• Robert Tanton
• NATSEM

12 August 2009The National Centre for Social and Economic Modelling does the sums on the government's spending...

THE RUDD GOVERNMENT's household stimulus package has been an important part of a series of policies designed to stimulate the Australian economy in a time of international financial crisis. The household stimulus package consisted of four payments:

• A tax bonus paid to anyone working and receiving a taxable income of $100,000 or less ($900 on taxable incomes up to $80,000, $600 on taxable incomes between $80,001 and $90,000, and $250 on taxable incomes between $90,001 and $100,000).

• A single income family payment, which was paid to families with only one income and who received Family Tax Benefit Part B payments from the government (which limits the payment to families where the highest income earner earns less than $150,000).

• A back to school bonus, which was paid for each school child to families receiving FTB A (this payment has a complex income test, which depends on the number of children aged 0–12 and 13–15).

• A training and learning bonus, paid to people receiving government payments for studying.

The system of four payments was very complex. Not only did the payments have income criteria, but the tax bonus and training and learning bonus were paid to individuals – so a family could receive more than one payment – while the single income family payment and the back to school bonus were paid to families. It is therefore difficult to identify which families benefited most from the stimulus package.

On the face of it, the package appears to target funds to middle income earners. In particular, the main payment (the tax bonus) was only paid to people who were employed, so was not available to low income retirees, nor low income unemployed. Further, to receive the single income family payment, one person in the family needed a job.

Recent analysis by the National Centre for Social and Economic Modelling at the University of Canberra (NATSEM) confirms this impression. The stimulus package was modelled using a microsimulation model called STINMOD, which can show the effect of any changes to the federal government’s tax and transfer system. The complex rules from the household stimulus package were programmed into STINMOD, and these rules were then applied to a number of people from one of the surveys conducted by the Australian Bureau of Statistics.

The analysis showed that only 18.5 per cent of low income families gained from the household stimulus package, and the average gain for this group was about $29 per week. This group would have included retirees, who were not eligible for any of the payments described above.

Most of the beneficiaries from the package were in the middle income brackets, who gained on average about $32 per week. The highest income group gained on average about $24 per week, so the package benefited the rich less than it did the poor and middle income groups.

Looking at the gains for specific family types, sole parent families benefited the most from the package, with about 99 per cent of them gaining something, and the average gain being nearly $47 per week. About 95 per cent of families with dependents gained, with the average gain of $46 per week. Single people gained the least, with only 55 per cent coming out better off, and the average gain being $17 per week.

When we looked at the different payments, we found that the tax bonus favoured richer families and families with married couples (with or without children). This may be because the tax bonus was paid to any individual in a family who was working (and so paying tax). Larger families, with more people working (Mum, Dad and an older child) would have received more payments under the tax bonus. The single income family bonus, the back to school bonus and the training and learning bonus mainly benefited sole parent families, and this contributed to the $47 per week average gain for this group.

The interesting result from this analysis was that overall the household stimulus package mainly went to middle income earners. Low income earners and high income earners did not gain much from the stimulus package. This may have been intentional, and targeting the main payment to workers certainly excludes lower income earners not in the labour force.

The other interesting result was that the group of people benefiting most from the package was sole parent families and families with dependents. This was because many of these families received a tax bonus, a single income family bonus, a back to school bonus and a training and learning bonus. So the policy (intentionally or unintentionally – only the policy makers can answer that) benefited middle income Australian families the most. •

Robert Tanton is Principal Research Fellow at the National Centre for Social and Economic Modelling (NATSEM)

Photo: Andrew Jeffrey