The Social Security Review

Background/Discussion Paper No.5

Issues in Assistance for Families Horizontal and Vertical Equity Considerations

Social Security Review Department of Social Security PO Box 1 WODEN ACT 2606

Issues in Assistance for Families Horizontal and Vertical Equity Considerations
Peter Whiteford

Research Paper No.29 Research and Statistics Branch Development Division Department of Social Security August 1986

This series of background and discussion papers incorporates work undertaken as part of the Social Security Review. The papers are intended to provide background research and other information which will form the basis for discussion and consideration of various available options for reforming the social security system. The views expressed in these papers are those of individual authors and are not necessarily those of the Social Security Review, the Department of Social Security or the Minister for Social Security.

The author of this paper is PETER WHITEFORD formerly of the Policy Review and Co-ordination Branch of the Development Division, and currently at the Social Welfare Research Centre at the University of New South Wales. An earlier version of this paper was presented at the Social Welfare Research Centre in November 1985.

This paper builds on previous work carried out in the Development Division. I am particularly grateful for the assistance provided by Jim Moore. Ann Harding, Alan Jordan, Carol Oxley and Frankie Seymour have also contributed significantly. Special thanks also to Deborah Atkinson for word processing. Helpful comments have been received from other officers of the Development Division. I alone am responsible for any errors, and the views expressed are my own.






Peter Whiteford SUMMARY The Australian system of income support for families with children covers 2.5 million families with 4.3 million children and is therefore of crucial significance to the welfare of Australian families. This paper describes the main features of family income support programs and identifies current concerns. The programs analysed include family allowances, which is the major form of income support for all families, income support arrangements for pensioners and beneficiaries with children, and various forms of tax relief for taxpayers with dependants. The paper argues that tax and social security programs should not be thought of as inherently different measures covering different groups, with social security being some sort of residual system. Social security payments like taxation allowances are simply policy instruments to achieve certain goals. Common perceptions that social security increases are a burden to the community, while tax reductions are a benefit, disguise the essential similarity of the effects of these programs, and can lead to inappropriate policy conclusions. In particular, when tax cuts or increases in tax rebates are being proposed, consideration should also be given to increases in social security payments, so that people with children do not fall behind in relation to those without children. The paper looks in detail at the example of family allowances. Until 1976 most taxpaying families received tax deductions or rebates for their children, as well as smaller child endowment payments. The lowest income groups, who paid no tax. only benefited from the small child endowment payments. Now in contrast, all payments are at the same level irrespective of income and the payment goes to the person with the major responsibility for caring for children - the mother. Thus rather than being a welfare measure that goes to the rich, family allowances can be considered as a general tax measure that provides additional assistance to the neediest. The major concern that can be expressed with current arrangements is with the level of support provided. The paper argues that by any standards, support for families in general and for low income families in particular is inadequate. Assistance for average income families is low by international standards. In 1978 Australia provided the fourth lowest relative level of assistance for average families of 19 OECD countries. In 1982. even after family allowances had been increased by 50 per cent, this ranking had dropped to second lowest of 21 OECD countries.

Concern with low income families has been prompted by the increasing number of children for whom income-tested payments are made, increasing from 370,000 in 1976 to nearly 855.000 in 1985. or from 8.6 per cent of children to 19.8 per cent. While some of this increase comes from positive government actions to extend assistance to needy groups, there are now more than 100.000 children in Australia whose parents have been unemployed for than a year, and more than 300.000 children whose parents have been reliant on sole parent pensions for more than a year. Moreover, a wide range of Australian and international research on the costs of children suggests that the allowances for children of pensioners and beneficiaries are relatively low. Currently, additional pension/benefit plus family allowances for one child amounts to 12 per cent of the married rate of pension or benefit. Australian research suggests that the appropriate relative payment should be 16 per cent ($7 p.w. more), overseas research suggests the figure should be 20 per cent ($14 p.w. more), while the OECD suggests a figure of 29 per cent ($30 p.w. more). In addition, this research suggests that the direct costs of children at least double between infancy and being a teenager. This increase in costs is recognised very imperfectly by the current structure of family allowances. Finally, analysis of trends over time in the real value of family income security programs shows significant declines in assistance over the past decade. Family allowances are now 29 per cent lower in real terms than in 1976. and despite substantial increases in the last three budgets, additional pension/benefit is still 4 per cent lower than in 1976 and mother's/guardian's allowance is 19 per cent lower. As a consequence of these and other trends, the real value of total social security payments for all sole parent pensioners and pensioner/beneficiary couples with four or more children is now less than in 1976. In contrast, the real value of the after-tax incomes of most wage and salary earners is greater now than in 1976, although with the exception of Family Income Supplement recipients the increases are smaller for larger families. Thus, these trends would have tended to widen the gaps between the incomes of families with and without children and in particular between the poorest families and the rest of the community. The paper also discusses arguments for universality and selectivity in family assistance programs. The major argument for income-testing of family allowances and/or tax rebates is that at times of tight budgetary restraints, this is the only practical means of increasing assistance for low income families. This argument has some force, but a number of contrary points can be made. First, the suggestion that family allowances should be income-tested is based on the idea that all payments from the Department of Social Security should be restricted to the poor. This overlooks the fact referred to

earlier that in essence family allowances ace a general tax measure. Those families who lost their family allowance entitlement would effectively have their tax burden increased even though there would appear to be no reason why only those with children should pay more. Finally, the paper asks whether or not current family assistance programs are progressive (ie. provide greater benefit to lower income families). The findings include: nearly 50 per cent of current spending on total family income support (on both universal and income-tested payments) goes to the 20 per cent of families with the lowest incomes; the benefits of family allowances are distributed over the life-cycle, from periods when people do not have children to care for, to periods when they must meet the additional costs of child rearing; and both child payments and some forms of tax relief increase the disposable income of families with children. recognising the greater needs of those families at all income levels.




"The effects of a tax depend upon what it is. not what it is meant to be ..."

R A MUSGRAVE, 1959. V.


2.1. 2.2. 2.3.


1 4 4 8 17
22 22 24 27 31 31 36 43

Current provisions affecting families Parallels and overlaps - the tax-transfer system Perceptions and presentational issues


3.2. 3.3.

Ability-to-pay and horizontal and vertical equity in the tax system Criteria for evaluating social security policies
Private choice and public support


4.1. 4.2. 4.3.

Adequacy of payments Family assistance and social change Universal or selective support

48 52


In November 1985 the Minister for Social Security, the Hon. Brian Howe M.P.. announced the establishment of a two-year review of aspects of the Australian social security system. This Review is to be conducted by Professor Bettina Cass, seconded from the Social Work Department of the University of Sydney, and by the Development Division of the Department of Social Security. In a paper for a seminar on Income Distribution. Taxation and Social Security: Issues of Current Concern held at the Social Welfare Research Centre in November 1985. Professor Cass discussed the case for the review, pointing out the major economic, social and demographic changes that have occurred over the past decade and which have significant implications for the social security system. These changes include the rapid increases in the rate and duration of unemployment, changes in the distribution of unemployment, an increase in the number of sole parent families, the large increase in the number of families with children dependent on pension or benefit, and changes in the composition of the population in poverty as defined by the Henderson poverty line (Cass, 1986, pp. 6-10). The Social Security Review is to examine the following areas: Coverage: Is existing coverage appropriate? Are the boundaries of historically established categories of eligibility still relevant? Are all socially recognised needs included? Adequacy: Are existing payment levels adequate in view of recipients' varying needs and circumstances? Targeting: Are existing programs targeted effectively? Is there a case for targeting new programs and additional payments more closely on the most vulnerable groups in the population? What are the most equitable and efficient means of targeting income security programs? What are the social and economic costs of targeting mechanisms? Redistribution of income: Does the income maintenance system, in conjunction with other programs, facilitate more equal access to income and opportunities? Opportunities for employment, earning income and saving: What are the effects of income maintenance programs on people's aspirations and opportunities to become self-supporting? Simplicity and access: Can the system be readily understood and does it facilitate people's access to their entitlement? Can it be administered fairly and effectively? The mix of public and private income support for the aged and retired: What are the most equitable combinations of insurance-based retirement programs, private savings and
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income security measures which will provide comprehensive in various and adequate support for aged people circumstances? Community awareness: Is there widespread understanding of the central role of the social security system in redistributing income and opportunities for participation in society? This is a particularly important issue, bound up with the necessity to scrutinise and reject the view that social security recipients constitute a separate and distinct category from taxpayers. Not only is there considerable overlap and continuity at any one time and over any single year between beneficiaries and taxpayers (bringing into question the distinction between the "supporters" and the "supported") but a longer view illuminates continuities over the life-cycle (Cass. 1986. pp. 10-11). The Review will focus on three main areas - income support policies for families with children, social security policies and workforce participation in relation to the unemployed, sole parents and disabled people, and the connections between social security and insurance-based income support measures for the aged, notably superannuation. The key issues identified in the area of income support for families include the income support needs of children in all families (both single and two parent), the question of whether and how increased assistance for children should be targeted towards families within particular categories of need, and the determination of the relative merits of cash payments and taxation assistance in child income support. The Review will also examine the most appropriate and adequate mix of support for families, taking into account income-tested payments for the parent, the range of universal and targeted transfers for children. and the role of child maintenance payments in increasing the overall adequacy of the income of sole parent families. Finally, the question of beneficiaries' transition to workforce participation will be explored, so as to identify programs which might facilitate such participation (Cass, 1986. pp. 11-12). The purpose of this paper is to provide a preliminary discussion of issues relevant to the review of family income support. The first part of the paper describes the major features of the personal income tax and social security systems in Australia, discussing the parallels between the two systems and analysing their interaction. The paper then discusses the traditional criteria of equity, efficiency and simplicity, concentrating on the issue of horizontal equity the concern that people in like circumstances should be treated alike - and discusses what this implies for the treatment of families within the tax-transfer system. Page 2

The paper reviews a number of important measures - family allowances, the dependent spouse rebate, and income-tested social security payments for families with children - and raises a number of often expressed concerns with these arrangements. Major concerns with current programs include the inadequacy of assistance to low income families with children, the cost of providing universal assistance to families regardless of their income, questions of the relevance of the assumptions underlying these programs to contemporary family arrangements, the effects of these programs on incentives to work. and the appropriateness of the structure of these programs. The paper concludes with a brief discussion of issues that might be considered to require further research and analysis in the review. Some limitations of the scope of this paper should be noted. The paper concentrates on the role and objectives of certain of the structural features of the personal income taxation and social security systems. Cash transfers paid by the Department of Veterans' Affairs are not discussed, nor are important services such as the provision of child care. The paper does not deal in detail with the complex and important issues of social security assistance to sole parent families which will be addressed as part of the review. In a paper dealing with horizontal equity, it is virtually impossible to avoid the issue of the appropriate unit for taxation and social security purposes, but in this paper that important issue is approached indirectly rather than explicitly. Finally, in discussing the concept of "need", the paper concentrates on the relative needs of different types of families or income units rather than the fundamental issue of determining needs in relation to some concept of poverty.

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2. THE INTERACTION OF THE TAXATION AND SOCIAL SECURITY SYSTEMS 2.1 Current provisions affecting families

The activities of Government have a profound influence on the distribution of income in Australian society. Governments use a wide range of measures to influence the distribution of income and economic well-being. An almost certainly incomplete list of such policies would include centralised wage fixing, tariff and other forms of protection. immigration controls. foreign investment review, business regulation, capital market controls, free tertiary education, a whole host of policies to support home ownership, agricultural policy, and attempted equalisation between States in the standards of public services on the basis of the reports of the Commonwealth Grants Commission (Centre of Policy studies, 1985. pp. 13-14). The two key instruments of distributional policy, however, are the taxation and social security systems. The taxation and social security systems are of particular significance, first because of the scope of these two systems and the number of people affected by them, and second, because taxation and social security policies are usually regarded as serving explicit distributional goals. One of the most important aspects of these distributional objectives is to promote the well-being of families. Directly and indirectly, the Government promotes the welfare of all Australian families through a range of social security and taxation measures. Programs specifically directed towards persons with responsibility for children include: The dependent spouse tax rebate (DSR) which is available to taxpayers with a financially dependent spouse, with a higher rate being payable to persons with one or more children. The sole parent rebate with dependent children. (SPR). for sole parent taxpayers

Family allowances, a non-income-tested, non-taxable payment to all families with eligible children. Multiple birth payments, a non-income-tested, non-taxable supplement to family allowances, payable to parents of triplets and quadruplets (and higher multiples) until the children reach six years of age. Handicapped child's allowance. a supplement to family allowances paid to a parent or guardian of a mentally or physically handicapped child or dependent student. Double orphan's pension, which may be paid to a guardian or institution caring for an orphan. Page 4

Additional pension or benefit for children. an income-tested. non-taxable payment to social security pensioners and beneficiaries with eligible children. Family income supplement (FIS). an income-tested, non-taxable payment similar to additional pension or benefit for children but paid to low income, non-pensioner or non-beneficiary families with eligible children. Sole parent pensions, which include supporting parent's benefit and Class A widow's pension for single persons with children. Mother's/gauardian's allowance. non-taxable supplement for sole beneficiaries. an parent income-tested. pensioners and

Additional allowances in respect of children of recipients of zone rebates and remote area allowances, a tax rebate and social security payment respectively for persons living in certain remote areas. Details of these programs are summarised in Table 1. Apart from these programs specifically directed towards persons with responsibility for children, there is a wide range of additional programs whose rationale or structure reflects other aspects of family composition and which necessarily have a major impact on the well-being of different types of families. These programs include: Age and invalid pensions, which are paid either at the "standard" rate to single persons or the "married" rate to each of an eligible couple. The single rate is 60 per cent of the combined married rate in recognition of the economies of household sharing. Wife's pension, which may be paid to the wife of an age or invalid pensioner if she is not eligible for a pension in her own right. Carer's pension, which is payable to people providing long term care for a spouse or a near relative who is a severely handicapped age or invalid pensioner, when the carer is not in receipt of age or invalid pension in his or her own right. Class B widow's pension, which is payable to certain older "single" women who do not or no longer have dependent children. Unemployment, sickness and special benefit, which is paid at the same rate as the combined rate of pension to persons with spouses. Benefit payments differ from those for pensioners, as beneficiaries generally receive the entire amount in one hand, whereas payments for pensioners are split between the spouses.
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COST (1984-85)



Dependent Spouse Daughter/ Housekeeper Rebate - with children - without children Sole Parent Rebate Family Allowances

Taxpayers with a financially dependent spouse, with and without dependent children. Sole parent taxpayers. Parent, guardian or institution with custody or care of children under 16 years, dependent student 16 and 17 years, dependent student 18 to 24 years in disadvantaged families. Parents or guardians with triplets, quadruplets or higher multiples aged under 6 years. Pensioners with dependent children. Beneficiaries with dependent children. Low income, nonpensioner/non-beneficiary families with dependent children.

$1,030 per year $ 830 per year $ 780 per year $ 22.80 per month - 1 child $ 55.35 per month - 2 children $ 94.35 per month - 3 children $133.35 per month - 4 children $ 45.55 per month - each additional child

756, 000 (a) 406, 000(a)
112,000 (a)

$686m(a) $248m(a) $ 77m(a)

No(b) No(b)

N.A. N.A. N.A.


782,000 families 883,000 families 386,000 families 107,000 families



2,191,000 families $150 per month - triplets $200 per month - quadruplets and higher 183(c) 5(c) $0.3m(c)
No No

Multiple Birth Payments

Additional Pension for Children Additional Benefit for Children Family Income Supplement

$ 16 per week per child $ 16 per week per child $ 16 per week per child

294,900 families 519,400 children 117,900 families 259,800 children 26,400 families 74,900 children

$350m $185m $41m

Yes Yes Yes

No No No


COST (1984-85) $1,170m



Sole Parent Pensions

widowed, divorced separated and other single persons with dependent children. Sole parent pensioners and beneficiaries. Parents or guardians giving constant care to severely handicapped children, or handicapped children and in financial hardship. Guardian or institution caring for defined orphans. Pensioners or beneficiaries resident in specified areas of Tax Zone A.

$102.10 per week

262,000 families


Mother's/Guardian's Allowance Handicapped Child's Allowance

$ 12 per week $ 85 per month - severely handicapped $ 20 to $85 per month handicapped

262,000 families 25,800 children




$27m 3,800 children


Double Orphan's Pension Remote Area Allowance

$ 55.70 per month

6,100 children




$ 3.50 per week per child in addition to entitlements of $7 per week single and $6 per week each married.





N.A. : Not applicable, n.a. : Not available a Numbers of recipients and costs of taxation rebates are for the 1983-84, not the 1984-85 year. b Mhile these rebates are not income-tested on primary earner's or family's incomes there are income tests to establish the dependency of spouses and children. c Numbers of recipients at January 1986 and estimated cost for 1985-86. d No tax is levied on the payment. However, the amount of any zone tax rebate a pensioner would otherwise receive is reduced by the amount of remote area allowance received.

The disposable incomes of different sorts of families are also very significantly affected by the operation of social security income tests and by the income taxation rate scale. Table 2 provides a summary of current income tests in the social security system, while Table 3 shows relevant details of the personal income tax rate scale, major tax rebates and Medicare arrangements. When looking at the circumstances of social security recipients and other low income groups, the most important component of the tax rate scale is the zero rate step. The zero rate step, also known as the tax threshold, has the obvious effect of ensuring that taxpayers do not actually pay tax on the first $4.595 of their income.(1) This figure is increased for certain groups because of the availability of tax rebates. These rebates effectively return to taxpayers the tax payments for which they would otherwise have been liable. For example, age pensioners are entitled to a pensioner rebate of $250 a year, which at the current first rate of 25 cents in the dollar means that an additional $1,000 of taxable income is free from tax. giving an effective tax threshold for pensioners of $5,595 per year. The sole parent and dependent spouse rebates provide higher effective tax thresholds for eligible persons. 2.2 Parallels and overlaps - the tax-transfer system

This brief description of the income taxation and social security systems should make it apparent that there are a number of structural features of the systems which parallel each other. This is so in two ways. First, the income tests on pensions and benefits are analogous to the income tax rate scale, in that both reduce the benefit to an individual of additional income. Both the tax rate scale and income tests contain a zero rate step - the tax threshold, under which tax liabilities do not accumulate, and the pension/benefit free areas, under which social security payments are not reduced. Further, these zero rate steps are varied for different family types - the tax threshold by the operation of the rebates, and the pension free areas by the higher free area for couples and the income disregard for children. This sort of parallel arises because both income tests and the tax rate scale are generally designed to promote progressivity income tests by reducing social security entitlements as other Income rises, and the rate scale by increasing tax liabilities as taxable income rises. The variation of taxes

(1) As part of its tax reform measures, the Government has announced that from 1 September 1986 the tax threshold will be increased to $5.100 per year, and from the 1986-87 year the threshold will be available only on a pro rata basis for taxpayers joining the workforce on a full-time basis for the first time and those leaving Australia permanently. Page 8


Category Single pensioners Sole parent pensioners, one child

Non-Social Security Income
$0 - $30 p.w. $30 p.w. and over $0 - $36 p.w. $36 p.w. and over (For each additional child, add $6 p.w. to the "free area" . ) $0 - $50 $50 p.w. and over $0 - $56 p.w. $56 p.w. and over (For each additional child, add $6 p.w. to "free area".) $0 - $30 p.w. $30 - $70 p.w. $70 p.w. and over

Reduction in Assistance zero 50 cents in the $1 zero 50 cents in the $1

Pensioner couples Pensioner couples, one child

zero 50 cents in the $1 zero 50 cents in the $1


zero 50 cents in the $1 $1 for $1 zero 50 cents in the $1 50 cents in the $1 until assistance extinguished

FIS recipients Persons receiving rent assistance

$0 - $241 p.w.** $241 p.w. and over $0 p.w. and over (For pensioners this is increased by $6 p.w. for each child. )

Persons receiving pensioner concessions (PHB card holders) Singles $0 - $65 p.w.*** $65 p.w. and over Couples $0 - $106 p.w.*** $106 p.w. and over (For each child, add $20 p.w. to these limits
* From November 1986. the "free area" for pensioners will be increased from $30 to $40 p.w. for singles and from $50 to $70 p.w. for couples; the "income disregard" for children will be increased from $6 to $12 p.w.; and the separate income test on rent assistance will be abolished. Set at $20 above the cut-out point for the married rate of unemployment benefit and increases six monthly in line with indexation of that rate.
Page 9

All benefits received All benefits lost All benefits received All benefits lost


*** Subject to six monthly indexation.


Taxable Income From To
$0 - $4595 $4596 - $12500 $12501 - $19500 $19501 - $28000 $28001 - $35000

Tax on Taxable Income 25 30 46 48 60 cents cents cents cents cents per per per per per dollar dollar dollar dollar dollar over over over over over $4595 $12500 $19500 $280'00 $35000

$0.00 $0.00 plus $1976.25 plus $4076.25 plus $7986.25 plus $35001 and over $11346.25 plus

MAJOR TAX REBATES Rebate Dependent Spouse: - with children. - without children $1,030 $830 Level Relevant Income Tests Reduced by $1 for every $4 by which dependent spouse's income exceeds $282 p.a. The "with child" rate is paid only to those with dependent children; to be dependent, the child's income must be less than $1,786 p.a. Payable only to those with dependent children, under circumstances outlined above. Reduced by 12.5 cents for every dollar by which income exceeds $5.595 p.a. Reduced by 12.5 cents for every dollar by which income exceeds $5.275 p.a. forsingle beneficiaries and $8,795 p.a. for married beneficiaries.

Sole parent


Pensioner (single and couple Beneficiary: - single - couple


$170 $220


Levy Rate Threshold - Singles - Couples and sole parents - Additional per child Shade-in Rate Maximum Levy . .

1.0% $7.256 $12,504 $1.530 20.0% None

* In his Statement on Reform of the Australian Taxation System (September. 1985. p 79) the Treasurer announced the Government's decision to reduce marginal tax rates from 1 September 1986 and l July 1987.

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and social security entitlements according to income is commonly described as reflecting the objective of vertical equity - the concern that the more well-to-do should shoulder greater tax burdens than the less well-off, while those less fortunately placed should receive greater assistance than the well-to-do (Jackson. 1982. p.15). The second important aspect of the parallels between the taxation and social security systems is the way in which the entitlements and liabilities of different types of family units are determined within the systems. This is shown in Table 4. For example, the standard rate pension available to a sole parent pensioner can be considered to parallel the standard tax threshold available to a non-pensioner sole parent. Just as a sole parent pensioner receives a special allowance (the mother's/guardian's allowance), so too does a sole parent taxpayer receive a special sole parent rebate. Just as a pensioner can be eligible for an income-tested additional payment for children, a non-pensioner can be eligible for an income-tested income supplement for children. Both pensioners and non-pensioners are entitled to family allowances for their children. This is not to argue that these parallel features are in themselves necessarily similar in all their important characteristics. Rather. when comparing one type of pensioner/beneficiary with another type of pensioner/beneficiary family and one type of non-pensioner/beneficiary family with other types. it is apparent that there are some concerns common to both systems, in that both provide what can be thought of as a basic entitlement for individuals and then add supplements in respect of persons in specified family situations. This common concern that people with similar incomes and differing family responsibilities should be treated differently is generally known as horizontal equity. In fact. this principle arises from the apparently contrasting objective of ensuring that people in like circumstances should be treated alike. However, the contrast is more apparent than real, since like cannot be defined without necessarily defining what is unlike. In the senses discussed above, the taxation and social security systems can be seen to be linked by the common objectives of promoting both vertical and horizontal equity. The links, however, are far greater than indicated just by the existence of parallel features to achieve similar goals. For example, it is a mistake to think of clients of the social security system as not being taxpayers, and thus of two discrete populations, with social security recipients being some sort of "burden" on taxpayers. In fact, in 1980-81 some 580.000 persons, or more than 25 per cent of social security recipients and around 10 per cent of taxpayers, received Australian Government pensions or benefits during that year and paid more than $800 million in tax on both their social
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Income Unit Type Individuals

Pensioner or Beneficiary Standard rate pension Standard rate benefit Standard rate sole parent's pension/benefit Hothers/guardians allowance Family allowances Additional pension/benefit for children

Non-Pensioner/Beneficiary Tax threshold

Sole parents

Tax threshold Sole parent rebate Family allowances Family income supplement

Both working Couples without children (married or de facto) Married rate of pension or benefit - Tax threshold for both

One working - Tax threshold Dependent spouse rebate

Both working Couples with children (married or de facto) Harried rate of pension or benefit Family allowances Additional pension/benefit for children - Tax threshold for both - Family allowances - Family income supplement

One working - Tax threshold Dependent spouse rebate - Family allowances - Family income supplement

security and private income. Those taxpayers who received some pension or benefit during the year therefore contributed about 5 per cent of all revenue from personal income tax (Harding and Whiteford. 1985a. pp.3-4). By 1983-84 this figure had increased to some 860.000 persons or 13.5 per cent of taxpayers (Harding and Whiteford. 1985b. p.2). Over the lifetime of individuals the degree of movement between the two systems is likely to be even greater. This interaction between the tax and social security systems has increased markedly since the mid-1970s, when most social security pensions and benefits became taxable. Many basic rates of social security payments now exceed the general tax threshold. This is because basic rates of most pensions and

Page 12

benefits have been automatically indexed for inflation, but the threshold has not. This situation has necessitated special tax measures, such as the pensioner and beneficiary tax rebates, which have been introduced and increased during the last four years to ensure that those who are largely dependent on pensions and benefits do not have their already low incomes reduced by income tax. Another reason for increasing numbers of people being affected by the interaction between the tax and social security systems lies in the rapid growth in the number of unemployment beneficiaries since the mid-1970s, many of whom have spent part of the year as social security recipients and the remainder of the year in work. These overlaps have heightened other concerns common to both the taxation and social security systems. As previously noted, social security income tests and income tax can be considered analogous, in that both reduce the benefit to individuals of additional effort to earn income. There has been much discussion during the debate on tax reform last year as to the desirability of reducing marginal rates of income tax in order to promote work incentives. But as Tables 2 and 3 showed, there are a variety of social security income tests and tax measures, including income-tested tax measures, that can apply over the same (fairly low) income ranges. In fact, once pensioners' and beneficiaries' incomes enter the taxable range, the combined effect of liability for income tax and the reduction of pension or benefit through social security income tests can produce "effective marginal tax rates" far higher than the current top rate of 60 per cent applied to taxpayers on the highest incomes. "Effective marginal tax rates" refer to the amount of income lost, through the withdrawal of assistance by income test and/or the payment of tax, out of each additional dollar of private income. Pensioners and beneficiaries can face effective marginal tax rates (EMTRs) of 100 per cent or more over certain private income ranges, and attempts to increase their disposable incomes, eg. through part-time work, can leave them no better off or even worse off. These situations are often known as "poverty traps", in recognition of the possibility that people in these situations may have the desire to improve their financial circumstances through work, but the rationality of doing so may not be evident, and that consequently people may feel "trapped" into dependency on financial support from the Government. That is, progressive policies can have unintended consequences for incentives to work or save. Table 5 provides details of the effective marginal tax rates facing some illustrative social security families with children (at November 1985 pension and benefit rates). It should be readily apparent from these examples that over wide, but relatively low. income ranges, social security recipients can face EMTRs higher than those faced by any other groups in the community.

Page 13


Non-DSS Income
0.00 36.00 64.93 231.80 240.38 269.88 283.80 284.09 375.00 538.46 36.00 64.93 231.80 240.38 269.88 283.80 284.09 375.00 538.46 673.08

Total Pension ($/wk) 123.90
123.90 109.44 26.00 21.71 6.96 0.00 - 109.44 - 26.00 - 21.71 6.96 0.00 0.00

Disposable Income ($/wk)
129.15 165.15 179.61 242.19 244.34 250.24 250.24 250.38 313.11 399.74 165.15 179.61 242.19 244.34 250.24 250.24 250.38 313.11 399.74 468.40


0 50 62.5* 75 80 100 50 31 47 49 61

673.08 and over

nil nil nil nil

468.40 and over

* Plus loss of Fringe Benefits after $85

B Sole parent with two dependent children Non-DSS Income
0.00 42.00 58.93 237.80 240.38 299.31 315.06 321.80 375.00 538.46 42.00 58.93 237.80 240.38 299.31 315.06 321.80 375.00 538.46 673.08

Total Pension ($/wk)
139.90 139.90 - 131.44 131.44 - 42.00 42.00 - 40.71 40.71 - 11.25 11.25 3.37 3.37 0.00 nil

Disposable Income ($/wk)
152.65 194.65 203.11 270.19 270.84 282.62 282.62 283.90 320.61 407.24 194.65 203.11 270.19 270.84 282.62 282.62 283.90 320.61 407.24 475.90

EMTR (%)

673.08 and over

nil nil nil

475.90 and over

75 80 100 81 31 47 49 61

* Plus loss of Fringe Benefits after $105

Page 14

C. Unemployment dependent child Non-DSS Income







Total Benefit ($/wk) 179.30
179.30 179.30 - 159.62 159.62 - 154.30 154.30 - 16.00 16.00 0.00 nil

Disposable Income ($/wk)
184.55 200.64 203.08 215.38 219.37 219.37 215.37 227.44 248.09 255.19 317.92 404.55 200.64 203.08 215.38 219.37 219.37 215.37 227.44 248.09 255.19 317.92 404.55 473.21

0.00 16.09 20.00 59.36 70.00 208.30 224.30 240.38 269.88 284.09 375.00 538.46


- 16.09 - 20.00 - 59.36 - 70.00 - 208.30 - 224.30 - 240.38 - 269.88 - 284.09 - 375.00 - 538.46 - 673.08

nil nil

673.08 and over

nil nil nil nil

473.21 and over

0 37.5 68.75 62.5 100 125 25 30 50 31 47 49 61

D. Unemployment or dependent children Non-DSS Income






Total Benefit ($/wk) 195.30
195.30 195.30 - 175.62 175.62 - 170.30 170.30 - 32.00 32.00 0.00 nil nil

Disposable Income ($/wk) 208.05 - 224.14
224.14 226.58 238.88 242.87 242.87 234.87 234.94 276.18 284.06 325.42 412.05 480.71 226.58 238.88 242.87 242.87 234.87 234.94 276.18 284.06 325.42 412.05 480.71

0.00 - 16.09 16.09 - 20.00 20.00 - 59.36 59.36 - 70.00 70.00 - 208.30 208.30 - 240.30 240.30 - 240.38 240.38 - 299.31 299.31 - 315.06 315.06 - 375.00 375.00 - 538.46 538.46 - 673.08

nil nil


673.08 and over


and over

0 37.5 68.75 62.5 100 125 25 30 50 31 47 49 61

* Where the beneficiary is the only one of the couple earning private income.

Page 15

E. Couple receiving Family Income Supplement (FIS). one person in employment, one dependent child

Non-DSS Income


Disposable Income ($/wk)
21.25 188.85 234.90 237.75 241.87 248.09 255.19 317.92 404.55 188.85 234.90 237.75 241.87 248.09 255.19 317.92 404.55 473.21


0.00 167.60 229.00 240.38 261.00 269.88 284.09 375.00 538.46 167.60 229.00 240.38 261.00 269.88 284.09 375.00 538.46 673.08

16.00 16.00 16.00 - 10.31 10.31 0.00

0 25 75 80 30 50 31 47 49 61

673.08 and over

nil nil nil nil nil nil

473.21 and over

F. Couple receiving dependent children







Non-DSS Income
0.00 167.60 229.00 240.38 293.00 299.31 315.06 375.00 538.46 167.60 229.00 240.38 293.00 299.31 315.06 375.00 538.46 673.08


Disposable Income ($/wk)
44.75 212.35 258.40 261.25 271.77 276.18 284.06 325.42 412.05 212.35 258.40 261.25 271.77 276.18 284.06 325.42 412.05 480.71


32.00 32.00 32.00 - 26.31 26.31 0.00

673.08 and over

nil nil nil nil nil nil

480.71 and over

0 25 75 80 30 50 31 47 49 61

Page 16

It should be noted, however, that as part of its tax reform package the Government announced an increase in the tax threshold, cuts in marginal tax rates and a range of social security measures specifically directed towards some of the most salient "poverty traps". Moreover, there is certainly no unanimity of opinion on the practical significance of high marginal tax rates upon incentives to work, either for high income taxpayers or low income social security recipients (see, O.E.C.D.. 1975; Brown, 1980; Whiteford, 1981; Gruen. 1982). There are of course a wide range of factors other than financial incentives affecting actual work behaviour. The policy issues involved are complex, and. as will be discussed, require the harmonisation of conflicting objectives. 2.3 Perceptions and presentational issues The interaction between the tax and social security systems has not only indirect effects on families' circumstances, but also very significant direct effects. As previously noted, social security initiatives affect many taxpayers, and tax initiatives have direct consequences for many social security recipients. Large numbers of individuals and families have entitlements under both systems. Thus, the living standards of many taxpayers are vitally affected by their receipt of either the dependent spouse or sole parent tax rebates and family allowances. family income supplement or additional pension/benefit for children paid through the social security system. (1) Indeed, many tax and social security measures can be regarded as interchangeable mechanisms for achieving policy objectives. Assistance to families with children can be provided through tax rebates or deductions for taxpayers with children, or through cash transfers such as family allowances. Social security cash transfers can thus be thought of as equivalent to "tax credits" or "negative income taxes" (Musgrave. 1959, p.18). This issue is important because just as many may perceive taxpayers and social security recipients as being discrete populations, many see taxation and social security instruments as being inherently different in their nature. Social security outlays are generally seen as representing a cost to taxpayers and as contributing to the size of the government sector. In contrast, similar measures in the tax system (e.g. the dependent spouse rebate, the sole parent rebate) are often not regarded as a cost to anyone and tend to be seen as reducing the size of government. But both cash transfers and assistance through reductions in tax liabilities involve calls on revenue and have similar implications for the budget deficit or surplus. Except for
(1) See Section 4.1 for details of recent distributional impact of these programs. trends in the

Page 17

administrative costs, neither cash transfers nor tax assistance add to or detract from the size of the public sector in the sense of involving the government itself in using up real resources (in the same way that building roads, hospitals or ships does). Rather. the two systems simply redistribute disposable income between individuals and families. Social security expenditures ultimately are spent by private individuals for private purposes, in the same way allowed for by tax concessions.(1) Perceptions of social security outlays as a cost, while tax concessions are perceived as costless, are misleading and unfortunate, since it may mean that tax concessions are subject to less scrutiny than social security outlays, irrespective of the actual merits and efficiency of direct expenditures in comparison with taxation instruments. In fact, it can be argued that in considering the goals of income distribution and economic efficiency. taxation and social security policies should be seen as integrally related instruments. Since their interaction affects the way in which incomes and standards of living are distributed throughout the community, it is necessary when considering policy changes to either system to examine both together, so that the combined effects of change can be exposed and any unintended conseguences of change avoided. Thus, while the tax or social security systems are frequently considered in isolation, exclusive concentration upon only one system may frustrate broader equity and distributional objectives. This point has (1975. p.11): been made by the Taxation Review Committee

Throughout and repeatedly in the terms of reference [of the Committee] the phrase 'taxation system' is used. This way of regarding a collection of administratively distinct taxes is of fundamental importance. In a complex modern economy where government expenditure is at a high level it is impossible to raise all the revenue needed from any (1) It should be emphasised, however, that while cash transfers and tax concessions do not strictly add to the size of the public sector, they do represent a constraint on government choices. The revenues not collected or rebated because of tax concessions and the moneys redistributed through cash transfers are (generally) not available for the government's other objectives. Whether family allowances, for example, are paid as a cash transfer or a tax rebate or whether the DSR is cashed-out or unchanged does not affect the size of the budget deficit - it is still money forgone. If governments wish to increase assistance for certain groups. then whether that assistance is provided in the form of cash payments or tax rebates will make little difference to its budgetary impact. If the budget deficit is not to be increased, it would still be necessary to either increase taxes elsewhere or reduce other expenditures.

Page 18

single tax. Each tax will have its own distinct merits and defects when judged by the various criteria commonly applied to taxation. When several taxes are used they have to be seen as supplementing each other and their interactions - and sometimes their conflicts - have to be reckoned with. Whatever their individual characteristics it is their combined impact that must primarily concern the policy maker. The complete set has therefore to be looked at as an integrated whole, even though before this can be done it is necessary to examine the parts that have to be linked together. ... where tax stops and expenditure starts is often unclear. A tax concession to a particular area of spending in the private sector can as well be looked upon as an expenditure of revenue as a failure to collect it, and it is often an issue of importance to tax policy whether such concealed subsidies should not better be given overtly. Still more important is the point that cash transfers to individuals, the whole class of social service payments of every kind, are inextricably bound up with the equity of the taxation system. ... some consideration of cash grants, taxable or otherwise, is essential in the design of an optimal tax system. In summary, rather than having two separate systems which affect the distribution of disposable incomes and the labour force behaviour of the Australian population. in certain respects, we have a single tax-transfer system. The distinction made between the two systems is convenient for analytical purposes, but when considering distributional policies, tax and social security should be seen as two sides of the one coin. It must be said that these propositions are necessarily arguable. As Musgrave notes in a somewhat different context: "All these views may be held, and none can be proved correct" (1959. p. 65). Some examples may show, however, that the views adopted in this paper provide a consistent approach to the issues involved. The first example is provided by the recent debate about the possible introduction of a broad-based consumption tax (BBCT). The draft White Paper on Tax Reform illustrated possible mechanisms for compensating social security recipients for the regressive effects of any indirect taxes. Indexation and above indexation increases in social security payments would have involved additional expenditure by the Department of Social Security of nearly $1 billion in a full year (Department of the Treasury, 1985, p.159). But any such additional expenditures would have generally represented only the return to low income groups of the extra indirect taxes that they would have been paying if a BBCT had been introduced. Other groups in the community would have received their compensation in the form of income tax cuts. The effect would have been the same, but the appearance would have been very different.

Page 19

Second, the Australian social security system provides through the Family Income Supplement (FIS) program cash payments of up to $16 per week per child for low-income families not in receipt of pension or benefit payments. The United Kingdom also has a FIS program, currently paid out through the social security system. In the recent Green Paper on reform of the UK social security system, it was recommended that this FIS payment should be replaced by a tax credit paid through employers (Atkinson, 1985, p.334). Similarly. the New Zealand Department of Social Welfare currently provides an income-tested payment for children in low and middle income working families called Family Care which, because of the high level of payment and the low rate of taper, can be loosely considered a "long FIS". In its recent statement on taxation and benefit reform, the New Zealand Government announced that from 1 October 1986 this income-tested "social welfare" payment, similar payments for children of beneficiaries and a tax rebate system for families would all be replaced by a single, income-tested, refundable tax credit system to be administered by the Inland Revenue [Taxation] Department, and where possible this new Family Support program would be paid by reducing Pay-As-You-Earn (PAYE) deductions (Whiteford and Whitecross, 1986). In each of these cases, it is possible to see taxation and social security programs that mirror each other. But in essence a program is not different because it is paid now by a Social Security or Welfare Department, and in the future by the Tax Office. For individuals who remain recipients, there is no difference in their disposable incomes if they receive $5 a week in a social security cheque or $5 a week through lower tax liabilities. Nor in terms of effective marginal tax rates is there any essential difference between an income test on a social security payment for children and an income test on a tax rebate for children. Nonetheless, there can be important differences between the administrative implications of providing a payment through the Tax Office or through a Social Security Department, and the two administrative systems can direct assistance to different recipients, with consequent differing distributional effects. Further, providing an income-tested payment as a tax credit through employers may be presented as a reduction in the size of the public sector, since some of the administrative costs may be transferred to the private sector. A third example, which also illustrates the differences between the targeting capabilities of tax and social security administrations, is provided by the recent history of general assistance for children in Australia. Assistance through the personal income tax system for each child was provided in the form of concessional deductions (which were of greater benefit to high income earners) up to 1974-75. The first crucial step towards the current system was made in 1975-76. when tax rebates (which were of equal money value to all but very low income taxpayers with dependent children) were introduced. Page 20

Throughout this period, cash assistance for families with children was also provided through child endowment paid by the Department of Social Security. In 1976, both cash rebates and child endowment were replaced with the current system of family allowances. The two main advantages of providing assistance through cash payments instead of through tax reductions were that payments could be made to all families with children, not just to those with incomes high enough to benefit from the tax rebates, and assistance could be directed to mothers. Because of the change from tax rebates to family allowances, both taxation revenues and government outlays increased by some $700 million in 1976-77. While most taxpayers with children continued to receive about the same amount of assistance as they had prior to the family allowances reform, it was estimated at the time that some 300,000 families (with 800.000 children) whose incomes had been insufficient to take full or any advantage of the tax rebates, received greatly increased assistance for their children.(1) Since their introduction, family allowances have been criticised as "middle class welfare" because they are a cash payment from the Department of Social Security, but are neither income-tested nor taxed. Indeed, around 80 per cent of the recipients of family allowances are not in receipt of any other payment from the Department of Social Security. This could indicate either that family allowances are not well targeted to the poor, or that they are not intended to be reserved for the poor. In fact, while family allowances are counted as expenditures by the Department of Social Security, they can still properly be viewed as serving equity objectives basic to the income taxation system. This view is supported both by the history of family allowances and arguments in taxation literature that exemptions for family composition are essential to the structure of any tax which bases itself on the principle of ability-to-pay and by the practice of most other countries. The Australian income tax system itself still recognises this principle of horizontal equity through the dependent spouse rebate and the sole parent rebate. Family allowances now provide the major instrument for reducing the effective income tax burden on all families with children, in recognition of the fact that at any income level families with children have a lower capacity to pay tax than similar families or individuals without children. In addition, family allowances also uniquely offer a means of providing greater assistance according to the number of children in the family. In contrast with other tax measures they also provide equal assistance to families with low incomes who pay little or no tax. Thus, rather than being a welfare measure that goes to the rich, family allowances can be considered as a general taxation measure which also provides additional assistance to the neediest.
(1) Some other families whose children had income also received increased assistance for these children because the separate net income test applied to the child tax rebates was not applied to family allowances. Page 21



3.1 Ability-to-pay and horizontal and vertical equity in the tax system A key objective of the tax system is to collect the revenue required to fund public sector activity. But a further and critical objective is that the distribution of the tax burden should be equitable - everyone should pay their "fair share". (1) How the term "fair share" should be defined, however, is subject to debate. Two strands of thought can be distinguished: the benefit principle, under which taxpayers should contribute in line with the benefits they receive from public services; and the "ability-to-pay" principle, under which a given total revenue is required and each taxpayer is asked to contribute in line with his or her "ability-to-pay" (a further definitional problem). There are advantages and disadvantages to each alternative, and neither approach is easy to implement in practice. The benefit principle implicitly assumes that a proper state of distribution already exists, and on this basis will allocate tax burdens according to the incidence of public benefits. As such, the benefit principle fails to recognise taxation as a means of financing transfers or as serving redistributional objectives. As noted by Allan: The benefit rule cannot provide a universal rule of taxation if we accept that the government has to support the poor. There will always be some people who would earn nothing in a free market and many more would earn amounts which would be considered inadequate on humanitarian grounds. These people have to be given income and this must be paid for by taxation (of those who have higher incomes) according to some other principle than that of benefit. It can be argued that the rich derive benefits from redistribution...but the point here is that the benefits accruing to the poor as a result of redistribution cannot, by definition, be subjected to taxation (1971. p.107). (2) (1) Apart from equity, the two major qualities sought in tax systems are simplicity and efficiency. For discussions of these concerns, see Taxation Review Committee (1975, pp. 15-17) and Department of the Treasury (1985. pp. 14-17). (2) This is not to say that social security benefits should not be taxable, but simply that low income groups cannot reasonably be expected to pay taxes in line with the benefits they receive. Page 22

The alternative principle, that people should contribute to the cost of government in line with their ability-to-pay. complements the principle of helping those in need, which is often seen as the basis of the social security system. In this sense as well, the taxation and social security systems can be considered as one integrated system providing for income redistribution. As someone's financial position worsens they can depend more on the community for help, and as their finances improve their contributions to the community in the form of taxes should increase. Just as the social security system structures benefits according to the needs of recipients, the ability-to-pay "principle requires that equal amounts of tax should be paid by taxpayers with equal abilities-to-pay (horizontal equity) and requires different amounts of taxes when abilities-to-pay differ (vertical equity). There are therefore three major issues associated with the ability-to-pay principle. These are: How should ability-to-pay be defined? By how much should the ability-to-pay varies? amount of tax vary as

When do people have equal abilities-to-pay? These three concerns are very closely interrelated: The 1966 Canadian Royal Commission on Taxation, for example, argued that ability-to-pay should be measured in terms of gains in "discretionary economic power". That is. some part of each person's income must be spent to provide food, clothing, medical expenses and other necessities including the basic costs of working. The discretionary economic power of the individual is that which is available to spend or save after meeting these non-discretionary expenses. This implies that over some basic level of exemptions (the tax threshold), all real resources (eg. including capital gains, employment fringe benefits, etc) should be subject to tax. The vertical equity concern that the amount of tax should vary as ability-to-pay varies is usually taken to support a progressive rate structure above this basic threshold. Similarly, it has been argued that horizontal equity can be achieved when individuals and families with the same gains in discretionary economic power pay the same amount of tax. Since larger families generally have greater requirements for necessities, it follows that the level of exemptions should be structured to reflect family needs, eg. there should be allowances for children and other dependants. Likewise, since two income couples at any given income level will have higher work costs than single income couples, it follows that, for example, two income couples should have the benefit of two thresholds. The distinction commonly made between horizontal and vertical equity is useful for analytical purposes, but the reality is that they are inseparable parts of the one principle of equal treatment. For example, it is commonly argued that vertical Page 23

equity is frustrated by the lack of capital gains taxes. But, similarly, horizontal equity may also be considered to require capital gains taxes, since taxpayers whose resources are concentrated in assessable income (eg. wage and salary earners) are treated more harshly for tax purposes than those with the same overall level of resources concentrated in capital gains. The ability-to-pay principle in the tax system is recognised in the social security system by the "needs" principle. As already discussed, features of the tax system which seek to recognise horizontal equity such as dependant rebates are paralleled in the social security system by allowances for dependants, such as wife's pension, additional pension and benefit and mother's/guardian's allowances. Features of tax systems which seek to recognise vertical equity such as progressive personal income tax rate structures are paralleled in the social security system by income tests. Vertical and horizontal equity, therefore, can be considered as complementary aspects of a fair tax-transfer system in that both are required if the principle of ability-to-pay is to be recognised. In this sense, it can be argued that recognition for dependants, either children or spouses, should not be regarded as a concession or departure from normal taxation practice (i.e. a "tax expenditure"), but as a basic component of an equitable tax system (Ingles et al, 1982). 3.2 Criteria for assessing social security policies As noted previously, it is convenient to make some distinctions between taxation and social security policies for analytical purposes. Nevertheless, just as an evaluation of taxation policies requires consideration of the objectives of those policies, an assessment of social security policies requires a consideration of fundamental goals. A number of criteria have been suggested for evaluating alternative social security arrangements (Harmor. 1971. Jackson. 1982; Whiteford and Stanton. 1983). These criteria include: Adequacy - is the current or proposed level of income support sufficient to allow individuals and families to achieve an adequate standard of living? Adequacy may be judged by reference to a poverty line or relative to other standards of living in the community. An example of the first type of standard is the Henderson poverty line. An example of the second type of standard is provided by the Government's commitment to raise the single rate of pension to 25 per cent of Average Weekly Earnings. Equity - A concern with horizontal equity implies that people in like circumstances should be treated alike. In practice this is taken to support different treatment of people with the same income but differing calls on that income, particularly differing family responsibilities. Vertical equity is the concern that those who are more well-to do should shoulder greater burdens than the less well-off, or that the poor should receive greater assistance than those Page 24

better-off. In practice this implies varying social security payments according to income and/or capacity to earn income. Incentive Effects - What effects do programs have on work, savings and investment, family size and composition or family formation and dissolution, economic growth and national productivity? Efficiency - There are four basic concepts of efficiency - target efficiency, technical efficiency, administrative efficiency and economic efficiency. Concern with target efficiency, which is usually taken as the most important of these issues, leads to the consideration of what proportion of the benefits of a program go to the non-poor as well as the poor (vertical efficiency), and what proportion of the poor or other target groups actually receive the intended benefits (horizontal efficiency). Stigma - What degree of stigma is associated with the source, form or administration of social security programs, and what effect does this have on take-up of benefits? Cost - What are the total expenditures at all-levels of government, taking into account savings in other programs, tax clawbacks, and costs due to changed work effort or other behavioural changes in the population? Political Support - What is the nature and extent of approval for a given program? These criteria are reflections of varying but interrelated objectives. For example, most people would probably agree that it would be desirable to have social security programs that provided adequate support for the poor, that treated different individuals equitably, that did not have unfavourable effects on incentives for self-provision. that were efficiently designed and as low cost as possible, that attracted widespread political support and did not stigmatise recipients. The fact that no existing social security program in Australia or elsewhere could claim to attract universal commendation in relation to all these criteria is a consequence of two factors. First. different people will interpret these objectives in different ways and will give differing priorities to specific objectives according to their own views of what will maximise the welfare of the community. Second, these objectives overlap and interact, and the achievement of any one goal may either entail the achievement of others or may conflict with these other objectives. For example, on the one hand, very high levels of payments and very high withdrawal rates in income tests to achieve adequacy, vertical equity or vertical efficiency may conflict with concerns about incentives. On the other hand, adequacy and equity are in practice inseparable, since the achievement of an equally adequate standard of living for all social security recipients implies that horizontal equity is satisfied. In this sense the
Page 25

distinction commonly made between horizontal and vertical equity is also no more than a convenient distinction for analytical purposes. Consideration of these criteria requires some method of analysis by which the achievement of objectives can be evaluated. For example, the framework of labour supply theory in economics provides a method for analysing the effect of high effective marginal tax rates on incentives to work. Poverty lines are usually derived in order to judge the adequacy of pensions and benefits. One type of measure for assessing the extent to which horizontal equity concerns are satisfied is provided by equivalence scales. Equivalence scales or ratios are measures of the relative incomes required by different types of families to attain a similar standard of living. These scales are usually expressed as a set of numbers - some arbitrarily chosen household type is taken as the base and its value is set equal to 1.0. Other household types are then expressed as proportions of this base. For example, if the benchmark is taken to be a married couple without children, then to determine that the figure for an individual is 0.60 implies that a single person requires only 60 per cent of the income of a couple to be as well off as they are. Similarly, if the figure for a couple with two children is estimated to be 1.40, say, then that family will require 140 per cent of the income of a couple without children to attain the same standard of living. It follows that individuals with annual incomes of $6,000, say. couples without children and with incomes of $10.000 and couples with two children and incomes of $14,000 should all on average be able to attain a similar standard of living. Equivalence scales are necessary as complements to poverty lines in analysing income distribution data. As well, because the relativities in rates of pensions and benefits and in the relationship between the tax treatment of different family types directly affect the disposable incomes of different families, equivalence scales can be very useful tools in evaluating the extent to which existing policies satisfy the objectives of adequacy, horizontal and vertical equity and the like. This is most clear in relation to the criterion of horizontal equity, for an equivalence scale is simply a practical attempt to define like circumstances. Since an equivalence scale may also be used to rank families in the distribution of income it is also a guide to vertical equity, e.g. a couple with two children and an income of $6.000, say, is likely to be actually poorer than a single person with an income of $4,000. and analysis of income data should reflect this. Again a judgement about the adequacy of pension and benefit rates can scarcely be made without relating the differing levels of payment to differing needs of families of different size and composition. It is also axiomatic that work incentives and incentives to form or dissolve families will be affected by the relativities in the rates of pension and benefit. For example, the Page 26

Commission of Inquiry into Poverty, while arguing that it would be preferable to treat each adult as a separate income unit for social security purposes, concluded that such a system would result in inadequate pensions for people who live alone. As a result "what some would call a positive incentive to live in social groups would become in practice a ruthless compulsion" (1975, p.24). It should also be clear that the financial cost of any income security scheme will be directly affected by decisions about the relative payments to be made to different types of families. Finally, the political acceptability of the social security system and of proposals to reform it will depend on public perceptions of how fairly the system treats different kinds of families. Some of the most significant debates in social security in recent years have concerned assistance to families, the appropriate income unit for income security purposes and the appropriateness of assistance for sole parents. All these involve making judgements about relative family needs. Equivalence scales can be derived in a number of ways - either by specification of nutritional and other budgetary requirements by experts, by surveys of the attitudes of different types of families to their requirements, or by a variety of methods of econometric analysis applied to data on household incomes and expenditures. None of the methods can be regarded as entirely satisfactory (Whiteford, 1985) and there is no agreement as to what are the most suitable estimates for use in the Australian context. Some applications of equivalence scales are discussed in Section 4.3 and some research questions in this area are suggested in Section 5.
3.3 Private choice and public support

It should not be surprising. however, that there is considerable debate about the relevance of the concept of horizontal equity and the importance of equivalence scales. Arguments about choice form an important element in many of these debates about tax-transfer policies and the priority to be given to horizontal equity. In fact, choice is a fundamental issue. It can be argued that the size, composition and activities of families are expressions of their "revealed preferences", and it is these preferences that should be taken into account when comparing the needs or abilities-to-pay of different family types. According to Pollak and Wales: Thus, in a perfect contraceptive society, if a family chooses to have three children and $12.000 when it could have had two children and $12,000 then a revealed preference argument implies that the family prefers the alternative it chose (1979. p.219). On this basis, it can be argued that no allowances at all need be made for the costs of children in either the income tax or the social security system. For example, the Centre of Policy Studies notes that "while it is certainly true that the presence of dependants does indeed reduce ability to pay, it is debateable whether this should be regarded as a reason for
Page 27

reducing tax liability any more than should the buying of a boat which likewise reduces the ability to pay Since the decision to have children, however, is usually one of choice, it is arguable whether the tax system should recognise such costs" (1985. p.26). As the comparison of children to boats suggests, it is customary (and can be useful) in certain sorts of economic analysis to think of children as "durable goods". McCloskey points out that this idea can be translated as follows: "A child is costly to acquire initially, lasts for a long time, gives flows of pleasure during that time, is expensive to maintain and repair, has an imperfect second-hand market ... Likewise, a durable good, such as a refrigerator ..." (1983, p.503) - or a boat. The main behavioural assumption of this approach is that children are planned - that parents make long-term decisions about their housing, their life style and its material components, the way they spend their time, and the number of children they want to have, in a rational and optimising way. and then to the best of their ability attempt to fulfil those plans. It should be noted that this line of argument is relevant not only to children. The Centre of Policy Studies, for example, also states that "there seems to be no convincing rationale for allowing a rebate to married couples without dependants, simply because one of the couple chooses not to work" (1985. p.27. emphasis added). This argument can potentially be extended even further to argue, for example, that people may choose to be sole parents or may choose to be unemployed. A further modification is to argue that low income may constrain choice, but high income groups have the freedom to choose and are therefore undeserving of assistance. This suggests that horizontal equity concerns may stop or at least become weaker above a certain income level. If this is so. the practical problem is to decide what that level of income is. As the Centre of Policy Studies notes: "It can be argued that once income reaches a certain level, all income above that level becomes 'discretionary' and it is largely a matter of choice as to how it is spent. Above this level, the amount spent on children will vary according to the standard of living their parents are able to choose and need not therefore be subjected to tax relief. On this basis. tax relief for children would be provided only to those with very low incomes" (1985. p.26). It it is worth noting that the claim that spending can become discretionary at a low level of income is simply an assertion. Nor is it recognised that non-discretionary spending presumably varies with family composition. Moreover, the Centre of Policy Studies makes no suggestion as to how discretionary and non-discretionary incomes could be determined in practice. There are. of course, alternative views about these issues and the proper basis of tax-transfer policies. Cass, Keens and Wyndhara (1983, p.17). for example, identify an alternative approach to policies for children, in which children are seen Page 28

as a social investment and national resource, thereby providing justification for public expenditure on their care and development. Parker (1978) also provides a discussion of this approach. The distinction be regarded as Nevertheless it what degree the policies. between alternative approaches may ultimately a matter of personal preferences and values. can be very seriously questioned whether or to issue of choice is actually relevant to family

One major problem with the revealed preferences argument is the assumption that children, for example, are purely objects of choice. Many children are unplanned and not only in relation to timing. Children are irreversible. Before deciding to have children, people may make judgements about their incomes and opportunities for periods of up to twenty years ahead. There is considerable uncertainty involved in these judgements and parents' information may be faulty. Economic conditions can change, particularly for persons who become unemployed or become sole parents or invalids. The incomes of the poor are typically subject to fluctuations. Indeed, poverty can be defined as a condition of constraint on choices - in the case of low income families, the assumption of free choice is therefore simply inappropriate. Yet. even in regard to higher income groups it can be argued that there is a false dichotomy in the belief that choice is a relevant concern, for this implies that the alternatives are not choices. The concern underlying this argument appears to be that it is unfair for people who do not have children to provide support for people who do have children, with a consequent increase in their tax liabilities. But just as there are differing circumstances in which people have responsibility for children, there are a number of obvious reasons why, at any point in time, people are not responsible for children. People may have had children who are no longer dependent, the family may be in the early stages of formation and will have children later, or they have delayed having children but plan to do so in the future, or they wish to have children and cannot, or they plan not to have children. In the first three circumstances, the provision of general assistance for children can hardly be regarded as unfair, since these families will benefit in the future or already have benefited from such assistance themselves. Consequently, it can also be argued that for these groups it is inappropriate to regard family assistance as some sort of subsidy for childbirth (1). since the provision of assistance to all families amounts
(1) The view that cash transfers are subsidies for children is arguable in any case, since the amount of assistance is usually much lower than the costs of raising children. An example of a fairly unambiguous subsidy for children is. however, provided in the French tax-transfer system, where the disposable income of a "typical" married couple family with two children exceeds their pre-tax. pre-transfer earnings by nearly 1O per cent. See OECD. 1983. p.34.

Page 29

to a redistribution of resources over the life cycle rather than a simple redistribution between individuals. While, as in all cases of redistribution over the life cycle, an individual may or may not have chosen to have saved a similar amount if the choice was free, it is incorrect to say that there are no offsetting benefits for those persons currently without children. Even when looking at the circumstances of people who will never have children, the relevance of the issue of choice is not clear-cut. In fact, some people may choose not to have children in exactly the same way that other people choose to have children. That is, the judgements involved are not only about the direct expenses of raising children, but also about the activities preferred by the adults involved, and their long-term decisions about lifestyles and the ways in which they wish to spend their time. Moreover, it is once again incorrect to overlook the benefits accruing to persons who never have children because other people have children. Put simply, nearly all of the public services that those without children will enjoy in retirement will be funded from taxes on the generation then of working age. i.e. other people's children. Most importantly, there is a crucial difference between having children and buying boats. As Muellbauer notes. "very fundamentally, children are individuals too. This means that the real consumption levels of children should themselves be part of the measurement of the overall distribution of income, irrespective of whether they are a positive part of their parent's standard of living" (in Diamond, 1978. pp. 337 - 338). Similar arguments can be advanced in the case of the tax-transfer treatment of sole parent families and families with and without dependent spouses. The crucial issue once again is the degree of constraint imposed on whatever choices are involved with having dependent children or being dependent spouses or sole, parents. The 'choices' are of course inter-related - generally the dependency of spouses or sole parents accompanies the presence of children. This might seem to suggest that public support for dependent spouses through the taxation system should be limited to those with dependent children. However, this conclusion should be qualified, since a large proportion of dependent spouses without children are likely to be older women whose lack of work experience and labour market disadvantages are a direct result of the former presence of children. Indeed, this is one of the rationales for the Class B widow's pension, which provides assistance to older women who do not or no longer have dependent children. In addition. when considering public policies for dependent and working spouses, account needs to be taken of factors such as the costs of child care, the costs of working, and the contribution of all family members to their joint standard of living. How these factors balance out is not at all clear. Overall, it would appear unrealistic to treat all children or dependent spouses purely as an economic burden, but it is also unrealistic to treat either purely as if they were objects of choice without effective costs. Page 30




Adequacy of Payments

Once it is accepted that public income support for families is appropriate, a range of further issues arise. In recent years there has been a variety of concerns about the adequacy of payments for children provided through the tax and social security systems. It is difficult to make definitive statements about the adequacy of tax-social security arrangements, since the measurement of adequacy like the measurement of poverty is at least in theory a controversial matter. Nevertheless, there are some obvious points that can be made, since all the indicators point in the same direction. Concern with adequacy has two components - concern with the situation of families generally and concern about the particular circumstances of low income families with children. The most important general program for families is family allowances. Current rates of family allowance range between $22.80 per month for the first child and $45.55 per month for fifth and subsequent children. While it is arguable whether the family allowances program should meet the full costs associated with raising children, it is clear that these levels of payments do not provide anything like such assistance. In effect, the family allowance program provides no more than a payment of between 25 cents and 50 cents for each meal that a child has in a week. Assistance for children of parents with average earnings is also low by international standards. In 1978 in Australia the level of assistance for dependent children of a taxpayer who was an "average production worker" was the fourth lowest of 19 of the OECD countries. This is shown in Table 6. Concern with the situation of low income families has been prompted by the increasing number of children whose parents are reliant on social security payments. As Table 7 shows, between 1976 and 1985 the number of children for whom income-tested payments were made more than doubled from nearly 370,000 to nearly 855,000, increasing from 8.6 per cent of children to 19.8 per cent of dependent children. The issues involved in this development are complex and are discussed in some detail by Cass (1983b). In brief, the main influences have been the increasing numbers of sole parent families (1). very greatly increased unemployment amongst families with children, and the introduction of the new Family Income Supplement program in May 1983 to provide assistance to low income non-pensioner/ non-beneficiary families with dependent children (2).


See Development Division (1982) for further details.
For a discussion of the introduction of FIS, (1984). see French

Page 31


Assistance given to Additional assistance given to families with children married couples Tax reliefs APW's wage Twice
APW's wage

Tax reliefs APW's wage Twice
APW's wage

Cash transfers APW's wage Twice
APW's wage

Total APW's wage Twice
APW's wage

Expressed as a percentage of gross earnings

2.7 1.9 0.6 3.3 2.6 2.3



(v) 3.8 15.2 12.7
4.2 3.8 5.3 8.6 5.3 1.7 6.0 7.2 6.8 3.5 3.9 5.1 7.7 3.5 6.1 -

1.9 7.6 6.4 2.1 1.9 2.6
2.8 2.6 0.9 3.3 3.6 3.4 1.7 2.1 2.6 3.8 1.7 3.1 -

<iii)+(v) (iv)+(vi)
3.8 16.7 15.2 8.2 3.8 8.1
11.4 5.7 5.5 6.5 3.4 13.2 8.1 6.4 6.0 5.1 7.7 4.7 7.6 3.3

Australia Austria Belgium Canada Denmark Finland France Germany Ireland Italy Japan Luxembourg Netherlands New Zealand Norway Portugal Sweden Switzerland United Kingdom United States

5.4 1.7 0.8 4.6
5.2 3.5 5.3 7.0 6.8 1.2 1.9 7.2 2.2 1.7 5.5 0 3.1 3.5 4.1 4.1

0 1.5 2.5 4.0 0 2.8 2.8
0.4 3.8 0.5 3.4 6.0 1.3 2.9 2.1 0 0 1.2 1.5 3.3

5.8 0.6 1.4

0 1.7 1.8 0.5 0 1.4 3.6 0.3
2.8 0.3 2.7 4.5 1.5 1.0 0.4 0 1.1 0.8 2.4

1.9 9.3 8.2 2.6
1.9 4.0 6.4 2.9 3.7 3.6 2.7 8.1 3.4 3.2 3.1 3.0 3.8 2.8 3.9 2.4

2.8 0.9 6.4 1.2 1.6 3.7 2.1 6.5

APW stands for average production worker

SOURCE: OECO, 1980, p. 64.

Page 32



Number of Children ('000s) Additional Pension At 30 June
1976 1977 1978 1979 1980
1981 1982 1983 1984 1985

Additional Benefit


Total IncomeTested

Family Allowances

Income Tested as % of Total

283.9 309.4 338.0


86.0 117.5 137.0 133.0 145.0
145.0 179.0

_ 48.2 74.0 74.9

369.9 426.9 475.0 494.2 524.8 576.4 628.2 830.0 843.4

4,292.4 4,302.0 4,304.3 4,230.6 4,223.9 4,227.2 4,254.5 4,303.3 4,326.0 4,323.5

8.6 9.9 11.0 11.7 12.4
13.6 14.8 19.3 19.5 19.8

449.2 472.5 494.5

309.3 274.9 259.8

Family Income Supplement (FIS) was introduced in Nay 1983.

The introduction of FIS is of course a benefit to low-income families and indicates an improvement in their circumstances rather than a worsening. In addition, the growing number of pensioners with children is partly a result of positive Commonwealth Government actions such as the extension of Supporting Parent's Benefit to sole fathers in 1977 and the abolition of the six month waiting period for supporting parent beneficiaries in 1980 with transfers of certain budgetary committments previously the responsibility of State Governments. The increase also reflects unfavourable labour market conditions, most notably with the growth in additional benefit between 1982 and 1983. In any case, the fact that the parents of around one in five Australian children receive an income-tested payment for them makes the issue of adequacy important. By international standards and from indicative research, assistance for children through family allowances and the social security system is particularly low. Current rates of additional pension, benefit and FIS amount to an additional subsidy of 76 cents per meal per week, and nothing more. Further, current total payments for a child amount to thirteen per cent of the social security payments for an adult couple, whereas, on average, research into the costs of children suggests that payments should be around 20 per cent, or more than 50 per cent higher than they now are. The relativities suggested by the OECD in its social indicators program would suggest a relative payment of 29 per cent, or more than twice what is now paid (Whiteford. 1985. pp.108-109).

Page 33

There is also evidence that the inadequacy of social security payments for children affects different families differentially, particularly because the costs of children appear to vary significantly by age. Table 8 summarises the results of recent research on how the costs of children vary as they grow older. The table should be interpreted with some caution. As far as possible, the table shows how costs increase with the age of the single child in a household made up of a couple plus one child. The table does not show the effects of economies of scale or of the rank of children in the household. For example, the Garganas scales in Table 8 indicate that a child less than 4 years of age adds 13 per cent to the costs of a couple. However, two children under 4 years of age will add 21 per cent, rather than 26 per cent to the costs of a couple, primarily because of economies of scale. Again, with the Van der Gaag and Smolensky scales, a child under 6 adds 24 per cent and a child 6 to 11 years adds 32 per cent to the cost of a couple but going to the original source will show that a household with two children needs only 28 per cent more income than a couple without children. Thus Table 8 shows the "pure" effects of age, not of household size. At first glance there appears to be considerable variety in the results reported - estimates of the costs of a child under 4 range from 12 to 24 per cent, and of a 16 or 17 year old from 31 to 52 per cent. Nevertheless, the general patterns are very similar, indicating significant increases in costs by age. of the order of 150 to 200 per cent. It should also be noted that this table only provides measures of direct costs - purchases of food, clothing, and the like. The indirect costs in terms of the income lost by persons, usually women, who give up work cannot generally be dealt with in equivalence scale analysis. In the case of young children, these costs in the form of forgone income may be significantly greater than the direct costs. One of the most important points to note in regard to adequacy is the trend in the real values of different payments. Since their introduction in 1976. family allowances have effectively been increased only once - rates for third and subsequent children were increased by 50 per cent in January 1982. and rates for first and second children were increased by 50 per cent in November 1982. These money increases, however, have not been as great as the increases in inflation since that time, and as a consequence the value of family allowances has declined by 29 per cent in real terms since 1976-77. (l) In contrast, the dependent rebates in the tax system (especially (1) The choice of the base year can of course affect the apparent trends. See Raymond and Whiteford (1984, p. 3) for reasons why 1976-77 was chosen.

Page 34



Age 0-4 5-10 11-12 13-15 16-18
18 21 26 32 38

SOURCE 2. McClements, United Kingdom, 1971-72







McClements, United Kingdom, 1971-72

Age 0-1
2-4 5-7 8-10 11-12 13-15 16-18

18 21 23 25 27 36

3. Piachaud, United Kingdom, 1979


2 23 5 27
8 11
32 35

4. Lovering, Australia, 1983

2 5 8 11
12 15 17 22

Average 26

Average 30

Average 17

5. Townsend,

24 7. Garganas, Age 0-4 13 United Kingdom, 5-14 29 Average 24 1971 8. Van Der Gaag Age and Smolensky, 0-5 24 United States, 6-11 32 1960-61 12-17 43
18 + 31

United Kingdom, 1968-69

Age 0-10 17 11-15 25 Average 20

6. Muelbauer, United Kingdom, 1975

Age 0- 4 12 5-16 25 Average 22

Average 34
9. Supplementary


Benefit Rate Scale, United Kingdom, November 1983

0-10 11-15 16-17 Average

21 31 38 26

10. EEC Expenditure Age 0-2 Survey 3-4

7-8 9-10 11-12 13-14

11 17 22
28 33 39 44

11. Department of Health, Education and Welfare, United States, 1976

Age 0-4 15 5-15 37



12. Henderson, Age 0-5 15 United States, 6-15 22 1954 16 + 31 Average 22

13. Severidge,

27 52 47 53
47 33 31

United Kingdom, 1942

0-4 5-9 10-13 14-15 Average

16 22 26 28 22

14. The Amsterdam Scale

Age 0-14

15- 17 (male) 15-1 7 (female) 18 + (male) 18 + (female) Average (male) Average (female)

SOURCE: Whiteford, 1985.

those for taxpayers who have dependent children) have fared much better - the dependent spouse rebate for those with children has declined by about 3 per cent in real terms since 1976-77, while over the same period the sole parent rebate has increased by about 5 per cent in real terms. Table 9 provides details of these trends. As well, additional payments for children and mother's/ guardian's allowance within the social security system have also declined substantially in real terms - by between 4 and 19 per cent - thus further disadvantaging the poorest families with children. The problems of pensioner and beneficiary families with children have been addressed to some extent by substantial real increases in these payments in the last three Budgets. Nevertheless, the loss of real value of family allowances and of income-tested payments would have tended to widen the gap between families with and without children and in particular between the poorest families and other members of the community. (1) While in the last three Budgets the Government has placed priority on increasing the income-tested payments for children of pensioners, beneficiaries and low-income workers and has provided general tax cuts, significant problems remain for all families with dependent children. This is shown in Table 10. All sole parent pensioner families and pensioner/beneficiary couples with four or more children have suffered actual declines in the real value of their total social security payments over the past decade. Higher income families with children have experienced real increases in their disposable incomes, but for all persons not entitled to FIS. these increases have been smaller for families with children and decline with increasing family size. Because family allowances are paid at a flat rate, they form a higher proportion of the incomes of low income families with children than they do of the incomes of high income families. It follows then that in relative terms it is the poorest families with children, particularly pensioners and beneficiaries, who have been most disadvantaged by the fall in the real value of family allowances. For example, for a sole parent pensioner with three children, family allowances when they were introduced represented around 17 per cent of their total disposable income. The decline in real value of family allowances alone therefore represents a cut in their real disposable incomes of about 4 per cent. 4.2 Family assistance and social change Discussion of current family assistance arrangements also involves consideration of a number of complex questions of social and personal preferences in a period of profound changes affecting families. The following discussion attempts to highlight some of these questions without pretending to answer them. (1) See Raymond and Whiteford (1984). Whiteford (1986) and Saunders (1982) for further details. and Moore
Page 36


Income Component(2)

since 1976-77 in Real Terms % - 4 -19 +6
+ 6

Pensions and Benefits . Additional pension/benefit for children . Mother's/guardian's allowance (3) . Standard rate of pension and sickness benefit (4) ....
. Married rate of pension and benefit (4)

. Single adult (21 years and over) rate of unemployment benefit (for those without children) . Single junior (16 and 17 years) rate of unemployment and sickness benefit:
- standard rate

- 2

•- for those in receipt of benefit for 6 months and longer
Single pension free area


Family Allowances Tax Measures . Dependent spouse and daughter-housekeeper rebates: - for those with children - for those without children . Sole parent rebate . Basic tax threshold . Single pensioners' tax threshold
. Single beneficiaries' tax threshold Wages


- 3 -22 + 5 -24 - 7

. Gross Average Weekly Earnings


1. Average Weekly Earnings and consumer price index values for the June 1986 quarter have been estimated. 2. Family Income Supplement is not included because it was introduced only in 1983. 3. Based on allowance. movements in higher rate of in this table


4. These increases are effectively overstated because of declining inflation rates and the Medicare effect. See Raymond and Whiteford (1984. pp. 3. 30) for further details.

Page 37



TO 1985-86(2)

Pensioner with Nil Private Income

Beneficiary with Nil Private Income Junior Adult Adult Wage and Salary Earner with Sickness Unemploy- Unemployment ment and Private Income of Sickness 50% AWE 75% AWE 1001 AWE 150% AWE





-36.8 -34.6





SOLE PARENT: - One Child - Two Children - Three Children - Four Children +0.4 -2.1 -4.1 -5.6

+11.5 +6.7
+3.0 +0.4

_ _

_ _

11.5(3) +6.4 +16.9(3) +5.0 +4.8 +21.3 +25.1(3) +8.4(3)
(3) () 3

+6.5 +5.4 +4.1 +2.9

+4.4 +3.6 +2.7 +1.8




- No Children -One Child - Two Children - Three Children - Four Children

+6.3 +3.9 +1.6 -0.5 -2.1

+6.3 +3.9 +1.6 +0.5 +0.5



() 3

+5.6 +6.0 +4.9 +3.6 +2.5
() 3

+3.8 +4.1 +3.3 +2.4 +1.5

+3.9 +1.6 +0.5 +0.5

+10.7(3) +5.8 +16.0


+20.3(3) +4.2(3) +24.1



MARRIED COUPLE, WITH BOTH WORKING (Income Split 6 : 0 : 04) - No Children _ _ _ - One Child _ _ _ - Two Children _ _ _ - Three Children - Four Children -

+4.8 +11.4

+3.1 +2.3
(3) () 3

+4.8 +4.1 +3.1
() 3

+7.6 +7.1 +6.3 +5.4 +4.5



+20.9 + . +2.0 1 0 (3) +24.7 +4.6(3) +0.9

1. Based on average tax scales applying in 1976-77 and 1985-86. Includes all rebates, family allowances and family income supplement. Excludes health levies. 2. Average weekly earnings and consumer price index values for the June 1986 quarter have been estimated. 3. At this income level, FIS would be payable and is included in 1985-86 disposable incomes. Sole parents however, would be financially better off claiming supporting parents benefit instead of FIS.

Page 38

One important issue is the appropriateness of the assumptions about behaviour underlying the programs, particularly the DSR. On the one hand, the DSR appears to be based on the assumption that women are or should be dependent upon their husbands, both when they have children and after. This view is reinforced by the fact that the payment goes to the main income-earner (usually the male) rather than to the qualifying spouse. Given increases in female labour force participation over past decades, the underlying assumption may be seen as increasingly inappropriate. (1) It can be argued, on the other hand, that many married women, particularly some older persons, may have had considerable interruptions to their labour force activity in past years and would be disadvantaged in the current labour market. For those with limited work opportunities and whose husbands have modest or average incomes, recognition of the fact that (at least) two persons are dependent upon one income may be regarded as appropriate. This general issue is less salient in the case of family allowances, which contains no implicit assumption about female work patterns, since it is paid to all mothers (usually), irrespective of their labour force activities. A related concern is with the value of home activity. Proponents of the DSR and of increases to it argue that this program is the only current recognition of the important economic and social contribution made by women at home. They suggest that the value of the rebate is low compared to the value of the second tax threshold available to working wives, and should therefore be increased. Currently, the tax threshold is $4595 per year, while the DSR for those without children is equivalent to $3320 per year of taxable income for the husband, and $4120 per year where there are children. While the second tax threshold is of greater money value than the DSR, this can be justified by the costs that must be met when persons seek work, costs that are even greater where there are child-care expenses. There are only a very small range of equivalence scale studies which have sought or which can be used to estimate the additional income required by a family where both spouses work in the market if they are to achieve the same standard of living as a family where one spouse works in the market. These estimates of additional income requirements range widely, however - from between 2 and 30 per cent where there are no children, between 5 and 32 per cent where there is one child, and between 5 and 25 per cent where there are two children (Whiteford. 1985. pp. 113-114). While this range of estimates may appear too wide to be of much practical assistance, the very low estimates were derived from poverty studies, in which it could be expected that there would (1) Between 1933 and 1983. the labour force participation rate of married women of working age rose from around 6 per cent to around 47 per cent (Ross, 1984. p.227).
Page 39

be comparatively few families where both spouses worked full-time. The only study specifically designed to estimate the costs of full-time work for a secondary income earner provided an estimate of a 30 per cent differential (Lazear and Michael, 1980). The differential in disposable incomes provided by the second tax threshold vis-a-vis the dependent spouse rebate is currently a maximum of some 3.5 per cent for families whose incomes fall in the 25 cent rate step. The differential increases as taxable income increases, but this is because of the effects of the higher rate steps rather than the level of the threshold and the DSR. It has also been argued that the home activities of dependent spouses should in fact be treated as enhancing a family's income, so that a dependent spouse rather than being a drain on resources and thus deserving support, can be considered as an addition to the family's resources. For example, families where both spouses work must pay for child care, buy more meals outside the home and generally pay for other household services which single income families receive from the dependent spouse. Thus, at any specific income level, the single income family will have greater free resources and therefore a greater capacity to pay tax than the two-earner family. In addition, it has sometimes been argued that because two-income families must still carry-out many of these household tasks, their leisure time and thus their overall standard of living is further depressed. Moreover, at any specific income level the hourly wage rate of the earner in a single income family must be higher than the hourly wage rate of either worker in a two-earner family, and it is therefore argued that the earner in a single income family will have a greater capacity-to-pay than either spouse in a two-income family. While it appears undeniable that at any specific income level, a single income family is better off than a two-income family, there are a great number of practical and conceptual difficulties with this approach. As noted by proponents of this approach, it is not feasible to tax the imputed income from home activities or from leisure, and they therefore suggest that this problem should be resolved by the abolition of the DSR and/or by the more favoured tax treatment of secondary income earners. However, the degree to which there should be differentiation between single and two-income families has not been comprehensively quantified. Such quantification would require detailed consideration of the household activities and leisure time of two-income as well as single income families. There is also a need to determine whether income can be imputed to leisure at all income levels and in all circumstances. eg. the unemployed cannot realistically be said to derive imputed income from their enforced "leisure"; a spouse who is caring for children or handicapped relatives or is himself or herself handicapped may not be a source of imputed income, except to the extent of the costs avoided by the private provision of these services. It is necessary to be careful to avoid double-counting in these cases. The situations involved are very complex. In general, these problems do not arise in respect of the family allowances program, which makes no distinction based on home oc work activity.
Page 40

A further area of argument is whether tax-transfer arrangements should provide support for marriage or neutrality between family types. Proponents of the DSR argue that it should be increased in order to bolster "traditional" family relationships, i.e. generally families where the husband works in the market and the wife cares for children at home. Others argue that Governments should be neutral in dealing with family relationships and should therefore neither discriminate for nor against any type of family. This issue is fundamentally a matter of social preference, but it should be noted that neutrality does not necessarily imply that all families are treated exactly alike in terms of levels of assistance. Once again, it is necessary to determine the equivalent needs or equivalent capacity-to-pay of different families and proceed on that basis. A number of proponents of increased family allowances argue that they should be increased in order to offset, albeit to a minor extent, the unequal pattern of resources within the family unit, both where spouses do and do not work. Evidence on income-sharing within the family unit is scant (but see Edwards, 1981, 1984), but there is general agreement that resources are often very unequally shared. Family allowances, paid to mothers, tend to offset this inequality, while the DSR. being paid to the primary income earner, may reinforce this inequality. If there is concern with this issue, consideration could be given to placing greater emphasis on family allowances or to replacing the DSR with a cash payment to mothers. A very important issue is the effect of current arrangements on work incentives. The DSR is income-tested on the dependent spouse's income, and therefore it can be argued that married women seeking work effectively start paying tax once their income exceeds $282 per year. This may constitute a barrier to labour force participation of married women. It should be noted, however, that for the withdrawal of the tax rebate to actually affect the dependent spouse, there is necessarily a presupposition either of income-sharing in the family or of the husband forbidding the wife to work, and/or reducing housekeeping money in line with the loss of the DSR. A further policy dilemma is that if there is considered to be justification for some public support of dependent spouses, then an income test is required in order to establish "dependency". It is difficult to quantify the effect of the income test on the work behaviour of spouses, although there is considerable evidence from the U.S. that married women, particularly those with low incomes, are more sensitive to increases in EMTRs than any other group except sole parents. A related concern is that the effects of the social security system on incentives to work should generally be more salient in the area of assistance for families than in other areas of social security. First, many of the group about whom there is great concern with work incentives are more likely to have children than other groups of social security recipients, e.g. sole parent pensioners who by definition have children, married unemployment and sickness beneficiaries and invalid pensioners (who are far more likely to have children than do age
Page 41

pensioners), and FIS recipients (who again by definition have children). That is. people who are of an age to have the care of children are also generally of prime working age. Second, the presence of children means that the family faces greater costs in absolute terms than do those without children. But the inadequacy of payments for children means that their social security incomes are insufficent to meet these needs. Therefore, those with children need to make greater efforts than others to make good this shortfall. But. third, when they therefore seek work those with children face greater structural barriers than do many of those without children. The interaction of the taxation and social security systems means that persons with children often face higher effective marginal tax rates than do other social security recipients. For example, some of the highest effective marginal tax rates faced by social security clients are included in the following cases: married beneficiaries with children can face EMTRs of 125 per cent over certain income ranges, where their additional payments for children are withdrawn dollar for dollar under the benefit income test, but because these additional payments are not taxable, they must still pay 25 cents in income tax on the dollar of private income they didn't get the benefit of; and sole parent pensioners in certain income ranges for an additional dollar of private income can lose fifty cents of non-taxable pension for children. pay 30 cents of income tax and pay 20 cents for the Medicare levy phase-in. While these two situations are obviously uncommon, it should be noted that they are among the comparatively few situations where the structure of the social security and the tax systems alone combine to such an extent that people are no better off from working. A further example is that of FIS recipients, all of whom face an effective marginal tax rate of at least 75 per cent when other individuals in their income ranges face only 25 or 30 per cent. Fourth, many forms of assistance other than social security cash payments are concentrated on families with children, e.g. income-tested education allowances, child care relief or priority of access. Loss of these benefits can "stack" on top of the tax-social security interaction and further reduce the benefits of work. To a very large extent, these sorts of problems arise because many different levels of Government and a range of Departments at the same level of Government wish to concentrate their assistance on families with children and in particular on low income families. That is. this is a consequence of concentration on tightly-targeted. selective welfare programs. In conclusion, it should be noted that this discussion has been undertaken within a narrow framework. Current arrangements recognise and support only some forms of dependency, and in particular are mainly directed towards dependencies that arise Page 42

in the context of "traditional" family relationships, as discussed earlier. It is also arguable that current arrangements reinforce the relationships that produce dependency. While it is desirable to recognise immediate financial needs, alternative strategies such as emphasis on the provision of child care and other services may be regarded by some as a more appropriate long-term strategy. Longer term rationalisation of these arrangements should also be considered in a broader context. For example, if unemployment benefit payments for couples were split between spouses, then their need to receive the DSR would be reduced. However. the splitting of this payment raises complex issues about the purpose of the unemployment benefit program, which would then need to be addressed. Similarly, some current concerns could be resolved if the income unit for social security purposes were the individual rather than the family unit. However, such proposals also subsequently raise complex issues of vertical and horizontal equity and of the relative priority to be placed in spending on general family assistance programs or selective programs. 4.3 Universal or selective support While vertical and horizontal equity concerns are closely inter-related, conflicts can arise between these and other goals. There is a general. "triangular" conflict (Whiteford and Stanton. 1983. p. 53) inherent in the consideration of social security policies because of the inter-relationships between the level of income support offered. the rate at which assistance is withdrawn, and the cut-out point at which assistance effectively ceases. For example, in order to ensure adequacy of income support for low income groups. it is generally desirable to have a high level of basic payments. But in order to ensure that people are not discouraged from providing for themselves or are not penalised when they work, it is also desirable to have low withdrawal rates in the income test in order to minimise any poverty traps. A high payment level and a low withdrawal rate, however, are simply incompatible with a low cut-out point, and consequently the number of people receiving benefits will be increased, as will the overall cost of the program. Moreover, benefits will be paid to people who might not be considered to require income support. Specific conflicts between vertical and horizontal equity concerns usually arise when it is considered necessary to redirect assistance away from expenditures that serve horizontal equity concerns even at high income levels to programs of greatest assistance to the needy. For example, both family allowances and the dependent spouse rebate are sometimes viewed as "middle class welfare", particularly family allowances, since it is a cash payment from the Department of Social Security. but is neither income-tested nor taxed. Because of the similarities between the objectives of family allowances and those of the DSR, the spouse rebate has also been criticised as favouring better-off households. In periods
Page 43

of tight budgetary restraints it appears reasonable to argue that improvements in assistance for low income families with children should be financed out of cuts in these "middle class welfare" programs. One point that is not commonly appreciated when these recommendations are made is that there is already considerable assistance specifically directed towards low income families with children. Table 1 showed that as well as the $1,500 million spent on family allowances, some $575 million was outlayed on additional pension and benefit for children and family income supplement. Adding this figure to the share of family allowances that low income families receive (nearly $300 million) shows that of the total spending on these programs of $2,080 million, more than $870 million or 42 per cent goes to the low income families who have responsibility for around 20 per cent of dependent children. If spending on sole parent pensions and the mother's/guardian's allowance was included in these figures, then the concentration of spending on low income families would become even more pronounced. This should not be taken to suggest that there is some sort of imbalance in spending on low income families and families in general, nor that it may not be desirable to increase the concentration of assistance on low income families. This could of course be achieved by increases in income-tested payments just as well as income-testing of general payments, or some combination of both. The point is that the balance between universality and selectivity that is currently struck is often not appreciated if the analysis looks only at family allowances or the dependent tax rebates and not the tax-transfer system as a whole. Once again, there is an issue of perceptions. The income-tested programs for children are less visible, in part because their public presentation is not the same as that shown in Table 1. Rather, the Budget Papers include spending on additional pension and benefit and mother's/guardian's allowance in the relevant categories, either "Assistance to Widows and Single Parents", "Assistance to the Handicapped" or "Assistance to the Unemployed and Sick", while expenditures on family allowances and the family income supplement are separately categorised as "Assistance to Families". It is arguable that this presentation disguises the similarity between the goals and natures of these programs. The view that these general family assistance programs are not progressive instruments in themselves is. moreover, based on a misperception of the role and effects of these programs. Family allowances and the dependent spouse rebate provide support to persons in the high expense phases of their family life cycle, that is. when they have children. Families with children may appear better-off than other types of income units because many of the "other" groups are made up of older persons who are still in the workforce or who have retired and of younger groups who have less workforce experience. Many of these people will have lower incomes, but could be expected to have fewer needs relative to those incomes. In addition, they may have already received the benefits of these payments or could be expected to later in their lives, when they have Page 44

children. The proper perspective in which to look at these issues, therefore, is in terms of the distribution of the benefits of these programs over the life cycle and the distribution in terms of equivalent incomes. Even a point in time analysis suggests that these programs are more progressive than commonly conceded. Analysis of 1975-76 Household Expenditure Survey data suggests that family allowances are progressive in their incidence, accounting for 1.1 per cent of the income of the lowest income group in that survey and 0.2 per cent of the income of the highest income group. (Harding. 1984, pp 55-57). However, these figures assessed the distributional impact of family allowances against the incomes of all households, rather than just those with children. Excluding households without children (such as the very large number of aged households who are typically on low incomes) provides a more appropriate base for analysis of the incidence of family allowances. It is also necessary to take account of the relative income requirements of different family types. As discussed previously, equivalence scales can be derived from the application of econometric methods to data on household incomes and expenditures, but there is considerable debate about different approaches and no one method has attracted universal support (Whiteford. 1985). The OECD, however, have proposed the use of a set of scales for "countries which have not established their own equivalence scales," (1982) as part of its social indicators program. Recent research using these OECD equivalence scales has shown that family allowances are progressive. (Harding and Seymour. 1986). Once income is adjusted to reflect family responsibilities, more than 75 per cent of all outlays on family allowances in 1984-85 went to families with equivalent incomes below $20.000 (about the level of average weekly earnings). (1) Less than 7 per cent of outlays on family allowances went to families with adjusted incomes above $30.000. These results are illustrated in Table 11. Other recent work has assessed the distributional impact of the dependent spouse rebate. Helen Brownlee of the Institute of Family Studies (1985) has shown that 60 per cent of the male taxpayers receiving a full or partial dependent spouse rebate and without dependent children had incomes less than $20,000 per year and a further 32 per cent had incomes between $20.000 and $35.000 per year. Of couples with dependent children and where the male received a full or partial DSR, 45 per cent had incomes less than $20,000 per year and a further 46 per cent had incomes between $20,000 and $35.000 per year. If we take persons with incomes in the top tax bracket as well-off, then it is apparent that more than 90 per cent of the recipients of the DSR could not be so classified. Nevertheless, the DSR is

(1) It should be noted that the base for this analysis is a couple without children. Page 45


Number of Children

Percentage of families with original incomes under $20,000 under $30,000
69 68 66 70 70 94 68

Percentage of families with incomes adjusted to reflect family size under $20,000 under $30,000
83 93 95 97 100 100 93

1 2 3 4 5 6+ All families with children

44 35 34 40 37 74

58 71 83 89 94 100

Note: All figures estimated from data from the 1981-62 Income and Housing Survey and rounded to the nearest percentage point. Source: Harding and Seymour, 1986, p.27.

less progressive in its incidence at very low income levels than family allowances. The main reason for this is that low income groups pay limited income tax and therefore can take little advantage of the rebate. It is important to note, however, that the DSR is of great importance to some low income groups, particularly married beneficiaries. Since benefits are usually paid entirely to one spouse, married beneficiaries generally take full advantage of the DSR. ie. if it was not for the rebate they would be liable for an additional tax bill of $830 or $1030 per year. Additionally, it should be noted that proposals to income-test the DSR or to income-test or tax family allowances involve a redistribution of income, but only from the population who are married or who have children. For example, a cut in family allowances through their income-testing or taxing is no different in effect from an increase in the tax liabilities of those with children. If it is considered appropriate to increase the tax burdens of middle and higher income groups with children, horizontal equity would suggest that the tax burdens of high income individuals without children should be similarly increased. In fact, as previously discussed, the decline in the real value of family allowances since their introduction has constituted an effective shift in the tax burden away from individuals on to families with children. This effect would be accentuated if cuts in family allowances or the DSR were used to finance reductions in general income tax rates.

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From this example it follows that income-testing of a program does not unambiguously imply an improvement in vertical equity. This depends on how the expenditures saved are then spent. For example, the reduction of family allowances for persons with incomes above 150 per cent of AWE, say, could be used to finance an increase in the base rate of the allowance, an increase in income-tested payments, a general tax cut or a simple reduction in the Budget deficit. The first two alternatives are likely to improve progressivity. the third is not, while the last is more difficult to determine. Once again, it is important to look at the overall context in which a proposal is made.

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This paper has attempted to identify and discuss some of the horizontal and vertical equity considerations relevant to family assistance policies. The paper has described the extensive nature of current programs, which cover some 2.5 million families with 4.3 million children at an annual cost in excess of $4.000 million. It has been argued that when considering current arrangements or proposals for change, it is important to look at the system as a whole. The tax and social security components of the system overlap in terms of the population of recipients and interact to affect the disposable incomes and the rewards of work enjoyed by nearly all Australians. Only by considering the two systems together is it possible to provide a consistent analysis and to avoid unintended consequences of policy proposals. The paper briefly discussed the objectives of family assistance in terms of allowing for the differing abilities-to-pay of different types of families in the taxation system and in providing for the differing needs of families in the social seurity system. The paper discussed the proposition that the presence of children is a matter of choice and that therefore families with children do not require any distinct or special treatment. The paper argued that the issue of choice is outweighed by broader welfare and social concerns, and that in any case the relevance and meaningfulness of the idea of choice is uncertain in this area. The paper then discussed some concerns with current family assistance arrangements, in particular, the adequacy of payment levels, the continuing relevance of some programs in a period of profound social changes, and the balance to be struck between universal and selective income support. It was argued from an analysis of social and economic research and from international comparisons that assistance for low income families with children is inadequate, and from international comparisons that Australia is relatively ungenerous to average and higher income families with children. This conclusion was supported by an analysis of trends in the real value of family income security programs and in real disposable incomes over the last decade which suggested a shift in effective tax burdens away from persons without children on to families with children and also showed real declines in the disposable incomes of some low income families with children. The conclusions drawn in regard to the continuing relevance of current arrangements were more tentative. The central issues here are the appropriate income unit for social security and taxation purposes and the effects of the current system on the labour force behaviour and opportunities of women. These issues are closely inter-related and their resolution is in part a matter of personal values. All the family income support programs under consideration, in one way or another, provide support for persons in specified circumstances of dependency, usually somewhat narrowly defined. There are many persons concerned for differing reasons with the possibility Page 48

that these arrangements promote dependency, either. for example, of social security recipients on the rest of the population or of women on men and the State. What should be recognised is that current dependencies reflect conceptions of need and that any sweeping proposals for change may have implications that are not easily recognised. In discussing the priority to be given to universality or selectivity in family assistance, the paper argued that current arrangements are significantly more progressive than is often conceded. Whether individuals consider that family allowances or the dependent rebates should or should not be income-tested or taxed in some way is, however, ultimately a matter for personal preferences and priorities. It is important, nevertheless, to accept these programs for what they are; simply instruments through which certain objectives can be achieved to varying degrees. These programs should be judged by the extent to which they achieve these goals or the desired balance between goals. In making an appraisal of horizontal and vertical equity, adequacy, maximising incentives and reducing costs, perceptions about these programs should not be mistaken for reality. It is also important to bear in mind that the achievement of any one objective must to some extent be at the expense of others. As discussed in Part 1. this paper has raised these issues for consideration in the context of the current Review of social security programs. The issues raised are by no means the only concerns that will or should be addressed in the Review, since the paper has concentrated rather narrowly on horizontal and vertical equity concerns in relation to general family assistance programs. Nor should the arguments raised or the conclusions reached be thought to be definitive or unassailable. In this context, it may be useful to conclude the paper with a brief discussion of research and policy issues that could be explored further in the Review. Further research would be useful in a number of areas. There is a need for more up-to-date, reliable and comprehensive information about the costs of children, the financial circumstances of low income families and the economic position of families generally. In addition more detailed analysis of policies and practices in a range of overseas countries would be likely to indicate whether some proposed policy alternatives are feasible or whether familiar problems arise in differing forms. Finally, continuing detailed analysis of specific policy issues and alternatives would be valuable in its own right. Research on the costs of children could involve either the analysis of available statistics, the review of existing literature or small-scale studies or surveys. One priority would be the derivation of indicative equivalence scales from the 1984 Household Expenditure Survey. Previous analysis has been carried out by the Australian Bureau of Statistics (ABS) and the then Social Welfare Policy Secretariat, but on data from the 1974-75 and 1975-76 surveys. While it could not be expected that any new set of equivalence scales would not share Page 49

some of the problems of earlier estimates, the analysis of up-to-date data using a variety of methods would be a valuable input to considerations of the adequacy of social security payments for children. A closely related but even more complex issue is the costs and effects of disabilities on children. There is a good deal of overseas, particularly British, literature on this subject, but Australian research is scant. A similarly complex area is the impact of long term unemployment on families, where once again more research has been undertaken overseas than in Australia. The major concern here is with the effect of adult's unemployment on their children, not only in relation to financial impacts, but also social and psychological effects. A complementary area is the costs of working for families with children, and women and sole parents in particular. The debate on all these issues could profit from more detailed analysis of the available evidence and the attempt to verify that conclusions reached in other countries are relevant to Australia. Over the past twenty years there has been a significant growth in data on the distribution of income in Australia, as income surveys have become available - for example, these surveys include the Macquarie survey of 1966-67. the Income Distribution Surveys of the ABS in 1968-69. 1973-74. 1978-79 and 1981-82. the Household Expenditure Surveys of 1974-75. 1975-76 and 1984. the National Survey of Income for the Poverty Inquiry in 1973, the 1975 General Social Survey, the censuses of 1976 and 1981, and the 1982 Family Survey. At the current time, therefore. Australian social researchers are fortunate to have a variety of fairly recent data on income, expenditure and family patterns, as well as a series of income surveys, albeit a series in which the definitions and results of the surveys are not always comparable. Nevertheless, these and other data sources provide a base at least for attempting to determine aggregate trends in the distribution of income, as well as trends in family and household composition. labour force activity and unemployment, the growth in the numbers of sole parents, and trends in family formation and dissolution. One focus of such analysis could be the changing vulnerabilities of different types of families to economic and social stress and changes in dependency over this period. These data or particular sources among them would also provide a useful base for a review of the concept of the family life cycle and how it varies for different types of families in different circumstances. Such a study could throw light on how the needs and costs of children develop over time. An analysis of policy and practice in overseas countries would appear to be an indispensable part of the research to be undertaken in the Review. While there are great difficulties in making any sort of international comparison. such comparisons are often very illuminating. Evaluation of the effects of programs used in other countries is one of the few ways available of assessing the likely consequences of proposals for changes to current arrangements in Australia. While objectives and circumstances may vary markedly.

Page 50

international comparisons for the social sciences are analogous to experiments in the natural sciences. With due care, such comparisons could complement some consideration of specific policy issues. The sorts of issues that could be analysed include alternative mechanisms for assisting families through the tax system as well as the social security system, looking at the advantages and disadvantages of tax credits and direct expenditures as alternative forms of support. The question of the appropriate income unit in the tax and social security systems requires further investigation as, more specifically, does the treatment of women in the social security system. While considerable .research has been .undertaken in the past few years on poverty traps in the social security and related systems, further work is required on their practical significance. Such research would also provide an input into the debate on universality and selectivity in family assistance. The Australian discussion of the advantages and disadvantages of universality and selectivity would also benefit from a discussion of the British literature on means-tested benefits. This suggested range of research is itself only tentative. It has been suggested because the discussion of issues in the body of this paper should only be taken as one introduction to the issues to be considered in the Social Security Review. The Review process has itself only just commenced, and the determination of research priorities is properly a part of that process.

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No 1

B Cass, The Case for Review of Aspects of the Australian Social Security System/ June 1986

No 2

0 Donald, Social Security Reform, June 1986
K Ogborn, Social Security and the Labour Force Looking Ahead, June 1986 A Harding, Assistance for Families with Children and the Social Security Review, June 1986 P Whiteford, Issues in Assistance for Families Horizontal and Vertical Equity Considerations, August 1986

No 3

No 4

No 5

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