There is a growing awareness of financial pressure on the family, together with anomalies in the interaction of family earnings, taxation and welfare benefits. Increasingly generous welfare benefits appear incapable of alleviating or resolving these problems. An historical analysis shows a change in the course of the 1980s from a two-faceted system of child-related tax deductions and universal child-related welfare benefits to a single-faceted system of targeted welfare.
In 1960, as a result of child-related deductions, a family earner with wife and three children paid no tax until income passed 120% average weekly earnings (AWE). When Child Endowment of that period was added to earnings, only families above 150% AWE paid any effective tax. By contrast, single earners at every level from the basic wage upwards paid tax. In 1997, there was very little difference in tax paid by family and single earners at every level above the tax-free threshold. When welfare benefits are added to earnings, family taxation still begins at below AWE.
Average income families have almost no income advantage, post-tax and welfare, in recognition of the costs of supporting children, as compared with single earners. Under the current system, net family income fails to rise with increased earnings, across the range from 50% to 120%AWE. All families with three teenage children in this range end up with somewhere around $ 33,000 p.a., although actual earnings at 50% AWE are $18,000 p.a. and at 120% AWE are $43,500 p.a. Average income families can escape welfare levels of ‘poverty’ only by multiple job holding, which is often not in the family’s best interests as a rearer of children. This also creates job competition for less-skilled workers. Heavy taxation of families both restricts choices in use of income and creates an impression of welfare dependency in the employed.
A return to major modulation of family versus single net incomes via tax provisions is required in order to release families from the welfare trap. A tax rebate (or payment) of $3,000 to $5,000 per dependent child or student, matching child benefits for the unemployed, is recommended, to replace all current family benefits, including childcare subsidies and Austudy.
Dr Lucy Sullivan is a Research Fellow at The Centre for Independent Studies. She has published widely in academic journals, including the British Journal of Sociology and the Journal of Medicine and Law. She was a co-author of Home Repairs: Building Stronger Families to Resist Social Decay (1996) and author of Rising Crime in Australia (1997), both published by the CIS.