Budget 2016 Overview: Turnbull government fails to exorcise the ghosts of unfair budgets past

adminSocial security rights review

On the surface, this year’s Budget was a relatively quiet one for the income support and family payments system, probably reflecting the Government’s awareness that its last two Budgets were widely regarded as unfair, targeting low income households for savings.  But the reality is that this Budget, although not as unfair as past Budgets, is regressive.  One of its main savings measures – the abolition of carbon compensation payments for new recipients – involves in effect a cut to Newstart Allowance, despite almost universal acknowledgment that this payment exposes recipients to unacceptable levels of poverty.  In addition, a range of savings measures targeting low income households remain on the books, built into this year’s Budget and forward estimates, despite the Government’s failure to persuade the Parliament to approve them.

The shocking decision to cut support for Newstart Allowance recipients and others, misleadingly described simply as abolition of carbon compensation, is analysed in another article in this edition of the Welfare Rights Review, here.

But it is equally important to recognise that this Budget did not reverse a package of measures seeking savings in the income support and family payments budget that unfairly place the greatest burden on low income households, especially families.

This includes proposed further cuts to Family Tax Benefit payments equivalent to thousands of dollars per year if fully implemented, including reducing payments to single parents with children aged 13 and over (a reduction in payments of over $1700 per year by 2018-19) and phasing out the end of financial year supplements.  These cuts come on top of the abolition of the Schoolkids Bonus (with the last instalment due in July 2016) and cuts in support to most couple families with children aged 13 and over and the impact of changing the indexation arrangements for family payments from prices to wages (under the previous Labor government).

Many of these cuts and proposed cuts have been accompanied by rhetoric about “middle class” welfare.  But it is important to recognise that close to half of the families in receipt of Family Tax Benefit – 42% as at June 2015, according to the latest data[1] – also receive an income support payment such as Parenting Payment, Newstart Allowance, Disability Support Pension or Carer Payment.  In other words, these are cuts with the greatest impact on some of the lowest income households.  Some of those households are in receipt of payments such as Disability Support Pension or Carer Payment or are single parent households, and therefore face real barriers to improving their incomes through work, if payments are cut.

Not only that, but these are cuts to families which will receive little benefit from other measures in this Budget.  The proposed personal income tax cuts – to be achieved by raising the third income tax threshold so that the 37% rate will apply from $87,000 instead of $80,000, purportedly to address bracket creep – at a cost of almost $4 billion over the forward estimates will have little or no benefit to the 74% of families receiving Family Tax Benefit who have family incomes less than $80,000.[2]

The reality is that the personal income tax cuts proposed in this Budget are small, but regressive.[3]  The proposed superannuation changes are progressive, but confined to a small percentage of contributors and do little to address the hugely expensive and regressive superannuation system supported by successive governments.

Overall, the net impact remains regressive, with the largest impact on low income families, especially those with children, if measures like the proposed cuts to family payments and the closure of the energy supplement proceed. These cuts are worth thousands of dollars per year for some households by the time they all come into effect, with the impact greatest for families with children.

It is time for both sides of politics to acknowledge that there is little room for further cuts to the income support and family payments system and to commit to addressing the key issue of the adequacy of Newstart Allowance with an immediate increase in payment.  While it is shocking that the Government is going to an election with a Budget that includes a cut to Newstart Allowance, it is also disappointing that the Opposition has so far only committed to a review, rather than the urgent and immediate increase which everyone except the major parties, it seems, recognises is needed.

[2] See note 1.

[3] For detailed analysis, including about how the proposal more than compensate high income earners for bracket creep, see P Varela, “Budget Forum 2016: Bracket Creep Response is Poorly Targeted”, Austaxpolicy: The Tax and Transfer Policy Blog (6 May 2016) at http://www.austaxpolicy.com/bracket-creep-response-is-poorly-targeted/.