Assistance for families: An assessment of Australian family policies from an international perspective Peter Whiteford, Social Policy Research Centre, University of New South Wales 1

Scope and objectives of family assistance All government programmes can impact on family life and family finances. However, main forms of assistance include cash benefits and tax provisions that supplement family incomes, income support payments that support families not in paid employment, payments during periods of caring for children, support and services for childcare, and education and health care programmes for children. Objectives can include: contribute to the costs of raising children; redistribute over the lifecycle; increase fertility; provide equity in taxation; relieve child poverty; enable parents to care for children independent of the labour market; promote gender equity; boost low earnings; reduce demands for a minimum wage; increase incentives to work and relieve unemployment or low income traps 2

3 Data, methods and measures How to compare family assistance?  Aggregate spending levels  Benefit entitlements for model families - averages and at different income levels  Analysis of income distribution data Different data, methods and measures can give different results. For example, how to assess the generosity of assistance for families? Levels of spending, distribution of spending, taking account of the role of the tax system? Difference measures – setting benchmarks. Some countries are much less generous to people without children. Should assistance be measured as a percentage of disposable income or tax paid? Is there a typical or average family? Two-earner families can be very diverse. Implies that we should “triangulate” and cross-verify a wide range of measures.

Spending on families has increased significantly over the past 20 years, but recently started falling Spending as % of GDP 4

Trends in spending on families, 1980 to 2005 Australian spending as ratio of OECD average

Overall family support in Australia is in the top half of OECD countries and is mainly provided through cash assistance 6

How is Australian spending on families different? Difference between Australia and OECD average, 2003 % of GDP

Change in support for children, OECD countries, 2000 to 2007 % of average wage 8

Level of support for children, OECD countries, 2007 % of average wage 9

Progressivity of family assistance in OECD countries Ratio of family cash benefits received by poorest quintile of working age to benefits to richest quintile

11 Family benefits vary significantly by income level – Australia is generous to low-income to average income families but not to the well-off Assistance for children as % of average wage, by gross income as % of average wage, 2007

Level of assistance for families in Australia by income level, 2001 to 2007 Assistance as % of average wage 12

Australia reduces child poverty significantly Difference between market and disposable income poverty for families with children % points

Australia and the United Kingdom provide the most generous in-work payments to families Net family assistance for families working at the minimum wage, USD PPPs

Effective tax rates for parents seeking part- time work are lower in Australia than most other countries AETR from zero to 33% APW, 2004

Effective tax rates can be high for parents seeking full-time work, but are lower in Australia than most other countries AETR from zero to 67% APW, 2004

Child care costs can increase effective tax rates AETR from zero to 67% APW, plus child care costs, 2004

Australian public spending on maternity and parental benefits is amongst the lowest in the OECD Spending on maternity and parental leave per child born in % of GDP per person

How do tax and benefit systems treat second earners? 19 of 30 OECD countries have the individual as the tax unit, but most countries have elements of joint taxation such as transferable tax reliefs and income-tested benefits such as social assistance income-tested family payments or housing benefits. Income-tested benefits cover a higher proportion of low income families in Australia than in many other countries; social insurance can have similar incentive effects for single people or lone parents as social assistance, but generally avoids income-testing second earners. Incentives for second earners when the spouse is low paid are worst in Denmark, and Australia ranks 4 th worst, but are relatively good in France and Luxembourg (with family tax units). Most countries (except Germany and Czech Republic) are relatively neutral or support second earners at around the average wage. Child care costs and availability could well be a major influence on incentives. See OECD Family Database PF4www.oecd.org/els/social/family/database 19

Child care costs and availability Australia spends less than 60% of the OECD average on child care and pre-school. Enrolment rates for children under 3 years are 10 th highest in the OECD, but relatively lower for older children. Fees (before assistance) are roughly 40% higher than OECD average. Child care assistance reduces costs significantly, particularly for low-income parents – in 2004, fees for a high income couple were about 14% of net family income (2 % points above average), but for a low income lone parent they were 7% of net income (5% points below average), comparable to France, Austria and Denmark. 20

Summary – conclusions and issues Family assistance encompasses cash payments to parents and children, family leave payments, services (child care and family support services) and support through the tax system. Australian spending on family assistance is well above the OECD average and has increased from 65% of the average in 1980 to 160% in A considerable part of this difference is due to high spending on lone parents and jobless couples with children, and limited assistance provided through the tax system. Even after accounting for assistance provided in other countries through the tax system, however, Australia remains among the top six spenders. Australian assistance for families with no earnings or very low earnings is close to the highest in the OECD, but for high income families is among the lowest in the OECD. Based on income data, Australian family assistance is among the most targeted in the OECD (and including taxation based assistance in other countries would probably increase Australia’s relative ranking). Australian spending on maternity and parental leave is well below the OECD average, although recent increases in spending may have increased Australia’s ranking – but not by very much.

Summary – conclusions and issues Australia reduces child poverty to a greater extent than all but 2 other OECD countries, and it is likely that the poverty gap is lower in Australia than most other countries. All countries with low child poverty combine low joblessness with effective redistribution policies – Australia has effective redistribution, but high joblessness. Employment of mothers is below the OECD average, particularly among mothers with young children; part-time employment is high. Average EMTRs for parents moving into low-paid or part-time work are comparatively low, but for those already in low paid or part-time work they are comparatively high – i.e. Australia appears to have a “low wage trap”, not a “poverty trap”.