Alex Wadsley
THE BIGGEST winner out of the Tasmanian Public Service pay parity claim will be the Federal Government.
For a traditional nuclear family with 1 breadwinner, 1 carer and 2 kids, there are a merry go round of at least 6 payments to or from the government depending on income. There is income tax, medicare levy, low income tax offset, parenting payment, family tax benefit A and family tax benefit B.
The payments certainly help low income families get by, but the way that income tests are administered can create some bizarre effects, and this is not taking into account other issues like health care cards, state rebates or HECS. For a family with a sole earner at the bottom of the public service pay scales (earning $29,502 from the state government) the Federal government tips in an additional $14,451 dollars, after tax. The legacy of the Howard-Costello regime is that it pays to have a family.
In fact in order to get to a public servants who is a net tax payers (while supporting a partner and 2 kids) you have to get up to Administrative & Clerical 6-2, who earn $54,106 and whose net of benefits tax payments are $395.29.
At some points in the pay scales you can move backwards. Income tax is 30 cents in the dollar, Parenting Payments are reduced at 60 cents in the dollar, the Medicare Levy comes in initially at 10 cents in the dollar and the low income family tax offset is lost at 4 cents in the dollar.
You can earn a dollar and loose more than a dollar.
While this may be a one off example, if you move from Administrative & Clerical 2-1 to Administrative & Clerical 2-2 your salary goes up by almost $1300 dollars a year, unfortunately your family income goes backwards by $50. Get a promotion and your potentially $50 a year worse off. This is because you’re loosing Parenting Payment support, you start paying the medicare levy, and you’re loosing low income tax offsets, not to mention paying tax at 30%.
What does this mean for the public service pay claim? First off comparing the award and the salary scheme, the Tasmanian government is being asked to pay an extra $9,554 across the income scales considered (from A&C1-1 to A&C6-2).
This would bring a worker at the bottom of the scale from $29,502 today to $40,555 in 2011. Under the Award they would only be on $33,362, so the difference, $7200, is a quite substantial.
However take into account the loss of benefits and the tax rates, the net income increase will only be $575! The worker’s family will only see 8 cents for each extra dollar paid by the state government.
The rest goes to the Feds.
Treasurer Swan will be laughing all the way to the Reserve Bank
This effect is certainly worst for the lowest paid Tasmanian public sector workers and assumes that they are supporting a family. However if we assume that public servants are family breadwinners, of the average $9,554 paid across these pay scales by the state government, an average $5,487, almost 60% will go to the Federal government through increased tax and reduced benefit payments.
Tasmanian families are clearly under pressure from rising power bills, petrol prices, rising home mortgage rates and the high cost of housing.
The union is absolutely right to fight for every dollar they can, under the guise of parity or anything else.
However at this point the Federal government should be asked to come to the party; using funds raised from emissions trading auctions to straighten out the regressive mess between Centrelink and the tax office.
There should be a clear rule that no family should ever loose more then 50 cents of every extra dollar earned.
If the CPSU or HACSU negotiates a pay rise of $7200, it should be confident that at least $3600 will actually get to working families.
For the Federal Government this could be expensive. But given the opportunity to reshape the system coming from compensating for emission trading there is no better time to get the system right. Rates for high income earners are too low, and effective tax rates for low to middle income families are far too high. The disincentive to work and bureaucratic nightmare of the current system is adding to inflation and wage demands. And for that unions can’t be blamed.
Alex Wadsley is a lecturer in Macroeconomics at the University of Tasmania
Pay claim statistics are taken from the ‘A Better Tasmania’ website, tax and benefit thresholds from the ATO website and Centrelink.
http://www.abettertasmania.com/dwnlds_data/Table%207%20-%20IS%20A&C.pdf
Thresholds and payments for benefits, low income tax offset and medicare levy reductions are assumed to index at 3% per annum.
