AUSTRALIA is within reach of becoming the world's most generous nation for family payments after new analysis confirms that John Howard left a double legacy of record handouts tarnished by higher effective tax rates for many working mothers.
The Productivity Commission this week placed Australia only sixth-highest for family payments out of 29 OECD nations.
But the data relied on 2003 figures, which excluded the explosion of handouts at federal elections in 2005 and last year.
Those spendathons, combined with the expected delivery of paid maternity leave next year, are likely to catapult Australia up the ladder, if not to No1, official sources concede.
Four of the five nations above Australia on the ladder in 2003 - Luxembourg, Denmark, Hungary and Sweden - have not had the luxury of a commodities boom since 2004 to generate extra cash for families. Only Norway, ranked fifth on the Productivity Commission table, enjoyed the sorts of windfall revenues that have poured into the Australia budget.
The Weekend Australian has crunched comparable figures to those used by the commission to show families payments soared by about 25 per cent between 2004 and 2005 alone.
This elevated the real value of family payments from 2.5 per cent of gross domestic product in the December quarter of 2003 to a record 2.9 per cent of GDP in the September quarter of 2004.
The only spike in handouts to eclipse the Coalition's effort occurred in the aftermath of the 1990-91 recession when the Labor government of Paul Keating lifted family payments from 2 per cent of GDP in the March quarter 1993 to 2.5 per cent by the December quarter of the same year.
Australia is already the most generous nation for family payments on one benchmark. It is the only developed economy to give families on welfare - couples and sole parents - income support worth more than 50 per cent of median disposable household income. But this generosity carries a economic cost in churn further up the income ladder.
The
legacy of the Howard years, which has been reinforced by Labor's first budget, is that middle-income families now face greater tax barriers for mothers who want to work - despite the claims of both sides that the boosts to family payments in 2004 and again at last year's election were designed to increase labour force participation.
In an article for Inquirer today, the director of the Melbourne Institute of Applied Economic and Social Research, Stephen Sedgwick, reveals the changes to the tax and handout system since 2004 have cut both ways.
"(They) have decreased effective average tax rates over some income ranges, but increased it over others," he writes.
Those facing higher tax rates are not wealthy.
"A secondary earner with one child under five who increases their income from $15,000 to $20,000 would lose an additional 18 cents more in the dollar than previously - and almost twice that amount in some instances - if their partner's income was in the range of $20,000 to $60,000."
The sharp end of the work trap can be seen in the case of a single-income couple where the breadwinner is on average earnings of almost $60,000. If the second parent wanted to return to work, they would face a higher average tax rate than the top personal tax rate of 45 cents in the dollar.
"At virtually every income level a secondary earner would lose 40 to 50 per cent to taxes and reduced benefits if they joined the paid workforce, more in some cases. The picture is less uniform for a secondary earner (already in work) trying to decide on whether to work additional hours. But effective marginal tax rates in excess of 50 per cent - and up to 74 per cent - are common."
http://www.news.com.au/story/0,23599,24444994-421,00.html
