House of Representatives

Taxation Laws Amendment (Baby Bonus) Bill 2002

Second Reading Speech

Senator ABETZ (Special Minister of State)

I move:

That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows-

Since its election in March of 1996 the Coalition has put in place a succession of initiatives providing practical financial assistance to families. The $2 billion Family Tax Initiative was introduced in January of 1997. This initiative increased the tax free threshold for families with children and introduced additional benefits for single income families with one child under five. The increases in tax free thresholds made available under the Family Tax Initiative were doubled as part of the New Tax System which commenced on 1 July 2000, providing another $2 billion annually of further benefits to families. As part of the New Tax System the Coalition also simplified the Family Benefits structure and improved the incentives for families to work by easing the income test for Family Tax Benefit and cutting income taxes.

Families with children deserve assistance with the cost of raising children. Financial assistance to families is a very direct way of supporting our most important institution-the family-and investing in our most important resource-our children.

One of the largest costs that families face with the birth of their first child is the loss of a second income. Generally speaking, a couple goes from two incomes down to one, at the same time as they have the additional cost of a new baby. Whilst Family Tax Benefit A and Family Tax Benefit B help families these benefits do not amount to the same as a second income. The arrival of a child generally leads to a large fluctuation in the family's income. There are some occupations that experience fluctuating incomes that are allowed to average their incomes for tax purposes, farmers and artists are examples. By averaging their incomes they reduce tax liability over the average period. They can do this by taking advantage of the tax free threshold in bad years which would otherwise be unused to reduce tax in the good years.

A mother on a salary of $30,000 in the full year before the birth of a baby would pay $5,380 in tax on that income. If she averaged that $30,000 over 5 years when she was out of the workforce with a child then her income would be $6,000 per annum. This is the tax free threshold and she would pay no tax at all.

Recognising the family that experiences a fluctuating income where a mother leaves the workforce to look after a child, the Coalition announced during the recent Federal Election, that it would introduce a system which effectively averages income over 5 years and allows a mother to claim back the tax paid on her income in the year prior to the birth of the child.

The First Child Tax Refund or the Baby Bonus as it became known during the election campaign and as it will now be known as a consequence of this bill, will be available from 1 July 2002 and will apply to the family's first child born on or after 1 July 2001.

The maximum annual refund of $2,500 equates to one fifth of the tax paid on a salary of $52,666. It is estimated that some 93 per cent of partnered women without children earn this amount or less. Those with a base year salary over this amount will still be able to claim back a refund of $2,500 but not higher. To ensure that mothers on low incomes, including those who are not in the workforce, also benefit from the measure a minimum annual payment of $500 will be available for those with taxable incomes of $25,000 or less in the year that they make their claim.

Where the mother returns to work and the father stays at home the Baby Bonus will be able to be transferred to the father. Parents returning to work on a part-time basis will still be able to receive the Baby Bonus with a reduction according to the income they earn upon returning to the workforce. For example, if a parent returns to work and earns one third of the income they earned before they had the child, the Baby Bonus will be reduced by one third. The Baby Bonus will also be available to parents who adopt a child under five years of age on or after 1 July 2001.

To ensure that families who already have a child do not miss out, the Baby Bonus will also be available to the first child born on or after 1 July 2001 for families who already have children. The Baby Bonus can be claimed in tax returns from 1 July 2002, or, for those who do not lodge tax returns on a separate form that will be available from the Tax Office.

This is targeted help for hundreds of thousands of families. We expect that around 245,000 mothers and their families will benefit from the Baby Bonus in the first year and eventually it will deliver benefits to some 600,000 families at any one time.

This is the implementation of a solid policy that only this Government has the credentials to deliver. During the campaign we made a pledge to families and now we are delivering on budget, on time and in full.

Full details of these measures are contained in the explanatory memorandum and I commend the bill.