake of the global financial crisis.
 
Child care spending increased significantly with the introduction of the Child Care Rebate alongside Child Care Benefit, and looks likely to continue to increase. Yet female labour force participation among women of childbearing age remains rather flat, indicating that the promised boost to workforce participation due to higher rates of child care subsidies has failed to materialise.
 
Unfortunately, governments of all persuasions have attempted to shape policies that are all things to all people instead of reforming with a clear, unified purpose. In an attempt to achieve all possible outcomes, from equity to neutrality, the way programs are designed and the way they overlap lead to perverse incentives that have a negative impact on workforce participation.
 
This is poorly-targeted spending. Clarifying the purposes of a family payments system and then reforming it so that it is simple, predictable and fair is vital for the nation's future.

Trisha Jha is a Policy Analyst at The Centre for Independent Studies, and author of Complex Family Payments: What it Costs the Village to Raise a Child.