How does the Budget Affect Us? Independent Modelling of the Federal Budget 2021-22

by Jinjing Li, Hai Anh La, Riyana Miranti, Yogi Vidyattama, Nhung Nguyen1

  • The report estimates the impact of major Budget 2021-22 policy proposals - these include increased welfare payments for selected beneficiaries from 1 April 2021, extending the Low- and Middle-Income Tax Offset (LMITO) by one year, and increasing the childcare subsidy for certain households to 95%.

  • The focus of this analysis is the national and regional impact on disposable income, the cost of childcare and housing stress.

  • Childcare subsidy and the extension of the LMITO will benefit mid and high-income groups.

  • The welfare payment increase primarily benefits poorer households.

  • It also finds that the likely impact of ‘stage 3’ tax cuts from 2024-25, which will be substantially greater and benefit higher income groups.

  • The report suggests that a reduced down payment for home buyers could see just over 5% of renters accessing home mortgages.

  • However, approximately 85% of renters would need to accept a mortgage repayment higher than their current rent.

Modelling Method & Data

The 2021-22 Budget introduces several changes to Australia's tax and transfer system, affecting many households, especially those with young children. We incorporate the relevant changes into a microsimulation model to estimate distributional impacts on the population. Specifically, we included:

This report uses the latest household data and simulations to examine the impact of the proposed policy changes on household disposable income and on childcare and housing affordability.

The data used in this report comes from the ABS Longitudinal Labour Force Survey (LLFS), the Survey of Income and Housing (SIH) 2017-18 and Australian Tax Office Single Touch Payroll (STP) data. Adopting the nowcasting framework described in Li et al. (2020), we combine multiple data sources to create a dataset that is representative of the Australian population.

The LLFS provides us with changes in demographic and employment patterns throughout 2018-2021, covering major changes due to COVID19 in each Australian SA42 spatial unit. The SIH provides the conditional income distribution we used to model the impact on household income of changes to government benefits. STP data captures the changes in wage during the COVID-affected period for each industry and age group. In our analysis, population characteristics, including employment patterns, are assumed to remain stable from the beginning of 2021.

We use STINMOD+, a tax-benefit microsimulation model, to simulate the direct impact on households of rolling out the 2021-22 budget measures. The model is commonly used to analyse the distribution of income in Australia. We made the following major assumptions in our analysis:

National Impact

We use the microsimulation model STINMOD+ to estimate how the 2021-22 budget impacts the distribution of income in Australia. Nearly two thirds of Australian families (income units) are expected to benefit from the proposed policy changes (i.e., gain at least one more dollar per week). The tables displayed below showcase our findings for each set of expected policy change in 2021-22 (extended LMITO), 2022-23 (Increased Childcare subsidy and LMITO withdrawal), and 2024-25 (Increased Childcare subsidy and Stage 3 tax cut).

Overall Policy Impact

Most families can expect to see their disposable income increase as a consequence of the increased welfare payment and reduced tax liability. For all other families there will be no direct impact. The table below reports the percentage of families affected by the upcoming policies and the average gain for those who benefit more than $1/week. As shown, around two thirds of families would benefit from increased welfare payments, e.g., JobSeeker, and from the extension of the LMITO. However, the number drops significantly the next year with the proposed LMITO phase-out. The Stage 3 tax cut scheduled in 2024 brings the largest gains in disposable income and is expected to cover almost 6 out of 10 families.

YearPercentage of families affectedAverage annual increase per family ($)
202165.31,206
202212.331,780
202458.682,229

The next table further explores the average change in annual disposable income by family type. Our analysis suggests that families with children are more likely to benefit from the proposed policy change than other types of families.

Group3Family type% of families in each typeAverage annual gain per family ($)
Positively affectedSingle55.84879
Positively affectedSingle parent79.701,263
Positively affectedCouple only61.201,386
Positively affectedCouple with children87.311,492
NeutralSingle44.160
NeutralSingle parent20.300
NeutralCouple only38.800
NeutralCouple with children12.690

Redistribution Effects by Income and Wealth Groups

This section examines how the announced policy changes will redistribute income. Disposable income in this estimation includes rebates such as the health insurance rebate and childcare subsidies. Net wealth estimates are derived from the ABS Survey of Income and Wealth 2017-18. Each quintile is calculated based on the equivalised disposable income in the entire population. Q1 is the poorest quintile (bottom 20%) and Q5 is the richest quintile (top 20%).

2021-22

Income Redistribution by Family Type and Income Groups

In 2021-22, our analysis suggests that the increase in JobSeeker and other welfare benefits will increase the disposable income of lower-income families, while increases from the LMITO benefit will more likely flow to mid and high-income families.

When the new childcare subsidy commences from 2022, our estimates suggest increased welfare payments will continue to assist those in the first quintile, while the childcare subsidy will assist those in the mid and high-income groups. As the childcare subsidy accrues to working families only, and the largest benefit goes to families with mid to high income, a family with annual income greater than $129,000 would benefit the most.

The Stage 3 tax cut, which is scheduled for 2024-25, will also favour higher income families. The impact on disposable incomes from the tax cut will be much greater than LMITO and childcare subsidy changes.

2021-22

The 2021-22 Budget Impact on SA4 Regions

The maps below show the impact of the budget on family average disposable income. The dark red colour shows the highest increase in disposable income, while the dark blue colour shows the lowest increase. As we can see, the impact of the budget varies across regions, but the patterns are mixed except for the 2024-25 policy changes, where we see the wealthier regions benefitting the most. The geographical unit is based on the the Statistical Areas Level 4 (SA4), which corresponds to the largest sub-state regional division in the Australian Statistical Geography Standard (ASGS). It usually has a population of around (100,000-300,000) in regional areas and between 300,000-500,000 in the metropolitan areas (ABS, 20162). The SA4 region is considered a labour market region reflecting the highest degree of interconnectivity between labour supply and demand (ABS, 20162). Proceeding to some minor adjustments leaves 88 SA4 regions for the analysis. Except for the ACT, each state has more than one SA4.

2021-22

Child Care

New Childcare Subsidy

As part of the 2021 Budget, and starting on 1 July 2022 the Government will:

National Patterns in Child Care Use

The latest data shows there are over 1.3 million Australian children using childcare services (Department of Education, Skills and Employment, 20204). Around two-thirds are young children attending centre-based care or family day care and less than half a million attending Outside School Hours Care (OSHC). Children in childcare represent 45.1 per cent of children aged 0-5 years and a total of 31.8 per cent of children aged 0-12. However, there is still an existence of barriers to care such as the difficulties of finding available care within a specific geographic area, and high fees discouraging access to childcare services (Cassells and Miranti, 20125).

This section provides an analysis of potential improvements to childcare affordability and the impact of changes in the childcare subsidy, by comparing the conditions before and after the 2021 Budget. The analysis makes extensive use of the out-of-pocket ratio (out-of-pocket expense as a proportion of the total family disposable income). Out-of-pocket cost is calculated as the childcare fees less the childcare subsidy. We assume children aged 0-5 attend a local, centre-based childcare (for 10 hours a day) on the days parents work. Further, we also assume all children aged 6-12 old attend OSHC care for 4 hours on days their parents work. This assumption is slightly higher than the average childcare use pattern reported by the Department of Education (an average of 30 hours per week for young children attending childcare and 13 hours per week for older children attending OSHC) and does not consider informal cares provided by family members or others. We allow for hours variation by the labour force status of the parents, e.g., full time, part-time or no work at all. Additionally, we report the differences in the out-of-pocket ratio before and after the 2021 Budget, both as a percentage point change, as well as a percentage change of out-of-pocket cost relative to its pre-budget equivalent.

We present the analysis by income level and family type. We also present the calculation at the regional SA4 level. For simplicity, and unless mentioned otherwise, childcare also includes OSHC. Due to data limitation, the regional SA4 cost data only includes centre-based day care and OSHC. We do not have cost data at the SA4 level for family day care.

Patterns of Child Care Cost

To analyse the impact of the 2021 Budget announcements on out-of-pocket childcare costs, and how these compare for low, middle and high-income families, we used the latest published local childcare price data published by the Department of Education, Skills and Employment (DESE). We made the following assumptions:

Families with Children

The graph below shows pre- and post-budget out-of-pocket costs relative to household disposable income, and government subsidy for families with at least one dependent child under 15. For each family type there are marked variations across income quintiles. However, all family types exhibit a common pattern: the out-of-pocket ratio (out-of-pocket cost to disposable income) increases as income increases up to the fourth quintile, then declines for the fifth quintile (see figure below). On average, families with children spend in a range of 1 to 7% of disposable income on out-of-pocket childcare cost.

The out-of-pocket ratio for single parents (see Table above) is low for families in the bottom quintile, who spend less than 1% of their disposable income on childcare. However, this finding should be interpreted with caution since only 16% of single parents in the Q1 quintile use childcare services. This stands in contrast with high-income single parents in the top quintile who spend 3.4% of their disposable income on out-of-pocket childcare cost. Notably, 55% of high-income single parents use childcare services (3 to 4 times more than low-income single parents).

Like single parents, couples with children in the bottom income quintile spend little of their disposable income on childcare cost (around 1%), whereas the top quintile of couples with children spends around 5% of their disposable income on childcare. The highest out-of-pocket ratio (6.6%) is found among couples with children in the fourth quintile.

This pattern curve may reflect childcare usage across income gradients. Childcare use increases when income increases (particularly among couples with children) which increases absolute expenditure. On the other hand, childcare becomes more affordable as income gets higher, which reduces relative expenditure. Our analysis suggests that the latter effect overcomes the former beyond the Q4 income quintile, reducing the out-of-pocket ratio for the Q5 quintile.

Post-budget, families with more than one child aged 0-5 are expected to benefit from the increase in the childcare subsidy. Several potential implications flow from the 2021 Budget. First, we expect to still observe the same pattern of relationship between the out-of-pocket ratio and income quintiles prior to the 2021 Budget. Second, the 2021 Budget potentially makes childcare more affordable for families, but the impacts will differ depending on the income level and family type. Third, the impact of the 2021 Budget is likely to be largest for families with children in the Q4 income quintile and lowest for families in the bottom Q1 quintile. The removal of the $10,560 cap on the subsidy will mostly benefit mid to high-income families with children.

Families using Childcare

The graph below further investigates the potential impact of the 2021 Budget policy among childcare-using families. The 2021 Budget potentially makes childcare more affordable across family types and income quintiles. The out-of-pocket ratio (out-of-pocket cost relative to disposable income) decreases slightly by 0.5 percentage points for single parents and 1.1 percentage points for couples with children.

Discernible patterns among childcare-using families include the positive relationship between family income and percentage point increases in the ratio up to the fourth quintile. Childcare-using parents in the fourth income quintile will benefit the most (by more than three times childcare-using parents in the bottom Q1 income quintile - as indicated in the figure below).

Regional Variation in childcare cost

Where a family lives affects their childcare cost. This section estimates the childcare cost of families at the spatial level and compares this cost to the average disposable income of these regions. A lower percentage indicates a more affordable region. We use the Statistical Areas Level 4 (SA4) as our reference spatial unit.

New South Wales has the largest share of children attending registered childcare centres (32.6%) whereas the Northern Territory has the smallest share (0.82%) (Department of Education, 20204). The proportion of families with children in childcare differs across regional divisions. The Sydney - Southwest SA4 has the lowest percentage (36.33%) whereas the Northern Territory - Outback SA4 returns the highest percentage (65.18%).

There is also a great deal of variation in childcare cost across regional divisions. Daily rates of average centre-based day care can be as low at $75 in NT - Outback and as high as $142 in the Sydney - Eastern suburbs regions. of Centre-based childcare fees in the major cities tend to be higher than in regional areas. OSHC daily fees exhibit a much slimmer range (from $23 in Queensland - Outback to $48 per day in WA - Outback - South).

Reconciling the current childcare subsidy with average disposable income in the regional divisions enables us to map childcare affordability across regions. The table below identifies the five SA4s with most affordable childcare (the five areas with the lowest ratio of out-of-pocket childcare expense relative to disposable income). These regions are all in regional Australia (Queensland-Outback and Wide Bay in QLD, Mid-North Coast and Richmond Tweed in NSW, South Australia - Outback in SA) and have out-of-pocket ratios well short of 6.5%. At the other end of the spectrum, the five regions with least affordable child-care are located in the capital cities of Sydney (Eastern suburbs, North Sydney and Hornsby, Ryde), Melbourne - Inner South, and Perth – Inner. These regions all have out-of-pocket ratios exceeding 12.3% and are also characterised by a high proportion of families using childcare (45%).

Overall, we find that the proposed budget measures on childcare will only marginally improve regional affordability (by up to 1.4 percentage point). The announced changes will tend to improve affordability in areas which are currently less affordable. The top five regions which stand to benefit most from improved affordability are Sydney (Blacktown and Ryde), Melbourne - Inner South, Latrobe – Gippsland, and the ACT, which are mostly capital city areas. Our model suggests Latrobe-Gippsland will experience the highest improvement in affordability (a 15.3% percentage point improvement) while the Queensland - Outback area will experience the lowest improvement (less than 1%).

In summary, our analysis suggests that the proposed changes in childcare policy may improve childcare affordability but mostly for those in the middle and high-income groups. The spatial impact tends to vary. An important caveat is that childcare prices may increase due to increased demand post-budget. The long-term effect of the policy on demand and prices may then reduce (or erase) our predictions of improvements in childcare affordability. Additionally, budget-induced behavioural change may also lead to different patterns in childcare use which our analysis would not capture.

Housing Analysis

Housing Stress in Australia

The issue of housing stress has become a much-debated issue in Australia, which has not eased during the pandemic. The impact of job losses leading to the fear of failing to pay one’s rent or mortgage, an increased risk of homelessness, and the continuing increase in housing prices have heightened housing stress in Australia, leading to a need to understand the level of financial stress for renters and home buyers throughout this period.

To analyse this, we used two measurements. The first is the ratio of median housing cost (rental costs for renters, and home loan payments for those with a mortgage) to disposable income. The second is the percentage of those above the extreme financial stress threshold (mortgage). We consider this threshold to be 60% of the household’s disposable (after tax) income (the normal threshold used is 30% of gross household income) (Nepal et al., 20108).

The ratio of median rent to median disposable income for renters actually decreased from 22.8% in 2018 to 22.0% in 2019 and 21.1% in 2020. However, the rapidly increasing rent in some areas caused a jump to 23.0% in 2021 before the budget. (Note that in 2019 wages kept up with rent increases, and JobKeeper and JobSeeker assisted with keeping the ratio from rising in 2020).

This trend is also reflected in the extreme financial stress (rent) measure, which has declined from 5.8% in 2018 to 5.0% in 2020 but jumped to 6.6% in 2021. The rate of extreme financial stress (mortgage) is estimated to drop from 3.9% to 3.5% in 2021, mainly due to the lowering interest rate.

Q1Q2Q3Q4Q5
2018
Median Disp Income of renter ($/fortnight)1,216.052,476.953,350.124,198.605,856.27
Median Rent costs ($/fortnight)460.00660.00700.00700.00900.00
Percentage Rent37.8%26.6%20.9%16.7%15.4%
Pct of household above threshold17.4%1.7%1.7%0.0%0.4%
Median Disp Income of mortgage payer ($/fortnight)1,888.113,047.923,731.874,843.926,847.63
Median mortgage payment ($/fortnight)658.00700.00800.00880.001,116.00
Percentage Mortgage34.8%23.0%21.4%18.2%16.3%
Pct of household above threshold25.2%2.5%2.1%0.7%1.0%
2021
Median Disp Income of renter ($/fortnight)1,239.302,603.773,451.214,464.156,344.10
Median Rent costs ($/fortnight)502.83684.28752.98763.44929.47
Percentage Rent40.6%26.3%21.8%17.1%14.7%
Pct of household above threshold20.0%1.9%1.5%0.0%0.0%
Median Disp Income of mortgage payer ($/fortnight)1,946.473,136.903,888.495,160.327,354.29
Median mortgage payment ($/fortnight)649.69726.44766.55891.341,131.01
Percentage Mortgage33.4%23.2%19.7%17.3%15.4%
Pct of household above threshold23.5%2.7%1.3%0.7%0.4%

The table above shows that the impact on housing financial stress is unevenly distributed. The estimates indicate that the increase in extreme financial stress is much more prevalent among households with lower income. In the lowest quintile, the proportion of those who face extreme financial stress due to rent increases from 17.4% in 2018 to 20.0% in 2021. The second-lowest quintile also experienced an increase in extreme financial stress from 1.7% to 1.9%, while the other quintiles see a decrease in the proportion.

However, this is not the case with mortgage payers, where in the lowest quintile the proportion of those facing extreme financial stress decreases from 25.2% to 23.5%, while in the second lowest it is increased from 2.5% to 2.7%. The difference is in the fourth quintile, where there is an increase in the proportion facing stress due a higher proportion of buyers compared to renters.

We further analyse the difference based on the household composition. The issue of extreme financial stress due to housing cost is mainly felt by singles and single parents with 14.9% and 6.2% of singles facing rent and mortgage extreme financial stress, while the figure was 5.8% and 5.4% for single parents facing rent and mortgage extreme financial stress. The estimate for singles has been increased from the 2018 level while it is relatively the same for single parents. The figure for mortgage extreme financial stress is lower in single parents as the 2018 estimate is at around 7%, which is higher than that of singles at 6.1%.

CoupleSingleCouple with childrenSingle parent
2018
Median Disp Income of renter ($/fortnight)3,433.111,332.173,815.492,402.31
Median Rent costs ($/fortnight)760.00500.00730.00600.00
Percentage Rent22.1%37.5%19.1%25.0%
Pct of household above threshold3.6%12.1%1.9%5.8%
Median Disp Income of mortgage payer ($/fortnight)4,024.402,238.004,921.023,216.98
Median mortgage payment ($/fortnight)828.00654.00920.00718.00
Percentage Mortgage20.6%29.2%18.7%22.3%
Pct of household above threshold5.5%6.1%2.8%7.0%
2021
Median Disp Income of renter ($/fortnight)3,577.981,316.164,052.622,562.01
Median Rent costs ($/fortnight)813.29552.96777.73645.12
Percentage Rent22.7%42.0%19.2%25.2%
Pct of household above threshold3.8%14.9%1.8%5.8%
Median Disp Income of mortgage payer ($/fortnight)4,262.882,340.885,230.893,267.67
Median mortgage payment ($/fortnight)822.01647.79927.32724.41
Percentage Mortgage19.3%27.7%17.7%22.2%
Pct of household above threshold5.2%6.2%1.9%5.4%

Another movement in the estimate is at the regional level. Using SA4 geographical boundaries, the areas facing higher rental stress has moved from mainly in Sydney in 2018 (including City and Inner South; Eastern Suburbs; Inner West; Parramatta and Ryde) to the more regional areas in 2021 which include the Capital Region, Coffs Harbour - Grafton, Mid North Coast, Richmond - Tweed and Sunshine Coast. The movement of stress level is much less for mortgage stress. While in 2018 several Sydney locations are included (i.e., Inner Southwest; North Sydney and Hornsby; Northern Beaches), the stress is estimated to move to Sydney - Inner West and Southeast of Tasmania, while areas such as North Sydney and Hornsby, Mandurah and Western Australia’s Wheat Belt have been in mortgage stress for both periods.

Lowering Deposit Requirement

Next, we look at the impact of the government housing initiative. This includes the initiative of a five per cent deposit scheme, with the government offering to guarantee the remaining mortgage of 10,000 first-home buyers purchasing a new dwelling (the federal government will guarantee up to 15 per cent of the loan). An additional measure is the two per cent deposit scheme for single parents buying their first home, translating to a federal government guarantee of up to 18 per cent of the loan. To be eligible, the applicants must be Australian citizens, at least 18 years of age and have an annual taxable income of no more than $125,000 or combined income no more than $200,000 for couple.

Our estimation shows that there could be 5.4% of private renters who have enough savings to get into the housing market, but 85.4% of them will need to pay a higher repayment on their home loan compared to their current rent. This could reduce the take-up. Nevertheless, this number includes the single parents eligible for the 2 per cent deposit scheme. Since the single parents have a more generous scheme, it is estimated that 7.4% of single-parent renters are likely to take advantage, given their savings.

CoupleSingleCouple with childrenSingle parent
2021 without new budget housing policy
Pct of household above rent threshold3.3%14.8%2.3%6.4%
Pct of household above mortgage threshold6.0%9.2%2.3%6.6%
Pct of household above threshold4.4%12.2%2.2%5.8%
2021 with new budget housing policy
Pct of household above rent threshold3.5%14.6%1.7%5.7%
Pct of household above mortgage threshold6.5%14.0%2.4%9.6%
Pct of household above threshold4.8%13.4%2.1%6.3%
Additional buyer4.7%4.6%4.1%7.4%
Proportion of buyer paying more than current rent76.4%88.7%92.3%87.1%
Additional household above threshold0.4%1.2%-0.1%0.5%

In terms of the income distribution, the possible take up is less likely to come from the lowest income quintile. However, the second lowest income quintile is likely to be interested, although this is likely to increase their housing extreme financial stress by 0.5 percentage point. The other group that is likely to be interested is those in highest income quintile and still renting (these are likely to be young professionals who are able to save) and this may lower their housing extreme financial stress.

Q1Q2Q3Q4Q5
2021 without new budget housing policy
Pct of households above rent threshold20.0%2.4%1.4%0.0%0.0%
Pct of households above mortgage threshold27.4%3.9%1.5%0.8%0.6%
Pct of households above threshold20.9%2.8%1.3%0.5%0.3%
2021 with new budget housing policy
Pct of households above rent threshold19.1%2.1%1.6%0.0%0.0%
Pct of households above mortgage threshold31.8%5.6%2.1%1.1%0.5%
Pct of households above threshold21.8%3.4%1.7%0.6%0.3%
Additional buyer4.3%7.9%5.1%6.3%7.9%
Proportion of buyer paying more than current rent86.9%83.1%88.2%82.4%87.7%
Additional household above threshold0.8%0.5%0.4%0.2%-0.1%

Most of the interest comes from inner-city areas, including Brisbane, Sydney, Melbourne and Adelaide. However, the scheme also has a price ceiling (which is below the median house price of most capital city areas) and potential homebuyers in the city can only take this opportunity if they find a suitable house on or below the price ceiling. Regional Queenslanders may also take up the scheme (although it is hard to comment on outback Queensland due to the variation in this vast area).

About NATSEM

NATSEM undertakes independent and impartial research that contributes to policy design and analysis. Our work includes models that show how policy scenarios shape tax and welfare payments. This report is based on the STINMOD+ tax and transfer microsimulation model. NATSEM has no affiliation with any political party and received no external funding to conduct this budget analysis.

Suggested Citation

Li, Jinjing, La, Hai Anh, Miranti, Riyana, Vidyattama, Yogi, Nguyen, Nhung (2021) How does the Budget Affect Us? Independent Modelling of the Federal Budget 2021-22, NATSEM research note, https://stinmod.canberra.edu.au/research/budget/brochure/brochure2021


  1. The authors would also like to express their gratitude to Ben Freyens and Krista Schmeling for their assistance in editing. 

  2. ABS (2016) Australian Statistical Geography Standard (ASGS): Volume 1 - Main Structure and Greater Capital City Statistical Areas, July 2016, viewed 3 May , 2021. https://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/1270.0.55.001~July%202016~Main%20Features~Statistical%20Area%20Level%204%20(SA4)~10016 

  3. A family is considered as "Positively affected" when the disposable income is expected to increase by more than one dollar per week. A family is considered as "Neutral" when the expected change in the disposable income is less than one dollar per week. Add a family is considered as "Negatively affected" when the disposable income is expected to decrease by more than one dollar per week. 

  4. Department of Education, Skills and Employment (2020), Child Care in Australia, viewed 3 May , 2021.https://www.dese.gov.au/key-official-documents-about-early-childhood/early-childhood-and-child-care-reports/child-care-australia 

  5. Cassells, R. and Miranti, R. (2012) Outside school hours care: social gradients and patterns of use. Report prepared for Social Justice Unit, Uniting Care: Children, Young People and Families, NATSEM Other Publication - OP98. 

  6. Sorted by cost-income ratio before budget. 

  7. Sorted by change in cost-income ratio. 

  8. Nepal, B., Tanton, R., & Harding, A. (2010). Measuring housing stress: how much do definitions matter? Urban Policy and Research, 28(2), 211-224.