Bills Digest No. 6  2000-01 Compensation Measures Legislation Amendment (Rent Assistance Increase) Bill 2000


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WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History
Purpose
Background
Main Provisions
Endnotes
Contact Officer & Copyright Details

Passage History

Compensation Measures Legislation Amendment (Rent Assistance Increase) Bill 2000

Date Introduced: 27 June 2000

House: House of Representatives

Portfolio: Family and Community Services

Commencement: Immediately before the commencement of Schedule 1 to the A New Tax System (Compensation Measures Legislation Amendment) Act 1999 (ie. I July 2000)

Purpose

To amend the A New Tax System (Compensation Measures Legislation Amendment) Act 1999 so as to increase from 7% to 10% the raising of the maximum rate of rent assistance payable to low-income working families, social security pensioners and allowees, and veterans' pensioners paying private rent.

Background

Rent Assistance

Rent assistance is paid to people on low-incomes who rent from private landlords. People who are eligible for rent assistance include those paying site fees for a caravan, tent or mobile home, and mooring fees for a boat that they live in, as well as those paying lodging or board and lodging.(1) Rent assistance is not paid:

  • to people paying rent to a government housing authority, although in some situations sub-tenants may qualify for rent assistance
  • for residents of Commonwealth funded nursing homes and hostels
  • to single disability support pensioners under 21, without dependants, living with parents
  • to other single people under 25, living with parents, and
  • to students without dependants, who receive Austudy payment.

To qualify for rent assistance a minimum amount of rent needs to be paid (the rent threshold). Not all recipients qualify to receive the maximum rate of rent assistance. According to information provided by the Office of the Minister for Community Services, Hon Larry Anthony, on 16 June 2000 there were:

  • 991,852 recipients of rent assistance, of whom
  • 626,036 were receiving the maximum rate of rent assistance, and
  • 365,816 were receiving less than the maximum rate.(2)

The following table shows the categories of rent assistance, the rent threshold and the amount of rent payable to qualify for the maximum rate of rent assistance:

Rent Assistance (RA)

Family Situation
Maximum payment per fortnight
No payment if your fortnightly rent is less than
Maximum payment if your fortnightly rent is more than
Single, no dependent children $85.00 $73.80 $187.13
Single, sharer, no dependent children $56.70 $73.80 $149.40
Couple, no dependent children $79.80 $120.20 $226.60
One of a couple who are separated due to illness, no dependent children $85.00 $73.80 $187.13
One of a couple who are temporarily separated, no dependent children $79.80 $73.80 $180.20
Single, 1 or 2 children $99.20 $97.00 $229.27
Single, 3 or more children $112.20 $97.00 $246.60
Couple, 1 or 2 children $99.20 $143.60 $275.87
Couple, 3 or more children $112.20 $143.60 $293.20

Source: Centrelink Website (2 August 2000) http://www.centrelink.gov.au/internet/internet.nsf/3f4a8c0972793f0eca25651d001da65d/9f433f0bb952d1deca2565350010b52e?OpenDocument

How is the rate of Rent Assistance calculated?

To qualify for rent assistance, a minimum amount of rent needs to be paid. Where rent is paid in excess of this amount, the threshold amount is deducted, the excess is divided by 75% to arrive at the rent assistance rate. The maximum rent assistance rate for a single person with no children is $85.00 a fortnight. Example: Rent paid $95.00 per fortnight Minus the threshold ($73.80) $21.20 75% of $21.20 $15.90 (amount of RA payable)

GST Compensation Package The original tax reform package promised compensation to people who would be worse off under the new tax system. Under the new tax system, while residential rents themselves are exempt from the 10% GST, they were expected to rise as landlords passed their associated costs for electricity, maintenance etc. on to their tenants.(3) The Government's initial proposal for compensation was to provide a one-off increase of 4% in the maximum rate of payment of rent assistance to help renters on low incomes.(4) But as a result of negotiations between the Government and the Australian Democrats which took place while the A New Tax System (ANTS) Bills were being considered by the Senate, the Government agreed to raising the one-off rent assistance rate increase from 4% to 7%.(5) As a result, the A New Tax System (Compensation Measures Legislation Amendment) Act 1999 provided a 7% increase in the maximum rent assistance rates available to social security and veterans' pensioners and other social security recipients from 1 July 2000.

Caravan parks People paying site fees in caravan parks are classified as either short-term (up to 28 days) or long-term renters (more than 28 days). Short-term residents are treated like other travellers and holiday-makers staying in hotels or motels and are charged GST on their accommodation. Long-term residents were initially to be treated the same as other residential renters. Under the original proposal, caravan park owners were not to collect GST from long-term residents, but neither were they able to claim back the tax they paid on their inputs, like electricity or site maintenance. Economic modelling suggested that this arrangement could lead to a net increase in site fees averaging about 3% to cover dearer overheads.(6) Following representations by owners of caravan parks, the Government introduced a concessional rate GST option in early 1999 to meet the compliance concerns of park owners who cater for both long- and short-term residents. Under this second option, caravan park owners will charge long-term renters GST at a concessional rate of about 5.5%, less the owners' input tax rebates. The Government estimates that the result would again be a real increase of about 3% in the cost of van accommodation.(7)

Objections Criticisms of the Government's policy came from:

  • long-term residents of caravan parks who argued that they should not be treated differently from those who rent houses, that is, GST free. They were supported by the Australian Council of Social Service (ACOSS) which argued that 'it is blatantly unfair for the Government to exclude other types of rental accommodation from the GST, but not act to help tenants of boarding houses and long-term van park residents';(8)
  • the ALP which promised to remove the tax on rent for long-term caravan park residents; (9)
  • the Australian Democrats who asked that the Government cut the optional GST rate on caravan park and boarding house residents from 5.5% to 2.75%. (10)

Unresolved issues Two issues not resolved were:

  • which of the Government's options is better for the caravan park residents? How much are their rents likely to rise? Some argued that long-term caravan park renters are actually better off than other property renters because park operators would charge GST on only 50 per cent of their rental. The operators would then be entitled to claim back 100 per cent of the GST they paid on their other costs as input tax credits. According to this argument, if the Government removed the GST on caravan park residents, the park operator would not charge GST on the rent but would also not be eligible for input tax credits. Landlords would therefore seek to recover 100 per cent of the GST from tenants.(11) An alternative argument appeared to be supported by a report prepared for the Government by Econtech which showed that the concessional GST rate would increase boarding house rents by 4.4 per cent, while the alternative input taxing option would increase rents by only 3.7 per cent.(12) The Australian Democrats announced that they had persuaded the Government to audit the pricing structures of all caravan park and boarding house operators over the next financial year and that the Australian Competition and Consumer Commission (ACCC) will provide a detailed report on the outcome to Parliament. Senator Lees said that auditing, combined with an expanded education campaign, would put maximum pressure on operators of caravan parks to choose the tax option that will deliver the lowest price outcome for residents.(13)
  • the method chosen to compensate the low income renters especially in caravan parks. How many long-term caravan park residents would actually benefit from any increase in the maximum rate of rent assistance? Many caravan park residents pay insufficient site fees to attract rent assistance, or at least only a minimal amount. Many would not be receiving maximum rate rent assistance and would therefore gain no benefit from a rate increase that applies only to the maximum rate. Information provided by the Office of the Minister for Community Services, Hon Larry Anthony, shows that on 16 June 2000 there were 32,257 customers of rent assistance living in caravan parks.(14) However only 3,955 of these would qualify for the increased rent assistance payment. Details of the number of customers paying the maximum rate caravan park site fees and the number of customers paying less than the maximum rate caravan site fees as at 16 June 2000 are as follows:

  •   Customers Maximum Rate Less than Maximum Rate
    Australian Capital Territory 95 9 86
    New South Wales 13 535 1 441 12 094
    Northern Territory 366 83 283
    Queensland 10 061 1 231 8 830
    South Australia 1 143 168 975
    Tasmania 187 25 162
    Victoria 3 923 658 3 265
    Western Australia 2 947 340 2 607
    Total 32 257 3 955 28 302

 

Main Provisions

Item 1 amends the note which was inserted into subsection 1192(2) of the Social Security Act 1991 (Social Security Act) by the A New Tax System (Compensation Measures Legislation Amendment) Act 1999 (Compensation Measures Act). The note refers to the 7% increase provided for in the Compensation Measures Act. The effect of item 1 is to replace the existing reference to 7% by a reference to 10%. Item 2 has the effect of amending section 1206GAA of the Social Security Act to ensure that the maximum rent assistance rates are increased by 10% instead of 7%. Items 3 and 4 make corresponding amendments to the Veterans' Entitlements Act 1986. Item 5 is an amendment that affects the A New Tax System (Family Assistance) Act 1999. It makes a consequential amendment to the heading of clause 9 of Schedule 4 so that it refers to the 10% increase in maximum rent assistance amounts.  

Endnotes

  1. Who can get Rent Assistance ?, Centrelink - http://www.centrelink.gov.au
  2. Letter from the Office of Hon Larry Anthony MP, Minister for Community Services to the Department of the Parliamentary Library.
  3. Costello, Peter, Tax Reform: not a new tax, a new tax system: the Howard Government's plan for a new tax system, August 1998, p. 96. 'Residential rents will be input taxed to ensure comparable treatment for renters with owner-occupiers.'
  4. A New Tax System (Compensation Measures Legislation Amendment) Bill 1998.
  5. Lees, Senator Meg, 'Low income renters get 7% allowance boost', Australian Democrats Media Release, 23 June 1999.
  6. 'The van tax' [editorial], Sydney Morning Herald, 17 June 2000.
  7. ibid.
  8. Australian Council of Social Service, 'No GST on Boarding House Rents or Caravan Park Residents', Media Release, 16 June 2000.
  9. Wayne Swan, 'Parliament House, Canberra, 22 June 2000: GST and rent on caravan parks and boarding houses', Press Release, 22 June 2000.
  10. Tony Wright and Phillip Hudson, 'GST to rents: inflate report', The Age, 21 June 2000.
  11. Fiona Buffini, 'Good times roll in van parks', Australian Financial Review, 20 June 2000.
  12. Steve Lewis and Louise Dodson, 'GST battlefield widens', Australian Financial Review, 20 June 2000.
  13. Australian Democrats, '10% rent support & price auditing for renter', Press Release, 22 June 2000.
  14. Letter from the Office of Hon Larry Anthony MP, Minister for Community Services to the Department of the Parliamentary Library.

 

Contact Officer and Copyright Details

Rosemary Bell and Peter Yeend
8 August 2000
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

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

ISSN 1328-8091
© Commonwealth of Australia 2000

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, 2000.

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