INTERIMANALYSISOFTHE201516FEDERALBUDGET1

BENPHILLIPS,NATSEM,UNIVERSITYOFCANBERRA,
MAY2015

1ThisresearchwascommissionedbytheAustralianLaborParty.

Contents
1 INTRODUCTION

2 METHODOLOGYANDASSUMPTIONS

3 RESULTS

4 CONCLUSION

12

INTRODUCTION

This paper provides the distributional household impact of the main hippocket
Budgetmeasurescontainedinthe201516FederalBudget.

Theresearchinvolvedtheestimationofthedistributionalimpactonfamilyincomesof
the major changes to the tax and government benefit system under the Coalition
Government as compared to under the previous Labor Government. NATSEMs
analysis does not analyse the merits of measures in the budget just the financial
impactonhouseholdsinadayaftercontext.

TheNATSEMmodellingfocusesonthemajorchangestothetaxationandgovernment
benefit changes as they relate to family budgets. This analysis is an independent
summary of the results and an explanation of the underlying methods used and
assumptions.

The NATSEM analysis does not include any potential secondround effects such as
behaviouralchangestothepolicymeasures.Thisisstandardbudgetconvention.The
impacts of bracket creep are included in the NATSEM distributional modelling,
however, as the tables below are a comparison between two sets of policies which
bothincludebracketcreeptheoverallimpactfromacomparisonstandpointisnil.

METHODOLOGYANDASSUMPTIONS

This research models 25 separate budget measures including some additional

elementsoutsideofthe201415and201516Budgets.Thesemeasuresdifferentiate
the trajectory of the previous Labor Government and that of the current Coalition
Governmenttakingintoaccountmeasuresannouncedinthe201516Budget.Eachof
thesemeasuresisexplainedinbriefbelowinTable1.

Table1201415and201516BudgetSpecificmeasures:

Commencing

Family Tax Benefits (FTB) special supplement moved onto a lower special
supplementof$750perchildformaximumrateFTBArecipients

2015

FTB B $100,000 income limit on primary income earner (reduced from

$150,000)

2015

FTBBremovedfromfamilieswithchildrenagedoverfiveyears(mostfamilies
aregrandfatheredthrough2015and2016andnottransferredto(1)until2017

2015

FTBpaymentfreezefortwoyears.

RemovehigherincomeperchildaddonfortopincomethresholdforFTBA

2015

ReduceFTBAandBsupplements

2015

RemoveLargefamilysupplement

2016

Cleanenergysupplementfreeze

2014

Shift Newstart Allowance recipients under the age of 25 to the lower Youth
Allowance(delayedin201516Budget)

10

ApplyCPIindexationtopensions(Otherpensionsnolongerincluded)

11

Maintain eligibility thresholds for income support payments (rather than

indexingwithCPI)

12

PensionerEducationSupplementremoved

13

Startupscholarshipremoved

2014

14

Seniorsupplementremoved

20Sep15

15

DependentSpouseOffsetremoved.

2015

16

MatureAgeWorkerTaxOffsetRemoved.

2014

17

Temporary Budget Levy introduced as 2 per cent for dollars earned above
$180,000perannum

18

ExciseonautomotivefuelindexedwithCPI

19

Temporary Budget Levy introduced as 2 per cent for dollars earned above
$180,000perannum

1Jan15

20

ChildCarepackagesinglepaymentsystemreplacingCCB/CCRincludingnew
worktest

2017

21

Pensionassettestchangeslargerwithdrawalrateandalteredcutinpoints

22

201516personalincometaxcutsremoved(inabsenceofcarbonprice)

2015to2017

1Jan16
Singleparentsfrom2014
20152017
1Jan15

2014to2016only
2015

1Jan2017
2015

Nonbudgetmeasuresintroducedpriororadjustedpost201415BudgetbytheCoalition:
23
Carbon price removed (assuming a 2014 transition to an Emissions Trading
2014
SchemeandPreelectionFiscalOutlookassumedpricesCPIincreasebeyond
2017)
24
School Kids Bonus income tested at $100k (previously removed in 201415)
1January2017
removedbutthenremovedfrom2017Jan1.
1January2017
25 Incomesupportbonus(previouslyremovedin201415)removed.

To analyse these measures NATSEM uses the STINMOD model of the Australian tax
andbenefitssystems.Thismodelisbasedonverydetailedinformationfromasample
of44,450actualfamiliesinthetwolatestABSIncomesurveys(200910and201112)

andfurtherdataonnonprivatedwellingsfromthe2006ABSCensus2.Thesurveysare
updated with respect to their population, price and income data to 201415 using
appropriate assumptions around wages, prices, ATO taxation data and demographic
populationchange.NATSEMdevelopedthismodelfortheCommonwealthofAustralia
andthemodelhasbeenusedbyTreasury,SocialServices,Employmentdepartments
and NATSEM for over 20 years. NATSEMs model further extends the modelling to
include a childcare module and an assets testing component for pensions. As far as
NATSEMisawaretheCommonwealthdoesnothaveeitherchildcareorassettesting
in their version of STINMOD. Both asset testing and child care are clearly important
elementsofthe201516Budget.AfurtheradvantageoftheSTINMODmodelisthat
includes hours worked of both parents and their study status which is important for
modellingofchildcarechangesasthereisanewstricteractivitytest.Administration
dataalonewouldnotbeexpectedtohavesuchdetaileddata.

Themodelisastaticmodelofpolicychange.Itisbudgetconventionthatmeasuresin
the budget do not include secondround effects. It would be expected that the
savingslistedinthebudgetpaperswouldtakethesameapproach.

Directly after the budget NATSEM undertook two kinds of analysis. The first is the
distributional modelling. This modelling incorporates the full 25 modelled changes
and includes assumptions around the timing of the removal of certain payments
(grandfathering) which means that some existing customers will be allowed to
maintaintheircurrentpayment(FamilyTaxBenefitPartB)untilJuly12017whilenew
customerswillnotbeeligibleforthispaymentbeyondJuly12015.

The second analysis undertaken by NATSEM is cameo analysis which considers the
impactonexamplefamilytypes.

2FamiliesaredefinedinSTINMODasincomeunitswhichincludescoupleswithchildren,couplesonly,single
parentsandsinglepersons.

NATSEMuseditsstandardversionofSTINMODthathasbeenupdatedusingthemost
recent data available on wages, CPI, taxation data, unemployment statistics,
populationdataandgovernmentsourcedadministrationdataforgovernmentbenefits
such as family payments and pensions. For the forward estimates, NATSEM makes a
numberofassumptions.ThemostimportantassumptionsrelatetotheCPIandwages.
ForCPI(beyondMarch2015)weassumeannualgrowthof2.5percentandforwages
weassume3.0percent.Unemploymentisexpectedtocontinueataround6percent
whileparticipationratesareexpectedtoremainsteady.

RESULTS

ResultsDistributional(201516)
For the distributional modelling the STINMOD database has been split into income
levelsQ1toQ5.Theserelatetothebottom20percentofequivalisedincomeup
to the top 20 per cent of income3. The unit of analysis is the income unit which
roughlyequatestofamilies.Theseincomegroupsarefurtherbrokendownintofour
typesoffamilies.Theanalysisprovidesanaverageforeachgroupandthewinner/loser
thresholds determined by a comparison of a familys disposable income under the
LaborandCoalitiontrajectories.

Thebudgetimpactonfamiliesfor201516(Figure1a,1b)fallsmostheavilyonlowand
middleincomefamilieswithchildren.Theimpactonhighincomefamilieswithchildren
issmallerindollartermsandpercentchangeterms.Inpercentageterms,theimpactis
clearlyfeltbythelowestincomefamiliesmorethanhighincomefamilies.

3NATSEMusesthemodifiedOECDscaletoadjustincomesforfamilysizeandcomposition.

Figure1a%ChangeinDisposableIncomefromBudget201516Impact,201516

1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%

ALL

0.2% 0.1% 0.0% 0.2%

0.2%

0.1%
0.0%

0.3%0.1%0.2%0.2%

0.3%0.4%0.5%
0.8%
1.1%0.8%0.8%

SingleQ5

SingleQ4

SingleQ3

SingleQ2

SingleQ1

ALL

SingleParentQ5

SingleParentQ4

SingleParentQ3

SingleParentQ2

SingleParentQ1

ALL

CoupleOnlyQ5

CoupleOnlyQ4

CoupleOnlyQ3

CoupleOnlyQ2

CoupleOnlyQ1

ALL

Couple/Children

Couple/Children

Couple/Children

Couple/Children

Couple/Children

Budget201516%ChangeDisposableIncomeImpactof
Tax/Benefit/Excise201516

0.9%
1.3%
2.4%

2.5%
3.2%
4.2%

200
0
200
400
600
800
1,000
1,200
1,400
1,600

$67

$133
$331
$476$499
$532
$604
$692

$125

$39

ALL

$25 $24 $10 $83

SingleQ5

SingleQ4

SingleQ3

SingleQ2

SingleQ1

ALL

SingleParentQ5

SingleParentQ4

SingleParentQ3

SingleParentQ2

SingleParentQ1

ALL

CoupleOnlyQ5

CoupleOnlyQ4

CoupleOnlyQ3

CoupleOnlyQ2

CoupleOnlyQ1

ALL

Couple/ChildrenQ5

Couple/ChildrenQ4

Budget201516$ChangeDisposableIncomeImpactof
Tax/Benefit/Excise201516

Couple/ChildrenQ3

Couple/ChildrenQ2

Couple/ChildrenQ1

Figure1b$ChangeinDisposableIncomefromBudget201415Impact,201516

$28
$5

$108
$254

$889
$987
$1,285 $1,285
$1,409

$1,227

The201516budgetimpacts(comparedtoLabortrajectoryfromlastelection)showa
clearpatternwithsimilarimpactsacrosstheincomedistributionindollartermsfor
familieswithchildrenbutwithrespecttoincomes,amuchlargerimpactforlower
incomefamiliescomparedtohigherincomefamilies.

ResultsDistributional(201819)

1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%

0.1%

0.5%0.6%

ALL

SingleQ5

SingleQ4

SingleQ3

SingleQ2

SingleQ1

ALL

SingleParentQ5

SingleParentQ4

SingleParentQ3

SingleParentQ2

0.4% 0.0% 0.2% 0.3% 0.2%

SingleParentQ1

ALL

CoupleOnlyQ5

CoupleOnlyQ4

CoupleOnlyQ3

CoupleOnlyQ2

CoupleOnlyQ1

0.2%

ALL

Couple/ChildrenQ5

Couple/ChildrenQ4

Couple/ChildrenQ3

Couple/ChildrenQ2

Couple/ChildrenQ1

Budget201516%ChangeDisposableIncomeImpactof
Tax/Benefit/Excise/201819

0.3% 0.2% 0.4% 0.3% 0.2%

0.4%

0.7%

2.4%
3.5%

4.3%

5.0%

5.1%
7.1%

7.2%
8.0%

1,000
500
0
500
1,000
1,500
2,000
2,500
3,000
3,500

$475

$56

$152 $9 $165

$435

ALL

SingleQ5

SingleQ4

SingleQ3

SingleQ2

SingleQ1

$275
$72
$67 $72 $181

$153
$63

$98
$626

ALL

SingleParentQ5

SingleParentQ4

SingleParentQ3

SingleParentQ2

SingleParentQ1

ALL

CoupleOnlyQ5

CoupleOnlyQ4

CoupleOnlyQ3

CoupleOnlyQ2

CoupleOnlyQ1

ALL

Couple/ChildrenQ5

Couple/ChildrenQ4

Couple/ChildrenQ3

Couple/ChildrenQ2

Couple/ChildrenQ1

Budget201516$ChangeDisposableIncomeImpactof
Tax/Benefit/Excise/201819

$800

$1,931
$2,688
$3,226

$2,590
$2,799
$2,908 $2,839
$3,140

The201819resultsareclearwithregardtodollarimpactsonlowincomefamilies
(particularlycouples)havingamuchlargerlossofdisposableincome,thanhigher
incomefamilies.Somehigherincomefamilieshaveasmallpositiveimpact.Thelargest
impactsinthenegativerelatetolossesfromfamilytaxbenefits(AandB),pension
lossesandforasmallfractionoffamiliesthelossofthechildcaresubsidyduetothe

newworktestarrangement.Themajorgainswillrelatetotheremovalofthecarbon
priceandforsomefamiliesthechildcarepackageprovidingalargersubsidy.

Attheaggregatelevelforcoupleswithchildrenwefindthataround89percentof
familiesareworseoffinthebottomquintilewhile8.6percentareworseoffinthetop
quintile.Similarresultsarefoundfor201718andalargershareoflosers(butwith
loweraveragelossesindollarterms)forbothhighandlowincomegroupsforthe
earliestyears.

201819
FamilyType
Couple/ChildrenQ1
Couple/ChildrenQ2
Couple/ChildrenQ3
Couple/ChildrenQ4
Couple/ChildrenQ5

Income
Quintile
1
2
3
4
5

%
Loser
89.3%
78.1%
77.6%
30.2%
8.6%

%
Winner
10.7%
21.9%
22.4%
69.8%
91.4%

CameoAnalysis
Thefollowingcameoanalysiswaspreparedforeachyearthroughtheforward
estimates.EachcaseisacomparisonoftheLaborandCoalitiontrajectories.All
changesrelatetochangestothedirecttaxandtransfersystemonlynotincluding
changestoindirecttaxeswhichonbalancewouldmakeonlyamoderatedifference
totheseresults.

Family#1:SoleParentwithincomeof$55,000with2kids(oneprimary,onehigh
school)
201516
201617
201718
201819 Total
AnnualImpact
$3,714.86 $4,865.38 $5,959.72 $6,107.80 $20,647.76
WeeklyImpact
$71.44 $93.57 $114.61 $117.46
Family#2:Couple,singleincomeof$75,000with2kids(onenotyetofschool
age,oneinprimary
201516
201617
201718
201819 Total
AnnualImpact
$670.72 $1,401.22 $1,962.38 $2,014.92 $6,049.24
WeeklyImpact
$12.90 $26.95 $37.74 $38.75
Family#3:Couple,singleincomeof$65,000with2kids(oneinprimary,onein
highschool)
201718
201819 Total
201516
201617
AnnualImpact
$3,734.01 $4,914.23 $6,012.84 $6,164.62 $20,825.70
WeeklyImpact
$71.81 $94.50 $115.63 $118.55
Family#4:Couple,dualincomeof$120,000with2kids(bothinhighschool)
201516
201617
201718
201819 Total
AnnualImpact
$2,196.19 $2,719.09 $3,388.31 $3,271.60 $11,575.19
WeeklyImpact
$42.23 $52.29 $65.16 $62.92
Family#5:Couple,dualincomeof$60,000with2kids(bothinhighschool)
201819 Total
201516
201617
201718
AnnualImpact
$825.56 $2,285.68 $3,648.76 $3,843.44 $10,603.45
WeeklyImpact
$15.88 $43.96 $70.17 $73.91
Family#6:Couple,singleincomeof$50,000with2kids(oneinprimary,onein
highschool)
201516
201617
201718
201819 Total
AnnualImpact
$3,558.81 $4,520.03 $5,355.84 $5,493.02 $18,927.70
WeeklyImpact
$68.44 $86.92 $103.00 $105.64

Family#7:Couple,singleincomeof$40,000with2kids(oneinprimary,onein
highschool)
201516
201617
201718
201819 Total
AnnualImpact
$3,566.87 $4,628.19 $5,583.34 $5,743.14 $19,521.54
WeeklyImpact
$68.59 $89.00 $107.37 $110.45

CONCLUSION

TheNATSEManalysisisacalculationoftheimpactonfamilybudgetsfrommostofthe
majorhippocketbudgetmeasures.TheNATSEManalysisisapurelyfinancial
analysisanddoesnotseektoevaluatetherelativemeritsofindividualmeasuresorthe
totalityofthebudgetreforms.

TheNATSEManalysisdoesnotincludeanysecondroundeffectsasisbudget
convention.Giventhebudgetforecastofarelativelyunchangedjobsmarketandthe
potentialcontractionaryimpactofmeasuresthatreducedisposableincomesoflow
incomefamilies(whotendtohaveahighpropensitytoconsume)itisunlikelythatthe
secondroundimpactswouldimprovethebudgetimpactsforlowincomefamilies.

Theresultsclearlydemonstratethatlowincomefamilieswithchildrenarethemain
familygrouptobeadverselyimpactedbypolicychangessincethelastelection.The
budgetimpactisrelativelymoderatein201516butbecomesmoresignificantinthe
outyears.Highincomefamiliesandsinglesandcoupleswithoutchildrenareshownto
belargelyunaffectedbythisbudgeteitherintheshortorlongerterm4.Theexception
tothisrulewillbemiddleincomehouseholdsimpactedbytoughermeanstesting
arrangementsforpensions.

Theaverageimpactsaresignificantlylargerforlowandmiddleincomefamilieswith
childrenwherethelossesarebetween$2,000to$3,300perannum5.Theseaverage
impactsequatetoalossofdisposableincomeforlowincomecoupleswithchildrenof
7.1percentand8percentforsingleparentsrespectively.Highincomefamilieswith
childrenaremoderatelybetteroffin201819.

5Thesefiguresrepresentaveragesonly.Dependinguponfamilycircumstanceslossescanbebothsmallerand
larger.Thecamoesprovideamaximumlossperyearof$6,146forfamilythreehoweversomefamilieswith
morechildrencanlosemorethanasFTBAisaperchildpayment.

Whilethenewchildcarepackagedoesprovidesomesignificantrelieftosomefamilies
italsoreducessubsidiestootherfamilies.Onbalancethisnewpackageismore
generousthantheformersystembutthosefamilieswhotendtogainarenotalsothe
familieswholoseunderthebudgetchangesfrom201415whichremainblockedinthe
senatebutremaingovernmentpolicy.Thesizeofthebenefittofamilieswithchildren
fromthenewchildcarepackageis,inanycase,muchsmallerinmagnitudethanthe
cutsproposedinthe201415budgetwhichwillstillclearlyleavefamiliesatthe
bottomendoftheincomespectrumsignificantlyworseoffinabsoluteandpercentage
terms.