Preserving the real benefits of fair pay

You write "single-income family of four, including two school-aged children, the federal minimum wage of $522.12 per week yields a disposable income, after tax and transfer payments, of $755 per week". How could the disposable income after tax and transfer payments be more than the minimum wage?

Some readers have queried the calculation of the disposable incomes of low income families who are dependent upon the earnings of a breadwinner who is employed on the Federal Minimum Wage. The figures were correct at the time of publication.

In the case of a family of four with two school-aged children the FMW of $522 per week resulted in a disposable income of $755 per week, after taxation and transfer payments. The transfers included Family Tax Benefit A and Family Tax Benefit B. These benefits totalled $226 per week, well in excess of the underlying income tax of $54 per week. (A single worker without dependents would have paid $54 per week, about 10% of his or her income.) The other component of the disposable income was the maximum amount of rent assistance of $61.00, which is assumed to be paid to these low income earners.

The disposable income needs to be re-calculated in the light of the tax cut of $8.65 per week from 1 July 2008 and the ongoing indexation of the transfer payments. Up to date calculations are available online by accessing the Commonwealth's Family Assistance Rate Estimator. In addition, the newly introduced education rebates will boost disposable income where relevant expenditure is incurred.

There will be some debate about whether the education rebates should be regarded as a transfer payments, boosting disposable incomes, or as a means of reducing the costs of living in particular respects. (A similar issue arises in relation to rent assistance). It probably wouldn't matter which side of the ledger the item appeared on, provided we had relevant data on living costs and education costs in particular. A major shortcoming of the minimum wages system in Australia is the absence of any realistic data on the costs of living for workers and their dependants. For a review of this issue see the Australian Catholic Council of Employment Relations submissions to the Australian Fair Pay Commission, March 2008.

A decision on the the Australian Fair Pay Commission's 2008 review of the FMW and other rates of pay is expected shortly, but the increases will not be operative until October 2008.

These figure show how far we have moved from the Harvester Wage Case of 1907 when the wage packet was the only means by which the working family was supported. A major part of the support for families is now from the public purse. The change, which is largely the product of the past two decades, has a profound impact on the debate about wages, taxes and government transfers. It has an impact on our views about the repective responsibilities of employers and governments.

If the wage packet had to provide the sole means of support for families, the income of $755 per week would require an increase in after tax income of over 60%. The increased used of the public purse has the effect of keeping wage costs down, with obvious economic benefits. This comes at a cost because taxes need to be raised. Despite this fundamental feature there is little public debate on the balance between the wage packet and the public purse.

There is a discussion of these matters in the book Workplace Relations: A Catholic Perspective, which was published last year by the Australian Catholic Council for Employment Relations. Also see the paper Minimum Wages in Australia: A Catholic Perspective. Both are available on the council's website.

If it is to do a comprehensive response to its mandate, the current Henry inquiry into taxation should explore these wages/taxation/transfer issues. In particular, it should consider the costs and benefits and of zero income taxation at the full time FMW and the appropriate balance between the public purse and the wage packet in regard to provision of minimally acceptable disposable incomes. A note of caution, however: any debate about these matters will be hampered by the absence of any realistic assessment of the income needed for a minimally acceptable standard of living.