Better rewards from working

Rewards from work

This package improves the rewards from work for families, particularly those on low or middle incomes.

When the Government came to office, families on average earnings faced high effective marginal tax rates (EMTRs). The introduction of A New Tax System in 2000, saw these EMTRs reduced significantly. The measures in this Budget will reduce them further.

Family Tax Benefit, Part A

From 1 July 2004, the withdrawal rate between the maximum and base rates of FTB (A) will be reduced from 30 per cent to 20 per cent. This will increase rewards from work for lower and middle income families by reducing effective marginal tax rates. It builds on the reduction of the withdrawal rate from 50 per cent to 30 per cent in 2000.

The chart above illustrates how EMTRs will have fallen for families benefiting from this change. Compared to 1999, effective marginal tax rates for such families will have fallen from 84 per cent to 50 per cent.

Family Tax Benefit, Part B

From 1 July 2004 there will be a reduction in the FTB (B) income test withdrawal rate for the second earner from 30 per cent to 20 per cent. As well, the income test threshold will be increased to $4,000 a year from its existing level of $1,825. Over 550,000 families will benefit.

This means that a second earner in a family with a child aged under 5 will continue to receive some FTB (B) up to an income of $18,600 a year (currently $11,559). If the youngest child is over 5, the income limit under which some assistance is available will increase to $14,184 a year (currently $8,614).

This will improve rewards from work for families where a second earner is in part time or casual work, providing additional assistance for women returning to work after having children. It expands choice for Australian women.