The operation of the Child Support Scheme cannot be fully understood without understanding its interaction with the income support system and payments to help families with the costs of children. Of greatest importance is the interaction of child support with Family Tax Benefit (FTB) Part A through the Maintenance Action Test (MAT) and Maintenance Income Test (MIT).
4.1 The family payment system
FTB is the centrepiece of family payments as we know them today. The system of family payments comprises:
- FTB Part A, a two-tiered payment linked to the number of children for whom a claimant is responsible;
- FTB Part B, to provide extra help for families with one main income, including sole parents;
- Child Care Benefit, to assist families with their childcare costs;
- Maternity Payment, to assist families following the birth or adoption of a baby; and
- Maternity Immunisation Allowance, to encourage immunisation of children aged 18–24 months.
The FTB Part A rate also comprises several additional components:
- Rent Assistance, for private renters;
- Multiple Birth Allowance, for the birth of triplets or more; and
- Large Family Supplement, for the fourth and subsequent children.
There are also several Australian Government concessions that base eligibility upon qualification for FTB Part A, including:
- the Health Care Card, which provides Commonwealth health concessions such as low-cost medicines under the Pharmaceutical Benefits Scheme, and in some instances concessions on services such as transport, rates and utilities; and
- Medicare Safety Net threshold, assistance for families with out-of-pocket medical expenses, over and above the Medicare rebate.
4.1.1 FTB Part A
FTB Part A is paid at two rates. The base rate recognises the costs of children for all but the highest income parents. It is concerned with what is sometimes called ‘horizontal equity’—fair treatment of people who have similar incomes but different family responsibilities.
Many families with relatively low household incomes are given an additional payment of FTB Part A. This is known as the ‘more than base’ rate. It is provided to ensure that parents on low incomes have enough money to maintain their children adequately. In the income year 2004–05, parents with a household income of less than $32,485 are entitled to maximum rate FTB Part A.
Payments of FTB Part A are for each child and do not take account of economies of scale in raising children. This contrasts with the Child Support Scheme, where there is an assumption, supported by research, that two children cost less per child than one, and that three children cost less per child than two. The current maximum FTB Part A rates are in Table 4.1.
Table 4.1: Maximum rates in 2004–05 financial year
| For each child |
Fortnight |
Annual |
| Under 13 years |
$133.56 |
$4,095.30 |
| 13–15 years |
$169.40 |
$5,029.70 |
| 16–17 years |
$42.98 |
$1,733.75 |
| 18–24 years |
$57.82 |
$2,120.65 |
Note: Annual rates include the FTB Part A Supplement ($613.20), which can only be paid after the end of income year reconciliation.
Centrelink,
A guide to Australian Government payments, 20 March – 30 June 2005, p. 2.
Above an income of $32,485, the rate of FTB Part A declines by 20 cents in the dollar until parents are only entitled to base rate.
Table 4.2: Income limit beyond which only base rate of FTB Part A is paid
| |
Number of children aged 13–15 years |
| Number of children aged 0–12 years |
Nil |
One |
Two |
Three |
| Nil |
|
$48,964 |
$65,444 |
$81,924 |
| One |
$44,292 |
$60,772 |
$77,252 |
$93,731 |
| Two |
$56,100 |
$72,580 |
$89,059 |
$105,539 |
| Three |
$67,908 |
$84,387 |
$100,867 |
$117,347 |
Note: Relevant to 2004–05 financial year. Income limit is higher if family is eligible for Rent Assistance.
Centrelink,
A guide to Australian Government payments, 20 March – 30 June 2005, p. 2.
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The current base rate for FTB Part A is as follows:
Table 4.3: Base rate in 2004–05 financial year
| For each child |
Fortnight |
Annual |
| Under 18 years |
$42.98 |
$1,733.75 |
| 18–24 years |
$57.82 |
$2,120.65 |
Note: Annual figures include the FTB Part A Supplement of $613.20. This is not included in the fortnightly figure as it can only be paid after the end of the financial year.
Centrelink,
A guide to Australian Government payments, 20 March – 30 June 2005, p. 2.
Table 4.4: Income limit at which base rate of FTB Part A stops
| |
Number of children aged 18–24 years |
| Number of children aged 0–17 years |
Nil |
One |
Two |
Three |
| Nil |
|
$91,092 |
$101,519 |
$111,946 |
| One |
$89,803 |
$100,229 |
$110,656 |
$121,886 |
| Two |
$98,940 |
$109,367 |
$120,596 |
$131,826 |
| Three |
$108,077 |
$119,307* |
$130,537* |
$141,766* |
* Income limit is higher than stated for three children aged 13–15 years.
Centrelink,
A guide to Australian Government payments, 20 March – 30 June 2005, p. 3.
4.1.2 FTB Part B
FTB Part B provides additional assistance to sole-parent families and two-parent families with one main income. It is based on the age of the youngest child. Unlike Part A, Part B is not paid for each child.
Table 4.5: Maximum rates in 2004–05 financial year
| Age of youngest child |
Fortnight |
Annual |
| Under 5 years |
$114.66 |
$2,989.35 |
| 5–15 years (or 16–18 years if full-time student) |
$79.94 |
$2,084.15 |
Centrelink,
A guide to Australian Government payments, 20 March – 30 June 2005, p. 4.
For a couple, this payment is not income tested on the higher earner’s income but on the income of the lower income earner. Under the FTB Part B income test, the lower earner can earn $4,000 each income year before the payment is tapered out at 20 cents for each dollar of income. For sole parents, there is no income test.
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4.1.3 Splitting FTB
Shared care arrangements can be taken into account for both FTB Part A and FTB Part B. Eligibility for FTB is based on each carer’s household income and individual circumstances.
Introduced in 2000, this provision allows the parents to split FTB on the basis of the
number of hours of care provided by each, subject only to the proviso that FTB cannot be paid to a parent who provides less than 10% of the care. By contrast, the child support formula provides for a reduction in child support liability only if the child spends more than 30% of the year (110
nights or more each year) with the paying parent.
The shared care percentage is generally based on the care arrangements in place between the parents, as advised by them to Centrelink/the Family Assistance Offi ce. Where there is parental dispute about the shared care arrangements, the parents are asked in writing to detail the level of care they provide. Where the parties do not agree, they are required to provide additional evidence regarding the actual level of care. Evidence can be a parenting plan, a court order, or any other document to support the actual care given.
Parents with at least 10% but less than 30% care of a child can choose to waive their FTB entitlement for the child in favour of the other parent. A small proportion of FTB customers share their payment. However, this proportion has grown over the last four years or so, even though many separated parents choose not to split FTB despite eligibility to do so.
Overpayments in FTB can occur in circumstances where the parent who receives FTB fortnightly fails to advise of the existence of a shared care arrangement. This happens when another parent claims FTB retrospectively for a period of up to three years. In order to avoid overpayments, all FTB customers are required to advise the Family Assistance Office of any change to their children’s care arrangements.
4.2 Interaction of Family Tax Benefit with child support
4.2.1 The Maintenance Action Test
Under the Maintenance Action Test (MAT), most separated people claiming the higher tier of FTB Part A must take ‘reasonable action’ to obtain child support—in other words, to lodge an ‘Application for Child Support Assessment’—and to:
- have the payments collected by the Child Support Agency (CSA); or
- privately collect 100% of the CSA assessment; or
- lodge a ‘Child Support Agreement’ for an amount no less than the formula assessment.
Some people are exempt from the MAT. The main grounds are fear of violence, emotional trauma, cultural considerations and inability to establish paternity. The number of children exempted from the MAT at 30 June 2004 was 33,250 (2.8% of the children who are eligible to receive child support and registered to receive FTB Part A).
4.2.2 The Maintenance Income Test
For family assistance purposes, maintenance payments (which can be child support and/or partner [spousal] maintenance) are assessed separately from all other income. The separate Maintenance Income Test (MIT) only applies to customers who are eligible for more than the base rate of FTB Part A.
Both the MAT and the MIT are central to the objective of limiting Commonwealth expenditure to the minimum necessary for ensuring that children’s needs are met, and shifting the primary responsibility of supporting children back to separated parents.
The MIT has the effect of reducing a resident parent’s FTB Part A by 50 cents for each dollar of child support above a prescribed threshold, usually $1,150 per annum plus $383 for each child after the fi rst.
For most families, the MIT will affect:
- the more than base rate of FTB Part A for all children under 16; and
- Rent Assistance.
This means that the other components that are included in the base rate are not affected (that is, the base rate of FTB Part A, FTB Part A supplement, Large Family Supplement, and Multiple Birth Allowance).
As a result of the operation of the MIT, government expenditure on FTB was reduced by an estimated $433 million in 2003–04.
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4.3 Income support
Nearly 25% of payers and 60% of payees are in receipt of some form of income support payments through Centrelink. The most common payment received by payers is Newstart Allowance, which 12.8% of all payers receive. The most common payment for payees is Parenting Payment (Single), which 50.8% of all payees receive. Other payments include Disability Support Pension, Parenting Payment (Partnered), Partner Allowance, Carer Payment, and Age Pension. Further demographic details are outlined in Volume 2 of this Report.
Payment rates, income tests and other supplementary payments vary considerably between payments. Newstart Allowance is indexed to the Consumer Price Index (CPI), whereas Parenting Payment (Single) is aligned with pensions, which are indexed to Male Total Average Weekly Earnings. Some income support payments are taxable, such as Newstart Allowance and Parenting Payment, and some are not taxable, such as Disability Support Pension and Carer Payment. The different levels of income support reflect different expectations of participation in the labour force and, hence, the length of time likely to be spent on income support.
Table 4.6 provides a comparison of some of the key payment characteristics.
Table 4.6: Income support rates, income test thresholds, and taper rates
| |
Single rates |
Partnered rates |
| Characteristic |
PPS |
AP, CP, DSP(21 and over) |
NSA with dependent child |
NSA with no dependent child |
NSA partnered (each) |
PPP |
PA |
| Maximum rate, per fortnight |
$476.30 |
$476.30 |
$432.00 |
$399.30 |
$360.30 |
$360.30 |
$360.30 |
| Income test for full payment, per fortnight |
$146.60 plus $24.60 per child |
$122.00 |
$62.00 |
$62.00 |
$62.00 |
$62.00 |
$62.00 |
| Taper rates |
40c in $ |
40c in $ |
50c ($62–$142pf) and 70c (above $142pf) |
50c ($62–$142pf) and 70c (above $142pf) |
50c ($62–$142pf) and 70c (above $142pf) |
50c ($62–$245pf) and 70c (above $245pf) |
50c ($62–$142pf) and 70c (above $142pf) |
| Income test for part payment, per fortnight |
$1,351.85 (with one child) |
$1,327.25 (single) |
$702.00 |
$655.29 |
$599.57 |
$599.57 |
$599.57 |
PPS: Parenting Payment (Single), AP: Age Pension, CP: Carer Payment, DSP: Disability Support Pension,
NSA: Newstart Allowance, PPP: Parenting Payment (Partnered), PA: Partner Allowance. Figures are current for a period from 20 March 2005 to 30 June 2005.
Centrelink,
A guide to Australian Government payments, 20 March – 30 June 2005.
4.3.1 Newstart Allowance
Newstart Allowance is designed to facilitate entry to employment. Centrelink clients receiving this payment are required to comply with the activity testing which includes:
- actively looking for suitable paid work;
- accepting suitable work offers;
- attending all job interviews;
- agreeing to attend approved training courses or programs;
- never leaving a job, training course, or program without a good reason; and
- giving Centrelink accurate details about any income they have earned.
Centrelink clients who fail to comply with activity test requirements may be ‘breached’, with reduction or suspension of their payments.
4.3.2 Parenting Payment
Parenting Payment is designed to provide an income and opportunities for greater financial independence to people with parenting responsibilities. Parenting Payment is an income support payment for both sole and partnered parents. However, it is only payable to one member of a couple. An alternative income support payment such as Newstart Allowance may be payable to the other member of the couple.
In 1998 Parenting Payment amalgamated the former Sole Parent Pension, which was paid to sole parents, and Parenting Allowance, which was paid to partnered parents. While some conditions that differed between the former payments, such as the assets test, have been aligned, core conditions, such as rates, the income test, and concessions, have not changed under Parenting Payment.
Therefore, single recipients of Parenting Payment continue to be subject to pension rates, income testing and concessions, while partnered recipients are subject to benefi t rates, concessions and a modifi ed benefit-style income test.
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4.3.3 Shared care provisions for income support
The Government provides assistance for families within a system that encourages personal responsibility, independence, and self-help. Without this assistance, many children, particularly those in separated families, would be at risk of hardship.
The Government provides additional support to sole parents through measures such as higher rates of Parenting Payment, more generous income test and concession card arrangements, and entitlement to more supplementary benefits such as Education Entry Payment, Employment Entry Payment, and Pensioner Education Supplement.
As mentioned above, Parenting Payment can only be paid to
one parent for the same child. Where separated parents share the care of a child, generally the parent with the greater proportion of care is eligible. The other parent may receive Newstart Allowance at the ‘with child’ rate, but this does not appear to be administered uniformly.
Where the care of the child is shared approximately equally (within the range of 46% to 54%), other factors are also considered to determine which parent is eligible. These factors include the relative financial needs of the parents, whether only one parent has claimed Parenting Payment, or whether one parent has already been receiving the payment continuously for a reasonable period when the other parent makes a claim.
If both parents qualify after separation for a pension payment (for example, Parenting Payment (Single), Disability Support Pension, Carer Payment or Age Pension), they receive the
same amount of government assistance for their self-support. However, if the non-resident parent qualifies for an allowance payment (such as Newstart Allowance, Youth Allowance or Sickness Allowance) they receive a lower amount of government assistance for their self-support.
4.4 2005–06 Budget measures
As part of the 2005–06 Budget, the Government announced proposed changes to payment arrangements that are relevant to the work of the Taskforce, including the following.
Welfare to Work measures
- Parents receiving Parenting Payment prior to 1 July 2006 will remain on that payment until their youngest child turns 16. They will be required to seek part-time work of at least 15 hours per week when their youngest child turns six.
- Parents applying for Parenting Payment on or after 1 July 2006 will receive Parenting Payment while their youngest child is less than six years old.
- When their youngest child turns six, these parents will receive enhanced Newstart Allowance and be subject to an obligation to seek part-time work of at least 15 hours per week.
- The Newstart Allowance will be enhanced through changes to the income test. The maximum withdrawal rate will be reduced from 70 to 60 cents in the dollar. In addition, the income at which this rate commences will be increased to $250 per fortnight, up from $142 for Newstart Allowance currently.
Assistance for Families measures
- The lower income threshold for FTB Part A will be increased to $37,500 from 1 July 2006, to allow low-income earners to increase their earnings without affecting family assistance payments.
- Families receiving arrears of child support from previous years will also benefi t from a new measure that allows them to access any unused maintenance income free area from previous years to offset late maintenance payments.
The Taskforce became aware of these proposed changes as it was finalising its full Report, but considers that they do not materially affect any of its recommendations, including the details of the proposed new formula.