A typical Australian household income and tax transfer profile (2012-2018)

by Jinjing Li

A large number of budget changes have been implemented over the past six years. The aim of this article is to analyse how these budget measures have affected individual household tax profiles. These changes, including amendments to the Family Tax Benefit system and various childcare support schemes, have affected different types of families in different ways as policy changes have been implemented. For the purpose of simplicity, these impacts are identified for the following groups of households: single adults (without children), single parents, couples without children, couples with children and retired couples. As these changes will impact on socio-economic groups in different ways, these groups are also analysed in terms of income levels, i.e. unemployed, minimum waged, half of the average income (based on ABS's average weekly earnings figure), the average income, and double the average income. The results are derived from STINMOD+, a tax and transfer estimation model developed by NATSEM that allows us to analyse how tax and benefit policies affect the population because of its consistent parameters dating back to 2001. The model has a flexible structure allowing new benefits and policies to be included.

The Earning Profile

The minimum wage and the average weekly earnings data are extracted from the Fair Work Australia and the ABS respectively. Values for 2017 and 2018 are projected using a 2% growth rate. All estimates for FY2018 are subject to changes.

 

Figure 1: The growth of minimum wage and the average wage in Australia between 2012-2018.

Single adults without children

Unsurprisingly, single adults without children obtain their main income from wages and the Newstart allowance in the case of unemployment. Singles on Newstart allowance received around $12,800 per annum in 2012 and this is expected to increase to over $14,500 by 2018. At the minimum wage level, single workers income, which is primarily affected by their salary, has also been on the increase. Combining the taxation effects, the increase in disposable income is around 1.5-2.5 percentage points a year. The same trend applies to workers on half of average income, average income and those who are at the higher end of the income distribution. The disposable income increase is slower than the wage growth due to taxation.

 

Figure 2: Composition of the family income for singles without children at different wage levels

Single Parents

For unemployed single parents, the main sources of income are pensions and child-related FTB and schoolkid benefits. While their total income had increased between 2012 and 2016, there has been a slow down between 2016 and 2017 due to the phase out of the schoolkids bonus. This amount is projected to pass 2017’s disposable income level in 2018 due to the introduction of the child care subsidy, which benefits mid income groups. We assume single parents have two school aged children spending around $22,500 a year on childcare. It is also assumed that the unemployed household does not use formal childcare.

Single parents on a minimum wage have a more complex disposable income structure. With wages as the main income source, single minimum wage parents also receive pensions (Parenting Payment single) and other benefits, FTB as well as childcare support.

While the composition of income sources has remained relatively stable since 2012, their overall disposable income has increased by 0 to 4 percentage points throughout the period. The variation in the growth rate is larger than other groups due to various FTB and childcare related policy changes. Single parents with an average income level receive FTB as well as childcare benefits in addition to their wages but do not obtain any other income support payment. Since 2013, single parents with a double average income do not obtain FTB and school kid bonus anymore as the income has gone over the $150,000 limit for FTB-B benefit. The upper-income threshold for FTB-B, unlike other benefits, was not indexed (and later decreased due to policy change). Higher earners, however are still eligible for the childcare benefits and rebates.

 

 Figure 3: Composition of the family income for single parents at different wage levels

Couples without children

Couples without children in which both partners are unemployed have seen their disposable income, based mainly on benefits and allowances, increased by benefit indexation. This assumes that none of them had found a job intermittently. The increase is temporarily slowed down in FY2017 due to the phase out of the income support bonus. For couples without children on a minimum wage, their income source is mainly composed of their wage earnings. Couples without children at the minimum wage level do not receive much social assistance as they do not qualify for benefits centred around children.

 

Figure 4: Composition of the family income for couple without children at different wage levels

Couples with children

The disposable income of unemployed couples with children mainly consists of allowances and benefits and FTB and schoolkid bonuses. As it is assumed unemployed couples do not use child care services, they do not receive any child care support payment from the government. Similar to other household types, their total disposable income is generally increasing. Couples with children on a minimum wage experienced a general increase between 2012 and 2017 and their total income will reach nearly $73,000. With rebate and the childcare subsidy, their disposable income may exceed $90K in 2018, assuming their child care cost is about $22k annually. For couples on half average, average and double average incomes the increase was slightly lower.

 

Figure 5: Composition of the family income for couple with children at different wage levels

Retirees

The disposable income for retired couples with no additional income has increased, driven by the indexations of age pension. Retired couples on age pension do not pay tax nor receive benefits other than age pension.

 

 Figure 6: Composition of the family income for retirees (couple) between 2012 and 2018