TREATMENT OF THE CHILD CARE TAX REBATE (CCTR) IN THE CPI
In 2004 the Federal Government announced that it would introduce a 30 per cent Child Care Tax Rebate (CCTR) for out-of-pocket child care costs from 1 July 2004. The CCTR will be able to be claimed for the first time in the 2005-06 income year tax returns. The ABS has considered the legislation regarding the CCTR and has concluded that the CCTR is set up in such a way that it will have no direct effect on the CPI.
The Australian CPI measures changes in the transaction prices of goods and services acquired by private households as consumers (i.e. excluding goods and services acquired for business purposes). The transaction prices that are relevant for the CPI are those that are faced by the purchasers of goods and services at the time they acquire the good or service. These prices include any taxes directly payable in respect of those goods and services (e.g. the GST). Subsidies that are directly tied to the acquisition of the good or service are deducted in determining the transaction price. Income taxes are excluded from the CPI.
There are two criteria that have to be met for a rebate/subsidy to be deducted from an observed price when compiling the CPI. The first is that the rebate must be tied to the acquisition of a specific good or service. The second is that the rebate is not an integral component of the income tax system. In practice, this generally means the benefit provided to taxpayers by way of a tax rebate is also provided to non-taxpayers via a cash or other form of benefit. The CCTR legislation falls under a "Tax Laws Amendment Bill", the CCTR is a non-refundable tax offset and it is available only to taxpayers. (Details regarding the treatment of taxes, levies, concessions, and subsidies can be found in paragraphs 7.3 to 7.9 of Australian Consumer Price Index: Concepts, Sources and Methods (cat. no. 6461.0) available on the ABS website.)
The CCTR legislation states that the CCTR is to be paid when families complete their 2005-06 tax returns for out-of-pocket expenses for child care incurred from 1 July 2004. Therefore the amount of the rebate receivable by an individual household is able to be ascertained only after determining the household's tax liability at the conclusion of the financial year. Families with no tax liability are ineligible for the tax rebate. It is not possible to reliably determine the amount of the rebate applying at the time the child care service is acquired and so it is not possible to derive a transaction price that reflects the impact of the rebate.
As a result, the ABS has concluded that the rebate is an integral part of the tax system that cannot be tied to the acquisition of a specific good or service. It is, therefore, outside the scope of the CPI. This approach is consistent with the treatment of the CCTR as a tax credit in government finance statistics.