Bills Digest 36 1996-97 Family (Tax Initiative) Bill 1996


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WARNING:
This Digest is prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest was available from 3 October 1996.

CONTENTS

Passage History

Family (Tax Initiative) Bill 1996

Date Introduced: 11 September 1996
House: House of Representatives
Portfolio: Social Security
Commencement: 1 January 1997

Purpose

To provide, through the social security system, periodic payments to certain lower income families with children and an additional payment to certain families where they have a child under 5. The payments will be subject to income tests and are equivalent to tax rebates that will be available to higher income earners.

Background

The Family Tax Initiative (FTI) was announced on 18 February 1996 at the Coalition Policy Launch for the 1996 General Election. The Coalition Launch Statement states:

One of the greatest challenges of modern family life is to balance effectively work commitments and goals with family responsibilities and aspirations. Any credible family policy at a government level must be directed at helping families to achieve that balance. A Coalition Government will have this objective as one of its key priorities.(1)

Central to the assistance to families with children is the FTI, which was estimated in the Launch Statement to cost approximately $1 billion per year. The FTI is comprised of two components, which are examined below in the form originally announced. Changes to the scheme as proposed by this Bill and the associated Income Tax Rates Amendment (Family Tax Initiative) Bill 1996 will also be discussed below.

The components of FTI are:

  • Part A: An increase in the tax free threshold of $1000 for each dependent child (ie children under 14 and those up to 18 who are in full time education). There will be an income test based on the family income of $70 000 which will increase by $3 000 for the second and additional children. The increased tax threshold is not available if family income exceeds this amount.
  • Part B: A component available to 'single income' families, including single parents, with at least one child under 5. This component will provide an additional increase in the tax free threshold of $2 500. The measure will be subject to a income test of $65 000 for the principal income earner, with an increase of $3 000 for each additional child regardless of the age of the child. It was also announced that the benefit would be subject to a second income test based on the partner's income which would come into effect when 'the non-working spouse in a couple family' earned $398 per week.

The FTI provides for payments through the social security system to those earning less than $20 700 per year at a rate that is equivalent to the amount that would be available under the above changes to the income tax threshold. A single income family would have the option of receiving an equivalent amount as an up-front payment or through the normal tax system while single parents would have the option of receiving the up-front payment or periodic payments to the same value.

As noted above, the original proposal was subject to some changes. Major differences between the FTI as originally announced and the current proposals are:

  • The amount that a non-working spouse may earn under the second component of FTI will be substantially lower. Following the announcement of FTI, there were criticisms of the level of the spouse income test and the announcement that it would apply to single income families where the spouses income was from 'non-working'. It was argued that the amount the 'non-working' spouse could earn before the income test would encourage those with investment and other 'non-work' income to arrange their affairs so that it was most suitable not only for tax purposes but also to meet the eligibility criteria for FTI benefits. This was compared to the situation where a spouse did minimal paid work which would result in the family ceasing to be a single income family and so not eligible for this component of FTI benefits.

The measures contained in this and the associated Income Tax Rates Bill substantially reduce the amount that the lower income spouse may earn before this aspect of the income test comes into effect. Under the Bills, the spouse will be able to earn up to the current basic parenting allowance income test (the second reading speech states that this is currently $174.43 per fortnight). The second change is to remove the concept of a 'non-working' partner. The Bills propose that the spouses income test be related to income rather than the source of the income (this matter is dealt with in greater depth in the Digest for the Income Tax Rates Bill).

  • A second change is in who will be taken to be a child for the purposes of the first component of the TFI. This was originally announced to be 'children up to the age of 14 and full-time secondary school students up to the age of 18.'(2) Under the Bills, the definition is a child under 16 years or a child under 18 engaged in full-time secondary education.
    • Periodic payments will be available for all those eligible for payment through the social security system, rather than just single parents as announced in the original proposal.
  • There will be no 'up-front' payments through the social security system as envisaged in the original proposal.

The Part A component of the FTI is estimated to equate to approximately $7.70 per fortnight for each eligible child and the Part B component is estimated to be valued at approximately $19.20 per fortnight.(3) The number of families that will benefit from the FTI is difficult to calculate precisely as the grounds for eligibility, such as when people have children, and the impact of the income tests, are difficult, if not impossible, to accurately predict. However, some degree of the impact may be gained from the Australian Bureau of Statistics findings that, in June 1995, there were approximately 2.5 million families with dependent children of which approximately 1 million contained a dependent under 5 (and so may be eligible for the Part B component of FTI).(4)

This Bill deals with the payment of FTI benefits to those on lower incomes by the Department of Social Security. This Digest should be read with that for the Income Tax Rates Amendment (Family Tax Initiative) Bill 1996.

Main Provisions

Amendments to the Social Security Act 1991

Item 6 of Schedule 2 to the Bill will insert a new Part 2.17, titled Family Tax Payment into the Social Security Act 1991 (the Principal Act).

A Family Tax Payment child (FTPC) will be a dependent child under age 16 or a dependent child under 18 who is attending full-time secondary studies. A FTPC must be an inhabitant of Australia or a dependent child of an Australian inhabitant and living with that person (while the term 'inhabitant of Australia' may imply that the relevant person actually is living in Australia, this is not the case. The term is defined in the Principal Act to be an Australian resident or the holder of certain visas). If a FTPC is outside Australia for more than 3 years, they will cease to be a FTPC while they remain outside Australia. Similarly if a child has been outside Australia for less than 3 years and returns for less than 13 weeks, this will be disregarded in determining if the 3 year period has elapsed. However, if the child remains in Australia and the person receiving FTI benefits in respect of the child is outside Australia, FTI benefits will continue to be available unless the person is outside Australia for more than 13 weeks and another person eligible to receive FTI benefits in respect of the child claims the benefit (proposed sections 900AA to 900AC).

A person will be eligible to receive a family tax payment if they are in receipt of family payment at more than the minimum rate and has at least one FTCP. The payment will also be available if the person would have been eligible for the family payment at more than the minimum rate except for the operation of certain provisions of the Principal Act. It is also proposed that if, during a year, the person ceases to be eligible for family payment at the minimum level (ie their income has increased so that they are not eligible) they will be deemed to remain eligible for the payment. Those not in receipt of family payment will be eligible to receive the payment if their income is below the cut off level for that payment. To be eligible for the payment the person must also be responsible (whether on their own or with another person) for the day to day care of the child and have actual care of the child for at least 30% of the time. A person will cease to be eligible for payments if they are absent from Australia for 3 years of more and a return to Australia for less than 13 weeks is to be disregarded in determining the period of absence (proposed sections 900AD and 900E).

In addition, to be eligible for the payment a person must elect to receive it, either through making a claim or notifying the Secretary of their election to receive the payment (proposed sections 900AF and 900AG).

A person who would otherwise be eligible for a FTI payment will cease to be eligible if:

  • they have not provided their own or their partner's tax file number (TFN), or taken certain steps to provide the TFN (proposed sections 900AP and 900AQ); or
  • the other member of the couple is in receipt of the payment in respect of the FTPC. If both members of the couple make an application for the payment, the Secretary may determine to which of the applicants the payment will be made. If two people who are not members of a couple would otherwise be eligible for the payment and have claimed the payment, the Secretary may determine to whom the payment is to be made, including that the payment be divided between the people (proposed sections 900AN and 900AO).

The payment is normally from the time an eligible claim is made, but may be backdated in certain circumstances, including:

  • to the date of birth of a child where the application is made within 13 weeks of the birth;
  • where a person is entrusted with an eligible child as part of an adoption process and the child is dependent on that person, the payment is backdated to the time the child became a dependent so long as an application for the payment is made within 13 weeks of the child becoming a dependent;
  • where a child disability allowance is payable in respect of the child, the payment may be backdated to a maximum of 3 months; and
  • where the former recipient dies and another eligible person makes an application within 13 weeks of the day after the death the payment will be backdated to the time of the death.

Proposed section 900AZC provides that the rate of payment is to be calculated in accordance with the Modules that appear at the end of the Bill, which deal with income tests as well as the rate of payment. The effect of the various Modules on the amount payable is as described in the Background section.

Division 7 of Schedule 2 provides for the payment to be made by fortnightly instalments. Payments will be inalienable (Division 8).

The remainder of the Bill deals with:

  • standard social security provisions relating to matters such as the requirement to notify changes of circumstances relating to the payment, automatic rate reductions in certain circumstances such as a failure to notify a change in circumstances and the effect of determinations; and
  • bereavement payments that provide for continuation of the payment for 4 weeks after the death of the FTPC.

Remarks

While the FTI has been widely accepted, particular since the changes to the original announcement were made, the following comments may be made:

Unlike most other social security benefits there is no phasing-out of the benefit once a certain income is reached. This is largely due to the amount of the payment being based on the operation of tax rebates, for which people are either eligible or not, which preclude phasing out provisions. As a result if a persons income is $1 below the income test threshold they will receive the full benefit while if it increases to $1 above the threshold they will not be eligible or any benefit.

FTI benefits are payable both through the operation of the tax system and the social security system. It can be argued that this represents a duplication of administration that will increase the total administrative cost of the scheme. In addition, the use of tax concessions, known as tax expenditure, removes those payments from the normal scrutiny and information provision rules that apply to budget revenue items, thus making scrutiny of the scheme more difficult. As the Department of Social Security will need to establish the procedures for payment of FTI benefits to lower income earners, it may be argued that it is more appropriate that the payment should cover all eligible to receive FTI benefits. This may also require people to provide information, such as details of income, on a regular basis and allow eligibility for the FTI benefit to be assessed on a regular basis, as is the case with most other social security benefits, rather than the yearly basis. The use of the tax rebate scheme for higher income earners means they can only be assessed for eligibility once per year and this has been extended to payments under this Bill.

Endnotes

  1. Coalition Policy Statement, p. 17.
  2. John Howard, News Release, 18 February 1996.
  3. Minister for family Services, Press Release, Strengthening Families, 20 August 1996.
  4. Australian Bureau of Statistics, Labour Force Status and Other Characteristic of Families, August 1995.

Contact Officer and Copyright Details

Chris Field Ph. 06 277 2439
25 September
Bills Digest Service
Parliamentary Research Service

This Digest does not have any official legal status. Other sources should be consulted to determine whether the Bill has been enacted and, if so, whether the subsequent Act reflects further amendments.

PRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public.

ISSN 1323-9031
© Commonwealth of Australia 1996

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1996.

This page was prepared by the Parliamentary Library, Commonwealth of Australia
Last updated: 1 October 1996

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