Friday, March 28, 2008

Working for Families, marginal tax rates, and $120 weekly tax cuts..

Working for Families has been criticised as a policy that does not provide an incentive to work longer hours because of high marginal tax rates. Particularly those families who are already getting $60,000 and are finding it difficult to pay the mortgage and haircuts, so they want to send the poor wife off to work.

Consider this. A family who is on 60K has three kids under seven.One partner does not work - and stays home with the kids. That family would get a tax cut of about $120 a week if thy were allowed to split their income for tax purposes and wouldn`t lose any of their family support.

But take a similar family on $45k , who get $430 a fortnight in Family Support. Two of their three kids are preschoolers, aged two and four. The stay-at-home parent goes out to work to pay the increased mortgage and works part time for 20 hours a week. She gets $15k - at $15 an hour.

This is what happens: She has to arrange 40 hours childcare for her two kids that are not as school Luckily one of her kids can get 20 hours free. Unluckily it is not free - it costs at least $2.00 an hour. The other child gets WINZ Subsidy but stil pays $2.50 an hour. Total childcare cost is $180.00 a fortnight

Because of her increased income, her WFF payments reduce by $197.00 to $233.00 a fortnight. Total cost so far to go to work :$413.00 a fortnight.

So on 45k the family gets $865 a week. With WFF that increases to $1080.

On 60k the family gets $1153.45 less $90.00 childcare costs: $1063. Add WFF: $1179.50 a week.

That's effectively just $99.50 less tax for working 20 hours because of abatement rates and childcare costs

And some people are actually doing this!

The family would double the net value of their second income if they split income for tax purposes. If 20 Hours Free was actually free and extended to 2 year olds, that family would save a further $90.00 a week and the new employee will make around $300.00 a week - Which is what her pay rate is. ( and no, that was not planned, thats just how it worked out!) .

The family will almost then be as well off as a one income family on the same salary.

Is that why the Government doesnt like income splitting for tax purposes - they`d rather employ childcare workers, promote a a free policy that's not free and redistirbute money to families that are earning more than the average family income of $62,000, so that most families earning under that figure can continue to pay less in tax than they get in Working for Families.

Working for Families should not be scrapped, it should be for those families that need it, not for families who can afford investment properties or who find it difficult to live and budget on $85,000. Ditto for 20 Hours "free" childcare.




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