The Senate

Income Tax Rates Amendment (Family Tax Initiative) Bill 1996

Second Reading Speech

by the Assistant Treasurer Senator the Hon Jim Short

I move that the bill now be read a second time.

Madam President, this bill, together with the Family (Tax Initiative) Bill 1996, will give effect to the centrepiece of the Government's election commitment to Australian families, the family tax initiative.

Almost two million families with dependent children - the majority of Australian families with dependent children - will receive a major boost from this initiative. It will direct around $1 billion a year extra to families, providing much needed extra help in bringing up children.

The family tax initiative will commence on 1 January 1997.

The family tax initiative is a clear example of the Government's commitment to giving families greater choice in how they spend their hard earned cash and in how they juggle work and family responsibilities. Each family is the best judge of what it needs, and the Government's program of reforms reflect that approach.

The family tax initiative provides two forms of assistance. Part A has the effect of increasing the tax free threshold by $1,000 for one parent in a family for each dependent child up to the age of 16 years and each dependent secondary student up to 18 years. This assistance will be available to families that have a combined taxable income of less than $70,000, with an increase of $3,000 for each child after the first. By increasing the threshold, tax at the rate of 20 cents in the dollar is saved, with the effect that eligible families receive the equivalent of an increase of $200 per annum in their disposable income for each dependent child.

Additional assistance, Part B of the initiative, will be directed towards single income families, including lone parents, with young children. There will be an increase in the tax free threshold of $2,500 for one parent in those families who have at least one child aged under five years and provided that the breadwinner's income is less than $65,000 per annum (with an increase of $3,000 for each child after the first) and the spouse's income is less than the income cut-off for basic parenting allowance (currently $174.43 per fortnight). The alignment of the spouse's income test with the cut-off for basic parenting allowance provides a realistic measure of the workforce activity of the principal carer and ensures greater consistency in the treatment of predominantly single income families. This assistance will give families the equivalent of an increase in their disposable income of $500 per annum (around $19.20 per fortnight).

There are two methods of delivery for the family tax initiative. First, the majority of eligible families with children will be assisted through the income tax system. This bill gives effect to the tax free threshold adjustments to deliver both Part A and Part B assistance to families.

Low income families will be able to receive the family tax initiative as a fortnightly direct payment through the Department of Social Security. Some 900,000 families will receive an immediate boost to their disposable income through this measure. The extra fortnightly amount will be known as the family tax payment and will ensure that low income families, who might not have a high enough tax liability to benefit fully from the changes to the tax system, will get the help they need when they need it most. Amendments to the Social Security Act 1991 to provide for family tax payments are contained in the Family (Tax Initiative) Bill 1996 which is being introduced as part of this package.

Madam President, the Government recognises that providing an economic and social environment in which families can achieve their full potential is crucial to maintaining a strong, cohesive and compassionate society. Providing financial assistance to those families with the greatest need is an investment in that economic and social environment.

The pressures that families face in juggling their work and child raising responsibilities are arguably greater today than ever before. One of the keys to relieving these pressures is to increase the real opportunities available to families and to give them more genuine choices about how they live. The Government has a commitment to pursue policies that enable families to choose how they balance their work and child raising responsibilities. The Government is committed to ensuring that families with young children are given greater freedom to choose whether one parent cares full-time for their children at home or whether both are in the paid workforce.

The family tax initiative acknowledges the central role that families have in supporting the foundation of Australian society

I commend the bill to the Senate and present the Explanatory Memorandum.