Financial Assistance to Two-Parent Families

Financial Assistance to Two-Parent Families:

Does the current system promote choice in the way parents share their work and caring roles?

August 1996

Australian Catholic Social Welfare Commission

Principal Author: Libby Cooney August 1996

Discussion Paper No 10

8 Copyright 1996 Australian Catholic social Welfare Commission. All rights reserved. Except as provided by Australian copyright law, no part of this book may be reproduced without permission in writing from the publishers.

ISBN 0 949258 09 1

THE AUSTRALIAN CATHOLIC SOCIAL WELFARE COMMISSION

The Australian Catholic Social Welfare Commission is an organisation of the Australian Catholic Bishops= Conference and has a mandate to advise the Catholic Bishops on matters pertaining to national social welfare issues. The Commission was established in 1974 and reports to the Catholic Bishops of Australia through the Bishops' Committee for Social Welfare.

A Board of Commissioners consisting of individuals with expertise in social welfare policy and practice drawn from across Australia is appointed by the Bishops' Committee for Social Welfare, on behalf of the Catholic Bishops, to oversight the work of the Australian Catholic Social Welfare Commission National Secretariat.

The current membership of the Australian Catholic Social Welfare Commission is:

Bishop Patrick Power Australian Catholic Bishops' Representative

Mr Toby O'Connor National Director ACSWC

Fr John Usher (Chair) NSW Director, Centacare Sydney

Ms Kathy McCormack NSW Director, Centacare Wollongong

Ms Mary Anne Maylor Victoria Ballarat Diocesan Family Welfare Service

Fr Kevin Mogg Victoria Vicar for Welfare, Archdiocese of Melbourne

Fr David Cappo South Australia Bishops' Nominee

Mr Dale West South Australia Director, Centacare Adelaide

Mr Brian Kennedy Queensland Director, Brisbane Catholic Response

Fr Clem Kilby AM Tasmania Director, Centacare Hobart

Mr Tony Pietropiccolo Western Australia Director, Centrecare Marriage and Family Service Perth

Mr Neil Harrigan ACT Director, Centacare Canberra-Goulburn

Ms Judy Stacey Northern Territory Director, Centacare NT

Sr Jan Geason, RSM Nominee of the Australian Conference of Leaders of Religious Institutes

Mr Chris Pearson Representative of Centacare Australia

The Commission aims to develop a wide range of responses on issues that effect the personal and public well-being of the Australian community. Principally, these responses are intended to raise the consciousness of the community on the impact of specific social policies, proposals and developments.

Policies in the legal, social, economic, political and administrative arenas are considered in relation to the impact these have on the physical, social, emotional and spiritual lives of all Australians. The Commission applies the key principles outlined in the Gospel and the Social Teachings of the Church to examine the impact and intent of government policies and legislation with specific reference to the human dignity inherent in all individuals and their right to be an active participant in their national and local communities.

FOREWORD

In their statement for the International Year of the Family, the Australian Bishops described families as hidden treasures. They gave the following rationale: "Often the contribution families make to the well-being of Australian society is unrecognised or undervalued. Governments, public authorities and other organisations that do not recognise the role families play in our society cannot respond effectively to the needs of families in difficulty. And a society that does not cherish the treasure of its families will ultimately perish from self-neglect."

This Discussion Paper sets out the principles which should inform strategies needed to ensure that families are supported in a manner which is consistent with the human dignity of their members and the value of family life in society as a whole.

It stresses the importance of supporting families fulfil their child rearing responsibilities at a time when families are under increasing financial stress and uncertainty.

It dispels the notion that assistance to families for their children is >middle class welfare= when in reality it is an investment in our future.

It examines the heated debate and controversy about the best way to provide assistance for child carer, especially over how to ensure that the vital role of parents who make the sacrifice of a market wage to stay at home and care for children is adequately supported.

Laudibly, the paper aims to heal the wounds of this controversy by conducting a thorough analysis of the anomalies in the current system and suggesting a way forward.

I am confident that the Discussion Paper will be a valuable means of promoting family policy and family life in Australia.

Bishop Patrick Power

Chairman

Bishops' Committee for Social Welfare

August 1996

EXECUTIVE SUMMARY

This Paper aims to promote discussion on the provision of income support to families. The particular issue under consideration is the extent to which the current system of financial support to families enables parents to make real choices about balancing their care responsibilities with workforce participation. Real choices are ones which allow families to reach the balance which best suits their needs, without any financial incentives to choose one particular model.

The primary role of families is the care and nurture of children. In spite of the rapid changes in society, the care of children remains of central importance to families. Governments have responsibility to ensure families are in a position to provide adequately for their children. These supports provided by government must value both the caring role of families and their workforce responsibilities. Such supports should facilitate greater choices about the way in which parents share care and paid employment.

From these principles, more specific goals can be extracted relating to family income support policies. These goals include horizontal, vertical and intra-family equity, as well as the goal of supporting choice. Specific policies cannot adequately meet all these goals and there are sometimes trade-offs between them. However these goals do provide a basis from which to review current and future family income support policies.

The system of financial support to families has developed rapidly since the 1980s. Many of these developments have been in response to economic and social changes within society. These factors include the changing composition of the labour market, the increasing number of sole parent families and factors related to regional disadvantage including poverty and unemployment. Studies undertaken in the late 1980s also indicated that middle income families were worse off financially than in the previous decade.

Since 1989 there have been a number of payments introduced which aim to meet the goals outlined above. Some of these payments have been very carefully targeted to those families most in need, and have to a degree provided vertical equity. Payments such as Childcare Assistance and the Child Care Cash Rebate have been developed to offset the costs of childcare. Other payments such as Parenting Allowance provide support to parents who choose to care for children at home.

A detailed analysis of the anomolies in the present system attempts to address the debate about whether one income families are disadvantaged compared to two-income families under the current arrangements. It is concluded that the high level of complexity of the system, the focus on vertical equity and on assistance for work-related child care has given rise to an unintended undervaluing of the principles of horizontal equity. However, the degree of this imbalance should not be overstated.

A number of options for reform are discussed in detail. These include reforms in both the tax and direct benefits system. The paper concludes with recommendations which include the amalgamation of the Child Care Cash Rebate with the Basic Parenting Allowance and some modifications to the proposed income test for the Family Tax Initiative.

Table of Contents

The Australian Catholic Social Welfare Commission … 1

Foreword by Bishop Patrick Power … 3

Executive Summary … 3

INTRODUCTION … 6

1. Principles Underpinning Support For Families … 6

1.1 Global Principles … 7

1.2 Specific Principles Relating to Income Support … 8

1.3 Tax Versus Benefit System … 10

2. Factors Affecting Family Life … 11

2.1 Families and Work … 11

2.2 Families and Divorce … 12

2.3 Families and Regional Disadvantage … 13

2.4 Families and the Economy … 13

2.5 Reduction in Family Incomes and Income Support … 14

3. Current Family Support … 16

4. Identifying Anomalies … 17

5. Options for Reform … 22

5.1 Family Unit Taxation plus Redistributive Payment … 23

Proposal … 26

5.3 'Homemaker's Allowance' … 29

5.4 Coalition Family Tax Initiative … 31

5.5 Amalgamation of Payments … 32

5.6 ACSWC Proposal: Childcare Payment … 32

CONCLUSION … 36

Recommendations … 39

Appendix 1: Current Family Assistance … 39

Appendix 2: Coalition Family Tax Initiative … 41

References … 41

INTRODUCTION

A fundamental and ongoing debate in Australian public policy is the extent and form of government support for families. Current support is provided through direct financial assistance in the form of benefits and tax concessions, the provision of subsidised child care and government operated or funded support services.

This Discussion Paper examines the current structure of the financial support system in terms of the principles that have informed the policy decisions and led to the present structure. In particular the question which underlies this analysis is whether the support system delivers horizontal equity to two-parent families with children such that decisions to earn a second income are not distorted by a non-neutral tax-transfer system. If that system is not neutral, it could provide incentives for a decision, on the one hand, to enter the labour force when this is not the first choice of the parents. On the other hand, a non-neutral system could also provide incentive for the opposite decision, that is, not to enter the labour force when in fact, all things being equal, the first choice would be to have both parents in the paid labour force. It is assumed that at neutral tax-transfer system which does not distort labour market decisions is to be preferred to one that does.

This Discussion Paper first clearly sets out the fundamental principles upon which family income support should be based (Section 1). This is followed by a review of the factors which influence contemporary family life and the changing financial status of families (Section 2). Section 3 details the range of payments currently available to families. The anomolies in these payments, and the extent to which they meet the goals outlined in Section 1, are highlighted in Section 4. Some potential options for reform are discussed in Section 5. This discussion attempts to address the advantages and disadvantages of these various options leading to a proposal for an amalgamation of two current payments.

In conducting this analysis, the Commission is only too aware of the heated debate and controversy to which public child care subsidies have given rise. The potential for polarisation between groups in the community over this issue is great, however the Commission believes that it can contribute to a better understanding of the whole issue of how to support adequately and fairly the choices parents make about how they balance their caring and working roles.

1. PRINCIPLES UNDERPINNING SUPPORT FOR FAMILIES

The Catholic Church's teaching on the vital role of families has been stated in a number of documents released by the Australian Catholic Social Welfare Commission. These include Fair Go For Families (1989) and Supporting Australian Families (1994). Families are the first unit of support and nurture for individuals. When families fail to perform this role well, the social and economic costs are felt by the whole community (Fair Go For Families, p.3).

1.1 Global Principles

‘ The primary role of families is the care and nurturing of children. It is within the family that individuals should experience what it is to be loved and to love others. The primary responsibility of parents is to meet the economic, health, educational, and emotional needs of their children. The composition, structure and roles within families may have been changing, however the fundamental role of meeting the needs of their children remains a parent's first responsibility and is as important for families today as it ever was.

‘ Governments have certain responsibilities in relation to supporting families and ensuring their well-being. This support must be regarded by society firstly as a collective concern and secondly as an investment in future generations which holds direct benefit for the whole of the community. Public policy should acknowledge that families perform a central role within society and should ensure that they are adequately resourced to carry out their functions of care and nurturing (Supporting Australia's Families, p.3).

‘ There is a priority to create social and economic structures, including taxation systems and income support mechanisms, which value family/caring responsibilities and which facilitate greater choices for parents in the way they share care and paid employment.

When examining the facilitation of choices about balancing work and care, domestic roles and responsibilities enter the equation. The question is not simply how do women balance paid work and care, but how can couples be assisted to share these roles in a fair and equitable way and according to their choice.

The debate which proceeds from this basic underlying philosophy relates to the most effective and fair method of providing financial support to families. Ensuring families receive an adequate income has long been a goal of public policy in Australia. The Harvester Judgement of 1907 enshrined as state policy the notion of a fair or basic male wage which would allow a man, his wife and three children to live in 'frugal comfort'. Since 1907, women's participation in the labour force has steadily grown. The concept of a living or family wage has thus had to be redefined, and state income support for families has developed through the taxation, wage and social security systems.

Throughout this Discussion Paper policies which provide financial support to families will be referred to as 'Family Income Support'. This includes the provision of subsidised child care which is seen by the Commonwealth Government as predominantly related to meeting the needs of working parents and thus offsetting some of the costs of earning an income incurred by parents who choose or are required to undertake paid employment. As this paper is particularly concerned with the costs of caring for children, a family unit is defined as either a sole parent or two parent family with a dependent child or children under 18 years of age.

The three principles outlined above relate primarily to the care of children within families. However when discussing the caring role of families it is important to remember that family caring extends beyond children. Many families care for members at home who are sick, disabled or frail aged and who require a significant amount of care. The aging of the population, the emphasis on community care and the earlier release of patients from hospital has led to an increase in this type of care over the last decade.

There are a number of similarities between caring for children and caring for other relatives. Issues about the financial viability of providing this care, options for workforce participation and relief from care coincide for both forms of care. Differences include the fact that caring for an adult relative often comes unexpectedly and the length of care is less predictable. There are also the inherent differences in caring for an adult as opposed to a child. Adults receive some independent financial support and have the ability and opportunity to make decisions about their life. Parents make decisions on behalf of their children, especially when children are young. The ACSWC recognises that there is a need to review financial and other supports available to carers as many anomalies exist in the present system. However, this Discussion Paper is limited to reviewing payments to parents.

1.2 Specific Principles Relating to Income Support

The goals of an effective and fair income support system should be to promote three types of equity: horizontal equity, vertical equity and intra-family equity. Not every policy measure can address all three. Sometimes there are trade-offs between these various forms of equity.

1.2.1 Horizontal Equity

Horizontal equity is the recognition that families raising children have higher costs of living than people without children. The principle recognises that at any income level, people with children incur greater costs and have greater needs than do people without children at the same level of income. Horizontal equity rejects a simplistic identification of low income with poverty, because it is quite possible for a single person with no dependents on a low income to live in 'frugal comfort' while a family on twice that income but with five children may be enduring poverty. Policies which improve horizontal equity entail assistance to all people who share similar characteristics. In the case of family support this means assistance should be provided to all families with children. An example of a horizontal equity policy was the introduction in 1941 of a system of universal child endowment. But, because every child attracted the same level of payment, there was a trade-off on vertical equity.

1.2.2 Vertical Equity

Vertical equity is the principle of providing increased assistance to low income families to protect them from poverty. Vertical equity is about redistributing society's resources to those most in need. An example of a vertical equity policy was the introduction of assets and income tests that restricted the number of families receiving family payments and changes the level of payment according to income.

Payments made to achieve vertical equity are tightly targeted to those families who are in low socio-economic groups. The detrimental effects of children living in poverty are widely recognised. Research has indicated that many children who are living in poverty are disadvantaged in areas of health, education and employment (Hanover Centre, 1995). Family income support must recognise this disadvantage and be structured in a way that alleviates the situation of those families who are most disadvantaged in the community.

1.2.3 Intra-Family Equity

The principle of intra-family equity is concerned with providing assistance to the parent primarily responsible for the care of children. This acknowledges the contribution made by the primary care-giver. It is also the most effective way of ensuring the payment is used directly for the care of children. This is also known as gender equity, as resources are distributed to the principal carer, who in most cases is the mother. As well as being the most efficient way of directing resources to children, payment to the primary carer also recognises the market income forgone by the carer.

1.2.4 Supporting Choice

When the right balance between these various forms of equity is struck, family policy is able to support real choices by families throughout the various stages of their life. This includes the choice for both partners to work as well as the choice to have one partner stay at home to care for children and the numerous variations in between. This is most succinctly summarised by Cass and Cappo (1994, p.9):

It is absolutely clear that in order to promote the economic welfare of families, both two parent and sole parent families, paramount priority in family policy must be given to supporting the chances for women as well as men to enter and remain in the workforce, to earn an adequate income while at the same time to fulfil their family responsibilities, according to the choices which they seek to make at different stages of family life and according to the ages of their children. It is also absolutely clear that to dichotomise women and with that families into two mutually exclusive groups; those where the women are in the labour force and allegedly abrogating their family responsibilities and those where women are outside the labour force and fully engaged in household activities, is fundamentally inaccurate, indeed mischievous, calculated to embed the debate in paralysing conflict and regressive policy outcomes.

Policies should support and value both work and caring responsibilities. Both men and women should have access to paid employment and both men and women should be assisted to share the responsibilities of caring for children if that is their choice. The participation of both partners in the workforce should neither be necessary for families to have an adequate standard of living, nor should it be discouraged.

It is also important to note that for sole parent families, reliance on income support is often a short-term measure and a vital one in the ongoing care of children. Reliance on this benefit may cease due to employment, partnering or re-partnering.

The key components of a family assistance policy include the recognition of and support for the vital task of caring for children, the redistribution of income to families that are most disadvantaged and the provision of assistance which offers real choice in balancing work and caring responsibilities for both men and women. Current and future policies should be judged against these criteria.

1.3 Tax Versus Benefit System

A fundamental question within this debate is whether assistance to families should be directed through the tax system or the direct benefits system. Direct benefits are social security payments paid to the primary care giver on a regular basis. The tax system provides rebates or deductions to income earners. A current example is the Dependent Spouse Rebate.

There has been an increasing emphasis in recent years on the direct support of families through direct benefits. There are advantages to this approach as these payments can directly target the principal care giver, the payments are made on a regular basis to assist in the immediate care of children and it is a more effective way of delivering assistance to low income families. Thus the benefit system is seen as more effective than the tax system in enhancing vertical and intra-family or gender equity.

Those who support the increased assistance of families through the tax system argue that some form of income splitting such as family unit taxation is a preferred means of reducing the tax liability of taxpayers with children. Family Income Splitting is a system of averaging a family's income among its members. Total family income is split into separate tax units based on the number of dependents in the family. Family income is divided by the sum of these units and the resulting number of equal tax units would then be assessed under the current rate scale. It was proposed that such a model recognises the costs of children and would reduce expenditure through the social security system.

From the point of view of taxation theory, income-splitting basically recognises the income transfers that taxpayers make within their own families and identifies the appropriate taxpayer as the person who ultimately benefits from the income, not the person who earns it. In this approach, children are regarded as taxpayers because they derive benefit from the income earnt by their parent/s (Dwyer, 1993).

It is argued that such a system would better recognise the increased costs of rearing children in single income families as the current system discriminates in favour of families with two earners by providing a tax-free threshold for each taxpayer. Hence it would provide horizontal equity.

Arguments against income splitting consider it from the perspective of vertical equity. Moving from the current system to one that allowed income splitting would deliver greater benefits to families on high incomes than to those on low incomes. It is true that in the transition from one tax regime to another, families on higher incomes benefit more upon moving to lower tax brackets. However, within the income-splitting tax regime, the progressiveness of the tax system is slightly enhanced. However family unit taxation does provide a greater increase in dollar terms to higher income earners.

Another concern with income splitting is the fact that having only one income is not always a valid indicator of a family's economic welfare. The single income earner may bring a high income to the family enabling the other parent to remain outside of paid work, while two income families may have relatively low incomes when both parents have low paid or part-time jobs. However, the size of the total income may not be a valid indicator of a family's economic well-being either. The high income earner may have six children, and the two low-part workers may have none, such that the overall standard of living for both families is similar.

The importance of assistance to low income families was outlined earlier. The benefits system is a much more effective way of targeting these families as many families do not pay sufficient tax to obtain the full benefit of concessions, rebates or income splitting. The regularity of these payments and their direct receipt by the principal care giver provide greater assistance to families who may be struggling.

It is interesting to note that benefits obtained through the tax system are often seen as more legitimate than benefits received through the transfer system, which are often labelled as welfare. Thus, a businessman claiming travel expenses is viewed as making a legitimate work related claim. Yet a sole parent claiming a Guardian Allowance in order to assist in the care of children may be viewed as being less legitimate. The basis of these claims should be constantly challenged, and it should be recognised that in the current fiscal climate, direct government outlays for family dependents are susceptible to the "middle class welfare" label and thus become a much bigger target for expenditure restraint.

The combination of the tax system and the benefits system needs to be constantly re-evaluated in light of factors affecting family life and the outcomes this combination is delivering.

2. FACTORS AFFECTING FAMILY LIFE

Australian society has undergone much change in the last two decades. Change has occurred in economic conditions, the demographics of the population, the composition of families, and the roles adopted by men and women in the home and the workplace. The impact of these changes and their relevance to the present system of child care subsidies are now summarised.

2.1 Families and Work

One major change is the increased participation of women in the paid workforce, which has required adjustment in the way that families operate. In 1973, the labour force participation rate of women was 42 per cent. By 1983, it had increased to 45 per cent and in 1993, it was 52 per cent. Most of this increase reflects the move of married women, particularly those with children, into the labour force. Increasing unemployment for both men and women has been a feature of the changing composition of the labour force. The unemployment rate among men increased from 2 per cent in 1973 to 12 per cent in 1993. The rate among women increased from 4 per cent in 1973 to 10 per cent in 1993. While a greater proportion of women are participating in the labour force than in the past, women have maintained the role of major carers within the family. In 1973, 28 per cent of employed women worked part-time, compared with 36 per cent in 1983 and 42 per cent in 1993 (ABS, 1995a; p.5).

An issue to keep in mind when examining increases in women's employment is the fact that it appears the big beneficiaries of the boom in female employment have been women in the middle to upper income levels. Research undertaken by Gregory and Hunter (1995) indicates that for women living in low socio-economic areas, employment has in fact fallen by 40 per cent in the 1976-91 period. For these women there is no real choice about whether to work or to stay at home. Policies need to recognise this locational disadvantage.

The public policy effects of these developments has included an increasing demand for state supported child care and increases in social security spending. Social effects include a shift in the roles and responsibilities within families. With women entering the workforce even on a part-time basis, men have increased their domestic responsibilities marginally, although women still have the major role in this area (ABS, 1994; p.123).

2.2 Families and Divorce

A further development which impacts upon family income support policy is the rate of marriage breakdown. In 1965, approximately 4 per 1,000 married males were divorced, in 1993 that figure has reached 12.1 per 1,000. Thus the divorce rate has tripled over the last two decades. In 1993, 52.6 per cent divorces involved children (ABS, 1994; p.32).

Divorce impacts on all involved in a number of ways which are beyond the scope of this paper. However for the purposes of this discussion one of the effects of rising divorce rates has been the provision of income support to sole parents. About 70 per cent of sole parent families are reliant on income support for at least part of their time as sole parent families.

A disturbing situation is that sole parent families are the poorest in the community. Sole parent families continue to be the group most likely to be in poverty, with about one in every five sole parents living in poverty (Harding 1994). Recent ABS figures show that in 1992 forty-one per cent of sole parent families had incomes in the lowest quintile (ABS, 1995b; p.1). The 'feminisation of poverty' is a term used to describe the increasing numbers of women who have the sole responsibility for children and who are living below the poverty line. In 1992 eighty-four per cent of sole parents were female.

Sole parent families represent 13 per cent of all Australian families and 17 per cent of all families with dependent children. Fifty seven per cent of sole parent families were formed following separation and divorce, 23 percent were formed following the death of a partner and 20 per cent by parents who had not been married. Many myths surround sole parent families, one of the main ones being that most sole parents are young women who have children in order to increase their social security benefit. The figures outlined above totally debunk that myth.

An issue which requires further investigation is the relationship between financial difficulties and marriage breakdown. Marriage and family counsellors often identify financial stress as a factor in marriage breakdown. This would have implications for income support policy as financial assistance may be seen as part of a preventative strategy.

Whilst this paper does not discuss support to sole parent families in detail, it is recognised that sole parent families require additional assistance, particularly in the area of balancing care and workforce participation.

2.3 Families and Regional Disadvantage

Regional disadvantage has received increased attention over recent years. The recognition that where people live makes a difference to their living standards and opportunities provides a further perspective on the restraints some families face in making choices.

Regional disadvantage in terms of the labour market was mentioned above. Access to health and community services, education and employment, leisure, cultural and social amenities are also subject to regional variations. In 1995, the Australian Urban and Regional Development Review, in its report, Places for Everyone, called for a more regionally specific approach to economic and social development. The report noted that there are substantial variations in standards of living across different regions in Australia. Homelessness was identified as the most devastating difference. The major indicator of regional disadvantage was the level of unemployment which closely matched problems associated with low income.

These differences impact upon family income support in a number of ways. When we talk about choice we must remember that some families have very limited choices when it comes to workforce participation. These families may also experience difficulties associated with affordable, quality housing and even access to other support services such as child care. The ACSWC supports both positive strategies for regional development and consideration of regional variations in determining levels of support for housing assistance. Principles of equity call for such considerations and further research needs to occur in this area.

2.4 Families and the Economy

The support of families by the state should enhance the social and economic well-being of society. The benefits to the broader economy in providing some financial assistance to families to help them carry out their role is something which has received greater attention in recent years. This matter was an issued raised by a number of groups and individuals during the International Year of the Family in 1994.

The crux of the argument is that the contributions made by the non-market work of care to the formal economy and to civil society is of sufficient magnitude to require the reconceptualisation of family policies (including family payments, child care provision, maternity and parental leave arrangements in employment, the expansion of adequately remunerated employment for men and women) not as social expenditure but as social investment.

Cass & Cappo, 1994; p.1

The contribution of household work needs to be considered in economic equations. The private sphere of the home is not separate from the public sphere of the economy. They are interconnected and the public sphere could not operate successfully without the private sphere and vice versa, they are mutually supportive.

Research conducted by Ironmonger (1994) demonstrates the economic value of the caring and nurturing provided by unpaid household work. Ironmonger recommends a major change in what should be measured as economic activity to include the household economy. He argues that the reality of the huge unpaid contribution of households to economic value needs to be accepted and adopted as a benchmark fact and as such would change nearly all our deliberations about economic and social policy.

Thus, the provision of family income support should not be seen as a burden on society but as part of the essential productive processes.

2.5 Reduction in Family Incomes and Income Support

As Australia becomes increasingly integrated into the global economy, the need to become more competitive in the international market has led many policy-makers to press for increasing deregulation of the labour market. This is seen by its economic rationalist advocates as enhancing more flexible and productive work practices and, in an overcrowded labour market, keeping labour costs and wage-related inflation down.

However, for many workers in Australia, the effect of this deregulation is increasing insecurity as out-sourcing, short-term contracts and 'down-sizing' become standard managerial practice. Family breadwinners, especially those in the middle income levels, are feeling the squeeze of market forces on the incomes that are required to fulfil their parental responsibilities towards their children.

Research from a variety of sources in the late 1980s indicated that families' real disposable incomes had fallen over the previous two decades. This research contributed to an impetus for changes such as indexation of benefits. The Australian Institute of Family Studies undertook the Family Income Transfer Project in 1989. The findings of that project were:

‘ Average tax rates had risen between 1976-77 and 1988-89 for all individuals and families with the exception of those on very high incomes and low income families with children. In 1988/89 a couple with two children on a single income, receiving half average weekly earnings were paying $18.38 less after tax and transfers than in 1976/77. This was largely due to the introduction of Family Allowance Supplement. A couple with the same characteristics but with an income four times the average weekly earnings were paying $93.40 less after tax and transfers over the same period. Couples in between these extremes were paying more in weekly tax in 1988/89.

‘ Between 1984-85 and 1988-89 real disposable incomes had fallen sharply for all income units dependent on one income.

‘ 'Bracket Creep' had contributed to rises in average tax rates for all taxpayers, but the greater rise for families was due, in addition, to the declines in real values of family concessions eg. Family Allowances and the Dependent Spouse Rebate.

(Families and Tax in 1989 p.xi.)

The AIFS findings supported research reported in the Australian Catholic Social Welfare Commission publication Fair Go For Families issued in 1989. Fair Go For Families detailed the increasing inequities and inequalities in the tax and social security systems during the 1980s. The increasing numbers of families living in poverty in the 1980s compared to the 1970s was of particular concern. Issues such as an increase in unemployment, the increase in single parent families and the reduced assistance provided for children were identified as contributing to one in five children living in poverty.

A combination of changes in the economic and social structures of society had resulted in rapid changes to the formation and position of families. In Fair Go For Families, the Commission expressed concern about the financial position of single income families with children. The main criticisms included:

‘ Tax inequities between single income families and two income families, with families with two PAYE earners having access to two tax-free thresholds and lower marginal tax rates than single income families. This discrepancy means that if a family wishes to increase it market income, it may face an incentive to do so by seeking a second income rather than by the primary earner seeking to increase their wage or salary. Thus the system may provide an incentive for labour-market participation which would not exist if the tax treatment of single and double income families was the same.

‘ The dependent spouse rebate was introduced to reverse the inequity, however this rebate only offsets a small part of the extra tax liability of the single income family.

‘ There was no significant rebate for children other than through family allowance and families who provided their own child care were not eligible to receive government money for child care.

‘ There was an increasing tax burden on single income families with dependents, with single income families Equivalent Average Tax Rate moving closer to the equivalent tax rate for single taxpayers without dependents.

However, the 1989 April Economic Statement, provided some significant improvements in the level of family payments. This included substantial increases in family allowances, and from

1990 the indexation of all child-related payments. This resulted in an increase in the real value of all children's payments and assisted in mitigating market inequalities particularly amongst low income families (Cass 1996).

3. CURRENT FAMILY SUPPORT

Since the publication of Fair Go For Families in 1989 there has been a number of changes to the system of providing financial assistance to families. Changes include an increase in the support available to parents using child care, the continued trend towards the use of the benefits system primarily through social security rather than the tax system and the introduction of direct payment to the primary care giver, who is usually the mother. The system has continued to target higher levels of payment to low income families to meet the goal of vertical equity.

In the 1995 statement on family policy, Agenda For Families, the then Federal Labor Government announced a number of new policy directions for supporting families. Many of these initiatives resulted from consultations held in the International Year of the Family in 1994. For the majority of families, assistance is now available through the system of family payments. There are four basic types of family payment, each paying one rate to most families with children, and a higher rate to lower income families. These are:

I. Payments to help with the direct costs of children via:

- Basic Family Payment for most families, plus

- Additional Family Payment for lower income families

II. Payments to recognise the value of the caring work performed by parents who stay at home to look after their children via:

- the basic level of Parenting Allowance for all parents caring full-time for their children at home, plus

- up to the full Parenting Allowance for lower income families

III. Assistance with the expenses of child care for parents in the paid workforce via:

- Childcare Cash Rebate for all families using work-related child care, plus

- Childcare Assistance for lower income families

IV. Support for families with special needs:

- Sole Parent Pension

- Additional supports for low income families

- Support for families with unemployed members

- Support for families with children with a disability

(See Appendix 1 for details of current payments)

The direct benefits system does provide some relief for families and have been targeted effectively to low income earners. The effects on families of these benefits can be seen by comparing their private and final incomes. Private income is the total current weekly income of all members of the household, excluding income from government sources. Final income is this income after the net effect of benefits and taxes, both direct and indirect, is considered.

In 1994 the average weekly earnings for sole parent families with two dependent children was approximately $435.00. More than half of this final income was obtained through net benefits from government sources. For couple families two with dependent children the average weekly earnings was just under $755.00. This final income was slightly lower than their private income. As these figures indicate, the final income of couple families was considerably higher than those of sole parents, however the final income of sole parents is to a significant degree the result of transfers through the benefits system. Thus, the benefits system does, to a degree, redistribute to low income earners (NATSEM 1994).

Besides addressing some of the goals of vertical equity the current system of family income support has a number of other positive features including:

‘ Payments being directed to the primary care giver.

‘ Payments being made on a regular basis to assist in the ongoing care of children.

‘ There is a recognition the different circumstances and situations of different families.

There is also a number of concerns and deficiencies in the family income support. One of the most common concerns is the complexity of the system. As seen in Appendix 1, the various benefits have a range of income and assets tests and varying levels of payments. These payments have been developed in response to different needs, however the complexity may have the unintended consequence of deterring families from claiming their entitlements. The system is also administratively complex. The previous Labor Government attempted to address this issue in the Agenda for Families statement by amalgamating Basic and Additional Family Payment, by reducing the number of forms required for assessment for Family Payment and Childcare Assistance and by piloting 15 Family Service Centres. Family Service Centres are designed to provide a 'one-stop shop' to families seeking information on family income support. The current family payment system may be made more effective and efficient by further amalgamations, however the impact of such a move on the various beneficiaries must be carefully considered.

4. IDENTIFYING ANOMALIES

Complexity has another major disadvantage, a variety of apparent anomolies. At first glance these anomolies appear to produce prima facie evidence of horizontal inequity. One such anomaly in the system is that the Child Care Cash Rebate is not as strictly means tested as the payment available to a parent who chooses to stay at home (Basic Parenting Allowance). The strict income test on Basic Parenting Allowance also excludes families who may be on low incomes. For example, a couple who both work part time may be on a low combined income, yet they would not be eligible for Parenting Allowance as both their incomes would exceed the income test. Conversely a couple with two high incomes are eligible for assistance through the Child Care Cash Rebate if they use a registered child carer.

A further argument is that the current system discriminates against mothers who choose to stay at home since the Childcare Assistance and the Childcare Cash Rebate provides significantly more assistance to two-income families compared to single-income families, even if the one income family is eligible for Additional Parenting Allowance (Barron 1996). Child care costs and other work related expenses need to be factored into this equation, however the current system certainly does not provide great assistance to parents where one partner chooses to stay home.

Furthermore, it is inaccurate to say that child care does not represent a cost to household which have one partner at home full-time caring for their children. The primary care-giver foregoes income to care for the children.

While the system's application of horizontal equity is inconsistent, in many respects vertical equity has been overdone. The current system does not offer much support at all to families who do not meet the very tight income and assets tests. In light of the earlier discussion about reductions in family incomes, it appears those in the middle income level are still not offered significant assistance.

TABLE 1: CASE STUDIES

Weekly	A	B	C	D	E	F	G	H	I
Breadwinner's weekly income	1154	577	865	865	577	577	423	423	143
Partner's Income	0	577	288	0	288	0	154	0	0
Total Income*	1154	1154	1153	865	865	577	577	423	143
IncomeTax	-382	-262	-288	-245	-173	-131	-88	-76	0
Income post Tax	772	892	865	620	692	446	489	347	143
Family Payment	23	23	23	23	23	23	23	23	93
Parenting Allowance	32	0	0	32	0	32	0	32	143
Childcare Assistance	0	69	41	0	81	0	121	0	0
Childcare Cash Rebate	0	42	23	0	11	0	0	0	0
Total Govt. Assistance	55	134	87	55	115	55	144	55	236
Childcare Outlays**		-230	-138		-138		-138
Final Income	827	796	814	675	669	501	495	402	379

KEY

A: Two parent family, one income of $60,000 pa, two children cared for at home.

B: Two full-time working parents, each earning $30,000 pa, two children in childcare 5 days a week.

C: Full-time worker earning $45,000 pa, part-time worker earning $15,000 pa, two children in childcare 3 days a week.

D: One full-time worker earning $45,000 pa, two children being cared for at home.

E: Full-time worker earning $30,000 pa, part-time worker earning $15,000 pa, two children in childcare 3 days a week.

F: Full-time worker earning $30,000 pa, two children being cared for at home.

G: Full-time worker earning $22,000 pa, part-time worker earning $8000 pa, two children in childcare 3 days a week.

H: Full-time worker earning $ 22,000 pa, two children being cared for at home.

I: Unemployed worker on JobSearch Allowance, two children being cared for at home.

* The median gross weekly income of a married couple with dependents is $755 per week (ABS., 1995c).

** Childcare Outlays: this figure is the fee used by the government to assess childcare subsidy levels. It is based on the fee of $23 per child per day, however, most centres charge over this amount and the gap fee must be paid by the parents.

Table 1 illustrates how the current system affect two-income families with different incomes and childcare arrangements. Cases A to I represent families on different incomes and work/care arrangements. Listed under each case is the tax incurred and the transfers each family is eligible for. Their final income listed at the bottom. As this discussion is particularly concerned with addressing childcare supports, the costs of formal childcare have been included.

When the system is tested over a range of incomes, evidence supporting arguments about inequities between stay at home parents versus working parents is not clear cut or straightforward. Much of the heat that has been generated by the debate over public childcare subsidies can be understood in terms of the way comparisons between the above examples are made.

If we compare the way the system treats families with the same combined gross income (Families A, B and C, or Families D and E, or Families F and G), then it is clear that without public childcare subsidies to offset the cost of paid childcare, those families with two incomes would, despite their lower tax bill, be significantly worse off a the end of the day than single income families with the same gross income. Looked at from this perspective, childcare subsidies seem fair and reasonable.

However, if we take a different starting point for comparison, and compare those families in which the principal earners ("Breadwinner") have the same gross incomes (namely Families

C and D, Families E and F, and Families G and H), we would arrive at the conclusion that

the decision to seek a second income by Families C, E and G has been substantially encouraged by public childcare subsidies, to the extent that the final difference in disposable incomes that these families have over their single-income counterparts is made up to a large degree by these subsidies. Of the $92 difference in the final incomes of Families G and H, $89 or 96% is due to childcare subsidies.

Viewing the examples from this perspective would lead one to the conclusion that the payment of such subsidies constitutes a financial incentive to enter the labour force, and the question arises: would the Family G choose to rearrange their current balance of work and caring responsibilities if the amount of $89 was available to care for their children at home?

The point is that both perspectives are valid. Too often the source of acrimony over this issue has been the refusal to consider the situation from another person's perspective or to seek common ground. Is there any common ground, or are these two perspectives totally irreconcilable?

As a means of pursuing an answer to this question, a hypothetical case, with a completely different set of family responsibilities might be imagined, and the question posed: should this family receive any public childcare subsidies?

Imagine a two-parent family with two young children, in which there is only one income, but the non-earning parent (say, the mother) does not wish to care for the children full-time. She chooses to put the children into childcare full-time because she would prefer to be engaged, not in any labour-market related activities such as education, training or job-searching, but in a voluntary capacity in providing remedial reading three days a week at the local public school (which is drastically underfunded) and the other two days a week in participating in a recreational program for intellectually disabled adults at a nearby residential institution (also drastically underfunded). If the school and the residential institution could afford to employ her they would, and she would accept payment, but at the moment that is not possible, and she is not interested in any other paid employment.

Should this parent receive any public subsidies to offset the cost of childcare? Some people might say no on the grounds that the activity being engaged in is not related to the paid labour market. This argument also insists that places at accredited childcare centres to which Childcare Assistance is payable should be reserved for those parents in the labour force. This mother could always have children looked after by a relative, but she would not be eligible for the Child Care Cash Rebate since that is only granted for work-related expenses.

Should this person be eligible for Parenting Allowance, given that she would not actually be doing any parenting? Currently there is only an income test, but no "parenting activity test" for the Parenting Allowance, so she would be eligible according to the letter of the law, but certainly not according to its spirit.

It would seem that both sides of the ideological divide would deny this parent both public child care subsidies and parenting allowance, because of judgments about the kinds of choices the system should support and which ones it should not support. In a pluralist democracy this is neither fair nor reasonable.

Other anomalies emerge on closer inspection of the current system. The percentage of child care costs that are paid through Childcare Assistance falls as gross family income is rises. This vertical equity principle is repeated in the way the Parenting Allowance is paid: as the earning partner's income increases, the level of payment falls. However, there is a vast difference in the rate at which these respective forms of assistance change according to income. Family H, with an income of only $423 per week is eligible only for the Basic Parenting Allowance. This is because the taper rate of 70 cents in the dollar for every dollar over $246 pw is so high that Additional Family Allowance cuts out when the breadwinner's income reaches $404 pw.

However the rate at which the percentage of child care costs met by Childcare Assistance falls is much flatter, working out at approximately 22.5 cents in the dollar for families with 2 children and 13.3 cents in the dollar for families with one child. The different taper rates for Additional Parenting Allowance and Childcare Assistance, and the fact that Childcare Assistance is payable per child, whereas Parenting Allowance is the same whether there is one child or ten in the family, indicate that home-based child care by single-income families is treated less favourably.

The amount of Child Care Cash Rebate also varies with income. Since it is calculated on the balance of child care costs payable after Childcare Assistance, and Childcare Assistance falls as household income rises, the entitlement to Child Care Cash Rebate rises as income rises. This is the opposite effect to that of traditional income-testing (compare the Child Care Cash Rebate payable to Family C and Family E in Table 1). The recent changes announced in the 1996 Federal Budget modify this to a degree. Under the amended system the amount of Child Care Cash Rebate available to familes earning over $70,000 per annum will be reduced to twenty per cent of their childcare costs compared to thirty per cent under the current system.

In terms of policy development the major areas of concern are:

‘ the anomalies in the amount of support available to parents whose children are in child care as opposed to parents who care for children at home, particularly for families in the lower to middle income ranges;

‘ the differences in the way the payments are means-tested;

‘ the effect of the 70 cents/dollar taper on Additional Parenting Allowance which results in families on low incomes being ineligible; and

‘ the sheer complexity of the system.

There is certainly room for improvement in the current system to increase the options for families to make real choices about how they wish to balance their contribution to the community through caring for children and through the paid work force.

5. OPTIONS FOR REFORM

Keeping in mind the case studies above, this section outlines and critiques a variety of reform options that have been suggested by groups within government and the community.

The roles within families are becoming more diverse with some two parent families having both partners in full-time work, some having neither partner in work, and the rest fall somewhere in between. Sole parent families are equally diverse. Family diversity is reflected from data available for 1993 which indicate that:

‘ Forty per cent of women in two parent families with dependent children and 48 per cent of sole mothers were not in paid employment.

‘ Six per cent of men in two parent families with dependent children and 22 per cent of sole fathers were not in paid employment.

‘ Four per cent of fathers in two parent families and 11 per cent of fathers in sole parent families were in part time work.

‘ Of the women in the workforce with dependent children approximately two-thirds were in part-time work (ABS, 1993).

The challenge for government is to support the caring responsibilities of all these family constructions in a way that is equitable and does not privilege one particular family type.

Another challenge is to assist families where both partners are unemployed, or sole parents who are out of the paid workforce. These families are some of the most disadvantaged in the community. They require additional assistance through transfer payments as well as support and assistance to enter the labour market.

Some potential options for policy development include:

5.1 Family Unit Taxation Plus Redistributive Transfers

In Fair Go For Families, the Australian Catholic Social Welfare Commission recommended the implementation of Family Unit Taxation as the most effective way of supporting families. The concept is therefore worthy of review in light of developments in family income support and the issues raised by the case studies outlined above. The following proposal combines family unit taxation with a reduced provision of redistributive transfers.

Many of those who oppose family unit taxation see it as a method of high income earners minimising their tax burden. However, it is also a method of low-income earners minimising their tax burden, and as demonstrated above in Section 2, a tax-regime that allows income splitting can in fact be more progressive than one that does not. Another argument against income-splitting is that it would cost too much in lost revenue to the Commonwealth, but this view does not take adequate account of the many expenditures on the outlay side that family unit taxation would make unnecessary. Also, the marginal tax rates do not have to stay unaltered. Moving to a family unit tax regime could be accompanied by higher tax rates in order to recoup some of the lost revenue.

The advantages and disadvantages of family unit taxation are discussed below:

Family unit taxation is consistent with the principle of horizontal equity, that public subsidies for childcare should be neutral in terms of labour-market participation decisions. Thus it would represent an improvement on the current situation in which those subsidies, and the availability of two tax-free thresholds to double-income families, present an incentive for labour-market participation which may go beyond the point of free choice.

A further argument is that as well as delivering horizontal equity in terms of childcare subsidies, family unit taxation would recognise the legitimate income transfers that occur within families, and tax the ultimate beneficiaries of that income. The current raft of direct government outlays that exist to deliver special assistance to families with children - the Parenting Allowance, the Childcare Cash Rebate, Childcare Assistance, and the Family Payment - would be unnecessary for most families and would presumably be abolished.

However, for low-income families with no taxable incomes and sole parent families, family unit taxation delivers little benefit. There is therefore a need to deliver vertical equity to those low-income families through the payment of direct benefits to these families, who effectively have no ability to transfer incomes internally because their incomes are not sufficiently high enough.

Table 2 illustrates how the families in the examples set out in Table 1 would be affected under a system of family unit taxation. The bottom line shows what their final incomes are under the current system.

Family unit taxation, despite significantly improving the lot of single-income families, does produce some perverse results if it is accompanied by the total abolition of childcare subsidies. This is because without Childcare Assistance, the cost of childcare does not vary with income. In the case of Family G, seeking a second income three days a week actually leaves that family worse off than if they remained a single-income family. Hence in this instance, family unit taxation without some child care subsidies is not in fact neutral in terms of labour-force decisions, as there is an incentive to remain out of the workforce.

TABLE 2: FAMILY UNIT TAXATION

Weekly	A	B	C	D	E	F	G	H	I
Breadwinner's income	1154	577	865	865	577	577	423	423	143
Partner's Income	0	577	288	0	288	0	154	0	0
Total Income	1154	1154	1153	865	865	577	577	423	143
IncomeTax	-168	-168	-168	-111	-111	-53	-53	-22	0
Income post Tax	986	986	985	754	754	524	524	401	143
Family Payment									93
Childcare Outlays*		-230	-138		-138		-138
Final Income	986	756	847	754	616	524	386	401
Final Income Now	827	796	814	675	669	501	495	402	379

KEY

A: Two parent family, one income of $60,000 pa, with 2 children cared for at home.

B: Two full-time working parents, each earning $30,000 pa, with 2 children in childcare 5 days a week.

C: Full-time worker earning $45,000 pa and one part-time worker earning $15,000 pa, with two children in childcare 3 days a week.

D: One full-time worker earning $45,000 pa, with 2 children being cared for at home.

E: Full-time worker earning $30,000 pa and part-time worker earning $15,000 pa, with two children in childcare 3 days a week.

F: Full-time worker earning $30,000 pa, with 2 children being cared for at home.

G: Full-time worker earning $22,000 pa, part-time worker earning $8000 pa, with 2 children in childcare 3 days a week.

H: Full-time worker earning $ 22,000 pa, with 2 children being cared for at home.

I: Unemployed worker on JobSearch Allowance, with 2 children being cared for at home.

* Childcare Outlays: this figure is the fee used by the government to assess childcare subsidy levels. It is based on the fee of $23 per day per child, however most centres charge over this amount and the gap fee must be paid by parents.

The same problem still occurs with other double-income families, namely that the total increase in final family income after childcare costs are subtracted may be so small as to effectively represent an incentive to remain out of the labour force that goes beyond the point of free choice. Therefore the principle of neutrality suggests that under this system there would be a case for continuing Childcare Assistance, but perhaps at changed levels, in order to ensure that the decision not to seek a second income is genuinely free.

The advantages of combining family unit taxation with redistributive payments to low-income families as well retaining Childcare Assistance in some form is that a greater measure of horizontal equity can be introduced without increasing the barrier to workforce participation represented by the cost of paid childcare. Such an approach would provide families with further choices about balancing care and work responsibilities by providing parents with a viable option to care for children at home or to participate in the paid workforce.

There are however some disadvantages with such a proposal. Income Support Payments have been developed around the principle of payments being made directly to the primary care giver, as this has been determined as the most effective way of directing payments to children. Family Unit Taxation is based on the assumption that the breadwinner's income is redistributed within the family in a fair and equitable way. Whilst this assumption may be accurate for many families, this cannot be generalised. A move towards Family Unit Taxation as the method of supporting the majority of Australian families challenges the principle established by the introduction of child endowment in 1941 of ensuring that those with direct responsibility for the care of children receive a payment in their own right.

Further concerns centre around the effect on vertical equity. Whilst the example outlined earlier (p.4n) indicated that family unit taxation may not be as regressive as it first appears, it does provide extra assistance in dollar terms to those on higher incomes. Family unit taxation is regressive when compared to the current system of family payments, as the amount of benefit received goes up as income increases, whereas currently benefits increase as income comes down. The system would also provide assistance to very high income earners who are currently not eligible for the majority of income support payments. This again raises questions about the extent to which family unit taxation meets goals of vertical equity as opposed to payments made directly to families. As indicated earlier, one potential method of alleviating some of these concerns may be to increase the tax rates of those families on higher incomes. This would still meet the goal of horizontal equity without providing large increases to high income families and the consequent cut in overall revenue.

The families who would be most disadvantaged under this scheme are sole parent families who are earning an income which would exclude them from family payments. As there is only one adult in the family, the income is being split over less units and thus taxation would be higher than in a two parent family on the same income with the same number of children.

Some may argue that this recognises the extra costs of two adults, however it hardly seems equitable when the primary goal is to assist with the costs of children.

Thus, whilst Family Unit Taxation does go some way towards achieving the goals spelled out in Section 2, it does present a number of concerns, particularly in meeting the principles of vertical equity and directly supporting the primary care-giver.

5.2 EPAC Child Care Task Force - Interim Report

In July 1996 the Economic Planning Advisory Commission released its Interim Report on the Future Child Care Provision in Australia. The Task Force's brief was to report on future demand for child care, best practice in the provision of child care, and the links between the provision of child care and other children's and family services.

The Task Force reviewed the current provision of child care subsidies and made a number of recommendations to reform these payments. The impetus for these reforms include simplifying the system, providing equity in terms of income levels and between service types and increasing the efficiency of the sector.

The main recommendation of the Task Force in terms of financial assistance for child care, is the proposed 'Child Care Benefit'. The Child Care Benefit would replace the current Childcare Assistance, the Child Care Cash Rebate and the existing Fringe Benefits Tax exemption. The benefit would:

‘ be available for purchases of quality child care;

‘ be subject to means testing;

‘ be available for work related care for up to 50 hours a week for parents who are working or studying;

‘ be available to parents not in the paid workforce for up to six hours of care per week; and

‘ apply to all forms of paid child care, including occasional care, vacation care, nanny care and informal care, which meet required quality standards.

The details about the means test, rate of payment and the payment administration are left open for discussion in the report. However, the report suggests the payment could be differentiated according to the age of the child, with children under two years of age attracting a higher rate. The Task Force also recommends the scrapping of capital and operational subsidies which would lead to an almost doubling of the total government expenditure currently available for child care payments. The Task Force suggests that this could lead to support for a relatively generous means test. In terms of administration, one of the options considered in the report is a swipe card with electronically stored information which would be issued to families detailing their Child Care Benefit entitlement.

This proposal has a number of advantages. To begin with the proposal identifies the need to maintain a specific payment to alleviate child care costs. This is advocated by the Task Force as a vital role of government in improving the social and economic situation of families. The extension of the payment to cover all child care services overcomes the current disparity between the support available for different forms of child care. Parents currently using Outside School Hours Care(OSHC) receive Child Care Assistance at a lower rate than parents using Long Day Care(LDC) services unless the OSHC service is attached to the LDC. The proposal also extends payment to services which were not eligible for Childcare Assistance, such as paid informal arrangements. Thus the number of eligible families will increase. Combining the payments does enhance simplicity and may assist with efficiency in the long term. However, the details of the payment administration will need to be defined before any assessment can be made on efficiency grounds.

There are also a number of concerns with the proposal. One of the advantages of the Child Care Assistance model is the link with accreditation. Centres cannot receive Child Care Assistance unless they have been accredited by the National Childcare Accreditation Council. The Interim Report recommends the Child Care Benefit only be available to parents using paid child care which meets set standards. Whilst it is admirable that the Task Force has recognised the importance of the Commonwealth maintaining a role in enforcing standards, the implementation of this is yet to be determined. This issue would need to be clearly defined and adequately funded before any moves are made in the direction of a Child Care Benefit.

One further area of contention is the effect of scrapping the operational and capital subsidies to community based centres. Whilst the Report provides some convincing arguments as to why this would enhance equity and efficiency, there is some concern about the effects on providing services to isolated areas and special needs groups. The recommendations are based on demand side provision of services. However, even with an increased rate of benefit for special needs groups, there is still an argument for Commonwealth involvement in providing capital subsidies to areas of social and geographical isolation. If the expenditure previously allocated to capital subsidies is added to the amount available for the Child Care Benefit, this may be interpreted as taking some assistance away from disadvantaged groups and spreading it across a broader section of families. Whilst this may not be insurmountable, it does highlight issues about moving from supply to demand side provision of child care services.

In terms of equity between family income levels and family choices, the proposal requires further examination. The Task Force commissioned the National Centre for Social and Economic Modelling (NATSEM) to analyse some of the implications of rolling up various payments into one. The analysis suggested that combining various child care payments would allow a more generous means test than currently applies to Childcare Assistance. This would open up the availability of assistance to a greater number of low-to-middle income families. The analysis also suggested that those families who use a type of care currently not eligible for Childcare Assistance would generally be better off, because the Child Care Benefit received would in most instances be more than the amount of Childcare Cash Rebate the family may have received.

What then is the implication of this proposal on the anomalies between support to parents in the paid workforce and parents who care for children at home? As recognised by the Task Force the answer to this question depends on the set level of the means test and the amount of the benefit. The Interim Report notes that the means test should be set at a level which makes care affordable for low and middle income families, whilst not significantly biasing the choice between parental home-based child care and work related care. Section 4 of this Discussion Paper - Identifying Anomalies, indicates that the current system is slightly skewed towards providing assistance for work related care. Whilst this is not to be overstated, and does not suggest a reduction in child care subsidies, it does raise issues about a proposal which may provide increased assistance to an increased number of families who use paid child care while offering nothing to families using unpaid parental child care. The Child Care Benefit may in fact exacerbate the current anomalies rather than reduce them. The Task Force acknowledges that there may need to be some adjustment of the respective amounts provided for the support of home-based parental care and work related child care.

The EPAC report provides some challenging ideas on reforming the provision of child care services in Australia. The recommendations require careful consideration and further discussion about the potential for meeting goals of vertical and horizontal equity and supporting choice.

5.3 Homemaker's Allowance

A proposal put forward by the Australian Family Association involves the introduction of the Homemaker's Allowance. The Homemaker's Allowance would be an extension of the current eligibility for the Additional Parenting Allowance (APA) to all parents with dependent children under 16 years of age with one partner undertaking full-time care. The only income test would be that which is applied to the Basic Parenting Allowance (BPA). Their proposal involves provision of an extra $108.70 per week to families currently receiving BPA and an extra $21.50 per week to families currently receiving the full amount of APA.

This payment would be in recognition of the costs and the value of the caring work of families. It would also present families with a viable option for one partner to be out of the workforce. However one of the potential consequences of the proposal is that it could provide an incentive for one partner to leave the workforce, even if their first choice would be to stay, particularly for women who are in part-time work.

Another concern is the cost. The Australian Family Association believes that costs could be met by the savings made in the reduction of spending on Job Start/Newstart which would result from one partner (read mother) leaving the workforce and thus freeing up jobs for the unemployed. Such assumptions cannot be automatically made. As shown above many women are working in part-time jobs, often requiring specialised skills. Women also come in and out of the workforce depending on the age of their children and they require a flexible labour market. The concept that once women leave the workforce they free up a whole range of full-time jobs on a long term basis is just not the reality.

Whilst the proposal may be a move towards meeting some of the goals discussed above (horizontal equity and intra-family or gender equity), it does encourage one set of family choices and does not offer much assistance to a range of others. It would thus have to be implemented alongside, not instead of, all the current child care subsidies aimed at enabling workforce participation.

5.4 Coalition Family Tax Initiative

Prior to the March 1996 Federal Election, the Coalition Parties released an outline of their proposed social security policy. The Coalition stated that in government they would retain all existing Family Payments including the Parenting Allowance, the Guardian Allowance, the Maternity Allowance, a non-means tested Child Care Cash Rebate and the current system of Child Care Assistance (A Social Security Safety Net, p.19).

The main initiative announced by the Coalition to support families is the Family Tax Initiative(FTI). The Treasurer announced the introduction of the FTI in his Budget speech on 20 August 1996. FTI will commence on 1 January 1997.

FTI is a two-pronged policy designed to cut the burden of tax on families with children, including couples and sole parents.

See Appendix 2 for details of Family Tax Initiative.

This package will reduce a family's tax bill by $200 per child for most families, and provide a further reduction for single income families of $500. This is achieved by increasing the tax-free threshold by $1000 for each dependent child and by a further $2,500 for single income families with at least one child under 5 years old. Low income families will be able to claim the equivalent amounts on a fortnightly basis, this will be known as the Family Tax Payment.

This scheme will provide further relief for families, however there is cause to doubt whether the proposal would encourage more diverse choices by two-parent families about how to share their work and caring responsibilities. The proposal does not present low and middle income families with sufficient incentive to alter their mix of paid and unpaid work or the distribution of that work between each member of the couple, even though they may want to. The incentive for dual-income families to become a single-income family with one parent at home, if that is what they wish to do, is not sufficient. The Family Tax Initiative will only deliver a two-income couple with children under five years old a benefit of around $9 a week extra if they became a single-income family, and they would have to give up a market income to do so. This does not represent sufficient incentive to consider a substantial alteration to the way this couple balances their paid work and caring roles. If the goal of public policy is to offer a real choice, then the size of the benefit offered to single income families must be big enough to enable a real choice but not so big as to offer an incentive to partners in dual-income families to leave the workforce if they do not wish to.

The details of the FTI as announced in the Budget have altered in some areas from the original proposal outlined prior to the March 1996 election. One major concession is a reduction in the income test applied to single income families. Under the original proposal the non-working spouse could receive up to $398 per week from non-work sources. This could allow couples with invested assets of $300,000 to be eligible for an additional $500 per annum. The proposal detailed in the Budget has reduced this income test to $4,535 per annum or $87.00 per week. This amount has been based on the income cut-off for basic Parenting Allowance. However, the package as outlined does not allow the at-home partner to earn any income from employment. This limits their ability to gain some workforce experience which would be important if and when they wish to enter the workforce in a more substantial way, at a later date. This undermines the principle of choice upon which the whole initiative is premised.

Whilst the introduction of this package is a welcome support to families, other announcements made in the Budget may limit the extent to which FTI adds to family incomes. For many families the higher costs for community based long day care, increased pharmaceutical costs, higher dental costs and increased costs in supporting unemployed teenagers may not be offset by the amount obtained under FTI.

TABLE 3: CASE STUDIES

Table 3 applies Family Tax Initiative to the case studies outlined in Section 4. The payment

will be in the form of reduced tax for families A to H. For low income families such as Family I the payment will be made on a fortnightly basis. Note: since the purpose of this table is to demonstrate the impact of the Family Tax Initiative only, other payments for children, included in Tables 1 and 2, have not been included here, though Partner's Income for Case I is in fact the full Parenting Allowance.

Weekly	A	B	C	D	E	F	G	H	I
Breadwinner's weekly income	1154	577	865	865	577	577	423	423	143
Partner's Income	0	577	288	0	288	0	154	0	143
Total Income	1154	1154	1153	865	865	577	577	423	286
Current Income Tax	-382	-262	-288	-245	-173	-131	-88	-76	0
Family Tax Initiative	17	8	8	17	8	17	8	17	17
Income post Tax	789	900	871	637	700	463	497	364	303
Current Final Income	772	892	865	620	692	446	489	347	286

KEY

A: Two parent family, one income of $60,000 pa, children cared for at home.

B: Two full-time working parents, each earning $30,000 pa, children in childcare 5 days a week.

C: Full-time worker earning $45,000 pa, part-time worker earning $15,000 pa, children in childcare 3 days a week.

D: One full-time worker earning $45,000 pa, children being cared for at home.

E: Full-time worker earning $30,000 pa, part-time worker earning $15,000 pa, children in childcare 3 days a week.

F: Full-time worker earning $30,000 pa, children being cared for at home.

G: Full-time worker earning $22,000 pa, part-time worker earning $8000 pa, children in childcare 3 days a week.

H: Full-time worker earning $ 22,000 pa, children being cared for at home.

I: Unemployed worker on JobSearch Allowance, children being cared for at home.

5.4 Amalgamation of Payments

The further simplification of the system was touched on earlier in this paper. The recently appointed Minister for Social Security has indicated that such developments will be under consideration. The advantages of simplifying the range of payments includes making the system more accessible to the community and enabling transition from one payment type to another less complex and difficult. However, any moves towards amalgamations of family payments must be evaluated against the goals outlined in Section One of this Discussion Paper. If goals of equity and choice are compromised for the sake of simplification and cost-cutting alone, then it would not make good policy. An important principle to apply in this process is that groups who are identified as most in need should not be further disadvantaged.

a) One of the more obvious areas of amalgamation is between the Sole Parent Pension and the Parenting Allowance. This option was canvassed in the Department Of Social Security's Discussion Paper on Common Payments (1995). Both benefits provide income support to enable a parent to care for their child or children without having to meet activity test requirements. Both currently apply to children under 16 years of age. The Sole Parent Pension is currently $56.80 more per fortnight than the Parenting Allowance. This recognises that for sole parents, this is their only source of income, since they do not have the assistance of another adult wage or benefit. This difference may continue under an amalgamation or be recognised through a significant increase in the Guardian Allowance. Other differences between the two payments occur at the level of income and assets test and fringe benefits. The principle of vertical equity suggests that, given the immense difficulties faced by sole parents, any amalgamation should not reduce their level of payment. The amalgamation of these two payments would assist those parents who obtain their main source of income from social security.

Families that receive Additional Parenting Allowance and the Sole Parent Pension are some of the most disadvantaged in the community. The provision of income support to these groups is both a recognition of the importance of caring for children, and need to support individuals who are excluded from the labour market. If one of the goals of income support is to provide families with choices, then these benefits must remain available until children reach at least 16 years of age. Further support to enable these parents to enter the workforce should also be available. Programs such as JET (Jobs, Education and Training), provide valuable support to sole parents entering or re-entering the workforce. Any reforms which involve reducing the age of the qualifying child for these payments will only produce further hardship and enhance the disadvantage already experienced by these groups.

b) A further amalgamation was proposed by the National Council for the International Year of the Family and involves the amalgamation of the Child Care Cash Rebate and the Home Child Care Allowance (now known as Basic Parenting Allowance). The Council proposed that this payment be made to all families with a child or children under six years of age. The payment would be paid to the partner identified as the principal carer and would continue to be paid if the carer is outside the workforce, in part-time work or in full-time employment. This payment can be used to offset the costs of child care and the indirect costs of home based care. It is also a recognition of income forgone by those who choose to stay outside the workforce to care for children. This would meet the goal of horizontal equity. The Council did not suggest an amount for this payment, however they recommended that it be higher than the Home Child Care Allowance (now Basic Parenting Allowance which is set at up to $62.80 per fortnight). The Council also recognised the need for vertical equity and stated that Basic and Additional Family Payments should continue to be available to redistribute income to low income families. The Council suggested the payment be called the Childcare Payment. (National Council for the International Year of the Family, 1994, p.40)

5.5 ACSWC Proposal: Childcare Payment

The following proposal has been developed by the Australian Catholic Social Welfare Commission. The proposal is based on the recommendation made by the National Council for the International Year of the Family to amalgamate the Child Care Cash Rebate and the Basic Parenting Allowance. The Council suggested the allowance be known as the Childcare Payment in recognition that it would be a contribution to childcare costs irrespective of the choices made by parents in balancing work and care.

The proposal is outlined in Table 4 below:

TABLE 4: CHILDCARE PAYMENT

Eligibility	Income Test	Amount
The payment would be available to all families with children under six years of age and who meet the income test requirements.	The income test applied to basic Family Payment could also be applied to this payment. That is, a combined income of $63,766, increasing by $3,189 for each additional child.	The amount would be a flat rate of $60.00 per week granted on a per family basis.*

* $60.00 is approximately the maximum amount currently available under the Child Care Cash Rebate ($61.20), and is almost double the amount of Basic Parenting Allowance ($32.00).

The National Council for the International Year of the Family recommended the Childcare Payment be universally available to families with young children. Whilst this does support the goals of horizontal equity, it may be difficult to justify, particularly in light of the current constraints on the Commonwealth Budget. Thus a more viable option would be set an income limit on the payment. The use of the current Basic Family Payment income limits would meet a number of goals. Firstly, the limit is sufficiently generous to ensure the majority of families with young children receive the payment. And further, the limit is currently also applied to Childcare Assistance and the Maternity Allowance, thus its application in this case assists in making the system less complex.

As the payment is a flat rate, that is, the same amount is paid to eligible families irrespective of income, the proposal does not enhance vertical equity. Therefore the Additional Parenting Allowance should remain available to families on very low incomes. The maximum amount of Additional Parenting Allowance would need to be reduced by around $30 so that the total amount of Childcare Payment plus Additional Parenting Allowance does not exceed the current Job Search Allowance. This is necessary to ensure there are no disincentives for workforce participation. The remainder of current payments should also continue, this includes Family Payment and Childcare Assistance, though Childcare Assistance would be calculated differently, as explained below.

This Childcare Payment is primarily designed to address some of the anomalies between payments for parents who care for their children at home and parents who use formal child care. It does this by providing a flat rate to families irrespective of their work/care balance. However, the effectiveness of the payment can only be assessed by applying it in the context of the other available payments, particularly Childcare Assistance.

Converting the Child Care Cash Rebate to a constant amount de-links it from Childcare Assistance. Hence, without any modifications in the current provision of Childcare Assistance, the Childcare Payment would deliver a significant boost to the incomes of those whose current eligibility for Childcare Cash Rebate is minimal due to the fact that a high percentage of their childcare costs are offset by Childcare Assistance. This significant increase in their income is an unwanted side effect of the Childcare Payment proposal.

To counteract this, the way Childcare Assistance is calculated would have to be amended. Working parents would be required to pay the first $60.00 (the amount of the Childcare Payment) of their childcare expenses. Childcare Assistance would then be calculated on the balance. The unwanted side effect and the proposed remedy are highlighted in the following examples.

Example A: For a family with a combined income of $30,000, with two children in a childcare centre three days a week, the cost of this childcare is $138.00 per week. Under the current system this family receives $121.00 in Childcare Assistance to offset these costs. This leaves a balance of $17.00 to paid by the parents. This balance is too low to be eligible for any Childcare Cash Rebate. Under the Childcare Payment proposal this family would be eligible for an extra $60.00 per week. This is a particularly generous outcome and one which hardly seems fair when the aim of the payment is to reduce the inequities between payments to working and non-working parents, not exacerbate them.

If the Childcare Payment was implemented alongside the amended Childcare Assistance, the above family would be required to pay the first $60.00 of their $138.00 childcare bill. As this is the amount of the Childcare Payment, this would not be an unfair burden. Childcare Assistance would then be calculated on the $78.00 balance. This family would receive $67.00 in Childcare Assistance, leaving a balance of $11.00 to be paid by the parents. Thus, the implementation of this amended proposal provides a much more satisfactory outcome.

Example B: A family on a combined income of $60,000 with two children in childcare for five days per week, incur a childcare bill of $230.00 per week. This family currently receives $69.00 in Childcare Assistance. Childcare Cash Rebate is then calculated on the $161.00 balance and amounts to $42.00 per week. Thus this family is contributing $119.00 for childcare.

Under the amended proposal this family would receive $60.00 in Childcare Payment. They would be required to pay the first $60.00 of their childcare bill, leaving a balance of $170.00. Childcare Assistance is then calculated on that balance, and amounts to $51.00. This family is thus paying $119.00 per week, exactly the same as under the current system.

TABLE 5 sets out how the Childcare Payment proposal would work in combination with such an amendment to the way in which Childcare Assistance is calculated. The table also includes the Family Tax Initiative which will be introduced from January 1 1997. The bottom line shows these families income under the current system.

As can be seen from Table 5, the combination of the revamped Family Tax Initiative and this Childcare Payment proposal increased family incomes with horizontal equity and intra-family equity are enhanced. The Childcare Payment proposal, combined with the change in assessing Childcare Assistance, is a way of overcoming some of the anomolies outlined in Section 4.

TABLE 5.

Weekly	A	B	C	D	E	F	G	H	I
Breadwinner's weekly income	1154	577	865	865	577	577	423	423	143
Partner's Income	0	577	289	0	288	0	154	0	0
Total Income	1154	1154	1154	865	865	577	577	423	143
IncomeTax	-382	-262	-288	-245	-173	-131	-88	-76	0
Income post Tax	772	892	866	620	692	446	489	347	143
Family Payment	23	23	23	23	23	23	23	23	93
*Family Tax Initiative*	17	8	8	17	8	17	8	17	17
*Childcare Payment*	60	60	60	60	60	60	60	60	60
Parenting Allowance									83
Childcare Assistance	0	51	23	0	45	0	67	0	0
Total Govt. Assistance	83	134	106	83	128	83	150	83	236
Childcare Outlays*		-230	-138		-138		-138
Final Income	872	804	842	720	690	546	509	447	396
Final Income Now	827	796	815	675	669	501	495	402	379