Family Tax Benefit A and B - Disincentives to work

Below examples are based on a majoritu single income family with youngest aged 0 - 5.

FTB Part B is paid to majority single income families if the primary income is under $100,000 (the secondary earner can earn up to $5,475 before it cuts off). It cuts out as soon as the $100,000 or $5,475 limits are reached, there is no sliding scale of benefit, for example:

Adjusted Taxable Income (ATI) of $100,001 = No FTB Part B

ATI of $99,999 = $4,409.20 FTB Part B (or $3,186.45 if youngest child is 5 to 18)

So for majority single income families eligible for FTB Part B there is a disincentive to earn more if your primary earnings are going to fall between $100,000 and approx. $111,000 as at the EOFY they come out with less in their pocket.

FTB Part A works on a sliding scale, but the disincentive is still there. For every dollar over $51,903 it reduces by 20 cents until it reaches the base amount ($58.66 per fornight). For every dollar over $94,316 it reduces by 30 cents until it reaches zero.

So for every dollar the primary income earner earns over $94,316 they will pay 37 cents in the dollar tax, lose 30 cents in the dollar FTB Part A and the net result is they are only seeing 33 cents in every dollar earned after the $94,316 mark.

Family 1:
A primary single income family who earn $99,999 will see $75,637 after tax earnings + $4,409 FTB Part B + $3,988 FTB Part A = $84,529 net

Family 2:
A primary single income family who earn $100,001 will see $75,638 after tax earnings + $0 FTB Part B + $3,887 FTB Part A = $79,525 net

Family 3:
A primary single income family who earn $107,000 will see $79,778 after tax earnings + $0 FTB Part B + $1,688 FTB Part A = $81,466 net.

Despite having only earned $2 more for the year, Family 2 are $113 per week worse off than Family 1.

Family 3 earned $7,001 more than Family 1 but are $59 per week worse off.

I don't understand why we have a system where families seriously need to consider if working harder to earn more will result in them having less money in the bank come the end of the financial year.

 

That's a pretty specific scenario though isn't it? Usually a family wouldn't actually be worse off by working more.

 

Sorry just edited the first line because the examples actually apply to any family eligible for FTB Part A and B with the youngest child being 0 - 5.

That's a large number of families who are worse off by earning more.

Edit: The examples above also apply to eligible families with children aged 6 to 18 the only difference being the FTB Part B is reduced to $3,186.45. The end result however is the same - a government disincentive to earn a higher income.

 

I agree, it should cut out at significantly less than $100k pa, $60k would be closer to the mark imo.
Then the incentive to earn more would have nothing to do with government benefits but the gumption to provide better for your family..

Flame suite on!!!

Full disclosure, we still receive government 'assistance' I think something like $250 per fortnight but I have no idea what for.....While we will take it while it's on offer I think that a family on significantly more than the national average should not receive benefits.

***Edit.. I've just been told we get the child care...after school care

 

Regardless of the limits why would you have a system where at a specific point working harder to earn more is penalised? Especially when the 'more' can be anywhere between $2 and $11,000 per annum, that's a big earning gap to jump to end up better off.

 

Depends if you have a good career/job you like. Not always easy getting back into it, which I think is a big reason to keep up appearances.
That said I would think chikdcare is a far bigger financial factor.

 

Your looking at it from angle, it's not a penalty to work harder/earn more. Think 'glass half full'. How about it being a privilege not being a burden on the welfare system anymore and contributing to the greater good
You get a 'leg up' when you need and at a certain point you don't need that leg up anymore.

 

It's not just part A and B; there have been annual supplements too.

1.5 million will get reduced FTB supplements under welfare changes

 

I'll give you another example to consider:
Worker A and Worker B are co-workers on the same income. Both have 2 children each (youngest being under 5) and a partner who remains at home to care for the children.

Worker A earns $98,000 base and does not work any overtime as he/she wants to be home to spend time with the family in the evenings.

Worker B earns $98,000 base and, wanting to get ahead/provide a better life for his/her family works overtime during evenings earning an additional $4,000 per annum.

Worker A = $74,107 after tax earnings + $4,409 FTB B + $4,388 FTB A
= $82,904 Net

Worker B = $76,628 after tax earnings + $0 FTB B + $3,187 FTB A
= $79,815 Net.

Worker B worked more hours, missed more time with their family and the net result is they are financially worse off.

 

There is no 'angle' these are the current rules and the figures are accurate.

The harder worker ends up worse off = a disincentive to work.

 

Thanks @Joynz. I'm doing this all from my phone and it was already getting complicated enough I think my head will explode if I try to add in the other income supplements!

 

There is the other side to this coin....

Spending more time with your children especially in the first five years has many... many benefits obviously for the child, but also society as a whole.

In theory by spending more time with the kids reduces truancy, health and social problems later on.

It might actually work out cost effective to have one parent working less but dedicating more time to the children for this reason.

That of course brings up about a zillion cans of worms and the delicate question of balance.

I've got no idea how you could measure it either....

Still it is something that needs to be considered in the debate.

 

Yup, that's the basis for our whole personal income tax system. Work hard to earn more and the government slaps you in the face with increasing rates of tax....this makes my bloody blood boil.

 

On the other hand, you could see it as an incentive to work more. In other words to earn more than the $4,000 or so that tips them over the balance!

 

Effectively you end up with a situation where, for arguments sake, you earn an extra $10 income and when the tax etc is done you end up with $12 less in the bank.

I just find it so bizzare that there is an earning point where you end up losing more money than you have made.

 

This is the next problem. To end up in the best position the primary earner needs either $99,999 or approx $111,000.

If it was a $1k or $2k anomaly it wouldn't be a big deal, but it's $11,000: A worker on $50 per hour and a base of $99,999 would need to work 146 hours overtime (at a rate of time and a half) to break even on the FTB benefits lost.

 

Here is an option for worker B. Don't work more hours, don't miss more time with family, don't be financially worse off.

Why would the government do this? To give people the option to spend more time with their children. 0 to 5 are formative years and it is important to have a parent around during this time.

Besides, each parent at home frees up some working hours for someone else who needs to work. Essentially, the government is paying one person to spend time with their child so that someone else can work.

 

I would agree with you, but it all goes out the window when the person earning $99,999 ends up with over $5,800 more in benefits that the poor smuck at $100,001. That doesn't free up jobs or allow more family time, it's just ill thought.

 

We're actually on the same page here. The issue is this system encourages families getting FTB A and B to stop work at the $100k limit if they aren't going to make more than $111k. So instead of encouring Job Bloggs to work overtime and crack that $100k mark by a few grand anything over that actually sends him backwards. It would be like having an income limit where after you reach a certain point your tax rate goes up to 110%, who is going to knowingly do that?

A sliding scale would make far more sense, for the sake of simplicity thy could even lower it to the $94,316 mark that FTB Part A is effected from. The government would save in middle class welfare and the system would be simplier and fairer.

 

Lobby your local federal politician...

I think a more realistic situation is probably an extra $20,000+ or so a year from the other partner returning to work.