12 November 2011

150,000 stories

I'd been wondering what kind of household to look at following my inaugural single person outing when I was rescued by a story in the Telegraph about a 3-child couple, which I came across via a blog posting in Crikey!.  It's about families who will not receive household compensation when the newly-enacted carbon pricing arrangments come into effect next year.  It uses the Samuelson family to illustrate its impact on a single income couple earning $150,000 a year.  Apparently, they will go backwards financially by about $700 a year.

The Telegraph article is here.

Perhaps more entertaining than the article are the responses posted by hundreds of readers to both the Crikey and Telegraph stories.  They cover a wide range of positions but one fairly common attribute is an over-enthusiastic assumption about the disposable income (ie, after tax and transfer payment imposts) of a Samuelson type household.  The silliest of them is perhaps the claim from a few posters that they'll now have to make do with $149,300.

Before looking more closely at the disposable income issue, here's how the tax-transfer system has altered the disposable incomes of 3 child, single income couples in the private income range $0 to $200,000.

As with the single person in my last blog post, it's backwards most of the way.  The main contributors are the non-indexation of the tax thresholds, plus the flood levy, and the freeze applied to various bits of the family tax benefit.  At $150,000 the fall has been roughly 1%. 

As an aside, it's interesting that the Telegraph's Samuelson family are at exactly $150,000 - any more and they would not get family tax benefit part B.  The choice of this family does, I suspect, increase the likelihood of robust discussion in on-line comments, combining as it does a high income (relative to average and median earners in Australia) with the receipt of a transfer payment.

So, let's look briefly at the issue of comparative disposable incomes.  I'm not going to look at how $150,000 earnings compares to the earnings of a typical Aussie.  That's been canvassed in depth on other blogs (for example, Matt Cowgill has a nice article here).  Instead, let's use a simple (I hope not simplistic) measure to compare households - in this case our 3 child single income couples.

At zero private income such a household would get the maximum assistance that the transfer system provides.  Using that as a baseline, how does disposable income in the range $0 to $200,000 compare?  In the chart below, the disposable income is shown as a multiple of the baseline.  For example, if private income is $50,000 the households disposable income is about one and a half times the baseline.  In other words, getting a job earning $50,000 would increase the unemployed household's income by 50%.

So, the Samuelson type houshold, at $150,000, gets 2.6 (two point six, not twenty six) times the income of the baseline unemployed household.  You can draw you own conclusions from this, but I hope it helps in making a more appropriately sized choice of violin or rocket when pitching a response to the Telegraph article.

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