Tax cuts will make family benefits worse, here's some tips for reform

However, they fail to meet the bare minimum costs of raising a child and contributes to child poverty in those families that have no income apart from social security. If family allowances are well below the minimum costs of children in these families, then either the children must go without or their parents must make sacrifices, such as missing meals.

ACOSS recently released updates of estimates of the minimum costs of children from research conducted by the Social Policy Research Centre for the former Department of Social Security. The researchers drafted minimum budgets for low-income families with children, taking account of the costs of necessities such as food, clothing, and so on.

The results, together with those of separate research into the costs of children conducted by NATSEM are presented in the table below, and compared with family allowance (Family Tax Benefit Part A) and Youth Allowance payments for children of different ages living at home.

Sources: DSS 1998, Indicative Budget Standards. AMP-NATSEM 2002, Income and wealth report. Centrelink data.
Notes: Family and youth payments include Family Tax Benefit Part A, Youth Allowance (for children over 16 years living at home), and the child's share of the family's Rent Assistance. The following payments are not included:
- Family Tax Benefit Part B and the Baby Bonus, because they offer additional help for parents who forego wages to care for a child at home, so are not generally available to low and middle income families with children.
- Parenting Payments, because these are only designed to meet the minimum living costs of the parent (hence they are paid at the same rate as unemployment allowances or pensions).
- Child Care Benefit, because there is no allowance in the low cost budgets for child care costs.
The SPRC Budget Standards only extend to age 14. A trend line has been added to extend them hypothetically to older children. Note that the resulting estimate for older teenagers is likely to be conservative. It is much lower than the equivalent figure from the NATSEM study. Assumptions, data and sources available from ACOSS.

Two features of this table stand out. First, family and youth allowances are significantly less than the minimum costs of children. Second, as we would expect, the direct costs of children (such as food) rise as they grow older but the payments do not increase as much as the costs of older children. In fact, many families receive less for a 17-year-old than they get for a 13-year-old. So there is a large gap between Youth Allowances for older teenagers and the costs of raising them. Public policy has concentrated on the needs of young families and neglected those with older children. Yet, as every parent knows, teenagers are expensive!

This would not be such a problem if all families enjoyed large increases in their incomes and falls in their housing costs as their children grew older. Unfortunately, for many lower-skilled or jobless parents who rent privately, this is not the case. They struggle to raise their older children and keep them in education.

Low-income families (earning less than about $40,000 to $50,000 per year) with teenagers older than 15 years generally receive Youth Allowance. But the level of this Allowance has fallen behind increases in family allowances for younger children over the past decade and a half. Low-income parents are expected to support a 17-year-old at home for just $85 per week (including their share of the rent)!

As a result of this and other anomalies in the social security system, many sole-parent families actually lose between $30 and $70 a week when their youngest child reaches 16 years.

The most severe child poverty would be alleviated, and the future prospects of teenagers from low-income families would be improved, if these anomalies were removed and Youth Allowances were set at a much higher level than family allowances for younger children.

Meeting the indirect costs of children

On the other hand, public concern about the financial pressures facing young families is soundly based. Young wage-earning families usually forego income so that one parent can care for a child full or part-time at home. This is exactly the time that many middle-income families face the added financial pressure of high mortgage payments.

The cost of this foregone income while parents care for their children is referred to as the indirect cost of children. These costs are quite different from direct costs like food and clothing. Indirect costs are the costs of sustaining parents while they care for children at home.