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This Digest was prepared for debate. It reflects the legislation as
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CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage
History
Date Introduced: 2 April 1998
House:House of Representatives
Portfolio: Veterans' Affairs
Commencement: 19 March 1998, but see Main
Provisions
Purpose
On 26 March 1998, the Government announced the
linking of the war widows' pension (WWP) to the benchmark of 25% of
MTAWE. This resulted in a fortnightly rate rise of $6.80 to
$378.60, with the first payment at the increased rate made on 9
April 1998.
This Bill proposes amendments to the
Veterans' Entitlements Act 1986 to ensure the rate of WWP
is maintained at no less than 25% of MTAWE.
This will align the WWP with the 25% of MTAWE
rate benchmark arrangements that have been put in place for social
security pensions paid under the Social Security Act 1991
and for the service pension and income support supplement paid
under the Veterans' Entitlements Act 1986. These
arrangements were provided for by the Social Security and
Veterans' Affairs Legislation Amendment (Male Total Average Weekly
Earnings Benchmark) Act 1997.(1)
It is not entirely clear why this 1997 25% MTAWE
Act did not also include arrangements for the WWP. Perhaps it was
not fully realised at the time that there would be problems with
parity and equity between pension rates if all like pension
payments were not included.
Background
Pre-1996 Election commitment
Prior to the March 1996 election, the Liberal
and National Parties gave a joint public commitment to maintain the
pension benchmark of at least 25% of Average Weekly Earnings.(2)
The Social Security and Veterans' Affairs Legislation Amendment
(Male Total Average Weekly Earnings Benchmark) Act 1997, was
the initial legislation that provided for this commitment.
Rate of pensions to be maintained at least 25% MTAWE - Coverage
of 1997 Act
The social security pensions that are covered by the 25% of
MTAWE Act 1997 are:
- Age pension;
- Wife pension (ie. paid to female partner of an age or
disability support pensioner);
- Disability support pension;
- Widow's pension;
- Parenting payment (sole parent);
- Carer payment; and
- Mature age allowance and mature age partner allowance granted
before 1 July 1996.
The veterans' affairs payments that are covered by the 25% of
MTAWE Act 1997 are:
- Service pension;
- Partner service pension; and
- Income support supplement.
War Widow's and Widower's Pension (WWP) eligibility
There are two main situations where a WWP may be payable:
- Where a veteran dies as a result of a war or defence caused
disease or injury, then a WWP made be payable to the surviving
partner (married or defacto).
OR
- Where a veteran was severely incapacitated as a result of a war
or defence caused disease, then the widow/er of the veteran
(married or defacto) may qualify for a WWP.
WWP is paid at the same rate as the single rate
of age and service pensions but is not means tested, ie. no income
or assets test, and WWP is not taxable.
Number of WWP recipients
As at 14 September 1997 there were a total of 97
995 WWP recipients made up of 124 males and 97 871 females.
Income Support Supplement (ISS)
ISS is also payable in addition to WWP, but as
ISS has an income and an assets test it is targeted at those WWP
recipients who have limited means.
ISS was introduced on 30 March 1995 to replace
the 'ceiling' (frozen) rate of age, carer, wife and disability
support pensions paid to war widow/ers by The Department of Social
Security (DSS) in addition to the WWP. The main impetus for the
introduction of the ISS was so that war widow/ers, who also qualify
for ISS, can receive both of their pensions from The Department of
Veterans' Affairs (DVA).
The maximum rate of ISS is currently frozen at
$120.10 per fortnight.
Cost
The Government has stated that the 25% of MTAWE
benchmarking of WWP will cost an additional $168 million over four
years.(3)
Parity and differentials between pension and allowance rates
As highlighted in the Explanatory Memorandum,(4)
the rate of WWP has been paid at the same rate as the single rate
of age or service pension for nearly 35 years and this parity has
been maintained by identical indexation adjustment arrangements.
Without the application of this proposed Bill, the rate of WWP may
fall behind those other pensions that receive the benefit of the
25% of MTAWE Act 1997.
Historically, it was the Whitlam Government that
announced in 1972 a commitment to maintain the rate of pension at
25% of average weekly earnings (AWE).
Prior to this the rate of pensions were
increased largely on an ad-hoc basis, as Governments perceived a
need to adjust payments.
Twice yearly adjustments of pensions against the
CPI commenced in 1976.
Payments do not always increase. On occasions in
the past, where the CPI has not increased or has even reduced,
there may be no increase in payment rates. This last occurred for
pensions in September 1997. Payments are not reduced where the CPI
change is a nil or negative figure. Separate to the indexation to
the CPI in September 1997, pension rates were not increased as
rates were at least 25% of MTAWE.
During the 1980s and early 1990s, the economic
dynamics featured comparatively higher levels of inflation,
interest rates and investment earnings rates. During much of this
period, both national wage cases and successive Accords produced
largely uniform movements in wage rates.
In later Accords less than full CPI adjustments
were complimented by other trade-offs like tax rate adjustments and
tax transfers (eg. family payments). Accordingly, movements in the
CPI were commonly higher than movements in average wage rates and
in this environment, benchmarking income support rates to the CPI
meant these payments readily kept pace with wage rate benchmarks.
There have been two ad-hoc increases, in 1990 and in 1993, to
ensure pension rates maintained parity with 25% of AWE.
More recently these dynamics have changed with
lower inflation and lower interest and investment rates. Currently,
the annual underlying inflation rate is about 1.5%(5) but average
ordinary full-time earnings wages are increasing at about
3.9%.(6)
Through the entire period of the 1980s and
1990s, there has been parity between the married rate of pension
and the married rate of allowance. Married rate refers to the rate
paid each to a member of a couple (married or de-facto). Payment of
the same rate for pensioner and allowance couples achieves the
benefits of equity of assistance between payments for like
situations.
In the March 1998 rate adjustments, the married
rate of allowance was not changed, there being no increase in the
CPI during the measurement period. The maximum married rate payable
(each partner aged 21 or more) before and after March remained at
$290.10 per fortnight (pf) each. The maximum married rate of
pension was increased to $295.80 pf each and there being no
increase in the CPI, this increase was solely due to the impact of
the 25% of MTAWE Act 1997.
If the current feature of low or negative
movements in the CPI continues to be accompanied by relatively
higher movements in average wage rates, the differentials between
pension and allowance rates could well continue.
Main
Provisions
Mechanism
This Bill has one Schedule to amend the
Veterans' Entitlements Act 1986.
The intention of the Bill is to mirror the
application 25% of MTAWE Act 1997 to the service pension provisions
in the Veterans' Entitlements Act 1986. Therefore, the
provisions in this Bill largely mirror those contained in the 25%
of MTAWE Act 1997.
Clause 2 of the Bill specifies
that the amending Act is to commence from 19 March 1998. The
Veterans' Entitlements Act 1986 currently provides for
Consumer Price Index (CPI) adjustments to pension rates to take
effect from 20 March and 20 September of each year. Any adjustment
arising from the CPI then takes effect from the next fortnightly
Thursday payday following these two dates. For payments under the
Veterans' Entitlements Act 1986, the next payday after 20
March 1998 was Thursday 26 March 1998.
The 20 March and 20 September dates of effect
also apply to CPI adjustments to pension payments provided for
under the Social Security Act 1991, with social security
pension paydays being the alternate fortnightly Thursday to the
veterans' paydays. For the social security pension payments the
next payday after 20 March 1998 was 2 April 1998.
The Social Security and Veterans' Affairs
Legislation Amendment (Male Total Average Weekly Earnings
Benchmark) Act 1997, provided for the benchmarking against 25%
of Male Total Average Weekly Earnings (MTAWE) of social security
pensions and veterans' service pension to commence from 20
September 1997. For the September 1997 pensions rate adjustment,
there was no increase in the rate of pensions and there were two
reasons for this.
There was no increase in the CPI in the measured
period. There are legislative formulas in both the Social
Security Act 1991 and in the Veterans' Entitlements Act
1986 to prescribe the periods over which any CPI movement is
measured. The second reason was due to the pre-September 1997
pension rates already being at least 25% of MTAWE.
There is no obvious reason as to why this Bill
proposes to commence from 19 March 1998 and not 20 March 1998.
Perhaps, given that the 19 March 1998 date is
now a retrospective implementation date, the Bill drafters wish to
err on the side of caution and doubly ensure the start date
commences no later than 20 March 1998.
The announcement of this initiative was made on
of 26 March 1998 and stated the first instalment at the increased
rate would be made on 9 April 1998.
As the next available veterans' pension payday
after the start date for the legislation (ie. 20 March 1998) was 26
March 1998, the payment made on 9 April 1998 included arrears for
the 26 March 1998 payday.
Schedule 1 - Amendment of the Veterans' Entitlements Act
1986
Items 1 and 3 prescribe the
quarters in each year during which the MTAWE figure is to be
measured for each March and September rate adjustment. The
measurement period is not over the whole year but a quarter of a
year.
This is the same methodology contained in the
25% of MTAWE Act 1997, a methodology that was a matter of some
debate in the Senate during that Act's passage through the
Parliament. The issue of concern was whether there is any advantage
or disadvantage in measuring the AWE figure over a quarter as
opposed to over a whole year. Measuring over a quarter is
consistent with the long-standing methodology prescribed in the
legislation for measure movements in the CPI. The answer depends on
how any one quarter compares to the whole year. Where the quarter
is comparatively lower than the whole year, a lower MTAWE figure
will result and vice versa.
Item 5 provides for the
increase in the rate where the rate that has been measured against
the CPI is still less that 25% of MTAWE. Where the CPI measurement
arrives at a rate that is still at least 25% of AWE, there is no
further adjustment. Therefore, it is possible for the CPI
adjustment to result in a rate that exceeds 25% of MTAWE.
Sub-part (8) of Part
5 of the Bill contains legislative arrangements to cater
for the retrospective aspect of the start date for this
initiative.
Payments have already been made to WWP
recipients at the increased rate from 26 March 1998 payday under
Ex-gratia payment arrangements. This part of the Bill ensures there
is no double entitlement to payments once the Bill receives Royal
Assent.
Concluding
Comments
Prior to the March 1996 election, the Opposition
parties gave a joint public commitment to maintain the pension
benchmark of at least 25% of Average Weekly Earnings. The
Social Security and Veterans' Affairs Legislation Amendment
(Male Total Average Weekly Earnings Benchmark) Act 1997, was
the initial legislation that provided for this commitment.
On 26 March 1998, the Government announced the
linking of the WWP to the benchmark of 25% of MTAWE.
This Bill proposes amendments to the
Veterans' Entitlements Act 1986 to ensure the rate of WWP
is maintained at no less than 25% of MTAWE thereby retaining its
parity with the single rate of age and service pensions. Without
the application of this proposed Bill, the rate of WWP will fall
behind those other pensions that receive the benefit of the 25% of
MTAWE Act of 1997.
Endnotes
-
- Social Security and Veterans' Affairs Legislation Amendment
(Male Total Average Weekly Earnings Benchmark) Act 1997.
- Liberal and National Parties' Social Security Policy Statement
'A Social Security Safety Net', 22 February 1996, 2 - Retirees,
para 1.
- Prime Minister, Press Release, 26 March 1998, 'War
Widows' Pension up by $6.80 a fortnight'.
- Explanatory Memorandum, 3.
- Australian Bureau of Statistics Catalogue No 6401.0 - March
1998.
- Australian Bureau of Statistics Catalogue No 6301.0 - February
1998.
Peter Yeend
12 May 1998
Bills Digest Service
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ISSN 1328-8091
© Commonwealth of Australia 1998
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