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New research shows baby bonus is deeply flawed.



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Media Release

BOB McMULLAN MP SHADOW TREASURER FEDERAL MEMBER FOR FRASER

TREA01/03 7 January 2003

NEW RESEARCH SHOWS BABY BONUS IS DEEPLY FLAWED

Independent research by the Parliamentary Library shows that John Howard’s much vaunted Baby Bonus is unfair and seriously flawed.

Based on this research, it is clear that the Baby Bonus:

• Provides the biggest benefit to those who need it least. • Fails to provide the financial support when it is most needed. • Is biased against women who return to work. • Pays nothing for second and subsequent children when family pressures are often the

greatest.

Among the flaws in the Baby Bonus are:

• Only a tiny fraction of women - one in 66 - receive the whole $12 500 benefit of the Baby Bonus over the full five years allowed. • The average Baby Bonus payment is only $3400 over five years -- less than a third of the amount going to the most well off. • More than two in every three mothers will receive less than $2500 over five years - a

fifth of the amount going to the wealthiest mothers, who need it least. • The Baby Bonus is poorly designed, with payments sometimes unnecessarily reduced and delayed in the first year when it is most needed. • In the first year of the baby’s life, the Baby Bonus will usually be less than the full

entitlement because income earned in the same year the baby is born reduces the benefit, and because in the first year the benefit is paid on a pro-rata basis from the child’s birthday until 30 June. • The Baby Bonus is not paid until the end of the tax year. This is often long after the child is born, when it is most needed. • The Baby bonus is biased against women who return to work. If a person has taxable income in the claim year, the Baby Bonus will be reduced by the proportion of claim year taxable income to base year taxable income. • Women who earn the same income in the year after their baby’s birth (over $25,000 per annum) as they earned previously will receive no benefit at all despite the costs they incur.

Labor supported the Baby Bonus in the Parliament as better than nothing, but we pointed out then it was deeply flawed, and that the money could be far better spent on helping families and especially mothers in other ways. This new research highlights the appalling design of the Baby Bonus, and the need for a new approach.

Further information: Nathan Dal Bon (02) 6277 4803

TELEPHONE: (02) 6277 4803 ã FACSIMILE: (02) 6277 8496

Why the Baby Bonus is unfair - fact sheet

• According to the Treasurer, the Baby Bonus is supposed to benefit those women that leave the work force to have a child by enabling them to average their income over five years. Recipients can claim back up to $2,500 per annum for five years in relation to their tax liabilities. In addition, for those low-income workers and women not in the work force before they had their child, there is a minimum payment of $500.

• The Baby Bonus is regressive: those with higher incomes receive greater benefits.

- Women with low incomes -- those not in the workforce and female employees with a taxable income of $25,000 or less -- would be entitled only to the minimum of $500. At the other end of the scale, women with a taxable income of $52,666 and above would receive the full amount of $2,500.

- The ABS has estimated that only 7 per cent of women earn in excess of $52,666.

• The Baby Bonus does not deliver financial assistance when needed.

- The payment is not automatically available following the birth of a child but rather is paid at the end of the tax year. Pru Goward, among others, has argued that an advantage of Paid Maternity Leave is that it is delivered at the time of birth when the financial needs are perhaps the greatest.

- The Baby Bonus will typically be less than the full amount for the first financial year in which the baby is born. This is because 1) the income earned in that year will be calculated as a proportion of the base year income and 2) the Baby Bonus is pro-rated according to when the child is born, so if it was born 1 January of the claim year, the entitlement will be reduced by 50 per cent.

- The Treasurer’s statement in Parliament on 5 December 2002 confirms that mothers are receiving much less than the stated “minimum” of $500 per year; “In the first year there was an average payment of $340”.

- The Baby Bonus will be applied (where applicable) to reduce a person’s tax debts, Family Tax Benefit debts, Child Support Agency debts and other tax related Commonwealth debts. As the debacle with Family Tax Benefits has demonstrated, there are substantial numbers of families that have unwittingly underestimated their income and consequently incurred tax debts. Those with tax debts, such as family tax debts, will only see a portion if anything of their Baby Bonus. Thus the rationale for the Baby Bonus of providing financial support in difficult times is undermined.

• The Baby Bonus is biased against those mothers returning to work.

- Eligibility criteria for the Baby Bonus act as a disincentive for women wanting to return to work following the birth of their child. This is because the Baby Bonus begins to be phased down as the mother’s taxable income increases (for claimants whose taxable income is $25,000 or less there is a minimum entitlement of $500). The Baby Bonus is calculated by comparing the taxable income of a person in the base year to the taxable income in the claim year.

As the proportion of claim year taxable income to base year taxable income increases the Baby Bonus entitlement is reduced. For example, if the base year taxable income is $30,000 and the claim year taxable income is $30,000 then the Baby Bonus entitlement for that year is $0.

: Available data from the ABS suggests that a substantial proportion of female employees return to work within 12 months. For example, an ABS survey of women employees with children under six years when the youngest child was born, found that 73% of female employees returned to work within 12 months. For such women the benefit of the Baby Bonus will be reduced by their return to work.

: Another survey by the ABS found that of those mothers with dependent children under 4 years of age; 15 per cent were employed full-time; 30 per cent part time and 4.2 per cent unemployed - this leaves around 50 per cent not in the labour force.

• The level of financial assistance is likely to be substantially lower than claimed.

- Utilising ABS workforce data for mothers the Parliamentary Library estimated that:

: Average Baby Bonus works out to be $3400 per recipient over five years, or about $680 per year.

: Only about 1.5 per cent of recipients -- one in 66 -- would receive the full $12,500 over five years.

: About 68 per cent would receive under $2500.

: About 13 per cent have their payment reduced to zero in the second year, growing to 17 per cent in the fifth year.

: The Treasurer triumphantly claimed on 5 December 2002 that “a total of 118,000 Australians have received a Baby Bonus payment. This amounts to more than $38 million worth of assistance to Australian families.” This translates into an average of only $340 per recipient.

• The Baby Bonus is a one-child policy despite heightened concerns about Australia’s ageing population.

- The Baby Bonus is only paid for the first child born on or after 1 July 2001. Those families who have more than one child don’t receive the Baby Bonus for subsequent children.