tag:blogger.com,1999:blog-73034093919053223662024-03-29T14:28:53.497+11:00Rave, by DaveAustralia's tax-transfer system: pretty as a pictureDavidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.comBlogger48125tag:blogger.com,1999:blog-7303409391905322366.post-11248317893384629552018-06-21T12:27:00.000+10:002018-06-21T12:27:21.277+10:00It's all a bit creepy...<span style="font-family: Arial, Helvetica, sans-serif;"></span><br />
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<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">For ages I’d been playing about with
various ways to try and show the effect of bracket creep in a chart. Over the
last year or so, I’ve settled on one that illustrates the combined effect of
creep and inflation, plus whatever measures have been put place in the
tax-transfer system that add to or subtract from them. I thought the format was
reasonably self-explanatory, but when I use it for charts on Twitter I get more
than the usual number of requests to explain just what I’m trying to show.</span></span><span style="font-family: Arial, Helvetica, sans-serif;"></span></div>
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<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">So here goes.</span></span></div>
<a name='more'></a><br />
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<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">First off, what kind of bracket creep am I
talking about? There’s a narrow version of the term which says bracket creep is
what happens when you have a pay increase that puts you into the next tax
bracket. Indeed, the name ‘bracket creep’ gives that impression. But bracket
creep is more than that. It also encompasses the idea that a pay increase that
doesn’t put you into the next bracket will still push you further into your
current one.</span></span><span style="font-family: Arial, Helvetica, sans-serif;"></span></div>
<div style="margin: 0px 0px 10.66px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Whether your income crosses a threshold or
not, in a progressive tax system like ours a pay increase will mean
proportionally more of your pay goes in tax – your average tax rate increases. (As
an aside, ‘progressive’ in this sense means that the rate progressively rises
as income increases. It’s nothing to do with the term progressive as applied to
people open to change, new ways of doing things or reform, as in “so and so is
a very progressive thinker”.)</span></span><span style="font-family: Arial, Helvetica, sans-serif;"></span></div>
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<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Here’s where we need to pause to wrestle
with a question. If a progressive tax system – <span style="margin: 0px;"> </span>and in theory, our tax system is one of those
- is designed to increase the proportion of tax one pays as income rises, why
is bracket creep an issue? It’s what’s supposed to happen, right? And if it’s
supposed to happen, if it’s doing what’s intended, then surely bracket creep is
a good thing? Alas, like nearly everything, it’s yes and no.</span></span><span style="font-family: Arial, Helvetica, sans-serif;"></span></div>
<div style="margin: 0px 0px 10.66px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">So, when is it a bad thing? The answer to
that rather depends on your political leanings, but I think it’s a bad thing when creep occurs even when the increase
in your income is less than or equal to the inflation rate. Such an increase is
not a real increase at all. An
increase that matches inflation means that your overall pre-tax income, in real
terms, is unchanged. However, because you’ve now crept further along the tax scale
(maybe even into a new bracket), a greater proportion of your income goes in
tax. That means your after-tax income has fallen in real terms - your standard
of living has reduced.</span></span><span style="font-family: Arial, Helvetica, sans-serif;"></span></div>
<div style="margin: 0px 0px 10.66px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">When I do charts that look at how things
have changed over time for a particular type of household, I almost always
compare households with the same real income. I like to see how things have
changed for identical households, separated only by time. That means adjusting
the first (earlier) household’s private income (usually earnings) to take
account of inflation, as reflected by changes in the Consumer Price Index
(CPI). For example, If I was to compare a household today, earning $50,000 a
year, with one in July 2016 (when the election for the current, 45th
Parliament was held) I would use earnings of around $48,225 for the earlier
household.</span></span><span style="font-family: Arial, Helvetica, sans-serif;"></span></div>
<div style="margin: 0px 0px 10.66px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">So, all this takes us to the beginnings of
my bracket creep chart. Here’s one that uses the ideas above to show how the
income tax paid by a single person household at 20 March 2018 compares to one
on 2 July 2016 (the election date for Parliament 45). All that has changed is
that the private income (eg, earnings), has increased over the period by the
CPI, or in other words, has stayed the same in real terms.</span></span><span style="font-family: Arial, Helvetica, sans-serif;"></span></div>
<div style="margin: 0px 0px 10.66px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Chart 1</span></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-iel_FzP_bf8/WysLnTGENBI/AAAAAAAAC3s/v0dckrUMryQ-24Uoq64FF8sKAvxTdX9_ACEwYBhgL/s1600/chart%2B1.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: Arial, Helvetica, sans-serif;"><img border="0" data-original-height="916" data-original-width="1394" height="420" src="https://3.bp.blogspot.com/-iel_FzP_bf8/WysLnTGENBI/AAAAAAAAC3s/v0dckrUMryQ-24Uoq64FF8sKAvxTdX9_ACEwYBhgL/s640/chart%2B1.PNG" width="640" /></span></a></div>
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;"></span><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><br />
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<span lang="EN-AU" style="margin: 0px;"></span><span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></div>
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><br />
<div style="margin: 0px 0px 10.66px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">We can see from the chart that bracket
creep means a person earning $50,000 is worse off than their equivalent back in
July 2016 by over $300 a year. For someone earning $200,000 it’s over $1,100.</span></span><span style="font-family: Arial, Helvetica, sans-serif;"></span></div>
<div style="margin: 0px 0px 10.66px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Focussing just on income tax is too narrow
though. Our hypothetical single person may also be affected by the low-income
tax offset, and where private income is low enough, or non-existent, Newstart
allowance could also be present. There’s also the medicare levy. All these
things are affected by bracket creep. </span></span><span style="font-family: Arial, Helvetica, sans-serif;"></span></div>
<div style="margin: 0px 0px 10.66px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">The bits of the system that are tax-like
(eg, the low-income tax offset and the medicare levy) are affected by bracket
creep in much the same way as income tax. Transfer payments (eg, Newstart
allowance) have creep effects because increases in income cause reductions in
the rate payable under the various income tests applied to transfers. They also
are affected by inflation – if the rate of, for example, Newstart allowance,
was unchanged from July 2016, not only would there be losses caused by bracket
creep, but the actual value of the payment would have fallen as well.</span></span><span style="font-family: Arial, Helvetica, sans-serif;"></span></div>
<div style="margin: 0px 0px 10.66px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Given this, the obvious next step is to
modify the chart so that it’s showing the effect of creep on a wider range of
federal government tax and transfer items, adjusted for inflation. Chart 2 is
the same single person comparison, but this time taking into account the low-income
tax offset, the medicare levy, and Newstart allowance.</span></span><span style="font-family: Arial, Helvetica, sans-serif;"></span></div>
<div style="margin: 0px 0px 10.66px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Chart 2</span></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://2.bp.blogspot.com/-rjbIgv3WqfI/WysLn--RREI/AAAAAAAAC30/FNKcwBGHrk8BTLNf4WCbrxXGU7QHlRhfACEwYBhgL/s1600/chart%2B2.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: Arial, Helvetica, sans-serif;"><img border="0" data-original-height="915" data-original-width="1396" height="418" src="https://2.bp.blogspot.com/-rjbIgv3WqfI/WysLn--RREI/AAAAAAAAC30/FNKcwBGHrk8BTLNf4WCbrxXGU7QHlRhfACEwYBhgL/s640/chart%2B2.PNG" width="640" /></span></a></div>
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;"></span><br /></span>
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<span lang="EN-AU" style="margin: 0px;"></span><span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></div>
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><br />
<div style="margin: 0px 0px 10.66px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">It’s still possible to see the broad
outlines of the original, income-tax-only chart, particularly at higher
incomes, but a lot of new stuff has appeared. The bigger reductions below
$30,000 are the effect of creep/inflation on Newstart allowance and to a lesser
extent the medicare levy low-income arrangements. The bulge between $37,000 and
a bit under $70,000 is the effect on the low-income tax offset. The 3 hanging
spikes are the effect of creep on the medicare levy surcharge.</span></span><span style="font-family: Arial, Helvetica, sans-serif;"></span></div>
<div style="margin: 0px 0px 10.66px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">As it stands, the chart now shows the
result of bracket creep on a more representative range of tax-transfer elements,
where the creep is due to private income increasing at the same rate as
inflation. It also includes the effect of inflation on the value of transfer
payments (in this case Newstart allowance). This is better, but if I was to
leave the chart in this form it would still be somewhat misleading. </span></span><span style="font-family: Arial, Helvetica, sans-serif;"></span></div>
<div style="margin: 0px 0px 10.66px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Recall that the chart is based on the
effect of wage increases that match inflation, with no other changes. The ‘no other changes’ bit is a problem because
the Government may have taken steps to address creep/inflation over this
period. For example, if all the thresholds and amounts involved were indexed to
the CPI, the losses shown in the chart would be completely offset and the net
result would be that the disposable income of the household would be the same
at the beginning and end of the period, in
real terms.</span></span><span style="font-family: Arial, Helvetica, sans-serif;"></span></div>
<div style="margin: 0px 0px 10.66px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Accordingly, I need to add another element to
show the effect of tax-transfer changes the Government may have made over the
period. And so to Chart 3</span></span><span style="font-family: Arial, Helvetica, sans-serif;"></span></div>
<div style="margin: 0px 0px 10.66px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Chart 3</span></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-vfp5IpdsFGM/WysLnhyw2nI/AAAAAAAAC3w/DIJPibNJGSIvVlpimw2Pgm8VtasUees6ACEwYBhgL/s1600/Chart%2B3.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: Arial, Helvetica, sans-serif;"><img border="0" data-original-height="914" data-original-width="1394" height="418" src="https://1.bp.blogspot.com/-vfp5IpdsFGM/WysLnhyw2nI/AAAAAAAAC3w/DIJPibNJGSIvVlpimw2Pgm8VtasUees6ACEwYBhgL/s640/Chart%2B3.PNG" width="640" /></span></a></div>
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;"></span><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><br />
<div style="margin: 0px 0px 10.66px;">
<span lang="EN-AU" style="margin: 0px;"></span><span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></div>
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><br />
<div style="margin: 0px 0px 10.66px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">The red areas on the chart show the effect
of the Government’s changes to the tax-transfer system over the period – in this
case since the election of the current Parliament (Parliament 45). Between
approximately $30,000 and $180,000 there have not been any, so the reduction in
disposable income from bracket creep remains as it was in Chart 2.</span></span><span style="font-family: Arial, Helvetica, sans-serif;"></span></div>
<div style="margin: 0px 0px 10.66px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Above $180,000 there has been some offset to
the creep effect. This is a result of the ending of the budget repair levy, originally
imposed during Parliament 44 and which applied only to those with incomes above
$180,000. Below $30,000 we can see that something happened to offset creep and
inflation, but, as the black ‘overall change’ line shows, only partially. That ‘something’
was the regular inflation adjustments to Newstart allowance. It didn’t
completely offset creep and inflation because these adjustments are not being
applied to the entire Newstart allowance and, more substantially, the
Government also abolished the income support bonus.</span></span><span style="font-family: Arial, Helvetica, sans-serif;"></span></div>
<div style="margin: 0px 0px 10.66px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">These finer details – which bits of the tax
transfer system are affected and by how much – are not discernible from this
type of chart and I didn’t intend that they would be. My intention was for the chart
to show the change in disposable income due to inflation/creep for households whose gross private income
has remained the same in real terms; what further effect (additive or
subtractive) Government changes have made; and the net result.</span></span><span style="font-family: Arial, Helvetica, sans-serif;"></span></div>
<div style="margin: 0px 0px 10.66px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">If you are keen to see charts that have
more detail about what parts of the system changed and by how much, I do have
something along those lines. Chart 4 is an example, which also uses the same single
person household we’ve been looking at.</span></span><span style="font-family: Arial, Helvetica, sans-serif;"></span></div>
<div style="margin: 0px 0px 10.66px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">Chart 4</span></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://2.bp.blogspot.com/-FMqnTmUMnsE/WysLocor6nI/AAAAAAAAC34/DA1eI-nwVoAstKHkpt6CiP5ZBvRu2ZwRACEwYBhgL/s1600/chart%2B4.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: Arial, Helvetica, sans-serif;"><img border="0" data-original-height="914" data-original-width="1395" height="418" src="https://2.bp.blogspot.com/-FMqnTmUMnsE/WysLocor6nI/AAAAAAAAC34/DA1eI-nwVoAstKHkpt6CiP5ZBvRu2ZwRACEwYBhgL/s640/chart%2B4.PNG" width="640" /></span></a></div>
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;"></span><br /></span>
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><br />
<div style="margin: 0px 0px 10.66px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: Arial, Helvetica, sans-serif;">This gives the same overall result as shown
by the black line in chart 3, broken down by component. There are more of these,
and other charts, on my ‘collection’ post <a href="http://ravebydave.blogspot.com/2016/04/emtr-and-related-charts.html" target="_blank">here</a>.</span></span></div>
<span style="font-family: Arial, Helvetica, sans-serif;"></span>Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com2tag:blogger.com,1999:blog-7303409391905322366.post-55410326120427585712017-06-01T10:49:00.002+10:002017-06-01T10:49:19.451+10:00And in the end...<img height="16" id="xmjdensquuuh" src="data:image/gif;base64,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" width="16" />Over the last few years I've done a series of posts looking at how particular households were affected by tax-transfer system decisions coming into effect over a succession of Parliaments. The elections for Parliament 45 brought to an end the period that I loosely attribute to Parliament 44 and so I thought it was worth updating the coverage for the aforementioned households, this time in a single post.<br />
<a name='more'></a><br />
<br />
I'll be covering the following household types:<br />
<ul>
<li>single person aged < 55 years</li>
<li>single person of age pension age</li>
<li>single person aged < 55 years, 2 children (ages 8 & 10)</li>
<li>couple, single income, both aged < 55 years</li>
<li>couple, single income, both aged < 55 years, one with a disability sufficient to be eligible for disability support pension</li>
</ul>
<h4>
A note about the charts and wages growth</h4>
<div>
These charts are an attempt to compare the treatment of a particular household type under the tax-transfer system in place at the election date for Parliament 44 with the same kind of household at the election date for Parliament 45. Importantly, it's not the same household, it's the same <i>type </i>of household. This is most obvious in the households with children - if they were the same household the children would have aged over the Parliamentary term, whereas in these comparisons the ages of the children are the same at both dates.<br />
<br />
All the charts in this post compare disposable incomes for a particular household type against the disposable income of the same type of household at an earlier point in time. To compare like with like I use the same gross income <i>in real terms</i> for both households, ie, inflation (or more specifically, movement in the consumer price index, or CPI) is taken into account.</div>
<div>
<br /></div>
<div>
This is particularly relevant for changes that are attributed to so-called bracket creep. Comparing the same real gross private incomes across time means that the earlier values are lower numerically, but have the same value after adjusting for inflation. It also means there's an implicit growth in gross private income that matches the CPI. In the absence of any other changes to the tax-transfer system, this growth generally leads to additional income tax liabilities (or changes to other tax or transfer amounts).</div>
<h3>
Single person aged <55</h3>
<div>
Chart 1 is an attempt to give some context to the magnitude of the changes during Parliament 44 by including the results from the previous four Parliaments. Also included is a line showing the combined effect ('overall change') of all five Parliaments. Why five Parliaments? It's tempting to say it's because I'm limiting the coverage to Parliaments that commenced in this century, but the real reason is rather more mundane. Cards on the table: I don't have spreadsheet coverage back that far.</div>
<h4>
Chart 1</h4>
<div>
<a href="http://3.bp.blogspot.com/-WoteWNcs5w8/V3MIDKbV2wI/AAAAAAAAA08/G0tzAKW0rR0D4Oda42tTbzPwCaQC-AajgCK4B/s1600/allparl.PNG" imageanchor="1"><img border="0" height="418" src="https://3.bp.blogspot.com/-WoteWNcs5w8/V3MIDKbV2wI/AAAAAAAAA08/G0tzAKW0rR0D4Oda42tTbzPwCaQC-AajgCK4B/s640/allparl.PNG" width="640" /></a></div>
<div>
<br /></div>
<div>
Broadly, the chart shows that for private incomes up to around $26,000 a year, the tax-transfer system provided increases in disposable income over the course of Parliament 44. At incomes above that, it delivered reductions. In spite of this, the overall change line is positive across the entire income range - the reductions under Parliament 44 (and the earlier Parliament 43) have only partly offset the gains under Parliaments 40 to 42. I have already done blog posts on the changes in Parliaments 40 to 43 <a href="http://ravebydave.blogspot.com.au/2012/07/different-strokes-for.html" target="_blank">here</a> and <a href="http://ravebydave.blogspot.com.au/2014/01/and-that-was-parliament-43.html" target="_blank">here</a>. So, what did Parliament 44 actually do to produce its results? That's shown in Chart 2.</div>
<h4>
Chart 2</h4>
<div>
<a href="http://4.bp.blogspot.com/-4TtRaBVxI4w/V3MeAyindsI/AAAAAAAAA1M/m0okflqB-nkRt2Yv4awKB7385rs16AqJwCK4B/s1600/p44%2524.PNG" imageanchor="1"><img border="0" height="418" src="https://4.bp.blogspot.com/-4TtRaBVxI4w/V3MeAyindsI/AAAAAAAAA1M/m0okflqB-nkRt2Yv4awKB7385rs16AqJwCK4B/s640/p44%2524.PNG" width="640" /></a></div>
<div>
<br /></div>
<div>
Here we can see the three main contributors to the result. At incomes below around $26,000 the increase in disposable income is due to Newstart allowance. There are two parts to this increase: one is essentially illusory; the other is a real change.</div>
<div>
<br /></div>
The illusory increase suggests that the maximum rate of Newstart went up during Parliament 44, but the reality is a bit trickier. Newstart allowance is adjusted every six months in line with movements in the CPI. This means that over the long run its 'real' value tends to wobble around more or less the same amount. The wobble is because after a CPI based increase it gradually decreases in value until suddenly rising with the next CPI increase. As a result, if an election is just before a scheduled CPI increase it will initially appear that the rate of Newstart has suddenly increased under that Parliament. Whether that apparent rise remains in the picture is then affected by the date of the next election in relation to the CPI.<br />
<br />
A second contributor to the illusory increase is CPI lag. Although Newstart rates are adjusted in line with movements in the CPI, the actual increase occurs almost 3 months after the period for which the CPI has been calculated. In an environment where inflation is falling, the CPI change that drives the Newstart rate increase can be more than in the period where the increase is actually paid. In other words, the lag between the CPI calculation period and the date of the Newstart increase can give the impression of an above CPI increase where inflation is falling, and conversely, of a decline in value where inflation is rising.<br />
<br />
In the current case, the increase at zero private income is a combination of both these effects - election date timing relative to the Newstart rate adjustment, and lag effects in an environment where the inflation rate was falling.<br />
<br />
There is however, a real increase in Newstart at incomes above around $1600. This is due to a relaxation of the Newstart allowance income test which, although legislated by Parliament 43, took effect during Parliament 44.<br />
<br />
At incomes above around $26,000, disposable income has fallen over the course of the Parliament. One of the contributors to this is an increase in income tax. Up to an income of $180,000 this is due to bracket creep (discussed earlier). Beyond that point the increase is due to the combined impact of bracket creep and the imposition of the budget repair levy.<br />
<br />
Finally, the medicare levy was increased from 1.5% to 2% of taxable income during this Parliament. The effect of this is shown in the green trace. The stalactite-like protrusions in the medicare trace are a result of the freeze to the medicare levy surcharge thresholds.<br />
<h3>
Single person aged 65+</h3>
<h4>
Chart 3</h4>
<div>
<a href="http://2.bp.blogspot.com/-UZSXN1st530/V3WlTJW-eBI/AAAAAAAAA2M/Fwf-Jn8rj2IFpoXFioh9pY70rNOHKju2ACK4B/s1600/allparls.PNG" imageanchor="1"><img border="0" height="418" src="https://2.bp.blogspot.com/-UZSXN1st530/V3WlTJW-eBI/AAAAAAAAA2M/Fwf-Jn8rj2IFpoXFioh9pY70rNOHKju2ACK4B/s640/allparls.PNG" width="640" /></a></div>
<div>
<br /></div>
<div>
As with the Newstart allowance single person example, over the course of the five Parliaments shown here, changes to the tax-transfer system have resulted in a net increase in disposable income over the entire income range. This is despite the fact that under Parliament 44, and to a slightly lesser extent Parliament 43, disposable incomes fell over a significant part of the income range. Details for the earlier Parliaments are <a href="http://ravebydave.blogspot.com.au/2012/09/4-parliaments-single-age-pension.html" target="_blank">here</a> and <a href="http://ravebydave.blogspot.com.au/2012/12/the-ups-and-downs-of-parliament-43.html" target="_blank">here</a>. Chart 4 below shows the changes for Parliament 44 in more detail.</div>
<h4>
Chart 4</h4>
<div>
<a href="http://3.bp.blogspot.com/-TG86a2ZE7wU/V3WnoSlO7TI/AAAAAAAAA2Y/-qgBoSwPzV0rT0DDbDbIOiHNgL7RQKZYQCK4B/s1600/p44%2524.PNG" imageanchor="1"><img border="0" height="418" src="https://3.bp.blogspot.com/-TG86a2ZE7wU/V3WnoSlO7TI/AAAAAAAAA2Y/-qgBoSwPzV0rT0DDbDbIOiHNgL7RQKZYQCK4B/s640/p44%2524.PNG" width="640" /></a></div>
<br />
The increase to age pension shown here is a combination of the illusory CPI timing and lag effect discussed earlier and real wage growth linked increases that occurred early in the Parliamentary term. The amount of the increase declines at incomes a little over $10,000 a year. This is due to a fall in the real value of the special income test threshold applied to earned (ie, wage/salary) income as, unlike the broader pension income test parameters, it is not adjusted for inflation.<br />
<br />
On the income tax side, all the change shown, apart from the noticeable budget repair levy induced kink downward from $180,000, is bracket-creep related. The significant bulge at lower incomes, coinciding with the pension trace, illustrates that bracket creep affects more than just income tax - in this case there is the added impact of creep related income growth on the senior Australians and pensioners tax offset, the parameters for which were not adjusted during the period.<br />
<br />
The medicare levy changes reflect the increase in the levy from 1.5% to 2%.<br />
<h3>
Single person aged <55, 2 children (8, 10)</h3>
<h4>
Chart 5</h4>
<div>
<a href="http://2.bp.blogspot.com/-7-VDvEK9pE8/V3PkuNy4nrI/AAAAAAAAA1s/79aBmrP4eHc0NDi2QmkjLSgUZ9RMdHP8wCK4B/s1600/all%2Bparls.PNG" imageanchor="1"><img border="0" height="418" src="https://2.bp.blogspot.com/-7-VDvEK9pE8/V3PkuNy4nrI/AAAAAAAAA1s/79aBmrP4eHc0NDi2QmkjLSgUZ9RMdHP8wCK4B/s640/all%2Bparls.PNG" width="640" /></a><br />
<br />
As with the single person example, the treatment of this household type under Parliament 44 (the pale blue trace) is in two distinct sections. At incomes below $40,000 there appears to have been an increase in disposable income; above that point disposable income has fallen. Interestingly, the reduction under Parliament 44 over the income range from roughly $104,000 to $117,000 has been large enough to offset the gains under the previous four Parliaments combined. Households in that range actually have less disposable income in real terms that their equivalents did at the start of Parliament 40 back in 2001.<br />
<br />
More information about the changes underlying the results for Parliaments 40 to 43 can be found <a href="http://ravebydave.blogspot.com.au/2012/07/4-parliaments-single-parent-edition.html" target="_blank">here</a> and <a href="http://ravebydave.blogspot.com.au/2014/01/and-that-was-parliament-43.html" target="_blank">here</a>. For Parliament 44, lets move to Chart 6.<br />
<h4>
Chart 6</h4>
</div>
<div>
<a href="http://4.bp.blogspot.com/-S5rbLqBuGjg/V3Po-8o3zpI/AAAAAAAAA18/SmXy84Poe34ZzI0be03s5AyCsy7NuZIcwCK4B/s1600/P44%2524.PNG" imageanchor="1"><img border="0" height="418" src="https://4.bp.blogspot.com/-S5rbLqBuGjg/V3Po-8o3zpI/AAAAAAAAA18/SmXy84Poe34ZzI0be03s5AyCsy7NuZIcwCK4B/s640/P44%2524.PNG" width="640" /></a></div>
<div>
<br /></div>
<div>
The increases in Newstart allowance arise for the same reasons as discussed earlier. The same CPI timing mechanism underpins the apparent increase in Family Tax Benefit Part A (FTB A). The reduction in FTB A starting at around $100,000 reflects a continuation of the freeze on indexation of the income test threshold at this point.</div>
<div>
<br /></div>
<div>
The changes in medicare levy and income tax are as described earlier.</div>
<div>
<br /></div>
<div>
The big change, and one of the main factors driving the loss over 5 Parliaments mentioned above, is the removal of eligibility for Family Tax Benefit Part B (FTB B) at incomes over $100,000 (down from the $150,000 limit imposed in earlier Parliaments). The $100,000 limit seems to have become something of a favorite, as entitlement to the schoolkids bonus was also cut from those with incomes above that threshold.<br />
<br />
<h3>
Couple, single income, both <55 years</h3>
</div>
<h4>
Chart 7</h4>
<div>
<a href="http://2.bp.blogspot.com/-mG_pxD4iUws/V3b9ZdU8W9I/AAAAAAAAA3U/2jQ5r7-4V_EsQ5b-iPw8eDmORTU-06sTgCK4B/s1600/allparl.PNG" imageanchor="1"><img border="0" height="418" src="https://2.bp.blogspot.com/-mG_pxD4iUws/V3b9ZdU8W9I/AAAAAAAAA3U/2jQ5r7-4V_EsQ5b-iPw8eDmORTU-06sTgCK4B/s640/allparl.PNG" width="640" /></a></div>
<br />
This is the second household type where tax-transfer changes over the five Parliaments have resulted in a disposable income on July 1 2016 that is lower in real terms than it was for equivalent households in 2001. This occurs in the approximate income range $50,000 to $85,000 and is almost entirely attributable to Parliament 43's abolition of the dependent spouse tax offset. Details of this and decisions of earlier Parliaments are <a href="http://ravebydave.blogspot.com.au/2012/08/4-parliaments-single-income-couple.html" target="_blank">here</a> and <a href="http://ravebydave.blogspot.com.au/2014/01/and-that-was-parliament-43.html" target="_blank">here</a>. Chart 8 looks at what Parliament 44 did.<br />
<h4>
Chart 8</h4>
<div>
<br /></div>
<a href="http://2.bp.blogspot.com/-hrrsqavBDV0/V3fBsyj5zMI/AAAAAAAAA4E/9ArIoNKse3E2U7aGCoKg58IOc_ANbgYXACK4B/s1600/p44.PNG" imageanchor="1"><img border="0" height="418" src="https://2.bp.blogspot.com/-hrrsqavBDV0/V3fBsyj5zMI/AAAAAAAAA4E/9ArIoNKse3E2U7aGCoKg58IOc_ANbgYXACK4B/s640/p44.PNG" width="640" /></a><br />
<br />
This household reflects the basic pattern for Parliament 44:<br />
<ul>
<li>increased disposable income where income support is paid (in this case, Newstart allowance), attributable to CPI timing issues and a relaxation in the income test</li>
<li>increased income tax due to bracket creep and the budget repair levy</li>
<li>an increase in the medicare levy. Again, the green 'stalactite' is a result of the freeze in the medicare levy surcharge thresholds.</li>
</ul>
<div>
One small item appears here which has not featured in the earlier charts - the low income supplement. It was introduced as part of the carbon pricing compensation measures during Parliament 43 and was intended to assist households who may not have been adequately compensated through either the transfer system or through tax cuts. The income eligibility thresholds were not indexed and so it's availability has declined via a version of bracket creep. Under current legislation the scheme will be abolished from 1 July 2017.<br />
<h3>
Couple, single income, one Newstart allowance, one disability support pension, where relevant, both under 55 years old</h3>
<h4>
Chart 9</h4>
<div>
</div>
<div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-F5UcE3lEMNM/V6fAwiY2S9I/AAAAAAAAA5k/_VxH72cD49c0BU1R3g97hLIpKP5HNxYNQCLcB/s1600/Nsa%2Bdsp%2Ball%2Bparl.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="420" src="https://3.bp.blogspot.com/-F5UcE3lEMNM/V6fAwiY2S9I/AAAAAAAAA5k/_VxH72cD49c0BU1R3g97hLIpKP5HNxYNQCLcB/s640/Nsa%2Bdsp%2Ball%2Bparl.PNG" width="640" /></a></div>
<br />
This chart shows the by now familiar pattern of apparent and real gains at low incomes, with reductions occurring from a little under $50,000. This is another household type where over some of the income range (in this case a relatively small one) incomes have fallen to below those in place at the election date for Parliament 40. In large part this is due to the abolition of the dependent spouse tax offset under Parliament 43. (For more detail on the decisions taken in the earlier Parliaments see <a href="http://ravebydave.blogspot.com.au/2013/08/4-parliament-comparison-single-earner.html" target="_blank">this post</a>).<br />
<br />
The following chart shows the changes under Parliament 44.</div>
<h4>
Chart 10</h4>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-zIGgEp7YJdk/V6fAgyIGCdI/AAAAAAAAA5g/He5wSRfqKmI3COmw0at7GREXmiJR-L0MQCLcB/s1600/Nsa%2Bdsp%2BP44.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="https://1.bp.blogspot.com/-zIGgEp7YJdk/V6fAgyIGCdI/AAAAAAAAA5g/He5wSRfqKmI3COmw0at7GREXmiJR-L0MQCLcB/s640/Nsa%2Bdsp%2BP44.PNG" width="640" /></a></div>
<div>
<br /></div>
<div>
The changes in this chart, bar one, are due to the factors already described: apparent and real income support increases at low incomes, bracket creep and an increase in the medicare levy. The exception is the spike at around $75,000 which probably does need some explanation.</div>
<div>
<br /></div>
<div>
There are two aspects to this significant gain in income, both related to access to the disability support pension (DSP). First, as with the age pension discussion at Chart 4, there was a real increase in DSP due to the link to wages growth. The portion of the spike that is DSP simply reflects an increase in the cutout point for the pension under the income test as a result of that higher starting rate of pension. Newly eligible households in this extended income range for DSP payment become entitled to a minimum amount (at 1 July 2016 this was $49 a fortnight - a combination of the pension and energy supplements).</div>
<div>
<br /></div>
Eligibility for DSP also brings with it an entitlement for the partner - access to the invalid and carer's tax offset, which replaced the former dependent spouse tax offset. This shows in the chart as the gain in disposable income as a result of changes in P2 (partner 2 - the working partner) tax liability.<br />
<br />
<h4>
Updates</h4>
<div>
My posts to this blog are somewhat infrequent. However, I do regularly use Twitter to post updated charts. Should you wish to, you can follow me there - I'm @dplunky</div>
<div>
<br /></div>
<div>
<br /></div>
</div>
<div>
</div>
Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com0tag:blogger.com,1999:blog-7303409391905322366.post-37961877921612766242016-08-25T09:25:00.001+10:002016-08-25T09:25:55.449+10:00The curse of special money...
<br />
<div style="margin: 0px 0px 11px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: inherit;">Shortly after this year’s Federal budget it
dawned on me that the Government’s proposal to scrap the energy supplement for
new claimants of certain transfer payments (eg, Newstart allowance) would
actually make them worse off than if the supplement had never been introduced
in the first place. To draw attention to this issue, on 4 May I started what
has been an ongoing series of posts about it on Twitter, along with a more
detailed blog post on 14 May.</span></span></div>
<br />
<div style="margin: 0px 0px 11px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: inherit;">Since then I’ve been writing to MPs, Senators,
Ministers and their parties about it, as well as journalists in the major media
outlets, mainly via Twitter. I’ve also chatted (in the good old fashioned
verbal way!) with a few people about it over the intervening months. </span></span></div>
<br />
<div style="margin: 0px 0px 11px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: inherit;">These efforts have shown me that it can
actually be a bit difficult for some people to get their head around how it’s
possible to remove a no-longer-needed extra bit from a payment and in doing so have
people end up with less than the original, pre-extra bit, amount. So here’s
another go at explaining it; one that doesn’t use pictures or tables or
discussions about the CPI. It’s a vast simplification compared to what is
actually going on, but the essential mechanism is there…</span></span></div>
<a name='more'></a><br />
<br />
<div style="margin: 0px 0px 11px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: inherit;">Imagine that you are regularly being paid
$100 a week, via a bundle of nice shiny $10 notes. The </span><b style="mso-bidi-font-weight: normal;"><span style="font-family: inherit;">normal arrangement</span></b><span style="font-family: inherit;"> is that if the prices of things you buy go up, your
$100 a week will be adjusted up also (more $10 notes for you). And if prices
fall, you don’t need as much, and your $100 will be reduced (less $10 notes for
you). Assume this has been going on for years and years, with you getting a bit
more or a bit less than $100 as prices wobble about.</span></span></div>
<br />
<div style="margin: 0px 0px 11px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: inherit;">Fast forward a few years, and there’s an announcement that there’s
going to be an ongoing change that will cost you money – an extra $10. A
permanent price hike in addition to the normal up and down wobbles. Now, the </span><b style="mso-bidi-font-weight: normal;"><span style="font-family: inherit;">normal arrangements</span></b><span style="font-family: inherit;"> will give you this
$10 (it’s just a price increase after all), but just so you know that you’ve
been properly compensated, your benefactors have decided to give you $20
instead. To make it even better, they’ll give you a $20 note instead of a
couple of the usual tenners. And so it comes to pass that you are now getting
$120, made of ten $10 notes and one fabulous new $20.</span></span></div>
<br />
<div style="margin: 0px 0px 11px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: inherit;">Time passes, and the thing that brought
about the ‘permanent’ extra price hike is removed. In an act of generosity, the
people giving you the $120 say you will be allowed to keep your special $20
note.</span></span></div>
<br />
<div style="margin: 0px 0px 11px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: inherit;">Bonanza! A windfall gain! Sounds of
cheering and joy!</span></span></div>
<br />
<div style="margin: 0px 0px 11px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: inherit;">Except that they don’t do anything about those
pesky </span><b style="mso-bidi-font-weight: normal;"><span style="font-family: inherit;">normal arrangements</span></b><span style="font-family: inherit;">, and those
arrangements dutifully operate to reduce your payment by that $10 extra cost
that no longer exists. So now you have $110 a week, still more than you had
before all this started. And you surely can’t help but notice the nice $20 note
that still makes up part of that $110.</span></span></div>
<br />
<div style="margin: 0px 0px 11px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: inherit;">Times get tight, and the person paying you
is looking around to save money. They recall that you’re still getting a $20
note to compensate for that price thing that no longer exists. And inevitably,
the pressure is on to stop giving it to you. After all, the extra cost thing
went away ages ago. So the $20 note is removed, and now you find you are only
getting $90 a week – less than before the whole extra cost thing started!</span></span></div>
<div style="margin: 0px 0px 11px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: inherit;">And there's no point in complaining, because all the great benefactor did was remove the special $20 note you no longer needed.</span></span></div>
<br />
<div style="margin: 0px 0px 11px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: inherit;">Essentially, this is the process underpinning
my concerns about the removal of the energy supplement. Sure, the actual arrangements are more complex, but if you keep the
concept in mind, my original post (</span><a href="http://ravebydave.blogspot.com.au/2016/05/malice-or-misunderstanding.html" target="_blank"><span style="font-family: inherit;">here</span></a><span style="font-family: inherit;">) describing what's actually happening might now be a bit less impenetrable.
</span></span></div>
<div style="margin: 0px 0px 11px;">
<span lang="EN-AU" style="margin: 0px;"><span style="font-family: inherit;">Fingers crossed!</span></span></div>
<b></b><i></i><u></u><sub></sub><sup></sup><strike></strike>Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com1tag:blogger.com,1999:blog-7303409391905322366.post-57037349215650498372016-05-13T13:57:00.001+10:002016-05-16T17:12:37.735+10:00Malice or Misunderstanding?<span style="color: red;">Note: This post has been amended since originally posted to include a table of examples.</span><br />
<br />
One of the measures announced in the Government's 2016 budget was the abolition of 'carbon compensation' payments for those newly claiming a range of welfare payments, including Newstart allowance. Originally referred to as clean energy supplements, but later renamed energy supplements by the Government, they were brought in by Labor to offset the increase in costs caused by the introduction of carbon pricing. The removal of said pricing makes the supplements redundant and so their abolition has a certain logic. However, if the removal goes ahead as announced, the rates of payments for new applicants will actually be less than if compensation for carbon pricing had never been introduced.<br />
<br />
<div>
As an example, for a person claiming the (usual) lower single Newstart allowance rate, this will mean their payment is not just $8.80 a fortnight less than current recipients (who get to keep the energy supplement), but $3.60 less than it would have been had there been no carbon tinkering. Let that sink in for a moment - in spite of seemingly endless calls for the rate of Newstart allowance to be increased, the Government is proposing to reduce it to <i>less</i> than its pre-carbon price compensation value.<br />
<a name='more'></a><br />
How can this happen? The short answer is that the equivalent of around 41% of the energy supplement has already been taken out of Newstart and other affected payment rates. Consequently, removing the energy supplement in full will end up taking out that 41% twice. <br />
<br />
One way to understand this is to consider what would have happened had the Government of the day not bothered to put in place the carbon price compensation arrangements, but instead let the normal indexation of income support rates occur. Here's a column chart to help this along:<br />
<br />
<a href="http://3.bp.blogspot.com/-fy64RCrXfvo/VzVAtOC7jwI/AAAAAAAAAw8/tLonSh2XD4UghVwdZKWoJ0LtZN6-twYSQCK4B/s1600/esrip.PNG" imageanchor="1"><img border="0" height="418" src="https://3.bp.blogspot.com/-fy64RCrXfvo/VzVAtOC7jwI/AAAAAAAAAw8/tLonSh2XD4UghVwdZKWoJ0LtZN6-twYSQCK4B/s640/esrip.PNG" width="640" /></a><br />
<br />
The first column shows the rate of Newstart allowance as at 19 March 2013 - the day before the carbon pricing compensation arrangements were put in place, and also the day before the normal indexation of Newstart allowance would have occurred.<br />
<br />
The next column shows the rate that would have applied from 20 March 2013 under the standard CPI adjustment arrangements - a 1.6% increase.<br />
<br />
The final column shows what was done instead. Based on Treasury calculations, it was assumed that 0.7 of that 1.6% was attributable to the introduction of carbon pricing. Consequently, the 'basic' rate of Newstart was increased by 0.9% and the 0.7% put into a new rate component. The blue basic rate column reflects this - you can see it has increased compared to the column 1 pre-indexation rate, but not by as much as would have happened ordinarily (column 2). The balance, moved to the clean energy supplement, is shown as the new orange bit. As you would expect, the blue plus the orange is the same total as the column 2 amount.<br />
<br />
In addition, the compensation arrangements also included a real increase (ie, above CPI) of 1%, shown as the grey bit. The clean energy supplement ended up being this 1% real increase, plus the 0.7% part of the normal CPI adjustment, giving a total payment of 1.7% of the original pre-indexation rate.<br />
<br />
So now let's remove the energy supplement. If it's taken straight off the rate in column 3 we are left with just the blue 'base rate', which is lower than the column 2 version. It's lower because despite the fact that we've repainted part of the rate orange, it's still really part of the base. Getting rid of it is really just chopping into the 'normal' base rate. The only bit we can justify removing, based on this picture, is the grey 1% real increase.<br />
<br />
But what about the fact that the orange bit, and also the equivalent amount in column 2's base rate, is a result of increases in the CPI that are attributable to carbon pricing? Shouldn't this mean that it's still appropriate to remove the full energy supplement (orange plus grey), and that there's actually a problem with the normal arrangement in column 2?<br />
<br />
Not at all, and here's why. Just as the introduction of carbon pricing led to a higher CPI than otherwise, taking it away produced a lower result. The CPI still rose, but not by as much. In turn, income support rates that are adjusted by reference to the CPI also increased by less than would have otherwise occurred. This smaller increase has effectively removed the carbon price effect from income support rates, leaving only the original 1% 'real increase' behind.<br />
<br />
If whichever government is in power after the election decides to continue with the budget proposal to remove the energy supplement it will be reducing rates by too much. Further examples of just how much are in the table below:<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-QyDlCWr2NFo/VzlyY9myweI/AAAAAAAAAxM/yY4Su_xbkPEMO_OovmhWzBG97PVzMUsFACK4B/s1600/excess%2Bchop.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="142" src="https://1.bp.blogspot.com/-QyDlCWr2NFo/VzlyY9myweI/AAAAAAAAAxM/yY4Su_xbkPEMO_OovmhWzBG97PVzMUsFACK4B/s400/excess%2Bchop.PNG" width="400" /></a></div>
<br />
I'm assuming that the apparent meanness of the budget measure reflects a misunderstanding of how the carbon pricing compensation was constructed originally, rather than malicious intent. You can, of course, have a different view.<br />
<br />
(One additional point - from the calculations I've done it appears the problem outlined above applies just to payments that are only indexed to the CPI. Abolishing the energy supplement for pensioners (including sole parents on parenting payment) does not result in the excessive reduction. This is because the different indexation/benchmarking arrangements for pensions - in particular benchmarking against male total average weekly earnings - has taken the 'base rate' past the point at which this issue occurs.)</div>
Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com3tag:blogger.com,1999:blog-7303409391905322366.post-82182638808653439792016-04-15T13:56:00.040+10:002024-03-28T12:20:59.115+11:00EMTR and related chartsAfter posting in a few discussion forums, and finding I was unable to paste in a chart or two to make my point, I've decided to try having a 'reference' post which is a kind of chart repository. I can then put links to it in forum posts.<br />
<br />
I envisage that as a post it will be rather free of text, so won't make for much of a read. I also intend to add charts to it as I need them (and to update them). Don't forget - if the charts appear a bit small, you can select them individually and they will open separately, and, I hope, larger.<br />
<br />
The family/household types for which charts are currently available are:<br />
<br />
<ul>
<li>single jobseeker payment (age <55)</li>
<li>single age pension (age 65+)</li>
<li>couple, single income, both jobseeker payment (both aged < 55)</li>
<li>single (age <55), parenting payment, 2 children (6, 8)</li>
<li>single jobseeker payment (age <55), 2 children (14, 15)</li>
<li>couple, single income, both jobseeker, one with partial capacity for work (would have been disability support pension pre-July 2006, both aged <60), 3 student children (16, 18, 20)</li>
<li>couple, single income, one jobseeker payment, one age pension (one aged 60-64, one aged 67+)</li>
<li>couple, single income, one jobseeker payment, one parenting payment (both aged <60), 2 children (2, 4)</li>
<li>couple, single income, one jobseeker payment, one disability support pension (both aged <60)</li>
</ul>
Note that the charts show annualised results.<br />
<br />
With that said...<br />
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Single jobseeker payment</h3>
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Chart 1</h4><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj6_2-oe0WTLuAkXVzqMc2laCw11DNEcpy_5jiaE1fnKeconxuKR9AnN0Tjb-J1ZAnFAgzqg0kAubbn75OK7IhiAOYsoHYULAlzUkWHRmo9XbdQE1IswrktUgAgFU9QbKI5Rht5FgwWy1eJdyBE2Cek99EUhJInzbuXRl6vjXfhIizmR3r2NRGNNT4NosU/s2539/emtrdi.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1663" data-original-width="2539" height="420" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj6_2-oe0WTLuAkXVzqMc2laCw11DNEcpy_5jiaE1fnKeconxuKR9AnN0Tjb-J1ZAnFAgzqg0kAubbn75OK7IhiAOYsoHYULAlzUkWHRmo9XbdQE1IswrktUgAgFU9QbKI5Rht5FgwWy1eJdyBE2Cek99EUhJInzbuXRl6vjXfhIizmR3r2NRGNNT4NosU/w640-h420/emtrdi.png" width="640" /></a></div><br /><div><div class="separator" style="clear: both; text-align: center;"><br /></div></div>
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Chart 2</h4>
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Chart 3</h4>
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Chart 4</h4>
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Chart 5</h4>
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Chart 6</h4>
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Single age pension</h3>
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Chart 1</h4><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj_VHKWTAxdARlmgXO1nUjBTlral-nUDhOpQwUO7p6yZNIlfX8bhmNOMj4CvXJVM8kYxfdLNqGhoBYtpnYWxrwDwX90N6etl3AjMMDmXom9cQJMa7rx82lgpmuYLDLoNjLLY9FlKyLjyt96GGXRxKo_BIz2rWzXwBdp_CVQFqi9LiSU5ZijQTtrEIPEYAk/s2537/Screenshot%202024-03-02%20095512.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1671" data-original-width="2537" height="422" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj_VHKWTAxdARlmgXO1nUjBTlral-nUDhOpQwUO7p6yZNIlfX8bhmNOMj4CvXJVM8kYxfdLNqGhoBYtpnYWxrwDwX90N6etl3AjMMDmXom9cQJMa7rx82lgpmuYLDLoNjLLY9FlKyLjyt96GGXRxKo_BIz2rWzXwBdp_CVQFqi9LiSU5ZijQTtrEIPEYAk/w640-h422/Screenshot%202024-03-02%20095512.png" width="640" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;"><br /></div></div>
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Chart 2</h4><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYngp4Qdhn4IRX2Sg2t1IekDaEvpzzPiTbuCHAoDsDT6t-KJhBsGw1kEAb96G8hXx05bMI7pwjoXBN1MjEEekQHMNYK5V63ZSt-9aaLTV0iYrB3_bnVSAkAUckI4W0u0Lp_LWtd2jX4qvs3lQDWcQi3uh6B_AWI6QY_CH_bVJd5c8DHi9i3p00Gw2HmkQ/s2538/Screenshot%202024-03-02%20095454.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1664" data-original-width="2538" height="420" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYngp4Qdhn4IRX2Sg2t1IekDaEvpzzPiTbuCHAoDsDT6t-KJhBsGw1kEAb96G8hXx05bMI7pwjoXBN1MjEEekQHMNYK5V63ZSt-9aaLTV0iYrB3_bnVSAkAUckI4W0u0Lp_LWtd2jX4qvs3lQDWcQi3uh6B_AWI6QY_CH_bVJd5c8DHi9i3p00Gw2HmkQ/w640-h420/Screenshot%202024-03-02%20095454.png" width="640" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;"><br /></div>
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Chart 3</h4>
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Chart 4</h4>
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Chart 5</h4>
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Chart 6</h4>
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<h3>
Couple, single income, jobseeker payment</h3>
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Chart 1<div class="separator" style="clear: both; text-align: center;">
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Chart 2</h4>
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Chart 3</h4><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhn21oBAtgXHpKip-wkQxNqWyDE8jraUYQO8k0Y3x5cgWA4TXqhRrhhWX8plD2VEWne5TEa-_UYikvcXntIGCCFJL-rDxRVYM6Vzhbz8qVd7ucW3xVO-p3E9uvPXvr8NNY2ZIkR5a-FRZBKt5QifAyCvFLW4hAY4UEAJTpdnUCF2hJP79NqnYrFZPue45U/s2542/Screenshot%202024-03-07%20095334.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1665" data-original-width="2542" height="420" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhn21oBAtgXHpKip-wkQxNqWyDE8jraUYQO8k0Y3x5cgWA4TXqhRrhhWX8plD2VEWne5TEa-_UYikvcXntIGCCFJL-rDxRVYM6Vzhbz8qVd7ucW3xVO-p3E9uvPXvr8NNY2ZIkR5a-FRZBKt5QifAyCvFLW4hAY4UEAJTpdnUCF2hJP79NqnYrFZPue45U/w640-h420/Screenshot%202024-03-07%20095334.png" width="640" /></a></div><div><div class="separator" style="clear: both; text-align: center;"><br /></div></div>
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Chart 4</h4>
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Chart 5</h4>
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<h4>
Chart 6</h4>
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<h3>
Single person, 2 children (6, 8), parenting payment</h3>
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Chart 1</h4>
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Chart 2</h4>
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Chart 3</h4>
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Chart 4</h4>
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<h4>
Chart 5</h4>
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<h4>
Chart 6</h4>
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<h3>
Single person, 2 children (14, 15), jobseeker payment</h3>
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Chart 1</h4>
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Chart 2</h4>
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<h4>
Chart 3</h4>
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Chart 4</h4>
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Chart 5</h4>
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<h4>
Chart 6</h4>
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<h3>
Single income couple, both jobseeker payment (where applicable), one with partial capacity for work (would have been disability support pension pre-July 2006), 3 older children</h3>
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Chart 1</h4>
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Chart 2</h4>
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Chart 3</h4>
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<h4>
Chart 4</h4>
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<h4>
Chart 5</h4>
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<h4>
Chart 6</h4>
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<h3>
Single income couple, jobseeker payment and age pension</h3>
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Chart 1</h4>
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Chart 2</h4>
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<h4>
Chart 3</h4>
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<h4>
Chart 4</h4>
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<h4>
Chart 5</h4>
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<h4>
Chart 6</h4>
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<h3>
Single income couple, 2 children (ages 2, 4), jobseeker payment and parenting payment where applicable</h3>
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Chart 1</h4><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhCx5AKOCLDQbDcM_aDrco64yPWoAyQkhLqky9N8Fxv8juwXqeSfuNAvFR1BfMt6j2krQ_VRFM8DdCwjz-G8Memj7u4NjN-pteBlOxI7a8VQEupxYzDzYrq6B6LNuemBqGj10VnRf2IFl41kTLzW1AXH3V5EiS7trYERksDvx6tx70p4onuxUPaYsi9/s1259/emtrdi.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="824" data-original-width="1259" height="418" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhCx5AKOCLDQbDcM_aDrco64yPWoAyQkhLqky9N8Fxv8juwXqeSfuNAvFR1BfMt6j2krQ_VRFM8DdCwjz-G8Memj7u4NjN-pteBlOxI7a8VQEupxYzDzYrq6B6LNuemBqGj10VnRf2IFl41kTLzW1AXH3V5EiS7trYERksDvx6tx70p4onuxUPaYsi9/w640-h418/emtrdi.jpg" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><div>
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Chart 2</h4>
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Chart 3</h4>
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Chart 4</h4>
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Chart 5</h4>
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Chart 6</h4>
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<h3>
Couple, single income, one jobseeker payment, one disability support pension, both aged <60 years</h3>
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Chart 1</h4>
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Chart 2</h4>
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<h4>
Chart 3</h4>
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<h4>
Chart 4</h4>
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<h4>
Chart 5</h4>
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Chart 6</h4>
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Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com0tag:blogger.com,1999:blog-7303409391905322366.post-23299556278949447772015-07-27T10:29:00.001+10:002015-07-28T11:36:29.867+10:00It's All Downhill From Here...We've now passed the half-way point of Parliament 44's term and are well into the downhill run to the next election. The recent release of the June quarter CPI has prompted me to wrestle aside my customary laziness and update my chart collection to show the effect of tax-transfer changes on disposable incomes over that first half. <br />
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Nit-pickers might say that the first half really ended in the March quarter, but the charts for that period were pretty boring. As I noted in my <a href="http://ravebydave.blogspot.com.au/2014/12/one-year-in.html" target="_blank">previous post</a>, very little of the contentious parts of the Government's budget agenda had managed to take effect at the 12 month point, and this remained more or less the case until 30 June. But then the floodgates opened, the budget's fangs began to bite, and the tax-transfer excitement level went up a notch. So lets look at the changes up to this slightly over half-way point.<a name='more'></a><br />
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As has become my usual practice, I'll start with a single person household, with Newstart allowance where relevant. Unfortunately, it's probably the most boring of the household types in terms of changes, but it does provide a kind of benchmark for the others. (If you are <em>really </em>keen to get to the more exciting bits, maybe jump to the discussion around Chart 6 onward.)<br />
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A quick note. These charts come from a comparison of the disposable income at the election date and 1 July 2015, for comparable levels of gross private income. That requires that the 2013 earnings and disposable income results are adjusted for CPI movements. In the charts, all the results are in 1 July 2015 dollar values.<br />
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Chart 1: single person, Newstart allowance, no private health insurance</h4>
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This is almost unchanged from the 12 month result shown in my <a href="http://ravebydave.blogspot.com.au/2014/12/one-year-in.html" target="_blank">last post.</a> The decline in incomes from around $25,000 a year has increased slightly as a result of bracket creep, but the only new feature is the appearance of three small 'stalactites' in the medicare levy. They are a result of the freeze in the thresholds for the medicare levy surcharge and will become wider as we progress through the rest of the Parliamentary term.<br />
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At incomes below around $25,000 Newstart allowance enters the picture and here there is a net gain in disposable income. The roughly 1% increase at zero private income is really an outcome of timing - the election date was just before the standard Newstart allowance CPI increase, resulting in there being 4 CPI increases (ie, 2 years worth) in the little over 18 months covered by the chart. The significant jump upward to 4% as private income increases is, however, a real effect. It's the result of an increase in the amount of private income Newstart allowance recipients can have before their payment is reduced.<br />
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Note too that the gains from this change fall away quite rapidly from around $15,000. Newstart allowance is taxable income, so the increase flowing from the income test change is partly clawed back by a higher tax liability.<br />
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Next up, single age pensioners.<br />
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Chart 2: single person, age pension, no private health insurance</h4>
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At incomes above around $65,000 the results are as per the discussion for Chart 1. The action in this household type is mainly at the lower end of the income scale.<br />
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The most obvious difference from the single Newstart example is the much larger reduction in disposable income from around $15,000. As the red area indicates, this is due to income tax effects, specifically the abolition of the mature age workers tax offset (MAWTO). It should be noted that MAWTO was already being phased out as a result of decisions taken by the previous Labor government (as discussed in <a href="http://ravebydave.blogspot.com.au/2014/01/and-that-was-parliament-43.html" target="_blank">this post</a>). However, in the first budget of Parliament 44 the phase out approach was abandoned in favour of complete abolition, a decision which affected age-pension recipients.<br />
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The pension itself has increased in value in real terms. Some of this is due to the timing effect mentioned earlier, and some is a result of the more generous indexation arrangements for age pension compared to Newstart allowance.<br />
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In contrast to earlier periods, single students have had a somewhat quiet period, with only a couple of points to make.<br />
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Chart 3: single person, Austudy payment, no private health insurance</h4>
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At incomes above around $30,000 the outcomes are the same as for single Newstart, except for the purple spikes. These reflect changes in the real value of the various HECS/HELP repayment thresholds. As with the maximum rates of payment, this is an effect of the timing of the annual indexation of the thresholds and doesn't reflect a policy change as such.<br />
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The relatively large movement in the rate of Austudy payment is almost entirely offset by the negative movement in the clean energy advance. This is a hangover from the carbon pricing compensation arrangements that were largely in place by the end of Parliament 43. The indexation cycle of student payments means they lagged behind these broader Parliament 43 changes with their conversion from a clean energy advance to a clean energy supplement (a component of the actual Austudy payment rather than a separate entitlement) not being completed until January 2014. What we are seeing then, is the abolition of the clean energy advance, with its value being (more or less) folded into the broader Austudy payment umbrella.<br />
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The only other noteworthy item is the decline in value of the student startup scholarship - its value was frozen as part of the budget changes.<br />
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Now to turn to couples...<br />
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First up, the 'golden child', a two-income couple. I say golden child because this type of household is clearly favoured over the traditional (read old-fashioned) single income couple, as we'll see later.<br />
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Chart 4: couple (50:50 income split), Newstart allowance, no private health insurance</h4>
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At incomes beyond the point at which Newstart allowance ceases to be paid the results are comparable with the single person household - perhaps unsurprisingly, given that the taxation system treats the couple as two individuals in most respects. The exception is the medicare levy surcharge, the non-indexation of which has led to the stalactite at $180,000.<br />
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Again, as with the single Newstart example, the relaxation in the Newstart income test has led to a real gain in disposable income. It's slightly more generous than the single example because a two income couple is making use of two lots of allowable income, which is proportionally larger (relative to the rates of payment) than for a single person.<br />
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Chart 5: couple (100:0 income split), Newstart allowance, no private health insurance</h4>
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Single income couples did worse than their two-income counterparts across the income range. At incomes in excess of the Newstart allowance cutout their tax liability is greater than that on two-income couples at the same (combined) private income and as a result they are more affected by bracket creep effects. In the income range where Newstart is paid there have been real gains primarily due to the income test relaxation mentioned earlier, although they are not as substantial as those for the two income couple.<br />
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The boost in disposable income from the point where partner one's Newstart allowance ceases reflects a correction to a problem introduced by Labor when it implemented the carbon pricing compensation (discussed <a href="http://ravebydave.blogspot.com.au/2014/09/fixed-at-last.html" target="_blank">here</a>).<br />
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The abolition of the MAWTO discussed earlier (see chart 2) also affected older members of a couple. However, they were also affected by another budget decision - the abolition of the dependent spouse tax offset (DSTO). As a result, some older single income couples were able to participate in a triple whammy, losing both tax offsets and getting a dose of bracket creep. Here's how that looks.<br />
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Chart 6: couple (100:0 income split), Newstart allowance and age pension, no private health insurance.</h4>
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The most obvious aspect of this chart is the large negative red area, representing the decline in disposable income attributable to income tax changes (ie. loss of DSTO and MAWTO, plus bracket creep). Also visible is the effect of changes to the seniors supplement (shown in grey), the rate of which was reduced to the point where it is now only a token carbon pricing compensation payment. The senior supplement loss will continue to grow over the current Parliamentary term as this residual amount is no longer indexed to CPI.<br />
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Now to households with children, where the action really intensified. First up, a sole parent example.<br />
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Chart 7: single parent, 2 children (8, 10), Newstart allowance, no private health insurance</h4>
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This chart features the by now usual increase in real terms for low income households, with the added appearance of increased Family Tax Benefit (FTB). However, as with the apparent increase in Newstart allowance discussed earlier, this is a reflection of timing. Once again, 2 years worth of (FTB) indexation is being captured in 21 months. The real excitement, though, is in the income range where FTB Part B (the blue area) has been lost.<br />
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The loss of FTB B is a result of the budget decision to reduce the income test cutout point from $150,000 to $100,000. In the range from $100,000 to around $117,000 this loss is compounded by the removal of the schoolkids bonus (which also acquired a $100,000 income limit) and the effect of changes to FTB Part A (the various ongoing indexation freezes and a reduction in the allowable income). These changes have combined to reduce disposable incomes by over 8% a year in real terms in the affected income range.<br />
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To illustrate the significance of this, here's the same chart but with actual dollar losses instead of percentage changes.<br />
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Chart 8: Real dollar loss version of Chart 7</h4>
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I suspect for those in the affected income range, this type of household might be noticing that budget changes do actually impact on living standards!<br />
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The loss of FTB B also affects some single income couples. Here's an example which also features the effect of another budget change to FTB.<br />
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Chart 9: couple, 100:0 income split, 3 children (4, 6, 8), Newstart allowance and parenting payment, no private health insurance, real dollar loss</h4>
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<a href="http://3.bp.blogspot.com/-_KkEM7QWO5Q/VbbTTNS8o0I/AAAAAAAAArc/EqxsYsO7dUA/s1600/SI%2Bcouple%2B3%2Bkids.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://3.bp.blogspot.com/-_KkEM7QWO5Q/VbbTTNS8o0I/AAAAAAAAArc/EqxsYsO7dUA/s640/SI%2Bcouple%2B3%2Bkids.PNG" width="640" /></a></div>
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I've cut to the chase with this example and gone straight to a dollar loss chart.<br />
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The results for this household type are similar to that for the sole parent example as the same tax-transfer elements are in play. The difference is that FTB A is showing a loss at all income points rather than a net gain at lower incomes. This comes about as a result of the budget decision to increase from 3 to 4 the number of children a household needs to have in order to attract the large family supplement.<br />
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The result is that this type of 5 person household has gone backwards in real terms at all incomes above around $45,000 a year, a loss that reaches a quite staggering $7,500 or so at its highest point.<br />
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I mentioned earlier that the budget changes so far have been less financially damaging to two income couples than single income and sole parent households. This reflects that fact that the main drivers of the losses have been the abolition of the DSTO (see chart 6) and the reining in of FTB B.<br />
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This is set to continue with further tightening of FTB B proposed (ie, it will only be payable until the youngest child turns 6). Not everyone is happy with this turning away from support for these households, particularly the once traditional single income couple (see for example, <a href="http://www.mattcanavan.com.au/tax_system_should_be_more_family_friendly_says_canavan" target="_blank">this from Senator Matthew Canavan</a>). I find myself wondering if the significant financial impact these changes have had will change the voting intentions of those affected, and whether there are enough of them for that to actually matter.<br />
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In some ways the examples I've given in this post still seem to have a slightly stereotypical Labor look about them, insofar as those with low incomes are showing net gains (albeit quite slight and in some cases an accident of timing) with the substantial losses being borne by those higher up the income scale. However, compared to the results at the 1 year point of this Parliament, losses are now being experienced further down the income scale than before, and the financial impact of changes to come (eg, the FTB B restriction mentioned above and the complete abolition of both the income support and schoolkids bonus) will extend right across the income range. So yes, in the tail end of this Parliament's term it does appear to be downhill from here.Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com0tag:blogger.com,1999:blog-7303409391905322366.post-71814285502185684562014-12-03T12:47:00.002+11:002014-12-03T12:49:00.221+11:00One Year In<div abp="60">
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It's a bit over a year since the last Federal election and I had been considering doing a post to show the changes that have occurred in the tax-transfer system over the first 12 months of Parliament 44. I have to confess though, that the charts showing the 12 month results are, for the most part, pretty boring, and to date this had stayed my hand.</div>
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However, I have been intrigued by the continuing coverage that the Government's first budget has been getting, a recent example being <a abp="64" href="http://www.canberratimes.com.au/business/the-economy/why-joe-hockeys-budget-flopped-so-badly-20141130-11woo3.html" target="_blank">this opinion piece by Ross Gittins</a>. The article outlines a number of budget measures that might be perceived as unfair, suggesting that this is giving the Government continuing grief, popularity-wise. What struck me about this is that almost none of the measures mentioned in the article have actually come into effect, having been held up, voted down or amended by the Senate.</div>
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In fact, despite the rhetoric around the impact of the Government's budget measures, the changes to the tax transfer system that have actually occurred over the first 12 months arguably look more like stereotypical <em abp="624">Labor </em>outcomes. That's not to say that this will remain the case. Many budget measures have had their implementation dates pushed back as part of the wheeling and dealing to get them through Parliament. Others are still before Parliament and may yet see the legislative light of day. But the key thing, for me at least, is that most of the 'horror' budget has yet to actually bite.</div>
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So, let's look at how the first 12 months has treated some selected household types, but with an added twist: we'll also look at what the Government had intended to achieve, tax-transfer wise, and thus see the difference between intention and outcome.<br />
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First up, let's look at a basic single-person example.</div>
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Chart 1</h4>
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This chart is intended to illustrate the difference in the disposable income of a particular household type (in this case a single person) at the election date compared to the same type of household at the end of September 2014. To make the households comparable, the private income used in 2014 is being compared to the same amount in real terms (ie, CPI adjusted) at the election date.</div>
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In broad terms the chart shows that this household type had a real increase in disposable income since the election where private income is under around $25,000, but real reductions for all income levels above that. It's probably the most obvious underpinning for my earlier comment that the results look like stereotypical Labor - gains for the low income households and cuts for those on higher incomes.</div>
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There are a few things going on here. The reductions above approximately $25,000 a year result from the decline in value of the various income tax thresholds (sometimes referred to as bracket creep), a half of one percent increase in the medicare levy (as part of the funding arrangements for the NDIS) and, for incomes above $180,000, the imposition of a budget repair levy. Note too that the intended and actual outcomes are the same for this income range. The Government actually got its way here, albeit in only a small way - the budget repair levy is the only change that was not already happening under Labor.</div>
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For incomes under $25,000 the story is a little more complex. First, at zero private income there has apparently been a real increase in disposable income (in this case, the maximum Newstart allowance [NSA] package) of a little under 1.5%. At first blush this seems impossible, given that the rate of the NSA package is tied to movements in the CPI. The cause is timing - it's down to the relationship between the election and the dates that NSA is indexed. Although we are looking at a little over 12 months of Parliament 44, there have been three indexation increases for NSA in that time (20 September 2013, 20 March 2014 and 20 September 2014). In effect, 18 months of CPI increases are showing up in the chart rather than 12.</div>
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Moving up the income scale from zero there is a sudden boost in the gains, to a little over 4%. This is a result of a relaxation of the NSA income test - the allowable income before payment is reduced has been increase from $62 to $100 a fortnight. This too is a hangover from the previous Parliament - a change made by it that has come into effect early in the life of Parliament 44.</div>
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The sub-$25,000 region is also where the intended result differs from what actually happened. Two measures were supposed to have been in place by 20 September that would have produced the blue line outcome - the abolition of the income support bonus and a freeze on indexation of the clean energy supplement, both parts of the overall NSA package. These measures were modified as a result of Senate negotiations/amendments and although passed, will come into effect later than originally scheduled.</div>
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So that's our baseline single person covered. Next let's look at another single person household, this time with someone of age-pension age.</div>
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Chart 2</h4>
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Here we have two income ranges where the Government seems to have got its way. The traces at incomes above around $62,500 are the same, as are those below about $12,500. </div>
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At the lower income end of the scale this simply reflects that the pension changes announced in the budget, particularly dropping the link between wage levels and rates, are not intended to start for some time yet. The higher income result is as per the earlier discussion about single Newstart allowance. </div>
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And the bit in between? By now the Government had intended to have abolished the mature age workers tax offset (MAWTO - a scheme introduced in the Howard era to improve the incentives for older workers to remain in the workforce). The legislation for its repeal is still before Parliament. Interestingly, if the legislation is passed in its current form it will be retrospective to 1 July 2014, meaning that the Government's intended result may yet come to pass. It just hasn't yet.</div>
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A similar change announced in the budget is the removal of the dependent spouse tax offset (DSTO). Like MAWTO, this was already being phased out under arrangements introduced by Labor. The budget decision is to chop the entitlement out from 1 July 2014, rather than the slowly fading away approach currently in place. Again, like MAWTO, this has not yet happened. Let's look at an older couple household to see how this theoretically affects them.</div>
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Chart 3</h4>
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For this household type there is a large gap between intention and outcome. Once again the outcome side has a stereotypical Labor look, assisted considerably by the three lots of indexation rate increases I mentioned earlier. Also showing up is the effect of the relaxed NSA income test, as discussed in the single person example. From about $48,000 the actual outcomes moves into negative territory as the increased medicare levy and tax-creep effects overcome the higher pension rate paid to the non-working partner. The significant dip at $150,000 is due to the inflation-induced reduction in real terms of the DSTO household income threshold of $150,000 - the point at which entitlement to that offset is lost under current arrangements.</div>
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The blue 'intentions' line is rather more interesting. It shows the effect (or lack thereof) of four measures that were meant to be in place but as yet aren't. At the low income end the gap reflects the intended abolition of the income support bonus (affecting the NSA partner) and the non-indexation of the clean energy supplements (affecting both partners. As income rises we are also seeing what would have happened had the MAWTO and DSTO been removed. The losses these produce would have peaked at a little over a 6% reduction in disposable income (approximately $3,200) since the election date for those earning $78,000.</div>
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Once again, this is a reduction still waiting in the wings depending on the passage of the relevant legislation.</div>
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These are quite substantial reductions in household income, but they have not attracted much media attention. On the other hand, the changes affecting sole parents have attracted quite a bit, so let's finish off with a look at a sole parent with school age children.</div>
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Chart 4</h4>
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Once again there is a wide discrepancy between what the Government had intended and what has actually happened (so far).</div>
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Intention and outcome come quite close together at private incomes of $100,000, but don't completely align until $150,000. That small gap reflects what would have happened had the Government's proposal to not index Family Tax Benefit on 1 July 2014 come into effect. That small contribution is also present at all incomes below $100,000, but is vastly outweighed by the proposed abolition of the schoolkids bonus and income support bonus.</div>
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The abolition of the schoolkids bonus did pass Parliament, but in a rather different form to the original proposal. Instead of being removed in one hit, entitlement was taken away for those with incomes of $100,000 a year or more (hence the dip at $100,000 in the chart), with removal for those on lower incomes pushed out to the end of 2016.</div>
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My original point was that the actual changes to the tax-transfer system over the first 12 months of Parliament 44 have not resulted in changes to disposable income in quite the way that discussion of the budget would suggest. Instead of losses, lower income households are still ahead, but only because the intended changes have been moved into the future.</div>
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There's a saying that actions speak louder than words, which, given the negative publicity the proposed budget changes have generated, might actually be a terrifying prospect from the Government's perspective. After all, if the Government can cop this much opprobrium from things so far only spoken of, what will happen if and when they actually come to pass?</div>
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Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com0tag:blogger.com,1999:blog-7303409391905322366.post-72051861438617575522014-09-15T14:04:00.001+10:002014-09-15T14:04:54.606+10:00Fixed at last!<div abp="166">
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As is usual, on 20 September 2014 the rates of a number of payments in the Australian social security system will be adjusted to take into account increases in the consumer price index (CPI). The new rates were formally announced via <a abp="168" href="http://kevinandrews.dss.gov.au/media-releases/177" target="_blank">this press release</a>, with a detailed set of tables provided in the attachments available <a abp="260" href="http://www.dss.gov.au/about-the-department/benefits-payments/indexation-rates-september-2014" target="_blank">here</a>.</div>
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One of the many figures provided in those tables is the 'partner income free area' and its new value appears to be the only clue that a wrong has been righted. That correction should, it appears, provide an increase in payment rates to some couple households that is significantly larger than announced in the press release.</div>
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In earlier posts on this blog I discussed what I believed to be an error in the way the previous government's carbon-price related household compensation had been implemented for some couples. This resulted in affected couples receiving less overall assistance than was promised. (If you are curious about the details, <a abp="317" href="http://ravebydave.blogspot.com.au/2013/03/low-income-couples-and-carbon.html" target="_blank">this post</a> might be of interest.)</div>
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The new arrangements mean that the underpayments to couples will come to an end from 20 September. A one-off effect of this correction is that the couples currently being underpaid will get the standard CPI increase, plus an extra amount. Not only that, but the effect of the correction should also flow through to some couples getting income support payments (particularly Austudy payment) that are not normally increased on 20 September.</div>
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The increase announced for couples was $4.70 a fortnight each. There is also an increase to the income support bonus (which is a twice-yearly payment). For couples with no private income, the combination of these gives an increase to the household of $248 a year. However, for those couples who were being 'dudded' out of the correct household compensation amounts, the increase may be as much as $436 a year.</div>
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My first chart shows the increase for three different couple households, by private income.</div>
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Chart 1</h4>
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<a abp="1596" href="http://3.bp.blogspot.com/-u-WisAcq7OI/VBZc0XkX78I/AAAAAAAAAno/w9yvmRzJg4U/s1600/consolidated.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1597" border="0" src="http://3.bp.blogspot.com/-u-WisAcq7OI/VBZc0XkX78I/AAAAAAAAAno/w9yvmRzJg4U/s1600/consolidated.PNG" height="418" width="640" /></a></div>
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The dual income couple (orange line) is not one of the household types who were disadvantaged by the implementation of the household assistance measures (the clean energy supplement, or CES). Their increase is just the standard CPI adjustment, so I've included them as a kind of reference base.</div>
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The blue line is a single income Newstart allowance couple - one of the affected household types - and you will note that from a private income of around $23,500 the increase becomes larger and persists that way until private income exceeds roughly $43,500.</div>
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Finally, I've included a single income couple where both are students. You'll notice that they don't get an increase until the private income of the worker reaches around $29,250 (actually they do pick up the general increase in the income support bonus, but at $3.60 a year it's too small to show up at this scale!). From that point the couple should get an increase that is actually larger than the standard CPI increase given to the dual income Newstart couple. The rather noticeable peak at the end of the Austudy example's payment range is because the non-working partner can now pick up Austudy that was previously excluded under the income test, but also gains access to the student startup scholarship.</div>
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The various spikes and bumps in the lines reflect the fact that even with a standard increase, the actual change in disposable income is affected by interactions of the rate increase with other parts of the tax-transfer system. Chart 2 shows this for one of the household types depicted above.</div>
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Chart 2</h4>
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<a abp="1641" href="http://2.bp.blogspot.com/-_l3d8QGgaXo/VBZhOJXS7vI/AAAAAAAAAnw/dRNDyPusmO8/s1600/breakdown.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1642" border="0" src="http://2.bp.blogspot.com/-_l3d8QGgaXo/VBZhOJXS7vI/AAAAAAAAAnw/dRNDyPusmO8/s1600/breakdown.PNG" height="418" width="640" /></a></div>
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Here we can see that each member of the couple initially starts out with the same increase. However, that extra income support payment means that the working partner incurs a higher tax liability from around $16,500 in private income, reducing the net gain to the household. Once the working partner (P1) is no longer getting Newstart there is a further increase in Newstart to the non-working partner (P2). This extra income support does not trigger a tax liability as P2's taxable income is below the tax threshold (it's a single income couple example), but it does boost the households medicare levy liability. This is because the low income medicare levy arrangements are based on the couple's combined income. Finally, the extension to the Newstart allowance payment range caused by the higher payments overlaps with the income range in which the low income supplement was potentially available, removing entitlement to that payment.</div>
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So there you have it. After 18 months of getting less than they should have, payments for some single income households will finally be corrected. They can now participate equally in a new, but less financially punishing, rip-off that will occur if the Government gets its way and ceases indexing the clean energy supplement. A discussion of that one will have to wait for another day.</div>
Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com0tag:blogger.com,1999:blog-7303409391905322366.post-34853428283749381412014-03-11T10:27:00.000+11:002014-03-11T10:27:10.220+11:00March 20 Newstart changes- more than just a rate increase<div abp="166">
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The rate of Newstart allowance (NSA) is adjusted twice a year - on 20 March and 20 September - in line with upward movements in the consumer price index (CPI). This time round, the various NSA rates (and some associated payments) will increase by 1.9%. Coinciding with these changes, the amount of private income a person can have before NSA is reduced under the income test is also being increased, from $62 a fortnight to $100 a fortnight. This will be the first increase in the "income free area" or "allowable income" since 1 July 2000 when it was increased by $2 a fortnight as part of a range of measures intended to compensate for the introduction of the goods and services tax.</div>
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While the CPI based rate increases have received some coverage (go <a abp="170" href="http://kevinandrews.dss.gov.au/media-releases/51" target="_blank">here</a> for the press release and <a abp="261" href="http://www.dss.gov.au/sites/default/files/documents/02_2014/attachment_a_0.pdf" target="_blank">here</a> for a detailed list of the changes), the increase in the income free area hasn't had much at all. So, herewith, a few charts showing the combined effect of the CPI rate increases <em abp="623">and</em> the changed income test free area!</div>
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The charts show the increase on a yearly basis. I do that because, as you'll see, some of the increases in NSA get "clawed back" by the Federal Government by way of higher income tax and medicare levy. That's not really evident on a fortnightly basis as the tax calculations involved tend to be done when tax returns are eventually lodged. But happen they do, and in these charts you'll be able to see which payments go up, which go down, and the effect on tax and medicare.</div>
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There are lots of possible combinations of household types and circumstances to which the March changes apply, and so this is just going to be a selection. Apologies if a household you were particularly interested in hasn't been included. (If you are really keen, ask in the comments and I'll see if I can add yours on.)</div>
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First up, single NSA.</div>
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Chart 1</div>
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<a abp="165" href="http://4.bp.blogspot.com/-crv0cFRs7NU/Uxv7u8mc9yI/AAAAAAAAAhk/_5BoL49P_N0/s1600/single+NSA.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="166" border="0" src="http://4.bp.blogspot.com/-crv0cFRs7NU/Uxv7u8mc9yI/AAAAAAAAAhk/_5BoL49P_N0/s1600/single+NSA.PNG" height="418" width="640" /></a></div>
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The increase at maximum rate (ie, for those with zero private income) comes from two sources. NSA itself increases by $252 a year (including the increase in the clean energy supplement component of the NSA rate), but there is also an increase in the income support supplement of $4 a year (barely discernable on the chart). Note, however, that the increase in assistance then starts to rise once private income exceeds $1612 a year, peaking when private income reaches $2600. This is the effect of the relaxation of the NSA income test, which on its own gives a maximum gain of $494 a year. When the CPI rate increases and the income test relaxation are combined, recipients with private incomes of at least $2600 a year have a total increase in assistance of $750.</div>
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Once private income exceeds around $13,250 a year the chart shows that the total (or net) assistance package starts to reduce due to the impact of the medicare levy and income tax. These two items are shown as (negative) green and red components, pulling down the overall increase. Why does the medicare and tax liability change this way? It's because NSA is income for tax purposes, and so an increase in the taxable part of NSA also increases overall taxable income. Higher taxable income means more tax/medicare is payable - in this case around $215 more.</div>
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You might be wondering how the combined tax and medicare liability is managing to claw back nearly 30% of the increase in assistance when income tax rates at this level of income are 19%. It's because under the medicare shade-in rules, the levy is being imposed at a rate of 10%, not the 1.5% you might be expecting.</div>
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The final item of note occurs right at the end of the income range shown in the chart - a sudden increase in the income support bonus. Up to that point the bonus shows up as a tiny sliver on the top of each column, reflecting the $4 a year increase in its rate. Right at the tail end though, the full amount of the bonus suddenly pops up. This is because the CPI increase and the income test change also push out the income at which NSA ceases to be payable (the cutout point). Those in the income range between the old and new cutouts become newly eligible for NSA under the income test and in doing so newly attract the income support bonus.</div>
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The above represents the changes for those getting the lower single rate of NSA. The other main single NSA rate is a little higher and is paid to sole parents, long term income support recipients aged 60+, people whose partner is imprisoned and "illness separated" couples. Given that the difference in the increases for the two single rates is slight I've not bothered producing an essentially duplicate chart for them.</div>
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That's the more-or-less baseline version of what happens on 20 March. Now let's see how this applies to some other household types, starting with some couples.</div>
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Chart 2</div>
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<a abp="794" href="http://4.bp.blogspot.com/-sxNmRd-HUtI/Ux0LmORyIVI/AAAAAAAAAh0/Q3cwhn92qo4/s1600/couple+50-50+NSA.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="795" border="0" src="http://4.bp.blogspot.com/-sxNmRd-HUtI/Ux0LmORyIVI/AAAAAAAAAh0/Q3cwhn92qo4/s1600/couple+50-50+NSA.PNG" height="420" width="640" /></a></div>
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At first glance this is very similar to the result for single NSA, and that's pretty much true. The initial increase is larger (there are two adults after all) at around $459 (including the small bonus change), but the income test gain is even more substantial. Where both members of the couple have private income (as in this example) both benefit from the income test relaxation, effectively providing twice the gain from this source. In this case the overall gain from the CPI rate increase and income test relaxation peaks at $1447 a year.</div>
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As with the single case, toward the tail end of the payment range income tax and the medicare levy reduce the overall gain. At the extreme end the extension to the payment range discussed earlier has also added income support bonus payments - in this case two lots (one each).</div>
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If the couple household only manages one earner, the results are rather different, as per Chart 3.</div>
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Chart 3</div>
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<a abp="839" href="http://2.bp.blogspot.com/-W6boVKZCfmY/Ux0O-fdNggI/AAAAAAAAAiA/ok4yaA2xd3Q/s1600/couple+100-0+NSA.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="840" border="0" src="http://2.bp.blogspot.com/-W6boVKZCfmY/Ux0O-fdNggI/AAAAAAAAAiA/ok4yaA2xd3Q/s1600/couple+100-0+NSA.PNG" height="418" width="640" /></a></div>
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<div abp="1045">
At zero private income the rate increase is (obviously) the same as for the two-income couple. However, a single earner couple will get the same gain from the income test change as a single person, giving a peak gain of $953. Given the presence of two adults rather than one, this is proportionately the smallest gain of the three household types so far examined. The message (if there is one) to the second adult is "get a job".</div>
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<div abp="1053">
Due to an attack of slackness I haven't separated out the income support bonus from the NSA payments in this chart. However, as with the other households, it's the cause of the spiky appearance at the extreme tail end of each partner's payment range.</div>
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<div abp="1061">
The tax and medicare effects look rather different to those in the first two households. This is because the income level at which the medicare levy starts to apply takes into account household composition (ie, it's family based), whereas, following the abolition of the dependent spouse tax offset, the income tax is calculated as if the person was single.</div>
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<div abp="1069">
The final mystery item is the dark green negative amounts at the tail end of the payment range, which I've perhaps not so helpfully labelled P2 LIS. This is the (somewhat obscure) low income supplement (hence LIS) that partner 2 (the non-earner) is entitled to under the household assistance arrangements put in place when carbon pricing was introduced. It's not available to those on income support (simply because income support payments, like NSA, already include similar assistance in the form of the clean energy supplement) and so the extension of the income range over which NSA is payable has the flow on effect of removing entitlement to the LIS.</div>
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Now lets add some children.</div>
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Chart 4</div>
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<a abp="868" href="http://1.bp.blogspot.com/-KAi-tTENwYY/Ux1n9GhMBhI/AAAAAAAAAiQ/aB4erjtC4AM/s1600/couple+100-0+NSA-PP.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="869" border="0" src="http://1.bp.blogspot.com/-KAi-tTENwYY/Ux1n9GhMBhI/AAAAAAAAAiQ/aB4erjtC4AM/s1600/couple+100-0+NSA-PP.PNG" height="418" width="640" /></a></div>
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Actually, this isn't much more complex. The most substantial change is the effect on Family Tax Benefit Part B (FTB B). We've already seen that increased income support can lead to higher tax and medicare liabilities - what we see here is that it also can cause reductions in other transfer payments.</div>
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FTB B is being reduced because the amount payable is based on the income of the lower income partner - in this case, partner 2. The extra income support (in this case, parenting payment) coming from the CPI rate increase leads to a reduction in the amount of FTB B. This reduction means that single income couples with young children get proportionally the lowest overall increase of all the household types. However, come July this situation will partially right itself because that's when FTB B has its turn at indexation (and no, increases in FTB B don't change the rate of income support).</div>
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As with the earlier single income couple, there's a gap between when increased income tax and an increased medicare levy appear. However, it's wider this time because the medicare liability is calculated taking into account the fact that there are 4 people in this household.</div>
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And that's basically it - the above charts cover singles and couples. But there is one interesting effect left which I'll finish off with. While the increase in the income free area is for NSA recipients (and similar payments, like partnered parenting payment), the way the income test for most couples works means that some other income support recipients pick up an increase too. The prime example is Austudy payment (income support for students).</div>
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Austudy has its CPI based increases on 1 January each year, so ostensibly there's nothing for Austudy recipients on 20 March. But as I 've discussed in earlier posts, the effect of an Austudy recipient's partner's income on the Austudy rate is worked out using NSA rules. So even though there's no actual NSA involved, there's still a ghostly (perhaps ghastly given <a abp="1112" href="http://ravebydave.blogspot.com.au/2013/11/spiky-emtrs-can-also-be-prickly.html" target="_blank">this</a>) presence exerting its influence. This time round the ghost of NSA causes an increase in Austudy for a non-working partner in some cases. Here's the chart.</div>
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</div>
<div abp="1110">
Chart 5</div>
<div abp="1300" class="separator" style="clear: both; text-align: center;">
<a abp="1301" href="http://1.bp.blogspot.com/-jNAvRadrqWY/Ux5GC-lzwAI/AAAAAAAAAig/Oq-VOtL3ZwA/s1600/couple+100-0+Austudy.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1302" border="0" src="http://1.bp.blogspot.com/-jNAvRadrqWY/Ux5GC-lzwAI/AAAAAAAAAig/Oq-VOtL3ZwA/s1600/couple+100-0+Austudy.PNG" height="418" width="640" /></a></div>
<div abp="1110">
</div>
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<div abp="776">
<div abp="1115">
How about that eh? Nothing (except an invisible-at-this-scale increase in the income support bonus) until private income reaches almost $30,000 and then the sudden appearance of extra money for partner 2. And right at the tail end there's an even bigger bonus - the higher Austudy payment increases the range of income over which Austudy is payable, triggering an entitlement to the student startup scholarship in the newly extended range.</div>
<div abp="1115">
</div>
<div abp="1115">
As with the case in Chart 3, the extension of Austudy eligibility up the income range brings with it a loss of entitlement to the Low Income Supplement. And in truth, the seeming good news story about the scholarship may not be so good given that the scholarship scheme is being turned into a loan. Still, even without the scholarship, the ghost of NSA will deliver around $660 a year to some students - it's a ghost that does good deeds after all. </div>
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And that's that, unless you want to take up my earlier offer to add in an extra household type.</div>
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<div abp="1115">
Cheers!</div>
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Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com2tag:blogger.com,1999:blog-7303409391905322366.post-79818628450625717232014-01-25T15:58:00.003+11:002014-02-19T11:42:59.305+11:00And that was Parliament 43...<div abp="597">
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<span abp="2410" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
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<span abp="600" lang="EN-AU"><span abp="601"><span abp="2417" style="color: red; font-family: "Trebuchet MS", sans-serif;">Note: I edited this post on 19 February 2014 to replace Chart 5 with the correct chart (mistakenly, the original was for the yet to be completed Parliament 44).</span></span></span><br />
<span style="font-family: Trebuchet MS;"></span><br />
<span abp="600" lang="EN-AU"><span abp="601"><span abp="2417" style="font-family: "Trebuchet MS", sans-serif;">A little over a year ago I wrote a post
about how tax-transfer system changes made by Parliament 43 had affected 9
different household types.<span abp="602" style="mso-spacerun: yes;"> </span>At the time
Parliament 43 was still a going concern, making the picture I painted
incomplete.<span abp="603" style="mso-spacerun: yes;"> </span>We are now well into
Parliament 44 so it’s possible to redo the Parliament 43 post with results for
the entire period.<span abp="604" style="mso-spacerun: yes;"> </span>I’ve also been giving
some attention to 5 additional household types since the original post, so this
one will cover 14 in total.</span></span></span><br />
<a name='more'></a><span abp="600" lang="EN-AU"><span abp="601"><span abp="2417" style="font-family: "Trebuchet MS", sans-serif;"><o:p abp="605"></o:p></span></span></span><br /></div>
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<span abp="607" lang="EN-AU"><span abp="608"><span abp="2427" style="font-family: "Trebuchet MS", sans-serif;">As with the earlier post, the “analysis” (I
hesitate to use such a grand term for this little exercise) essentially
compares the disposable income (ie, after the effect of tax and transfer
payment adjustments) of a particular household type at the election date for
Parliament 43 with the same type of household at the election date for
Parliament 44.<span abp="609" style="mso-spacerun: yes;"> </span>This is done for all
private incomes up to $200,000.<span abp="610" style="mso-spacerun: yes;"> </span>The
tax-transfer changes that led to any differences between the outcomes on the
two dates are shown graphically. <o:p abp="611"></o:p></span></span></span></div>
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<span abp="615" lang="EN-AU"><span abp="616"><span abp="2441" style="font-family: "Trebuchet MS", sans-serif;">Importantly, the private income is the same
in real terms at the start and end of the period.<span abp="617" style="mso-spacerun: yes;"> </span>That’s because the focus of the post (and
this entire blog really) is changes made by the tax-transfer system alone.<span abp="618" style="mso-spacerun: yes;"> </span>Changes to household income brought about by
other factors (eg, wages growth; rises/falls in interest rates) are not
included.<o:p abp="619"></o:p></span></span></span></div>
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<span abp="621" lang="EN-AU"><span abp="622"><span abp="2450" style="font-family: "Trebuchet MS", sans-serif;">Before digging into the details of the
changes for each household type I’ve put the headline changes together to make
comparisons easier.<span abp="623" style="mso-spacerun: yes;"> </span>However, given there
are 14 households I’ve spread this out over 3 line charts to reduce the
clutter.<span abp="624" style="mso-spacerun: yes;"> </span>They are roughly grouped as
single person households, couple households and households with children.<o:p abp="625"></o:p></span></span></span></div>
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<h3 abp="627" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
Single person households<o:p abp="629"></o:p></h3>
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<span abp="631" lang="EN-AU"><span abp="632"><span abp="2465" style="font-family: "Trebuchet MS", sans-serif;">Chart 1 shows the result for 4 households:<o:p abp="633"></o:p></span></span></span></div>
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<!--[if !supportLists]--><span abp="2475" style="font-family: "Trebuchet MS", sans-serif;"><span abp="637" lang="EN-AU" style="mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="638" style="mso-list: Ignore;">·<span abp="639" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="640" lang="EN-AU"><span abp="641">Single person aged 25 with
Newstart allowance where relevant (NSA 25)<o:p abp="642"></o:p></span></span></span></div>
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<!--[if !supportLists]--><span abp="2490" style="font-family: "Trebuchet MS", sans-serif;"><span abp="646" lang="EN-AU" style="mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="647" style="mso-list: Ignore;">·<span abp="648" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
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pension where relevant (AP 67)<o:p abp="651"></o:p></span></span></span></div>
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<!--[if !supportLists]--><span abp="2505" style="font-family: "Trebuchet MS", sans-serif;"><span abp="655" lang="EN-AU" style="mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="656" style="mso-list: Ignore;">·<span abp="657" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="658" lang="EN-AU"><span abp="659">Single person aged 25,
full-time tertiary student with a HELP debt and Austudy payment where relevant
(Aus 25)<o:p abp="660"></o:p></span></span></span></div>
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Newstart allowance where relevant (NSA 55)<o:p abp="669"></o:p></span></span></span></div>
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<span abp="673" lang="EN-AU"><span abp="674"><span abp="2537" style="font-family: "Trebuchet MS", sans-serif;">In all cases the person does not have
private health insurance.<span abp="675" style="mso-spacerun: yes;"> </span>This is so
that changes to the arrangements for the medicare levy surcharge can be shown.<o:p abp="676"></o:p></span></span></span></div>
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<h4 abp="677">
Chart 1<o:p abp="680"></o:p></h4>
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<div abp="1520">
<div abp="2331">
<div abp="770">
<div abp="1600">
<div abp="812">
<span abp="691" lang="EN-AU"><span abp="692"><span abp="2562" style="font-family: "Trebuchet MS", sans-serif;">The standout item here is the relatively
large increase in the disposable income of the student, particularly those with
private incomes in the (roughly) $10,000 to $30,000 range.<span abp="693" style="mso-spacerun: yes;"> </span>As we’ll see when we get to the individual household
charts, this reflects the introduction of the student startup scholarship and
the relaxation of the Austudy payment income test.<o:p abp="694"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="695">
<div abp="1526">
<div abp="2338">
<div abp="779">
<div abp="1610">
<div abp="823">
<span abp="696" lang="EN-AU"><span abp="697"><span abp="2570" style="font-family: "Trebuchet MS", sans-serif;">The main theme though is that the
tax-transfer system delivered real gains in disposable income for zero or low
private income households, but actual losses at middle to high incomes.<span abp="698" style="mso-spacerun: yes;"> </span>This is a significant change from the pattern
of the preceding 3 Parliaments, all of which did more or less the
opposite.<span abp="699" style="mso-spacerun: yes;"> </span>(There are several posts on
this blog that compare outcomes for a particular household type across 4 Parliaments
should you wish to check this out – </span><a abp="700" href="http://ravebydave.blogspot.com.au/search?updated-max=2012-08-13T17:19:00%2B10:00&max-results=7&start=14&by-date=false" target="_blank"><span abp="2574" style="font-family: "Trebuchet MS", sans-serif;">this one </span></a><span abp="2575" style="font-family: "Trebuchet MS", sans-serif;">is as good as any, albeit rather incomplete in
relation to Parliament 43.)<o:p abp="701"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
<h3 abp="702">
Couple households</h3>
<div abp="703" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="704">
<div abp="1537">
<div abp="2349">
<div abp="796">
<div abp="1626">
<div abp="840">
<span abp="705" lang="EN-AU"><span abp="706"><span abp="2585" style="font-family: "Trebuchet MS", sans-serif;">This broad theme (dare I say
“redistributive”) is also evident when looking at the couple households in
Chart 2.<span abp="707" style="mso-spacerun: yes;"> </span>The households shown are:<o:p abp="708"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="709">
<div abp="1543">
<div abp="2356">
<div abp="805">
<div abp="1636">
<div abp="851">
<span abp="2591" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="710" class="MsoListParagraphCxSpFirst" style="margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo2; text-indent: -18pt;">
<div abp="711">
<div abp="1546">
<div abp="2360">
<div abp="811">
<div abp="1643">
<div abp="859">
<!--[if !supportLists]--><span abp="2596" style="font-family: "Trebuchet MS", sans-serif;"><span abp="712" lang="EN-AU" style="mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="713" style="mso-list: Ignore;">·<span abp="714" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="715" lang="EN-AU"><span abp="716">Single (private) income couple,
both members aged 55, with Newstart allowance where relevant (NSA-NSA 100:0 55)<o:p abp="717"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="718">
<div abp="1554">
<div abp="2369">
<div abp="822">
<div abp="1655">
<div abp="872">
<span abp="2606" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="719" class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo2; text-indent: -18pt;">
<div abp="720">
<div abp="1557">
<div abp="2373">
<div abp="828">
<div abp="1662">
<div abp="880">
<!--[if !supportLists]--><a abp="3227" href="https://www.blogger.com/" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a abp="3208" href="https://www.blogger.com/" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a abp="3206" href="https://www.blogger.com/" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a abp="3204" href="https://www.blogger.com/" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a abp="3202" href="https://www.blogger.com/" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a abp="3200" href="https://www.blogger.com/" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a abp="3198" href="https://www.blogger.com/" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a abp="3196" href="https://www.blogger.com/" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><a abp="3194" href="https://www.blogger.com/" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><span abp="2611" style="font-family: "Trebuchet MS", sans-serif;"><span abp="721" lang="EN-AU" style="mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="722" style="mso-list: Ignore;">·<span abp="723" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="724" lang="EN-AU"><span abp="725">Single (private) income couple,
both members aged 25, with Newstart allowance where relevant (NSA-NSA 100:0 25)<o:p abp="726"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="727">
<div abp="1565">
<div abp="2382">
<div abp="839">
<div abp="1683">
<div abp="902">
<span abp="2621" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="728" class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo2; text-indent: -18pt;">
<div abp="729">
<div abp="1568">
<div abp="2386">
<div abp="845">
<div abp="1690">
<div abp="910">
<!--[if !supportLists]--><span abp="2626" style="font-family: "Trebuchet MS", sans-serif;"><span abp="730" lang="EN-AU" style="mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="731" style="mso-list: Ignore;">·<span abp="732" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="733" lang="EN-AU"><span abp="734">Single (private) income couple,
both full-time tertiary students aged 25 with HELP debts and Austudy payment
where relevant (AusP-AusP 100:0 25)<o:p abp="735"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="736">
<div abp="1576">
<div abp="2395">
<div abp="856">
<div abp="1702">
<div abp="923">
<span abp="2636" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="737" class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo2; text-indent: -18pt;">
<div abp="738">
<div abp="1579">
<div abp="2399">
<div abp="862">
<div abp="1709">
<div abp="931">
<!--[if !supportLists]--><span abp="2641" style="font-family: "Trebuchet MS", sans-serif;"><span abp="739" lang="EN-AU" style="mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="740" style="mso-list: Ignore;">·<span abp="741" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="742" lang="EN-AU"><span abp="743">Single (private) income couple,
both aged 25, one partner on Newstart allowance and one (the non-worker) on
disability support pension (NSA-DSP 100:0 25)<o:p abp="744"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="745">
<div abp="1587">
<div abp="2408">
<div abp="873">
<div abp="1721">
<div abp="944">
<span abp="2651" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="746" class="MsoListParagraphCxSpLast" style="margin: 0cm 0cm 8pt 36pt; mso-list: l0 level1 lfo2; text-indent: -18pt;">
<div abp="747">
<div abp="1590">
<div abp="2412">
<div abp="879">
<div abp="1728">
<div abp="952">
<!--[if !supportLists]--><span abp="2656" style="font-family: "Trebuchet MS", sans-serif;"><span abp="748" lang="EN-AU" style="mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="749" style="mso-list: Ignore;">·<span abp="750" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="751" lang="EN-AU"><span abp="752">Two income couple, 50/50 income
split, both members age 25, with Newstart allowance where relevant (NSA-NSA
50:50 25)<o:p abp="753"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="754">
<div abp="1598">
<div abp="2421">
<div abp="890">
<div abp="1740">
<div abp="965">
<span abp="2666" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="755" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="756">
<div abp="1601">
<div abp="2425">
<div abp="896">
<div abp="1747">
<div abp="973">
<span abp="757" lang="EN-AU"><span abp="758"><span abp="2673" style="font-family: "Trebuchet MS", sans-serif;">As before, the households do not have
private health insurance.<o:p abp="759"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<h4 abp="760">
Chart 2<o:p abp="765"></o:p></h4>
<div abp="1858" class="separator" style="clear: both; text-align: center;">
<a abp="1859" href="http://4.bp.blogspot.com/-D2CZcnEKlLk/UuKDj0HlnBI/AAAAAAAAAes/Mx9OAtMB8D0/s1600/combo+couples.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span abp="2679" style="font-family: "Trebuchet MS", sans-serif;"><img abp="1860" border="0" src="http://4.bp.blogspot.com/-D2CZcnEKlLk/UuKDj0HlnBI/AAAAAAAAAes/Mx9OAtMB8D0/s1600/combo+couples.PNG" height="420" width="640" /></span></a></div>
<div abp="766" align="center">
<div abp="1611">
<div abp="2436">
<div abp="910">
<div abp="1762">
<div abp="989">
<span abp="2684" style="font-family: "Trebuchet MS", sans-serif;"></span></div>
</div>
</div>
</div>
</div>
</div>
<div abp="768" align="center" class="MsoNormal" style="margin: 0cm 0cm 8pt; text-align: center;">
<div abp="1613">
<div abp="2439">
<div abp="915">
<div abp="1768">
<div abp="996">
<span abp="2688" style="font-family: "Trebuchet MS", sans-serif;"> </span></div>
</div>
</div>
</div>
</div>
</div>
<div abp="774" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="775">
<div abp="1616">
<div abp="2443">
<div abp="921">
<div abp="1775">
<div abp="1004">
<span abp="776" lang="EN-AU"><span abp="777"><span abp="2695" style="font-family: "Trebuchet MS", sans-serif;">As with Chart 1, the biggest change is for
low income students.<span abp="778" style="mso-spacerun: yes;"> </span>Also, while the
broad direction of the change is the same as for singles (gains at low incomes,
reductions as incomes rise), the reductions are more substantial.<span abp="779" style="mso-spacerun: yes;"> </span>This reflects a deliberate targeting of
single income couples without dependent children over the period.<span abp="780" style="mso-spacerun: yes;"> </span>The mechanism for this will become apparent
later when looking at the makeup of the tax-transfer changes affecting
individual households.<o:p abp="781"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<h3 abp="782">
Households with dependent children</h3>
<div abp="782">
<div abp="2452">
<div abp="932">
<div abp="1787">
<div abp="1017">
<span abp="785" lang="EN-AU"><span abp="786"><span abp="2705" style="font-family: "Trebuchet MS", sans-serif;">For the with-children grouping the
households examined are:<o:p abp="787"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
<div abp="788">
<div abp="1629">
<div abp="2458">
<div abp="940">
<div abp="1796">
<div abp="1027">
<span abp="2710" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="789" class="MsoListParagraphCxSpFirst" style="margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo3; text-indent: -18pt;">
<div abp="790">
<div abp="1632">
<div abp="2462">
<div abp="946">
<div abp="1803">
<div abp="1035">
<!--[if !supportLists]--><span abp="2715" style="font-family: "Trebuchet MS", sans-serif;"><span abp="791" lang="EN-AU" style="mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="792" style="mso-list: Ignore;">·<span abp="793" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="794" lang="EN-AU"><span abp="795">Single parent aged 35, 2
children aged 8 & 10, Newstart allowance where relevant (NSA 35 (8, 10))<o:p abp="796"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="797">
<div abp="1640">
<div abp="2471">
<div abp="957">
<div abp="1815">
<div abp="1048">
<span abp="2725" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="798" class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo3; text-indent: -18pt;">
<div abp="799">
<div abp="1643">
<div abp="2475">
<div abp="963">
<div abp="1822">
<div abp="1056">
<!--[if !supportLists]--><span abp="2730" style="font-family: "Trebuchet MS", sans-serif;"><span abp="800" lang="EN-AU" style="mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="801" style="mso-list: Ignore;">·<span abp="802" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="803" lang="EN-AU"><span abp="804">Single parent age 30, 2
children aged 6 & 8, parenting payment where relevant (PP 30 (6, 8))<o:p abp="805"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="806">
<div abp="1651">
<div abp="2484">
<div abp="974">
<div abp="1834">
<div abp="1069">
<span abp="2740" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="807" class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo3; text-indent: -18pt;">
<div abp="808">
<div abp="1654">
<div abp="2488">
<div abp="980">
<div abp="1841">
<div abp="1077">
<!--[if !supportLists]--><span abp="2745" style="font-family: "Trebuchet MS", sans-serif;"><span abp="809" lang="EN-AU" style="mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="810" style="mso-list: Ignore;">·<span abp="811" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="812" lang="EN-AU"><span abp="813"><span abp="814" style="mso-spacerun: yes;"> </span>Single parent aged 35, 2 children aged 8 &
10, grandfathered parenting payment in 2010; Newstart in 2013 where relevant
(PPS=>NSA 35 (8,10))<o:p abp="815"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="816">
<div abp="1663">
<div abp="2498">
<div abp="992">
<div abp="1854">
<div abp="1091">
<span abp="2756" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="817" class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo3; text-indent: -18pt;">
<div abp="818">
<div abp="1666">
<div abp="2502">
<div abp="998">
<div abp="1861">
<div abp="1099">
<!--[if !supportLists]--><span abp="2761" style="font-family: "Trebuchet MS", sans-serif;"><span abp="819" lang="EN-AU" style="mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="820" style="mso-list: Ignore;">·<span abp="821" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="822" lang="EN-AU"><span abp="823">Two income couple, 50/50 income
split, both aged 40, 2 children age 14 & 16, Newstart allowance where
relevant (NSA-NSA 50:50 40 (14, 16))<o:p abp="824"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="825">
<div abp="1674">
<div abp="2511">
<div abp="1009">
<div abp="1873">
<div abp="1112">
<span abp="2771" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="826" class="MsoListParagraphCxSpLast" style="margin: 0cm 0cm 8pt 36pt; mso-list: l1 level1 lfo3; text-indent: -18pt;">
<div abp="827">
<div abp="1677">
<div abp="2515">
<div abp="1015">
<div abp="1880">
<div abp="1120">
<!--[if !supportLists]--><span abp="2776" style="font-family: "Trebuchet MS", sans-serif;"><span abp="828" lang="EN-AU" style="mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="829" style="mso-list: Ignore;">·<span abp="830" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="831" lang="EN-AU"><span abp="832">Single (private) income couple,
both aged 30, 2 children aged 2 & 4, Newstart allowance and parenting
payment where relevant (NSA-PP 100:0 30 (2, 4))<o:p abp="833"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="834">
<div abp="1685">
<div abp="2524">
<div abp="1026">
<div abp="1892">
<div abp="1133">
<span abp="2786" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="835" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="836">
<div abp="1688">
<div abp="2528">
<div abp="1032">
<div abp="1899">
<div abp="1141">
<a abp="1865" href="https://www.blogger.com/" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"></a><br /></div>
</div>
</div>
<div abp="2792">
<div abp="1035">
<div abp="1903">
<div abp="1146">
<a abp="1865" href="https://www.blogger.com/" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><span abp="2793" style="font-family: "Trebuchet MS", sans-serif;"></span> </a></div>
</div>
</div>
</div>
<div abp="1038">
<div abp="1907">
<div abp="1151">
<a abp="1694" href="https://www.blogger.com/" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"></a><br /></div>
</div>
<div abp="2795">
<div abp="1041">
<div abp="1911">
<div abp="1156">
<a abp="1694" href="https://www.blogger.com/" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><span abp="2796" style="font-family: "Trebuchet MS", sans-serif;"></span> </a></div>
</div>
</div>
</div>
<div abp="1914">
<div abp="1160">
<a abp="1694" href="https://www.blogger.com/" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;">
</a><span abp="837" lang="EN-AU"><span abp="838"><span abp="2799" style="font-family: "Trebuchet MS", sans-serif;">These are shown in Chart 3.<o:p abp="839"></o:p></span></span></span></div>
</div>
<div abp="1049">
<div abp="1921">
<div abp="1168">
<br /></div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
<h4 abp="840">
Chart 3<a abp="1867" href="http://2.bp.blogspot.com/-_opiVQql46E/UuKEK3p8DwI/AAAAAAAAAe0/uLum2Yr3jLM/s1600/combo+children.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1868" border="0" src="http://2.bp.blogspot.com/-_opiVQql46E/UuKEK3p8DwI/AAAAAAAAAe0/uLum2Yr3jLM/s1600/combo+children.PNG" height="418" width="640" /></a></h4>
<div abp="848">
<div abp="1698">
<div abp="2539">
<div abp="1056">
<div abp="1929">
<div abp="1177">
<span abp="849" style="mso-ansi-language: EN-GB; mso-fareast-language: EN-GB; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape
id="Picture_x0020_11" o:spid="_x0000_i1039" type="#_x0000_t75" style='width:451.5pt;
height:296.25pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\David\AppData\Local\Temp\msohtmlclip1\01\clip_image005.png"
o:title=""/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--><span abp="2808" style="font-family: "Trebuchet MS", sans-serif;"></span></span><br /></div>
</div>
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</div>
<div abp="855" class="MsoNormal" style="margin: 0cm 0cm 8pt; text-align: left;">
<div abp="1705">
<div abp="2543">
<div abp="1062">
<div abp="1936">
<div abp="1185">
<span abp="856" lang="EN-AU"><span abp="857"><span abp="2814" style="font-family: "Trebuchet MS", sans-serif;">The overall pattern here is similar to the
first two groups – real increases at low incomes; real reductions at higher
incomes – although there is quite a wide variation in the extent of the
gains.<span abp="858" style="mso-spacerun: yes;"> </span>Again, the causes of these
disparities will be canvassed in the individual household discussion.<o:p abp="859"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
<div abp="860">
<div abp="1711">
<div abp="2550">
<div abp="1071">
<div abp="1946">
<div abp="1196">
<span abp="863" lang="EN-AU"><span abp="864"><span abp="2822" style="font-family: "Trebuchet MS", sans-serif;">Now to the individual households, starting
with the singles group and the simplest case, a single person.<o:p abp="865"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
<h3 abp="866">
Single person group<o:p abp="871"></o:p></h3>
<h4 abp="872">
Chart 4 – Percentage change in disposable
income over Parliament 43: single person aged 25 with Newstart allowance where
relevant<o:p abp="877"></o:p></h4>
<div abp="878">
<div abp="1735">
<div abp="2560">
<div abp="1083">
<div abp="1959">
<div abp="1210">
<span abp="881" lang="EN-AU"><o:p abp="882"><span abp="883" style="font-family: "Trebuchet MS", sans-serif;"> </span></o:p></span></div>
</div>
</div>
</div>
</div>
</div>
<div abp="2896" class="separator" style="clear: both; text-align: center;">
<span abp="881" lang="EN-AU"><span abp="883" style="font-family: "Trebuchet MS", sans-serif;"><a abp="2897" href="http://1.bp.blogspot.com/-1LCfVJYZg2o/UuKFZDyqvhI/AAAAAAAAAe8/nljySVBSRK8/s1600/Single+NSA.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="2898" border="0" src="http://1.bp.blogspot.com/-1LCfVJYZg2o/UuKFZDyqvhI/AAAAAAAAAe8/nljySVBSRK8/s1600/Single+NSA.PNG" height="418" width="640" /></a></span></span></div>
<div abp="2573">
<div abp="1093">
<div abp="1970">
<div abp="1222">
<span abp="2840" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
<div abp="884">
<div abp="1743">
<div abp="2576">
<div abp="1098">
<div abp="1976">
<div abp="1229">
<span abp="2844" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="885" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="886">
<div abp="1746">
<div abp="2580">
<div abp="1104">
<div abp="1983">
<div abp="1237">
<!--[if gte vml 1]><v:shape id="Picture_x0020_4"
o:spid="_x0000_i1038" type="#_x0000_t75" style='width:451.5pt;height:296.25pt;
visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\David\AppData\Local\Temp\msohtmlclip1\01\clip_image007.png"
o:title=""/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--><span abp="894" lang="EN-AU"><span abp="895"><span abp="2851" style="font-family: "Trebuchet MS", sans-serif;">This might be considered to be the base
case, given that the Australian income tax system is largely focussed on
individuals.<span abp="896" style="mso-spacerun: yes;"> </span>The pattern is consistent
with the general theme outlined above, with gains at low incomes and losses
from a little under $40,000.<span abp="897" style="mso-spacerun: yes;"> </span>A possible
surprise is the real gain in Newstart allowance (NSA) over the period.<span abp="898" style="mso-spacerun: yes;"> </span>It’s the first since July 2000 and like that
earlier increase is a response to changes elsewhere in the system.<span abp="899" style="mso-spacerun: yes;"> </span>Back then it was the introduction of the GST;
in Parliament 43 it was to offset the effects of the introduction of carbon
pricing.<o:p abp="900"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="901">
<div abp="1764">
<div abp="2590">
<div abp="1116">
<div abp="1996">
<div abp="1251">
<span abp="2860" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
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<div abp="902" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="903">
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<div abp="2594">
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<div abp="2003">
<div abp="1259">
<span abp="904" lang="EN-AU"><span abp="905"><span abp="2867" style="font-family: "Trebuchet MS", sans-serif;">This was achieved via the creation of a new
rate component which has been included in pretty much all payments – the clean
energy supplement.<span abp="906" style="mso-spacerun: yes;"> </span>The intention was to
make the supplement more than the expected price impact of the carbon changes
to provide a real gain.<span abp="907" style="mso-spacerun: yes;"> </span>Measured against
changes in the CPI, this appears to have succeeded.<span abp="908" style="mso-spacerun: yes;"> </span>(If you are interested, an explanation of the
way in which the clean energy supplement was created is </span><a abp="2955" href="http://ravebydave.blogspot.com.au/2013/01/a-new-rate-component-is-born.html" target="_blank"><span abp="2872" style="font-family: "Trebuchet MS", sans-serif;">here</span></a><span abp="2873" style="font-family: "Trebuchet MS", sans-serif;">.)<o:p abp="909"></o:p></span></span></span></div>
</div>
</div>
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<div abp="910">
<div abp="1775">
<div abp="2604">
<div abp="1136">
<div abp="2018">
<div abp="1275">
<span abp="2878" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
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<div abp="911" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="912">
<div abp="1778">
<div abp="2608">
<div abp="1142">
<div abp="2025">
<div abp="1283">
<span abp="913" lang="EN-AU"><span abp="914"><span abp="2885" style="font-family: "Trebuchet MS", sans-serif;">The biggest factor in the gain for zero
private income singles is, however, the income support bonus.<span abp="915" style="mso-spacerun: yes;"> </span>I have included this because my calculation
system involves “full-year” entitlements, but it’s worth noting that not
everyone gets the bonus.<span abp="916" style="mso-spacerun: yes;"> </span>It’s actually a
lucky-dip entitlement, paid twice a year but only to those on payment (in this
case, NSA) on the “test day”.<span abp="917" style="mso-spacerun: yes;"> </span>If you
aren’t on payment on the test day, no bonus.<span abp="918" style="mso-spacerun: yes;">
</span>If you are, even if you’ve only been on payment for a day, then the bonus
is yours.<o:p abp="919"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="920">
<div abp="1787">
<div abp="2618">
<div abp="1154">
<div abp="2038">
<div abp="1297">
<span abp="2894" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
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<div abp="921" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="922">
<div abp="1790">
<div abp="2622">
<div abp="1160">
<div abp="2045">
<div abp="1305">
<span abp="923" lang="EN-AU"><span abp="924"><span abp="2901" style="font-family: "Trebuchet MS", sans-serif;">The bonus was something of a sop, offered
in the face of continuing criticism of the level of Newstart rates.<span abp="925" style="mso-spacerun: yes;"> </span>It represents a significant increase in the
assistance package in percentage terms, but is cheaper than an actual rate
increase of the same amount because the lucky dip system means large numbers
don’t ever get it.<o:p abp="926"></o:p></span></span></span></div>
</div>
</div>
</div>
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</div>
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<div abp="927">
<div abp="1796">
<div abp="2629">
<div abp="1169">
<div abp="2055">
<div abp="1316">
<span abp="2907" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
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</div>
</div>
<div abp="928" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="929">
<div abp="1799">
<div abp="2633">
<div abp="1175">
<div abp="2062">
<div abp="1324">
<span abp="930" lang="EN-AU"><span abp="931"><span abp="2914" style="font-family: "Trebuchet MS", sans-serif;">The other noticeable gain comes from tax
cuts, and pops up from around $10,000 private income.<span abp="932" style="mso-spacerun: yes;"> </span>This too was introduced at the same time as
carbon pricing and was intended to assist low income households.<span abp="933" style="mso-spacerun: yes;"> </span>It was achieved by a combination of increasing
the tax-free threshold from $6,000 to $18,200, rejigging the low income tax
offset and some associated changes to the marginal tax rates.<span abp="934" style="mso-spacerun: yes;"> </span>The net effect was quarantine tax cuts to
lower income households, something of a first given the way in which tax cuts
in earlier Parliaments had been applied (</span><a abp="3011" href="http://ravebydave.blogspot.com.au/2012/07/different-strokes-for.html" target="_blank"><span abp="2919" style="font-family: "Trebuchet MS", sans-serif;">this post</span></a><span abp="2920" style="font-family: "Trebuchet MS", sans-serif;"> compares the last 4
Parliaments and makes this point more obvious).<o:p abp="935"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="936">
<div abp="1807">
<div abp="2643">
<div abp="1189">
<div abp="2077">
<div abp="1340">
<span abp="2925" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
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</div>
<div abp="937" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="938">
<div abp="1810">
<div abp="2647">
<div abp="1195">
<div abp="2084">
<div abp="1348">
<span abp="939" lang="EN-AU"><span abp="940"><span abp="2932" style="font-family: "Trebuchet MS", sans-serif;">At incomes from about $40,000 there were no
real changes affecting income tax and so we see the incursion of so-called
bracket creep.<span abp="941" style="mso-spacerun: yes;"> </span>As I’m not incorporating
wage increases, in this case what we are seeing is just the decline in real
value of the various tax thresholds which have the effect of increasing the tax
tax.<span abp="942" style="mso-spacerun: yes;"> </span>There is, however, a significant
change to the medicare outcome due to the introduction of higher medicare levy
surcharges for those without private health insurance.<span abp="943" style="mso-spacerun: yes;"> </span>The effect of crossing the thresholds for
higher surcharges shows up as a sudden increases in the medicare levy impost.<o:p abp="944"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="945">
<div abp="1818">
<div abp="2656">
<div abp="1206">
<div abp="2096">
<div abp="1361">
<span abp="948" lang="EN-AU"><span abp="949"><span abp="2942" style="font-family: "Trebuchet MS", sans-serif;">Given that my focus has been to show the
tax transfer changes during the period, I have assumed no private health
cover.<span abp="950" style="mso-spacerun: yes;"> </span>However, for those who did have
private cover there were related changes to the level of private health
insurance rebate – it was reduced as incomes crossed the various surcharge
thresholds.<span abp="951" style="mso-spacerun: yes;"> </span>So, whether privately
insured or not, real reductions in disposable income occurred due to changes to
medicare/private health insurance arrangements.<o:p abp="952"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1214">
<div abp="2105">
<div abp="1370">
<a abp="2764" href="https://www.blogger.com/" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"></a><br /></div>
</div>
</div>
<div abp="2948">
<div abp="1217">
<div abp="2109">
<div abp="1375">
<a abp="2764" href="https://www.blogger.com/" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><span abp="2949" style="font-family: "Trebuchet MS", sans-serif;"></span> </a></div>
</div>
</div>
</div>
<div abp="1220">
<div abp="2113">
<div abp="1380">
<span abp="956" lang="EN-AU"><span abp="957"></span></span><br /></div>
</div>
</div>
<div abp="1224" style="text-align: left;">
<div abp="1384">
<span abp="956" lang="EN-AU"><span abp="957" style="font-family: "Trebuchet MS", sans-serif;">Having said that, there’s still that odd
medicare-related gain showing up in the private income range of roughly $84,000
to $88,000.<span abp="958" style="mso-spacerun: yes;"> </span>This is because the
threshold for the imposition of the first level surcharge was increased over
the period by reference to wages growth.<span abp="959" style="mso-spacerun: yes;">
</span>Overall wages grew faster than inflation, pushing the threshold up by an
above-CPI amount.</span></span></div>
</div>
<div abp="1230" style="text-align: left;">
<div abp="1390">
<span abp="956" lang="EN-AU"><span abp="957" style="font-family: "Trebuchet MS", sans-serif;"><o:p abp="960"></o:p></span></span> </div>
</div>
<div abp="2677">
<div abp="1235">
<div abp="2131">
<div abp="1397">
<span abp="964" lang="EN-AU"><span abp="965"><span abp="2964" style="font-family: "Trebuchet MS", sans-serif;">All these changes affected disposable
income as shown in the chart.<span abp="966" style="mso-spacerun: yes;"> </span>If you do
check out the earlier 4 Parliament comparison post you will see that the
outcome in Parliament 43 was really very different to the preceding 3.<span abp="967" style="mso-spacerun: yes;"> </span>It was quite a substantial change in
direction and one that I don’t think has been fully acknowledged.<span abp="968" style="mso-spacerun: yes;"> </span>Think of it this way – if you imagine that
wages growth and tax-transfer changes were rowers in a boat, for Parliaments 40
to 42 both of them were rowing together.<span abp="969" style="mso-spacerun: yes;">
</span>In Parliament 43, at least for those with incomes above $40,000, it’s as
if the tax-transfer rower decided to face the other way, with the two now
pulling in different directions.<o:p abp="970"></o:p></span></span></span></div>
</div>
</div>
</div>
<div abp="971">
<div abp="1850">
<div abp="2687">
<div abp="1247">
<div abp="2144">
<div abp="1411">
<span abp="974" lang="EN-AU"><span abp="975"><span abp="2975" style="font-family: "Trebuchet MS", sans-serif;">Yes, the wages growth rower was pulling
harder, but the effect on the boat of having this sudden turnaround is noticeable
nonetheless.<o:p abp="976"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
<div abp="977">
<div abp="1858">
<div abp="2693">
<div abp="1255">
<div abp="2153">
<div abp="1421">
<span abp="2980" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="978" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="979">
<div abp="1861">
<div abp="2697">
<div abp="1261">
<div abp="2160">
<div abp="1429">
<span abp="980" lang="EN-AU"><span abp="981"><span abp="2987" style="font-family: "Trebuchet MS", sans-serif;">But enough with the watery analogies, now
to the older singles.<o:p abp="982"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<h4 abp="1866">
Chart 5 – Percentage change in disposable
income over Parliament 43: single person
aged 67, age pension where relevant</h4>
<div abp="991" align="center" class="MsoNormal" style="margin: 0cm 0cm 8pt; text-align: center;">
<div abp="992">
<div abp="3848" class="separator" style="clear: both; text-align: center;">
<a abp="3849" href="http://1.bp.blogspot.com/-AN4rquqo-fI/UuKHbJcQV2I/AAAAAAAAAfE/xyZxTxxc7X4/s1600/Single+AP.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span abp="2994" style="font-family: "Trebuchet MS", sans-serif;"></span></a><br /></div>
<div abp="2710">
<div abp="1274">
<div abp="2174">
<div abp="1444">
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-5oTC_7WIrWI/UwP9M_H1UOI/AAAAAAAAAhM/yVUlB0RQIu0/s1600/Single+AP.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="http://1.bp.blogspot.com/-5oTC_7WIrWI/UwP9M_H1UOI/AAAAAAAAAhM/yVUlB0RQIu0/s1600/Single+AP.PNG" height="420" width="640" /></a></div>
<span abp="993" style="mso-ansi-language: EN-GB; mso-fareast-language: EN-GB; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape
id="Picture_x0020_7" o:spid="_x0000_i1037" type="#_x0000_t75" style='width:440.25pt;
height:4in;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\David\AppData\Local\Temp\msohtmlclip1\01\clip_image009.png"
o:title=""/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--><span abp="2998" style="font-family: "Trebuchet MS", sans-serif;"></span></span><span abp="995" lang="EN-AU"><o:p abp="996"></o:p></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="997">
<div abp="1884">
<div abp="2717">
<div abp="1282">
<div abp="2183">
<div abp="1454">
<span abp="1000" lang="EN-AU"><span abp="1001" style="font-family: "Trebuchet MS", sans-serif;">(I’m not going to discuss the
changes at incomes from around $75,000 and up.<span abp="1002" style="mso-spacerun: yes;">
</span>The outcomes are the same as those for younger singles and have already
been outlined in the discussion for that household type.)</span></span></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1005" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1006">
<div abp="1896">
<div abp="2732">
<div abp="1290">
<div abp="2192">
<div abp="1464">
<span abp="1007" lang="EN-AU"><span abp="1008"></span></span><span abp="3013" style="font-family: "Trebuchet MS", sans-serif;"> </span></div>
</div>
</div>
</div>
<div abp="2732">
<div abp="1295">
<div abp="2198">
<div abp="1471">
<span abp="1007" lang="EN-AU"><span abp="1008"><span abp="3017" style="font-family: "Trebuchet MS", sans-serif;">At the zero private income point, single
age pensioners had around a 7% real gain in disposable income.<span abp="1009" style="mso-spacerun: yes;"> </span>Unlike single NSA discussed earlier, this was
achieved entirely through increases in age pension itself (including the new
clean energy supplement) – pensioners (with one exception) didn’t get the
income support bonus.<span abp="1010" style="mso-spacerun: yes;"> </span>However, bonus or
not, the net gain was still more than double that of single NSA and reflects
the fact that pension rates are linked to wages growth, not just changes in the
CPI.<o:p abp="1011"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1012">
<div abp="1903">
<div abp="2740">
<div abp="1305">
<div abp="2209">
<div abp="1483">
<span abp="1015" lang="EN-AU"><span abp="1016"><span abp="3026" style="font-family: "Trebuchet MS", sans-serif;">An interesting result is the rather
different tax outcome compared to that for single NSA.<span abp="1017" style="mso-spacerun: yes;"> </span>For many years age pensioners have had a more
generous tax treatment than the ordinary taxpayer, a legacy of Howard era
changes.<span abp="1018" style="mso-spacerun: yes;"> </span>This takes the form of what is
in effect a higher tax-free threshold, an arrangement that did not
significantly change over Parliament 43.<span abp="1019" style="mso-spacerun: yes;">
</span>However, an unchanged threshold when combined with higher (taxable)
pension payments and “bracket creep” has caused the effect shown in the
chart.<span abp="1020" style="mso-spacerun: yes;"> </span>The effect of this is that single
aged with incomes from around $30,000 upward had no gain, or a real reduction
in incomes flowing out of the tax-transfer changes during Parliament 43.<o:p abp="1021"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1022">
<div abp="1915">
<div abp="2754">
<div abp="1317">
<div abp="2222">
<div abp="1497">
<span abp="3035" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1023" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1024">
<div abp="1918">
<div abp="2758">
<div abp="1323">
<div abp="2229">
<div abp="1505">
<span abp="1025" lang="EN-AU"><span abp="1026"><span abp="3042" style="font-family: "Trebuchet MS", sans-serif;">The only other item of note is the
continued erosion of the seniors supplement (the grey item in the chart).<span abp="1027" style="mso-spacerun: yes;"> </span>This is partly due to the non-indexation of
its income test threshold, and also due to the increasing overlap between the
age pension and the supplement (you can’t get both, as the supplement is in
effect already built into the age pension rate).<o:p abp="1028"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1029">
<div abp="1924">
<div abp="2765">
<div abp="1332">
<div abp="2239">
<div abp="1516">
<span abp="1032" lang="EN-AU"><span abp="1033"><span abp="3050" style="font-family: "Trebuchet MS", sans-serif;">Next up, single students.<o:p abp="1034"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
<h4 abp="1932">
Chart 6 – Percentage change in disposable
income over Parliament 43: single
student aged 25 with a HELP debt, Austudy payment where relevant<o:p abp="1041"></o:p></h4>
<div abp="1042">
<div abp="1941">
<div abp="2786">
<div abp="1342">
<div abp="2250">
<div abp="1528">
<span abp="3057" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1043" align="center" class="MsoNormal" style="margin: 0cm 0cm 8pt; text-align: center;">
<div abp="1044">
<div abp="3855" class="separator" style="clear: both; text-align: center;">
<a abp="3856" href="http://1.bp.blogspot.com/-QtPCZmxfjag/UuKIEzWD3oI/AAAAAAAAAfM/PZiuNKN2oks/s1600/Single+Austudy.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span abp="3062" style="font-family: "Trebuchet MS", sans-serif;"><img abp="3857" border="0" src="http://1.bp.blogspot.com/-QtPCZmxfjag/UuKIEzWD3oI/AAAAAAAAAfM/PZiuNKN2oks/s1600/Single+Austudy.PNG" height="418" width="640" /></span></a></div>
<div abp="2790">
<div abp="1351">
<div abp="2260">
<div abp="1539">
<span abp="1045" style="mso-ansi-language: EN-GB; mso-fareast-language: EN-GB; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape
id="Picture_x0020_8" o:spid="_x0000_i1036" type="#_x0000_t75" style='width:451.5pt;
height:295.5pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\David\AppData\Local\Temp\msohtmlclip1\01\clip_image011.png"
o:title=""/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--><span abp="3066" style="font-family: "Trebuchet MS", sans-serif;"></span></span><span abp="1047" lang="EN-AU"><o:p abp="1048"></o:p></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1049">
<div abp="1950">
<div abp="2797">
<div abp="1359">
<div abp="2269">
<div abp="1549">
<span abp="3072" style="font-family: "Trebuchet MS", sans-serif;"> </span></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1050" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1051">
<div abp="1953">
<div abp="2801">
<div abp="1365">
<div abp="2276">
<div abp="1557">
<span abp="1052" lang="EN-AU"><span abp="1053"><span abp="3079" style="font-family: "Trebuchet MS", sans-serif;">As outlined in my initial comments around
Chart 1, this household – single tertiary students with Austudy – had the
biggest real gains from tax-transfer changes over Parliament 43.<span abp="1054" style="mso-spacerun: yes;"> </span>There were two main drivers for this.<span abp="1055" style="mso-spacerun: yes;"> </span>First, the introduction of the student
startup scholarship which is provided to most tertiary students who are
receiving Austudy payment, and second, a substantial relaxation of the Austudy
income test (accounting for the large gains starting at around $8,000).<o:p abp="1056"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1057">
<div abp="1960">
<div abp="2809">
<div abp="1375">
<div abp="2287">
<div abp="1569">
<span abp="1060" lang="EN-AU"><span abp="1061"><span abp="3088" style="font-family: "Trebuchet MS", sans-serif;">One area of difference between these
results and those for other payments is the presence of a clean energy
advance.<span abp="1062" style="mso-spacerun: yes;"> </span>However, this is really a
timing thing.<span abp="1063" style="mso-spacerun: yes;"> </span>All payments initially had
carbon pricing compensation provided via an advance, which was then integrated
into the income support payment proper via the clean energy supplement.<span abp="1064" style="mso-spacerun: yes;"> </span>The timing of that changeover depended on
when the effects of carbon pricing would show up in the indexation process for
the particular income support payment.<span abp="1065" style="mso-spacerun: yes;">
</span>Austudy’s indexation is very lagged – the price effects of the carbon
changes introduced in July 2012 didn’t get picked up until the January 2014
indexation round and from that date the change from the clean energy advance to
a clean energy supplement took place.<span abp="1066" style="mso-spacerun: yes;">
</span>That’s outside the timeframe covered by Parliament 43 and hence
Austudy’s results still incorporate the clean energy advance.<o:p abp="1067"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1068">
<div abp="1973">
<div abp="2824">
<div abp="1388">
<div abp="2301">
<div abp="1584">
<span abp="3098" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1069" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1070">
<div abp="1976">
<div abp="2828">
<div abp="1394">
<div abp="2308">
<div abp="1592">
<span abp="1071" lang="EN-AU"><span abp="1072"><span abp="3105" style="font-family: "Trebuchet MS", sans-serif;">At higher incomes the results for tax and
medicare are the same as for the other singles, with the exception of the
presence of HELP related spikes.<span abp="1073" style="mso-spacerun: yes;"> </span>Again,
this is a timing issue.<span abp="1074" style="mso-spacerun: yes;"> </span>The thresholds
for the various HELP repayment rates are indexed based on changes in the CPI in
the previous year.<span abp="1075" style="mso-spacerun: yes;"> </span>This almost
inevitably means the indexation adjustment being made is not the same as the
CPI change in the actual year of implementation, resulting in spikes (up or
down depending on the direction of the CPI change from one year to the next).<o:p abp="1076"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1077">
<div abp="1984">
<div abp="2837">
<div abp="1405">
<div abp="2320">
<div abp="1605">
<span abp="1080" lang="EN-AU"><span abp="1081"><span abp="3115" style="font-family: "Trebuchet MS", sans-serif;">Lucky last in the singles households I’m
looking at is persons aged 55 on NSA.<o:p abp="1082"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
<h4 abp="1992">
Chart 7 – Percentage change in disposable
income over Parliament 43: single person
aged 55 with Newstart allowance where relevant<o:p abp="1089"></o:p></h4>
<div abp="1090">
<div abp="2001">
<div abp="2858">
<div abp="1415">
<div abp="2331">
<div abp="1617">
<span abp="3122" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1091" align="center" class="MsoNormal" style="margin: 0cm 0cm 8pt; text-align: center;">
<div abp="1092">
<div abp="3874" class="separator" style="clear: both; text-align: center;">
<a abp="3875" href="http://3.bp.blogspot.com/-cDIECRDclbk/UuKIkY2fbdI/AAAAAAAAAfU/ssiViruSo9A/s1600/single+NSA+55.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span abp="3127" style="font-family: "Trebuchet MS", sans-serif;"><img abp="3876" border="0" src="http://3.bp.blogspot.com/-cDIECRDclbk/UuKIkY2fbdI/AAAAAAAAAfU/ssiViruSo9A/s1600/single+NSA+55.PNG" height="420" width="640" /></span></a></div>
<div abp="2862">
<div abp="1424">
<div abp="2341">
<div abp="1628">
<span abp="1093" style="mso-ansi-language: EN-GB; mso-fareast-language: EN-GB; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape
id="Picture_x0020_5" o:spid="_x0000_i1035" type="#_x0000_t75" style='width:450.75pt;
height:296.25pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\David\AppData\Local\Temp\msohtmlclip1\01\clip_image013.png"
o:title=""/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--><span abp="3131" style="font-family: "Trebuchet MS", sans-serif;"></span></span><span abp="1095" lang="EN-AU"><o:p abp="1096"></o:p></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1097">
<div abp="2010">
<div abp="2869">
<div abp="1432">
<div abp="2350">
<div abp="1638">
<span abp="3137" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1098" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1099">
<div abp="2013">
<div abp="2873">
<div abp="1438">
<div abp="2357">
<div abp="1646">
<span abp="1100" lang="EN-AU"><span abp="1101"><span abp="3144" style="font-family: "Trebuchet MS", sans-serif;">This household type is included to
illustrate the effect of changes to the mature aged worker tax offset
(MAWTO).<span abp="1102" style="mso-spacerun: yes;"> </span>The income support and bonus
arrangements are identical to those shown in Chart 4 (singles aged 25).<span abp="1103" style="mso-spacerun: yes;"> </span>The standout is the markedly different tax
outcome.<o:p abp="1104"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="3148">
<div abp="1446">
<div abp="2366">
<div abp="1656">
<span abp="3149" style="font-family: "Trebuchet MS", sans-serif;">Entitlement to the MAWTO was quarantined to those born before 1 July 1957 – previously it was available to everyone aged 55+. The effect is that 55 year olds at the start of Parliament 43 got a better tax deal than 55 year olds at the end. <br abp="3150" /><br abp="3151" />Removing tax offsets, like MAWTO, was one of the ways in which Parliament 43 sought to improve government revenue. Another offset given a similar treatment was the dependent spouse tax offset. This is discussed in the next group I’m covering – couples.</span></div>
</div>
</div>
</div>
<div abp="1120">
<h3 abp="2904">
Couples group<o:p abp="1125"></o:p></h3>
</div>
<div abp="1126">
<h4 abp="2914">
Chart 8 - Percentage change in disposable
income over Parliament 43: single income
couple, both aged 55, Newstart allowance where relevant</h4>
<h4 abp="2914">
<o:p abp="1132"></o:p> </h4>
</div>
<div abp="1133">
<div abp="2056">
<div abp="4226" class="separator" style="clear: both; text-align: center;">
<a abp="4227" href="http://1.bp.blogspot.com/-FV39oqf-U28/UuMEzKfrKaI/AAAAAAAAAfk/JMt3i70KGkw/s1600/SI+couple+NSA-NSA+55.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="4228" border="0" src="http://1.bp.blogspot.com/-FV39oqf-U28/UuMEzKfrKaI/AAAAAAAAAfk/JMt3i70KGkw/s1600/SI+couple+NSA-NSA+55.PNG" height="420" width="640" /></a></div>
<div abp="2925">
<div abp="1462">
<div abp="2383">
<div abp="1675">
<span abp="3161" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1134" align="center" class="MsoNormal" style="margin: 0cm 0cm 8pt; text-align: center;">
<div abp="1135">
<div abp="2059">
<div abp="2929">
<div abp="1468">
<div abp="2390">
<div abp="1683">
<span abp="1136" style="mso-ansi-language: EN-GB; mso-fareast-language: EN-GB; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape
id="Picture_x0020_6" o:spid="_x0000_i1034" type="#_x0000_t75" style='width:451.5pt;
height:296.25pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\David\AppData\Local\Temp\msohtmlclip1\01\clip_image015.png"
o:title=""/>
</v:shape><![endif]--><!--[if !vml]--><span abp="3167" style="font-family: "Trebuchet MS", sans-serif;"><!--[endif]--></span></span><span abp="1138" lang="EN-AU"><o:p abp="1139"></o:p></span><br /></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1140">
<div abp="2065">
<div abp="2936">
<div abp="1476">
<div abp="2399">
<div abp="1693">
<span abp="3174" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1141" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1142">
<div abp="2068">
<div abp="2940">
<div abp="1482">
<div abp="2406">
<div abp="1701">
<span abp="1143" lang="EN-AU"><span abp="1144"><span abp="3181" style="font-family: "Trebuchet MS", sans-serif;">The standout item in this household type is
the reduction in disposable income caused by the increased tax-take.<span abp="1145" style="mso-spacerun: yes;"> </span>This comes from three sources.<span abp="1146" style="mso-spacerun: yes;"> </span>First is the loss of the MAWTO, as per the
discussion in respect of Chart 6.<span abp="1147" style="mso-spacerun: yes;"> </span>The
second is the loss of the dependent spouse tax offset (DSTO).<span abp="1148" style="mso-spacerun: yes;"> </span>The presence of a partner is no longer
recognised for income tax purposes in households without children where the
partner was born on or after 1 July 1952.<o:p abp="1149"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1150">
<div abp="2077">
<div abp="2950">
<div abp="1494">
<div abp="2419">
<div abp="1715">
<a abp="4194" href="https://www.blogger.com/" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><span abp="1153" lang="EN-AU"><span abp="1154"><span abp="3197" style="font-family: "Trebuchet MS", sans-serif;">The loss of these two tax offsets, along
with third element – bracket creep – resulted in a significant reduction in
disposable income for 2013 households compared to the equivalent 2010 version,
and affected households with incomes above around $25,000 a year.<o:p abp="1155"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1156">
<div abp="2085">
<div abp="2960">
<div abp="1509">
<div abp="2429">
<div abp="1726">
<span abp="3202" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1157" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1158">
<div abp="2088">
<div abp="2964">
<div abp="1515">
<div abp="2436">
<div abp="1734">
<span abp="1159" lang="EN-AU"><span abp="1160"><span abp="3209" style="font-family: "Trebuchet MS", sans-serif;">Part of the reason these reductions cut in
at such low private income levels (this is less than the minimum wage) is the
combined effect of the poor design of the income support bonus as applied to
couples (see <a abp="2568" href="http://ravebydave.blogspot.com.au/2012/12/being-partnered-is-not-much-of-bonus.html" target="_blank">here</a> for details) and the erroneous way in which the clean energy
supplement was handled (see <a abp="2660" href="http://ravebydave.blogspot.com.au/2013/03/low-income-couples-and-carbon.html" target="_blank">here</a> for details).<span abp="1161" style="mso-spacerun: yes;">
</span>These produce the notch reduction in the NSA result at around $25,000.<o:p abp="1162"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1163">
<div abp="2094">
<div abp="2971">
<div abp="1524">
<div abp="2448">
<div abp="1747">
<span abp="1166" lang="EN-AU"><span abp="1167"><span abp="3222" style="font-family: "Trebuchet MS", sans-serif;">At incomes below this point the real gains
in the Newstart outcomes flow from the changes already discussed – the clean
energy supplement and income support bonuses.<o:p abp="1168"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1169">
<div abp="2102">
<div abp="2981">
<div abp="1538">
<div abp="2457">
<div abp="1757">
<span abp="3227" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1170" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1171">
<div abp="2105">
<div abp="2985">
<div abp="1544">
<div abp="2464">
<div abp="1765">
<span abp="1172" lang="EN-AU"><span abp="1173"><span abp="3234" style="font-family: "Trebuchet MS", sans-serif;">The next household is simply a younger
version of the above, which allows us to see the outcomes without the effect of
the loss of MAWTO.</span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1176" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1177">
<div abp="2113">
<h4 abp="2995">
Chart 9 - Percentage change in disposable
income over Parliament 43: single income
couple, both aged 25, Newstart allowance where relevant<o:p abp="1181"></o:p></h4>
</div>
</div>
</div>
<div abp="1182">
<div abp="2119">
<div abp="3002">
<div abp="2824" class="separator" style="clear: both; text-align: center;">
<a abp="2825" href="http://2.bp.blogspot.com/-qXX8M3WqpZQ/UuM8Y3l_beI/AAAAAAAAAf0/OmGKPQBJO9I/s1600/SI+couple+NSA-NSA+25.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="2826" border="0" src="http://2.bp.blogspot.com/-qXX8M3WqpZQ/UuM8Y3l_beI/AAAAAAAAAf0/OmGKPQBJO9I/s1600/SI+couple+NSA-NSA+25.PNG" height="418" width="640" /></a></div>
<div abp="1567">
<div abp="2480">
<div abp="1782">
<span abp="1185" style="mso-ansi-language: EN-GB; mso-fareast-language: EN-GB; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape
id="Picture_x0020_9" o:spid="_x0000_i1033" type="#_x0000_t75" style='width:451.5pt;
height:295.5pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\David\AppData\Local\Temp\msohtmlclip1\01\clip_image017.png"
o:title=""/>
</v:shape><![endif]--><!--[if !vml]--><span abp="3258" style="font-family: "Trebuchet MS", sans-serif;"><!--[endif]--></span></span><span abp="1187" lang="EN-AU"><o:p abp="1188"></o:p></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1189">
<div abp="2128">
<div abp="3013">
<div abp="1582">
<div abp="2489">
<div abp="1792">
<span abp="3265" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1190" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1191">
<div abp="2131">
<div abp="3017">
<div abp="1588">
<div abp="2496">
<div abp="1800">
<span abp="1192" lang="EN-AU"><span abp="1193"><span abp="3272" style="font-family: "Trebuchet MS", sans-serif;">As you might expect, this is very similar
to the preceding household, the only real difference being the losses on the
tax side max out at around 7% as opposed to around 8% for the older couple.<o:p abp="1194"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1195">
<div abp="2136">
<div abp="3023">
<div abp="1596">
<div abp="2505">
<div abp="1810">
<span abp="3277" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1196" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1197">
<div abp="2139">
<div abp="3027">
<div abp="1602">
<div abp="2512">
<div abp="1818">
<span abp="1198" lang="EN-AU"><span abp="1199"><span abp="3284" style="font-family: "Trebuchet MS", sans-serif;">One minor item in charts 7 and 8 is the low
income supplement for partner 2 (P2) – the small splash of green at a little
over $40,000 private income.<span abp="1200" style="mso-spacerun: yes;"> </span>This was a
relatively obscure part of the overall carbon pricing household compensation
package and is only available where compensation is not provided elsewhere in
the tax-transfer system.<span abp="1201" style="mso-spacerun: yes;"> </span>It appears at
incomes above the income support cutout point (below which the clean energy
supplement is in play) but only runs for a few thousand dollars more private
income before entitlement ceases to exist.<o:p abp="1202"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1203">
<div abp="2146">
<div abp="3035">
<div abp="1612">
<div abp="2523">
<div abp="1830">
<span abp="3291" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1204" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1205">
<div abp="2149">
<div abp="3039">
<div abp="1618">
<div abp="2530">
<div abp="1838">
<span abp="1206" lang="EN-AU"><span abp="1207"><span abp="3298" style="font-family: "Trebuchet MS", sans-serif;">Next up, it’s back to students.<o:p abp="1208"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1209">
<div abp="2154">
<div abp="3045">
<div abp="1626">
<div abp="2539">
<div abp="1848">
<span abp="3303" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1210" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1211">
<div abp="2157">
<h4 abp="3049">
Chart 10 - Percentage change in disposable
income over Parliament 43: single income
couple, both tertiary students aged 25 with HELP debts, Austudy payment where
relevant<o:p abp="1215"></o:p></h4>
</div>
</div>
</div>
<div abp="1216">
<div abp="2163">
<div abp="3056">
<div abp="1641">
<div abp="2550">
<div abp="1860">
<span abp="1219" style="mso-ansi-language: EN-GB; mso-fareast-language: EN-GB; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape
id="Picture_x0020_12" o:spid="_x0000_i1032" type="#_x0000_t75" style='width:450.75pt;
height:294.75pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\David\AppData\Local\Temp\msohtmlclip1\01\clip_image019.png"
o:title=""/>
</v:shape><![endif]--><!--[if !vml]--><span abp="3322" style="font-family: "Trebuchet MS", sans-serif;"><!--[endif]--></span></span><span abp="1221" lang="EN-AU"><o:p abp="1222"></o:p></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1223">
<div abp="2172">
<div abp="3067">
<div abp="2831" class="separator" style="clear: both; text-align: center;">
<a abp="2832" href="http://2.bp.blogspot.com/-0Rv3P6V6GQI/UuM8v7rS_8I/AAAAAAAAAf8/dFo8P5aGlB4/s1600/SI+couple+Aus-Aus.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="2833" border="0" src="http://2.bp.blogspot.com/-0Rv3P6V6GQI/UuM8v7rS_8I/AAAAAAAAAf8/dFo8P5aGlB4/s1600/SI+couple+Aus-Aus.PNG" height="418" width="640" /></a></div>
<div abp="1656">
<div abp="2562">
<div abp="1873">
<span abp="3329" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1224" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1225">
<div abp="2175">
<div abp="3071">
<div abp="1662">
<div abp="2569">
<div abp="1881">
<span abp="1226" lang="EN-AU"><span abp="1227"><span abp="3336" style="font-family: "Trebuchet MS", sans-serif;">As with the single student shown earlier,
Parliament 43 provided quite significant gains to this couple type at low
incomes through a combination of scholarships, income support bonuses and a
relaxed income test.<span abp="1228" style="mso-spacerun: yes;"> </span>However, this
largesse comes crashing down once partner 1 (P1) has sufficient income to exit
Austudy payment.<span abp="1229" style="mso-spacerun: yes;"> </span>Flaws in the design of
the sequential income test used for these payments, plus issues with the design
of the scholarship, the clean energy supplement and the income support bonus
all conspire to remove the gains in a sudden death fashion.<o:p abp="1230"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1231">
<div abp="2182">
<div abp="3079">
<div abp="1672">
<div abp="2580">
<div abp="1893">
<span abp="3343" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1232" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1233">
<div abp="2185">
<div abp="3083">
<div abp="1678">
<div abp="2587">
<div abp="1901">
<span abp="1234" lang="EN-AU"><span abp="1235"><span abp="3350" style="font-family: "Trebuchet MS", sans-serif;">When the effect of the removal of the DSTO
is added in we see an amazing turnaround from an almost 20% real gain for those
at around $25,000 to an almost 7% loss at around $40,000.<span abp="1236" style="mso-spacerun: yes;"> </span>In fact, so substantial are these reductions
that students in this situation may find their financial position improves by
working less, something I examined in more detail in <a abp="2902" href="http://ravebydave.blogspot.com.au/2013/11/spiky-emtrs-can-also-be-prickly.html" target="_blank">this post</a>.<o:p abp="1237"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1238">
<div abp="2191">
<div abp="3090">
<div abp="1687">
<div abp="2598">
<div abp="1913">
<span abp="3356" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1239" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1240">
<div abp="2194">
<div abp="3094">
<div abp="1693">
<div abp="2605">
<div abp="1921">
<span abp="1241" lang="EN-AU"><span abp="1242"><span abp="3363" style="font-family: "Trebuchet MS", sans-serif;">One criticism of the couple households I’ve
chosen to look at (so far) is that they are all single income, and that losses
due to the removal of the DSTO are actually a good thing.<span abp="1243" style="mso-spacerun: yes;"> </span>Indeed, the removal of that offset was a
deliberate decision, aimed squarely at getting rid of a supposedly out-of-date
notion of dependency and providing a bit of an incentive for second earners to
enter the workforce.<span abp="1244" style="mso-spacerun: yes;"> </span>No doubt the fact
that there are savings to be had from such a change helped ease the way.<o:p abp="1245"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1246">
<div abp="2201">
<div abp="3102">
<div abp="1703">
<div abp="2616">
<div abp="1933">
<span abp="3370" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1247" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1248">
<div abp="2204">
<div abp="3106">
<div abp="1709">
<div abp="2623">
<div abp="1941">
<span abp="1249" lang="EN-AU"><span abp="1250"><span abp="3377" style="font-family: "Trebuchet MS", sans-serif;">Nonetheless, within the rhetoric around the
change there was recognition that for some couples there may still a case for
providing a tax-offset based on dependency.<span abp="1251" style="mso-spacerun: yes;">
</span>There are two main scenarios where this is still seen as appropriate:<o:p abp="1252"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1253">
<div abp="2210">
<div abp="3113">
<div abp="1718">
<div abp="2633">
<div abp="1952">
<span abp="3383" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1254" class="MsoListParagraphCxSpFirst" style="margin: 0cm 0cm 0pt 36pt; mso-list: l3 level1 lfo4; text-indent: -18pt;">
<div abp="1255">
<div abp="2213">
<div abp="3117">
<div abp="1724">
<div abp="2640">
<div abp="1960">
<!--[if !supportLists]--><span abp="3388" style="font-family: "Trebuchet MS", sans-serif;"><span abp="1256" lang="EN-AU" style="mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1257" style="mso-list: Ignore;">·<span abp="1258" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1259" lang="EN-AU"><span abp="1260">Where one partner is reasonably
unable to work due to caring commitments;<o:p abp="1261"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1262">
<div abp="2221">
<div abp="3126">
<div abp="1735">
<div abp="2652">
<div abp="1973">
<span abp="3398" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1263" class="MsoListParagraphCxSpLast" style="margin: 0cm 0cm 8pt 36pt; mso-list: l3 level1 lfo4; text-indent: -18pt;">
<div abp="1264">
<div abp="2224">
<div abp="3130">
<div abp="1741">
<div abp="2659">
<div abp="1981">
<!--[if !supportLists]--><span abp="3403" style="font-family: "Trebuchet MS", sans-serif;"><span abp="1265" lang="EN-AU" style="mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1266" style="mso-list: Ignore;">·<span abp="1267" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1268" lang="EN-AU"><span abp="1269">Where one partner is reasonably
unable to work due to invalidity<o:p abp="1270"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1271">
<div abp="2232">
<div abp="3139">
<div abp="1752">
<div abp="2671">
<div abp="1994">
<span abp="3413" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
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</div>
</div>
<div abp="1272" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1273">
<div abp="2235">
<div abp="3143">
<div abp="1758">
<div abp="2678">
<div abp="2002">
<span abp="1274" lang="EN-AU"><span abp="1275"><span abp="3420" style="font-family: "Trebuchet MS", sans-serif;">Given this policy position I’ll look at one
more single income couple type before moving on to a two-income couple.<span abp="1276" style="mso-spacerun: yes;"> </span>The household type I’ve chosen to reflect
this policy setting is a single income couple where one is an “invalid” (to use
the tax legislation term), eligible for disability support pension (DSP).</span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1279" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1280">
<div abp="2244">
<h4 abp="3154">
Chart 11 - Percentage change in disposable
income over Parliament 43: single income
couple, both aged 25, one an invalid.
Newstart allowance and disability support pension where relevant</h4>
<h4 abp="3154">
<o:p abp="1285"></o:p> </h4>
</div>
</div>
</div>
<div abp="1286">
<div abp="2251">
<div abp="3162">
<div abp="2905" class="separator" style="clear: both; text-align: center;">
<img abp="2907" border="0" src="http://4.bp.blogspot.com/-WSgzwTNdbQg/UuM9d77TYtI/AAAAAAAAAgE/_e-aXO1taMQ/s1600/SI+couple+NSA-DSP.PNG" height="418" width="640" /></div>
<div abp="1783">
<div abp="2701">
<div abp="2020">
<span abp="3440" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
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<div abp="1287" align="center" class="MsoNormal" style="margin: 0cm 0cm 8pt; text-align: center;">
<div abp="1288">
<div abp="2254">
<div abp="3166">
<div abp="1789">
<div abp="2708">
<div abp="2028">
<span abp="1289" style="mso-ansi-language: EN-GB; mso-fareast-language: EN-GB; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape
id="Picture_x0020_10" o:spid="_x0000_i1031" type="#_x0000_t75" style='width:451.5pt;
height:295.5pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\David\AppData\Local\Temp\msohtmlclip1\01\clip_image021.png"
o:title=""/>
</v:shape><![endif]--><!--[if !vml]--><span abp="3446" style="font-family: "Trebuchet MS", sans-serif;"><!--[endif]--></span></span><span abp="1291" lang="EN-AU"><o:p abp="1292"></o:p></span><br /></div>
</div>
</div>
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</div>
</div>
<div abp="1293">
<div abp="2260">
<div abp="3173">
<div abp="1798">
<div abp="2717">
<div abp="2038">
<span abp="3453" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1294" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1295">
<div abp="2263">
<div abp="3177">
<div abp="1804">
<div abp="2724">
<div abp="2046">
<span abp="1296" lang="EN-AU"><span abp="1297"><span abp="3460" style="font-family: "Trebuchet MS", sans-serif;">This household really shows off the “gains
at low incomes; reductions at higher incomes” trend of Parliament 43, with a
marked change in outcome at around $70,000.<o:p abp="1298"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1299">
<div abp="2268">
<div abp="3183">
<div abp="1812">
<div abp="2733">
<div abp="2056">
<span abp="1302" lang="EN-AU"><span abp="1303"><span abp="3472" style="font-family: "Trebuchet MS", sans-serif;">At the zero income point most of the gain
for the household comes from increases in the DSP, which dwarfs the gain for
the NSA partner, even with the NSA income support bonus (there was no bonus for
DSP).<span abp="1304" style="mso-spacerun: yes;"> </span>This is a result of the different
rate setting (indexation, etc) arrangements for pensions compared to benefits
like NSA.<span abp="1305" style="mso-spacerun: yes;"> </span>The former is benchmarked to
wages as well as being adjusted for changes in the CPI and
pensioner/beneficiary living cost index (PBLCI), whereas NSA is CPI adjusted
only.<o:p abp="1306"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1307">
<div abp="2278">
<div abp="3195">
<div abp="1828">
<div abp="2751">
<div abp="2068">
<span abp="3479" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1308" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1309">
<div abp="2281">
<div abp="3199">
<div abp="1834">
<div abp="2758">
<div abp="2076">
<span abp="1310" lang="EN-AU"><span abp="1311"><span abp="3486" style="font-family: "Trebuchet MS", sans-serif;">At around $70,000 entitlement to pension
cuts out under the income test, leading to the substantial reduction in
disposable income.<span abp="1312" style="mso-spacerun: yes;"> </span>The marked change in
the tax result reflects the DSTO rules discussed earlier.<span abp="1313" style="mso-spacerun: yes;"> </span>The working partner is able to claim the offset
provided the “invalid” partner is receiving DSP.<span abp="1314" style="mso-spacerun: yes;"> </span>Once DSP entitlement is lost so too is access
to the spouse tax offset, causing an increase in tax payable by the household.<o:p abp="1315"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1316">
<div abp="2289">
<div abp="3208">
<div abp="1845">
<div abp="2770">
<div abp="2089">
<span abp="1319" lang="EN-AU"><span abp="1320"><span abp="3501" style="font-family: "Trebuchet MS", sans-serif;">This is one of the perils of “piggybacking”
entitlement to one scheme onto another – in this case relying on receipt of DSP
as the marker of invalidity.<span abp="1321" style="mso-spacerun: yes;"> </span>The rule in
this case also undoes one of the eligibility criteria for the spouse tax offset
– it’s supposed to be available to households where the “breadwinner” income is
below $150,000.<span abp="1322" style="mso-spacerun: yes;"> </span>Linking the offset to
DSP receipt has the effect of causing entitlement to be lost at less than half
this amount.<o:p abp="1323"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1324">
<div abp="2299">
<div abp="3220">
<div abp="1861">
<div abp="2788">
<div abp="2101">
<span abp="3508" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1325" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1326">
<div abp="2302">
<div abp="3224">
<div abp="1867">
<div abp="2795">
<div abp="2109">
<span abp="1327" lang="EN-AU"><span abp="1328"><span abp="3515" style="font-family: "Trebuchet MS", sans-serif;">But again, it’s a cheap way of running the
thing.<o:p abp="1329"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1330">
<div abp="2307">
<div abp="3230">
<div abp="1875">
<div abp="2804">
<div abp="2119">
<span abp="1333" lang="EN-AU"><span abp="1334"><span abp="3527" style="font-family: "Trebuchet MS", sans-serif;">The final couple household I’ll look at is,
at last, a two income one.</span></span></span></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1337" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1338">
<div abp="2318">
<h4 abp="3244">
Chart 12 - Percentage change in disposable
income over Parliament 43: two income
couple (50:50 split), both aged 25.
Newstart allowance where relevant.</h4>
<h4 abp="3244">
<o:p abp="1343"></o:p> </h4>
</div>
</div>
</div>
<div abp="1344">
<div abp="2325">
<div abp="3252">
<div abp="2930" class="separator" style="clear: both; text-align: center;">
<a abp="2931" href="http://2.bp.blogspot.com/-cwPDMapHb_Y/UuM-Alc49AI/AAAAAAAAAgM/8WR0kLElogo/s1600/DI+couple+NSA-NSA.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="2932" border="0" src="http://2.bp.blogspot.com/-cwPDMapHb_Y/UuM-Alc49AI/AAAAAAAAAgM/8WR0kLElogo/s1600/DI+couple+NSA-NSA.PNG" height="420" width="640" /></a></div>
<div abp="1905">
<div abp="2834">
<div abp="2137">
<span abp="3546" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
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</div>
<div abp="1345" align="center" class="MsoNormal" style="margin: 0cm 0cm 8pt; text-align: center;">
<div abp="1346">
<div abp="2328">
<div abp="3256">
<div abp="1911">
<div abp="2841">
<div abp="2145">
<span abp="1347" style="mso-ansi-language: EN-GB; mso-fareast-language: EN-GB; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape
id="Picture_x0020_14" o:spid="_x0000_i1030" type="#_x0000_t75" style='width:451.5pt;
height:296.25pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\David\AppData\Local\Temp\msohtmlclip1\01\clip_image023.png"
o:title=""/>
</v:shape><![endif]--><!--[if !vml]--><span abp="3552" style="font-family: "Trebuchet MS", sans-serif;"><!--[endif]--></span></span><span abp="1349" lang="EN-AU"><o:p abp="1350"></o:p></span><br /></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1351">
<div abp="2334">
<div abp="3263">
<div abp="1920">
<div abp="2850">
<div abp="2155">
<span abp="3559" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1352" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1353">
<div abp="2337">
<div abp="3267">
<div abp="1926">
<div abp="2857">
<div abp="2163">
<span abp="1354" lang="EN-AU"><span abp="1355"><span abp="3566" style="font-family: "Trebuchet MS", sans-serif;">As a two-income couple, the dependent
spouse tax offset does not feature and as you can’t lose what you don’t have
there’s nothing like the tax losses experienced by the single income couple of
the same age.<span abp="1356" style="mso-spacerun: yes;"> </span>In fact, although the
tax-transfer changes still follow the pattern of turning negative at higher
incomes, this doesn’t occur until around the $75,000 mark – a sharp contrast to
the $27,000 or so point for single income couples (see Chart 8).<o:p abp="1357"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1358">
<div abp="2343">
<div abp="3274">
<div abp="1935">
<div abp="2867">
<div abp="2174">
<span abp="3572" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1359" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1360">
<div abp="2346">
<div abp="3278">
<div abp="1941">
<div abp="2874">
<div abp="2182">
<span abp="1361" lang="EN-AU"><span abp="1362"><span abp="3579" style="font-family: "Trebuchet MS", sans-serif;">Similarly, the gains on the income support
side are greater from around $22,500 than for the single income couple – more
than double in fact.<o:p abp="1363"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1364">
<div abp="2351">
<div abp="3284">
<div abp="1949">
<div abp="2883">
<div abp="2192">
<span abp="3584" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1365" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1366">
<div abp="2354">
<div abp="3288">
<div abp="1955">
<div abp="2890">
<div abp="2200">
<span abp="1367" lang="EN-AU"><span abp="1368"><span abp="3591" style="font-family: "Trebuchet MS", sans-serif;">And with that comes the end of the
couples.<span abp="1369" style="mso-spacerun: yes;"> </span>Now to the households with
dependent children.</span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1372" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1373">
<div abp="2363">
<h3 abp="3299">
Dependent children group<o:p abp="1376"></o:p></h3>
</div>
</div>
</div>
<div abp="1377">
<div abp="2368">
<h4 abp="3305">
Chart 13 - Percentage change in disposable
income over Parliament 43: sole parent age 35, two children aged 8 & 10,
Newstart allowance where relevant</h4>
<h4 abp="3305">
<o:p abp="1382"></o:p> </h4>
</div>
</div>
<div abp="1383">
<div abp="2376">
<div abp="3315">
<div abp="2953" class="separator" style="clear: both; text-align: center;">
<a abp="2954" href="http://2.bp.blogspot.com/-FKmY9HpI7Q8/UuM_B35vQ0I/AAAAAAAAAgU/4xfKImiC0h8/s1600/sole+parent+NSA.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="2955" border="0" src="http://2.bp.blogspot.com/-FKmY9HpI7Q8/UuM_B35vQ0I/AAAAAAAAAgU/4xfKImiC0h8/s1600/sole+parent+NSA.PNG" height="418" width="640" /></a></div>
<div abp="1992">
<div abp="2918">
<div abp="2223">
<span abp="3621" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1384" align="center" class="MsoNormal" style="margin: 0cm 0cm 8pt; text-align: center;">
<div abp="1385">
<div abp="2379">
<div abp="3319">
<div abp="1998">
<div abp="2925">
<div abp="2231">
<span abp="1386" style="mso-ansi-language: EN-GB; mso-fareast-language: EN-GB; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape
id="Picture_x0020_3" o:spid="_x0000_i1029" type="#_x0000_t75" style='width:451.5pt;
height:296.25pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\David\AppData\Local\Temp\msohtmlclip1\01\clip_image025.png"
o:title=""/>
</v:shape><![endif]--><!--[if !vml]--><span abp="3627" style="font-family: "Trebuchet MS", sans-serif;"><!--[endif]--></span></span><span abp="1388" lang="EN-AU"><o:p abp="1389"></o:p></span><br /></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1390">
<div abp="2385">
<div abp="3326">
<div abp="2007">
<div abp="2934">
<div abp="2241">
<span abp="3634" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1391" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1392">
<div abp="2388">
<div abp="3330">
<div abp="2013">
<div abp="2941">
<div abp="2249">
<span abp="1393" lang="EN-AU"><span abp="1394"><span abp="3641" style="font-family: "Trebuchet MS", sans-serif;">Single/sole parents were very much in the
news during Parliament 43, largely due to the late-term decision to remove the
special “grandfathering” arrangements that had applied since July 2006.<span abp="1395" style="mso-spacerun: yes;"> </span>This affected people who had been continuously
in receipt of parenting payment as a single person since before that date.<span abp="1396" style="mso-spacerun: yes;"> </span>The grandfathering ceased with effect from 1
January 2013.<o:p abp="1397"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1398">
<div abp="2395">
<div abp="3338">
<div abp="2023">
<div abp="2952">
<div abp="2261">
<span abp="3648" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1399" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1400">
<div abp="2398">
<div abp="3342">
<div abp="2029">
<div abp="2959">
<div abp="2269">
<span abp="1401" lang="EN-AU"><span abp="1402"><span abp="3655" style="font-family: "Trebuchet MS", sans-serif;">To cover this group and the “standard”
arrangements that have been in place for non-grandfathered people since July
2006 I’ll be looking at three different sole parent households.<span abp="1403" style="mso-spacerun: yes;"> </span>The first of these, shown in Chart 12 above,
compares a single person with 2 children under the standard rules at the start
of the period, with a similarly constituted household at the end.<span abp="1404" style="mso-spacerun: yes;"> </span>In this case the income support payment is
Newstart allowance, as the youngest child is aged 8 or more.<o:p abp="1405"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1406">
<div abp="2405">
<div abp="3350">
<div abp="2039">
<div abp="2970">
<div abp="2281">
<span abp="3662" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1407" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1408">
<div abp="2408">
<div abp="3354">
<div abp="2045">
<div abp="2977">
<div abp="2289">
<span abp="1409" lang="EN-AU"><span abp="1410"><span abp="3669" style="font-family: "Trebuchet MS", sans-serif;">The standout item is the gain in NSA,
peaking at about 12%.<span abp="1411" style="mso-spacerun: yes;"> </span>This triangular
shape is a result of the change to the NSA income test taper rate for single
“principal carer” parents from the generally applicable 50% & 60% to
40%.<span abp="1412" style="mso-spacerun: yes;"> </span>This took effect from 1 January
2013, coinciding with the removal of the grandfathering provisions.<span abp="1413" style="mso-spacerun: yes;"> </span>The idea was presumably to ease the
transition because up to that point the losses experienced by sole parents
moving from parenting payment to NSA were enormous for those already working
(see <a abp="3025" href="http://ravebydave.blogspot.com.au/2012/11/january-changes-for-single-parents.html" target="_blank">this post</a> for details).<o:p abp="1414"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1415">
<div abp="2416">
<div abp="3363">
<div abp="2056">
<div abp="2990">
<div abp="2303">
<span abp="3677" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1416" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1417">
<div abp="2419">
<div abp="3367">
<div abp="2062">
<div abp="2997">
<div abp="2311">
<span abp="1418" lang="EN-AU"><span abp="1419"><span abp="3684" style="font-family: "Trebuchet MS", sans-serif;">Relaxing the income test took some of the
sting out of the transition for the ex-grandfathered group, but also
significantly improved the disposable income of the sole parent NSA population
already subject to the “new” July 2006 rules.<o:p abp="1420"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1421">
<div abp="2424">
<div abp="3373">
<div abp="2070">
<div abp="3006">
<div abp="2321">
<span abp="1424" lang="EN-AU"><span abp="1425"><span abp="3696" style="font-family: "Trebuchet MS", sans-serif;">In addition to the gain from NSA, the
school bonus also appeared during Parliament 43, further adding to the improved
financial outcomes for this household type.<o:p abp="1426"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1427">
<div abp="2432">
<div abp="3383">
<div abp="2084">
<div abp="3022">
<div abp="2331">
<span abp="3701" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1428" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1429">
<div abp="2435">
<div abp="3387">
<div abp="2090">
<div abp="3029">
<div abp="2339">
<span abp="1430" lang="EN-AU"><span abp="1431"><span abp="3708" style="font-family: "Trebuchet MS", sans-serif;">As with the earlier households, at higher
incomes bracket creep style effects cause an increase in the tax take relative
to 2010, but a similar thing can be seen with family tax benefit Part A and
Part B.<span abp="1432" style="mso-spacerun: yes;"> </span>Both of these were subject to
indexation freezes on some of their income test parameters, resulting in a fall
in value in real terms.<o:p abp="1433"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1434">
<div abp="2441">
<div abp="3394">
<div abp="2099">
<div abp="3039">
<div abp="2350">
<span abp="1437" lang="EN-AU"><span abp="1438"><span abp="3721" style="font-family: "Trebuchet MS", sans-serif;">For single parents whose youngest child is
under 8 years, the usual entitlement is parenting payment (PPS), and that
household is next.<o:p abp="1439"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1440">
<div abp="2449">
<div abp="3404">
<div abp="2113">
<div abp="3055">
<div abp="2360">
<span abp="3726" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1441" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1442">
<div abp="2452">
<h4 abp="3408">
Chart 14 - Percentage change in disposable
income over Parliament 43: sole parent age 30, two children aged 6 & 8,
parenting payment where relevant<o:p abp="1445"></o:p></h4>
</div>
</div>
</div>
<div abp="1446">
<div abp="2457">
<div abp="3414">
<div abp="3028" class="separator" style="clear: both; text-align: center;">
<a abp="3029" href="http://4.bp.blogspot.com/-rJJOaB7F4-E/UuM_1IeYzNI/AAAAAAAAAgc/JkowLuOEZdo/s1600/sole+parent+PPS.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="3030" border="0" src="http://4.bp.blogspot.com/-rJJOaB7F4-E/UuM_1IeYzNI/AAAAAAAAAgc/JkowLuOEZdo/s1600/sole+parent+PPS.PNG" height="418" width="640" /></a></div>
<div abp="2127">
<div abp="3069">
<div abp="2375">
<span abp="3738" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1447" align="center" class="MsoNormal" style="margin: 0cm 0cm 8pt; text-align: center;">
<div abp="1448">
<div abp="2460">
<div abp="3418">
<div abp="2133">
<div abp="3076">
<div abp="2383">
<span abp="1449" style="mso-ansi-language: EN-GB; mso-fareast-language: EN-GB; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape
id="Picture_x0020_13" o:spid="_x0000_i1028" type="#_x0000_t75" style='width:451.5pt;
height:295.5pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\David\AppData\Local\Temp\msohtmlclip1\01\clip_image027.png"
o:title=""/>
</v:shape><![endif]--><!--[if !vml]--><span abp="3744" style="font-family: "Trebuchet MS", sans-serif;"><!--[endif]--></span></span><span abp="1451" lang="EN-AU"><o:p abp="1452"></o:p></span><br /></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1453">
<div abp="2466">
<div abp="3425">
<div abp="2142">
<div abp="3085">
<div abp="2393">
<span abp="3751" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1454" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1455">
<div abp="2469">
<div abp="3429">
<div abp="2148">
<div abp="3092">
<div abp="2401">
<span abp="1456" lang="EN-AU"><span abp="1457"><span abp="3758" style="font-family: "Trebuchet MS", sans-serif;">The not-inconsiderable increase at zero
private income for this group was driven by the introduction of the schoolkids
bonus, the income support bonus (single parenting payment recipients were the
only pensioners to receive it) and the use of wages growth benchmarking to set
the base rate of parenting payment itself.<o:p abp="1458"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1459">
<div abp="2474">
<div abp="3435">
<div abp="2156">
<div abp="3101">
<div abp="2411">
<span abp="3763" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1460" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1461">
<div abp="2477">
<div abp="3439">
<div abp="2162">
<div abp="3108">
<div abp="2419">
<span abp="1462" lang="EN-AU"><span abp="1463"><span abp="3770" style="font-family: "Trebuchet MS", sans-serif;">At higher incomes (ie, from around $65,000)
some additional assistance was provided via the single income family
supplement, another carbon pricing compensation measure, this time targeted at
single income families with children.<span abp="1464" style="mso-spacerun: yes;">
</span>However neither it nor the schoolkids bonus was enough to offset the
negative effect of the taxation “bracket creep” combined with the impact of
freezes to some FTB A income test parameters.<o:p abp="1465"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1466">
<div abp="2483">
<div abp="3446">
<div abp="2171">
<div abp="3118">
<div abp="2430">
<span abp="3776" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1467" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1468">
<div abp="2486">
<div abp="3450">
<div abp="2177">
<div abp="3125">
<div abp="2438">
<span abp="1469" lang="EN-AU"><span abp="1470"><span abp="3783" style="font-family: "Trebuchet MS", sans-serif;">The net effect is that the overall picture
follows the now familiar pattern of gains at the low income end and losses at
higher incomes.<span abp="1471" style="mso-spacerun: yes;"> </span>However, in this case
the losses do not appear until around the $100,000 mark, the cause of which is
largely the schoolkids bonus.<span abp="1472" style="mso-spacerun: yes;"> </span>That bonus
is slated for removal by the current Government and given its importance in the
results for with-child households so far, this will have a strongly negative
impact on outcomes during Parliament 44.<o:p abp="1473"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1474">
<div abp="2493">
<div abp="3458">
<div abp="2187">
<div abp="3136">
<div abp="2450">
<span abp="3790" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1475" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1476">
<div abp="2496">
<div abp="3462">
<div abp="2193">
<div abp="3143">
<div abp="2458">
<span abp="1477" lang="EN-AU"><span abp="1478"><span abp="3797" style="font-family: "Trebuchet MS", sans-serif;">Now to the “grandfathered” group, that
attracted so much attention during the latter period of Parliament 43.<o:p abp="1479"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1480">
<div abp="2501">
<div abp="3468">
<div abp="2201">
<div abp="3152">
<div abp="2468">
<span abp="3802" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1481" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1482">
<div abp="2504">
<h4 abp="3472">
Chart 15 - Percentage change in disposable
income over Parliament 43: sole parent aged 35, 2 children aged 8 & 10,
grandfathered parenting payment in 2010; Newstart in 2013 where relevant<o:p abp="1485"></o:p></h4>
</div>
</div>
</div>
<div abp="1486">
<div abp="2509">
<div abp="3478">
<div abp="3113" class="separator" style="clear: both; text-align: center;">
<a abp="3114" href="http://2.bp.blogspot.com/-EICTkO3C15Q/UuNAL0YD_VI/AAAAAAAAAgk/Ay6ka0W--ME/s1600/sole+parent+grandfathered.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="3115" border="0" src="http://2.bp.blogspot.com/-EICTkO3C15Q/UuNAL0YD_VI/AAAAAAAAAgk/Ay6ka0W--ME/s1600/sole+parent+grandfathered.PNG" height="418" width="640" /></a></div>
<div abp="2215">
<div abp="3166">
<div abp="2483">
<span abp="3814" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1487" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1488">
<div abp="2512">
<div abp="3482">
<div abp="2221">
<div abp="3173">
<div abp="2491">
<span abp="1489" style="mso-ansi-language: EN-GB; mso-fareast-language: EN-GB; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape id="Picture_x0020_15"
o:spid="_x0000_i1027" type="#_x0000_t75" style='width:451.5pt;height:295.5pt;
visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\David\AppData\Local\Temp\msohtmlclip1\01\clip_image029.png"
o:title=""/>
</v:shape><![endif]--><!--[if !vml]--><span abp="3820" style="font-family: "Trebuchet MS", sans-serif;"><!--[endif]--></span></span><span abp="1491" lang="EN-AU"><o:p abp="1492"></o:p></span><br /></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1493">
<div abp="2518">
<div abp="3489">
<div abp="2230">
<div abp="3182">
<div abp="2501">
<span abp="3827" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1494" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1495">
<div abp="2521">
<div abp="3493">
<div abp="2236">
<div abp="3189">
<div abp="2509">
<span abp="1496" lang="EN-AU"><span abp="1497"><span abp="3834" style="font-family: "Trebuchet MS", sans-serif;">Before turning to the chart itself, just a
reminder about how they work in general.<span abp="1498" style="mso-spacerun: yes;">
</span>I’m comparing the disposable income (ie, after tax and transfer payment
effects) of a particular household type in 2010 with the same <i abp="1500" style="mso-bidi-font-style: normal;">type</i>
of household in 2013.<span abp="1501" style="mso-spacerun: yes;"> </span>It’s <i abp="1503" style="mso-bidi-font-style: normal;">not </i>comparing
the same household – it would not be possible to say, for example, that children were the same ages at the start and end of the period if I did.<o:p abp="1504"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1505">
<div abp="2532">
<div abp="3505">
<div abp="2250">
<div abp="3202">
<div abp="2523">
<span abp="1508" lang="EN-AU"><span abp="1509"><span abp="3852" style="font-family: "Trebuchet MS", sans-serif;">That means the results shown in this chart
are not a depiction of what happened to a particular household when the
grandfathering rules changed.<span abp="1510" style="mso-spacerun: yes;"> </span>Instead,
I’m showing the difference in the treatment of this particular household type
at the election dates. <span abp="1511" style="mso-spacerun: yes;"> </span>One clear example
of this is the way the schookids bonus shows up.<span abp="1512" style="mso-spacerun: yes;"> </span>In the chart it’s a gain – there was no
schoolkids bonus in 2010; there was in 2013.<span abp="1513" style="mso-spacerun: yes;">
</span>But on January 1 2013 when the grandfathering rules changed it already
existed and individual households would not have gained (or lost) that payment.<o:p abp="1514"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1515">
<div abp="2544">
<div abp="3519">
<div abp="2268">
<div abp="3222">
<div abp="2537">
<span abp="3861" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1516" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1517">
<div abp="2547">
<div abp="3523">
<div abp="2274">
<div abp="3229">
<div abp="2545">
<span abp="1518" lang="EN-AU"><span abp="1519"><span abp="3868" style="font-family: "Trebuchet MS", sans-serif;">If the specific impact at 1 January 2013
interests you, I have canvassed the impact of the change with that focus in
other posts (see <a abp="3131" href="http://ravebydave.blogspot.com.au/2012/11/january-changes-for-single-parents.html" target="_blank">here</a> and <a abp="3187" href="http://ravebydave.blogspot.com.au/2012/06/sole-parents-public-housing-and-that.html" target="_blank">here</a> as examples).<span abp="1520" style="mso-spacerun: yes;">
</span><i abp="1521" style="mso-bidi-font-style: normal;">This</i> post is about the
cumulative changes over the life of a Parliament, not just a single point in
time change.<o:p abp="1522"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1523">
<div abp="2554">
<div abp="3531">
<div abp="2284">
<div abp="3242">
<div abp="2559">
<span abp="3875" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1524" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1525">
<div abp="2557">
<div abp="3535">
<div abp="2290">
<div abp="3249">
<div abp="2567">
<span abp="1526" lang="EN-AU"><span abp="1527"><span abp="3882" style="font-family: "Trebuchet MS", sans-serif;">In the chart we can see that the income
support package (parenting payment in 2010 versus Newstart allowance plus the
income support bonus in 2013) has substantially reduced over the period.<span abp="1528" style="mso-spacerun: yes;"> </span>This comes from a lower rate (as shown at the
zero private income point) plus, as income rises, the effects of a tighter
income test (a lower income threshold before private income reduces payment).<o:p abp="1529"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1530">
<div abp="2563">
<div abp="3542">
<div abp="2299">
<div abp="3259">
<div abp="2578">
<span abp="3888" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1531" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1532">
<div abp="2566">
<div abp="3546">
<div abp="2305">
<div abp="3266">
<div abp="2586">
<span abp="1533" lang="EN-AU"><span abp="1534"><span abp="3895" style="font-family: "Trebuchet MS", sans-serif;">The change from parenting payment (which
for singles is a pension) to Newstart also means the loss of access to the
pensioner tax offset (the 2010 version in this example), which results in a
higher tax liability even though taxable income is less than before.<span abp="1535" style="mso-spacerun: yes;"> </span>That (and a bit of bracket creep) is the cause
of the triangular red tax part of the chart, under the income support
reduction.<o:p abp="1536"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1537">
<div abp="2572">
<div abp="3553">
<div abp="2314">
<div abp="3276">
<div abp="2597">
<span abp="1540" lang="EN-AU"><span abp="1541"><span abp="3908" style="font-family: "Trebuchet MS", sans-serif;">The income support and tax related losses
have been partly offset by the introduction of the schookids bonus, which for
some households outside of the income support system actually led to a real
gain over the period (ie in the broad income range $50,000 to $100,000.<span abp="1542" style="mso-spacerun: yes;"> </span>At higher incomes the pattern reverts to the
overall loss position evident in the other household charts, in this case with
the addition of the income-test indexation freeze induced decline in the value
of FTB A and FTB B.<o:p abp="1543"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1544">
<div abp="2581">
<div abp="3564">
<div abp="2329">
<div abp="3293">
<div abp="2608">
<span abp="1547" lang="EN-AU"><span abp="1548"><span abp="3921" style="font-family: "Trebuchet MS", sans-serif;">That covers the three single parent
household types I’ve done calculations for (there are of course many types, but
these are the main groups) so it’s now time to look at some couples with dependent
children households.<o:p abp="1549"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1550">
<div abp="2589">
<div abp="3574">
<div abp="2343">
<div abp="3309">
<div abp="2618">
<span abp="3926" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1551" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1552">
<div abp="2592">
<h4 abp="3578">
Chart 16 - Percentage change in disposable
income over Parliament 43: two income couple (50:50 split), both aged 40, with
2 children (14 & 16). Newstart
allowance where relevant for the adults.<o:p abp="1556"></o:p></h4>
</div>
</div>
</div>
<div abp="1557">
<div abp="2598">
<div abp="3585">
<div abp="3190" class="separator" style="clear: both; text-align: center;">
<a abp="3191" href="http://2.bp.blogspot.com/-Jn3k7yFyj2o/UuNBVWnxUnI/AAAAAAAAAgs/PKhG51qI7sU/s1600/DI+couple+NSA-NSA+2+kids.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="3192" border="0" src="http://2.bp.blogspot.com/-Jn3k7yFyj2o/UuNBVWnxUnI/AAAAAAAAAgs/PKhG51qI7sU/s1600/DI+couple+NSA-NSA+2+kids.PNG" height="418" width="640" /></a></div>
<div abp="2358">
<div abp="3323">
<div abp="2633">
<span abp="3939" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1558" align="center" class="MsoNormal" style="margin: 0cm 0cm 8pt; text-align: center;">
<div abp="1559">
<div abp="2601">
<div abp="3589">
<div abp="2364">
<div abp="3330">
<div abp="2641">
<span abp="1560" style="mso-ansi-language: EN-GB; mso-fareast-language: EN-GB; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape
id="Picture_x0020_16" o:spid="_x0000_i1026" type="#_x0000_t75" style='width:451.5pt;
height:295.5pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\David\AppData\Local\Temp\msohtmlclip1\01\clip_image031.png"
o:title=""/>
</v:shape><![endif]--><!--[if !vml]--><span abp="3945" style="font-family: "Trebuchet MS", sans-serif;"><!--[endif]--></span></span><span abp="1562" lang="EN-AU"><o:p abp="1563"></o:p></span><br /></div>
</div>
</div>
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</div>
</div>
</div>
<div abp="1564">
<div abp="2607">
<div abp="3596">
<div abp="2373">
<div abp="3339">
<div abp="2651">
<span abp="3952" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1565" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1566">
<div abp="2610">
<div abp="3600">
<div abp="2379">
<div abp="3346">
<div abp="2659">
<span abp="1567" lang="EN-AU"><span abp="1568"><span abp="3959" style="font-family: "Trebuchet MS", sans-serif;"><span abp="1569" style="mso-spacerun: yes;"> </span>I
picked this household not so much for the 50:50 income split (the discussion
around Chart 11 covers that aspect) but for the changes to youth allowance and
FTB A.<o:p abp="1570"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1571">
<div abp="2616">
<div abp="3607">
<div abp="2388">
<div abp="3356">
<div abp="2670">
<span abp="3965" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1572" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1573">
<div abp="2619">
<div abp="3611">
<div abp="2394">
<div abp="3363">
<div abp="2678">
<span abp="1574" lang="EN-AU"><span abp="1575"><span abp="3972" style="font-family: "Trebuchet MS", sans-serif;">The treatment of full-time secondary
student children aged 16+ underwent quite a change during Parliament 43.<span abp="1576" style="mso-spacerun: yes;"> </span>At the election date such children could
attract either youth allowance or a low (aka base) rate of FTB A.<span abp="1577" style="mso-spacerun: yes;"> </span>At low incomes getting youth allowance was
pretty much a no-brainer, but as parental incomes increased there came a point
where it was better to be in the FTB A payment system than remain in youth
allowance.<span abp="1578" style="mso-spacerun: yes;"> </span><o:p abp="1579"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1580">
<div abp="2627">
<div abp="3620">
<div abp="2405">
<div abp="3375">
<div abp="2691">
<span abp="3980" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1581" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1582">
<div abp="2630">
<div abp="3624">
<div abp="2411">
<div abp="3382">
<div abp="2699">
<span abp="1583" lang="EN-AU"><span abp="1584"><span abp="3987" style="font-family: "Trebuchet MS", sans-serif;">Deciding which payment stream the child
should be in was fraught with difficulty, particularly where there was more
than one child in the family, one of whom was under 16.<span abp="1585" style="mso-spacerun: yes;"> </span>The change reflected in the chart above was
to extend the 13-15 year old child rate of FTB A to full-time secondary
students.<span abp="1586" style="mso-spacerun: yes;"> </span>This meant that when the child
turned 16 at high school or college there was no longer a need to try and work
out the most advantageous payment route.<span abp="1587" style="mso-spacerun: yes;">
</span>Additionally, the FTB A rate was also higher than the youth allowance
rate, making it a positive outcome overall for most households.<o:p abp="1588"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1589">
<div abp="2638">
<div abp="3633">
<div abp="2422">
<div abp="3394">
<div abp="2712">
<span abp="1592" lang="EN-AU"><span abp="1593"><span abp="4002" style="font-family: "Trebuchet MS", sans-serif;">The chart illustrates a loss of youth
allowance (the negative lilac shade) which is more than offset by increased FTB
A.<span abp="1594" style="mso-spacerun: yes;"> </span>This improved outcome extended (in
this household type) to incomes a little over $90,000 a year – a widespread
gain.<span abp="1595" style="mso-spacerun: yes;"> </span>The household also benefited from
the previously discussed schoolkids bonus.<o:p abp="1596"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1597">
<div abp="2648">
<div abp="3645">
<div abp="2438">
<div abp="3412">
<div abp="2724">
<span abp="4009" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1598" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1599">
<div abp="2651">
<div abp="3649">
<div abp="2444">
<div abp="3419">
<div abp="2732">
<span abp="1600" lang="EN-AU"><span abp="1601"><span abp="4016" style="font-family: "Trebuchet MS", sans-serif;">The schoolkids bonus does provide quite a
substantial gain for household types that pick it up but, as the name suggests,
it’s not available to families with children under school age.<span abp="1602" style="mso-spacerun: yes;"> </span>So the final household type will look at the
change over Parliament 43 for a family with young children.</span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1605" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1606">
<div abp="2660">
<h4 abp="3660">
Chart 17 - Percentage change in disposable
income over Parliament 43: single (private) income couple, both aged 30, 2
children aged 2 & 4, Newstart allowance and parenting payment where
relevant<o:p abp="1609"></o:p></h4>
</div>
</div>
</div>
<div abp="1610">
<div abp="2665">
<div abp="3666">
<div abp="3224" class="separator" style="clear: both; text-align: center;">
<a abp="3225" href="http://3.bp.blogspot.com/-KFyJarASddg/UuNBtHlhBPI/AAAAAAAAAg0/bTX3C28DTUs/s1600/SI+couple+NSA-PP+2+young+kids.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="3226" border="0" src="http://3.bp.blogspot.com/-KFyJarASddg/UuNBtHlhBPI/AAAAAAAAAg0/bTX3C28DTUs/s1600/SI+couple+NSA-PP+2+young+kids.PNG" height="420" width="640" /></a></div>
<div abp="2467">
<div abp="3443">
<div abp="2750">
<span abp="4034" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1611" align="center" class="MsoNormal" style="margin: 0cm 0cm 8pt; text-align: center;">
<div abp="1612">
<div abp="2668">
<div abp="3670">
<div abp="2473">
<div abp="3450">
<div abp="2758">
<span abp="1613" style="mso-ansi-language: EN-GB; mso-fareast-language: EN-GB; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape
id="Picture_x0020_17" o:spid="_x0000_i1025" type="#_x0000_t75" style='width:451.5pt;
height:296.25pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\David\AppData\Local\Temp\msohtmlclip1\01\clip_image033.png"
o:title=""/>
</v:shape><![endif]--><!--[if !vml]--><span abp="4040" style="font-family: "Trebuchet MS", sans-serif;"><!--[endif]--></span></span><span abp="1615" lang="EN-AU"><o:p abp="1616"></o:p></span><br /></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1617">
<div abp="2674">
<div abp="3677">
<div abp="2482">
<div abp="3459">
<div abp="2768">
<span abp="4047" style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
</div>
</div>
</div>
</div>
</div>
<div abp="1618" class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<div abp="1619">
<div abp="2677">
<div abp="3681">
<div abp="2488">
<div abp="3466">
<div abp="2776">
<span abp="1620" lang="EN-AU"><span abp="1621"><span abp="4054" style="font-family: "Trebuchet MS", sans-serif;">This chart illustrates (through its
absence) what a difference the schoolkids bonus made.<span abp="1622" style="mso-spacerun: yes;"> </span>For this household type gains were limited to
those flowing from the clean energy supplement’s incorporation into the income
support and family tax benefit payments, plus the tax cuts mentioned way back
under Chart 4.<span abp="1623" style="mso-spacerun: yes;"> </span>From an income of a little
under $40,000, the tax-transfer system delivered real losses.<o:p abp="1624"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
</div>
<div abp="1625">
<div abp="2684">
<div abp="3689">
<div abp="2498">
<div abp="3477">
<div abp="2788">
<span abp="1628" lang="EN-AU"><span abp="1629"><span abp="4068" style="font-family: "Trebuchet MS", sans-serif;">Interestingly, for all the other with-child
households considered, real losses did not arise until private income reached
around $100,000.<span abp="1630" style="mso-spacerun: yes;"> </span>Again, this is
attributable to the schoolkids bonus.<span abp="1631" style="mso-spacerun: yes;">
</span>The current Government has plans to abolish this payment, along with the
income support bonus, during Parliament 44.<span abp="1632" style="mso-spacerun: yes;">
</span>Given the significant impact these two payments had in the results shown
in all the households considered here (with the exception of the age pensioner
in Chart 5), their abolition will produce markedly negative outcomes.<span abp="1633" style="mso-spacerun: yes;"> </span>In light of that, I’m inclined to repeat this
exercise for Parliament 44 as we progress through the term.<span abp="1634" style="mso-spacerun: yes;"> </span>Stay tuned.<o:p abp="1635"></o:p></span></span></span></div>
</div>
</div>
</div>
</div>
</div>
Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com2tag:blogger.com,1999:blog-7303409391905322366.post-19582451031907526192013-11-07T12:33:00.000+11:002013-11-10T09:31:38.940+11:00Spiky EMTRs can also be prickly - how to really stick it to students<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">A little over 18 months ago I wrote a <a href="http://ravebydave.blogspot.com.au/2012/04/austudy-payment-and-half-built-income.html" target="_blank">post</a>
about the way in which the Austudy income test seemed to me to be only
half-built, causing substantial financial losses for some couples.<span style="mso-spacerun: yes;"> </span>I finished it with a comment that the problem
would only get worse over time.<span style="mso-spacerun: yes;"> </span>There
will be a few changes to Austudy payment from 1 January 2014, so with that earlier
comment in mind I thought it might be interesting to see how the problem looks once
these are in place.<span style="mso-spacerun: yes;"> </span>And here’s a spoiler
– it isn’t pretty.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><a name='more'></a><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">First up, these are the 1 January 2014
changes I’m referring to:<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoListParagraphCxSpFirst" style="margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-indent: -18pt;">
<!--[if !supportLists]--><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN-AU" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span lang="EN-AU">Austudy payments and the
associated student startup scholarship will increase as a result of the
standard annual indexation of rates, based on movements in the consumer price
index.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-indent: -18pt;">
<!--[if !supportLists]--><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN-AU" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span lang="EN-AU">Austudy rates will also
increase due to the implementation of the clean energy supplement (CES).<span style="mso-spacerun: yes;"> There's some background on this <a href="http://ravebydave.blogspot.com.au/2013/01/a-new-rate-component-is-born.html" target="_blank">here</a>.</span></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoListParagraphCxSpLast" style="margin: 0cm 0cm 8pt 36pt; mso-list: l0 level1 lfo1; text-indent: -18pt;">
<!--[if !supportLists]--><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN-AU" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span lang="EN-AU">those with private income may
also benefit from the indexation of the Austudy income test. <o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Once these three changes are in place we’ll
end up with the combination of Austudy payment, student startup scholarship and
income testing shown in Chart 1.<span style="mso-spacerun: yes;"> </span>In it
I’ve covered three household types – single student; couple, both students,
with a 50:50 private income split; single income student couple (100:0 private
income split).<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Chart 1<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "Trebuchet MS", sans-serif;"><a href="http://3.bp.blogspot.com/-sP9wFEXL49E/UnrrWlDaNWI/AAAAAAAAAdY/joi3krXh9kQ/s1600/payment+packages.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://3.bp.blogspot.com/-sP9wFEXL49E/UnrrWlDaNWI/AAAAAAAAAdY/joi3krXh9kQ/s640/payment+packages.PNG" width="640" /></a></span></div>
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
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</v:shape><![endif]--><!--[if !vml]--><span style="font-family: "Trebuchet MS", sans-serif;"><!--[endif]--></span></span><span lang="EN-AU"><o:p></o:p></span><br /></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Each of these traces starts out as would be
expected for an income tested payment package: as private income increases
there’s initially no change in the payment amount, then once the income test
free area (the amount of income allowed before payment reduces) is exceeded
then the lines trend downward.<span style="mso-spacerun: yes;"> </span>However,
all three traces have an abrupt reduction at the tail end of the payment range,
reflecting the “sudden death” removal (ie, non-tapered loss of complete
entitlement) of both the student scholarship and the income support bonus.<span style="mso-spacerun: yes;"> </span>(For the single income couple - 100:0 income
split - there’s a short income range on the end where an entitlement to the low
income supplement may be available.<span style="mso-spacerun: yes;"> </span>It’s
part of the household compensation arrangements introduced with carbon pricing.)<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Note though, that the single income couple
also has a noticeable “notch reduction” (ie, non-tapered removal of part of an
overall entitlement) at a private income of a little under $30,000 a year.<span style="mso-spacerun: yes;"> </span>This is a result of three things:<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoListParagraphCxSpFirst" style="margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo2; text-indent: -18pt;">
<!--[if !supportLists]--><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN-AU" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span lang="EN-AU">The loss of partner 1’s (P1)
student scholarship<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo2; text-indent: -18pt;">
<!--[if !supportLists]--><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN-AU" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span lang="EN-AU">The loss of P1’s income support
bonus<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoListParagraphCxSpLast" style="margin: 0cm 0cm 8pt 36pt; mso-list: l1 level1 lfo2; text-indent: -18pt;">
<!--[if !supportLists]--><span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN-AU" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span lang="EN-AU">The operation of the Austudy
income test on partner 2 (P2) at the point where P1 exits Austudy payment<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Of these, the latter element accounts for
well over half the total loss at that point.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">These abrupt reductions, be they sudden
death or notch style, can lead to significant financial losses for households
whose private income crosses the relevant threshold.<span style="mso-spacerun: yes;"> </span>In turn, this introduces disincentives to
increase private income.<span style="mso-spacerun: yes;"> </span>They are also
problematic from an equity perspective – identically constituted households
with almost the same levels of private income can end up with wildly different
disposable incomes.<span style="mso-spacerun: yes;"> </span>Yet despite these
issues, around one-third of the entitlements of single income couples are
withdrawn in this fashion.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">One oft-used way of looking at possible
financial disincentives in the tax-transfer system is to use a chart showing
the effective marginal tax rates (EMTR) encountered as private income
rises.<span style="mso-spacerun: yes;"> </span>Chart 2 shows the EMTR for the
single income Austudy student couple we’ve been looking at.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Chart 2<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "Trebuchet MS", sans-serif;"><a href="http://1.bp.blogspot.com/-fwavYag609A/UnrrvIXmIDI/AAAAAAAAAdg/i9LIML17z-o/s1600/EMTR.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://1.bp.blogspot.com/-fwavYag609A/UnrrvIXmIDI/AAAAAAAAAdg/i9LIML17z-o/s640/EMTR.PNG" width="640" /></a></span></div>
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span style="mso-ansi-language: EN-GB; mso-fareast-language: EN-GB; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape id="Picture_x0020_1"
o:spid="_x0000_i1028" type="#_x0000_t75" style='width:440.25pt;height:4in;
visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\David\AppData\Local\Temp\msohtmlclip1\01\clip_image003.png"
o:title=""/>
</v:shape><![endif]--><!--[if !vml]--><span style="font-family: "Trebuchet MS", sans-serif;"><!--[endif]--></span></span><span lang="EN-AU"><o:p></o:p></span><br /></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">If we ignore the spikes in the chart for
now, the EMTR is not that different to that of other single income couples
getting some kind of non-pension income support payments (eg, Newstart
allowance).<span style="mso-spacerun: yes;"> </span>It has the characteristic
series of ever-higher plateaus, reaching nearly 100% at the end of the income
support payment range, with a marked reduction once income support has been
fully withdrawn (in this case, once the Austudy to P2 has been removed).<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The real story is in the spikes.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Spikes show up in EMTR charts where
payments are withdrawn in an abrupt or non-tapered way - at the point where the
withdrawal occurs the EMTR goes off the scale.<span style="mso-spacerun: yes;">
</span>This is one of the (many) weaknesses in EMTR charts because a spike like
this conveys very little in the way of useful information about the impact of
the withdrawal.<span style="mso-spacerun: yes;"> </span>The fact that the spike
is concentrated on a single income point rather than a range of income can lead
to commentators and analysts being somewhat dismissive of EMTR spikes.<span style="mso-spacerun: yes;"> </span>There’s an idea that once private income has
crossed the EMTR spike, things settle down again and so it’s not a problem for
cases with income not actually at the spike point.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">This <i style="mso-bidi-font-style: normal;">can
</i>be true.<span style="mso-spacerun: yes;"> </span>The off-scale aspect of
EMTR spikes occurs even where the abrupt loss of income is small.<span style="mso-spacerun: yes;"> </span>For example, some income support recipients
receive an increase in their payments known as pharmaceutical allowance.<span style="mso-spacerun: yes;"> </span>It’s only $3.10 a week for a single person
($1.55 for a member of a couple) and is withdrawn in a sudden-death fashion
when income exceeds the relevant limit.<span style="mso-spacerun: yes;">
</span>The loss of this fairly trivial $1.55 will still show up as an off-scale
spike on a typical EMTR chart.<span style="mso-spacerun: yes;">
</span>Understandably, a spike due to losses like this can be dismissed as
illustrating no more than a possibly clunky design element in the system.<span style="mso-spacerun: yes;"> </span>But there’s a risk of throwing out the
proverbial baby with the bathwater if all EMTR spikes are dismissed in this way,
and in the Austudy case they are significant indeed.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Chart 3 looks at the disposable income of
the Austudy single income couple and includes a breakdown of the tax-transfer
elements that go toward it at various private income levels.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Chart 3<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "Trebuchet MS", sans-serif;"><a href="http://3.bp.blogspot.com/-NQ-UF2I9wwg/Unrr_bQ9RDI/AAAAAAAAAdo/Dky-wOCvwvM/s1600/DI+with+components.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="419" src="http://3.bp.blogspot.com/-NQ-UF2I9wwg/Unrr_bQ9RDI/AAAAAAAAAdo/Dky-wOCvwvM/s640/DI+with+components.PNG" width="640" /></a></span></div>
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span style="mso-ansi-language: EN-GB; mso-fareast-language: EN-GB; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape id="Picture_x0020_4"
o:spid="_x0000_i1027" type="#_x0000_t75" style='width:440.25pt;height:4in;
visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\David\AppData\Local\Temp\msohtmlclip1\01\clip_image005.png"
o:title=""/>
</v:shape><![endif]--><!--[if !vml]--><span style="font-family: "Trebuchet MS", sans-serif;"><!--[endif]--></span></span><span lang="EN-AU"><o:p></o:p></span><br /></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Here the EMTR spikes shown in Chart 2
translate into reductions in disposable income.<span style="mso-spacerun: yes;">
</span>The first three spikes illustrate the point I was making earlier.<span style="mso-spacerun: yes;"> </span>The first, at around $29,000, shows up in
Chart 3 as a significant fall in disposable income, one which leaves the couple
worse off even if private income further increases by up to $20,000 a
year.<span style="mso-spacerun: yes;"> </span>Clearly it’s a spike in the EMTR
that cannot be brushed aside as simply something that has an effect at a single
point.<span style="mso-spacerun: yes;"> </span>The second, at around $40,000 is
still apparent in its impact on disposable income, whereas the third, at a
little under $45,000 (caused by the loss of the low income supplement) is
barely discernible on the disposable income chart.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">So, what do these various abrupt reductions
in assistance do to attempts by our couple to increase their disposable
income?<span style="mso-spacerun: yes;"> </span>What do the carefully designed
tax transfer arrangements do to promote the laudable goal of increased
self-sufficiency?<span style="mso-spacerun: yes;"> </span>The disposable income
chart makes it pretty plain that some increases in private income are
associated with falls in disposable income and we could leave it at that.<span style="mso-spacerun: yes;"> </span>But I’d like to hammer the point that this
structure, this so-called design, is atrocious.<span style="mso-spacerun: yes;">
</span>To that end, here’s another way of looking at it.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Chart 4 uses one of my “effort” charts
(described in more detail <a href="http://ravebydave.blogspot.com.au/2013/05/climb-every-mountain.html" target="_blank">here</a>) to depict the terrain to be traversed as the
couple attempts to increase their disposable income.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Chart 4<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "Trebuchet MS", sans-serif;"><a href="http://4.bp.blogspot.com/-6hXAqJ0To4I/UnrsYOUjneI/AAAAAAAAAdw/2Z659shMZyo/s1600/Hillclimb+pic.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="640" src="http://4.bp.blogspot.com/-6hXAqJ0To4I/UnrsYOUjneI/AAAAAAAAAdw/2Z659shMZyo/s640/Hillclimb+pic.PNG" width="444" /></a></span></div>
<br />
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 8pt; text-align: center;">
<span style="mso-ansi-language: EN-GB; mso-fareast-language: EN-GB; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape
id="Picture_x0020_3" o:spid="_x0000_i1026" type="#_x0000_t75" style='width:285pt;
height:410.25pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\David\AppData\Local\Temp\msohtmlclip1\01\clip_image007.png"
o:title=""/>
</v:shape><![endif]--><!--[if !vml]--><span style="font-family: "Trebuchet MS", sans-serif;"><!--[endif]--></span></span><span lang="EN-AU"><o:p></o:p></span><br /></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">For a little over the first $10,000 or so
the couple keeps every extra dollar they earn – the terrain is flat.<span style="mso-spacerun: yes;"> </span>To increase disposable income after that,
however, is a different story – there’s an increasingly steep hill in the
way.<span style="mso-spacerun: yes;"> </span>The climb is pretty tough to increase
disposable income by a little over $16,000, but then things go from bad to
worse.<span style="mso-spacerun: yes;"> </span>A little extra effort sends the
couple crashing back to a disposable income gain of around $10,000 due to the government’s
clawback (either increased taxes or reduced transfers) suddenly increasing by well
over $5,000.<span style="mso-spacerun: yes;"> </span>(The red line connecting
those two points indicates there are no intermediate values – it’s an abrupt
change.)<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">This combination of a tough climb
(reflecting the underlying high EMTR) and a sudden loss continues with the
couple never managing to cement itself a bigger gain in disposable income than
approximately $16,000 until the government has first extracted another $25,000
from the couple’s increased private income.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">It’s the kind of terrain a mountaineer might
enjoy, but it’s not pathway that encourages progression to higher income
destinations.<span style="mso-spacerun: yes;"> </span>In fact, this kind of
design (I use the term loosely) may actually encourage reduced workforce
participation.<span style="mso-spacerun: yes;"> </span>Consider that if the
couple needed an extra $10,000 in disposable income they could achieve it by
earning either $10,000, almost $30,000 or almost $42,000.<span style="mso-spacerun: yes;"> </span>Given they are full-time students, which
option would you choose?<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Chart 5 picks up this theme of increasing
disposable income by <i style="mso-bidi-font-style: normal;">working less. </i><span style="mso-spacerun: yes;"> </span>It shows before and after private
incomes.<span style="mso-spacerun: yes;"> </span>If you look at where these two
cross there’ll be a colour – white or blue.<span style="mso-spacerun: yes;">
</span>If the intersection of the before and after incomes is in a blue zone
then the couple’s disposable income either increases or remains unchanged by
reducing their earnings.<span style="mso-spacerun: yes;"> </span>To me, it
illustrates that this perverse incentive occurs over a ridiculously large combination of incomes. <o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Chart 5<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "Trebuchet MS", sans-serif;"><a href="http://2.bp.blogspot.com/-6luAZZGcKSE/Unrsyru1QWI/AAAAAAAAAd4/dVE57Y1_g5Q/s1600/reduction.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://2.bp.blogspot.com/-6luAZZGcKSE/Unrsyru1QWI/AAAAAAAAAd4/dVE57Y1_g5Q/s640/reduction.PNG" width="640" /></a></span></div>
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span style="mso-ansi-language: EN-GB; mso-fareast-language: EN-GB; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape id="Picture_x0020_5"
o:spid="_x0000_i1025" type="#_x0000_t75" style='width:439.5pt;height:286.5pt;
visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\David\AppData\Local\Temp\msohtmlclip1\01\clip_image009.png"
o:title=""/>
</v:shape><![endif]--><!--[if !vml]--><span style="font-family: "Trebuchet MS", sans-serif;"><!--[endif]--></span></span><span lang="EN-AU"><o:p></o:p></span><br /></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">You’ll note that there a number of tiny
(and one not so tiny) “islands” shown in the chart that track along the rising
diagonal.<span style="mso-spacerun: yes;"> </span>These are a result of the
HELP/HECS scheme repayment arrangements – my calculations assume the existence
of HELP/HECS debt.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Are there any signs that this design issue
is going to be fixed?<span style="mso-spacerun: yes;"> </span>There are two
things (perhaps three) that could affect the current outcomes.<span style="mso-spacerun: yes;"> </span>One is the Government’s stated intention to
abolish the income support bonus.<span style="mso-spacerun: yes;"> </span>This
will reduce the disposable income of low income households, albeit not substantially.<span style="mso-spacerun: yes;"> </span>The second is the possibility that the
student startup-scholarship will become a repayable debt, to be recovered using
the HELP/HECS arrangements.<span style="mso-spacerun: yes;"> </span>On its own
that doesn’t change the results shown above, but it may discourage some
students from taking the scholarship, which would reduce the size of the
payment package used in my calculations. Neither of these is really a fix though.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The third is somewhat tenuous.<span style="mso-spacerun: yes;"> </span>As seems to be the norm when there’s a change
of Government, there’s probably going to be a review of social security and
similar arrangements, possibly headed up by Patrick McClure.<span style="mso-spacerun: yes;"> </span>Maybe, just maybe, the issue of how to
properly income test couples might get a look in.<span style="mso-spacerun: yes;"> </span>But I’m not going to hold my breath.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span>Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com0tag:blogger.com,1999:blog-7303409391905322366.post-41768059828435414832013-08-22T17:43:00.000+10:002013-08-22T19:59:19.485+10:004 Parliament comparison - single earner couple with an invalid partner<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">This is another in my occasional
multi-Parliament comparison series.<span style="mso-spacerun: yes;"> </span>This
time the subject is single income couples where one is unable to work due to a
disability – an invalid spouse as the tax law puts it.<span style="mso-spacerun: yes;"> </span>I’ve been meaning to do this one for a while
because the combination brings up quite a few interesting issues around policy
and system design.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<span style="font-family: "Trebuchet MS", sans-serif;"></span><a name='more'></a><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The 4-Parliament comparisons are all about
the pictures, so without further ado here’s my usual opener, all 4 Parliaments
on one chart.<span style="mso-spacerun: yes;"> </span>Messy, but useful for
comparisons.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<h4 class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Chart 1<o:p></o:p></span></span></h4>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://2.bp.blogspot.com/-9aQnIwgAtpc/UhW-5atXf9I/AAAAAAAAAbw/U49bkguY5xc/s1600/4+parliaments+lines.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: "Trebuchet MS", sans-serif;"><img border="0" height="416" src="http://2.bp.blogspot.com/-9aQnIwgAtpc/UhW-5atXf9I/AAAAAAAAAbw/U49bkguY5xc/s640/4+parliaments+lines.PNG" width="640" /></span></a></div>
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"></span><span style="font-family: "Trebuchet MS", sans-serif;"> </span></div>
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">I’ll look at each Parliament separately in
more detail, but putting them all together on the same scale makes comparisons
easier and puts a bit of context around the relative gains (or losses).<span style="mso-spacerun: yes;"> </span>It also shows at a glance that Parliaments 41
and 43 are the outliers with biggish moves in disposable income.<span style="mso-spacerun: yes;"> </span>In contrast, the action during Parliaments 40
and 42 is rather more restrained.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Now to each Parliament in more detail,
starting with Parliament 40.<span style="mso-spacerun: yes;"> </span>Here’s a
chart showing the overall change in real (ie, CPI adjusted) disposable income,
broken down into the variations in the tax-transfer system components that
brought it about.<span style="mso-spacerun: yes;"> </span>Note too that this
blog is about the tax-transfer system, so this and the other charts are showing
changes attributable to the tax-transfer system only.<span style="mso-spacerun: yes;"> </span>Things like wages growth and interest rate
changes aren’t included.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The change in disposable income is
calculated by comparing households with the same real private incomes (ie CPI
adjusted, and in July 2013 dollars) at the start and end of the periods.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<h4 class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Chart 2<o:p></o:p></span></span></h4>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://2.bp.blogspot.com/-gu1cy6ve5YQ/UhW_InaSxWI/AAAAAAAAAb4/XHiTT4gktJE/s1600/P40.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: "Trebuchet MS", sans-serif;"><img border="0" height="418" src="http://2.bp.blogspot.com/-gu1cy6ve5YQ/UhW_InaSxWI/AAAAAAAAAb4/XHiTT4gktJE/s640/P40.PNG" width="640" /></span></a></div>
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"></span><span style="font-family: "Trebuchet MS", sans-serif;"> </span></div>
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">This household’s combination of disability
support pension (partner 1 – shown as P1 DSP) and Newstart allowance (partner 2
– shown as P2 NSA) shows the rather disparate treatment handed out to pensioners
compared to those on social security benefits.<span style="mso-spacerun: yes;">
</span>At zero private income – where households get maximum rates of income
support – DSP increased by almost 3% in real terms, whereas NSA essentially
remained unchanged.<span style="mso-spacerun: yes;"> </span>This reflects the
different mechanisms used to maintain the rates of these payments – DSP is
benchmarked to wages growth, whereas NSA is adjusted by reference to increases
in the consumer price index (CPI).<span style="mso-spacerun: yes;"> </span>The
former is supposed to be a proxy for keeping up with community living standards
whereas the other is an adjustment for inflation.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">At slightly higher private incomes we can
see that NSA fell in value, which is due to the fact that the income test for
that payment was unchanged in nominal terms (ie, no CPI adjustment) over the
Parliamentary term.<span style="mso-spacerun: yes;"> </span>For DSP the result
was positive all the way – the DSP income test is adjusted with upward movement
in the CPI.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Tax cuts at higher incomes are also
noticeable, but check the scale before getting excited.<span style="mso-spacerun: yes;"> </span>These were small beer overall, particularly
compared to subsequent Parliaments.<span style="mso-spacerun: yes;">
</span>Again, Chart 1 provides a better indication of the comparative size of
these changes.<span style="mso-spacerun: yes;"> </span>Overall, if extensive
movement from the no-change (0%) line suggests an action-packed term of office,
then Parliament 40 was pretty bland.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Parliament 41, on the other hand, was an
entirely different beastie.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<h4 class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Chart 3<o:p></o:p></span></span></h4>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://4.bp.blogspot.com/-0soWmV8JKPU/UhW_cvnZ6II/AAAAAAAAAcA/Tzpo2ITfJTw/s1600/P41.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: "Trebuchet MS", sans-serif;"><img border="0" height="418" src="http://4.bp.blogspot.com/-0soWmV8JKPU/UhW_cvnZ6II/AAAAAAAAAcA/Tzpo2ITfJTw/s640/P41.PNG" width="640" /></span></a></div>
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"></span><span style="font-family: "Trebuchet MS", sans-serif;"> </span></div>
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Tax cuts, tax cuts, tax cuts!<span style="mso-spacerun: yes;"> </span>A veritable sea of red!<span style="mso-spacerun: yes;"> </span>Remember, these charts are showing changes
after taking inflation into account, and tax cuts still show up everywhere.<span style="mso-spacerun: yes;"> </span>The cuts in that Parliamentary term were
somewhat skewed to those on higher incomes, but in isolation were almost as
large in percentage terms for some low income households too.<span style="mso-spacerun: yes;"> </span>(By “in isolation” I mean divorced from the
effects of interactions with income support payments.<span style="mso-spacerun: yes;"> </span>An </span><a href="http://ravebydave.blogspot.com.au/2012/07/different-strokes-for.html" target="_blank"><span style="font-family: "Trebuchet MS", sans-serif;">earlier 4 Parliaments post</span></a><span style="font-family: "Trebuchet MS", sans-serif;"> using
single people makes this a bit more obvious.)<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The tax cuts at the lower income end in
this chart are somewhat subdued as a result of another significant change – the
relaxation of the Newstart allowance income test.<span style="mso-spacerun: yes;"> </span>This increased the amount of Newstart being
paid and, as Newstart allowance is taxable, had the effect of increasing
taxable income as well.<span style="mso-spacerun: yes;"> </span>In turn a higher
taxable income means more tax payable, somewhat offsetting the tax cuts
otherwise provided.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The income test relaxation was applied only
in respect of income over $142 a fortnight.<span style="mso-spacerun: yes;">
</span>The income test free area remained unchanged at $62 a fortnight and
consequently declined in value in real terms.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The relaxation of the Newstart income test
raised, and still raises, a bit of a policy dilemma.<span style="mso-spacerun: yes;"> </span>You’ll notice that increases in Newstart
appear at incomes up to around $45,000 a year.<span style="mso-spacerun: yes;">
</span>That exceeds full-time wages for many people (it’s around 150% of the
Federal Minimum Wage, for example).<span style="mso-spacerun: yes;"> </span>If
you think of Newstart allowance as being an unemployment benefit, the income
test relaxation brings about the odd situation where the gains from relaxing
the income test fall on those who, at face value, aren’t actually qualified for
payment – they’re not unemployed.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The use of Newstart as an “in-work benefit”
has only increased since then, with the relaxation of its income test for
single parents perhaps the most recent example.<span style="mso-spacerun: yes;">
</span>The tension introduced by using an “unemployment benefit” as a device to
deliver payments to full-time workers has never really been addressed, or had a
proper public airing.<span style="mso-spacerun: yes;"> </span>But that’s
probably a topic for a separate post.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">I mentioned that the increase in taxable
Newstart allowance payments had the effect, in this type of household at least,
of reducing the apparent size of the tax cuts.<span style="mso-spacerun: yes;">
</span>In a similar vein it also increased the amount of income taken into
account for the medicare levy, which is why the medicare levy “take” increased
in real terms for incomes in the approximate range of $15,000 to $35,000 in the
chart.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Overall though, for this household type
Parliament 41 provided real increases in income over the entire income range
covered here.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Tax cuts were obviously seen as a bit of a
winner electorally, as both major parties went to the election for Parliament
42 with very similar tax cut proposals.<span style="mso-spacerun: yes;">
</span>In the event Labor came to power, and the next chart shows what they did.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<h4 class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Chart 4<o:p></o:p></span></span></h4>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-XNQB6tailtY/UhXALLSjCgI/AAAAAAAAAcQ/9P_Ii8h3Wx4/s1600/P43.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: "Trebuchet MS", sans-serif;"></span></a><br /></div>
<span style="font-family: "Trebuchet MS", sans-serif;"> </span><div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "Trebuchet MS", sans-serif;"><a href="http://2.bp.blogspot.com/-i2XH4t3A0YU/UhXg3s695rI/AAAAAAAAAck/PUHd-iTXJTo/s1600/P42.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://2.bp.blogspot.com/-i2XH4t3A0YU/UhXg3s695rI/AAAAAAAAAck/PUHd-iTXJTo/s640/P42.PNG" width="640" /></a></span></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "Trebuchet MS", sans-serif;"></span><br /></div>
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">This chart reminds me that I should explain
the way these household comparisons work.<span style="mso-spacerun: yes;">
</span>I’m comparing a household – in this case NSA-DSP – at the election date
that kicked off the Parliament in question with the same kind of household at
the following election date.<span style="mso-spacerun: yes;"> </span>It’s not
the same household though, just a similar one.<span style="mso-spacerun: yes;">
</span>That’s an important distinction as you’ll see shortly.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The chart itself has the tax cuts I
referred to above but, more intriguingly, has something strange going on with
DSP.<span style="mso-spacerun: yes;"> </span>At zero private income (where
maximum rates are paid) we can see that DSP has increased in real terms by a
little over 4% but then falls away quite markedly as private income
increases.<span style="mso-spacerun: yes;"> </span>The partner’s NSA has
declined in real terms due to the non-indexation of the income test.<span style="mso-spacerun: yes;"> </span>There’s also a very small decline in the
maximum rate, but this is really a product of the timing of the elections
compared to the dates on which payments are increased under the indexation
arrangements.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The increase in DSP, and its decline with
rising incomes, flows from changes to pensions made in September 2009.<span style="mso-spacerun: yes;"> </span>Some of the increase is due to the usual
wages-based benchmarking, but some reflects an ad-hoc increase in pension rates
that was part of a re-setting of the ratio between partnered and single pension
payment rates.<span style="mso-spacerun: yes;"> </span>Both partnered and single
pensioners got an ad-hoc increase, but it was much larger for singles (a look
at the </span><a href="http://ravebydave.blogspot.com.au/2012/09/4-parliaments-single-age-pension.html" target="_blank"><span style="font-family: "Trebuchet MS", sans-serif;">Parliament 42 chart for single age pensioners</span></a><span style="font-family: "Trebuchet MS", sans-serif;"> will show how much more
significant this was for singles).<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The decline in DSP is because the income
test for pensions was tightened up, with the rate of reduction going from 40
cents in the dollar to 50 cents.<span style="mso-spacerun: yes;"> </span>This
tightening meant that, for this household type, the partner’s earnings have a
considerably greater impact than before, so much so that at incomes above
around $30,000 the gains from the rate increases are wiped out.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Importantly, no one actually experienced
the reduction in the way shown.<span style="mso-spacerun: yes;"> </span>Again,
I’m comparing two different (but identically constituted) households at the
beginning and end of the period.<span style="mso-spacerun: yes;"> </span>In that
context the reduction is as shown.<span style="mso-spacerun: yes;"> </span>But
households already in the system when the income test change occurred did not
have it applied if it would make them worse off.<span style="mso-spacerun: yes;"> </span>Instead, their access to wages linked pension
increases was turned off.<span style="mso-spacerun: yes;"> </span>They got to
keep the old income test, but with a pension that increased only with inflation
and cost of living increases, not wages growth.<span style="mso-spacerun: yes;">
</span>That slower rate of growth in the pension rate means that it is
eventually overtaken by payments made under the new income test where wages
linked rate increases are still provided.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Still, the tax cuts in that Parliamentary
period were generally larger than the reductions caused by the tighter pension
income test, except for private incomes in the approximate range of $62,000 to
$70,000. <o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The other notable feature is the gains
caused by relaxations in the medicare levy rules.<span style="mso-spacerun: yes;"> </span>At low incomes this flows from the
introduction of a lower medicare levy rate in the so-called shade-in for low
income families.<span style="mso-spacerun: yes;"> </span>At higher incomes the
change comes from the introduction of a higher income point before the
household become liable for the medicare levy surcharge.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Overall, each of the 3 Parliaments looked
at so far have provided real increases in disposable income via tax-transfer
changes over almost all the charted income range.<span style="mso-spacerun: yes;"> </span>That comes to an end with Parliament 43.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<h4 class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Chart 5<o:p></o:p></span></span></h4>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-XNQB6tailtY/UhXALLSjCgI/AAAAAAAAAcY/HcewmA3jb_s/s1600/P43.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: "Trebuchet MS", sans-serif;"><img border="0" height="418" src="http://1.bp.blogspot.com/-XNQB6tailtY/UhXALLSjCgI/AAAAAAAAAcY/HcewmA3jb_s/s640/P43.PNG" width="640" /></span></a></div>
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"></span><span style="font-family: "Trebuchet MS", sans-serif;"> </span></div>
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Here we can see a division into what could
be two different worlds.<span style="mso-spacerun: yes;"> </span>To the left of
the $70,000 point there are gains in income support payments which, at zero
private income, exceed 6% in real terms.<span style="mso-spacerun: yes;">
</span>To the right, a sudden reduction of over 4% caused by increased income
tax.<span style="mso-spacerun: yes;"> </span>What happened during Parliament 43
to create this divide?<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Zero private income is the best point to
start because, uniquely among the 4 Parliaments, there’s a real increase in
Newstart allowance.<span style="mso-spacerun: yes;"> </span>That’s almost
entirely due to the household assistance measures introduced as part of the
carbon pricing arrangements.<span style="mso-spacerun: yes;"> </span>This was
intended to provide a boost to income support rates that would exceed the
impact of carbon pricing on the CPI.<span style="mso-spacerun: yes;"> </span>And
it did, at least up until 1 July 2013 which is the end of the period covered by
the chart.<span style="mso-spacerun: yes;"> </span>In addition, the Government
also introduced an income support bonus for some income support
recipients.<span style="mso-spacerun: yes;"> </span>That enabled the package of
assistance for the Newstart partner to increase the total household income by a
little under 2% in real terms.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Carbon pricing compensation was also put
into the DSP payment, and it plus the usual wages growth based payment
increases gave the household an over 4% increase in their total income.<span style="mso-spacerun: yes;"> </span>Together the DSP and NSA package increased by
over 6% in real terms for those with zero private income.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">At incomes from roughly $10,000 to $25,000
some benefit appears from tax cuts, but this turns negative at higher incomes,
primarily as a consequence of bracket creep.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">When we cross the $70,000 divide things
really hot up.<span style="mso-spacerun: yes;"> </span>The decline in disposable
income is due to increased levels of income tax.<span style="mso-spacerun: yes;"> </span>Again, part of this is bracket creep, but
mostly it’s due to the loss of access to the spouse tax offset.<span style="mso-spacerun: yes;"> </span>Therein lies a tale.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Getting a tax offset in respect of a
partner has become rather more difficult over the course of the last two
Parliaments. <span style="mso-spacerun: yes;"> </span>First, an income test was
introduced under which entitlement was lost if the main earners income hit
$150,000 (a similar arrangement was introduced for Family Tax Benefit Part
B).<span style="mso-spacerun: yes;"> </span>Then access began to be removed
entirely via an ever increasing age limit for qualification, except in respect
of partners who were invalids or carers.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The household shown in the chart is one
that would attract the spouse tax offset, so why is entitlement seemingly
disappearing at $70,000 instead of the supposed $150,000 income test limit?<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">When the invalid partner category was
introduced, eligibility was based on the invalid partner either getting DSP, or
having some appropriate certification that they were an invalid.<span style="mso-spacerun: yes;"> </span>The latter category was necessary to
accommodate those whose working partner’s income was too high for DSP to be
paid, but still under the $150,000 limit.<span style="mso-spacerun: yes;">
</span>That second category was discarded with effect from 1 July 2012 leaving
only the “is paid DSP” test in place.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Given that DSP is not payable where partner
income exceeds roughly $70,000, this means that the $150,000 test has very
little application. It might apply in some cases, for example involving
part-year entitlements, or where differences in the definition of income
between the tax and social security systems come into play, but for those with
earnings it seems a new, more severe income test has been introduced by
stealth.<span style="mso-spacerun: yes;"> </span>Perhaps I’m wrong on this, but
the revised taxation legislation seems pretty clear.<span style="mso-spacerun: yes;"> </span>Still it would be kind of nice (if a little
embarrassing) to be able to add a footnote to this post that I was wrong and
these households have not been treated this way.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The linking of the spouse offset with DSP
receipt causes a drop in disposable income at the point where DSP entitlement
is lost under the income test.<span style="mso-spacerun: yes;"> </span>It’s not
the only sudden change to occur there though.<span style="mso-spacerun: yes;">
</span>You’ll notice that the end of the DSP payment is associated with a
sudden, rather than tapered, reduction in the amount paid.<span style="mso-spacerun: yes;"> </span>That’s due to the “sudden death” withdrawal
of the pension supplement, a part of the overall DSP rate.<span style="mso-spacerun: yes;"> </span>Not shown on the chart is the fact that DSP
loss also triggers a loss of pensioner concessions, a further financial hit.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">These three losses are all stacked
together, potentially making an exit from DSP on income grounds a financially
painful scenario.<span style="mso-spacerun: yes;"> </span>A perverse incentive
to remain on payment is created with this type of design, but, as with the
earlier comments on unemployment, this is probably a topic for a different post.</span></span></div>
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">There's a bit of a gain showing up at roughly $165,000 due to the increase in the threshold at which the medicare levy surcharge kicks in. Like DSP rates, these limits are linked to wages growth, not CPI, and this leads to gains in disposable income as the surcharge ceases to apply in the affected income range.</span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">I’ll feature this household again when
(if!) I do a final update on Parliament 43 once the CPI for the September 2013
quarter is available.<span style="mso-spacerun: yes;"> </span>That will mark
the “proper” end of that Parliament at least for this type of presentation.<span style="mso-spacerun: yes;"> </span>Presumably, it’s then on to Parliament 44.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span>Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com0tag:blogger.com,1999:blog-7303409391905322366.post-57006773357095953122013-07-08T21:38:00.001+10:002013-07-09T09:12:37.932+10:00A tail's tale<span lang="EN-AU" style="font-family: "Trebuchet MS", sans-serif;">The maximum rate of Newstart allowance
(NSA) has been the subject of much debate recently, but it’s not the only
contentious aspect of that payment.<span style="mso-spacerun: yes;">
</span>Another commonly raised issue is the effective marginal tax rates (EMTR)
faced by NSA recipients (and those on payments with related income tests, such
as partnered parenting payment) who have some private income, particularly
earnings.<span style="mso-spacerun: yes;"> </span>In truth, in most cases the
EMTRs are actually quite a bit lower than they used to be – NSA once had an
income test with a 100% withdrawal rate, whereas the highest taper these days
is 60%.<span style="mso-spacerun: yes;"> </span>There are, however, some
persistent problem areas and one of these lies at the tail end of the income
test for couples.<span style="mso-spacerun: yes;"> </span>There, EMTRs remain
stubbornly high and the reasons underlying this raise interesting issues
involving differences in the fundamental basis of assessment between the tax
system and the transfer system, and also the flow on effects of tinkering in
different parts of the system.</span><br />
<a name='more'></a><o:p></o:p><br />
<span style="font-family: "Trebuchet MS", sans-serif;"></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">In fact, there are so many issues involved
in just this one case that I’ve found it difficult to know how to tackle them
all in a coherent way.<span style="mso-spacerun: yes;"> </span>In the end I’ve
decided to take a broadly chronological approach, starting with an EMTR(ish)
chart for a single income couple with a couple of young children, as at 20
September 2001.<span style="mso-spacerun: yes;"> </span>This reflects the
position left by Parliament 39 and inherited by Parliament 40.<o:p></o:p></span></span></div>
<h4 class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU">Chart 1: EMTR 20 September 2001 (in 2013 dollars)</span></h4>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://4.bp.blogspot.com/-4hAh18mf50k/Udqgvoy_WQI/AAAAAAAAAaw/poltru498jA/s1600/blog+Sep+2001.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://4.bp.blogspot.com/-4hAh18mf50k/Udqgvoy_WQI/AAAAAAAAAaw/poltru498jA/s640/blog+Sep+2001.png" width="640" /></a></div>
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: Calibri;"><o:p></o:p></span></span><span style="font-family: "Trebuchet MS", sans-serif;"> </span></div>
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span style="font-family: "Trebuchet MS", sans-serif;"><span lang="EN-AU"><span style="mso-spacerun: yes;"> </span></span><span lang="EN-AU">(The following paragraph gives some
explanation for the “jaggies” in the chart.<span style="mso-spacerun: yes;">
</span>You can safely skip it if they don’t bother you)<o:p></o:p></span></span></div>
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">First up I should deal with an issue that
will otherwise distract those readers familiar with EMTR charts.<span style="mso-spacerun: yes;"> </span>I confess that this isn’t really a “proper”
one at all.<span style="mso-spacerun: yes;"> </span>The chart is actually
showing what the effective average tax rate is over successive increments of
$250 a year (in 2013 dollars).<span style="mso-spacerun: yes;">
</span>Traditionally, EMTRs are measured on the next $1, whereas mine uses
roughly the next $5 a week.<span style="mso-spacerun: yes;"> </span>That, and
the method I’ve used to convert 2001 results into 2013 dollar values makes for
some jagged edges in my pictures that in classic depictions would be smooth
vertical lines.<span style="mso-spacerun: yes;"> </span>But for the purposes of
this post, the odd jagged edge is neither here nor there, so just accept my
apologies and we’ll move on.<o:p></o:p></span></span><br />
<span style="font-family: "Trebuchet MS", sans-serif;"></span><br />
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">In this chart the EMTR is represented by
the black line (Total), with the coloured areas distinguishing the various
tax-transfer components that underlie the result.<span style="mso-spacerun: yes;"> </span>For example, at $10,000 of private income the
Total line (ie, the EMTR) is 75.1%.<span style="mso-spacerun: yes;"> </span>It’s
made up of the NSA income test withdrawal rate of 70% (the orange area) and a
tax impost of 5.1% (the red area).<o:p></o:p></span></span><br />
<span style="font-family: "Trebuchet MS", sans-serif;"></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">We can also see that at the end of the
withdrawal of partner 2’s parenting payment (starting at roughly $33,000) the
EMTR has reached 100%, and continues at that rate until the end of the partner
2 payment range at roughly $36,000.<o:p></o:p></span></span></div>
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The high EMTR at the tail end of the income
test is the focus of this post, but explaining it brings into play two concepts
that require a look at the results at lower incomes.<span style="mso-spacerun: yes;"> </span>These are highlighted at a private income of
around $20,000 when the tax rate jumps up, but the EMTR nonetheless falls.<span style="mso-spacerun: yes;"> </span>That’s the point at which the income of
Partner 1 (P1) has reduced the NSA payment to nil and has begun to affect the
entitlement of Partner 2 (P2).<o:p></o:p></span></span><br />
<span style="font-family: "Trebuchet MS", sans-serif;"></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The fact that the tax rate rises at the
point where P1’s NSA has run out is important.<span style="mso-spacerun: yes;">
</span>Back in 2001 the first tax rate in the income tax system was 17%, but as
alluded to above, it’s not 17% that’s being applied to P1 during withdrawals of
NSA at incomes above approximately $8,000.<span style="mso-spacerun: yes;">
</span>(Note that the higher rate applied at incomes up to around $8,000 is
actually a combination of income tax and tax-rebate withdrawal – it’s not
solely income tax).<span style="mso-spacerun: yes;"> </span>Why isn’t it
17%?<span style="mso-spacerun: yes;"> </span>It’s because each dollar increase
in private income is reducing NSA – which is taxable for income tax purposes -
by 70 cents in the dollar.<span style="mso-spacerun: yes;"> </span>The result is
that a dollar increase in private income gives an overall boost to taxable
income of only 30 cents.<span style="mso-spacerun: yes;"> </span>From the perspective
of the income tax system it’s the 30 cent increase that’s important, and tax is
ultimately levied on it, not the original one dollar.<span style="mso-spacerun: yes;"> </span>17% of 30 cents is 5.1% and it’s this rate
that applies during the latter part of P1’s NSA withdrawal.<span style="mso-spacerun: yes;"> </span>Taking into account the reduction in NSA and
the applicable income tax, the EMTR is 70% + 5.1%, for a total of 75.1%, as
shown on the chart.<o:p></o:p></span></span></div>
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Once P1’s NSA has run out (at around the
$20,000 mark) this interaction between NSA reduction and income tax stops
happening and the (then) standard 17% tax rate kicks in.<span style="mso-spacerun: yes;"> </span>At this point I’m kind of hoping that you
might wonder why the interaction stops – after all, it’s clear from the chart
that while NSA might have been exhausted, P1’s rising income is still reducing
the income support payments to P2 at 70 cents in the dollar.<span style="mso-spacerun: yes;"> </span>Therein lies a crucial difference between
the tax system and the transfer system – the unit of assessment in the former
is (largely) the individual, whereas it’s family based for the latter.<o:p></o:p></span></span><br />
<span style="font-family: "Trebuchet MS", sans-serif;"></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">That difference means the fact that P1’s
income is being used by the transfer system to reduce P2’s payments is
effectively invisible to the income tax side.<span style="mso-spacerun: yes;">
</span>P1 is being taxed as if that isn’t happening.<span style="mso-spacerun: yes;"> </span>This leads to our first major point – if a
person’s income reduces their own taxable income support payment, then their
tax liability will effectively take this reduction into account; if it reduces
someone else’s income support, tax is not adjusted.<o:p></o:p></span></span></div>
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">You’ll notice however that although the
reductions in P2’s payment are being ignored for tax purposes, resulting in
P1’s tax rate increasing from 5% to 17%, the EMTR has actually fallen.<span style="mso-spacerun: yes;"> </span>That’s due to Family Tax Benefit Part B,
which shows up with a negative value on the chart.<span style="mso-spacerun: yes;"> </span>But before I get into what’s going on there
it’s probably time to move forward to the next date of interest – 20 September
2004 – and its chart..<o:p></o:p></span></span><br />
<h4 class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU">Chart 2: EMTR 20 September 2004 (in 2013 dollars)<o:p></o:p></span></h4>
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: Calibri;"><span style="mso-spacerun: yes;"> </span></span></span><br />
<div class="separator" style="clear: both; text-align: center;">
<span style="font-family: Calibri;"><a href="http://4.bp.blogspot.com/-QFxzYrRwVt4/UdqhG3OupvI/AAAAAAAAAa4/T2Z77ZfOla4/s1600/blog+Sep+2004.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://4.bp.blogspot.com/-QFxzYrRwVt4/UdqhG3OupvI/AAAAAAAAAa4/T2Z77ZfOla4/s640/blog+Sep+2004.png" width="640" /></a></span></div>
<span style="font-family: Calibri;"><o:p></o:p></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">This chart reflects the system bequeathed
to Parliament 41 by Parliament 40.<span style="mso-spacerun: yes;"> </span>Here
we can see that the tail end of the income support withdrawal now has a
significant range where the EMTR is 104%!<span style="mso-spacerun: yes;">
</span>EMTRs over 100% are dreadful, no two ways about it, with the word
“theft” coming to mind.<span style="mso-spacerun: yes;"> </span>(Where I worked
there was a little joke going round at the time – not only was the Government
taking every last cent of any increase in income in that range, it also charged
a 4% handling fee for doing so.)<o:p></o:p></span></span></div>
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">While it’s obviously the case that EMTRs of
this magnitude mean that more work results in less money, there’s another problem,
particularly for those keen on promoting workforce participation.<span style="mso-spacerun: yes;"> </span>It’s the perverse outcome that working less
will give a financial gain.<span style="mso-spacerun: yes;"> </span>In the case
shown in the chart, a worst-case example would see someone earning $34,500
getting an increase in disposable income of around $200 a year by reducing
their working hours to earn $29,500 instead.<span style="mso-spacerun: yes;">
</span>Clearly, this is not consistent with any of the “messaging” governments
like to send about incentives in the system.<o:p></o:p></span></span><br />
<span style="font-family: "Trebuchet MS", sans-serif;"></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Pleasingly, the 104% problem disappeared as
a result of changes made during the course of Parliament 41, but before turning
to that it’s time to deal with the blue blob of FTB B.<o:p></o:p></span></span></div>
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">If you look back at Chart 1 you’ll see that
potential for a 104% problem existed even then (see the approximate income
range from $28,000 to $33,000).<span style="mso-spacerun: yes;"> </span>It’s
just that the negative, or offsetting, effect of FTB B operated to pull down
the overall EMTR.<span style="mso-spacerun: yes;"> </span>In Chart 2 we can see
that the FTB B offset no longer extends into the income range where 104% can
occur.<span style="mso-spacerun: yes;"> </span>There’s also another change – the
reduction in EMTR that FTB B is providing is not as great in Chart 2.<span style="mso-spacerun: yes;"> </span>Indeed, in Chart 1 the impact of FTB B is so
substantial that the EMTR actually falls at the point where P1 NSA is exhausted
and P2 parenting payment starts reducing.<o:p></o:p></span></span><br />
<span style="font-family: "Trebuchet MS", sans-serif;"></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">But how does FTB B offset EMTRs at all, and
what happened during Parliament 40 to change the FTB B interaction, leading to
a 104% EMTR?<o:p></o:p></span></span></div>
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Some background is useful here. For
couples, FTB B was originally targeted at households where one partner had all
or most of the income – single income couples, more or less.<span style="mso-spacerun: yes;"> </span>To make that targeting work, FTB B has to
have an income test on the “second earner” (the one with the lowest income) so
that FTB B can be (gradually) withdrawn as second earner income increases and
the couple moves away from being “single income”.<span style="mso-spacerun: yes;"> </span>As the name suggests, the second earner test
only counts the income of the second earner but, importantly, this includes any
income support they may receive.<span style="mso-spacerun: yes;"> </span>In the
examples used in the charts P2 is the second earner, so P1’s income is not
taken into account in the second earner test, but P2’s parenting payment is.<o:p></o:p></span></span><br />
<span style="font-family: "Trebuchet MS", sans-serif;"></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">On the face of it, if P1’s income is not
taken into account for FTB B then the fact that P1’s income increases as we go
along the income axis of the chart shouldn’t affect the FTB B rate.<span style="mso-spacerun: yes;"> </span>That’s true enough – it doesn’t directly
affect FTB B, but it does have an indirect impact via the parenting
payment.<span style="mso-spacerun: yes;"> </span>As P1’s income rises it
eventually – at about $20,000 - starts to reduce P2’s parenting payment at the
rate of 70 cents in the dollar (remember we are talking about 2004 here).<span style="mso-spacerun: yes;"> </span>This means that P2’s income, in the form of
parenting payment, is falling and it’s this reduction in P2 income that leads
to an increase in FTB B.<o:p></o:p></span></span></div>
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The increase in FTB B partially offsets the
decrease in parenting payment, which is why it shows up on the charts as a
negative component of the EMTR.<span style="mso-spacerun: yes;"> </span>There’s
a limit to this process though.<span style="mso-spacerun: yes;"> </span>Once FTB
B reaches its maximum rate it obviously cannot increase further and so the
offset process stops.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></span><br />
<span style="font-family: "Trebuchet MS", sans-serif;"></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">After that lengthy explanation it’s now
possible to explain what happened during Parliament 40 that led to the
unleashing of a 104% EMTR rate.<span style="mso-spacerun: yes;"> </span>Then, as
now, the incentives for second earners to take up or increase work were a matter
of some concern.<span style="mso-spacerun: yes;"> </span>To improve these
incentives the FTB B income test was relaxed in two ways: the withdrawal rate
was reduced from 30 cents in the dollar to 20, and the amount of income that
could be had by the second earner before FTB B began to reduce at all (the
income test free area or amount) was increased.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;"></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">These measures were designed to lower the
EMTR faced by second earners but they also had the effect of worsening them for
first earners.<span style="mso-spacerun: yes;"> </span>In the charted example,
the increase in the FTB B income test free area meant P2’s parenting payment
did not have to be reduced as much by P1 income before FTB B reached its
maximum rate.<span style="mso-spacerun: yes;"> </span>Via the indirect mechanism
of parenting payment reduction, the FTB B offset effect that pulled down P1’s
EMTR now stopped happening at a lower level of P1 income.<span style="mso-spacerun: yes;"> </span>This meant that more of the tail end of the
NSA-PP income test was subject to high EMTRs.<span style="mso-spacerun: yes;">
</span>Welcome to the 104 nightmare.<o:p></o:p></span></span></div>
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Incidentally, the lowered withdrawal rate
for FTB B, meant to reduce EMTRs for second earners, also made them worse for
second earners in low income households.<span style="mso-spacerun: yes;">
</span>Put simply, the withdrawal of FTB B under the second earner test now
operated in tandem with the parenting payment income test over a longer range
of income than before.<span style="mso-spacerun: yes;"> </span>That is perhaps
a little off topic, but it does go to the main point of this FTB B discussion –
apparently well-intentioned adjustments to one payment (in this case FTB B) can
have regrettable effects elsewhere in the system.<span style="mso-spacerun: yes;"> </span>In the FTB B case, the decision to improve
work incentives via a relaxation of the income test actually worsened them for
income support households trying to improve their financial position through
extra work, for first and (often) second earners alike.<o:p></o:p></span></span><br />
<span lang="EN-AU" style="font-family: "Trebuchet MS", sans-serif;">So, having inherited the 104% monster, what
success, if any, did Parliament 41 have in slaying it?<span style="mso-spacerun: yes;"> </span>Here’s how things looked by the time it had
done its work.</span><br />
<span lang="EN-AU"><span style="font-family: Calibri;"><o:p></o:p></span></span><br />
<h4 class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU">Chart 3: EMTR September 2007 (in 2013 dollars)<o:p></o:p></span></h4>
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: Calibri;"><span style="mso-spacerun: yes;"> </span></span></span><br />
<div class="separator" style="clear: both; text-align: center;">
<span style="font-family: Calibri;"><a href="http://3.bp.blogspot.com/-0M19jJHHRRA/Udqhaeh5XPI/AAAAAAAAAbA/Da9BX157u50/s1600/blog+Sep+2007.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://3.bp.blogspot.com/-0M19jJHHRRA/Udqhaeh5XPI/AAAAAAAAAbA/Da9BX157u50/s640/blog+Sep+2007.png" width="640" /></a></span></div>
<span style="font-family: Calibri;"><o:p></o:p></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Now this is looking conspicuously like a
success story, at least in terms of getting the EMTR back under 100%.<span style="mso-spacerun: yes;"> </span>The reason it fell is simply a consequence of
the decision to reduce the NSA (and similar payment) top income test taper rate
from 70 cents in the dollar to 60.<span style="mso-spacerun: yes;"> </span>There
is still a substantial jump in the EMTR when P1 income reaches roughly $35,000
(again, this is expressed in 2013 dollar values) where the tax rate (including
the withdrawal of the low income tax offset) becomes 34%.<span style="mso-spacerun: yes;"> </span>But 34 + 60 is still better than the previous
34 + 70 regime.<o:p></o:p></span></span></div>
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Unfortunately, relaxing the NSA, etc,
income test also had a bit of an unpleasant flow-on.<span style="mso-spacerun: yes;"> </span>If you look back at charts 1 and 2 you’ll
notice that the medicare levy only appears on the scene after the two income
support payments, NSA and PP, have been withdrawn.<span style="mso-spacerun: yes;"> </span>However, in Chart 3 we are beginning to see
medicare withdrawals sitting on top of the income support and tax stack, taking
the EMTR up to a rather bracing 99%.<span style="mso-spacerun: yes;">
</span>This happens because reducing the NSA taper rate to 60% extends the
income range over which NSA and PP are paid.<span style="mso-spacerun: yes;">
</span>This in turn means that the household’s taxable income (earnings plus
taxable income support) is higher in these ranges than before the income test
relaxation.<span style="mso-spacerun: yes;"> </span>This then makes the household
liable for the medicare levy at a lower level of private income than before.<o:p></o:p></span></span><br />
<span style="font-family: "Trebuchet MS", sans-serif;"></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Nonetheless, progress has been made.<span style="mso-spacerun: yes;"> </span>So how did things develop over the next
Parliament?<span style="mso-spacerun: yes;"> </span>Here’s how it looked after
Parliament 42 was through.<o:p></o:p></span></span></div>
<h4 class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU">Chart 4: EMTR July 2010 (in 2013 dollars)<o:p></o:p></span></h4>
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: Calibri;"><span style="mso-spacerun: yes;"> </span></span></span><br />
<div class="separator" style="clear: both; text-align: center;">
<span style="font-family: Calibri;"><a href="http://1.bp.blogspot.com/-JZUmPt-QBwQ/Udqhusuj67I/AAAAAAAAAbI/jXXiA7RhrLs/s1600/blog+Jul+2010.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://1.bp.blogspot.com/-JZUmPt-QBwQ/Udqhusuj67I/AAAAAAAAAbI/jXXiA7RhrLs/s640/blog+Jul+2010.png" width="640" /></a></span></div>
<span style="font-family: Calibri;"><o:p></o:p></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Note that this Parliament (42) finished up
a little earlier than those in the previous charts.<span style="mso-spacerun: yes;"> </span>As a result it was the tax-transfer system at
July 2010, rather than September, that was in place at the election date.<o:p></o:p></span></span></div>
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Here we can see that quite substantial
progress has been made in reducing the tail end EMTR, mainly due to the
increase in the income level at which the second tax rate (34%) commenced.<span style="mso-spacerun: yes;"> </span>While a stack of PP withdrawal + tax +
medicare is still evident, it’s now quite confined, limiting the 99% EMTR to a
little over a $1,000 a year income range.<o:p></o:p></span></span><br />
<span style="font-family: "Trebuchet MS", sans-serif;"></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">At this point things are/were looking good,
at least compared to the 104% horror period.<span style="mso-spacerun: yes;">
</span>There had been two Parliaments in a row where the EMTR fell – can
Parliament 43 continue this improving trend?<span style="mso-spacerun: yes;">
</span>At the time of writing Parliament 43 is still a going concern, albeit
almost at the end of its allotted time.<span style="mso-spacerun: yes;">
</span>However, there are no scheduled changes to the tax transfer system that
are relevant to this discussion between now and the latest possible election
dates in November, except for a CPI adjustment to income support rates on 20
September 2013.<span style="mso-spacerun: yes;"> </span>That means the system
now in place is pretty much the same as it will be at the election.<span style="mso-spacerun: yes;"> </span>So what does it look like?<o:p></o:p></span></span></div>
<h4 class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><o:p> Chart 5: </o:p></span><span lang="EN-AU">EMTR July 2013<o:p></o:p></span></h4>
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: Calibri;"><span style="mso-spacerun: yes;"> </span></span></span><br />
<div class="separator" style="clear: both; text-align: center;">
<span style="font-family: Calibri;"><a href="http://2.bp.blogspot.com/--pf_ZWivBbw/UdqiExELvNI/AAAAAAAAAbQ/vcONSmx8BRU/s1600/blog+Jul+2013.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://2.bp.blogspot.com/--pf_ZWivBbw/UdqiExELvNI/AAAAAAAAAbQ/vcONSmx8BRU/s640/blog+Jul+2013.png" width="640" /></a></span></div>
<span style="font-family: Calibri;"><o:p></o:p></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Alas!<span style="mso-spacerun: yes;">
</span>Things have worsened!<span style="mso-spacerun: yes;"> </span>There’s
been an obvious increase in the income range over which the 99% parenting
payment + income tax + medicare EMTR stack is present, which is entirely due to
the lack of change in the 34% income tax threshold (ie, it’s a kind of bracket creep).<span style="mso-spacerun: yes;"> </span>Barely visible at this scale is an increase
in the EMTR to almost 104% (again with that number!) at the end of the tail,
caused by the inclusion of a non-taxable clean energy supplement into the rate
structure for parenting payment (and NSA).<span style="mso-spacerun: yes;">
</span>Also apparent are two spikes, at the end of the withdrawal range for NSA
and PP respectively.<span style="mso-spacerun: yes;"> </span>These come from the
design of the income support bonus (see </span><a href="http://ravebydave.blogspot.com.au/2012/12/being-partnered-is-not-much-of-bonus.html" target="_blank"><span style="font-family: "Trebuchet MS", sans-serif;">here</span></a><span style="font-family: "Trebuchet MS", sans-serif;"> for details) and the flawed
integration of the clean energy supplement into the sequential income test used
for these payments (see </span><a href="http://ravebydave.blogspot.com.au/2013/03/newstart-allowance-and-vanishing-cpi.html" target="_blank"><span style="font-family: "Trebuchet MS", sans-serif;">here</span></a><span style="font-family: "Trebuchet MS", sans-serif;"> for details).<o:p></o:p></span></span></div>
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">But wait – there’s more!<o:p></o:p></span></span><br />
<span style="font-family: "Trebuchet MS", sans-serif;"></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">While the above picture represents the
situation at the coming handover between Parliaments 43 and 44, there are two
decisions that have been passed by Parliament 43 which, unless Parliament 44
decides otherwise, will come into effect during its term.<span style="mso-spacerun: yes;"> </span>Both are intended to assist people in one way
or another, but like the earlier well-intentioned changes, come at the cost of
making things worse somewhere else in the system.<o:p></o:p></span></span></div>
<span lang="EN-AU" style="font-family: "Trebuchet MS", sans-serif;">These decisions are: </span><br />
<ul><span style="font-family: "Trebuchet MS", sans-serif;">
</span>
<li><div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"></span><span style="font-family: "Trebuchet MS", sans-serif;">i<span lang="EN-AU">ncreasing
the medicare levy to 2% as part of the funding arrangements for the NDIS; and</span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span></li>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span></ul>
<ul><span style="font-family: "Trebuchet MS", sans-serif;">
</span>
<li><div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">increasing
the income test free area for Newstart allowance (and related payments) from
$62 a fortnight to $100 a fortnight.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span></li>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span></ul>
<span lang="EN-AU" style="font-family: "Trebuchet MS", sans-serif;">If we apply these two decisions to the
current tax-transfer system we get the following result:</span><br />
<span lang="EN-AU"><span style="font-family: Calibri;"><o:p></o:p></span></span><br />
<h4 class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU">Chart 6: EMTR - projected (2013 dollar values)<o:p></o:p></span></h4>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-moBWy9rRMxE/UdqjKdcO4rI/AAAAAAAAAbg/F_UmWwYxH1A/s1600/blog+projection.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://1.bp.blogspot.com/-moBWy9rRMxE/UdqjKdcO4rI/AAAAAAAAAbg/F_UmWwYxH1A/s640/blog+projection.png" width="640" /></a></div>
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: Calibri;"><span style="mso-spacerun: yes;"> </span><o:p></o:p></span></span></div>
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Here we can see that the 99% range has
grown further.<span style="mso-spacerun: yes;"> </span>In fact it will have
grown so much that all the gains made by Parliaments 41 and 42 on the income
test tail EMTR reduction front will be wiped out.<span style="mso-spacerun: yes;"> </span>We are also going to get a stack occurring
with FTB Part A, income tax and medicare, taking the EMTR in the approximately
$49,000 area to over 60%.<o:p></o:p></span></span><br />
<span style="font-family: "Trebuchet MS", sans-serif;"></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">So there you have it.<span style="mso-spacerun: yes;"> </span>An EMTR dragon at the tail of the NSA
couples’ income test that was almost slain, but has now bounced back
dangerously close to its former infamy.<span style="mso-spacerun: yes;">
</span>Can something be done to fix this recurring issue (assuming of course
it’s something we should fix)?<o:p></o:p></span></span></div>
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">You can be forgiven for thinking that the
interactions between these various entitlements and imposts is so complicated
that it’s just not possible to factor every piece of interplay into decision
making.<span style="mso-spacerun: yes;"> </span>Or instead, you might think that
attempting to do so would just result in a kind of policy paralysis where
nothing is done for fear of unintentionally disturbing some imagined fine
balance.<o:p></o:p></span></span><br />
<span style="font-family: "Trebuchet MS", sans-serif;"></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">I’d prefer to think that it’s possible to
make changes in a more considered way than we have managed so far, even if
perfection in design is unattainable.<span style="mso-spacerun: yes;"> </span>To
that end I’m encouraged by the establishment of the Tax and Transfer Policy
Institute at the ANU Crawford School of Public Policy.<span style="mso-spacerun: yes;"> </span>One of its objectives is better designed tax
and transfer systems in Australia.<o:p></o:p></span></span></div>
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Still, I’m not putting too much faith in
it.<span style="mso-spacerun: yes;"> </span>It seems to me that past reviews
that combine tax and transfer issues end up focussing on tax, with transfers as
an annoying afterthought.<span style="mso-spacerun: yes;"> </span>The Henry
Review, for example, seemed to do not much more than recommend the status quo
on the transfer side.<span style="mso-spacerun: yes;"> </span>It notably
squibbed on an issue that is central to a number of the EMTR problems – the
different unit of assessment (individual versus family) across taxes and
transfers - basically putting it in the too hard basket.<span style="mso-spacerun: yes;"> </span>Unfortunately for families, that’s not an
approach which helps much.<o:p></o:p></span></span><br />
<span style="font-family: "Trebuchet MS", sans-serif;"></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The Tax and Transfer Policy Institute is,
however, not just another review so perhaps it’s reasonable to hope, even if
only a little, for fresh perspectives.<span style="mso-spacerun: yes;"> </span>I
guess we’ll have to wait and see.<o:p></o:p></span></span></div>
</div>
</div>
</div>
</div>
Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com1tag:blogger.com,1999:blog-7303409391905322366.post-26923537430066184452013-05-21T09:59:00.000+10:002013-05-21T11:54:34.676+10:00Climb every mountain...<br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">This outing is to explain a type of chart
I’m thinking of using in later posts.<span style="mso-spacerun: yes;">
</span>It’s intended as something I can link back to as background material if
and when I do.<span style="mso-spacerun: yes;"> </span>Pending inspiration for a
better name, I call it a hill-climb or effort chart.<span style="mso-spacerun: yes;"> </span>I’ve not seen one used before, but given I’ve
never had an original thought in my life I suspect I must have come across
something like it in the distant past.</span></span><br />
<a name='more'></a><span style="font-family: "Trebuchet MS", sans-serif;"><o:p></o:p></span><br />
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The idea for it came to me when I was
driving on a freeway/highway/motorway and came to an exit-ramp.<span style="mso-spacerun: yes;"> </span>It was one of those that goes up and then
over the main road.<span style="mso-spacerun: yes;"> </span>My little car
struggled a bit because the exit was quite steep and I found myself imagining
walking instead.<span style="mso-spacerun: yes;"> </span>I idly pondered the
fact that if I stepped out 500 paces along the main road I would have travelled
further horizontally than if I did 500 paces on the exit-ramp.<span style="mso-spacerun: yes;"> </span>That’s because on the exit ramp some of my
paces would have gone into getting me higher off the ground.<span style="mso-spacerun: yes;"> </span>Alternatively, to travel a distance equivalent
to 500 paces horizontally while also going up the ramp would require a lot more
effort than on flat ground.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Not exactly mind-boggling stuff, but it was
a long, boring drive and any mental diversion was welcome.<span style="mso-spacerun: yes;"> </span>Anyway, I then started to wonder if I could
use the analogy of climbing up a hill, where some horizontal travel is replaced
with vertical, to represent the “journey” someone faced when trying to increase
their disposable income.<span style="mso-spacerun: yes;"> </span>I could show
the gain in disposable income as the horizontal journey, and the amount paid in
tax or “lost” in reduced transfer payments as the hill.<span style="mso-spacerun: yes;"> </span>If the hill was very steep, then for a given
$ increase in gross income the person would not move far horizontally (ie,
little gain in disposable income) but move quite a distance vertically (ie,
significant increase in tax paid or transfers lost).<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">At this point a picture might help and I’ll
start with one showing how the income tax scale looks when portrayed using this
idea.<span style="mso-spacerun: yes;"> </span>The current basic scale is as per
this table:<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<h4 class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU">Table 1<o:p></o:p></span></h4>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;"><tbody>
<tr style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;"><td style="background-color: transparent; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 150.25pt;" valign="top" width="200"><span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Taxable income<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span></td><td style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 150.25pt;" valign="top" width="200"><span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Tax payable<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span></td><td style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 150.3pt;" valign="top" width="200"><span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">% rate on excess<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span></td></tr>
<tr style="mso-yfti-irow: 1;"><td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 150.25pt;" valign="top" width="200"><span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">0<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span></td><td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 150.25pt;" valign="top" width="200"><span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">0<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span></td><td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 150.3pt;" valign="top" width="200"><span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">0.0%<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span></td></tr>
<tr style="mso-yfti-irow: 2;"><td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 150.25pt;" valign="top" width="200"><span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">18200<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span></td><td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 150.25pt;" valign="top" width="200"><span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">0<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span></td><td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 150.3pt;" valign="top" width="200"><span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">19.0%<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span></td></tr>
<tr style="mso-yfti-irow: 3;"><td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 150.25pt;" valign="top" width="200"><span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">37000<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span></td><td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 150.25pt;" valign="top" width="200"><span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">3572<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span></td><td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 150.3pt;" valign="top" width="200"><span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">32.5%<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span></td></tr>
<tr style="mso-yfti-irow: 4;"><td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 150.25pt;" valign="top" width="200"><span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">80000<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span></td><td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 150.25pt;" valign="top" width="200"><span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">17547<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span></td><td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 150.3pt;" valign="top" width="200"><span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">37.0%<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span></td></tr>
<tr style="mso-yfti-irow: 5; mso-yfti-lastrow: yes;"><td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 150.25pt;" valign="top" width="200"><span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">180000<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span></td><td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 150.25pt;" valign="top" width="200"><span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">54547<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span></td><td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 150.3pt;" valign="top" width="200"><span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">45.0%<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span></td></tr>
</tbody></table>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><o:p><span style="font-family: "Trebuchet MS", sans-serif;"> </span></o:p></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">So, if we run our picture out to a taxable
income of $200,000 we will pick up all four points at which the rate
changes.<span style="mso-spacerun: yes;"> </span>Here it is:<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<h4 class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU">Chart 1</span></h4>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-hiBDZyCrB2s/UZq4IVh1MFI/AAAAAAAAAaU/YwyF1w_su_s/s1600/Mountain+1.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="353" src="http://3.bp.blogspot.com/-hiBDZyCrB2s/UZq4IVh1MFI/AAAAAAAAAaU/YwyF1w_su_s/s640/Mountain+1.png" width="640" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<span lang="EN-AU"></span><span style="font-family: "Trebuchet MS", sans-serif;"></span> </div>
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">We can see that if the objective is to
increase disposable income by $10,000 (measured from the starting point of
zero) the terrain ahead is flat – all we have to do is earn $10,000.<span style="mso-spacerun: yes;"> </span>In contrast, if we already had a disposable
income of $20,000, getting an extra $10,000 is a bit harder.<span style="mso-spacerun: yes;"> </span>We have to go up a bit of an incline,
requiring us to take a longer “journey” overall.<span style="mso-spacerun: yes;"> </span>In fact we’d have to earn an extra $12,346 to
get to our chosen point.<span style="mso-spacerun: yes;"> </span>The inclines become
steeper as we progressively cross over the thresholds from Table 1.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">(Note too that although I said this was a
picture of incomes out to $200,000 it seems to end well before that, at a
little under $137,000.<span style="mso-spacerun: yes;"> </span>That’s because
the horizontal axis is disposable income.<span style="mso-spacerun: yes;">
</span>If you add the disposable income at the end point to the tax paid you’ll
get the full $200,000.)<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">At this point you might be saying “so
what”.<span style="mso-spacerun: yes;"> </span>After all, there are easier ways
to establish how much has to be earned to get a given disposable income – a
simple disposable income chart would be better for that purpose.<span style="mso-spacerun: yes;"> </span>But this chart is not really intended for
analysis of that kind.<span style="mso-spacerun: yes;"> </span>It’s just trying
to give a visual representation of how easy/difficult it is to increase
disposable income.<span style="mso-spacerun: yes;"> </span>This becomes more
apparent when you add in the effect of other tax-transfer system elements.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Chart 2 has the same basic concept of
plotting the “lie of the land” for a journey to increase disposable income by
$60,000, and for reference retains the basic tax line from Chart 1.<span style="mso-spacerun: yes;"> </span>In addition it has traces for a few household
types which include a larger range of tax-transfer elements.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<h4 class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU">Chart 2<o:p></o:p></span></h4>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "Trebuchet MS", sans-serif;"><a href="http://3.bp.blogspot.com/-mUIZ_NGbeys/UZq4IvdUvXI/AAAAAAAAAaY/RULiXB6NaTY/s1600/Mountain+2.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="532" src="http://3.bp.blogspot.com/-mUIZ_NGbeys/UZq4IvdUvXI/AAAAAAAAAaY/RULiXB6NaTY/s640/Mountain+2.png" width="640" /></a></span></div>
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;"></span></span> </div>
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Here it becomes apparent that the journey
toward higher disposable incomes is rather more difficult that the earlier
basic tax line would suggest.<span style="mso-spacerun: yes;"> </span>In fact,
for the single income couple, parts of the journey look very difficult
indeed.<span style="mso-spacerun: yes;"> </span>If the couple wants to get past
a gain of roughly $14,000 in disposable income they need to climb a vertical
cliff face that’s about $5,000 high.<span style="mso-spacerun: yes;"> </span>In
other words, increasing income by $5,000 at that point gives the couple nothing
– they don’t move horizontally toward their higher income destination at all.<span style="mso-spacerun: yes;"> </span>(Actually, they do gain a <i style="mso-bidi-font-style: normal;">tiny</i> bit as the cliff isn’t quite
vertical – they’d get about $50).<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">In some spots the lie of the land exhibits
something akin to a rocky overhang – the most visible being the one for the
single Newstart (NSA) trace at a disposable income of about $50,000.<span style="mso-spacerun: yes;"> </span>That particular one is caused by the imposition
of the medicare levy surcharge – the unpleasantness of the climb at that point
being a deliberate imposition to encourage the take-up of private health cover
(none of our intrepid climbers have it, by the way).<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Other overhangs are due to the “sudden
death” style withdrawal of some payments (eg, schoolkids bonus in the single
parent case).<span style="mso-spacerun: yes;"> </span>The small one for the
couple at around the $10,000 disposable income point is due to the <a href="http://ravebydave.blogspot.com.au/2012/12/being-partnered-is-not-much-of-bonus.html" target="_blank">loss of an income support bonus</a> and a <a href="http://ravebydave.blogspot.com.au/2013/03/newstart-allowance-and-vanishing-cpi.html" target="_blank">design flaw in the sequential income test</a>.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Also apparent is the somewhat gentler slope
experienced by the single parent on NSA compared to the other two NSA
examples.<span style="mso-spacerun: yes;"> </span>This reflects the 40% taper in
the NSA income test for this group, compared to the 50/60% faced by the others.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">So there we have it.<span style="mso-spacerun: yes;"> </span>A chart that tries to show the effort needed
to increase disposable income, by portraying it as a hill-climb or
mountaineering expedition.<span style="mso-spacerun: yes;"> </span>I intend to
use it, along with some more conventional EMTR material, in future posts.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><o:p><span style="font-family: Calibri;"> </span></o:p></span></div>
</div>
Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com0tag:blogger.com,1999:blog-7303409391905322366.post-32658999340448735242013-04-13T10:56:00.002+10:002013-04-13T11:11:42.123+10:00The price of love<br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Back in July 2006, parenting payment rules
were changed so that new applicants could only be paid if their youngest child
was under 6 years (for partnered parents) or 8 years (for single parents).<span style="mso-spacerun: yes;"> </span>At the time I remember a friend suggesting
that every cloud has a silver lining, insofar as the change would at least have
a positive impact on the partnering penalty.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The partnering penalty is a murky subject
that seems to have an almost “dare not speak its name” air about it.<span style="mso-spacerun: yes;"> </span>In an earlier form it was described by its
reverse – a financial incentive to separate – a concept almost too ugly to
consider, at least publicly.<span style="mso-spacerun: yes;"> </span>The basic
idea was that if the financial assistance for low income single parents was too
generous compared to the entitlements for low income couple parents it might
provide an inducement of sorts for relationship breakdown.<span style="mso-spacerun: yes;"> </span>These days if the idea is discussed at all
it’s usually in terms of whether differences in the assistance packages between
singles and couples might be a barrier to the reconciliation of estranged
couples or the formation of new cohabiting couple relationships – a partnering
penalty.<o:p></o:p></span></span><br />
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">I was reminded of the partnering penalty
issue by the repeated demands to undo the changes to single parents introduced
this year.<span style="mso-spacerun: yes;"> </span>Those changes abolished the
special rules for parenting payment that had applied to people who had been
getting it since before the July 2006 rule changes.<span style="mso-spacerun: yes;"> </span>But a change that is only applied to single
parents will almost inevitably alter the relativities between them and
partnered parents and hence affect the partnering penalty.<o:p></o:p></span></span><br />
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">So, do we have a partnering penalty under
the current arrangements, and if so, how big is it?</span></span><br />
<a name='more'></a><span style="font-family: "Trebuchet MS", sans-serif;"><o:p></o:p></span><br />
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The first point to make is that there’s no
single number that can capture this concept.<span style="mso-spacerun: yes;">
</span>The amount of any financial loss (if any) from partnering varies
depending on the income of the parties involved and also the household
characteristics (for example, the number of children and cost of
accommodation).<span style="mso-spacerun: yes;"> </span>That said, it’s still
possible to illustrate the issue using an example household.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Here’s a chart that shows how much the
disposable income of a single parent household increases or decreases over a
range of earnings amounts if they repartner.<span style="mso-spacerun: yes;">
</span>It’s a 2 child example and I’ve done separate traces for the result
depending on the payment type the sole parent was receiving before the change
in status.<span style="mso-spacerun: yes;"> </span>Note that the earnings are
those of the sole parent – the partner is assumed to be unemployed – I’ll do
the reverse scenario next.<o:p></o:p></span></span><br />
<h4>
Chart 1</h4>
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><o:p><span style="font-family: "Trebuchet MS", sans-serif;"> </span></o:p></span><br />
<div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "Trebuchet MS", sans-serif;"><a href="http://3.bp.blogspot.com/-_LQ9tlgjuKU/UWiroVu5xgI/AAAAAAAAAZk/qkZjWpxvuFg/s1600/pic+1.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://3.bp.blogspot.com/-_LQ9tlgjuKU/UWiroVu5xgI/AAAAAAAAAZk/qkZjWpxvuFg/s640/pic+1.PNG" width="640" /></a></span></div>
<br />
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">We can see that at zero private income,
acquiring the unemployed partner increases the income going into the household
by almost $8,000 a year if the sole parent was on Newstart allowance or about
$4,000 if the old payment was parenting payment.<span style="mso-spacerun: yes;"> </span>However, this fairly rapidly declines for
higher levels of sole parent earnings with a worst case of a $4,000 reduction
in income where the parenting payment recipient is earning around $42,000 a
year.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">There’s also a small reduction at all
income levels from around $50,000 a year.<span style="mso-spacerun: yes;">
</span>This is because in my calculation I’ve assumed that the sole parent is
receiving child support at the minimum rate.<span style="mso-spacerun: yes;">
</span>It’s minimum rate because the new partner (or old partner returning) is
assumed to be unemployed and so is having child support deducted from their
Newstart.<span style="mso-spacerun: yes;"> </span>Obviously,
post-reconciliation, this stops.<o:p></o:p></span></span><br />
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">These losses are quite significant on their
own, but there’s an even bigger issue.<span style="mso-spacerun: yes;">
</span>The household also has an extra (adult) present.<span style="mso-spacerun: yes;"> </span>Reconciliation or repartnering has resulted
in less money for a larger household.<span style="mso-spacerun: yes;">
</span>This makes the before and after comparison tricky.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">One way to try to adjust the gain/loss
calculation to take the change in household size into account is to use
equivalised incomes.<span style="mso-spacerun: yes;"> </span>This is a fairly
standard method of adjusting income based on the number of adults and children
in the household using an equivalence scale (although which equivalence scale
to use is more contentious).<span style="mso-spacerun: yes;"> </span></span></span><br />
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;"><span style="mso-spacerun: yes;"></span></span></span><br />
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;"><span style="mso-spacerun: yes;">(I've explained equivalising a little more in the second half of <a href="http://ravebydave.blogspot.com.au/2012/09/taxing-families-or-how-15-equals-1.html" target="_blank">this post</a>, along with a link to some detailed material from the Australian Bureau of Statistics on the topic.)</span></span></span><br />
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;"></span></span><br />
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The next
chart shows the result after adjusting for household size. It was calculated by equivalising
the household incomes before and after reconciliation using the modified OECD
equivalence scale and then subtracting one from the other. </span></span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;"></span></span> </div>
<h4 class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><o:p>Chart 2</o:p></span></h4>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "Trebuchet MS", sans-serif;"><a href="http://3.bp.blogspot.com/-wRjtFH28S3s/UWir9O4EPuI/AAAAAAAAAZs/3MfFaPmvop4/s1600/pic+2.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://3.bp.blogspot.com/-wRjtFH28S3s/UWir9O4EPuI/AAAAAAAAAZs/3MfFaPmvop4/s640/pic+2.PNG" width="640" /></a></span></div>
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;"><span style="mso-spacerun: yes;"> </span><o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">In this case, taking into account the extra
adult in the household results in post-reconciliation financial loss at all
levels of private income.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">These results are based on the sole parent
being the worker.<span style="mso-spacerun: yes;"> </span>The outcomes are
rather different if it is the non-resident parent who is working instead.<o:p></o:p></span></span><br />
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Chart 3 shows the result for the same
household type as in the previous examples, but with the sole parent unemployed
and all earnings being those of the estranged partner.</span></span></div>
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;"></span></span> </div>
<h4 class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU">Chart 3<o:p></o:p></span></h4>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "Trebuchet MS", sans-serif;"><a href="http://3.bp.blogspot.com/-QgaOHdpSDIE/UWisK6HpVUI/AAAAAAAAAZ0/rBPnGBuMl1A/s1600/pic+3.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="420" src="http://3.bp.blogspot.com/-QgaOHdpSDIE/UWisK6HpVUI/AAAAAAAAAZ0/rBPnGBuMl1A/s640/pic+3.PNG" width="640" /></a></span></div>
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;"><span style="mso-spacerun: yes;"> </span><o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">The change at zero income is (obviously)
the same as in the first example.<span style="mso-spacerun: yes;">
</span>However instead of losses with increasing income, the gain to the
household increases.<span style="mso-spacerun: yes;"> </span>Again, the
non-resident partner is assumed to be paying child support – the calculation of
the gain on reconciliation takes into account the loss of these amounts.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">These are the “raw” numbers, not taking
into account the change in household size.<span style="mso-spacerun: yes;">
</span>If this is done the equivalised results look like this:<o:p></o:p></span></span><br />
<h4>
Chart 4</h4>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-qaHexOmKADI/UWisaGhzkDI/AAAAAAAAAZ8/602P-meT_6A/s1600/pic+4.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="420" src="http://1.bp.blogspot.com/-qaHexOmKADI/UWisaGhzkDI/AAAAAAAAAZ8/602P-meT_6A/s640/pic+4.PNG" width="640" /></a></div>
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Here we have relatively small financial
losses at zero private income but still have net gains where the formerly estranged
partner has private income.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">As a generalisation it appears that if the
sole parent is working and reconciles with a non-working partner the household
will suffer significant reductions in income.<span style="mso-spacerun: yes;">
</span>Conversely, there is a financial gain for non-working sole parents to
partner with someone who is employed, even at very modest wages.<span style="mso-spacerun: yes;"> </span>Obviously these two results are at opposing
ends of the employment spectrum – cases where both are working will produce a
different set of results reflecting the melding of these disparate influences.<o:p></o:p></span></span><br />
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 8pt;">
<span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">Of course, these results simply reflect the
financial outcomes.<span style="mso-spacerun: yes;"> </span>Having a partner
brings a host of other rather less measurable benefits (and negatives too)
which will influence the decision to (re)partner or not.<span style="mso-spacerun: yes;"> </span>Those who do repartner despite financial loss
are perhaps demonstrating the price (or value) of love.<o:p></o:p></span></span></div>
<span style="font-family: "Trebuchet MS", sans-serif;">
</span><span lang="EN-AU"><span style="font-family: "Trebuchet MS", sans-serif;">I’ll end on a point that has probably
occurred to you if you’ve read this far.<span style="mso-spacerun: yes;">
</span>There has been a lot of media attention to the substantial reductions in
income that occur when a sole parent’s youngest child turns 8, resulting in the
transition from parenting payment to Newstart allowance.<span style="mso-spacerun: yes;"> </span>But for sole parents who reconcile with a
non-working partner the financial penalty is even greater and yet is rarely
mentioned.<span style="mso-spacerun: yes;"> </span>I hope that if/when some
reworking of the entitlements of sole parents is considered, this very common
life transition is also kept in mind.<o:p></o:p></span></span></div>
Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com0tag:blogger.com,1999:blog-7303409391905322366.post-80257977526091596642013-03-29T16:40:00.002+11:002013-03-31T12:32:44.084+11:00Newstart allowance and the vanishing cost of living increaseNote: This has been amended from the version I originally posted on 29 March 2013. There was an error in the original, making a bad story even worse.<br />
<br />
<div class="MsoNormal" style="background: white; line-height: normal; margin: 0cm 0cm 12pt;">
<span style="color: #222222; font-family: "Trebuchet MS","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">In an <a href="http://ravebydave.blogspot.com.au/2013/03/low-income-couples-and-carbon.html" target="_blank">earlier post</a> I wrote about what I thought was an error in the way
the Government’s new Clean Energy Supplement (CES) had been put in place.<span style="mso-spacerun: yes;"> </span>My contention was (and still is) that as a
result of a wrongly implemented income test change, the promised level of
carbon pricing related compensation has not been delivered to some couples.</span><span style="color: #222222; font-family: "Arial","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br />
</span><span style="color: #222222; font-family: "Trebuchet MS","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">It
subsequently occurred to me see whether the impact of this was so significant
it compromised not just the overall level of compensation, but also the basic
CPI increases that were implemented on 20 March.<span style="mso-spacerun: yes;"> </span>It appears (fortunately) that this isn’t the
case, although the implementation does seem to have eaten away much of the 1%
cost of living adjustment.</span><a name='more'></a><a href="http://www.blogger.com/null" name="more"></a><o:p></o:p><br />
<span style="color: #222222; font-family: "Trebuchet MS","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">That last
sentence probably needs some clarification.<o:p></o:p></span><br />
<br />
<div class="MsoNormal" style="background: white; line-height: normal; margin: 0cm 0cm 12pt;">
<span style="color: #222222; font-family: "Trebuchet MS","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">There’s a difference
between what is measured by the CPI (or Consumer Price Index) and changes in the
“cost of living” for a particular group.<span style="mso-spacerun: yes;">
</span>Getting too far into that subject would involve all sorts of discussion
about what is meant by inflation as opposed to specific price increases and I
don’t want to go there.<span style="mso-spacerun: yes;"> </span>Suffice to say,
it’s well understood that changing income support payment rates in line with
movements in the CPI might well preserve the value of those payments in terms
of the overall purchasing power of the dollars involved, but still not keep up
with price increases experienced by households on income support.<span style="mso-spacerun: yes;"> </span>That’s why pension payments are adjusted by
reference to a pensioner and beneficiary living cost index (PBLCI) as well as
the CPI.<o:p></o:p></span></div>
<span style="color: #222222; font-family: "Trebuchet MS","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Treasury
calculated that imposing a price on carbon would add around 0.7 percentage
points to the CPI.<span style="mso-spacerun: yes;"> </span>But they were also
aware that the cost of living impact for those on low incomes (eg, on income
support payments like NSA) would likely be rather greater than that.<span style="mso-spacerun: yes;"> </span>Accordingly the household compensation
arrangements for income support and family payments (like family tax benefit)
don’t just follow upward movements in the CPI.<span style="mso-spacerun: yes;">
</span>To allow for the additional cost of living impact those payments are
also increased by an additional 1%.<o:p></o:p></span><br />
<br />
<div class="MsoNormal" style="background: white; line-height: normal; margin: 0cm 0cm 12pt;">
<span style="color: #222222; font-family: "Trebuchet MS","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">This 1% is sometimes
referred to as a “real” increase by virtue of the fact that it exceeds the CPI.<span style="mso-spacerun: yes;"> </span>A similar arrangement was put in place in
2000 when the GST was introduced – it too included a real (ie, above CPI)
increase.<o:p></o:p></span></div>
<span style="color: #222222; font-family: "Trebuchet MS","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">But back to
the main issue.<span style="mso-spacerun: yes;"> </span>As noted above, I wanted
to see whether the implementation of the CES had also undermined the standard
CPI adjustment.<o:p></o:p></span><br />
<br />
<div class="MsoNormal" style="background: white; line-height: normal; margin: 0cm 0cm 8pt;">
<span style="color: #222222; font-family: "Trebuchet MS","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">To determine this I did a comparison between three
amounts:</span></div>
<ul type="disc">
<li class="MsoNormal" style="background: white; color: #222222; line-height: normal; margin: 0cm 0cm 8pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Trebuchet MS","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">the Newstart allowance
(NSA) rate that would have been payable if the Government had not
introduced a separate CES but instead had just used the standard
indexation arrangements.<span style="mso-spacerun: yes;"> </span>In doing
this<i style="mso-bidi-font-style: normal;"> I did not include the special
1% real increase</i>;</span><span style="font-family: "Arial","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: #222222; line-height: normal; margin: 0cm 0cm 8pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Trebuchet MS","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">the NSA rate that would
have been paid if the Government had increased rates by inflation plus 1%,
but in the standard way rather than via a separate CES;</span><span style="font-family: "Arial","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: #222222; line-height: normal; margin: 0cm 0cm 8pt; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Trebuchet MS","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">the rate actually
being delivered, including the CES</span><span style="font-family: "Arial","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"> <o:p></o:p></span></li>
</ul>
<span style="color: #222222; font-family: "Trebuchet MS","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">The CES
arrangement is, among other things, a way of making it clear that an extra 1% has
been added to rates on top of the CPI result (details about the creation of
this new rate component are in <a href="http://ravebydave.blogspot.com.au/2013/01/a-new-rate-component-is-born.html" target="_blank">this post</a>) but in theory does not otherwise change the total
payment.<span style="mso-spacerun: yes;"> </span>Given this, you would expect to
see higher rates under the implemented arrangements compared to the standard
CPI model – about 1% higher.<span style="mso-spacerun: yes;"> </span>You would
also expect the delivered rates would equal those under a standard CPI + 1%
approach.<span style="mso-spacerun: yes;"> </span>At maximum rates of payment
(ie, where private income is zero) this is indeed the case for both
propositions.<span style="mso-spacerun: yes;"> </span>As per my earlier post I
was also expecting to see the gain from this 1% real increase somewhat eroded
by the income test “mistake”, and it is - but rather than “somewhat eroded” it’s
almost completely wiped out.</span><span style="color: #222222; font-family: "Arial","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><o:p></o:p></span><br />
<br />
<div class="MsoNormal" style="background: white; line-height: normal; margin: 0cm 0cm 12pt;">
<span style="color: #222222; font-family: "Trebuchet MS","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Here are a
couple of charts to show the amounts involved and the income ranges where it
occurs.</span><span style="color: #222222; font-family: "Arial","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><o:p></o:p></span></div>
<br />
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<b><span style="color: #222222; font-family: "Arial","sans-serif"; font-size: 13.5pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Chart 1<o:p></o:p></span></b></div>
<br />
<a href="http://1.bp.blogspot.com/-AqWJDdYu50o/UVeQIeG5NYI/AAAAAAAAAZM/by-6xmJLbyI/s1600/carbon+snip.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://1.bp.blogspot.com/-AqWJDdYu50o/UVeQIeG5NYI/AAAAAAAAAZM/by-6xmJLbyI/s640/carbon+snip.PNG" width="640" /></a><br />
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<span style="color: #222222; font-family: "Arial","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br />
<br />
</span><span style="color: #222222; font-family: "Trebuchet MS","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">This chart
shows how much the couple's income support (in this case NSA) increased on 20
March under the arrangements actually implemented - a CES with modifications to
the CPI increase – along with what would have happened under standard
arrangements and also standard plus 1%. As you can see, there's a
significant fall at incomes over around $840 a fortnight, almost down to the
straightforward CPI result.<span style="mso-spacerun: yes;"> </span>In other
words, the extra 1% cost of living or real increase is almost completely lost.</span><span style="color: #222222; font-family: "Arial","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br />
<br />
</span><span style="color: #222222; font-family: "Trebuchet MS","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">The second
chart simply shows the gain or loss relative to the standard CPI model</span><span style="color: #222222; font-family: "Arial","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><o:p></o:p></span></div>
<br />
<div class="MsoNormal" style="background: white; line-height: normal; margin: 0cm 0cm 0pt; mso-outline-level: 3;">
<b><span style="color: #222222; font-family: "Arial","sans-serif"; font-size: 13.5pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Chart 2<o:p></o:p></span></b></div>
<br />
<a href="http://3.bp.blogspot.com/-25DHLlxdCYI/UVeQeh7EX-I/AAAAAAAAAZU/CkOsC-eluqQ/s1600/carbon+snip+2.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://3.bp.blogspot.com/-25DHLlxdCYI/UVeQeh7EX-I/AAAAAAAAAZU/CkOsC-eluqQ/s640/carbon+snip+2.PNG" width="640" /></a><br />
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<span style="color: #222222; font-family: "Arial","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br />
</span><span style="color: #222222; font-family: "Trebuchet MS","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">Here you can
see that where the CES model delivers a better result (as was intended), it's around
$9 a fortnight more than straight CPI alone. It’s also (as expected)
identical to a straight CPI plus 1% (ie, there's zero gain or loss).<span style="mso-spacerun: yes;"> </span>But
once that $840-odd threshold is crossed things go badly awry.<span style="mso-spacerun: yes;"> </span>It’s a little over $7 less than what would
have happened if they had done a standard CPI with a 1% increase.<span style="mso-spacerun: yes;"> </span>It’s also only $1.50 more than a straight CPI
increase would have delivered, effectively torpedoing the intended 1% real
increase.</span><span style="color: #222222; font-family: "Arial","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br />
<br />
</span><span style="color: #222222; font-family: "Trebuchet MS","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">As I
mentioned earlier, this is the second time a cost of living compensation
arrangement has been put in place after a major system rejig, the first being
the GST in July 2000.<span style="mso-spacerun: yes;"> </span>However, back in
2000 they managed to get it right. <o:p></o:p></span></div>
<span style="color: #222222; font-family: "Trebuchet MS","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">I still puzzle over why a Government that is
doing so very badly in the polls and is so sensitive to criticisms about cost
of living pressure, particularly carbon-price related, would do this. The
answer, I think, is that they didn't. At least, not deliberately. I
suspect the problem is simply a cock-up that could be remedied (I was going to
add "easily", but things are often not that simple).</span><span style="color: #222222; font-family: "Arial","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br />
<br />
</span><span style="color: #222222; font-family: "Trebuchet MS","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">I wait in
hope for a fix, because I still prefer to think it was not a deliberate
act!</span><span style="color: #222222; font-family: "Arial","sans-serif"; font-size: 10pt; mso-ansi-language: EN-GB; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><o:p></o:p></span><br />
<br />
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<span lang="EN-AU"><o:p><span style="font-family: Calibri;"> </span></o:p></span></div>
</div>
Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com2tag:blogger.com,1999:blog-7303409391905322366.post-90393547729742107232013-03-09T15:38:00.000+11:002013-03-25T13:15:39.837+11:00Low-income couples and the carbon-compensation rip-off<br />
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<span lang="EN-AU"><span style="font-family: Georgia, "Times New Roman", serif;">No pictures in this post I'm afraid. I'm not really sure how to draw a rip-off...</span></span></div>
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<span lang="EN-AU"><span style="font-family: Georgia, "Times New Roman", serif;">If the Government persists with the new
rates and income test thresholds it announced on 2 March it looks to me like some
couples are going to be getting $7.20 a fortnight less than they should, and
less than they were led to believe in the Government’s Household Compensation
information packages of a couple of years ago.<span style="mso-spacerun: yes;">
</span>Affected couples are those where one partner is getting a social
security benefit (eg, Newstart allowance or Austudy payment) and the other has
a low income which prevents them from getting a benefit. </span></span></div>
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<span lang="EN-AU"><o:p><span lang="EN-AU" style="font-family: "Calibri","sans-serif"; line-height: 107%; mso-ansi-language: EN-AU; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"><span style="font-family: Georgia, "Times New Roman", serif;">I
don’t have access to stats detailed enough to say exactly how many couples are
in this position, but if it’s in the order of 100,000, that amounts to almost
$19 million a year that these couples are losing.<span style="mso-spacerun: yes;"> </span></span></span></o:p></span><br />
<a name='more'></a><br /></div>
<span style="font-family: Georgia, "Times New Roman", serif;">
<span lang="EN-AU">The new rates, etc, are available on the
website of the Minister for Families, Housing, Community Services and
Indigenous Affairs, the Hon Jenny Macklin, MP, <a href="http://www.fahcsia.gov.au/about-fahcsia/benefits-payments/indexation-rates-march-2013" target="_blank">here</a>.<span style="mso-spacerun: yes;"> </span>One of the many numbers therein is the
so-called partner income free area (PIFA).<span style="mso-spacerun: yes;">
</span>This is the amount of income one partner can have before it begins to
reduce the entitlement of the other partner, and it lies at the heart of the problem.</span></span><br />
<span style="font-family: Georgia, "Times New Roman", serif;">
</span><br />
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<span lang="EN-AU"><span style="font-family: Georgia, "Times New Roman", serif;">In most cases, the PIFA equals the amount
of income needed to reduce one partner’s Newstart allowance to zero.<span style="mso-spacerun: yes;"> </span>The idea is that Partner 1’s private income
is first used to reduce their own Newstart allowance.<span style="mso-spacerun: yes;"> </span>Once it has reduced it to zero, any extra
income then “flows over” to Partner 2 and starts to reduce their payment.<span style="mso-spacerun: yes;"> </span>This type of arrangement – where one partner
is reduced and then the other – is referred to as sequential income testing. I have a slightly more detailed account of how this works - with pictures - </span><a href="http://ravebydave.blogspot.com.au/2012/04/austudy-payment-and-half-built-income.html" target="_blank"><span style="font-family: Georgia, "Times New Roman", serif;">here</span></a><span style="font-family: Georgia, "Times New Roman", serif;">.</span></span></div>
<span style="font-family: Georgia, "Times New Roman", serif;">
<span lang="EN-AU">As a result of the latest round of
indexation increases (which incorporate the new clean energy supplement as described <a href="http://ravebydave.blogspot.com.au/2013/01/a-new-rate-component-is-born.html" target="_blank">here</a>), the income
at which one member of a couple’s Newstart allowance reaches zero – the cutout
- is $853.84 a fortnight.<span style="mso-spacerun: yes;"> </span>That number is
plainly stated in the Macklin release.<span style="mso-spacerun: yes;">
</span>Consequently, the PIFA should be $854 (it’s always rounded up to the
nearest dollar).<span style="mso-spacerun: yes;"> </span>Alas, it’s not.<span style="mso-spacerun: yes;"> </span>Instead, the only reference to the PIFA
amount shows it as $842.<o:p></o:p></span></span><br />
<span style="font-family: Georgia, "Times New Roman", serif;">
</span><br />
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<span lang="EN-AU"><span style="font-family: Georgia, "Times New Roman", serif;">The reason it’s $842 and not $854 appears
to be because the clean energy supplement hasn’t been included when calculating
this particular cutout.<span style="mso-spacerun: yes;"> </span>Just why this
was done is hard to fathom.<span style="mso-spacerun: yes;"> </span>Apart from
being completely contrary to the policy rationale for setting PIFA amounts, it’s also
highly discriminatory as it has been included when calculating the cutouts for
single people or other couples.<o:p></o:p></span></span></div>
<span style="font-family: Georgia, "Times New Roman", serif;">
<span lang="EN-AU">Making matters worse is the fact that the creation
of the clean energy supplement as a separate component of income support rates
is actually little more than an advertising campaign.<span style="mso-spacerun: yes;"> </span>The extra assistance could have been
delivered as a straightforward rate increase and there would then have been
no doubt about its impact on the PIFA.<span style="mso-spacerun: yes;">
</span>Instead, affected couples are effectively paying for the decision to
highlight the existence of household compensation amounts, and, in aggregate,
quite substantially too.<span style="mso-spacerun: yes;"> </span></span></span><br />
<span style="font-family: Georgia, "Times New Roman", serif;">
</span><br />
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<span lang="EN-AU"><span style="font-family: Georgia, "Times New Roman", serif;">Quite apart from the rip-off this change
has produced it’s worth noting that it also “breaks” the last
functional sequential income test.<span style="mso-spacerun: yes;"> </span>That
test doesn’t work properly in cases where the payment made to the non-working
partner has a different income test to Newstart allowance (see for example the
problem with Austudy couples </span><a href="http://ravebydave.blogspot.com.au/2012/04/austudy-payment-and-half-built-income.html" target="_blank"><span style="font-family: Georgia, "Times New Roman", serif;">here</span></a><span style="font-family: Georgia, "Times New Roman", serif;">), but it’s been okay otherwise.<span style="mso-spacerun: yes;"> </span>Now the Austudy type problem will now
feature in all couples.<span style="mso-spacerun: yes;"> But who knows, maybe breaking the test in all cases is </span>an attempt at equity?</span></span></div>
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<span lang="EN-AU"><span style="font-family: Georgia, "Times New Roman", serif;">I'm charitable enough to think/hope that this is actually just an error on the part of the Departments involved (DEEWR and DHS/Centrelink) rather than an actual policy decision of the Government. It's hard to imagine the Government deliberately short changing low income people this way (although some sole parents may feel differently), especially in the politically sensitive carbon tax/cost of living area. Another reason to hope it's just an error is that there's then some chance of fixing it. </span></span></div>
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<span lang="EN-AU"><span style="font-family: Georgia, "Times New Roman", serif;">Sans a fix, one course of action open to affected couples is to appeal against the rate of payment from 20 March. The basis for the appeal would be that in calculating the rate of payment, Centrelink is incorrectly working out the amount of "partner income excess" because its PIFA is wrong. If there's any interest in fleshing this out leave me a note in the comments and I'll see if I can get some suitable words together (no promises mind!).</span></span></div>
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<span style="font-family: Georgia;"></span> </div>
<h2 class="MsoNormal" style="margin: 0cm 0cm 8pt;">
Addendum - 25 March 2013</h2>
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After discussions with a few people it's evident that my attempts to explain this problem have failed the plain English test. After casting around for alternative ways to show the issue it has occurred to me that a comparison of the proposed compensation amounts with those actually delivered could be done via a simple chart. So at last this post <em>will</em> get a picture.</div>
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Here's that chart:</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-64AFz4SI2YM/UU-wUTski4I/AAAAAAAAAYc/PSPIzLCEvy0/s1600/carbon+snip.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://3.bp.blogspot.com/-64AFz4SI2YM/UU-wUTski4I/AAAAAAAAAYc/PSPIzLCEvy0/s640/carbon+snip.PNG" width="640" /></a></div>
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</div>
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And there it is, a substantial fall in the compensation provided at incomes above roughly $22,500. Note that the first two small declines in the actual result trace are due to indexation effects (actually the lack thereof) in the NSA income test. You can ignore them for all practical purposes - it's the big drop that matters.</div>
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The data for the proposed compensation amounts comes from <a href="http://www.cleanenergyfuture.gov.au/wp-content/uploads/2011/07/supporting-australian-households.pdf" target="_blank">this publication</a> (page 23). I hope this makes the effect of the problem clearer, even if the mechanism by which it arises remains obscure. </div>
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This household compensation stuff is quite sensitive, so I presume the relevant departments must have run this departure from the (published) proposed outcome past their Ministers. I wonder how they justified (and explained the mechanism of) the policy change!</div>
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<span lang="EN-AU"><o:p><span style="font-family: Georgia, "Times New Roman", serif;"></span></o:p></span> </div>
Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com0tag:blogger.com,1999:blog-7303409391905322366.post-28080042205570145542013-02-16T16:53:00.000+11:002013-02-17T09:26:24.285+11:00Tax thresholds - so tasty you can't stop at oneHow exciting can a tax threshold get! Over the last few weeks I've come across a few "discussions" on the subject, largely driven by speculation about what will happen to the tax scales if the Coalition wins September's federal election. <br />
<br />
Last year the Government increased the tax threshold from $6,000 to $18,200 as part of a package of measures associated with putting a price on carbon pollution. The Coalition is intent on abolishing the "carbon tax" and, apparently, the household compensation measures that went with it, including the tax changes. This obviously provides much scope for polite discourse on how people would be affected by winding back the changes. I've even read some entertaining stuff questioning whether the Government's changes really did much at all, or in fact made people worse off.<br />
<br />
None of this is made easier by the fact that <em>tax-threshold</em> apparently means different things to different people and is also rather dependent on the context in which it's used. So, let's have a look at tax thresholds and how they've changed over the last 4 Parliaments. A chart first, and if that makes no sense to you an explanation follows.<br />
<a name='more'></a><br />
<br />
<br />
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<a href="http://3.bp.blogspot.com/-txShV_RgedA/UR7ib_0_emI/AAAAAAAAAYE/QZvLUYUeMcE/s1600/pic2.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="416" src="http://3.bp.blogspot.com/-txShV_RgedA/UR7ib_0_emI/AAAAAAAAAYE/QZvLUYUeMcE/s640/pic2.png" width="640" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
The best place to start is probably the tax threshold, or tax free threshold, shown in blue. This has been $6,000 for most of the period covered, but was increased to $18,200 during the current Parliament (from 1 July 2012). Now, inflation being what it is, $6,000 back in November 2001 was worth rather more than it is today. I've adjusted for this, which is why the threshold is showing as more like $8,000 at the start of the period and declines in value at each subsequent point, until rocketing up in the current term.<br />
<br />
That final change is the most marked on the chart, so it's scarcely a surprise it's the one the Government refers to. However, while the tax threshold is an important number in terms of calculating tax liability, the actual tax bill is reduced by any <em>Low Income Tax Offset</em> (LITO) a person attracts. Effectively, this means the amount of taxable income a person can have before becoming liable to pay tax is more than the tax threshold. The effect of the LITO in combination with the tax threshold is shown in red on the chart.<br />
<br />
While the LITO had been around since Keating it seemed to be an unloved blemish on the system until the latter years of the Howard era. During the 41st Parliament (2004-2007) it really took off, almost doubling the income at which tax became payable relative to the actual threshold. This trend continued under the Rudd-Gillard Parliament that followed. Immediately before the carbon related threshold change the effect of the LITO was such that the taxable income at which tax actually became payable was $16,001.<br />
<br />
Against a background of a LITO tax threshold of some $16,000 the introduction of the new $18,200 threshold does not appear as grand as the more-than-tripling the old $6000 seems to be. However, this is not the whole story as <em>some</em> LITO has been retained under the new arrangement (albeit no longer the main player when it comes to the final threshold). When the (reduced) LITO is taken into account the tax threshold becomes $20,542. This is apparent in the chart, as is the much greater role played by the basic tax threshold under current arrangements.<br />
<br />
The two thresholds looked at so far reflect the tax system in lonely isolation. But, realistically, it doesn't work that way - we need to factor in the receipt of transfer payments as well. This brings us to the last two thresholds, starting with the green trace on the chart.<br />
<br />
A single person with little or no income will almost always be eligible for some kind of income support and, importantly, that income support is typically taxable income. Depending on the level of income support they get, some or even all of the tax threshold will be "used up" by their payment before they have any private income of their own. This is why the green line is saying that the <em>private </em>income at which tax becomes payable is, with one exception, the lowest of the four values shown. At the moment the private income tax threshold is about $15,700, which means in effect that the combination of that income and the taxable Newstart allowance is producing a total taxable income of $20,542 (the LITO-enhanced tax threshold shown by the red trace).<br />
<br />
The increase in the private income threshold is quite marked over the period shown here and points to a considerable reduction in churning in the system (at least for single NSA shown here). In this context churning refers to the situation where a person simultaneously receives transfer payments <em>and </em>pays tax.<br />
<br />
The final (purple) line is a figure that Treasury often includes in their budget material - the point at which a person's liability for tax equals/exceeds their transfer payments. It's where they become a net tax-payer instead of a net recipient (but note that this measure doesn't include indirect taxes paid [eg, GST] or non-cash benefits received [eg, the value of concessions]). Interestingly, while it has increased over the 4 Parliamentary periods shown here it's to nowhere near the same extent as the other 3 measures. <br />
<br />
The final 2 lines covered above are very much dependent on what kind of payment(s) the person receives. As the chart says, the picture shown above is only for single Newstart allowance under 55 years old. If you are interested in the values for some other household types you might like to look at an earlier post of mine <a href="http://ravebydave.blogspot.com.au/2012/10/leftovers.html" target="_blank">here</a>. The charts there are different to the one above, but represent similar data.<br />
<br />
I'm not sure there are any profound conclusions to be drawn from these 4 lines. Nonetheless, they do show that while the most recent changes to the tax scales and LITO did involve a degree of shuffling the deckchairs, they <em>have</em> resulted in a real increase in the tax threshold, however measured.<br />
<br />Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com0tag:blogger.com,1999:blog-7303409391905322366.post-35807397599403780272013-01-14T13:29:00.002+11:002013-01-14T13:29:37.100+11:00A new rate component is born<br />
<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<span style="font-family: Arial, Helvetica, sans-serif;">In an earlier series of posts I wrote about how income
support payment rates are indexed, using the September 2012 indexation round as
an example.<span style="mso-spacerun: yes;"> </span>Calculations for the next
round of increases will kick off on 23 January when the Australian Bureau of
Statistics (the ABS) releases the CPI figure for the December 2012 quarter.<span style="mso-spacerun: yes;"> </span>This is the starting point for working out
the rates that will apply from 20 March 2013.<o:p></o:p></span></div>
<span style="font-family: Arial, Helvetica, sans-serif;">
However, this time round the indexation process will differ
from the standard arrangement described in my earlier posts.<span style="mso-spacerun: yes;"> </span>That’s because part of the rate increase that
would usually flow from increases in the CPI (and also the pensioner and
beneficiary living cost index – PBLCI - for most pensioners) is going to be siphoned
off to help form a new income support rate component – the clean energy
supplement.</span><a name='more'></a><span style="font-family: Arial, Helvetica, sans-serif;"><o:p></o:p></span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<span style="font-family: Arial, Helvetica, sans-serif;">The basic idea is to take out of the CPI (and PBLCI) the
part of the indexation increase that the Treasury attributes to the effect of
carbon pricing and make it a separate payment, along with a 1% “bonus”.<span style="mso-spacerun: yes;"> </span>The carbon price is assumed to have added
0.7% to the CPI, so when this is added to the 1% bonus the new clean energy
supplement is going to be, roughly speaking, 1.7% of the income support
payment.<span style="mso-spacerun: yes;"> </span></span><a href="http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/bd/bd1112a/12bd058" target="_blank"><span style="font-family: Arial, Helvetica, sans-serif;">This summary</span></a><span style="font-family: Arial, Helvetica, sans-serif;"> of the Bill that
introduced the change gives more background to that process,
or you might want to check out the </span><a href="http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fems%2Fr4662_ems_9787e52d-0307-49c2-a24e-91f3d1b304dd%22;rec=0" target="_blank"><span style="font-family: Arial, Helvetica, sans-serif;">Explanatory Memorandum</span></a><span style="font-family: Arial, Helvetica, sans-serif;"> for the Bill.</span></div>
<span style="font-family: Arial, Helvetica, sans-serif;">
Not all payments will get the clean energy supplement as
part of the 20 March changes.<span style="mso-spacerun: yes;"> </span>Family
payments will pick it up from 1 July, with youth allowance and Austudy payment
not being affected until 1 January 2014.<o:p></o:p></span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">
</span><br />
<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<span style="font-family: Arial, Helvetica, sans-serif;">So, how much will this clean energy supplement (CES)
be?<span style="mso-spacerun: yes;"> </span>The actual amounts can’t be
calculated until the CPI (and PBLCI) is released.<span style="mso-spacerun: yes;"> </span>However, the </span><a href="http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fems%2Fr4662_ems_9787e52d-0307-49c2-a24e-91f3d1b304dd%22;rec=0"></a><span style="font-family: Arial, Helvetica, sans-serif;">TD
Securities-Melbourne Institute inflation figure </span><a href="http://www.melbourneinstitute.com/downloads/media_release/2013/TDsIG/TD-MI_PR_Dec12.pdf" target="_blank"><span style="font-family: Arial, Helvetica, sans-serif;">released today</span></a><span style="font-family: Arial, Helvetica, sans-serif;"> has an estimated
0.3% increase in the CPI for the December quarter.<span style="mso-spacerun: yes;"> </span>Based on that estimate (and assuming I’ve
managed to follow the legislation correctly!) the CES amounts should be pretty
close to the figures in the table below.<o:p></o:p></span></div>
<br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableLightShading" style="border-collapse: collapse; border: currentColor; mso-border-bottom-alt: solid black 1.0pt; mso-border-bottom-themecolor: text1; mso-border-top-alt: solid black 1.0pt; mso-border-top-themecolor: text1; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1024; width: 414px;">
<tbody>
<tr style="height: 12.75pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="background: silver; border-color: black rgb(0, 0, 0) rgb(0, 0, 0); border-style: solid none none; border-width: 1pt 0px 0px; height: 12.75pt; mso-background-themecolor: text1; mso-background-themetint: 63; mso-border-top-themecolor: text1; padding: 0cm 5.4pt; width: 242.8pt;" valign="top" width="324"><div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; mso-yfti-cnfc: 64; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><span style="color: black; font-family: "Arial","sans-serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-AU; mso-themecolor: text1; mso-themeshade: 191;">Payment<o:p></o:p></span></b></div>
</td>
<td nowrap="" style="background: silver; border-color: black rgb(0, 0, 0) rgb(0, 0, 0); border-style: solid none none; border-width: 1pt 0px 0px; height: 12.75pt; mso-background-themecolor: text1; mso-background-themetint: 63; mso-border-top-themecolor: text1; padding: 0cm 5.4pt; width: 67.8pt;" valign="top" width="90"><div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; mso-yfti-cnfc: 64; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><span style="color: black; font-family: "Arial","sans-serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-AU; mso-themecolor: text1; mso-themeshade: 191;">CES (fortnightly)<o:p></o:p></span></b></div>
</td>
</tr>
<tr style="height: 12.75pt; mso-yfti-irow: 1;">
<td nowrap="" style="background-color: transparent; border: 0px rgb(0, 0, 0); height: 12.75pt; padding: 0cm 5.4pt; width: 242.8pt;" valign="top" width="324"><div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-AU; mso-themecolor: text1; mso-themeshade: 191;">partnered pension*<o:p></o:p></span></div>
</td>
<td nowrap="" style="background-color: transparent; border: 0px rgb(0, 0, 0); height: 12.75pt; padding: 0cm 5.4pt; width: 67.8pt;" valign="top" width="90"><div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-AU; mso-themecolor: text1; mso-themeshade: 191;">10.00<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 12.75pt; mso-yfti-irow: 2;">
<td nowrap="" style="background: silver; border: 0px rgb(0, 0, 0); height: 12.75pt; mso-background-themecolor: text1; mso-background-themetint: 63; padding: 0cm 5.4pt; width: 242.8pt;" valign="top" width="324"><div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; mso-yfti-cnfc: 64;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-AU; mso-themecolor: text1; mso-themeshade: 191;">single pension*<o:p></o:p></span></div>
</td>
<td nowrap="" style="background: silver; border: 0px rgb(0, 0, 0); height: 12.75pt; mso-background-themecolor: text1; mso-background-themetint: 63; padding: 0cm 5.4pt; width: 67.8pt;" valign="top" width="90"><div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; mso-yfti-cnfc: 64; text-align: right;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-AU; mso-themecolor: text1; mso-themeshade: 191;">13.30<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 12.75pt; mso-yfti-irow: 3;">
<td nowrap="" style="background-color: transparent; border: 0px rgb(0, 0, 0); height: 12.75pt; padding: 0cm 5.4pt; width: 242.8pt;" valign="top" width="324"></td>
<td nowrap="" style="background-color: transparent; border: 0px rgb(0, 0, 0); height: 12.75pt; padding: 0cm 5.4pt; width: 67.8pt;" valign="top" width="90"><div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-AU; mso-themecolor: text1; mso-themeshade: 191;"> <o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 12.75pt; mso-yfti-irow: 4;">
<td nowrap="" style="background: silver; border: 0px rgb(0, 0, 0); height: 12.75pt; mso-background-themecolor: text1; mso-background-themetint: 63; padding: 0cm 5.4pt; width: 242.8pt;" valign="top" width="324"><div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; mso-yfti-cnfc: 64;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-AU; mso-themecolor: text1; mso-themeshade: 191;">parenting payment single<o:p></o:p></span></div>
</td>
<td nowrap="" style="background: silver; border: 0px rgb(0, 0, 0); height: 12.75pt; mso-background-themecolor: text1; mso-background-themetint: 63; padding: 0cm 5.4pt; width: 67.8pt;" valign="top" width="90"><div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; mso-yfti-cnfc: 64; text-align: right;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-AU; mso-themecolor: text1; mso-themeshade: 191;">11.40<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 12.75pt; mso-yfti-irow: 5;">
<td nowrap="" style="background-color: transparent; border: 0px rgb(0, 0, 0); height: 12.75pt; padding: 0cm 5.4pt; width: 242.8pt;" valign="top" width="324"><div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-AU; mso-themecolor: text1; mso-themeshade: 191;">parenting payment partnered<o:p></o:p></span></div>
</td>
<td nowrap="" style="background-color: transparent; border: 0px rgb(0, 0, 0); height: 12.75pt; padding: 0cm 5.4pt; width: 67.8pt;" valign="top" width="90"><div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-AU; mso-themecolor: text1; mso-themeshade: 191;">7.60<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 12.75pt; mso-yfti-irow: 6;">
<td nowrap="" style="background: silver; border: 0px rgb(0, 0, 0); height: 12.75pt; mso-background-themecolor: text1; mso-background-themetint: 63; padding: 0cm 5.4pt; width: 242.8pt;" valign="top" width="324"><div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; mso-yfti-cnfc: 64;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-AU; mso-themecolor: text1; mso-themeshade: 191;">Newstart allowance single (lower
rate)<o:p></o:p></span></div>
</td>
<td nowrap="" style="background: silver; border: 0px rgb(0, 0, 0); height: 12.75pt; mso-background-themecolor: text1; mso-background-themetint: 63; padding: 0cm 5.4pt; width: 67.8pt;" valign="top" width="90"><div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; mso-yfti-cnfc: 64; text-align: right;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-AU; mso-themecolor: text1; mso-themeshade: 191;">8.50<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 12.75pt; mso-yfti-irow: 7;">
<td nowrap="" style="background-color: transparent; border: 0px rgb(0, 0, 0); height: 12.75pt; padding: 0cm 5.4pt; width: 242.8pt;" valign="top" width="324"><div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-AU; mso-themecolor: text1; mso-themeshade: 191;">Newstart allowance single (higher
rate)<o:p></o:p></span></div>
</td>
<td nowrap="" style="background-color: transparent; border: 0px rgb(0, 0, 0); height: 12.75pt; padding: 0cm 5.4pt; width: 67.8pt;" valign="top" width="90"><div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-AU; mso-themecolor: text1; mso-themeshade: 191;">9.20<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 12.75pt; mso-yfti-irow: 8; mso-yfti-lastrow: yes;">
<td nowrap="" style="background: silver; border-color: rgb(0, 0, 0) rgb(0, 0, 0) black; border-style: none none solid; border-width: 0px 0px 1pt; height: 12.75pt; mso-background-themecolor: text1; mso-background-themetint: 63; mso-border-bottom-themecolor: text1; padding: 0cm 5.4pt; width: 242.8pt;" valign="top" width="324"><div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; mso-yfti-cnfc: 64;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-AU; mso-themecolor: text1; mso-themeshade: 191;">Newstart allowance partnered<o:p></o:p></span></div>
</td>
<td nowrap="" style="background: silver; border-color: rgb(0, 0, 0) rgb(0, 0, 0) black; border-style: none none solid; border-width: 0px 0px 1pt; height: 12.75pt; mso-background-themecolor: text1; mso-background-themetint: 63; mso-border-bottom-themecolor: text1; padding: 0cm 5.4pt; width: 67.8pt;" valign="top" width="90"><div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; mso-yfti-cnfc: 64; text-align: right;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-AU; mso-themecolor: text1; mso-themeshade: 191;">7.60<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<span style="font-family: Arial, Helvetica, sans-serif;">* pension CES amounts may also be affected by the PBLCI<o:p></o:p></span></div>
<span style="font-family: Arial, Helvetica, sans-serif;">
These changes to the way the indexation will work on 20 March
mean that it will be important to ensure comparisons between, for example,
Newstart allowance rates at various points in time also include the CES
amounts for 20 March onward.<span style="mso-spacerun: yes;"> </span>If not, then it will appear
that the non-pension income support payments (like Newstart) have fallen in
value relative to the CPI, when in fact the total package will have increased
in real (CPI adjusted) terms due to the 1% bonus.</span><br />
<span style="font-family: Times, "Times New Roman", serif;"></span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">The following table shows how the rates of selected income support payments would have changed if the standard CPI method had been applied, compared with the CES adjusted method.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"></span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-dXeDHiq4NGI/UPNtAYwiLzI/AAAAAAAAAXg/ImVYKEN8uxE/s1600/table.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: Arial, Helvetica, sans-serif;"><img border="0" height="108" src="http://3.bp.blogspot.com/-dXeDHiq4NGI/UPNtAYwiLzI/AAAAAAAAAXg/ImVYKEN8uxE/s640/table.png" width="640" /></span></a></div>
<span style="font-family: Arial, Helvetica, sans-serif;">You can see that the maximum basic rates under the March CPI system are lower than they would have otherwise have been, but that the overall increase <em>including the CES </em>is higher.</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"></span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">Comparisons across time can be tricky, and have just become even more so!</span><br />
<span style="font-family: Times;"></span><span style="font-family: "Calibri","sans-serif"; font-size: 11pt; line-height: 115%; mso-ansi-language: EN-AU; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"></span><br />Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com5tag:blogger.com,1999:blog-7303409391905322366.post-17061012386647946822012-12-22T19:55:00.001+11:002012-12-22T19:56:26.065+11:00The ups and downs of Parliament 43I was looking at the stats for this blog and was intrigued to see that the most popular post so far was one of my 4 Parliament efforts, looking at single parents. For this blog, popular usually just means someone other than me looked at it, but that post actually does stand out.<br />
<br />
While I like the 4 Parliament comparisons, one of the problems with them is that they become dated. Being written at different times doesn't help either, as that can make it hard to compare the various households I've covered, particularly the results from Parliament 43 (the current period). With that in mind I thought I'd update just the Parliament 43 results for all the households I've covered so far, plus a few extras. That will make comparisons between household types easier and also allow gossip about which ones are in and out of favour.<a name='more'></a><br />
<br />
The format will be a bit like the 4 Parliament posts, but instead of Parliaments I'll compare the households and then look at each one in more detail. It's important to bear in mind that these charts are comparing two different but otherwise identical households at the start and end of the period, not the same household. So, if we look (for example) at a single Newstart allowance recipient with an income of $20,000 a year, we are comparing today's result with what would have been the outcome for a single person on Newstart with the equivalent private income (ie, CPI adjusted) at the start of the period.<br />
<br />
Similarly, the results for 55 year olds are a comparison of a 55 year old at the start of the period with a 55 year old at the end, <em>not </em>the original 55 year old person (who would by now be 57 or so).<br />
<br />
I'm going to cover 9 household types, so the initial comparison will be spread across 2 charts to reduce clutter. As I said, the single parent material has been of most interest so let's start with the chart that includes them.<br />
<h4>
Chart 1</h4>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-2GJ6FbvoS2Q/UMus-gqWmQI/AAAAAAAAAS0/kg94NNyPmTg/s1600/comparisons+1.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://3.bp.blogspot.com/-2GJ6FbvoS2Q/UMus-gqWmQI/AAAAAAAAAS0/kg94NNyPmTg/s640/comparisons+1.png" width="640" /></a></div>
<br />
I've put 5 different households here:<br />
<ul>
<li>single parents on Newstart allowance (NSA)</li>
<li>single parents on parenting payment (PPS) </li>
<li>single parents on PPS at the start of the period compared to NSA at the end (this reflects the loss of the "grandfathering" status)</li>
<li>single Austudy recipient (with a HECS or HELP debt)</li>
<li>single Newstart allowance</li>
</ul>
The single parent cases are 2-child households - for the NSA and PPS-to-NSA traces the children are 8 and 10; for the PPS trace they are 6 and 8. In all 5 cases the adult is aged 25 to 54.<br />
<br />
There are two clear standout "winners" in this group of households, at least at the lower income end - Austudy recipients and single parents on Newstart allowance. In both cases the main gains stem from changes to the income test for the respective income support payments. There are also gains for single Newstart and single parents on PPS. The worst losses over the period are in respect of the grandfathered PPS group who will lose their entitlement to that payment on 1 January 2013 (the trace used here assumes a transition to NSA where eligible).<br />
<br />
I'll look at each of these in more detail later, but before that here are the rest of the households.<br />
<h4>
Chart 2</h4>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-cpIjmNeEhuw/UMz1Xm2rERI/AAAAAAAAATM/tjQA7RhwigA/s1600/comparisons+2.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://3.bp.blogspot.com/-cpIjmNeEhuw/UMz1Xm2rERI/AAAAAAAAATM/tjQA7RhwigA/s640/comparisons+2.png" width="640" /></a></div>
<br />
NSA appears in this chart as well, as a kind of benchmark. The other cases are:<br />
<ul>
<li>single NSA aged 55 (to illustrate the effect of the removal of the mature age workers tax offset or MAWTO)</li>
<li>single income NSA couple (to illustrate the effect of removal of the dependent spouse tax offset or DSTO)</li>
<li>single income NSA couple aged 55 (to illustrate the combined impact of the loss of DSTO and MAWTO)</li>
<li>single age pension.</li>
</ul>
At low incomes the age pensioner is clearly the winner here, a consequence of the difference in rate setting arrangements - pensions are wages and prices linked; the NSA payments are just CPI linked. However, there is a bit of an income range where the under 55 NSA examples did better (very roughly $15,000 to $25,000), flowing from tax cuts under the carbon pricing package. Age pensioners don't pay much tax, if any, in this range and so didn't gain from the tax changes.<br />
<br />
The big losers are the single income couples, especially where loss of MAWTO also comes into play.<br />
<br />
Next I'll look at each household separately using a chart that shows how much components of the tax transfer system changed in each case.<br />
<br />
First up, the "benchmark" single NSA case (originally covered in a 4 Parliament version <a href="http://ravebydave.blogspot.com.au/2012/07/different-strokes-for.html" target="_blank">here</a>).<br />
<h4>
Chart 3</h4>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://4.bp.blogspot.com/-i_GydSTCEgM/UMz6J0KoEvI/AAAAAAAAATk/GlSCaLafvmY/s1600/NSA.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://4.bp.blogspot.com/-i_GydSTCEgM/UMz6J0KoEvI/AAAAAAAAATk/GlSCaLafvmY/s640/NSA.png" width="640" /></a></div>
<br />
Here we have gains at incomes up to roughly $38,000 and losses at pretty much any income level above this. Most of the gain comes from two sources: tax cuts and the clean energy advance (CEA). Both of these were part of the package of measures that accompanied the introduction of carbon pricing. The small gain attributed to NSA is somewhat misleading - it's due to the timing of the election in 2010 relative to the date on which NSA was increased as part of the normal indexation arrangements.<br />
<br />
The losses are due to the lack of tax cuts at higher incomes in the current Parliamentary period (the carbon price related tax cuts were focused on lower incomes and shaded out at higher incomes). There's also a significant increase in the medicare levy, reflecting the introduction of new surcharge arrangements for those without private health cover. I've done the calculations in respect of an uninsured person to illustrate this change, but it should be noted that those with health cover also had reductions in income as a consequence of the winding back of the private health insurance rebate.<br />
<br />
Now to single parents. Chart 4 illustrates the changes for non-grandfathered single parents on NSA, with two children aged 8 and 10.<br />
<h4>
Chart 4</h4>
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<a href="http://4.bp.blogspot.com/-RbUL0hQSOd8/UM6WB9p-vcI/AAAAAAAAAUE/zuthLB3VtyU/s1600/Single+parent+NSA.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://4.bp.blogspot.com/-RbUL0hQSOd8/UM6WB9p-vcI/AAAAAAAAAUE/zuthLB3VtyU/s640/Single+parent+NSA.png" width="640" /></a></div>
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The most obvious change here is the significant boost in NSA for those with private incomes, particularly at around $25,000 where the gain from NSA alone is over 11%. This is due to the income test change for principal carer single parents which takes effect on 1 January 2013 (I've discussed this a little more in an earlier post <a href="http://ravebydave.blogspot.com.au/2012/11/good-news-for-some-single-parents.html" target="_blank">here</a>). There are also gains stemming from the clean energy advance and the schoolkids bonus. The latter is hard to quantify because the gain from this depends on the extent to which the earlier scheme - the education tax refund - was taken up. If it was taken up in full then there's not really much gain; if it wasn't used for whatever reason then the gain is the full amount shown. That vagueness is why I've coloured it in a wishy-washy way.<br />
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At incomes higher than roughly $100,000 a year this type of single parent household has lost money in real terms. Part of this reflects the tax issue discussed earlier, and part is a consequence of the tightening of access to family tax benefit Part A and Part B via non-indexation of income test thresholds. (There's even a small decline in FTB A at low incomes, reflecting the non-indexation of the end-of-year FTB supplements although that's hard to see at this scale.)<br />
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Next up is the other group of single parents I'm looking at who have also gained in real terms - those with young children to whom PPS is payable.</div>
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Chart 5</h4>
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<a href="http://4.bp.blogspot.com/-Xh6aXR7uaCg/UM-ubon1McI/AAAAAAAAAUg/pD4NyPwnnAY/s1600/single+parent+PPS.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://4.bp.blogspot.com/-Xh6aXR7uaCg/UM-ubon1McI/AAAAAAAAAUg/pD4NyPwnnAY/s640/single+parent+PPS.png" width="640" /></a></div>
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Compared to the single NSA result, the PPS case has a noticeable increase in income support (PPS), but no tax cuts to speak of. This is because PPS still retains many of the features of other pension payments. It's rate is benchmarked to wages growth rather than just CPI and, as pensioners, it's recipients are entitled to the senior Australian and pensioner tax offset (SAPTO). Having access to SAPTO means PPS recipients pay rather less tax than NSA recipients, but consequently don't benefit to the same extent from tax cuts. At incomes higher than the PPS cutout, the results are the same for the NSA case (keep in mind the Y-axis scale is not the same between the charts).</div>
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The next chart looks at the single parent group that has had quite a bit of media coverage - those who were grandfathered at the start of the period, but won't be come 1 January 2013. (More detail about the actual change and its impact is in <a href="http://ravebydave.blogspot.com.au/2012/11/january-changes-for-single-parents.html" target="_blank">this earlier post</a>).</div>
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Chart 6</h4>
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<a href="http://3.bp.blogspot.com/-pg-7CjgloO4/UNJO01dg3SI/AAAAAAAAAU4/d2dBRX5s1n4/s1600/single+parent+PPS+to+NSA.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"></a><a href="http://3.bp.blogspot.com/-pg-7CjgloO4/UNJO01dg3SI/AAAAAAAAAU4/d2dBRX5s1n4/s1600/single+parent+PPS+to+NSA.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="418" src="http://3.bp.blogspot.com/-pg-7CjgloO4/UNJO01dg3SI/AAAAAAAAAU4/d2dBRX5s1n4/s640/single+parent+PPS+to+NSA.png" width="640" /></a></div>
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<span style="color: black;">Given the extent of the coverage I've already given this group I won't say much about this chart, other than a reminder that the comparison here is between the situation in August 2010 (at the election date) and 1 January 2013. The earlier posts have tended to focus on the transition between 31 December 2012 and 1 January 2013, so the numbers will look a little different.</span></div>
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Next, Austudy payment.</div>
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Chart 7</h4>
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<a href="http://3.bp.blogspot.com/-Gz5OPzIv_Is/UNOt_I9TGNI/AAAAAAAAAVQ/PjpeW-dgVHc/s1600/Austudy.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://3.bp.blogspot.com/-Gz5OPzIv_Is/UNOt_I9TGNI/AAAAAAAAAVQ/PjpeW-dgVHc/s640/Austudy.png" width="640" /></a></div>
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Increases in Austudy and the student start-up scholarship are the two standouts in the chart. The Austudy increase is due to relaxation of the income test - in this case an increase in the amount of income students can have before their payment is reduced - and was discussed <a href="http://ravebydave.blogspot.com.au/2012/06/austudy-payment-gets-boost.html" target="_blank">in this post</a>. The student start-up scholarship is available to qualifying tertiary students (which I've assumed here) but there is a caveat to the figures underlying the chart results. The Government announced in its MYEFO statement that it would not index the scholarship on 1 January 2013 (or the the following 3 years). However, the increase is automatic, in the sense that annual increases on 1 January are already enshrined in legislation. This means that new legislation has to be passed to <strong>prevent</strong> the increase and to date I've not spotted its introduction into Parliament. So, as a law-abiding citizen, I've included the increase for now. That said, given the scale used in the chart and the expected low CPI, the loss of indexation is not really going to make a particularly visible difference.</div>
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The only other noteworthy point is the wiggle in the disposable income change line introduced by HECS/HELP. I've assumed that our student will have a HECS/HELP debt and so I'm including repayments in the calculation at higher incomes. The wiggles are a consequence of the timing of CPI based changes to the HECS/HELP repayment thresholds - they take effect each 1 July and so this representation, being calculated as at 1 January, is yet to have 6 months worth of adjustment.</div>
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Next up, a 55 year old single NSA recipient.</div>
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Chart 8</h4>
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<a href="http://4.bp.blogspot.com/-SSigouJwW7Q/UNTl7xciY_I/AAAAAAAAAVo/y2Ocb_GoMYU/s1600/single+NSA+55.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://4.bp.blogspot.com/-SSigouJwW7Q/UNTl7xciY_I/AAAAAAAAAVo/y2Ocb_GoMYU/s640/single+NSA+55.png" width="640" /></a></div>
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If you compare this older single NSA recipient to the younger one depicted in Chart 3 you'll notice that losses occur at rather lower incomes - from roughly $25,000 versus roughly $38,000. Losses are greater from that point up to incomes of around $65,000. This is due to the removal of the mature age workers tax offset (MAWTO), legislation for which was recently passed by Parliament.</div>
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I should restate that these charts are comparing the treatment of a type of household at the election date versus January 2013. The removal of MAWTO has been done in a way that means no individual actually has a loss of income. The design merely stops giving it to those who would become newly eligible for it when turning 55. But that's not what my charts are about - I'm showing the effect of rule changes on household types, so it's quite valid to say that 55 year olds at January 2013 are better or worse off by the percentage in the chart compared to 55 year olds in August 2010.</div>
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During Parliament 43 the Government also tightened access to another tax offset - the dependent spouse tax offset or DSTO - which affected single income couples. The results for that are in the next chart.</div>
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Chart 9</h4>
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<a href="http://4.bp.blogspot.com/-fWHZw3t7700/UNTqKW0_4CI/AAAAAAAAAWA/VotED1QqFFE/s1600/SI+NSA+couple+25.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://4.bp.blogspot.com/-fWHZw3t7700/UNTqKW0_4CI/AAAAAAAAAWA/VotED1QqFFE/s640/SI+NSA+couple+25.png" width="640" /></a></div>
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This household type was covered quite recently in one of my 4 Parliament comparisons (<a href="http://ravebydave.blogspot.com.au/2012/08/4-parliaments-single-income-couple.html" target="_blank">here</a>) and given the low CPI results since then there's no marked change. One point to note is that this type of household will gain a little in March when the clean energy advance (shown in green on the chart) is replaced by the clean energy supplement. The design of the clean energy advance meant, in my view at least, these couples were under compensated for carbon pricing effects relative to single people and two income couples. This is overcome once the compensation begins to form part of the actual NSA payment rate, which occurs in March next year. Unfortunately, the same can't be said for the income support bonus, also scheduled for a March introduction, which has the same design problem as the clean energy advance. I've provided a bit of an explanation of this design issue <a href="http://ravebydave.blogspot.com.au/2012/12/being-partnered-is-not-much-of-bonus.html" target="_blank">here</a> (but be warned - a commenter on that post described it as boring, to put it mildly).</div>
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Note too, unlike the MAWTO change, abolition of the DSTO did actually affect some households, as an entitlement that was available one year was gone the next.</div>
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It is of course possible for a household type to be affected by both the MAWTO and DSTO changes. The result is shown in the next chart.</div>
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Chart 10</h4>
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<a href="http://2.bp.blogspot.com/-egt3E31Ol_c/UNTy4FmXizI/AAAAAAAAAWY/4Y829XXeO_E/s1600/SI+NSA+couple+55.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://2.bp.blogspot.com/-egt3E31Ol_c/UNTy4FmXizI/AAAAAAAAAWY/4Y829XXeO_E/s640/SI+NSA+couple+55.png" width="640" /></a></div>
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Here we can see the combined effect of the MAWTO and DSTO withdrawal, which, along with all the other modelled bits and pieces, produces an 8% decline in real disposable income at an income of slightly more than $40,000.</div>
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Yes, I suppose this is a small group in the overall scheme of things and perhaps it is a little mischievous to include it, but it does illustrate how separate changes can stack together to produce quite significant results. At least I resisted the temptation to compare an August 2010 55 year old grandfathered PPS recipient with a January 2013 55 year old single parent NSA.</div>
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All good things must come to an end, and so to my final chart, which looks at single age pension.</div>
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Chart 11</h4>
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<a href="http://1.bp.blogspot.com/-FNXCRoZmW4o/UNT1P2SIJZI/AAAAAAAAAWw/1-CGihq9NRo/s1600/single+AP.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://1.bp.blogspot.com/-FNXCRoZmW4o/UNT1P2SIJZI/AAAAAAAAAWw/1-CGihq9NRo/s640/single+AP.png" width="640" /></a></div>
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This group was covered in an earlier 4 Parliaments post (<a href="http://ravebydave.blogspot.com.au/2012/09/4-parliaments-single-age-pension.html" target="_blank">here</a>) and is largely unchanged since then. The significant real (ie, above CPI) increase in the maximum rates at zero private income is a result of the wages based rate setting mechanism for pension. At incomes higher than the single pension income test cutout, single aged persons have had a reduction in real income relative to their August 2010 counterparts.</div>
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A reduction in real disposable incomes at higher private incomes is common to all the households looked at here. Whether this tightening of the system at higher incomes has actually caused a reduction in disposable incomes since August 2010 depends on other factors, particularly wages growth. The reduction shown in the charts is calculated for cases where the income in 2013 is the same in real terms as in 2010, but in fact wages growth has exceeded the CPI over that period, something considered in <a href="http://ravebydave.blogspot.com.au/2012/08/something-for-kouk.html" target="_blank">this post</a>.</div>
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Conversely, for all household types (bar one - the grandfathered PPS cases), real incomes have increased at low (or zero) private income. Granted, for some cases (childless NSA for example) the increase is intended to be partly eroded by the impact of carbon pricing, but the general trend remains - the changes made to the tax-transfer system by this Parliament have so far had more of a redistributive emphasis than the preceding three. This seems set to continue - March 2013 sees the introduction of the income support bonus for social security benefits (eg, NSA) and July has an increase in FTB A rates. That means more gains at low or no private income, but as yet, no suggestion of benefits to flow to higher income households.</div>
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Parliament 43 still has a way to run yet and we are entering the election year. The pictures presented here could well look quite different by the end of 2013.</div>
Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com1tag:blogger.com,1999:blog-7303409391905322366.post-92118164366583800382012-12-09T13:31:00.003+11:002013-02-26T10:27:34.946+11:00Being partnered is not much of a bonus[Warning: A commenter has suggested this post is boring enough to provoke actual self-harm]<br />
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Considering the amount of attention paid to the findings of the recent Senate enquiry into Newstart allowance (and similar) payment rates, it's perhaps surprising that the introduction next year (from 20 March) of an <em>income support bonus</em> has received little coverage. The bonus provides up to $175 a year to a member of a couple and up to $210 a year to a single person. This is in addition to the usual CPI based rate increases.<br />
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It's not a straightforward increase in rates, however, and the chosen approach seems to me to be particularly unfair to some couples.<br />
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The bonus is only provided to people who are on the eligible income support payments on a particular <em>test day</em>. There are two of these a year - 20 March and 20 September - and a person on payment on a test day will get half of the yearly bonus amount as a lump sum. So, if you are on a payment on both test days in a year, you get the full amount. Not on payment on a test day? Tough - no bonus for you.<br />
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Providing this extra assistance as a rate increase instead of a test-day based bonus would, of course, cost more. That's because all recipients would have an increase (albeit comparatively small on a fortnightly basis) instead of those who happen to be there on the test day. There's also a small extra cost associated with the fact that an increase in rates also leads to an increase in the income point at which entitlement to payment is reduced to zero under the income test (the cutout point). Given the size of the bonus, delivering it as a standard rate increase wouldn't have done much in this respect, as is shown below.<br />
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Chart 1</h4>
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<a href="http://1.bp.blogspot.com/-CFIe_UZxWcs/UMPm-AApvZI/AAAAAAAAASA/SEe_w8yoDSc/s1600/bonus+for+singles.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://1.bp.blogspot.com/-CFIe_UZxWcs/UMPm-AApvZI/AAAAAAAAASA/SEe_w8yoDSc/s640/bonus+for+singles.png" width="640" /></a></div>
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The dotted red line shows the assistance and increase in the cutout point if the bonus was delivered as a standard rate increase over a full year. This is based on the higher single rate of Newstart allowance, paid to singles with dependent children, older long-term recipients and members of a couple who are living apart due to ill-health, or imprisonment of one of them. As you can see, the two methods - bonus and increase - provide the same gain over a year until private income exceeds a little over $25,000 a year. The extra assistance stemming from the increase in the cutout is pretty trivial.<br />
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That suggests for singles the main savings from choosing the bonus approach come from the test day system.<br />
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If we look at couples, however, it's quite a different story. Again, there are savings to be had from the test day approach, but there are also some that stem from the so-called sequential income test that's applied to most social security benefit couples (there's a bit of an explanation of sequential income testing in an earlier post of mine <a href="http://ravebydave.blogspot.com.au/2012/04/austudy-payment-and-half-built-income.html" target="_blank">here</a>).<br />
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An increase in rates would have given couples the full benefit of the (combined) $350 assistance package on offer regardless of the distribution of private income within the couple. Delivery via a bonus means that for single income couples in particular, the assistance is half what it would (should?) have been over quite an extended income range. You can see this in Chart 2 below.<br />
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Chart 2</h4>
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<a href="http://2.bp.blogspot.com/-Ecbx5ak_UNU/UMP0eeRv4UI/AAAAAAAAASY/CD7Eq8lvcDc/s1600/bonus+for+couples.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://2.bp.blogspot.com/-Ecbx5ak_UNU/UMP0eeRv4UI/AAAAAAAAASY/CD7Eq8lvcDc/s640/bonus+for+couples.png" width="640" /></a></div>
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Here we can see a marked disparity between the entitlements delivered via bonus system versus a standard rate increase. Whereas singles received over a full year almost identical amounts regardless of delivery approach, couples are clearly disadvantaged by the bonus method.<br />
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There is no disadvantage for couples where income is equal (ie, a 50:50 private income split), or where one of the couple is a pensioner. For the rest, the closer the private income split is to 100:0, the more disadvantaged the couple becomes relative to singles and 50:50 couples.<br />
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Maybe this is a carefully thought out design, or maybe it just indicates what can happen if you whip some kind of paltry increase up at the last minute in the face of continued criticism. You choose.<br />
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Addendum</h3>
I forgot to mention that the Bill introducing the bonus is currently before Parliament. Details are <a href="http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r4940" target="_blank">here</a>.<br />
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<br />Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com2tag:blogger.com,1999:blog-7303409391905322366.post-67382701892387298352012-11-28T16:09:00.001+11:002012-11-28T16:09:14.656+11:00January changes for single parentsSoon it will be 1 January 2013, with its attendant changes to some of the arrangements for single parents. I've done quite a few posts on this over the last year but I thought it was worth updating the figures using the rates, etc, that will actually apply on that date.<br />
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The changes I'll be focusing on are:<br />
<ul>
<li>the removal of the "grandfathering" provisions that have so far prevented single parents who have been on parenting payment (PPS) since before 1 July 2006 from being subject to the so-called age-8 transition; and</li>
<li>the relaxation of the Newstart allowance income test for single parents with the principal care of at least one child aged under 16.</li>
</ul>
Handily, both of these can be looked at in the context of the age-8 transition.<a name='more'></a><br />
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The age-8 transition refers to the rule that's been in place since 1 July 2006 - PPS is only payable to a person who has the care of a qualifying child aged less than 8 years. When that child turns 8 entitlement to PPS is lost and the person will need to take up some other type of income support payment, typically Newstart allowance (NSA). Depending on the individual's circumstances NSA may not be the only option - other possibilities include Austudy payment, disability support pension or carer payment.<br />
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With the exception of the grandfathered group referred to above, single parents have been undergoing this transition from one type of income support to another when their youngest child turned 8 for over six years now. The typical PPS to NSA transition involves a significant reduction in the single parent's disposable income because (a) the maximum rates of payment are lower and (b) the NSA income test is rather tighter than the PPS one. The combination of these two elements means that the reduction depends on the amount of the single parent's private income.<br />
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Here's a fairly bare-bones chart that shows the amount of the reduction under the current rules. I say bare-bones because there are many other factors that can affect the outcome, including the person's accommodation arrangements, child care arrangements, child support payments and the extent to which the person makes use of pensioner concessions. I've not included those.<br />
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The chart shows the total reduction and also the bits of the tax-transfer system that make it up.<br />
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Chart 1</h4>
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<a href="http://2.bp.blogspot.com/-EziVhFRIAQk/ULVpmCRh91I/AAAAAAAAAQQ/Uzf-WC02OlI/s1600/September+change.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="416" src="http://2.bp.blogspot.com/-EziVhFRIAQk/ULVpmCRh91I/AAAAAAAAAQQ/Uzf-WC02OlI/s640/September+change.png" width="640" /></a></div>
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<br />This example is a two child single parent. You can see that the maximum loss of around $9,600 a year (about $184 a week) is experienced by those parents earning a little over $25,000 a year. Those parents who weren't working at transition have a loss of around $3,450 a year (approx $66 a week), reflecting the difference in the maximum rates of the assistance package.<br />
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The 2006 changes to PPS eligibility that resulted in this transition were intended to increase the workforce participation of single parents. It seems odd then (to put it mildly) that the way they were implemented actually delivers greater financial losses to those parents who work.<br />
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From 1 January 2013 the age-8 transition will also start to apply to the previously exempted grandfathered group. Quite a few of those have youngest children aged 8 or more so there will be a large block of parents subject to the transition in addition to the usual rate of movement between the payments. However, the transition from PPS to NSA will be made a little easier for working parents due to the relaxation of the NSA income test.<br />
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At present, once the NSA income test starts to bite it reduces payment at a rate of 50 cents for each dollar, increasing to 60 cents in the dollar for income in excess of $250 a fortnight. Under the new arrangement both these taper rates will be replaced by a 40 cents in the dollar regime. This has two effects:<br />
<ul>
<li>the losses at the age-8 transition will not be as large for working parents; and</li>
<li>most "principal carer" single parents already on NSA who are working will get an increase in their NSA payment (<a href="http://ravebydave.blogspot.com.au/2012/11/good-news-for-some-single-parents.html" target="_blank">see my earlier post on this if interested in the amounts</a>).</li>
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My next chart shows how the age-8 PPS to NSA transition looks once the new income test is taken into account.<br />
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Chart 2</h4>
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Here we can see the relaxation in the NSA income test taper rate has reduced the maximum yearly loss from around $9,600 (as per Chart 1) to around $6,200 (obviously, there's no change for those not working). Interestingly (in a perverse kind of way), in private income range of approximately $15,000 to $35,000, the almost $5,000 reduction in income support is nonetheless associated with an increase in tax liability. That's because PPS recipients have access to the senior Australian and pensioner tax offset (SAPTO) which reduces their tax liability. No more PPS means no more SAPTO which means a bigger tax liablity.<br />
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The increased medicare levy at higher incomes is a result of the loss of a similar concession in the medicare system.<br />
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I mentioned earlier that the rationale in 2006 for the introduction of the age-8 transition was to increase workforce participation. That same rationale is being used for the removal of the grandfathering provisions today. The loss of income at the transition supposedly provides a bit of stimulus or incentive to increase hours worked in order to make up that loss. However, the problem in the 2006 arrangement - that it penalises most heavily those who are already working - is present in the January 2013 system. This means that in order to recover their financial loss, those who are working at the transition have to earn more than those who weren't.<br />
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Just how much extra is needed is the subject of the next chart.<br />
<h4>
Chart 3</h4>
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<a href="http://4.bp.blogspot.com/-g_dgI_Eo110/ULWCgyPufdI/AAAAAAAAAQ4/9132X7b48yg/s1600/dollar+extra+work.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="640" src="http://4.bp.blogspot.com/-g_dgI_Eo110/ULWCgyPufdI/AAAAAAAAAQ4/9132X7b48yg/s640/dollar+extra+work.png" width="558" /></a></div>
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This one might need a bit of explanation. It's showing how much private income PPS and NSA recipients must have in order to acheive equal disposable incomes. For example, if we look at a PPS recipient earning $10,000 a year we can see that under the current (September 2012) arrangements, the NSA recipient has to be earning about $27,000 a year to get the same final income. Come January the NSA recipient needs to earn about $20,000 to match a $10,000 earner on PPS, or in other words, they have to double their working hours to stay where they were.<br />
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The dotted reference line is what would be required if both the PPS and NSA schemes were the same. It's only there to make it easier to see how much <em>extra </em>has to be earned to achieve "parity" - it's the amount by which the September and January traces exceed the reference.<br />
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This chart is focusing on the private income levels, however, it's perhaps a bit scarier if this changes to hours worked. The next chart considers people earning the National Minimum Wage (NMW).<br />
<h4>
Chart 4</h4>
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If we look at a PPS recipient working 15 hours at the NMW we can see that, post-transition, they currently need to work about 35 hours a week to keep the same level of disposable income. With the relaxed NSA income test, from January this falls to about 28 hours - still nearly double. Even with the relaxed income test, PPS recipients working 23 or more hours per week at the NMW will have to work full-time <em>and</em> add a second job to stand still financially - they have to work more than 38 hours a week. A full-time NMW PPS recipient will need to up their hours from 38 to 50 a week.<br />
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In contrast, a non-working PPS recipient can maintain their income post transition by working around 6 hours a week. Again, working PPS recipients are really copping the brunt of this change.<br />
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Earlier I mentioned that these results were for a bare-bones case. However, it's difficult to ignore the fact that many single parents will need to make use of childcare, so my final chart is an attempt to bring in that element. In this case I've assumed that both the PPS and the NSA recipient are making use of outside-school-hours-care (OSHC). <br />
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I confess I've cheated though, because I've calculated it as if each hour of employment was associated with a childcare requirement. I'm assuming that a person working full-time would use the maximum allowable OSHC of 25 hours a week, and less hours worked is proportionally less hours of OSHC, down to zero usage at zero hours worked. The reality is rather different, particularly given the sessional nature of childcare provision.<br />
<h4>
Chart 5</h4>
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<a href="http://4.bp.blogspot.com/-mR3vSkKkoy0/ULWJgSdV8aI/AAAAAAAAARo/kmfuYP2Hi5Y/s1600/hours+extra+with+childcare.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="640" src="http://4.bp.blogspot.com/-mR3vSkKkoy0/ULWJgSdV8aI/AAAAAAAAARo/kmfuYP2Hi5Y/s640/hours+extra+with+childcare.png" width="454" /></a></div>
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This chart is just looking at the January situation, with and without childcare factored in. For the childcare I've assumed an OSHC cost of $6.50 per hour. The main point is that over much of the range covered here, factoring in childcare adds around another 4 hours a week of employment to cover the loss of income. So, for example, a PPS recipient working 15 hours a week and not using childcare would need to work about 28 hours a week post-transition. If they were a child care user, they'd need to work about 32 hours a week (more than double).<br />
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Ultimately, the chart gets a bit silly, because there's no extra childcare provided once the 25 hour limit is reached, at least in my modelling. However, the single parent working more than full-time is still going to need some kind of child care, particularly as we get up toward the 50 hours a week employment at NMW needed to replace 38 hours of pre-transition income. <br />
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One of the (many) perplexing elements of this set of policies is the fact that although the transition occurs at age 8, PPS recipients are required to look for work, etc, when their youngest turns 6. This "activation" strategy is apparently pretty successful and as a result many PPS recipients are in employment by the time their child turns 8. On the face of it that might seem a good result, but when combined with the PPS-NSA transition it can be argued that all the system has done is set these people up for a giant fall due to a design that appears to punish workers.<br />
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As I tried to point out in an earlier post (<a href="http://ravebydave.blogspot.com.au/2012/10/uh-oh-kids-are-getting-bigger.html" target="_blank">here</a>), transitions are inevitable given that children eventually grow up. But surely we can design them better than this.Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com7tag:blogger.com,1999:blog-7303409391905322366.post-42194561439504720822012-11-15T20:17:00.000+11:002012-11-15T20:18:17.619+11:00Good news for some single parents...As 1 January 2013 approaches, the changes in the eligibility conditions for parenting payment continue to receive attention. These changes will result in the loss of entitlement to parenting payment for existing recipients whose youngest child is aged 8 or more. However, there's another change affecting single/sole parents that has so far had very minimal coverage - and this time it's actually a gain.<br />
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For so-called "principal carer" single parents in receipt of Newstart allowance, the income test is being relaxed. The rate at which payment is reduced by income will change from the current 50 (or 60) cents in the dollar to 40 cents in the dollar. For Newstart recipients whose rate is currently reduced due to their income, these changes will lead to an increase in payment. It will also allow some sole parents who currently earn too much to get Newstart allowance to receive a part-rate.<br />
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Here's a chart that shows the gain (expressed in yearly terms) the income test change produces.<a name='more'></a><br />
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There are a few bits and pieces at work here, but the final result is shown by the white line. The coloured areas show which bits of the overall payment package are changing. <br />
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The orange shows how much Newstart allowance changes as private income increases. You can see that the maximum gain - a little over $4,000 a year - occurs at a private income of around $25,700. This increase in income comes at a price though - tax payable rises in response to the higher taxable income, which is why the white line showing the net change is less than the gain in Newstart allowance over some income ranges.<br />
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Note that at incomes above approximately $25,700, telephone allowance and clean energy payment make an appearance. This reflects that fact that at these incomes single parents are not currently eligible for Newstart allowance, but will become entitled under the new income test. In turn, the newly acquired Newstart allowance brings with it those two supplementary payments.<br />
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These newly eligible single parents will also qualify for a pensioner concession card.<br />
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A few days ago, Maree O'Halloran of the National Welfare Rights Network <a href="http://www.theage.com.au/opinion/political-news/singleparent-families-could-lose-all-income-in-january-20121113-29as9.html" target="_blank">raised concerns</a> about single parents who will lose entitlement to parenting payment being unaware of the need to claim alternative income support. Similar concerns apply to the newly eligible sole parents I've described above. However, unlike the parenting payment cases, who <a href="http://www.theaustralian.com.au/national-affairs/indigenous/carr-gives-ground-on-dole-push-for-single-mums/story-fn9hm1pm-1226516947946" target="_blank">will be contacted by Centrelink</a> , there's no simple mechanism for advising these potentially eligible Newstart cases. Perhaps the income estimates used for Family Tax Benefit purposes could be used to identity likely candidates? Or maybe, given the Government's desire to attain a surplus this year, no effort at all will be the more attractive (aka cheaper) option!<br />
<br />Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com1tag:blogger.com,1999:blog-7303409391905322366.post-26698968757864488342012-10-21T12:12:00.002+11:002012-12-10T12:50:50.604+11:00Single parents with part-care of childrenLast week was anti-poverty week, and amid all the stories about reductions in the entitlements of single parents and the paucity of the Newstart allowance rate <a href="http://www.canberratimes.com.au/act-news/managing-to-get-by-adds-up-to-going-without-20121015-27ndj.html" target="_blank">this one caught my eye</a>. Although it didn't deal directly with the issue, the case seems to involve, among other things, a single parent who has part-care of his children. The comments that follow the article express various levels of support and/or sympathy mixed with the usual "get a job" sentiments. There are also some questioning the amount of assistance he received, which appears to be just single Newstart allowance - no payments in respect of his children.<br />
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Part-care of children brings with it some complicated rules around how much, if any, family assistance can be paid, with similar provisions around child support entitlements or liabilities. At the extremes, a parent with no care of their child won't receive any child-related assistance, and will generally have to <em>pay</em> child support, whereas a parent with 100% of the care gets all the child-related assistance and will generally <em>receive</em> child support. As care increases from zero there is a kind-of graduated sharing of family assistance entitlements. I say "kind-of" because it's not a smooth transition - the family assistance amounts change in a lumpy way over some percentage ranges, not at all over others, and disproportionately in the rest.<br />
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A further complication is that adult income support also undergoes changes related to the level of care of the child.<br />
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There are many possible combinations of care and payment types but I'll just focus on three as they will illustrate most of the points.<a name='more'></a> I'll use a two-child family with a 10 year old and the youngest child aged 8 for two examples, and the youngest aged 7 for the other. The three are:<br />
<ul>
<li>a single Newstart allowance recipient (youngest is 8)</li>
<li>a single Austudy payment recipient (youngest is 8)</li>
<li>a single Newstart allowance or parenting payment recipient (youngest is 7).</li>
</ul>
For all these cases both of the (estranged) parents are assumed to also be on income support of some kind and have no private income.<br />
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First up, let's put the three together on the same chart so you can see the disposable income for each, including the effect of child support payments or liabilities.<br />
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<h4>
Chart 1</h4>
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<a href="http://3.bp.blogspot.com/-7ZTQsLI6ugw/UIM5G31qAVI/AAAAAAAAAOM/FuZ4ppUM6Hw/s1600/comparisons.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://3.bp.blogspot.com/-7ZTQsLI6ugw/UIM5G31qAVI/AAAAAAAAAOM/FuZ4ppUM6Hw/s640/comparisons.png" width="640" /></a></div>
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Two quick points: the scale does not start at $0 (to help make the differences more easily visible), and the Newstart/parenting payment line (red) starts out as Newstart and then becomes parenting payment as the percentage of care crosses the 50% mark. All three traces show the lumpy way in which the entitlement package changes as the person goes from no care to full care of the child.<br />
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This comparison chart doesn't show what parts of the package are changing, so let's do that for each in turn, starting with the single Newstart case.<br />
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<h4>
Chart 2</h4>
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<a href="http://4.bp.blogspot.com/-YW8C6kqTxGs/UIM89f4LcSI/AAAAAAAAAOk/nC13zRBhsLg/s1600/NSA+breakdown.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="416" src="http://4.bp.blogspot.com/-YW8C6kqTxGs/UIM89f4LcSI/AAAAAAAAAOk/nC13zRBhsLg/s640/NSA+breakdown.png" width="640" /></a></div>
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At zero care the parent is getting the single Newstart allowance (NSA) and the associated clean energy payment. They also are paying a minimum rate of child support, so their total income is actually <em>less</em> than the Newstart rate as a result. (The formula used to calculate child support liability actually produces a zero amount in this case, but a separate provision imposes a minimum rate, which is reflected here).<br />
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At 14% care there is a change in entitlements. This level of care triggers a provision in the rate calculation for Newstart, giving the person a higher single NSA rate. In addition, the minimum rate rule for child support no longer applies, allowing the formula result to take precedence - in this case the person no longer has a liability.<br />
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At 35% care the Family Tax Benefit system begins to provide child-related assistance in a somewhat lumpy fashion. This increases as care rises but goes into a holding pattern from 48 to 52%, where the payment is held at half for each parent. From 52% the Family Tax Benefit increases again until care exceeds 65%. From there on the person receives 100% of the rate.<br />
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The person begins to receive child support when care exceeds 86% (the other parent's care level is now less than 14% and so becomes subject to the minimum payment rule).<br />
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If you look hard there's a tiny increase in the NSA rate at about 50% care. That's because from this point on the parent is considered to be the principal carer of the children, giving them access to the pharmaceutical allowance component of the NSA rate. Principal carer status also triggers access to telephone allowance (barely visible as the purple component in the chart) and the pensioner concession card instead of the less valuable health care card.<br />
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Now for Austudy payment...<br />
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<h4>
Chart 3</h4>
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<a href="http://4.bp.blogspot.com/-OZaFr9NniWE/UINGT50zIkI/AAAAAAAAAPE/mmfrfy6DwaE/s1600/Austudy+breakdown.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://4.bp.blogspot.com/-OZaFr9NniWE/UINGT50zIkI/AAAAAAAAAPE/mmfrfy6DwaE/s640/Austudy+breakdown.png" width="640" /></a></div>
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The family assistance and child support aspects of this case are the same as in the NSA example. It's the income support (Austudy payment) that is the source of the differences.<br />
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Austudy payment does not have an equivalent of the 14% rule that triggered a higher NSA rate, but a similar effect occurs at around 30% care, when the payment increases to the single-with-child Austudy rate. The extra assistance that applied to the NSA single parent when they became the principal carer also doesn't feature - Austudy doesn't have the concept. So, no pharmaceutical allowance, no telephone allowance, and more significantly, no pension concession card.<br />
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Nonethless, in this case the total "cash" package is greater than provided to the NSA case, simply by virtue of the student startup scholarship. However, this is nothing to do with the presence of a dependent child, it 's just a general entitlement that most tertiary students getting Austudy payment can pick up. However, in some cases the scholarship is not available (it depends on the course of study), in which case the Austudy person would have less assistance than their NSA equivalent. And no pension card.<br />
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For the final example let's assume the youngest child is aged 7, rather than 8. This means that parenting payment for single people (PPS) is in play.<br />
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<h4>
Chart 4</h4>
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<a href="http://1.bp.blogspot.com/-PXbQwqH07i0/UINIFoOIewI/AAAAAAAAAPM/ToLVOJU2zkI/s1600/NSA-PPS+breakdown.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="416" src="http://1.bp.blogspot.com/-PXbQwqH07i0/UINIFoOIewI/AAAAAAAAAPM/ToLVOJU2zkI/s640/NSA-PPS+breakdown.png" width="640" /></a></div>
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Again, the family tax benefit and child support elements are unchanged. It's the income support that is different.<br />
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Where the person has less than 50% care they will generally not qualify for parenting payment (only one parent in an estranged couple can get parenting payment in respect of a particular child). This means that the results shown here up to the 50% care point are the same as for the NSA example in Chart 2. However, once the person has sufficient care to trigger PPS entitlement there is a noticeable increase in the income support rate (PPS is a higher rate than NSA). As with the NSA example, from this point the parent also gets access to a pensioner concession card and telephone allowance.<br />
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With all three of the examples I've used it's clear that there are particular levels of care that, if crossed, result in significant changes in the financial resources of the household. These points will almost always apply in the other household too, but in the opposite direction. Little wonder then, that negotiations between estranged parents around sharing the care of children can be so fraught!<br />
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<br />Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com0tag:blogger.com,1999:blog-7303409391905322366.post-51016521049799948522012-10-13T13:13:00.000+11:002012-10-13T13:15:49.083+11:00Uh-oh, the kids are getting biggerThis week Parliament passed legislation removing the special arrangements ("grandfathering") for parents getting parenting payment since before 1 July 2006. I've done a few posts on this already so I won't repeat the details (see <a href="http://ravebydave.blogspot.com.au/2012/05/single-parents-and-budget-leak.html" target="_blank">here</a> and <a href="http://ravebydave.blogspot.com.au/2012/06/sole-parents-public-housing-and-that.html" target="_blank">here</a> if you want the earlier raves on this subject). The gist of it is that the grandfathered group will now have the same payment arrangements applied to them as everyone who has come on to parenting payment since 1 July 2006. These arrangements are rather less generous for single parents, who will consequently have significant reductions in their incomes when the change takes effect on 1 January 2013. (It's of less significance for partnered parents because they have always had lower Newstart allowance-linked payment rates.)<br />
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Parents in the income support system, partnered or single, face changes in the total assistance package provided to them when their children reach significant birthday milestones. Sometimes it's up, sometimes it's down, but the final result is down. By final result, I mean that eventually the parent is no longer considered to have a dependent child, and a significant age for this purpose is 22 years. A 22 year old child becomes eligible for Newstart allowance in their own right (subject to the usual rules about being unemployed, etc) and a 22 year old student child gets a youth allowance that is no longer affected by parental income. If the parent is single then, in the usual case, they will get the single rate of Newstart allowance.<br />
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So, under the current arrangements a single parent who still needs income support will typically end up on single Newstart allowance, simply as a consequence of the passage of time. If we compare the assistance package for a single parent with a newborn to that of a single Newstart recipient the size of the eventual transition that must occur is stark.<a name='more'></a><br />
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<h4>
Chart 1</h4>
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<a href="http://4.bp.blogspot.com/-qta3iUl49DY/UHiswX3QfrI/AAAAAAAAAMs/fN-ovDpOaa4/s1600/PPS+and+NSA.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://4.bp.blogspot.com/-qta3iUl49DY/UHiswX3QfrI/AAAAAAAAAMs/fN-ovDpOaa4/s640/PPS+and+NSA.png" width="640" /></a></div>
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As noted above, in the current system this transition does not occur in one hit. There are a number of changes as the child ages, which we can see in Chart 2.<br />
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<h4>
Chart 2</h4>
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<a href="http://4.bp.blogspot.com/-HxT-f6Uvjvw/UHit_gRowPI/AAAAAAAAAM0/sVK00tTRpVU/s1600/PPS+and+NSA.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="418" src="http://4.bp.blogspot.com/-HxT-f6Uvjvw/UHit_gRowPI/AAAAAAAAAM0/sVK00tTRpVU/s640/PPS+and+NSA.png" width="640" /></a></div>
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The first difference occurs simply because newborns attract a baby bonus (or paid parental leave - I've gone with baby bonus here). The child age 0 data includes this and is consequently higher than the assistance for ages 1 to 4, which is otherwise identical. <br />
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When the child turns 5 there is a reduction in the overall assistance package due to a lowering in the rate of Family Tax Benefit Part B. This is slightly offset by the commencement of the school bonus payments, but the net effect is lower overall assistance. The rationale for this reduction is that with the child now of school age there is a greater capacity for the parent to work. Capacity to work also seems to be the rationale for the next reduction, when the child turns 8. <br />
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At the child's 8th birthday, entitlement to parenting payment is lost and the parent must apply for some other type of income support. In the chart I've assumed this is Newstart allowance, giving a picture of the parenting payment to Newstart transition that has been in the news of late. Note that this is the transition for those without private income - as canvassed in my other posts, it's a substantially larger reduction for working families.<br />
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The next change occurs when the child turns 13, but this time it's an increase. This is done to reflect the fact that older children are more expensive to run. The increase pops up in two places on the chart - the Family Tax Benefit Part A rate is higher, but so too is the school bonus which I'm showing at the secondary school student rate. This rate package persists until the child turns 16.<br />
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At age 16 there is a slight reduction in income support as the parent no longer attracts the pharmaceutical allowance component of the Newstart allowance rate. They also lose access to the telephone allowance.<br />
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The child turning 18 produces the biggest change, at least in the case I've shown here. I've assumed the child is now a tertiary student and so has taken up youth allowance. They no longer attract the school bonus, but instead can pick up a student start-up scholarship. Significantly, the payments for the child are now paid to the child, not the parent (they are, after all, legally an adult at this point). For this reason I'm showing the student payments separately (next to) the parent's payment. Note that the parent's Newstart allowance has reduced again. That's because the parent is not considered to have a dependent child for Newstart allowance purposes which results in them getting the lower single rate (up to this point the Newstart was paid at the higher single rate).<br />
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This exclusion of the child from the Newstart rate calculation process is somewhat one-sided though. If the parent is working, their "parental income" can still affect the youth allowance rate for the student. Arguably, the dependency rules are misaligned from age 18 until the child reaches 22 years. At that point the child is not a dependent for either scheme and so the parent is now a "vanilla" single Newstart allowance case (ie, does not attract rate add-ons).<br />
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So that's the perhaps inevitable transition "journey" as children get older for people granted parenting payment on or after 1 July 2006. And from 1 January 2013 they will be joined by the grandfathered group, albeit sooner than they were led to believe would be the case back in 2006. <br />
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And now for something completely different....child support! (Actually, it's related but short, so I thought I'd throw it in on the end here.)<br />
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I was discussing the changes to parenting payment (ie, the loss of grandfathered status) with a friend who is rather an expert on matters child support. He chastised me and the world more broadly for not taking child support into account when discussing the incomes of single parents. After all, most single parents get child support, so any analysis of a "typical" case without including child support is arguably not that typical.<br />
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In my defense, it's hard to do child support analysis because of the number of variables in play in the child support formula. It's affected by the individual incomes of the two separated parents, the combined incomes of those same parents and the percentage of care of the children that each parent has. Nonetheless, he has a point and so to a little (aka cursory) examination of the effect child support has on the change in disposable incomes experienced at the age-8 transition. (Besides, it gives me an opportunity to take the child support calculating parts of my spreadsheet out for a spin!)<br />
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The issue we were discussing was the extent to which the reduction in income experienced by the single parent at the age-8 transition is offset by an increase in child support. I thought I could do this using the same net loss chart that I did in my earlier posts on this subject, but including the effect of child support from payers (the separated parent without the care of the child) at a number of payer incomes.<br />
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The results are in Chart 3 and suggest that, at least for the cases I modelled, child support payments won't increase enough to come to any kind of rescue. (Note that the following material is based on January 2013 rates and income test arrangements.)<br />
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Chart 3</h4>
<a href="http://3.bp.blogspot.com/-jkmZXAN4siM/UHjHYFBISmI/AAAAAAAAANI/1szkKgEb0Og/s1600/PPS+to+NSA+with+CS.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="416" src="http://3.bp.blogspot.com/-jkmZXAN4siM/UHjHYFBISmI/AAAAAAAAANI/1szkKgEb0Og/s640/PPS+to+NSA+with+CS.png" width="640" /></a><br />
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In fact, at this scale there's no real discernable difference between the 5 cases I've plotted, apart from the trace where the child support payer's income is $100,000 a year. This result is due to an interesting interaction in the child support formula. First, the reduction in income following the age-8 transition means the combined income of the separated parents has fallen. A lower combined income actually means a lower child support liability (or costs of a child) would arise. However, the paying parent now has a greater proportion of the combined income, meaning the percentage of the costs of the child they must meet rises. This bringing together of a higher <em>individual</em> liability with a lower <em>total</em> liability results in no or little change overall.<br />
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However, there is one obvious way in which the child support does affect the outcome. The higher the child support, the lower is the reduction in income <em>in percentage terms</em> at the age 8 transition. You can see this in Chart 4.<br />
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<h4>
Chart 4</h4>
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<a href="http://4.bp.blogspot.com/-zJOQOxNfaGU/UHjKBakUf0I/AAAAAAAAANc/xfQCdz8RVD8/s1600/PPS+to+NSA+with+CS+percentage+version.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="416" src="http://4.bp.blogspot.com/-zJOQOxNfaGU/UHjKBakUf0I/AAAAAAAAANc/xfQCdz8RVD8/s640/PPS+to+NSA+with+CS+percentage+version.png" width="640" /></a></div>
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However, the losses are still large in dollar terms (as per Chart 3), regardless of whether they represent over 13% or under 11% of disposable income.<br />
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So there you go, Mr X, a tiny bit of child support discussion at last. I promise to try and include more in future.<br />
<br />Davidhttp://www.blogger.com/profile/08602009825603062665noreply@blogger.com2