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News Article


Major error in Senate report on paid parental leave: total income tax ignored!
Monday, June 7, 2010


 "The 3 June Senate report on the Paid Parental Leave Bill contains a major error,” Richard Egan, FamilyVoice Australia policy officer, said today.

“The report effectively claims (section 1.85) that most stay-home mums do better on the Baby Bonus and Family Tax Benefit B than paid work mums would do under the Rudd government’s paid parental leave scheme.

"If that were true, you’d wonder why the government is bothering with paid parental leave at all!” Mr Egan said.

“But it is not true.  Mums in paid work before the birth of their baby would be thousands of dollars better off under the Rudd scheme than mums who have stayed home to care for older toddlers.

“Close inspection of the examples listed in the report (pp 18, 19) reveals that a key factor – total income tax – has been left out of the analysis,” Richard Egan said.

 “The report’s figures take account of tax on Paid Parental Leave payments, but ignore all other tax on income,” Mr Egan said.  “We have reworked the examples to include total income tax – and the figures now tell a very different story (see below).  A family which receives Paid Parental Leave will be between $4000 and $7000 better off after tax and government assistance are taken into account than a family with the same gross income which receives the Baby Bonus.”

The Senate Community Affairs Committee and its departmental advisers seem to have ignored the fact that double income families enjoy a double tax-free threshold of $12,000.  Single income families have just one $6000 tax-free threshold – but Family Tax Benefit B only partly compensates these families for missing out on lower tax rates.  So double income families are already ahead, and Paid Parental Leave would increase the gap by an average of $3000.

By ignoring the tax-free threshold difference, the tables on pp 18 and 19 of the report distort the true picture by between $5000 and $8500.

“This is a very big error,” Richard Egan said.  “The government is clearly worried by opinion polls showing two thirds of Australians want government-funded paid parental leave to be the same for all mums, whether or not they are paid for the work they do. 

“Instead of distorting the evidence and misleading people, the government should remove the ‘work test’ from the Paid Parental Leave Bill so that all mums would qualify,” Richard Egan said.  “The party that offers all Australian mums a fair deal will be on an election winner.”

Worked examples below:

EXAMPLE 1: Family income $100,000 second child, born 1 January

At-home mother

Father earns $100,000

Mother has no income

• ineligible for PPL

• does not work in financial year of birth of child

Baby Bonus: $5,185

Family Tax Benefit Part A: $1,879

Family Tax Benefit Part B: $3,829

TOTAL ASSISTANCE: $10,893

Income tax: $27,500

Total net income after tax and assistance: $84,393

Working mother

Father earns $70,000

Mother earns $30,000

• worked full-time until the birth of her second child; eligible for PPL

• usual income of $60,000 results in $30,000 earned in financial year of child's birth

Total assistance (net of tax on PPL) =

PPL: $9,788; Tax paid on PPL: $2,725

Family Tax Benefit Part A: $265

Family Tax Benefit Part B: $0

TOTAL (NET) ASSISTANCE:$7,328

Income tax: $19,000 ($16,050 on $70,000 and $2,850 on $30,000)

Total net income after tax and assistance: $89,328

Report claims a family with an at-home mother would be $3,565 better off than a family with a paid work mother.

But on actual net income after tax and assistance, a family with an at-home mother would be $4,925 worse off than a family with paid work mother.

Extent of distortion through use of rubbery figures = $8,490.

EXAMPLE 2: Family income $80,000 second child, born 1 January

At-home mother

Father earns $80,000

Mother has no income

• ineligible for PPL

• does not work in financial year of birth of child

Baby Bonus: $5,185

Family Tax Benefit Part A: $7,205

Family Tax Benefit Part B: $3,829

TOTAL ASSISTANCE: $16,219

Income tax: $19,200

Total net income after tax and assistance: $77,019

Working mother

Father earns $60,000

Mother earns $20,000

• worked full-time until the birth of her second child; eligible for PPL

• usual income of $40,000 results in $20,000 earned in financial year of child's birth

PPL: $9,788; Tax paid on PPL: $1,694

Family Tax Benefit Part A: $7,205

Family Tax Benefit Part B: $0

TOTAL (NET) ASSISTANCE: $15,299

Income tax: $14,020 ($12,900 on $60,000 and $1,120 on $20,000)

Total net income after tax and assistance: $81,279

Report claims a family with an at-home mother would be $920 better off than a family with a working mother.

But on actual net income after tax and assistance, a family with an at-home mother is $4,260 worse off than a family with a working mother.

Extent of distortion through use of rubbery figures = $5,180.

EXAMPLE 3: Family income $67,500 first child

At-home mother

Father earns $67,500

Mother has no income

• ineligible for PPL

• does not work in financial year of birth of child

Baby Bonus: $5,185

Family Tax Benefit Part A: $1,009

Family Tax Benefit Part B: $1,914

TOTAL ASSISTANCE: $8,108

Income tax: $15,262

Total net income after tax and assistance: $60,346

Working mother

Father earns $45,000

Mother earns $22,500

• worked full-time until the birth of her second child; eligible for PPL

• usual income of $45,000 results in $22,500 earned in financial year of child's birth

PPL: $9,788; Tax paid on PPL: $1,707

Family Tax Benefit Part A: $1,009

Family Tax Benefit Part B: $0

TOTAL (NET) ASSISTANCE: $9,090

Income tax: $9,187 ($7,575 on $45,000 and $1,612 on $22,500)

Total net income after tax and assistance: $67,503

Report claims a family with an at-home mother is just $982 worse off than a family with a working mother.

But on actual net income after tax and assistance, a family with an at-home mother is $7,157 worse off than family with working mother.

Extent of distortion through use of rubbery figures = $6,175.

.............................................................

Phone: 1300 365 965 (national office)

Website:http://www.fava.org.au/

Categories:

  • Family and parenthood
  • Government and society

View next article - TV watchdog takes eight months to bite – with no teeth!




 


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