HUNDREDS of thousands of Australians will have their family benefits reduced, and about 70,000 families will be cut off benefits altogether, under Labor's reforms to get the federal budget back in the black.
As debate over the government's cuts to middle-class welfare dominated reactions to Tuesday night's budget, it emerged yesterday that the wealthiest three per cent of families now receiving benefits are likely to lose them altogether.
Opposition Leader Tony Abbott accused Labor of launching "class war" and asked Prime Minister Julia Gillard: "Why is the government tougher on families than on border protection?"
Mr Abbott and shadow treasurer Joe Hockey accused Labor of dodging tough spending cuts, but at the same time opposed key spending cuts Labor did make above all, to family payments.
The government hit back, arguing that cuts had to be made, and its moves trimmed only a small part of the $100 billion-plus that it will pay families over the next four years.
Under the plan, the mainstream Family Tax Benefit A will still be indexed for inflation, and the largest benefit, now $6161 a year, will be paid to parents of all teenagers still at school, rather than just those aged under 16. But the budget will:
Freeze the upper thresholds for benefits at the top end for two years, so that as incomes rise, parents on higher incomes will lose benefits faster, and ultimately lose them altogether.
Freeze the threshold for Family Tax Benefit B at $150,000, so that families will lose the benefit designed by John Howard for stay-at-home mothers, then extended to those working part-time as the income of the principal breadwinner tops $150,000.
Freeze the end-of-year supplements paid to all recipients of both benefits, which began life as the $600 "cash splash" offered by Mr Howard to families at the 2004 election.
The government estimates that 31,000 families will lose Family Tax Benefit A in the first year of freeze, which implies that up to 70,000 families could lose their benefits by the end of year two.
Hundreds of thousands more would have their future benefits reduced as their incomes topped the thresholds, mostly around $100,000, but varying with the number of children and their age.
The freeze on benefits for the supplement would hit all the 1.9 million families on benefit A and 1.6 million on benefit B. But their losses would be relatively minor, at most $20 per child in year one, rising to $69 per child in year three.
Ms Gillard said yesterday the government had to take tough decisions. "Family payments will still increase under this budget", she said. "All fortnightly rates will still increase under family Tax Benefit A and B", she said.
Mr Abbott said: "This is a government which thinks that a policeman married to a nurse is part of a super rich family. This is a government that thinks that two school teachers living as a family in Sydney are super rich.
"Why is this government always targeting people who want to get ahead? This is a government which is not tough on waste but is tough on families".
Treasurer Wayne Swan defended the government's commitment to families. "We've increased the Child Care Cash Rebate from 30 per cent to 50 per cent", he said. "We've added schools uniform to the Educations Tax Rebate. So there's a lot we are doing for families under financial pressure."
Mr Swan said there would be a "really healthy debate" over family payments and how to simplify the tax and transfer system in the lead-up to the October tax summit.
He told a post-budget lunch that the intersection of taxes and welfare clawbacks created high effective marginal tax rates. While the government's reforms had taken pressure off some of the worst effective marginal tax rates, he said there was "more work to be done in that area".
Roughly 40 per cent of the money saved by freezing the thresholds would be recycled to pay far more generous benefits to parents of 16-to-19 year-olds, provided the children are still at school.
Families Minister Jenny Macklin said the measure, which was recommended by the Henry tax review, "will help families with the cost of raising teenagers, and encourage teenagers to stay in school".
"The families of around 650,000 teenagers turning 16 over the next five years could benefit from these substantial increases, if the young person stays in school," she said.
Equipping young Australians with the skills needed to find a job, and using carrots and sticks to get people from welfare to work, were the twin themes of the budget, along with getting the bottom line back in surplus.
