Net Family Tax Benefit 2004–05 to 2006

Research Note Index

Research Note no. 25 2005–06

Net Family Tax Benefit 2004–05 to 2006–07

Leslie Nielson
Economics, Commerce and Industrial Relations Section
23 March 2006

Recently there has been some interest in the Net Family Tax Benefit received by families at certain levels of income.⁽¹⁾ This interest has, in part, been sparked by recent comments by the Treasurer about the possible policy concerns that may have to be addressed in the 2006–07 Federal Budget.⁽²⁾ Further, there has been some concern that the current system for the payment of Family Tax Benefit is already generous, and may not warrant further changes to increase benefits paid.⁽³⁾ This point appears to have been acknowledged by the Treasurer.⁽⁴⁾

This Research Note seeks to provide additional background on these matters by illustrating the overall position of a particular family type after tax has been paid and some government benefits have been received.

Net Family Tax Benefit

Net Family Tax Benefit (NFTB) is the overall position of a family once the amount of tax and Medicare Levy has been offset by the amount of Family Tax Benefit (FTB),⁽⁵⁾ Child Care Benefit (CCB)⁽⁶⁾ and, if appropriate, Rent Assistance (RA),⁽⁷⁾ has been taken into account. The Net Family Tax Benefit can be positive or negative. A positive NFTB is where the amount of benefits received exceeds the amount of tax paid. A negative NFTB is where the amount of tax paid exceeds the benefits received.

Basis of calculations

Family type

The following tables show the net family tax benefit for the following family type:

a couple, with one wage earner, the other partner living at home
two children, one aged 5 the other aged 8
the family claim 20 hours a week child care, and
in one set of tables the family are assumed to be homeowners. In the other table the family is assumed to be in rental accommodation, and receiving rent assistance at the maximum possible rate.

Modelling was undertaken for a single income earner to illustrate the impact of changes in rates of FTB, tax and CCB on a family type that qualifies for the full range of these benefits.

Benefits received

This family claims the FTB A & B, as well as CCB and where appropriate RA. The rate of FTB received includes the FTB lump sums payable in various years.

The family on the lowest wage level in these calculations ($25 200 p.a.) is also entitled to parenting payment (PP). However, families on the other wage levels for which these calculations were undertaken are not eligible for PP. To preserve a constant basis for comparison across all wage levels, these calculations have not included PP in the benefits received for the family on the lowest yearly income.

Wages received

In the following tables the wages for the family are as follows:

$25 200 p.a. (current minimum wage)
$30 000 p.a., $40 000 p.a., $45 000 p.a., $50 000 p.a.
$53 144 (average weekly ordinary time earnings for August 2005), and
$55 000 p.a. and $60 000 p.a.

In addition, the breakeven point for net family tax benefit has calculated for each year. The breakeven point is where the amount of benefits received roughly equals the amount of tax paid. The figures in bold note the calculated breakeven point in each year.

These yearly wage levels have not been discounted back in each year, as this enables a comparison of net tax benefits at these wage levels across all years for which calculations have been done.

Calculation method

These calculations were undertaken by the STINMOD 04A package, from the National Centre for Economic and Social Modelling at the University of Canberra. The assumptions and calculations underlying the simulation results were prepared by the author and the responsibility for the use and interpretation of these data is entirely that of the author.

Limitations on results

The following tables show the net family tax benefit from the 2003–04 to the 2006–07 financial years. The figures from 2005–06 years onwards are only estimates due to:

the exact family Medicare Levy thresholds are not known until after the close of the financial year in question. The estimates for these years uses the current thresholds
likewise, the extent of the low income earners rebate is unknown for these years, as the rate of this tax offset and the income levels at which it begins to apply are also not known until after the close of the relevant financial year,
further, the exact FTB rates and income test thresholds are also not known until after the end of the relevant financial year. The STINMOD package estimate these rates based on assumptions about inflation and wages growth
the 30 per cent tax offset for ‘out of pocket’ child care expenses has also not been included, as these expenses will be different for each particular family and are not accurately known until after the close of the financial year, and
social security payments for the 2005–06 and 2006–07 years are estimated based on assumed rates of growth in AWOTE and the CPI.

Further, estimates of the breakeven point, at which this particular family do not have a net tax benefit (i.e. their net tax benefit is $0) are within a $4 range of accuracy, due to the difficulty of exactly calculating the family income at which this effect occurs. This point is often called the net tax threshold.⁽⁸⁾

Interpreting the tables

As noted above, in the following tables a positive figure notes the amount by which the benefits received exceed the tax paid. A negative figure notes the amount by which the tax paid exceeds the benefits received. A negative figure can be taken as the effective amount of tax paid after the receipt of these benefits have been taken into account.