Friday, May 13, 2011

Mystery of dependent spouse

ONE of the biggest budget savings would be made by stopping taxpayers claiming the dependent spouse tax offset if the dependent spouse is under 40. The budget estimates that this will save other taxpayers $220 million in 2012-13, the saving rising.

That's a lot when the maximum offset you can claim is $2100, and the average in 2007-08 was $1614. That implies that at least 120,000 taxpayers will be losing the benefit or 30 per cent of all those now on it.

And yet there has been virtually no public reaction, no outcry. Tony Abbott said he was "instinctively" against it, but then Tony is instinctively against everything Labor does. Compared to the outcry over means tests on family benefits, it has barely registered.

Yet if you could fill the MCG with people who will lose $2000 from it, why aren't we hearing about it? Is it because for under 40s, the idea of being a dependent spouse at home without children seems archaic?

Labor hopes so. It sees the benefit, introduced in 1936, as a relic from another age. The Henry review argued that it reduces the incentive for the spouse to seek a job, and should be limited to carers, the disabled and the elderly.

What's the plan?

From July 1, you would get the tax offset only if your spouse was born before July 1, 1971. Labor was more timid than the Henry panel, which implied a cut off more like 1946. Treasurer Wayne Swan says setting 40 as the cut-off age "recognises that dependent spouses who may have been out of the workforce for many decades would find it more difficult to find jobs." But the 1971 date would be fixed, so the threshold age for the tax offset would rise to 45, then 50, and so on.

The new rule will not apply to dependent spouses who are carers, invalids, permanently unable to work, in a remote zone, or accompanying a partner on overseas service.

Will mothers at home still get it?

No, they don't get it now. If you're a dependent spouse with young children, you will be on the more lucrative Family Tax Benefit B and under the rules, you can't get both.

Then who gets it?

That's the mystery. In 2007-08, 401,625 taxpayers claimed the benefit. Apart from those earning less than $25,000 a year, they made up 4 to 5 per cent of every income group above that. The battlers and the rich claimed the same benefits in the same numbers. But is it true that one in three of their spouses are under 40?