interaction of taxation and social security

8/9/2019 Interaction of Taxation and Social Security

1/59

Some Implications of the Interaction

of the Personal Income Taxation

and Social Security Systems

Research Paper No. 22Policy Review BranchDevelopment DivisionDepartment of Social SecurityMarch 1984


2/59

SOME IMPLICATIONSOF THE INTERACTION OF THE PERSONAL INCOMETAXATION AND SOCIAL SECURITY SYSTEMS

Information paper prepared for theEconomic Planning Advisory Council

Meeting of 12 March, 1984

This paper was written byJudy Raymond and Peter White ford,with the assistance of Jim Mooreand Deborah Mitchell, Policy Review

Branch, Development Division,Department of Social Security


3/59

ISBN 0 642 51540 9

C. J. THOMPSON. Commonwealth Government Printer


4/59

CONTENTS

Introduction

Trends in Disposable Incomes

Some Complexities of the Interaction of theSocial Security and Personal Income TaxSystems

Effective Marginal Tax Rates

Conclusion

Bibliography

Appendix 1

Summary of major cash payment programsadministered by the Department ofSocial Security

Maximum Levels of Social SecurityPayments, November 1983

Income Limits for Pensions, CommonwealthPensioner Fringe Benefits andSupplementary Assistance at November 1983

Income Limits for Unemployment Benefits,Sickness Benefits, Commonwealth FringeBenefits (Including Health BenefitsCare Entitlement) , Health Care CardEntitlement and SupplementaryAllowance at November 1983

Taxation and Income Test Treatment ofSocial Security Pensions, Benefits,Allowances and related payments

Changes in Assistance to Pensionersand Beneficiaries 1969-1984

Changes in Assistance to Families1970-1984

Appendix 2

Summary Tables - Changes in RealDisposable Incomes of Various FamilyTypes - 1976-77 to 1983-84

Indices of Real Disposable Incomes ofVarious Family Types - 1976-77 to 1983-84

Page

1

2

5

10

15

16

17

20

21

22

23

24

27

30

31


5/59

Disposable Incomes of various Pensioners,Beneficiaries and Taxpayers as apercentage of disposable incomes ofsingle taxpayers on 100 per cent of

AWE with no children - 1976-77 to1983-84

Appendix 3

Graphs of Effective Marginal Tax RatesFaced by Pensioners, Beneficiaries andFIS recipients

Page

36

4 2


6/59

INTRODU CTION

The social security and personal income tax systems are twokey areas of Government activity that have income redistributionas a specific objective(1). Other parts of the taxationsystem, and assistance other than social security also haveimportant impacts on the distribution of income but do notgenerally have redistribution as an explicit objective.

The interaction between the tax and transfer systems and itsimpact on the distribution of income has been the subjectof a number of research papers published by the Department

of Social Security in recent years (See Bibliography). Theseresearch papers discuss the importance of examining thetwo systems together so that their interactive effects can beexposed and, when policy changes to either system are underconsideration to ensure that unintended effects of theirinteraction are avoided and the net costs of changes areclearly identified.

Major changes in the social security and income taxation systemssince the early 1970s that have affected the currentdistribution of incomes include:

i) changes in the structure of the personal income tax system,and the taxation treatment of social security pensionsand benefits;

ii) changes in assistance to families within both the socialsecurity and personal income tax systems; and

iii) changes in the basic rates of, and means and income testsapplying to, social security pensions and benefits.

These changes, including a description of relevant currentprovisions, are detailed in Appendix I.

As the changes have had the effect of increasing the interaction

between the social security and personal income tax systems,it is necessary to examine the net effect of the two systems toestablish patterns and trends in disposable incomes.

(1) For example, the Treasury paper on the Australian Tax System preparedfor the Economic Planning Advisory Council Meeting of 12 December 1983notes:

"Government policies can impinge upon the distribution of incomein a number of ways.

i) the Government's fiscal policies in the area of taxationand social security provide a direct means ofalteringthe distribution of income; and

ii) the Government's fiscal policies themselves have an indirecteffect on gross returns to factors involved in production.Hence the presence of an income tax and social security systemwill affect the distribution of income gross of taxes andnet of transfers."


7/59

TABLE 1: REAL CHANGES IN COMPONENTS OF DISPOSABLE INCOMES- 1976-77 TO 1983-84 (est.)

Change since 1976-77 inreal termn

Standard rate pension

Married rate pension

Single adult rate ofunemployment benefit

Single junior rate ofunemployment and sickness benefit

Married rate of unemploymentand sickness benefit

Additional pension/benefitfor children

Mother's/guardian's allowance (maximum rate)

Family allowances

Dependent spouse, daughter -housekeeper, and housekeeper rebates

for those with childrenfor those without children

Sole parent rebate

Effective tax thresholdsingle v/age and salary earner

Average weekly earnings

*+ 5%

*+ 5%

-11%

-36%

*+ 5%

-19%

-29%

-20%

+ 9%-12%

+ 18%

-14%**

+ 7%

TRENDS IN DISPOSABLE INCOMES

Since the mid-1970s rates ofsocial security pensions andbenefits, levels of assistance for dependants and the incomesof wage and salary earners have all increased in money terms.'^ut once the effects of inflation are taken into accountthese increases have been less in real terms, and in respectof assistance for families with dependent children, there have actuallybeen reductions in real value. In broad terms these results

have been that:

general community incomes, reflected by movementsin average weekly earnings, have increased in real terms;

the value of tax rebates have also generallyincreased in real terms;

the basic rates of indexed pensions and benefitshave risen slightly in real terms; and

cash transfers to families - both additional payments

for pensioners and beneficiaries and family allowances -have declined substantially in real value.

* Basic rates of pensions and benefits have risen in real terms due to the lag in theindexation adjustment of pensions and benefits. Because the rate of inflation hasI j Q c n declining in recent years, the indexation increases that are made to pensionsand benefits in any year are, of course, higher than the CPI increases in that saneyear. This is particularly so in 1983-84, because the estimated CPI movement has

been affected by the introduction of Medicare.

** Based on an estimate of average weekly earnings of $369.70 a week for 1983-84.


8/59

Table 1 shows how the components of disposable incomes forpensioners, beneficiaries and wage and salary earners havechanged in real terms since 1976-77. It is the interaction of thesecomponents that determines a person's command over goods and services

There are always difficulties associated with examining aseries of data over time, and looking at trends in disposable

incomes of pensioners and beneficiaries and taxpayersgenerally proves to be no exception.

The choice of the base year is to some extent arguable, butit can have a significant influence on the results. In thisanalysis 1976-77 has been chosen because it was the first fullyear of current arrangements of assistance for families, ofautomatic indexation of the basic rates of pensions andbenefits, and taxation of most pensions and benefits.Consequently there is some consistency over this period inthe provisions affecting pensioners and beneficiaries andfamilies generally. At the same time 1976-77 represents

a peak year for assistance to low income families withchildren - particularly pensioners and beneficiaries whohad previously been ineligible for tax rebates for dependentchildren because of insufficient income. In addition thelevels of assistance available in 1976-77, while still relativelylow, were closer to the levels of assistance provided throughthe tax and social security systems in a wide range of overseascountries. It therefore provides an interesting base foranalysing trends in the disposable incomes of these particulargroups.

There are also problems associated with measuring movements inreal disposable incomes. Basic rates of pensions and benefits

are automatically indexed each May and November on the basisof movements in the CPI over the preceding 6 months toDecember and June respectively. Thus, when the rate ofinflation is falling - as has generally been the case since1975-76 - this lag results in a real increase in rates ofpensions and benefits. Had the rate of inflation been risingover this period the indexed rates of assistance would haveshown a decline in real value. Of course there are alsolags in the adjustment of community incomes on account ofprice movements but these are harder to quantify. The positionfor pensioners and beneficiaries in 1983-84 has been furthercomplicated by the effects of the introduction of Medicare on

the CPI.

To overcome these particular problems, in addition to consideringtrends in real disposable incomes, this paper also examinesthe relative positions of various groups in the community,taking the disposable income of a single wage and salary earneron average weekly earnings as a benchmark. The broadconclusions do not change, regardless of the approach taken.Data detailing these trends are provided in Appendix 2.

In terms of trends in real disposable incomes, the groupsthat have experienced significant declines since 1976-77 are:

pensioners and beneficiaries with children -up to 5 per cent in the case of those withfour children;


9/59

sole parent pensioners - up to 10 per cent for thosewith four children;

single adult unemployment beneficiaries -

11 per cent; and

junior unemployment and sickness beneficiaries -36 per cent.

Virtually all other groups have either maintained their1976-77 levels of disposable incomes or have experiencedreal increases.

In terms of relativities between groups, similar results areobtained. Relative to the disposable income of a singletaxpayer on average weekly earnings, the groups who have beenmost disadvantaged over the past eight years are:

junior unemployment and sickness beneficiariesand single adult unemployment beneficiaries; and

all pensioners and beneficiaries with children.Sole parent pensioners in particular have beenadversely affected by the non-indexation ofpayments for children.

Other groups who have suffered a relatively significantdisadvantage compared with a single taxpayer on average weeklyearnings are:

taxpayer families with children (but who arenot eligible for FIS), particularly larger families;

low income taxpayers without children; and

married couples where both partners work.

Pensioners and beneficiaries without children and receivingindexed assistance are now in much the same relative positionas they were in 1976-77, while low income families withchildren have significantly improved their relative positionbecause of the introduction of the Family Income Supplement (FIS)in 1982-83. Until FIS was introduced these families had

been falling behind and were actually experiencing declinesin real disposable incomes. FIS has therefore had a significantimpact on the financial position of these families.

In summary, these trends in the disposable incomes of pensionerand beneficiary families with children vis a vis wage andsalary earner families can be directly traced to policy changesin the social security and taxation areas since 1976-77.While the tax rebates for dependants were increased in eachyear from 1976 to 1982, rates of family allowances wereincreased effectively only once and additional pension/benefitand mother's/guardian's allowance only twice. This has hadthe effect of widening the gap between families with and

without children and in particular the poorest families andother members of the community.


10/59

SOME COMPLEXITIES OF THE INTERACTION OF THE SOCIAL SECURITYAND PERSONAL INCOME TAX SYSTEMS

Not only is it necessary to examine both systems when

determining trends in disposable incomes, but it is alsoimportant to consider whether the two systems are consistentin their treatment of different groups. Because of thecomplexity of the two systems, and apparent inconsistenciesbetween them, there may be scope for rationalisation andsimplification.

(2)A number of proposals have been put forward for formalintegration of the personal income tax system and thesocial security system so that the sometimes unintendedconsequences of their interaction might be avoided. Noneof these proposals has been taken up, and there are a numberof differences between the systems that make formalintegration difficult - definitions of the income unitsvary, as do definitions of income, and the timing of payments

Assistance for Dependants

Some rationalisation, however, has already taken place withrespect to assistance for children. Prior to 1976 assistancefor children was provided primarily through the personalincome tax system and through child endowment. Criticismsof these arrangements were that:

two systems administered by two different organisationsserved essentially the same function;

as the level of assistance provided through the taxsystem was limited to the tax liability of the taxpayer,low income families could not take full, or any,advantage of assistance provided by this means;

most of the assistance available for children was providedto fathers rather than to mothers.

To overcome these criticisms the system of tax rebates forchildren and child endowment was replaced in 1976 by family

allowances paid direct to mothers through the socialsecurity system.

The net cost of the family allowances change was relativelysmall, outlays on the new program being largely offset bysavings from abolition of tax rebates and child endowment.Nevertheless, as a result of this switching of assistancefor children from the tax system to the social security system,taxation receipts and social security outlays both increased

(2) The most important of these have been those of the Commission of

Inquiry into Poverty, First Main Report, Poverty in Australia,Vol. 1 (AGPS Canberra, 1975) and the Priorities Review StaffPossibilities for Social Welfare in Australia, (AGPS, Canberra, 1975)


11/59

by some $800m. The major Budgetary effect of this changewas that the total revenue effect of the offset in the taxsystem for dependant children became fully disclosed inthe Budget Papers as a social security outlay.

On the other hand, similar assistance for dependent spouseshas remained in the personal income tax system and is providedin the form of a rebate to the taxpayer. Since 1980-81,estimates for previous years have been detailed in theBudget Papers in the Appendix on Tax Expenditures. Thesefigures are, however, some years out of date due to the lagin publication of taxation statistics, and no estimate ismade of the likely revenue forgone in the current financial year.

This situation has heightened debate in Australia on how toview such forms of assistance in the personal income taxsystem and analogous assistance provided through direct cashtransfers in the social security system. Although assistance

for children provided in the form of family allowances nowconstitutes an expenditure item in the Budget accounts, itcan be argued that they should still properly be viewed,like the tax rebates for dependent children they replaced,as part of the tax system. Hence the appropriate policycontext in which to consider changes to family allowances isin conjunction with policy considerations related to otherdependant allowances provided in the tax system.

The significance of this view is enhanced by the argumentin the literature on tax expenditures that assistance providedfor dependants through the tax system should be treated aspart of the basic tax structure rather than as a taxexpenditure. For example:

"Some initial exemption is essential to the structure ofa tax which bases itself on the principle of ability topay. In the words of the Royal Commission on the Taxationof Profits and Income (the Radcliffe Commission);

'There should be no income tax levied on any incomewhich is insufficient to provide its owner withwhat he requires for subsistence.'

It follows that the exemption for a married couple must be

higher than for a single person ... and that it should alsobe higher where there are dependent children to be maintainedout of the parents' income (unless, as is now happening,(3)provision for children is made outside the tax system)."

In these terms, family allowances should conceptually be part of theincome tax system as one of their functions is to provide a direct cashoffset to ensure equity in tax arrangements for families withdependent children. The position adopted by the CommonwealthDepartment of the Treasury in the introduction to the Appendixon Tax Expenditures in the Budget Papers, however, is somewhatinconclusive on this matter:

(3) J R M Willis and P J W Hardwick, Tax Expenditures in the UnitedKingdom, Heinemann Education Books, London, 1978 p. 16


12/59

"The inclusion of an item in the Appendix does notnecessarily indicate that it is considered a departurefrom an equitable tax distribution. It implies nomore than that the item confers a benefit on recipientsand could conceivably be regarded as an alternativeto direct expenditure in the same way that family

allowances confer a benefit comparable with thatconferred by the dependent child rebates which theyreplaced in 1976."

At the very least, one important conclusion is thatregardless of how these forms of assistance are presentedin the Budget papers, it is important that the relationshipbetween them should be recognised and that the effects ofchanges in the levels of assistance on the distribution ofincome that they produce should be clearly identified whenconsidering relevant policy changes in either system.

Taxation Treatment of Pensioners and Beneficiaries

Another area where some rationalisation has already occurred,and the need for further rationalisation may be indicated,is the taxation treatment of pensioners and beneficiaries.

(4)

When pensions and benefits were designated as taxableincome, the rates of assistance for most recipients weresignificantly below the tax threshold and thus did notattract tax. However, since most basic rates of pensionsand benefits have been automatically indexed by increases inthe Consumer Price Index since 1976, the problem has emerged

of certain basic rates of assistance exceeding the taxthreshold and pensioners and beneficiaries with little or noprivate income facing debit tax assessments at the endof the financial year.

This problem was addressed for pensioners in 1982-83 with theintroduction of the special pensioner rebate which wasspecifically designed to ensure that pensioners who are largelyreliant on their pension did not have to return part of theirminimum income support to the Government in tax. A furtherelement of the problem was addressed in the 1983-84 Budgetwhen additional payments to beneficiaries in respect of

(4) At the time of the abolition of the means test for persons aged75 and over in 1973, pensions were made taxable for all people ofage pension age. In 1976, widows' pensions, supporting mothers'benefits and repatriation service pensions payable to people belowage pension age all became subject to income tax. Unemployment andsickness benefits, including additional benefits for spouses andchildren and supplementary allowance, also became taxable from1 July 1976. This substantially reduced the extent to which it waspossible for a beneficiary to derive more in disposable income whileon benefit than in employment.Most basic pension and benefit rates are therefore now subject toincome tax.

The major exception was and still is invalid pension for those below age pensionage. The argument that any decision to tax invalid pension would create unduedisincentives for the disabled to seek and retain employment, given thespecial difficulties they experience in this regard, has prevailed.


13/59

dependent children and rental costs were made non-taxablefrom March 1984. But the problem remains for certaingroups of beneficiaries who have been in receipt ofunemployment or sickness benefit for most of the year.

In the past a major consideration with respect to beneficiarieshas been to treat them, as far as possible, in the same wayas other members of the workforce - i.e. to provide thebenefit and allowances to the 'breadwinner' and includethese as assessable income for tax purposes. On the otherhand, there are a number of other important considerations:

if the maximum rates of benefit are considered toprovide a minimum level of income support necessaryto sustain unemployed people and their dependants,it could be considered undesirable to withdraw someof this minimum level of support through the tax system;

the number of long-term beneficiaries isstill largedespite improved economic conditions. The mean durationof unemployment beneficiaries current was 45 weeks inAugust 1983, and 57 per cent of married unemploymentbeneficiaries had been in receipt ofbenefits for longerthan six months. In addition, many of these long-termunemployed are of an age where their likelihood ofreturning to the workforce is not high or at a stage intheir lives when their family commitments are significant.Thus, it may be considered more appropriate for incometax purposes to treat full-year beneficiaries as if theywere pensioners rather than members of the workforce;

the majority of beneficiaries who are liable for lumpsum tax assessments at the end of the financial year areprobably not in a position to pay tax without experiencinghardship. In practice, they may have their liabilitieswaived if they apply for relief. Consequently, whilethe system works to render some long-term benefitstax-free this may be to the relative disadvantage ofbeneficiaries who are unaware of their full rights toseek relief.

The main groups of beneficiaries who will be affected in1983-84 are:

married unemployment and sickness beneficiaries withtwo or more children;

unemployment and sickness beneficiaries with ade facto spouse and no children; and

single sickness beneficiaries receiving supplementary(rent) allowance.

The exemption from tax of additional benefit for childrenand supple me nta ry allow anc e as from March 1984 should remove,for 1984-85, the problem for beneficiaries with children andreduce the problem for single sickness beneficiaries receiving


14/59

supplementary (rent) allowance. However, unless changesare made to current tax arrangements, de facto marriedcouples, married beneficiaries without children and singleadult sickness beneficiaries will be liable to pay taxon their basic rate of assistance in 1984-85.

De facto Couples

The treatment of de facto couples varies not only betweenthe social security and personal income tax systems, butalso within the tax system itself.

Within the social security system, de facto couples aretreated in the same way as other married couples for thepurposes of eligibility for assistance. Thus, a de factocouple is entitled to the married rate of pension or benefit,rather than two single rates, and the income of bothpartners is taken into account in determining the amount ofassistance. With respect to supporting parents benefitand widow's pension, eligibility ceases once the person entersinto a de facto relationship.

Within the personal income tax system, de facto relationshipsare not recognised for eligibility for the dependent spouserebate, but they are taken into account for eligibilityfor the sole parent rebate. (5) Thus a taxpayer with ade facto spouse is considered 'single' for the purposes of thedependent spouse rebate, but is at the same time consideredto be 'married' for purposes of the sole parent rebate,

If there are children, the taxpayer may be able to claim thehousekeeper rebate if the de facto spouse is wholly engagedin keeping house for the taxpayer and is caring for thetaxpayer's children.

The main groups of social security recipients that are affectedby the inconsistent treatment of de facto relationshipsbetween the two systems are long-term unemployment andsickness beneficiaries with a de facto spouse and no children.They receive the married rate of benefit, but because theyare unable to claim the dependent spouse rebate they face asubstantial debit tax assessment at the end of the financialyear ($844 in 1983-84 compared to a debit assessment of

$14 for a married couple without children if in receipt ofbenefits for the full year).

With the incidence of de facto relationships increasing andbecoming more accepted within the community it would seemlogical for these inconsistencies in treatment to bereconsidered.

(5). In the past they have also been recognised for the home loaninterest rebate and the deduction for home insulation costs.They are also recognised for the Medicare levy.


15/59

10

EFFECTIVE MARGINAL TAX RATES

Apart from the direct effects on the distribution of incomesas outlined above, the interaction between the social security

and personal income tax systems can have indirect effectsthrough their impact on incentives to work or to save andinvest.

In the case of incentives to work, a recent O E C D review ofstudies of the effects of taxation, chiefly in the UnitedKingdom, concluded that there was some evidence that thetaxation system generally had both incentive and disincentiveeffects for small groups that in aggregate tended to offseteach other, and that there was no clear evidence of markeddisincentive effects associated with tax increases. (6)Studies in the United States of the work incentive effects ofincome-tested transfer payments found that primary wageearners reduced theirhours of work slightly, and secondaryearners and sole parents significantly in response to suchpayments. It was also found that the level ofwithdrawal(or implicit tax rate) in the income test had strongereffects than the level of the transfer pa yme n t . (7)

There has been some Australian research on the effects ofthe income security system on labour force participationrates. Some studies have suggested that increases in thereal level of income security payments in the 1970s havehad a significant impact on the labour force participationof older workers, the school participation of teenagers

and on the take-up of pensions and benefits. (8) The studies,however, do not agree on the size of these effects; ithas also been found that the decline in labour marketconditions has been a more important factor in some of thischanged work behaviour.

There are many overseas studies of the effects ofsocialsecurity programs on aggregate savings, the capital stockand Gross National Product. A review of the U.S. literaturefound that there was little conclusive evidence from thesestudies of a significant negative relationship between social

(6) Organisation for Economic Co-operation and Development,Theoretical and Empirical Aspects of the Effect of Taxationon the Supply ofLabor. Paris, OECD, 1975

(7) Development Division, Department of Social Security, WorkIncentive Experiments in the United States and Canada,Research Paper No. 12, June 1981

(8) See F H Gruen, TheWelfareStats Debate; Economic Mythsof the Left and the Right, Discussion Paper No. 46, Centrefor Economic Policy Research, Australian National University,

May 1982, pp. 15-24


16/59

1 1

security and private savings, and also noted a recentAustralian study which found that the level of the agepension did not have a major effect on aggregate savings.(9)

Overall, this range of studies suggests that while it isthe direct effect of the interaction of the social securityand personal income tax systems which is of most significancein the determination of disposable incomes, the systems canhave important, indirect effects, particularly for secondaryworkers and sole parents.

The most salient example of this is the interaction betweenthe marginal tax rates within the personal income tax systemand the income tests operating within the social securitysystem, which results in pensioners and beneficiaries facingeffective marginal tax rates (10) that are significantlyhigher than those facing taxpayers generally. In fact, they

are in excess of the highest marginal tax rate of 60 per centwhich applies to taxable incomes above $35,788.

Details of the effective marginal tax rates facing variouscategories of pensioners and beneficiaries are shown atAppendix 3. In summary:

for the majority of single pensioners whose pensions areboth income-tested and taxed, effective marginaltax rates are generally 65 per cent over the range ofprivate income over which pension is withdrawn underthe prevailing income test. They are higher - 71.25

per cent - where the special pensioner rebate is beingphased out and, if there are children, rise to 80 percent where non-taxable additional pension is being withdrawn;

for those whose assistance is income-tested but nottaxed - invalid pensioners and family income supplementrecipients - effective marginal tax rates are 80 per cent(73.75 per cent for married invalid pensioners) overthe range of income over which assistance is withdrawn and taxis being paid on private income;for unemployment and sickness beneficiaries, effectivemarginal tax rates are 65 per cent over the range ofincome where the 50 per cent withdrawal rate applies,

but rise to 100 per cent when assistance is reduced$1 for $1. Where there are children, they rise to130 per cent because additional benefit is nownon-taxable.

(9) Development Division, Department of Social Security, FinancingSocial Security, An Analysis of the Contributory 'Social Insurance'Approach, Research Paper No. 19, June 1982, pp 42-46

(10) The amount of income lost, either through the withdrawal ofassistance or the payment of tax, from each additional

dollar of private income.


17/59

12

Poverty Traps and Poverty Plateaux

One of the immediate implications of the interaction ofsocial security income testing and personal income taxation

to produce high effective marginal tax rates is the presenceof 'poverty traps' and 'poverty plateaux'.

Poverty traps and poverty plateaux occur where the higheffective marginal tax rates on additional earnings facedby those on income-tested benefits act to undermine theincentive to work: that is, the additional effort and costsinvolved in working may leave a pensioner or beneficiarylittle better off or, in some cases, worse off than if theeffort to secure additional private income had not been made.The most often quoted example of this is the loss ofentitlement to pensioner fringe benefits (11), but it can alsooccur where a pensioner or beneficiary is simultaneously

eligible for several forms of income-tested assistance.

Taking another example, a sole parent beneficiary who has theopportunity to increase his or her working hours finds thatan increase in private income from $50 to $100 per weekincreases his/her disposable income by only $17.50 per week.This net gain is unlikely to cover the additional costs ofworking and child care. Thus the sole parent beneficiarymay feel 'trapped' into a situation where the opportunity anddesire to work are present but the economic rationalityof doing so is not.

Similarly, under current arrangements a married invalidpensioner with one child who increases his/her privateincome from $50 per week to $100 per week is only $28 perweek better off. The effective marginal tax rates becomemore severe when income for this pensioner increases from$100 to $150 per week leaving the family only $13.13 perweek better off - a marginal tax rate of 73.75 per cent.

(11) Persons entitled to a Pensioner Health Benefit (PHB) card areentitled to a range of non-cash fringe benefits, the most valuableof which are free hospital and medical treatment and a range offree Pharmaceuticals. With the introduction of Medicare which

covers pensioners for basic hospital and medical costs, themagnitude of financial loss occasioned by loss of fringe benefiteligibility will be significantly reduced.


18/59

13

A poverty plateau exists where disposable income remains thesame over a band of private incomes. Figures in Appendix 3illustrate this effect for both single and married unemploymentbeneficiaries over 18 years, with and without children. (12)

For example, a married unemployment beneficiary withoutchildren has the same disposable income whether he or shehas a private income of $70 or $180. Beneficiaries in thissituation may have little incentive to increase their privateincome past $70 per week, particularly if employment is ofa short-term nature, and a new waiting period for benefithas to be served. (13) .

While it is undesirable that, in some cases, a pensioner orbeneficiary may find it to his advantage to stay on pensionor benefit rather than earn additional income through, say,higher interest investments or through work, there are a

number of additional concerns that often conflict with theobjective to increase incentives through lowering effectivemarginal tax rates.

A perennial concern is, of course, the cost of a program.But because of the inter-relationship between the level ofincome support, the rate at which it is withdrawn and thepoint at which all assistance ceases (the cut-out point),there is an inherent conflict arising from the competing aimof providing an adequate level of support, ensuring reasonableincentives for self-provision and self-help, and ensuringthat the cost of the program is maintained within realisticlimits.

For example :

in order to ensure adequacy of income support for thepoor, it would be desirable to have a high level ofbasic payment;

in order to ensure that people are not discouraged fromproviding for themselves or penalised when they work,it would be desirable to have a low withdrawal ratein the income test;

but, a high payment level and a low withdrawal rateare incompatible with a low cut-out point;

consequently, the number of people receiving benefitswill be increased, as will the overall cost of the program.Moreover, benefits will be paid to people who mightnot be considered to be in need.

(12) Since the introduction of the Family Income Supplement (FIS),married unemployment beneficiaries can elect to go off unemploymentbenefit and combine part-time earnings with FIS which circumventsthis problem to some degree.

(13) A new waiting period is required if a person applies for unemploymentbenefit after 12 weeks from last completing a waiting period.


19/59

14

At the same time , in any income redistribution program,there is a concern about equity. A concern with horizontalequity implies that people in like circumstances should betreated alike. In practice this is taken to support differenttreatment of people with the same income but differing calls

on that income, particularly differing family responsibilities.Vertical equity is the concern that those who are morewell-to-do should shoulder greater burdens than the lesswell-off, or that the poor should receive greater assistancethan those better-off. This implies varying taxes andsocial security payments according to income and/or capacityto earn income.

Measures designed to promote vertical and horizontal equitycan work simultaneously; redistribution from rich to poorcan be accompanied by redistribution from those with fewfinancial responsibilities to those with many. But these

two concerns are not always in harmony. The case forproviding additional assistance for the dependants of a personwith no private income is generally accepted; the case for aperson on a high income is not so clear. At the extreme,the two components may even conflict: the provision of(additional) assistance, or reduced tax, to those on highincomes with dependants may reduce the capacity of the systemto assist those on low incomes with or without dependants.

Other concerns that require consideration in this areainclude:

. target efficiency - what proportion of the benefits

of a program go to the non-poor as well as the poor, andwhat proportion of the poor or other target groupsactually receive the intended benefits;

equity between pensioners and beneficiaries vis a visthose in full-time employment;

incentives to avoid and/or evade income tax orincome tests;

administrative cost and efficiency; and

public acceptability.


20/59

15

CONCLUSION

While the primary objective of any tax system is to raise

revenue for Government's expenditure policies, it is alsoimportant that the revenue be raised in a fair and efficientway. Consequently it is necessary to examine the way in whichthe tax system, and any proposed changes to it, affectsthe distribution of incomes within the community. As theincome security system also has a significant influenceon the distribution of incomes, it is also important toco-ordinate redistributive tax changes with income securityarrangements. A given redistributive result might be moreeffectively achieved through the income security system ratherthan the tax system. For example, a redistribution designedto favour families with children might be achieved through

increases in dependant tax rebates and/or increases in familyallowances. But if a proportionately greater redistributionto larger families were desired, greater emphasis on increases infamily allowances may be appropriate as the structure of familyallowance payments, unlike tax arrangements, is such thatlarger families benefit proportionately more. Similarly,if redistribution to low income families with children were aspecific objective, increases in additional pension and benefitpayable in respect of dependent children of pensioners andbeneficiaries and FIS payments for those in the workforcemay be more appropriate.

A central consideration remains, however, the interaction of

the income tax and social security systems, as it is theirinteraction which determines the distribution of disposableincomes.

Thus in assessing the redistributive effects of any proposedchanges to the tax system, it is important to consider :

the position of pensioners and beneficiaries vis a vistaxpayers generally;

consistency in treatment of categories between thetax and social security system;

effects on incentives and disincentives;the fact that many people are in both systems;the fact that similar forms of assistance can be providedthrough the personal income tax and social securitysystems; and

it is generally the social security system that is moreefficient than the tax system in targeting assistanceto low income groups.


21/59

16

BIBLIOGRAPHY

Commission of Inquiry into Poverty, Poverty in Australia, Vol IFirst Main Report, AGPS, Canberra, 1979

Department of Social Security "The Relationship between the SocialSecurity and the Tax System in Australia", in Social Security andTaxation, Studies and Research No. 13, ISSA, Geneva, 1979

Gruen, F H The Welfare State Debate: Economic Myths of the Left andRight, Discussion Paper No. 46, Centre for Economic Policy Research,Australian National University, 1982

Hardwick, P J W & Willis, J R M Tax Expenditures in the United Kingdom,Heinemann Educational Books, London, 1978

Ingles, D Financing Social Security; An Analysis of the Contributory"Social Insurance" Approach, Research Paper No. 19, DevelopmentDivision, Department of Social Security, 1982

Ingles, D, Podger, A S, Raymond, J E & Jackson, W S B Taxation Expenditures:Submission by the Department of Social Security to the Inquiry intoTaxation Expenditures by the House of Representatives Standing Committeeon Expenditure Research Paper No. 17, Development Division, Departmentof Social Security, 1982

Jackson, W S B "Universal and selective income support: some equity andefficiency considerations", Social Security Journal, June 1982, Departmentof Social Security, Canberra

Organisation for Economic Co-operation and Development, Theoretical andEmpirical Aspects of the Effect of Taxation on the Supply of Labor,OECD, Paris, 1975

Podger, A S, Raymond, J E & Jackson, W S B The Relationship between theAustralian Social Security and Personal Income Taxation Systems;A Practical Examination, Research Paper No. 9, Development Division,Department of Social Security, 1980

Podger, A S, Raymond, J E & Jackson, W S B The Finance of SocialSecurity; Some Implications of the Interaction Between Social Securityand Personal Income Tax, Research Paper No. 11, Development Division,Department of Social Security, Canberra, 1980

Priorities Review Staff, Possibilities for Social Welfare in Australia,AGPS, Canberra, 1975

Saunders, P Equity and the Impact on Families of the Australian Tax-

Transfer System, Institute of Family Studies, Melbourne, 1982

Social Welfare Policy Secretariat, Report On Poverty Measurement,AGPS, Canberra, 1981

Whiteford, P Work Incentive Experiments in the United States and Canada,Research Paper No. 12, Development Division, Department of SocialSecurity, Canberra, 1981


22/59

APPENDIX 1

17

SUMMARY OF MAJOR CASH PAYMENTS PROGRAMS ADMINISTERED BYTHE DEPARTMENT OF SOCIAL SECURITY

Age pensions are payable to men and women from age 65 and 60

respectively, subject to residence and income tests. Peopleaged 70 or more are subject to a separate income test.No income test applies to the blind.

Invalid pensions are payable to people aged 16 or more whoare permanently incapacitated for work to the extent of atleast 85 per cent or who are permanently blind. Except forthe blind, invalid pensions are subject to the same incometest as the age pension for persons under 70 years. Thereis a residence test if the incapacity occurred outside Australia.

Sheltered employment allowances are payable , as an alternativeto invalid pensions, to people who work in approved sheltered

workshops if they are otherwise qualified for invalid pensionor would become so qualified but for working in the workshop.

Wives' pensions are payable to age and invalid pensioners'wives who are not eligible for a pension in their own right.The income test is the same as for age pensioners under 70years but there is no residence test.

Widows' pensions are payable to widows and certain otherwomen who have lost the support of a male breadwinner.There are three classes:

Class A - for a woman who has at least one'qualifying' child (a child in the social securitysystem is a child under 16 years or a dependentfull-time student aged 16-24 years);

Class B - for a woman aged at least 50 years who hasno qualifying child or to a woman aged at least45 years when she ceased to be eligible for a Class Apension because she no longer had a qualifying child; and

Class C - for a woman aged under 50 years who has noqualifying child and, within 26 weeks of her husband'sdeath, is in needy circumstances.

There is no residence test if the claimant and her husband wereresiding permanently in Australia when she became a 'widow'.The same income test applies to Class A and Class B widows'pensions as to age pensions for persons under 70 years. A specialtest of hardship applies in the case of Class C pensions.

Supporting parents' benefits are payable to female and malesole parents if they do not receive any other pension orbenefit. The income and residence tests are as for widows' pensions.

Unemployment benefits may be paid subject to an income testto persons aged at least 16 years but under age pension age(65 for men, 60 for women) who are:

capable of undertaking and willing to undertakesuitable paid work;

taking reasonable steps to obtain such work; and


23/59

App. 1 cont.

18

Additional entitlements for pensioners and beneficiaries include:

additional pension or benefit payable to pensionersand beneficiaries in respect of each child;

mothers/guardians allowance payable as an addition tothe pension for pensioners (including supportingparent beneficiaries) who are single parents;

supplementary assistance/allowance payable to pensioners(including supporting parent beneficiaries), andsickness beneficiaries (after six weeks on benefit) ,if they pay rent or for lodgings other than to a publichousing authority; this payment is subject to aseparate income test and a test on the amount of rentpaid;

pensioner fringe benefits (a range of benefits,including free medical and hospital treatment and

free pharmaceuticals) available to pensioners(including supporting parent beneficiaries) whosatisfy the separate income limits for a pensionerhealth benefits (PHB) card and to all sicknessbeneficiaries;

health benefits under the disadvantaged personsscheme - unemployment and special beneficiariessatisfying the PHB income test, other low income personsand recent migrants (including refugees) may be granteda Health Care Card providing access to free medicaland hospital treatment and pharmaceuticals at aconcessional rate.

Family allowances are payable in respect of children other thanstudents who are invalid pensioners or who are in receipt ofa tertiary education or similar allowance. There is no incometest. The claimant and the children must have been born inAustralia or intend to remain here permanently.

not unemployed due to being, or having been, engagedin industrial action or due to industrial action byother members of their trade union.

They must have lived in Australia for the preceding year orintend to remain in Australia permanently.

Sickness benefits are payable subject to an income test topeople aged at least 16 years, but under age pension age, whoare temporarily incapacitated for work because of sickness orinjury and who have thereby suffered a loss of income. Theymust have lived in Australia for the year prior to lodging aclaim or intend to live here permanently.

Special benefits are payable to people who are not receivingor are not eligible for a pension or unemployment or sickness

benefit and who are unable to earn a sufficient livelihood forthemselves and any dependants. The grant of a special benefitand the rate of payment is at the discretion of the Director-General but the rate may not exceed the rate of unemploymentor sickness benefit otherwise payable.


24/59

App. 1 cont.

19

Family income supplement (FIS) provides additional incomesupport to low-income families with children and notreceiving social security or similar payments.

Handicapped child's allowances are payable in respect ofmentally or physically handicapped children.

Double orphan's pensions are payable in respect of childrenwhose parents are both dead or one of whose parents is deadand the other is not available to care for the child incertain specified circumstances.

Spouse carer's pension, payable under the same conditions asfor wife's pension, was introduced in December 1983 for mencaring for an age or invalid pensioner spouse where the careis required for an extended or indefinite period because of

the spouse's severe disability.


25/59

20App. 1 cont.

MAXIMUM LEVELS OF SOCIAL SECURITY PAYMENTS - NOVEMBER 1983

Age , Invalid and Widows Pensions,Supporting Parents Benefit and

Sheltered Employment Allowance

Standard rateMarried rate (combined)

Unemployment Benefits

Single person

. Under 18Over 18 with no dependantsOver 18 with dependants

Married person (including additionalbenefit for spouse)

Sickness Benefits

Single person

Under 18. Over 18

Married person (including additionalbenefit for spouse)

Supplementary Payments

Additional pension/benefit forchildren (per child) and FIS

Mothers/guardians allowance (for singleparent pensioners, including supportingparent beneficiaries)

at least one child under 6 or invalidno children under 6 or invalid

Supplementary assistance/allowance(subject to a special income test, available

to pensioners including supporting parentbeneficiaries and to long-term sicknessbeneficiaries who pay rent)

up to

Family allowances (weekly equivalent)

one childtwo childrenthree childrenfour childreneach additional child

$ per week

85.90143.20

45 .0073.6085.90

143.20

45 .0085.90

143.20

12.00

8.006.00

10.00

5.2512.7521.7530.7510.50


26/59

21App. 1 cont.

Income limits for pensions, Commonwealth pensionerfringe benfits and supplementary assistance at November 1983

(a) Age pensions and invalid pensions are free of income test in thecase of the permanently blind. Age pensions for persons aged 70or more are subject to a special income test (a minimum pensionof $51.45 pw is payable to a single person with private incomebetween $98.90 pw and $200.00 pw, and $42.90 pw is payableto each partner in a married couple whose combined private incomeis between $164.80 pw and $333.00 pw; above these levels,pension is reduced by 50 cents for every $1 ofprivate income.)

*

(b) For single sheltered employment allowees entitlement for

pensioner concessions ceases when other weekly income reaches$68.00.

Status of pensioner/

supporting parentbeneficiary

Single age, invalid or

widow pensioner withno dependants

Single age, invalid orwidow pensioner orsupporting parentbeneficiary with:

one child 6 years ormore and not aninvalid

one child under 6years or an invalid

each additionalchild add

Married pensionercouple with nodependants

Married pensionercouple with onechild

Each additional

child add

Maximum

pensionpayableifweeklyincomedoes notexceed

$

30.00

36.00

36.00

6 . 0 0

50.00

56.00

6 . 0 0

No pension

payablewhen weeklyincomereaches(a)

$

201.80

243.80

247.80

30.00

336.40

366.40

30.00

No

pensionerfringebenefitsentitlementwhen otherweeklyincomereaches

$

57.00(b)

77.00

77.00

20.00

94.00

114.00

20.00

No supple-

mentaryassistancepayable whenother weeklyincomereaches

$

20.00

26.00

26.00

6 . 0 0

20.00

26.00

6 . 0 0


27/59

App. 1 cont.

22

INCOME LIMITS FOR UNEMPLOYMENT BENEFITS, SICKNESS BENEFITS, COMMONWEALTH FRINGE BENEFITS

(INCLUDING HEALTH BENEFITS CARD ENTITLEMENT), HEALTH CARE CARD ENTITLEMENT AND

SUPPLEMENTARY ALLOWANCE AT NOVEMBER 1983

(a) Add $12.00 for each child.

(b) Add $20 for each child.

* The full range of Commonwealth pensioner fringe benefits is available to all sicknessbeneficiaries. Unemployment beneficiaries holding a health care card may qualify

for free medical and hospital treatment and concessional charges for pharmaceuticals.Unemployment beneficiaries with private income above these limits may qualify for aHealth Care Card as a low income person.

Unemployment beneficiarySingle , 16 or 17 years

Single , 18 years and overwith no dependants

Single, 18 years andover with dependants

Married beneficiary

Sickness beneficiarySingle, 16 or 17 years

Single, 18 years andover

Married beneficiary

Maximumbenefitpayable ifweeklyincomedoes notexceed

$ a week

( (( (( (( (( (( (( 20.00 (( (( (( (( (( (( (

( (( (( (( (( (( (

Income Test50 % 100%

with- with-drawal drawalrate rate

$ a week $ a week

((((((

20-70 ( above 70((

((

(((((

(

Nobenefitpayablewhenweeklyincomereaches

$ a week

90.00

118.60

130.90(a)

188.20(a)

90.00

130.90 (a)

188.20 (a)

No fringebenefitsentitlementor healthcare cardentitlementwhen weeklyincomereaches *

$ a week

(57.00 (

(

57.00 |

(57.00(b) (

94.00(b) (

(

No supple-

mentaryallowancepayable whenweekly incomereaches

$ a w e e k

notapplicable

20.00

(no separate20. 00

( income test 20.00


28/59

23App.l cont.

Taxation and Income Test Treatment of Social SecurityPensions,Benefits,Allowances and Related Payments

PAYMENT TYPE

Basic Pension Payments

Age Pension Under 70

Invalid Pension Over 70If recipient below age pension ageIf recipient of age pension age

Widows PensionsSupporting parents benefitSheltered employment allowanceRehabilitation allowance

Wifes pension

If recipient and husband both

below age pension ageIf otherwise

Additional Pension Payments

Additional pension for childrenMothers/guardians allowanceSupplementary assistance

CURRENT TREATMENT

Taxable

YesYes

NoYes

YesYesNoNo

NoYes

NoNoNo

Incentive allowance (sheltered employment)

Basic Benefit Payments

Unemployment, sickness andspecial benefit

Additional benefit for spouse

Additional Benefit Payments

Additional benefit for childrenSupplementary allowance

Other Assistance for Children

Family AllowancesFamily Income SupplementDouble Orphan's Pension.Handicapped Children's Allowance

in respect of 'severely handicapped'

childrenin respect of 'handicapped' children

No

YesYes

Yes*Yes*

NoNoNoNo

IncomeTested

YesYes

Yes (**)Yes (**)

YesYesYesYes

YesYes

YesYesYesNo

YesYes

YesYes

NoYesNo

NoNo (***)

* Additional benefit for children and supplementary allowance areto become non-taxable after March 1984.

** No income test is applied where recipient is blind.*** No formal test is applied, but allowance is restricted to low

income parents/guardians.


29/59

24 App.l cont.

C H A N G E S IN ASSISTANCE TO PENSIONERS AND BENEFICIARIES 1969-1984

1969 Introduction of tapered means test - the 100 percent taper above the free areas was reduced to50 per cent.

1972 Substantial increases in unemployment and sicknessbenefits.

Increase in pension free areas from $10 to $20

a week (singl e) and from $17.00 to $34 .50 a week(married couple).

1973 Further increases in rates of unemployment andsickness benefits to bring them up to standardand married rates of pension.

Introduction of supporting mother's benefit.

Abolition of means test for residentially qualifiedpersons aged 75 and over.

Pensions payable to persons of age pension age became

subject to income tax (although an age rebate ensured thatthose with little or no private income did not pay tax).

1975 Abolition ofmeans test for residentially qualifiedpersons aged 70-74.

Exclusion of single rate of unemployment andsickness benefit payable to 16 and 17 year oldsfrom pension and benefit increases.


30/59

25App.l cont.

1976 Introduction of twice-yearly automatic indexationof basic rates of pensions and benefits (exceptfor single rate of unemployment and sickness benefitspayable to 16 and 17 year olds).

Introduction of income test to replace means testfor pensions and supporting mothers' benefits.

Widows' pensions, supporting mothers' benefits,and unemployment and sickness benefits became :

subject to income tax.1977 Introduction of supporting parent's benefit.

1978 Over 70's income-test free pension frozen atNovember 1978 rates, with indexation increasessubject to pension income test.

Removal of unemployment benefit payable to thoseaged 18 years and over without dependants fromindexation provisions.

1980 Increase of $2 a week (to $53.45) in unemploymentbenefit payable to those aged 18 years and overwithout dependants.

Liberalisation of unemployment benefit income test;the $6 a week free area was extended to thoseaged 18 to 20 years and the withdrawal rate wasreduced from 100 per cent to 50 per cent over theincome range of $6 to $50 a week ($3 to $40 for16 and 17 year olds) .

1981 Increase of $ 4 .6 5 a week (to $5 8.10) in unemplo ymentbenefit payable to those 18 years and over withoutdependants.

.1982 Increase of $3 a week (to $8) in supplementaryassistance and incentive allowance and change ineligibility conditions. A further increase of$2 a week was made in November.

Increase in pension free areas to $30 a week(single person) and $50 a week (pensioner couple).

Introduction of special pensioner tax rebate of$250 a year (phased out by 12.5 cents in the dollarfor incomes above $5429).

Increases in non-indexed unemployment and sicknessbenefits to $40 a week for single people aged 16or 17 years and to $64.40 a week for single unemploymentbeneficiaries aged 18 and over without dependants.


31/59

26 App.l cont.

Further liberalisation of unemployment and sicknessbenefit income test; the free area was increased to$10 a week for all beneficiaries and the 50 per centtaper was applied to income between $10 and $60.

Increase in income limits for eligibility forCommonwealth fringe benefits to $54 a week (single)and $90 a week (married couple).

1983 Increase in unemployment benefit payable to singlepeople aged 18 and over without dependants to$68.85 a week in May and to $73.60 a week in November,

1984

Increase to $45 a week in unemployment and sicknessbenefit payable to single people aged 16 and 17.

Introduction of new income test for pensions payableto persons aged 70 and over - the income-test-freecomponent is now reduced by 50 cents for every $ ofnon-pension income received over $200 a week (single)and $333 a week (married couple).

Indexation of income limits for Commonwealth fringebenefits.

Introduction of remote area allowance for pensionersand beneficiaries living in Income Tax Zone A.*

Increase to $75.60 a week and indexation of unemploymentbenefit for those aged 18 and over without dependants.

Increase in unemployment and sickness benefit incometest free area to $20 a week and. extension of50 per cent taper to $70 a week.**

Supplementary assistance/allowance made non taxable fromMarch.

Pensioners and beneficiaries living in Tax Zones areunlikely to be able to take full or any advantage of thezone rebates because of insufficient income. Extendingthe rebate in the form of a cash allowance to pensionersand beneficiaries is therefore similar in effect ontheir disposable incomes as the change from dependent

child tax rebates to family allowances.

One rationale for the relaxation of the unemployment andsickness benefit income test was to avoid very high effectivemarginal tax rates due to the overlap with the separatesupplementary allowance income test.


32/59

27 App.l cont.

CHANGES IN ASSISTANCE TO FAMILIES 1970-1984

1970 - additional pension/benefit for children was $2.50

for the first child and $3.50 for subsequent children;

child endowment rates were 50c, $1.00, $1.50 per

week for the first three children with an additional

increase of 25c for each subsequent child;

the concessional deduction for a dependent spouse was

$312 and deductions for children were $208 for the first

child and $156 for subsequent children.

1971 - a flat rate of additional pension/benefit of

$4.50 per child was introduced;

child endowment was increased by 50c per week for

third and subsequent children.

1972 - the concessional deduction for a dependent spouse was

increased by 17 per cent to $364; deductions for childrenwere increased by 25 per cent for the first child to

$260 and by 33 per cent for the subsequent children to $208,

1973 - additional pension/benefit was increased by 11 per

cent to $5.00 per child.

1974 - additional pension/benefit was increased by 10 per

cent to $5.50 per child.

1975 - additional pension/benefit was increased twice during

the year by 27 per cent to $7 in May and to $7.50

in November;

tax rebates were introduced to replace concessional

deductions for dependants - the values for dependent

children were $ 200 for the first child and student

children, and $150 for subsequent children. The

dependent spouse rebate was equal to $400; and sole

parent rebate was introduced and set at $200.


33/59

28 App.l cont.

1976 - family allowances were introduced in place of tax

rebates for dependent children and child endowment.

The overall cost of family allowances was similar

to the cost of the previous arrangements had the

tax rebates for children been indexed in line

with the rest of the tax system, i.e. some $1,000

million. Rates of allowances were $3.50pw first child,

$5.00pw second child, $6.00pw third and fourth children,

$7.00pw fifth and subsequent children

the dependent spouse tax rebate was increased by25 per cent from $400 to $500 and the sole parent

tax rebate was increased by 75 per cent from $200

to $350.

1977 - the dependent spouse rebate and the sole parent rebate

were increased by 10.9 per cent to $555 and $388

respectively.

1978 - the dependent spouse rebate and the sole parent

rebate were increased by 7.6 per cent to $597

and $417 respectively.

1980 - additional pension/benefit for children was increased

by 33 per cent from $7.50 a week to $10.00 a week;

mother's/guardian's allowance was increased from

$4 a week and $6 a week (where one child is under

6 or an invalid) to $6 (a 50 per cent increase)

and $8 (a 33 per cent increase) respectively;

the dependent spouse rebate and the sole parent

rebate were increased by 34 per cent to $800 and

$559 respectively.

1981 - the dependent spouse rebate was increased to

$830 and the sole parent rebate to $580.

1982 - family allowances for third and subsequent

children were increased by 50 per cent from May;


34/59

29 App.l cont

family allowances for first and second children

were increased by 50 per cent from November 1982;

the dependent spouse rebate and the housekeeper

rebate were increased to $1,030 for those with

dependent children, and the sole parent rebate

was increased to $780.

1983 - the family income supplement of $10 a week for each

dependent child of a low income family not in

receipt of pension or benefit was introduced from

May 1983;

additional pension and benefit for children

was increased to $12 per week per child in

November 1983; the family income supplement was

increased to $12 at the same time.

1984 - additional benefit for children will be made

non-taxable from March 1984;

a uniform rate of mother's/guardian's allowance

of $8 per week will be payable from May 1984, and

at the same time will be extended to single

unemployment, sickness and special beneficiaries

with children.


35/59

30 APPENDIX 2

SUMMARY TABLE

CHANGES IN REAL DISPOSABLE INCOMES OF VARIOUS FAMILY TYPES - 1976-77 - 1983-84 (EST.)@(PER CENT)

Single Person

Sole Parent,One Child

Sole Parent,Two children

Sole ParentThree children

Sole Parent,Four children

Married Couple,No children- One Spouse Working- Both Working***

Married Couple ,One Child

- One Spouse Working- Both Working***

Married Couple,Two children- One Spouse Working

MarriedCouple,Three Children- One Spouse Working- Both Working***

MarriedCouple,Four Children- One Spouse Working- Both Working***

Pensionerwith Nil

PrivateIncome

+4 . 66

-3.20

-6.08

-8.26

-9.85

+4.83

+ 1.55

-1.26

-3.58

-5.39

Beneficiary with Nil PrivateIncomeAdultSickness

+4 . 66

_**

_**

_**

_**

+ 4 . 6 2

+ 1.55

-1.69

-4 .01

-5.15

AdultUnempl-oyment

-10.57

_**

_**

_**

-**

+ 4 . 6 2

+ 1.55

-1.69

-4. 01

-5.15

JuniorUnemploy-ment andSickness

-36.03

-

-

-

-

-

-

"

Wage andSalary

Earner withPrivateIncome of5 3 . 8 % A W E *

+2.00

_**

_**

_**

-**

+ 2.72

+3.24

+7 . 4 4+ 8.54

+11.87

+12.85

+15.56

+16.43

+18.87

+19.65

Wage andSalary

Earner withPrivateIncome of1 0 0 % A W E

+ 6 . 83

+6.70

+5.83

+4.85

+3.95

+6.98

+ 1.93

+ 6.35+ 1.45

+5.51

+ 0.81

+4.57

+0.08

+3.69

-0.59

Wage andSalaryEarner withPrivateIncome of2 0 0 % A W E

+5.13

+ 5.12

+4.62

+4.04

+3.49

+5.28

+ 4 .29

+4.93+4 . 48

+4.43

+4.06

+3.87

+3.56

+3.33

+3.08

Average Weekly Earnings is estimated to be $369.70 a week for 1983-84. The estimated CPI for 1983-84includes the effects of the introduction of Medicare f rom 1 February 1984. This has exaggeratedthe increases in real disposable incomes of pensioners and beneficiaries in 1983-84 comparedto earlier years.

* This level of income represents the income level at which maximum FIS is currently payable.

** Most persons in these situations would be eligible for a full or part-rate supporting parent'sbenefit or widow's pension. Ifentitled to the full-rate theirposition would be equivalent tothat of a sole parent pensioner. If receiving FIS, they would be betteroffreceiving supportingparent's benefit or widow's pension.

*** Assumes income is split 60:40 between husband and wife.


36/59

31

App.2 cont

* Annual pension sum averaged to exclude 27th payday in the year.! Consumer Price Index estimated.

INDICES OF REAL DISPOSABLE INCOME ( 1976 - 77 DOLLAR TERMS )

SINGLE PENSIONER (where pension is income tested and taxable)

YEAR

1976-771977-781978-791979-801980-811981-82

1982-83*1983-84!

0 CHILD

100.00103.21102.65100.59102.76101.52

101.53104.66

1 CHILD

100.0099.8897.5193.8596.9795.53

94.3196.80

2 CHILD

100.0098.4295.2790.9093.9292.21

91.1593.92

3 CHILD

100.0097.3293.5888.6891.5291.03

89.4391.74

4 CHILD

100.0096.5292.3587.0689.7790.17

88.1790.15

PENSIONER COUPLE (where pension is income tested and taxable)

YEAR

1976-771977-781978-79

1979-801980-811981-821982-83*1983-84!

0 CHILD

100.00103.36102.81

100.72102.85101.87101.69104.83

1 CHILD

100.00101.78100.38

97.5399.8998.6998.27101.55

2 CHILD

100.00100.4298.30

94.8097.1995.7595.3598.74

3 CHILD

100.0099.3096.58

92.5694.8994.3893.4796.42

4 CHILD

100.0098.4395.25

90.8293.0993.3192.0094.61


37/59

32

App.2 cont.


@ Paydays are taken as falling on pension paydays.

* Annual benefit sum averaged to exclude 27th payday in the year.! Consumer Price Index estimated.

YEAR

1976-771977-781978-791979-80

1980-811981-821982-83*1983-84!

SINGLE UNDER 18UNEMPLOYMENTAND SICKNESSBENEFICIARIES@

100.0091.4084.4676.70

70.1063.5061.1663.97

SINGLE OVER 18UNEMPLOYMENTBENEFICIARIES@

100.00103.21100.4191.18

85.4682.8983.0289.43

SINGLE OVER 18SICKNESSBENEFICIARIES@

100.00103.21102.65100.59

102.76101.52101.53104.66

UNEMPLOYMENT AND SICKNESS BENEFICIARY COUPLES@

YEAR

1976-771977-78

1978-791979-801980-811981-821982-83*1983-84!

0 CHILD

100.00103.36102.81100.72102.85101.87101.69104.62

1 CHILD

100.00101.78

100.3897.5399.8998.6998.27101.55

2 CHILD

100.00100.42

98.3094.8097.1994.6894.9098.31

3 CHILD

100.00100.01

97.3291.7794.3792.5492.4495.99

4 CHILD

100.0099.06

95.7490.0392.4791.52

91.1594.85


38/59

33

App.2 cont


! Represents the income level at which maximum Family Income Supplement is currently payable.

@ Average Weekly Earnings and Consumer Price Index estimated.

SINGLE TAXPAYER (INCOME = 53.8% of AWE!)

YEAR

1976-771977-781978-791979-801980-811981-82

1982-831983-84@

0 CHILD

100.00100.99100.1397.85100.11101.87

101.76102.00

1 CHILD

100.00100.6699.6096.6399.84100.71

102.72108.02

2 CHILD

100.00100.2098.8595.6598.3798.87

102.26112.54

3 CHILD

100.0099.7198.0494.5996.7998.08

102.14116.29

4 CHILD

100.0099.2797.3293.6495.3897.37

102.02119.65

SINGLE TAXPAYER (INCOME = 100% of AWE)

YEAR

1976-771977-781978-791979-80

1980-811981-821982-831983-84@

0 CHILD

100.00101.20100.3899.14

102.63105.26105.98106.83

1 CHILD

100.00100.98100.0398.28

102.29104.29105.73106.70

2 CHILD

100.00100.6899.5397.59

101.27102.99104.78105.83

3 CHILD

100.00100.3398.9796.82

100.12102.31104.07104.85

4 CHILD

100.00100.0298.4696.10

99.05101.69103.40103.95

SINGLE TAXPAYER (INCOME = 200% of AWE)

E A R

1976-77

1977-781978-791979-801980-811981-821982-831983-84@

0 CHILD

100.00

103.06103.55101.62104.85106.75106.61105.13

1 CHILD

100.00

102.85103.20101.00104.56106.10106.43105.12

2 CHILD

100.00

102.62102.84100.52103.89105.27105.84104.62

3 CHILD

100.00

102.37102.4299.98103.11104.80105.37104.04

4 CHILD

100.00

102.12102.0199.46102.38104.35104.92103.49


39/59

34

App.2 cont.


! Represents the income level at which maximum Family Income Supplement is currently payab@ Average Weekly Earnings and Consumer Price Index estimated.

TAXPAYER COUPLE - ONE WORKING (INCOME = 53.8% of AWE)

YEAR

1976-771977-781978-791979-801980-811981-821982-831983-84@

0 CHILD

100.00101.03100.2097.22101.32102.23102.55102.72

1 CHILD

100.00100.6999.6596.50100.21100.86102.49

107.44

2 CHILD

100.00

100.2498.9295.5598.7799.06102.06111.87

3 CHILD

100.0099.7698.1394.5297.2198.28101.95115.56

4 CHILD

100.00

99.3397.4293.6095.8197.58101.85118.87

TAXPAYER COUPLE - ONE WORKING (INCOME = 100% OF AWE)

YEAR

1976-771977-78

1978-791979-801980-811981-821982-831983-84@

0 CHILD

100.00101.22

100.4198.66103.24105.27106.22106.98

1 CHILD

100.00101.00

100.0598.16102.49104.32105.53106.35

2 CHILD

100.00100.70

99.5697.49101.47103.04104.60105.51

3 CHILD

100.00100.36

99.0196.73100.33102.37103.91104.57

4 CHILD

100.00100.05

98.5196.0399.28101.75103.26103.69

TAXPAYER COUPLE - ONE WORKING (INCOME = 200% OF AWE)

YEAR

1976-771977-781978-791979-801980-811981-821982-831983-84@

0 CHILD

100.00102.99103.44101.23105.13106.70106.73105.28

1 CHILD

100.00102.83103.18100.89104.65106.10106.30104.93

2 CHILD

100.00102.61102.82100.43103.98105.28105.72104.43

3 CHILD

100.00102.36102.4099.89103.22104.81105.26103.87

4 CHILD

100.00102.12102.0199.38102.49104.37104.82103.33


40/59

35

App.2 cont.


Represents the income level at which maximum Family Income Supplement is currently payableAverage Weekly Earnings and Consumer Price Index estimated.

AXPAYER COUPLE - BOTH WORKING (INCOME SPLIT 60:40. INCOME = 53.8% of AWE! )

YEAR

976-77977-78978-79979-80

980-81981-82982-83983-84@

0 CHILD

100.00100.61100.4999.83

103.51104.45103.24103.24

1 CHILD

100.00100.2999.9399.03

102.34103.02103.99108.54

2 CHILD

100.0099.8699.2097.97

100.82101.15103.49112.85

3 CHILD

100.0099.4198.41

96.83

99.17100.27103.30116.43

4 CHILD

100.0099.0097.7095.80

97.6999.47103.14119.65

XPAYER COUPLE - BOTH WORKING (INCOME SPLIT 60:40. INCOME = 100% of AWE)

YEAR

76-7777-78

78-7979-8080-8181-8282-8383-84@

0 CHILD

100.00101.23

100.7698.26100.35102.00101.77

101.93

1 CHILD

100.00101.02

100.4297.8199.71

101.19101.22101.45

2 CHILD

100.00100.74

99.9597.1998.84100.08100.48100.81

3 CHILD

100.00100.42

99.4296.4997.8799.5699.97100.08

4 CHILD

100.00100.12

98.9395.8496.9599.0799.4999.41

X P A Y E R C O U P L E - BOTH W O R K I N G ( I N C O M E SPLIT 60:40. INCOME = 200% of AWE)

YE A R

76-7777-7878-7979-8080-8181-8282-8383-84@

0 CHILD

100.00101.23100.4199.16

102.65104.52104.63104.79

1 CHILD

100.00101.11100.2198.89

102.26104.02104.28104.48

2 CHILD

100.00100.94

99.9498.50

101.70103.32103.79104.06

3 CHILD

100.00100.7599.6398.06

101.07102.94103.42103.56

4 CHILD

100.00100.5699.3397.64

100.45102.58103.06103.08


41/59

36

App.2 cont.

DISPOSABLE INCOMES OF VARIOUS PENSIONERS, BENEFICIARIES AND TAXPAYERS:

(AS A PERCENTAGE OF DISPOSABLE INCOMES OF

SINGLE TAXPAYERS ON 100% OF AWE WITH 0 CHILDREN) (AWE estimated for 1983-84).

@ Annual pension sum averaged to exclude 27th payday in the year.

S I N G L E P E N S I O N E R with

Y E A R

1976-771977-781978-791979-801980-811981-821982-83@1983-84

0ch

3 0 . 631.231.331.03 0 . 62 9 . 52 9 . 33 0 . 0

1ch

4 2 . 64 2 . 04 1 . 44 0 . 34 0 . 238.737.938.6

2ch

51 . 45 0 . 048 . 84 7 . 24 7 . 14 5 . 14 4 . 24 5 . 2

3ch

61 . 058.656.85 4 . 55 4 . 45 2 . 751 . 55 2 . 4

4ch

70.5

67 . 36 4 . 96 1 . 961.76 0 . 458.75 9 . 5

MARRIED PENSIONER with

YEAR

1976-771977-781978-791979-801980-811981-821982-83@1983-84

0ch

50.952.052.151.751.049.348.8

50.0

1ch

58.759.058.757.757.155.054.4

55.8

2ch

67.567.066.164.663.961.460.8

62.4

3ch

77.175.674.272.071.369.168.0

69.6

4ch

86.684.282.279.378.676.875.2

76.7


42/59

37

* Paydays are taken as falling on pension paydays.@ Annual benefit sum averaged to exclude 27th payday in the year.

App.2 cont.

SINGLE OVER 18 UNEMPLOYMENT BENEFICIARY* with

YEAR

1976-771977-781978-791979-801980-811981-821982-83@1983-84

0ch

30.631.230.628.125.524.124.025.6

1ch

38.438.237.837.036.735.334.936.3

2ch

47.246.245.343.943.541.741.243.0

3ch

56.754.853.351.350.949.348.450.1

4ch

66.363.461.358.658.257.055.657.2

MARRIED UNEMPLOYMENT BENEFICIARY* with

YEAR

1976-771977-781978-791979-801980-811981-821982-83@

1983-84

0ch

50.952.052.151.751.049.348.8

49.9

1ch

58.759.058.757.757.155.054.4

55.8

2ch

67.567.066.164.663.960.760.5

62.1

3ch

76.375.473.970.670.167.066.5

68.5

4ch

84.482.680.576.676.073.472.6

74.9


43/59

38

SINGLE OVER 18 SICKNESS BENEFICIARY* with

App.2 cont.

* Paydays are taken as falling on pension paydays.@ Annual benefit sum averaged to exclude 27th payday in the year.

YEAR

1976-771977-781978-791979-801980-811981-821982-83@1983-84

0ch

30.631.2

31.331.030.629.529.330.0

1ch

38.438.237.837.036.735.334.936.3

2ch

47.246.245.343.943.541.741.243.0

3ch

56.754.853.351.350.949.348.450.1

4ch

66.363.461.358.658.257.055.657.2

SINGLE UNDER 18 UNEMPLOYMENT OR SICKNESS BENEFICIARY* with

YEAR

1976-771977-781978-791979-801980-811981-821982-83@

1983-84

0ch

25.423.021.419.717.415.314.7

15.2

1ch

***.****.****.****.****.****.****.*

***.*

2ch

***.****.****.****.****.****.****.*

***.*

3ch

***.****.****.****.****.****.****.*

***.*

4ch

***.****.****.****.****.****.****.*

***.*


44/59

39

App.2 cont.

! Represents income level at which maximum Family Income Supplement is currently payable.@ Income split 60:40.

SINGLE TAXPAYER, INCOME = 53.8% OF AWE!, with

MARRIED (ONE WORKING) TAXPAYER, INCOME = 53.8% OF AWE!, with

MARRIED (BOTH WORKING@) TAXPAYER, INCOME = 53.8% OF AWE!, with

YEAR

1976-771977-781978-791979-801980-811981-821982-831983-84

0ch

60.860.760.760.159.358.958.458.1

1ch

68.167.767.566.466.265.166.068.8

2ch

71.670.970.569.168.667.369.175.4

3ch

75.974.774.172.471.570.773.182.6

4ch

80.178.677.775.774.474.177.189.7

YEAR

1976-771977-781978-791979-801980-811981-82

1982-83

1983-84

0ch

67.667.567.566.366.865.7

64.5

63.7

1ch

70.169.869.668.268.567.267.8

70.5

2ch

73.773.0

72.671.070.969.370.9

77.1

3ch

77.976.8

76.174.373.872.774.9

84.3

4ch

82.180.6

79.777.576.776.178.9

91.4

YEAR

1976-771977-781978-791979-801980-811981-821982-831983-84

0ch

68.868.468.869.269.468.267.066.5

1ch

71.270.670.971.271.069.769.972.4

2ch

74.873.873.973.9

73.571.973.079.0

3ch

79.077.677.577.276.475.377.086.1

4ch

83.381.581.080.5

79.378.781.093.3


45/59

40

App.2 cont.

@ Income split 60:40.

SINGLE TAXPAYER, INCOME = 100% OF AWE, with

MARRIED (ONE WORKING) TAXPAYER, INCOME = 100% OF AWE, with

MARRIED (BOTH WORKING@) TAXPAYER, INCOME = 100% OF AWE, with

YEAR

1976-771977-781978-791979-801980-811981-821982-831983-84

0ch

100.0100.0100.0100.0100.0100.0100.0100.0

1ch

107.2107.0106.9106.3106.9106.3107.0107.1

2ch

110.8110.2109.8109.0109.3108.4109.5109.7

3ch

115.0114.0113.4112.3112.21 1 1 . 8

112.9112.9

4ch

119.3117.9117.0115.6115.1

115.2116.4116.0

YEAR

1976-771977-781978-791979-801980-811981-821982-83

1983-84

0ch

106.8106.8106.8106.3107.4106.8106.1

105.6

1ch

109.3109.1108.9108.2109.1108.3108.8

108.8

2ch

112.8112.2111.9110.91 1 1 . 5

110.41 1 1 . 3

1 1 1 . 4

3ch

117.11 1 6. 1

115.5114.2114.4113.8114.8

114.6

4ch

121.3119.9119.0117.5117.3117.3118.2

117.7

YEAR

1976-771977-781978-791979-80

1980-811981-821982-831983-84

0ch

114.5114.6115.0113.5

112.0111.0110.0109.3

1ch

117.0116.8117.1115.5

113.7112.51 1 1 . 8

1 1 1 . 1

2ch

120.6120.0120.0118.2116.1

114.6114.3113.8

3ch

124.8123.8123.6121.5

119.0118.0117.7116.9

4ch

129.0127.7127.2124.8

121.9121.5121.1

120.1


46/59

41

App.2 cont.

@ Income split 60:40.

SINGLE TAXPAYER, INCOME = 200% OF AWE, with

MARRIED (ONE WORKING) TAXPAYER, INCOME = 200% OF AWE, with

MARRIED (BOTH WORKING@) TAXPAYER, INCOME = 200% OF AWE, with

YEAR

1976-771977-781978-791979-801980-811981-821982-831983-84

0ch

170.5173.6175.8174.7174.2172.9171.5167.8

1ch

177.7180.6182.7181.0181.0179.1178.5 -174.9

2ch

181.2183.8185.7183.8183.5181.3181.0177.5

3ch

185.5187.6189.2187.1186.4184.7184.4180.7

4ch

189.7191.4192.8190.3189.3188.1187.8183.8

YEAR

1976-771977-781978-791979-801980-811981-821982-83

1983-84

0ch

177.3180.4182.7181.0181.6179.7177.5

173.4

1ch

179.7182.6184.8182.9183.3181.2180.3

176.5

2ch

183.3185.8187.7185.7185.7183.3182.8

179.2

3ch

187.5189.7

191.3188.9188.6186.7186.2

182.3

4ch

191.8193.5194.9192.2191.5190.1189.7

185.5

YEAR

1976-771977-781978-791979-80

1980-811981-821982-831983-84

0ch

200.0200.0200.0200.0

200.0198.6197.4196.2

1ch

202.4202.2202.1201.9

201.7200.0199.2198.0

2ch

206.0205.4205.1204.7

204.1202.2201.7200.6

3ch

210.2209.3208.6207.9

207.0205.6205.1203.8

4ch

214.5213.1212.2211.2

209.9209.0208.5206.9


47/59

42

Appendix 3


48/59

App.3 cont.43


49/59

44 App.3 cont.


50/59

45 App.3 cont.


51/59

46App.3 cont.


52/59

App.3 cont.47


53/59

App.3 cont.48


54/59

49 App.3 cont.


55/59


56/59

DEVELOPMENT DIVISION: SERIES OF RESEARCH PAPERS

RESEARCH PAPER NO 1

RESEARCH PAPER NO 2

RESEARCH PAPER NO 3

RESEARCH PAPER NO 4

RESEARCH PAPER NO 5

RESEARCH PAPER NO 6

RESEARCH PAPER NO 7

RESEARCH PAPER NO 8

RESEARCH PAPER NO 9

RESEARCH PAPER NO 10





UNEMPLOYMENT BENEFIT RECIPIENTS INAUSTRALIA. 1970-1980: AN ANALYSIS(REVISED) (NOVEMBER 1981)

REVIEW OF THE CHARACTERISTICS OF LONG-TERMUNEMPLOYMENT BENEFIT RECIPIENTS INAUSTRALIA. 1970-1977 (NOVEMBER 1978)

CHANGING FAMILY PATTERNS AND SOCIAL SECURITYPROTECTION: THE AUSTRALIAN SCENE(MARCH 1979)

UNEMPLOYMENT STATISTICS IN AUSTRALIA(JULY 1979)

A REVIEW OF THE CHARACTERISTICS OF SOLEPARENTS ASSISTED UNDER THE SOCIAL SERVICESACT (MARCH 1980)

RESEARCH QUESTIONS ON INCOME SECURITY FORSOLE PARENTS (MARCH 1980)

t >

CHARACTERISTICS OF. SOLE MOTHERS RECEIVINGSTATE ASSISTANCE SUBSIDISED UNDER THE STATESGRANTS (DESERTED WIVES) ACT (MARCH 1980)

ADDITIONAL DATA REQUIREMENTS OF THEDEPARTMENT OF SOCIAL SECURITY (APRIL 1980)

THE RELATIONSHIP BETWEEN THE AUSTRALIANSOCIAL SECURITY AND PERSONAL INCOME TAXATIONSYSTEMS - A PRACTICAL EXAMINATION(DECEMBER 1980)

SURVEY OF INVALID PENSIONERS OCTOBER 1979:DATA ON MAJOR CAUSES OF INVALIDITY AND ONOTHER IMPAIRMENTS 2ND EDITION (OCTOBER 1981)

THE FINANCE OF SOCIAL SECURITY: SOMEIMPLICATIONS OF THE INTERACTION BETWEENSOCIAL SECURITY AND PERSONAL INCOME TAX(DECEMBER 1980)

WORK INCENTIVE EXPERIMENTS IN THE UNITEDSTATES AND CANADA (JUNE 1981)

WORK TEST FAILURE - A SAMPLE SURVEY OFTERMINATIONS OF UNEMPLOYMENT BENEFIT(JUNE 1981)

STATISTICS ON THE DISTRIBUTION OF INCOME ANDWEALTH IN AUSTRALIA (OCTOBER 1981)


57/59


58/59
















POPULATION PROJECTIONS AND SOCIAL SECURITY(NOVEMBER 1981)

AS HIS WIFE: SOCIAL SECURITY LAW AND POLICYON DE FACTO MARRIAGE (DECEMBER 1981)

TAXATION EXPENDITURES: SUBMISSION BY THEDEPARTMENT OF SOICAL SECURITY TO THE INQUIRY

INTO TAXATION EXPENDITURES BY THE HOUSE OFREPRESENTATIVES STANDING COMMITEE ONEXPENDITURE (MARCH 1982)

SOLE PARENTS ON PENSIONS: A SAMPLE SURVEYOF CLASS 'A1 WIDOW PENSIONERS AND SUPPORTINGPARENT BENEFICIARIES (JUNE 1982)

FINANCING SOCIAL SECURITY:

interaction of taxation and social security

Documents