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Income Support: Income support for children
During the course of the 20th century, governments in most high-income countries have developed various forms of financial support for those in need. In Australia the main social security income transfers (age and disability pensions, unemployment allowances and pensions for sole parents) provide a minimum income level for all Australians (see Australian Social Trends 1994, Social security transfer payments). These benefits and pensions transfer income vertically, from those better off to those less well off.
Assistance to families provides a different form of transfer. From 1941 until 1987 assistance with the costs of children was not assets or income tested. It was a simple horizontal transfer recognising that there are additional costs to raising children and taking the view that at least part of these costs should be borne by all taxpayers.
Many significant social and economic changes have occurred since 1941. These changes have influenced the nature and level of assistance to families.
Large family sizes characterised the early period, up to the end of the 1960s. Then levels of fertility fell and women's labour force participation rates increased. Single-parent families became more common. Unemployment started increasing and has remained well above the low levels of the 1960s. Although there has been a large general increase in prosperity, including a greater proportion of two-income families, there has also been a growth in low-income working families. Children now stay longer at school, in part to ensure better prospects in the labour market.
Along with these economic and social changes have been shifts in the philosophies influencing the development of social policy, both in Australia and overseas. A major change has been from universal provision of social security assistance to a view of social security as a safety net. The consequent shift to greater targeting and increased levels of assistance to poorer families has been the dominant change in assistance for children.
Other key changes made to income support arrangements for children are: recognition that the costs associated with children differ with age; increased assistance to children in families with just one income earner; a shift in payment from the principal breadwinner to the principal carer; and clear bench marking of the value of payments to ensure that they provide real, rather than symbolic, assistance in meeting the costs of children.
NUMBER OF CHILDREN SUPPORTED BY FAMILY ALLOWANCES, 1943 TO 1999
Source: Census of Population and Housing, 1947 to 1996; Year Book Australia, various issues, (cat. no. 1301.0); Australian Demographic Statistics, June Quarter 1999, (cat. no. 3101.0).
Number of recipients
Insights into the extent to which targeting has taken place are obtained by tracking the number of children in receipt of family allowances since Child Endowment was introduced in July 1941. Initially, Child Endowment was paid for dependent children aged under 16 years, except for the first.
The child population (represented for convenience in the adjacent graph by two series - those aged under 15 years and those under 25 years) grew steadily between 1947 and 1971. This underlying demographic trend (the 'baby boom') was clearly responsible for the growth in family allowance recipients, from 2.4 million in 1951 to 4.2 million in 1971.
Nonetheless, against this backdrop, policy changes have had sharper influences. Most dramatic was the extension of endowment payments to first children in 1950. The number of recipients more than doubled: from 1.1 million in 1949 to 2.4 million in 1951.
The 1950s and 1960s were decades of relatively high fertility, low female labour force participation and increasing prosperity. Only one change to Child Endowment policy occurred: in 1964 it was extended to provide support for students up to the age of 21. The number of children supported increased by 5%. From then to 1975, the average annual increase in the numbers supported was only 1.5%, much in line with the growth in the target population.
In 1976 the Dependent Child Tax Rebate and Child Endowment were rolled into a single new payment: Family Allowance. Eligibility was extended to cover students under age 25 years. In spite of this extension in eligibility to full-time students aged 22 to 24 years, the number of recipients remained virtually constant.
Greater targeting from 1979
Unemployment started to increase in the 1970s. The Family Law Act 1976 provided for no-fault divorce and the number of one- parent families increased. At the same time, continued economic growth meant many other families were increasingly well off. Philosophies that had earlier underpinned the provision of universal social benefits began to be questioned. Over the next two decades the family allowances target population narrowed considerably.1
Changes to eligibility resulted in a substantial drop in the number of recipients, from 4.3 million in 1978 to 3.3 million in 1999. This 22% decrease occurred despite a small increase in the dependent child population. The number of children aged under 15 grew by 4% between 1976 and 1996.
Changes to the eligibility criteria contributing to the decline included exclusion of students receiving other forms of government studies assistance (1979); and income testing, first in respect of 16 and 17 year olds and then for all family allowance payments (1987). The impact of the assets test introduced in 1992 (then with a threshold of $600,000, excluding the family home) was marginal. Tightened income and assets tests in 1994 led to a further sharp fall in the number of recipients.
Focusing on low income families
Another feature of this greater targeting was a move to greater provision for lower-income families - not just social security recipients, but also low-income working families. Because of concerns about the welfare of children in low-income working families, a new payment (Family Income Supplement) was announced in the 1982 Budget and implemented in May 1983. Many of the subsequent changes (see box ‘Name Changes: From Child Endowment to Family Tax Benefit’) increased the level of support for lower-income families.1 A significant expansion occurred when Family Income Supplement became Family Allowance Supplement (FAS) in 1987. Rates of pay for all recipients (low-income working families and those dependent on income support payments) were increased. The income test for receiving FAS among low-income working families was also relaxed. In fact these changes underpinned the subsequent integration of payments for the two groups (in 1993) into a single low-income family child supplement known as Additional Family Payment.
The combined effects of greater targeting and greater concern for children in low-income families can be seen in the data. Between 1980 and 1998 the number (and proportion) of children supported by family allowances fell substantially. However, among such children, the proportion supported by above minimum payments increased from 12% to 53%. Seen from another perspective, the number of children supported by minimum family allowance fell from 3.7 to 1.6 million between 1980 and 1998, while the number supported by more than the minimum family allowance increased from 0.5 to 1.8 million children.
The general increase in children supported by above minimum payments (shown as a proportion of all children supported by family payments) occurred for children whose parents received social security pensions or allowances as well as for those in low-income working families. However, after rising through the early 1990s, the number of children in low-income working families supported by above minimum family payments decreased from 687,900 in 1995 to 579,000 in 1998.
How much per child?
The differential costs of teenage children were not recognised until 1987. New rates for payments for children in low income families or families receiving pensions or allowances distinguished between children aged under 13 years, 13 to 15 years, and over 15 years. By the first quarter of 2000, the maximum rate of Family Allowance had a four-tier system, remaining highest for 13-15 year olds.
For minimum family payments, the story has been different. Over most of the history of family allowances, the minimum rate of pay increased with the number of children. In 1989 it became a flat rate for the first three children, and a higher rate for fourth and subsequent children. By the first quarter of 2000 it had become an age-related payment, though with only two rates: a flat rate was paid for dependent children up to age 17 years and a higher rate for those aged 18-24 years (though there was a small additional payment for fourth and subsequent children).
A further refinement in assistance for children was introduced in 1997. A new (tax based) family assistance scheme was introduced, providing $200 a year assistance for all families with dependent children, and an additional payment of $500 a year for single-income families with a child under 5 years old. For families not able to benefit fully from this scheme through the tax system, the same amount of assistance was paid through the Centrelink agency.
Changes in value
The value of income support payments for children has changed significantly over time. Between 1976 and 1983, rates of family allowance were only increased once despite relatively high rates of inflation. As a result the real value of family allowance decreased by about 24%.1 Over this period, the payment was universal.
To help target family allowances to those in need, and ensure that it provided effective assistance, in 1987 benchmarks were established for the adequacy of maximum level family payments (i.e. payments to social security recipients and low-income working families). These were set at percentages of the pension rate, and thus indirectly linked to Average Weekly Earnings. From a value of 11.9% of the combined married pension rate, the value of FAS was set to rise to 15% for children under 13 years old and to 20% for children aged 13 to 15 years. These benchmarks were increased in 1992 and again in 1995 to reach 16.6% and 21.6% respectively.
Between 1964 and 1994 increased assistance to dependent children, plus changes in personal income tax, led to a real increase (allowing for changes in prices) in the material welfare of families. This was particularly marked among families with dependent children with incomes less than male average weekly earnings.3 There is also evidence that there has been a decrease (between 1982 and 1995-96) in the percentage of children living in poverty, although the estimates are sensitive to where the poverty line is set.4
The significance of payments for children to families in certain situations is illustrated below using data from the first quarter of 2000. For families with income at the limit for maximum rate assistance, the addition to family income was 15% for a family with one child aged 13-15. For a similar family with four children it could be around 50%. Only where the child(ren) were aged 16 or more was the contribution from Family Allowance and Family Tax Payment low.
Rates of minimum family allowance have changed as well. The real value of minimum level family assistance also fell during the 1980s, but new rates were introduced in 1989, and the rates have been indexed since 1990. As a result, this assistance could be quite significant where income is low. For example, by the first quarter of 2000, for a single-income family with two children under five and an income of $32,000 per annum, this assistance would form an increase in gross income of nearly 7%.
Overall income assistance to families with children
A snapshot of the pattern of income support (of all types) provided to families with dependent children, obtained from the 1997-98 Survey of Income and Housing Costs, shows the extent to which delivery of income support for children has been targeted to those most in need.
Among all 2.6 million income units with dependent children (that is, family units among whom income is assumed to be shared), 27% received no government cash transfers. A further 34% received less than 10% of their income from cash transfers: this group would include many who received the minimum level of family assistance.5
The remaining 39% of income units with dependent children received over 10% of their income from cash transfers. Nearly 15% of income units (almost all on lower incomes) received more than 90% of their income from such cash transfers. A high dependence on government cash transfers was more prevalent among lone parents (37%) than among couples (9%).
Of the 4.9 million dependent children in Australia in 1997-98, 1.2 million lived in income units reporting they received no income transfers from government. A further 1.7 million children lived in income units where government cash transfers provided less than 10% of family income. At the other end of the scale, 1.1 million children lived in income units where over 50% of gross income came from government cash transfers.
1 Stanton, David and Fuery, Michael 1995, 'Developments in Family Payments 1983-1996', Social Security Journal, December, pp. 120-154.
2 Edwards, M. 1982, 'Financial Arrangements Made by Husbands and Wives: Findings of a Survey', Australia and New Zealand Journal of Sociology, vol. 18, no. 3, pp. 320-338.
3 Beer, Gillian 1995, Impact of Changes in the Personal Income Tax and Family Payment Systems of Australian Families: 1964 to 1994, Discussion Paper No. 8, National Centre for Social and Economic Modelling, University of Canberra, Canberra.
4 Harding, Ann and Szukalska, Aggie 1999, Trends in Child Poverty in Australia: 1982 to 1995-96, Discussion Paper No. 42, National Centre for Social and Economic Modelling, University of Canberra, Canberra.
5 Australian Bureau of Statistics 1999, Income Distribution, Australia, 1997-98, cat. no. 6523.0, ABS, Canberra.