It's About Time - Chapter 6

It's About Time

Chapter 6: Government Support: Welfare and tax

6.1 Introduction
6.2 Developing principles for a carer-friendly welfare system
6.3 Current government assistance for families
6.4 Support for all types of families and care needs
6.5 Supporting parents and other carers to work and care
6.6 The need for a consistent and integrated system
6.7 The interaction of taxation and welfare systems
6.8 Fairness in the taxation system for all family types and all caring responsibilities
6.9 Lower effective marginal taxation rates
6.10 Fringe Benefit Tax and tax deductibility of child care
6.11 Linking superannuation to care
6.12 Conclusion

6.1 Introduction

The Australian welfare system helps support individuals and families to balance their family and carer responsibilities with their paid work. A broad range of social support is provided via direct payments to individuals and families along with funding for services that provide economic and social support for those who are unemployed, on low incomes or who are otherwise disadvantaged. Both the Australian and State and Territory governments provide support for families through investment in education, health, child care and aged care services, among others.

The taxation system works in concert with the welfare system and provides both incentives and disincentives for families making choices about work and care arrangements, and transitioning from one stage of the work/care life cycle to the next.

The section below outlines the major planks of Australian Government support for families combining paid work and care and the way in which these act to assist or hinder choice in Australian families. The sections that follow draw on public submissions and consultations conducted by HREOC which help to frame the major elements the tax and welfare systems need to include in order to serve the needs of individuals and families who undertake paid work and care.

6.2 Developing principles for a carer-friendly welfare system

There are differing ways to characterise the system of payments and services that make up the Australian welfare system.1 Australia's welfare system, like those of the UK and the US, can be characterised as a liberal welfare system that consists primarily of selective means-tested entitlements that act as a safety net for those who are unable to participate in employment. By contrast, countries such as France and Germany have a system that is oriented to earnings from paid work with social insurance tied to individual contribution. In countries such as Norway and Sweden, generous universal entitlements are provided in line with universalist social values.

There are also a range of views on how to best provide for men and women with caring responsibilities within the Australian welfare system. For example, while some have argued for greater distribution of benefits to disadvantaged groups, others have pointed out that Australia's welfare spending is high compared with other OECD countries and well targeted to those in need.2 There has also been debate about recent shifts in social policy which have emphasised reform under the concept of "mutual responsibility". Mutual responsibility refers to reciprocal obligations between government and individual recipients of welfare. It can also be understood to include the wider obligations of business and community organisations to work in partnership as a way of lessening social and economic exclusion across the community, particularly to those who are unable to compete in the labour market.3 More recently, there has been government commentary and public debate around the best way to support families to undertake paid work and care given the interaction between tax rates and family payments in an increasingly deregulated labour market.4

Regardless of the different perspectives on the most appropriate system of welfare provision, it is clear from HREOC's consultations that the welfare system needs to adhere to certain principles in order to provide adequately for workers with family and carer responsibilities. While it is beyond the scope and aim of this report to provide detailed commentary on all aspects of welfare policy, HREOC has identified a range of principles that need to be incorporated into a comprehensive framework for reconciling paid work and family/carer responsibilities.

The first principle is that the welfare system needs to work with and not against other forms of support for workers with family and carer responsibilities. Second, the principle of shared work - valued care should underpin the welfare system's response to paid work and family/carer responsibilities, in order to maximise choice. Third, the system should support all types of families and carers combining paid work with caring and be flexible enough to meet changing needs for care support arising throughout the life course. Finally, the interaction between welfare payments and the tax system needs to be kept at the centre of policy development in these areas, particularly in terms of incentives and disincentives that may affect families' capacity to combine paid work and care.

6.3 Current government assistance for families

Welfare provisions in Australia are characterised by targeted and means-tested benefits which are distributed according to those most in need or those who are most disadvantaged. These targeted benefits combine with universal measures, such as the maternity payment, for example, which are available to all families.

These following list details the main payments provided to families and carers.5

Family Tax Benefit Part A (FTB (A)) - Families with dependent children under 21 or full time dependent students aged 21-24 years receive this payment, which is income tested on family income. The benefit cuts out when income reaches $94 718 for families with one child under 18 years, $104 317 for two children and $114 769 for three children. FTB (A) can be paid fortnightly, as a lump sum after the end of the financial year, or as reduced tax withholdings from wages paid to a customer or their partner. The maximum rate for a child under 13 is $140.84 per fortnight, or $4317.95 per year (the annual amount includes the FTB (A) supplement of $646.05 per child). Different rates apply to older dependent children and to children in approved care organisations.

Family Tax Benefit Part B (FTB (B)) - Single income families, including sole parent families, receive this payment. In two parent families, FTB (B) is income tested on the second (or lower) earner's income only, and payments are reduced by 20 cents for each dollar of income earned over $4 234. Where the youngest child is under five, the second income earner can earn $21 572 per year before the payment cuts out. Where the youngest child is over five, the second earner can earn $16 790 before the payment cuts out. Payments can be paid fortnightly, as a lump sum after the end of the financial year, or as reduced tax withholdings from wages paid to a customer or their partner. The maximum rate of FTB (B) for a child under five years is $120.96 per fortnight or $3467.50 per year, and $84.28 per fortnight or $2511.20 per year for children between five and 15 years (or 16-18 years if a full time student). The annual amounts include the FTB (B) supplement of $313.90 per family.

Child Care Benefit (CCB) - This is provided to families who use either approved formal child care or informal (registered) child care.6 This subsidy either reduces fees at a child care service, or can be paid as a lump sum to parents at the end of the year. Only approved care is income tested on family income. This benefit is also payable to families for care provided by family members, including grandparents providing care.7

Child Care Tax Rebate - This is a 30 per cent child care tax rebate for out-of-pocket child care expenses (less CCB, which is reconciled at the end of the financial year) to a maximum of $4 000 per year per child. The rebate could first be claimed in the 2005-2006 financial year, for child care costs incurred from 1 July 2004 to 30 June 2005.8

Parenting Payment - A means tested payment to carers of children under 16 years, primarily in single income families (including sole parent families) with low income. Sole parents receive up to $512.10 per fortnight, while partnered parents receive up to $379.80 per fortnight.

Carer Payment - A means tested payment paid under pension conditions9 to people who because of the demands of their caring role are unable to support themselves through substantial workforce participation. The basic single rate of payment is $512.10 per fortnight while couples receive $427.70 each, which is the same as other pensions. These amounts are adjusted twice a year in line with cost of living and wage increases.

Carer Allowance - A supplementary payment for people who provide daily care in a private home to a person with a disability or severe medical condition or who is an older person requiring care. Carer allowance is not taxable or income or assets tested. More than one allowance can be received if two or more people are cared for. The basic rate of payment is $98.50 per fortnight and may be paid in addition to an income support payment.

Maternity Payment - A payment of $4 100 to families (usually a lump sum) following the birth or adoption of a baby. In the 2005-2006 Budget, access to this payment was extended to parents who adopt children up to two years of age. From 1 July 2008 this payment will increase to $5 000. Payment claimants aged 17 years or under are generally paid in 13 fortnightly instalments.

Maternity Immunisation Allowance - A lump sum payment of $227.90 is paid for children aged 18-24 months who are fully immunised.10

Many families will receive more than one of these payments at the same time. FTB(A) is the most common payment aimed at assisting parents with the cost of raising children, with the payment amount based on annual family income and the ages and number of children in a family. A large number of single income families and sole parents also receive FTB (B) which gives extra assistance to single parent families and to couple families with one main income. In 2004 almost 1.9 million Australian families received FTB (A) and 1.2 million received FTB (B), paid at an average amount of $216 per fortnight.11

Many parents and carers also receive income support through other government payments such as Newstart Allowance, Disability Support Pension and Veteran's Affairs payments. In particular, many fathers (both single and partnered) receive Newstart Allowance because Parenting Payment is restricted to one partner in low income couple families and in cases where separated parents both provide care, even if that care is equally shared. Grandparents who have primary responsibility for raising their grandchildren and receive an income support payment such as the Age Pension can access a special rate of CCB to cover the full cost of approved care for up to 50 hours a week.12 Grandparents who have full time care of their children can also apply for Parenting Payment and FTB (A and/or B) which can be an important income source for grandparents, particularly those on income support payments.

There are also a range of associated benefits provided by the Australian Government, such as rent assistance, the Pharmaceutical Benefits Scheme, the Health Care Card and mobility allowance. There are also some State/Territory government payments such as foster care payments.

In addition, a broader range of social policies affect how Australian families manage their competing paid work and family obligations. These include health, child care, elder care, retirement, education and disability policies, all of which help shape the landscape in which preferences, decisions and family formations and dissolutions take place.13 A number of government agencies have responsibility for supporting and promoting paid work and family balance and family-friendly arrangements within workplaces, including the Department of Employment and Workplace Relations (DEWR), the Department of Families, Community Services and Indigenous Affairs (FaCSIA) and the Equal Opportunity for Women in the Workplace Agency (EOWA).14

Government policy in relation to families reconciling paid work and care has in recent years tended to emphasise notions of choice, opportunity, participation and mutual responsibility. These notions both reflect and respond to changes in the labour market, social expectations and national interest objectives around issues such as improved productivity, increasing workforce participation, the ageing of the population, current skills shortages and a birth rate that is still below replacement level, despite a recent increase.15

One example of the focus on participation and mutual responsibility is the Welfare to Work package announced in the 2005-2006 federal Budget. The Welfare to Work measures created major changes to income support arrangements for people of working age, in particular sole parents, mature aged workers and people with disability who receive the Disability Support Pension.16 As of 1 July 2006, Parenting Payment is only available to new claimants where their youngest child is less than six years of age if partnered or under eight if single. Where the youngest child is older than this, parents must claim Newstart Allowance, which requires an activity test to be satisfied - for most parents this is a requirement to seek part time work of at least 15 hours per week. People with disability applying for income support after 1 July 2006 will now also be required to seek part time work if they have the capacity to do so. Mature aged job seekers (those older than 50) on Newstart Allowance are now also required to undertake activity tests.17

HREOC's consultations took place around the time these changes were being publicly debated and consequently a great deal of concern was raised in terms of the impact the changes would have on workers with family and carer responsibilities, particularly the financial and practical difficulties they might create for single parents managing their caring responsibilities and possible adverse effects on people with disability.18 Where these and other concerns raised relate to the principles that HREOC has identified as crucial to a welfare system that supports workers with caring responsibilities, they are referred to below.19

6.4 Support for all types of families and care needs

Many submissions to HREOC have emphasised the need for government to provide support for the diverse array of family types and the different paid and unpaid work arrangements within them.20 Australian family types include, but are not limited to, couple families, couple families with children and one parent families. Families also take many forms such as same-sex couple families, step families, blended families, grandparent carer families and non-resident parents.21 Submissions also highlighted the cultural aspects of family forms.

Indigenous communities may have kinship and other familial relationships that require significant commitments of time and care but have no validity in terms of legislation that relates to family responsibility. When looking at the needs of Australians from culturally and linguistically diverse backgrounds it is important to consider the cultural norms that relate to family.22

For many families, the unpaid care that they provide occurs outside their household, for example, people who are providing care for their parents or other relatives.

Choice for different family types

Submissions advocated income support as a way of creating equity between lower and higher income families so that those with fewer resources to care can enjoy choice in combining paid work and care.23 There was widespread agreement within consultations and submissions that families need more than just flexible, family-friendly workplaces to manage their competing responsibilities, and that governments should play a role. For example, the NSW Commission for Children and Young People wrote:

In addition to providing flexible workplaces to assist families, families also need economic and social support to better balance their paid work and family responsibilities.24

The Queensland Council of Social Service submission highlighted the lack of attention paid by policy makers to families who have no choice to balance paid work with care because they cannot gain employment.25

While there were few clear proposals offered as ways of supporting families and their choices, there was general support within submissions that all family types and choices should be respected and treated equally. For example, the Shop Distributive and Allied Employees' Association wrote that:

Whatever its decision, a family should not be adversely affected by the application of government policies. All choices should be respected, including those who choose to play a role in the unpaid workforce. A feature of such respect is to properly recognize and value the unpaid work done by those who care for and nurture others, especially where they do it on a full-time basis. A parent caring for children should be seen as making a valuable contribution to society.26

The NSW Commission for Children and Young People argued that "Australia's tax and welfare benefit system should aim to treat all family types and choices equally".27

Family Tax Benefit Part B

Some submissions expressed concern that certain family types were favoured over others, in particular the concern that in couple families a model of one full time earner and one full time carer (or a carer with minimal earnings) is privileged under the family payments system. For example, the Work + Family Roundtable submission argued that:

The current family benefits system also serves to entrench the lack of 'choice' women and men have in dividing their paid and unpaid work in the household equitably. Under the current regime, families that subscribe to the male breadwinner household model are rewarded with higher family benefits than households in which the division of paid and unpaid labour is more equitably split.28

Other submissions also argued that two parent families with one earner are favoured over two parent families with two earners, in particular through the provision of Family Tax Benefit Part B (FTB (B)). A submission from the Queensland Government noted:

There appears to be different drivers for providing policies relevant to workforce participation for two-parent and one-parent families and for two-income and single income families ... The federal Government's income support payments target single income families by penalising families with a second income earner as in Family Tax Benefit Part B, which effectively means that women cannot return to paid work and receive this payment.29

Some argued that this was a disincentive to workforce participation and also a disincentive to sharing care.30 As noted in the Striking the Balance discussion paper, there are currently no policy initiatives that encourage shared care of children in intact families, nor for sharing other kinds of care responsibilities.31 Of particular concern among some submissions was the way that the current policy model encourages people to adopt a male breadwinner/female home carer model regardless of individual needs or preferences. The Women's Electoral Lobby argued that:

Overall, analysis shows that following the last budget the families most favoured by the family assistance and tax package are those with a "primary earner" (implicitly male) contributing 80 per cent of household income and a "secondary earner" (implicitly female) earning 20 per cent. Families with a more equal division of parenting and paid work are effectively penalised, and mothers are strongly discouraged from engaging in more than very limited part-time work, which is deeply frustrating to many ... The net financial and ideological message is that the government prefers, and supports more generously the traditional breadwinner model of family life.32

The "family snapshots" provided by the Victorian Women Lawyers submission revealed that in families where both parents choose to undertake paid work there is a perception that the "current tax system involves far too much money being provided to reasonably well off people where one chooses to stay at home to look after children, whereas for people choosing (and therefore earning income) to work, there are substantial penalties".33

A few submissions supported FTB (B), arguing that it facilitates the choice for one parent to undertake unpaid work and relieves financial disadvantage at a time when it is needed.34 The Women's Action Alliance argued that: "Most mothers are out of paid work for some period of time - be it a brief or an extended period, so almost all families benefit from this payment at some time in their life cycle".35 However women who are out of paid work for shorter periods may be unable to access to the benefit if they have worked at some point in the financial year depending on the time they gave birth in that financial year.36

Options for tax reform

Other submissions argued that there is lack of assistance for people on middle incomes trying to balance their paid work and family/carer responsibilities. A submission from Natalie Morton highlighted the difficulties for people on average incomes who miss out on government support for combining paid work and care.

... I am not insisting we should be eligible for such [income support] assistance as I hope it is provided to families who are in a worse off financial situation than we are. What I do find insulting is the insinuation that people at our income level are rich enough to pay for every service they may require, like private health insurance and full fee day care, and by default make themselves ineligible for assistance by working as hard, and as many hours, as possible.37

A recent analysis of the tax system as it affects working couple families shows that in effect most families are now taxed on the basis of joint income.38 This is a result of a series of federal reforms over recent years which have shifted the tax burden to two earner families to such an extent that many now pay close to the same amount of tax as a couple family in which only one parent is in the paid workforce. Couple families who are on similar high incomes are not eligible for any benefit if both parents contribute an equal share to family income. This arguably discourages shared care between both parents.39

Analyses of the tax and welfare systems frequently consider the concept known as effective marginal taxation rates (EMTRs). EMTR is a measure of how much of an additional dollar of income is kept after income tax is deducted and means-tested government support is withdrawn. As people move into work and off welfare payments, the degree of income support they receive drops, which can in some cases result in very little return for each dollar increase in income. It is important to note that an EMTR does not tell us anything about the total amount of tax paid by an individual or family. An EMTR simply demonstrates how much of a $1 increase in private income an individual will lose to increased taxes or reduced government benefits. It is quite different to an average tax rate, which typically shows total income tax paid as a percentage of total income. Thus, while an EMTR of 50 percent means that an individual will keep half of their next dollar of private income, an average tax rate of 50 percent means that half of the total income of an individual will be taken in income tax.

With the top marginal income tax rate set at 45 cents in the dollar, it suggests that all Australians should keep at least half of the next dollar they earn. However, recent research in this area estimates that 7.1 per cent of working age Australians (910 000 people) face an EMTR of 50 per cent, that is they will keep less than half of their next dollar of private income. Of these, about 460 000 will keep less than 40 cents from their next dollar of income.40 These are usually families who are affected by the income tests for social security payments or FTB, which overlap either with other income tests or with income tax liabilities and the withdrawal of tax concessions. This most affects middle income families with average gross incomes ranging from about $40 000 to $75 000.41

Any system that has means-tested benefits inevitably produces EMTRs. In the Australian context, where most welfare support is means-tested, the challenge is to make EMTRs as low as possible so that people are not too harshly affected or discouraged from engaging in paid work.

Researchers have argued that the imposition of such unequal tax burdens on single and dual income families could only be considered fair if the stay at home parent was assumed to spend their time entirely on leisure (evidently not the case and an assumption which must be avoided in a model which values care) and if the primary earner is assumed to share his (or her) income equally with his spouse.42

It has been argued that this situation is inequitable towards second earners - overwhelmingly women - and damaging to the economy in respect of encouraging female labour force participation and that a fairer system lies in a return to a progressive individual tax system. Such a system would apply a lower rate of tax to the lower earning partner, improve vertical equity, allow the expansion of the tax base and thus provide greater resources to provide a more universal system of child benefits and improve women's labour market participation.43

Alternative proposals for tax systems which may better support couples to share paid work and care include "in-work payments" and earned income tax credits (EITCs) such as those found in New Zealand and the UK. The aim of these schemes is to encourage families receiving welfare payments into paid work. In New Zealand, in-work payments of $60 per family per week are made to low income families who are working and not receiving another benefit.

EITCs are a form of work subsidy, available to low-wage workers and often have a dual goal of improving child welfare and thus are typically more generous for working parents than working singles. Tax credits can be delivered through workplaces via reductions in taxable income for pay as you earn (PAYE) tax payers or made as a direct payment like the Australian family tax payment.44 A variety of proposals for EITCs have been put forward in Australia over recent years.45 EITCs been have been introduced, or expanded, in a number of developed nations in recent years, with a focus on boosting labour supply and "making work pay".  

A recent study examining EITCs found positive employment effects for both workforce participation and increased hours of work for sole parents.46 Arguments have also been put forward that an EITC scheme would simplify and unify the tax and welfare systems.

However despite the apparent advantages, a range of potential problems have been identified in relation to EITC schemes. As a scheme which relies on measuring family income jointly (like the current system of family tax benefit payments) it discourages second earners, principally mothers in two income families. EITCs are also likely to shift the tax burden further to low and middle income earners and may simply shift EMTRs higher up the income scale.47 Further, problems of overpayment are not eliminated. In the UK where the EITC scheme has been one of the "flagship" policies of the Blair government, there still remain significant problems with overpayment - amounting to £ 2.2 billion in 2004-2005.48 Any examination of the use of EITCs in Australia would have to give careful consideration to groups who may be disadvantaged under such a system.

Another argument put forward in submissions to HREOC was that in addition to protecting families from poverty there should be support for those who experience disadvantage through childrearing relative to those who do not.

Employed couples and single parents on high incomes may not experience the dire consequences of poverty, but they suffer financial disadvantage relative to those in the community who do not raise children.49

This approach aims to institute what is sometimes referred to as "horizontal equity" between people with children and people without children, recognising the unpaid work of caring and child rearing as socially and financially useful work which benefits society as a whole.

Submissions expressed considerable concern about some families being unfairly and unequally penalised, such as sole parent families, under the new Welfare to Work regime. For example, the Australian Education Union summarised their concerns in this way:

Unfortunately in Australia [having] dependent children is still certainly a barrier to workforce participation and so whilst this is the situation, forcing parents to find 15 hours of work or face the loss of crucial income support, ignores the reality of the labour market, the disincentives to part-time work and poverty traps built into the current welfare system ...These changes do nothing to accommodate a balance between paid work and care.50

Some submissions highlighted inconsistencies in the welfare system. For example, while sole parents were encouraged and are now required from a certain point to engage in paid work regardless of care preferences and needs, partnered mothers can choose and are encouraged to devote all or much of their time to full time caring.51

Submissions also highlighted the impact of Welfare to Work changes on people with disability, including those who have care responsibilities, arguing that they would compound existing barriers to achieving a balance between paid work and other responsibilities.52 Barriers for people with disability identified in the submissions included: costs of disability that need to be met in order to seek and maintain employment, an inflexible and unreliable service system and a drop in income coupled with less concession benefits as a result of the requirement to seek work, such as travel costs or the need for personal care.53 These barriers in moving between the welfare system and paid work for people with disability have also been examined in detail in HREOC's report of the National Inquiry into Employment and Disability, WORKability II.54

A number of submissions from post-separation, non-resident fathers highlighted particular struggles with poverty, as well as issues such as access to time with their children and problems dealing with the family law system and government bureaucracy.55 These issues are discussed further in Chapter 5.56 It should also be noted that any changes to family tax payments would have implications for child support arrangements as the new child support formula is based on the "costs of children" which is determined with reference to FTB entitlements.

Support for all caring needs and preferences

Regardless of the choices that women and men make about combining paid and unpaid work, there is general agreement within submissions to HREOC that the unpaid work of caring is valuable on many levels and as such it should be supported.57

Much energy is wasted debating the merits and morality of the variously constrained choices that families make regarding how to meet their caring responsibilities, particularly what has been called the "mother wars" which pit "women-at-home" against "women-with-jobs".58 Such discussions are not only divisive and blind to the economic and social realities of modern family life, they also ignore the dynamic nature of paid and unpaid work arrangements across the life cycle.59

Women and men express a range of preferences, which change over time and which are also sensitive to government policies and programs. As with workplace responses to paid work and family and carer responsibilities, welfare responses need to be flexible enough to operate efficiently and helpfully for men and women located at different points along the life course, across differing family, socio-economic and other circumstances, as well as across different preferences.

Some community groups urged the recognition of difficulties experienced by particular family types. Sole parents, the majority of whom are women, perceived the Welfare to Work changes as blind to their unpaid caring workloads, the other social and financial difficulties they experience, and their own preferences for caring for their own children.60 The National Council of Single Mothers and Their Children, for example, recommended a review of welfare policy to "address inconsistencies that 'encourage' single mothers, on the one hand, to enter paid work, and couple mothers, on the other, to stay at home".61 People with Disability Australia note that many sole parents are also women with disability.62

Policy debates around care needs and welfare support routinely ignore caring responsibilities aside from parenting. Submissions from carer organisations and disability advocates highlighted the unmet needs for support for carers of people other than children, including people with disability providing care. Submissions from the Carers Australia and the Working Carers Support Gateway highlighted the lack of formal support for carers other than parents, particularly the need for support services in addition to respite services, which are for a limited number of hours.63 Other needs include geographical access, supported employment, and recognition of time and energy spent dealing with services and planning for future needs.64 All of these things contribute to difficulties for carers combining paid work with care, along with inconsistencies in the provision of support according to family types.

6.5 Supporting parents and other carers to work and care

As noted above, there was perceived lack of support for parents combining paid work with care, other than the universally available maternity payment and measures such as the child care benefit (which largely benefits low income families) and the child care rebate (which largely benefits higher income families).65 Supporting an approach which recognises carers who undertake paid work is crucial if we are to institute a new framework based on the principle of shared work - valued care. Welfare support for workers as carers should not only include support for parents combining paid work and care. It should include support for people who provide care to people with disability and older people requiring care. It should provide extra support for people who are disadvantaged or in vulnerable situations, and also provide incentives to redistribute caring responsibilities more evenly between women and men.

The welfare system should also support and enable those who have been out of the labour force due to caring responsibilities, such as sole parents, to re-enter the labour market. While this is the objective of the Welfare to Work changes, submissions from sole parents highlight the difficulty of combining care and paid work, particularly in light of disincentives created through the interaction of welfare and the tax system, where the progressive withdrawal of benefits and loss of associated assistance works against pursuing paid work.66

There are clear benefits of paid work for sole parents, such as maintaining workforce attachment, role modelling for children and alleviating financial hardship. This is recognised by sole parents as highlighted in a submission from the National Council of Single Mothers and Their Children.

... access to well-paid employment with family-friendly workplace conditions and appropriate affordable childcare [i]s the most sustainable path out of poverty for single mothers.67

However, as a sole parent wrote in her submission:

I am stuck in a classic Catch 22 situation which is in the main not of my own making ... If I earn too much income and lose the partial parenting payment I currently receive, I will lose many of its associated benefits ... And to earn enough income to cover ... additional expenses I would need to work on a full-time basis and leave my young daughter ... 68

Submissions have also highlighted significant disincentives in relation to workers with disability with caring responsibilities. For people with disability who have caring responsibilities (the majority of whom are women) there are difficulties in accessing adequate support services and difficulties getting and remaining in paid work. A submission from the Disability Council of NSW noted:

The disability service system is frequently found to be inflexible and inadequate in meeting women's disability-related needs so that they can astutely perform and balance the roles of mother, 'carer' and/or employee. Furthermore the lack of control women can exercise over support, personal assistance or transport arrangements, because of the inflexibility of the service system, restricts the commitments they can make to paid work.69

According to People with Disability Australia, "many carers, including carers with disability are unlikely to view paid work as a viable option".70

For carers of older people and people with disability who do undertake paid work, it is difficult to access quality services while working.71 The Working Carers Support Gateway also noted concern among Indigenous carers about the lack of appropriate services.

Aboriginal working carers and service providers are also concerned about the lack of Aboriginal-specific services, and that mainstream services need to be more accessible, friendly and flexible so that they can cater for Aboriginal carers ... 72

Ideally the welfare system should encourage all types of carers to participate in paid work where possible. Appropriate support is essential to enable carers to engage in paid work without neglecting their caring responsibilities.

There are also no current welfare policies designed to encourage a greater sharing of caring responsibilities between men and women, aside from other reforms currently underway to encourage shared parenting post-separation.73

A better redistribution of the unpaid work that meeting family/carer responsibilities requires is needed, as argued in the Striking the Balance discussion paper and as noted by submissions such as that of the Women's Electoral Lobby Australia, who recommended policy that supports men/fathers being able to shift "substantial time from paid work to caregiving".74

Australian and State/Territory government policy initiatives that create incentives for this would make a useful contribution to creating a shared work - valued care framework.75

6.6 The need for a consistent and integrated system

The final principle that the welfare system needs to be informed by is consistency and integration across the range of policies and payments. Families and individuals require adequate support according to their needs and so that they do not fall between the cracks of the varieties of income support, family payments and service provision.

To begin with the system needs to be either much simpler or much easier for people to understand and negotiate. HREOC has found evidence that shows families find the system of family payment is complex and confusing.76 The complexity of the system is a barrier in itself for many parents. A submission from the NSW Commission for Children and Young People noted:

In addition, the complex system of family benefits and tax rates makes family, workforce participation and financial planning difficult for many families. The system needs to be simplified so that families are able to make better informed decisions about their participation in paid work.77

Moving from welfare support to paid work or trying to combine the two in order to meet caring responsibilities is difficult for many people. The Women's Electoral Lobby Australia submission argued that: "The structure of family payments makes it difficult to move from unpaid to paid work, or to increase hours of paid work at certain income levels".78

For those who do navigate the system successfully, there is evidence of much detailed planning and decision-making, including the decision to have a child or additional children.79 HREOC's consultations with parents showed that they make very careful decisions about whether the primary carer of the children works or not based on their understanding of the complex ways in which paid work, taxation and family and child care benefits interact.80

There have also been reports of significant overpayments with resulting debts that families then struggle to repay.81

There is evidence that some groups of people fall through the cracks of the different varieties of support provided through the welfare system. Examples of people who miss out on appropriate support provided in submissions to HREOC include parents of teenagers with disability, who express concern over cuts to post-school options programs and supported employment, and mothers with disability who may be caring for children with disability but who do not meet the criteria for the Carer Payment.82

While this report focuses on balancing paid work and care, submissions also identified the welfare needs of specific groups of carers who may not be in paid work. In particular, young carers and grandparents carers have been identified as falling though gaps in the welfare system.83

People who shift from one type of paid work and care arrangement to another can also lose out, as noted earlier. Ideally the welfare system should support people to work and care across the life cycle, which means providing support for times of transition, whether this be moving in or out of paid work. Submissions that address the issue of Family Tax Benefit debts (where parents find themselves paying back large overpayment debts of due to underestimating their incomes) testify to the difficulties and lack of support for transitional paid work and care arrangements in the current system.84

6.7 The interaction of taxation and welfare systems

There has been much debate over the years about the interaction of taxation and welfare payments and their effects on families. Both systems are interdependent and changes in one can create changes in the other to varying degrees depending on family types and individual income levels. There has also been wider theoretical debate about how to best conceptualise and deliver the provision of support for families combining paid work and care. For example, some argue that lowering tax rates would provide better outcomes for families providing care, as opposed to income support through the family payments.85 Which ever way the interaction between tax and welfare is defined and organised, interaction between the two should aim to deliver genuine choices to parents sharing their time between family/carer responsibilities and paid work. They should also work towards supporting all types of caring and all types of families, encourage and enable workforce participation among carers and also support the workplace to support families. These general principles are addressed below, drawing on HREOC's consultations with the public and submissions received.

6.8 Fairness in the taxation system for all family types and all caring responsibilities

As with the welfare system, in order to create genuine choice for those combining paid work and care the tax system should not discriminate against different family types.

As noted above, HREOC has found a high level of community concern about the impact of welfare arrangements on families. Regarding taxation, there was concern about the interaction of tax rates with welfare benefits and the costs for certain family types. One concern was that sole parent families would lose out in the new Welfare to Work arrangements through a combination of taxation and withdrawal of benefits.86

Facilitating transitions from one paid work and family arrangement to another without penalty is an important goal for achieving balance for individual families and equity across family types and their varying paid work and care arrangements. There were concerns expressed to HREOC that Australia's taxation arrangements create difficulties for and thereby discourage people returning to work after a break for childrearing, due to high EMTRs.87

Some submissions also raised the issue of vertical equity, that is, the need to assist low and middle income families who have been unfairly affected by "bracket creep".

The absence of tax indexation has led, over the years, to low income earners moving into brackets where they are paying a greater share of their income in tax than previously. NATSEM has shown that the impact of bracket creep has been to push people into higher tax brackets, thus rapidly consuming the benefits of the tax cuts introduced as compensation for the introduction of the Goods and Services Tax. Today the average rate of tax paid by individuals is 22.5% as compared to 21.5% when the GST was introduced ... Vertical equity in the taxation system must be increased through a restructuring of the income thresholds which gives genuine tax relief to low and middle income earners.88

6.9 Lower effective marginal taxation rates

One of the major impediments to reconciling paid work and care work is caused by the existence of high EMTRs, which are a product of the complex interaction between the welfare system and the tax system.89

While EMTRs are an inevitable result of a welfare system which includes means-tested payments, the challenge for government is to ensure both an adequate standard of living for those who are not in paid work and that there are not undue incentives for people to stay out of or leave the labour force by keeping EMTRs as low as possible. As a New Zealand initiative that aims to assist low and middle income families moving from welfare benefits to paid work phrases it, the challenge is to "make work pay for parents who move off benefits into work".90

Supporting carers to engage in paid work, including combining varying degrees of paid work with care, should ideally occur through incentives as opposed to penalties that leave families unable to achieve an adequate standard of living. However high EMTRs work against this and were reported in submissions and HREOC consultations as being a major financial barrier to balancing paid work and caring responsibilities.91

A submission highlighted that for employees on low incomes, high EMTRs discourage and in some cases prevent people from entering or re-entering the workforce, and it is families with caring commitments who face some of the harshest penalties.92

For sole parents such as those who wrote to HREOC, the costs of working greatly outweighed the benefits once high EMTRs and loss of non-cash welfare benefits were factored in. As one sole parent remarked:

The financial benefits of working were minimal, as when I work my Housing Trust Rent doubles, my after-school care costs quadruple and I lose all the health, and benefits of having a Pension card plus I get taxed heavily on gross income.93

People receiving disability support pensions experience similar barriers with the transition to work, in addition to losing associated benefits and eligibility for disability-related support services.

For women with disability the transition to work is fraught with difficulty ... As the income support system is currently structured, many women with disability find that they cannot afford the additional costs they would incur to undertake employment. Some women with disability find that they cannot meet their disability-related costs when they cease to be eligible for the Disability Support Pension (DSP). This is because eligibility for some services is restricted to people who receive the pension or because of the need for associated entitlements, such as a Health Care Card, is tied to the pension.94

Similar financial disincentives were described by women in couple families, as described above.95

There was concern expressed by many groups about effect of high EMTRs on incentive to work and, as a result, workforce participation. The Australian Industry Group wrote:

Currently, disincentives exist which affect the willingness of some persons to seek work because of the interaction of the social security and taxation systems ... lowering effective marginal tax rates may have beneficial effects in increasing participation rates.96

Referring to a comparative report from the OECD that has found high effective marginal tax rates in Australia, a submission from the Queensland Government argues that the current system does not reward parents for moving into paid work.

An unintended consequence of Government assistance programs for parents is the possible loss of tax rebates or benefits, which, in addition to the high cost of childcare, may discourage parents from entering the workforce. If parents remain outside of the workforce for extended periods of time, they stand to lose skills and opportunities for career advancement.97

Alternative options for supporting parents and other carers to move into paid work through supportive measures and approaches that do not overlook their caring responsibilities are worthy of further investigation.

6.10 Fringe Benefits Tax and tax deductibility of child care

The taxation system not only affects families managing paid work and care responsibilities directly, it also affects them indirectly through a range of other ways. One of the areas identified by submissions and within HREOC consultations with employers was Fringe Benefits Tax (FBT). FBT is a tax that is paid by employers who provide payments to their employees in a different form from salary or wages, such as, for example, the use of a company car by the employee for private purposes as well as business purposes.

Currently there are FBT exemptions for employers who establish child care centres on their premises or for those employers who wholly own child care facilities at another location. As a result this option for workplace support of employees requiring child care is limited to large firms because of high costs. Evidence presented recently to the House of Representatives Standing Committee on Family and Human Services Inquiry into Balancing Work and Family highlighted that while exact figures are not available, a review undertaken in 2000 found only 65 employer sponsored child care services, largely provided by public sector agencies, universities and major banks.98 The Inquiry found that the cost of an employer establishing a child care centre in a high cost area such as the Sydney or Canberra CBD would be around $2 million or more.99

Both employer groups and other submissions to HREOC raised this issue. A submission from the Australian Industry Group urged consideration of extending FBT exemption to provide greater incentives to employers who wish to offer child care assistance for their employees.

Ai Group is supportive of Government programs to assist employees with the cost of childcare. However, more effective Fringe Benefits Tax (FBT) exemption arrangements need to be explored. For example, the merits of extending the FBT exemption to employers who choose to fund the cost of childcare for employees, regardless of the location or ownership of the registered childcare facility, should be analysed.100

HREOC's consultations with employers and employer representatives also revealed support for extending the FBT exemption.101

Employers spoke of their interest in providing child care for their employees but also outlined their difficulties.

Our staff were interested in having childcare facilities on site but we just didn't have any sites appropriate and the insurance risks are so great. So instead we looked at buying blocks but that is no use when you have people on shifts. We have one hospital in Canberra that did it and are running on a huge loss because the hours were restrictive.102

Extending the FBT exemption would be a useful way to support employers to support their employees with family responsibilities. This approach may particularly help employees who prefer to use child care facilities closer to home as opposed to their workplaces.

Employer organisations including the Australian Industry Group indicated to HREOC that current FBT arrangements were not the particularly effective because of the limited capacity of businesses to establish child care services on site and the preference of many parents to place their children in care close to home.103

Yes, business could do with FBT tax breaks.104

To improve conditions for employers to help their staff in the area of FBT would be of great benefit.105

Debate continues in the community about the issue of FBT exemptions, principally because the difference in benefit received as a result of salary packaging child care using the FBT exemption would depend on an individual's marginal tax rate. This could mean that high income families facing high marginal tax rates may benefit substantially more than families on low and middle incomes.106 However, on balance, HREOC supports extending the FBT exemption as part of a suite of measures to improve the availability and affordability of child care for parents in paid work and as a way of encouraging employers to take a greater role in the provision of child care. Further discussion of child care is contained in Chapter 7.

There are also a variety of views on this issue on whether or not the costs of child care and other dependant care should be considered tax deductible, on the basis of constituting a legitimate work related expense. HREOC has been told:

Cost of child care remains a difficult issue for many working parents. A frequent comment about child care was that it is often the biggest work-related expense, yet it is not tax deductible.107

While the Australian Government has announced the introduction of the 30 per cent child care tax rebate, this is currently capped at a maximum of $4 000 per annum. The Australian Taskforce on Care Costs (ToCC) estimates that lower income families would still pay a further $4 000 in addition to the rebate amount and average middle to higher income families are would pay more than an additional $13 000 per year.108

The issue of tax deductibility is an issue which also received considerable attention in House of Representatives Standing Committee on Family and Human Services Inquiry into Balancing Work and Family. One of the Inquiry's recommendations which received significant attention was a proposal to amend the Income Tax Assessment Act 1997 to permit child care and other dependant care expenses to be claimed as a tax deduction where those expenses are incurred for the purposes of earning an assessable income.109

International practice in relation to the tax deductions for care costs varies, however a range of countries including Canada, Austria and Belgium provide tax deductibility while others including the US, UK, Netherlands, France and New Zealand provide tax credits to offset the cost of care. In Belgium 80 per cent of child care costs are tax deductible to a maximum of €11.20 per day and in the UK, a tax credit is available of 70p for each £1 paid in child care fees.110

A number of submissions to HREOC highlighted the perceived injustice in current arrangements which do not allow for tax deductibility:

... someone can go to Brisbane to check on their investment property and claim their hotel room and dinner with friends, but normal people still can't claim the cost of childcare against our wage ... in that aspect the government lets parents and families down.111

To enable parents to fully participate in the workplace, it is imperative that childcare expenses are made fully tax deductible. The federal government should also take greater responsibility for providing improved assistance to families to access affordable child-care and itself offering formal childcare at affordable prices to allow parents to better balance paid work.112

... evidence points to the fact that many women who decide to pursue a career and a family are unwilling to risk that career to stay at home and raise their children. Whether they use government or work provided child care places or employ a nanny, as career women they are tax payers, and often quite high tax payers. Why not then have child care as a tax deduction?113

Tax deductions by their nature provide the greatest benefit to those individuals on the highest incomes. A Taskforce on Care Costs report explored the options with respect to tax deductibility and recommended that the most equitable solution for the largest number of employees would be to introduce a tax rebate for care costs, rather than provide greater tax deductibility.114

The proposal put forward by the House of Representatives Standing Committee on Family and Human Services Inquiry into Balancing Work and Family aims to ensure that no parents would be worse off as a result of claiming child care as a tax deduction by offering parents a choice of either claiming the deduction or retaining the current arrangement of receiving Child Care Benefit and/or the Child Care Tax Rebate.

However, this does not completely address concerns about the apparent inequity of higher income families receiving a greater benefit than lower income families. Modelling carried out for the Inquiry by Enotech not only indicates that families with high incomes would benefit most, but that low income families could face increases in child care costs and consequently decrease their working hours while high income families would be likely to increase working hours.115 HREOC is particularly concerned that such an outcome could decrease workforce participation, particularly for women and make the balance of paid work and family/carer responsibilities even more difficult to achieve. On balance HREOC is of the view that while there is certainly a legitimacy to claims that child care is a work related expense, there are more effective and equitable ways of assisting families with the costs of child care such as by modifying the current Child Care Benefit and Child Care Tax Rebate schemes.

Improving the availability and affordability of child care is discussed further in Chapter 7.

6.11 Linking superannuation to care

A number of submissions and consultation participants raised Australia's superannuation system as an area that needed reform because of its lack of recognition of unpaid caring work.116 As noted at in Chapter 4 and Chapter 8, unpaid care saves the economy billions of dollars per year.117 Some submissions argued that the existing superannuation system does not value carers, who cannot contribute as much to their superannuation due to their time spent out of the workforce:

Under the existing Australian superannuation system, anyone who spends extensive period(s) of their working life caring for young, disabled or frail family members within the family ends up as an economic dependent in retirement because the unpaid nature of most caring duties prevents them accumulating adequate superannuation. The message loud and clear is "Australia does not value its carers, they're bludgers".118

Linking superannuation only to paid work creates, as one of HREOC's advisory panel members phrased it, "a work-focussed, care-less culture".119 It also disadvantages those who spend large amounts of time out of paid work in order to provide care to family members. Currently it is women who are more likely to spend more time out of paid work due to caring responsibilities and as a result are more likely to retire with much lower levels of superannuation benefits and retirement savings than men.120 Half of all women currently aged 45-60 years have less than $8 000 in superannuation.121 This very low amount of superannuation is undoubtedly linked to lifetimes spent providing a high level of unpaid care work.

Currently superannuation rules allow couples to split superannuation from 1 January 2006. This provides some couples where at least one partner is in paid work to share their superannuation benefits and access two eligible termination payment tax-free thresholds and two reasonable benefit limits, however superannuation funds are not obliged to offer this provision. Superannuation can also be split in cases of divorce by mutual agreement or court order.

A tax incentive to encourage employees with caring responsibilities, particularly women, to increase their voluntary contributions to superannuation is one recommendation suggested among submissions to HREOC.122 Other suggestions include progressing pay equity, changing legislative guidelines for payment of the superannuation guarantee contribution to ensure that it is paid from earnings of $1 and developing a policy to increase women's education in regard to superannuation and retirement savings.123 Currently employers are only required to make superannuation guarantee contributions on behalf of employees aged between 18 and 70, who are paid $450 (before tax) or more in a calendar month.124 With women still over-represented in many lower paid positions and working in casual and part time employment, this is an important concern for many women.125 HREOC would support further work being carried out in relation to this issue.

Another suggestion is to introduce a superannuation scheme whereby the Australian Government would make "direct contributions on behalf of primary carers of young, disabled or frail family members, so carers are not disadvantaged and stigmatised in retirement".126

Submissions also raised suggestions in relation to the Superannuation Co-contribution Scheme.127 Currently the Superannuation Co-contribution Scheme allows eligible employees (low income employees less than 71 years of age) to have their superannuation contributions matched by the government. This scheme aims to assist many low income women to increase their superannuation savings, but requires that contributors receive 10 per cent or more of their income from eligible employment. While many people who are not in the paid workforce and receive a benefit such as a pension, parenting payment or carer payment may not wish to make superannuation contributions while receiving these payments, this is an option which should be made available.

Regulations which came into effect in 2005 allow people who have reached preservation age128 to access some of their superannuation without having to fully retire, such as by working reduced hours or part time. This is a useful measure which could be more widely publicised as a way of assisting older working carers.

HREOC supports formal recognition of and compensation for the significant contribution that unpaid caring work makes to national interest objectives such as prosperity and social wellbeing.

6.12 Conclusion

The tax and welfare systems play an integral part in supporting people to undertake paid work and care and should ideally work in unison with legislative and workplace measures that support a shared work - valued care framework. The welfare system should avoid discriminating against some family types by providing them with less choice in their paid work and care arrangements. It should also cater to the variety of families and carers combining their responsibilities with paid work and be flexible enough to meet changing needs for care and support arising throughout the life course. Helping families manage changing roles, including sharing care better between partners is also important for good paid work and family balance and this is an obvious gap in the current system. A more streamlined system with support for people to navigate the various forms of assistance and services would be helpful, particularly people in vulnerable situations or those who are transferring from one type of paid work and family arrangement to another.

The tax system should work in conjunction with the welfare system to deliver genuine choices to parents about the appropriate sharing of family care and paid work. They should also work together to support other types of caring across the variety of Australian family types and enable and encourage workforce participation among carers without undue penalty both directly and indirectly through supporting workplaces to support their employees with family/carer responsibilities. EMTRs and other disincentives should be kept as low as possible so that people are not discouraged from or penalised as a result of engaging in paid work. The tax system should ideally take into account the value of unpaid work and operate to support those who care both now and into the future as carers retire. More broadly there needs to be a recognition of the limits to economic growth, and the development of policies that value time as well as money so that families are able to achieve a healthy and sustainable balance between their paid and unpaid responsibilities across the life course.

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Footnotes

July 31, 2009

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