You don’t see the same hullabaloo about the dependent spouse tax offset, even though it’s for exactly the same thing as FTB B, but for childless couples.

to all extent and purposes the income of the main income earner is irrelevant thus making for no means testing of the main income earner however there is income testing of the lowest income earner of the household.
Thus for those families whilst FTBa may vary FTBb won”t a great deal.

I believe FTB should only go to those families that are in dire financial straits and 90 % of families doesn’t meet that test particularly after 15 years of sustained economic growth.

This is middle class welfare pure and simple and it is no surprise that john howard is defending it mainly against if you read his speech carefully against internal critics and critics from the business community who want to introduce income tax cuts and get rid of FTB.

Howard is saying ,rightly, that FTBs cost much less than income tax cuts and a better vote winner

The first Fraser budget in 1975 had replaced tax rebates for children with Family Allowances, but kept the Dependent Spouse Rebate (which was the same for families with and without children).

Lone parents got a lone parent tax rebate, but those on benefits received a Guardians allowance in cash.

The higher rate of DSR metamorphosed over time into the home Child Care Allowance, Basic Parenting Payment etc, and was then “simplified” into the Family Tax Benefit Part B, which also incorporated the tax rebate for lone parents and the Guardian’s allowance (plus another payment introduced in 1996.

Some history can be found at:
http://www.aifs.gov.au/institute/pubs/fm2001/fm60/pw.pdf
and

http://www.natsem.canberra.edu.au/publications/papers/dps/dp8/dp8.pdf

Does this statement not sum up Howard’s attitude to non-high-income earners completely? I have to assume this is why tax cuts for high-income earners are important – such cuts, at least, don’t go to everybody! Equality, Australian style…

Traditionally, the thing that schemes like FTB B (and the dependent spouse tax offset) are trying to address is that a two income couple on $x of income will pay less tax than a single income couple on the same income. If you imagine a graph of disposable income, for any given income level, the highest disposable income without any interventions (eg, FTB B) occurs at a 50/50 split. If the X axis was showing the % split from 100% to partner one at all splits across to 0% to partner 1, and the Y axis showed disposable income, the shape is an inverted U.

An intervention that sought to correct this would, if successful, produce a flat line. Income splitting produces a flat line. In contrast FTB B gets massively over-enthusiastic and produces a shape that is almost the opposite – a U shape, where, at lower incomes, single-income (or more correctly single and a bit incomes) have higher disposables than two income couples.

The underlying reason for the distorted outcome is that, as a cash payment, FTB B is provided to household without income. They are therefore being pumped with money to compensate them for a tax liability they don’t have. It’s a bit like people having been fined incorrectly for traffic offences, and then being reimbursed. No problem with that, but what we’ve done is say that yes, we’ll reimburse the incorrectly fined group, but also people who weren’t fined at all.

There was very little good reason to go to a cash based assistance for the tax-equalisation measure in Labor’s Home Child Care Allowance (and it’s progeny, basic Parenting Allowance, basic Parenting Payment and then FTB B), and what reason there might have been disappeared in 1995 with the “One Nation” changes to welfare. Since then, the cash payments have just been a blight that unnecessarily impacted on second earner incentives in couples.

It’s a shame this type of blogging comment process doesn’t allow for pictures. Otherwise I could draw the graphs I mentioned.

Could you elaborate on your point about FTB B being poorly designed as a horizontal equity measure – and also compare it with income splitting as a horizontal equity measure.

I think the problem with FTB B is not that it is available to high income households (in respect of low income individuals), but that low income households that don’t pay tax get it at all!

This FTB B criticism by Labor is a lark. They introduced it back in 1994 (as Home Child Care Allowance) and guess what? It wasn’t income tested on household income either.

It’s a poorly designed horizontal equity measure, but just because its design is crap we shouldn’t throw out horizontal equity altogether. Labor’s thinking is always lazy on this.

If someone were to actually suggest a scale like this, it would be shouted down as non-progressive, but by burying it in the language of offsets, it’s what’s been achieved.

Treasury seemed to ignore the LITO for years, but cranked up it’s value from $150 to $235 a couple of years back, suggesting that it’s come back into favour as a device to target tax cuts to the low end (and remove progressivity in the process). It means the tax free threshold is really $7,566.67 by way, not $6,000.