Bills Digest no. 4 2008–09
Veterans' Entitlements Amendment (Disability, War Widow
and War Widower Pensions) Bill 2007
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
Concluding comments
Contact officer & copyright details
Passage history
Date
introduced: 20
September 2007
House: House of Representatives
Portfolio: Veterans' Affairs
Commencement:
20 March
2008.
Links:
The
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
To purpose of
this Bill is to provide for:
- a one-off increase in the rate of the general rate of
disability pension of 5 per cent,
- the on-going indexation of the general rate of disability
pension to both the Consumer Price Index (CPI) and also to
movements in Male Total Average Weekly Earnings (MTAWE),
- a one-off increase in the rate of Extreme Disablement
Adjustment (EDA) disability pension of $15 a fortnight. This
increase is to be applied to that part of the EDA rate paid above
the 100 per cent general rate component of the EDA rate,[1]
- a one-off increase in the rate of the War Widows Pension/War
Widowers Pension (WWP). This increase of $10 per fortnight is to
that part of the WWP rate that is currently not indexed to the CPI
and the MTAWE. The part of the WWP rate that is not indexed is the
part paid above the age and service pension rate, being the part of
the rate that used to be separately called the Domestic Allowance.
This one-off $10 per fortnight increase will see this part of the
WWP rate increase to $35 per fortnight, and
- the on-going indexation of that part of the WWP rate that is
currently not indexed (see above) to both movements in the CPI and
also to MTAWE.
This Bill was presented to the House of
Representatives on 20 September 2007 and the Bill was passed by the
House unamended on the same day. The Bill was also presented to the
Senate on the same day and then passed by the Senate unamended on
the same day. The Bill was granted Royal Assent on 25 September
2007.[2]
There are four separate disability
pension payments provided under the VEA. Each is not payable
concurrently and each has a different payment rate. The payments
are:
- General rate paid from 10 per cent up to 100 per cent (see
table below),[3]
- Special rate (Totally and Permanently Incapacitated (T&PI),
blinded, or Totally and Temporarily Incapacitated (T&TI)
currently $938.00 per fortnight (pf),[4]
- Intermediate rate $631.20pf,[5] and
- Extreme Disablement Adjustment (EDA) rate - $495.40pf.[6]
The general rate disability pension
is payable from 10 per cent ($32.28pf) up to a 100 per cent
disability rate ($322.80pf) see table below. The general rate is
linked to the individual s level of assessed disability. Any
general rate disability pension paid, being compensation for a war
or service caused illness/injury, is not income or asset tested,
nor is it taxable income.
|
Level of disability
|
Rate per fortnight
|
Level of disability
|
Rate per fortnight
|
|
100%
|
$322.80
|
55%
|
$177.54
|
|
95%
|
$306.66
|
50%
|
$161.40
|
|
90%
|
$290.52
|
45%
|
$145.26
|
|
85%
|
$274.38
|
40%
|
$129.12
|
|
80%
|
$258.24
|
35%
|
$112.98
|
|
75%
|
$242.10
|
30%
|
$96.84
|
|
70%
|
$225.96
|
25%
|
$80.70
|
|
65%
|
$209.82
|
20%
|
$64.56
|
|
60%
|
$193.68
|
15%
|
$48.42
|
|
|
|
10%
|
$32.28
|
The Special rate disability pension
is commonly referred to as the Totally and Permanently
Incapacitated (T&PI) disability pension. The Special rate works
very much like the Intermediate rate, but the incapacity for work
test is tougher. The Special rate is potentially payable where the
person is assessed as having a 70 per cent or more disability
(using the assessment used for the general rate) and is also
assessed as unable to work for at least 8 hours a week. The Special
rate is $938.00pf. The $938.00pf is the only amount of disability
pension paid and is not paid in addition to any general rate
disability pension.
Separate to the 8 hours a week test;
there are a few other situations where the Special rate can be
paid, for example where the person has pulmonary tuberculosis (TB).
Where the person has TB, it is assumed the disability and inability
to work requirements are met and the Special rate is paid.
The Special rate as applied under the
VEA, which is paid at a higher rate than the 100 per cent general
rate, recognises the resultant work inability of the person arising
from their war/service caused/related illness/injury, so has a
component for income support. The Special rate disability pension,
being compensation, is not income or asset tested, nor is it
taxable income.
Where a person is aged 65 or more, to
qualify for the Special rate additional criteria apply. The last
paid work, which is precluded by the incapacity, must have
commenced prior to 65 and the person must have been employed in it
for at least 10 years. Retired persons, aged 65 or more, with very
severe disabilities, might be entitled to the Extreme Disablement
Adjustment rate of disability pension see below.
The Intermediate rate disability
pension is potentially payable where the person is assessed as
having a 70 per cent or more disability (using the assessment for
the general rate) and it is also assessed the person is unable to
work for at least 20 hours a week. In this case, the $631.20pf
Intermediate rate is paid instead of a general rate disability
pension of 70 per cent or more (that is, $225.96pf to
$322.80pf).
The Intermediate rate is not always
payable where the disability assessment is 70 per cent or more. For
example, a person may be assessed as having an 80 per cent
disability but may also be able to work for more than 20 hours a
week. In this case the Intermediate rate is not payable, only the
80 per cent general rate, that is $258.24pf.
The Intermediate rate, which is paid
at a higher rate than the 100 per cent general rate, recognises the
resultant work inability of the person arising from their
war/service caused/related illness/injury, so like the Special
rate, the Intermediate rate has a component for income support.
Separate to the 20 hours a week test, there are a few other
situations where the Intermediate rate can be paid, for example to
those suffering from TB.
The Intermediate rate disability pension, being compensation, is
not income or asset tested, nor is it taxable income.
The EDA rate disability pension can
only be considered for persons who have reached 65 years of age and
who are entitled to a disability pension at 100 per cent general
rate but are also not eligible to receive a Special rate or
Intermediate rate pension. This may be due to the person not having
paid work, which is precluded by the incapacity, having commenced
prior to 65 and not employed in it for at least 10 years. See
Special rate disability pension above. As the person is aged 65 or
more, the inability to work tests of either 20 hours a week (ie.
that used for Intermediate rate) or 8 hours a week (ie. that used
for Special rate) are not applied. Instead, a test requiring 70
medical points or more and at least 6 out of 7 lifestyle points is
applied to qualify for EDA.
EDA, being compensation, is not income or asset tested.
The prime reason the three different
disability pensions that are paid above 100 per cent general rate
have different payment rates lies in their different origins,
purpose and evolutions.
The Special rate and the Intermediate rate
pensions are the two payments paid to persons of working age and
therefore have a work test criteria. The difference in the rates of
Special rate and the Intermediate rate recognises that the work
test for Special rate is tougher, ie. an 8 hour a week test as
opposed to a 20 hour a week test. With the Intermediate rate and
its 20 hour test, the person has some capacity to supplement their
pension with some employment income. Remembering all payments are
not means tested.
| Disability
pension |
Basic
qualification |
Aim & purpose of
payment |
Current indexation
arrangements |
| General rate |
Must have a qualifying war or service related illness/injury
Rate paid is connected to assessed level of permanent impairment
from 10% to 100%
|
Compensation for war or service caused illness/injury
No element of income support so has no income or assets test
|
Indexed twice a year to
the CPI 20 March and 20 September |
| Special rate |
Must have a qualifying
war or service related illness/injury
Unable to work for at least 8 hours a week due to war/service
illness/injury
|
Compensation for war or
service caused illness/injury
Is primarily compensation for war or service caused
illness/injury but has some element of income support recognising
the person cannot support themselves from employment due to
illness/injury
Has no income or assets test
|
That part of the Special
rate paid above 100% of the General rate is indexed to the CPI and
to movements in MTAWE twice a year 20 March and 20 September
That part of the Special rate paid up to 100% of the General
rate is indexed to the CPI twice a year 20 March and 20
September
|
| Intermediate rate |
Must have a qualifying
war or service related illness/injury
Unable to work for at least 20 hours a week due to war/service
illness/injury
|
Compensation for war or
service caused illness/injury
Is primarily compensation for war or service caused
illness/injury but has some element of income support recognising
the person cannot wholly support themselves from employment due to
illness/injury
Has no income or assets test
|
That part of the
Intermediate rate paid above 100% of the General rate is indexed to
the CPI and to movements in MTAWE twice a year 20 March and 20
September.
That part of the Intermediate rate paid up to 100% of the
General rate is indexed to the CPI twice a year 20 March and 20
September.
|
| Extreme Disablement
Adjustment (EDA) |
Must have a qualifying
war or service related illness/injury
EDA only be considered for veterans aged 65> and are entitled
to a disability pension at 100% but not the Special rate or the
Intermediate rate. As the veteran is aged 65>, the inability to
work tests are not used. Instead a test requiring 70 medical points
or more & at least 6 out of 7 lifestyle points is applied to
qualify for EDA
|
Compensation for war or
service caused illness/injury
Is compensation for war or service caused illness/injury
Has no income or assets test
|
That part of the EDA rate
paid above 100% of the General rate is indexed to the CPI and to
movements in MTAWE twice a year 20 March and 20 September.
That part of the EDA rate paid up to 100% of the General rate is
indexed to the CPI twice a year 20 March and 20 September
|
The disability pensions provided under the VEA
are paid as compensation for a war or service caused/related
illness or injury. As said above, being compensation they are not
means tested (income or assets) and are not taxable income. The
other main compensation payment provided under the VEA is the war
widow s/er s pension (WWP). WWP is paid recognising that the
partner of the person has had a war or service caused or related
death. Like the disability pensions, the WWP is not means tested
nor is it taxable income.
The other main pension payments provided under
the VEA are the income support payments, being the:
- age service pension,
- invalidity service pension, and
- Income Support Supplement (ISS).
These income support payments are paid to
provide for the basic and essential costs of living like for food,
accommodation, transport and are means tested (income and assets)
to target assistance to those with lesser means. These payments are
very like the means tested income support welfare payments provided
under the Social Security Act 1991 (SSA). They are also
taxable income, although the pensioner tax rebate means in the end
they pay no tax on any payment received.
Major changes have been made to the indexation
arrangements for the disability pensions that are paid above the
100 per cent general rate in the past few years. These changes
arose from the Clarke Review of veterans entitlements.[7] The report
recommended:
30.35 As payment for personal loss,
non-economic loss compensation would be adjusted twice yearly to
reflect increases in the CPI and maintain its purchasing power. As
an income substitute, economic loss compensation would be adjusted
twice yearly to reflect increases in MTAWE and preserve its
relation to community income standards.[8]
As a result, the government made changes to
the indexation arrangements for the disability pensions that are
paid above 100 per cent general rate.[9] As explained in the Table above, these
pensions are the Special rate, the Intermediate rate and the EDA
rate. The changes involved indexing that part of these rates paid
above 100 per cent general rate to movements in the CPI and also
the MTAWE, whichever indexation factor realises the greater
increase. So the whole of the Special rate ($938.00pf) isn t
indexed to both the CPI and MTAWE, just that amount paid above 100
per cent general rate (which is $322.80pf), being the residual
$615.20pf. The remaining amount ($322.80pf) continues to be indexed
to the CPI alone each 20 March and 20 September. See the Table
above.
The issue of indexing veterans payments to
movements in the CPI or to average weekly earnings (AWE) has been a
vexed issue for many years. This concern has had a particular focus
since the indexation of income support pensions (age and service
pension) to 25 per cent of MTAWE since 1997.[10] It is further fuelled by the fact
that in the period from September 1997 to September 2007, the CPI
has increased by 32.4 per cent, whereas MTAWE has increased by 52
per cent.[11]
Disability pension recipients have seen the age and service
pensions indexed to the CPI and to 25% of MTAWE and have considered
they have been comparatively disadvantaged.
The
Australian Labor Party policy in this area was spelt out in early
2007.
Prior to the Budget on Sunday the
6th of May, the Labor party announced that should they
win government at the next election, they would index the TPI
payment to Male Total Average Weekly Earnings (MTAWE) or the
Consumer Price Index (CPI) whichever is the greater with the first
adjustment to pensions after the 2008 May budget. This would be
another major breakthrough for TPI s because when this indexation
regime is implemented there will be a great feeling of relief for
TPI s. It will mean that the TPI payment will maintain its real
value into the future. Shadow Minister Alan Griffin and the
Opposition are to be congratulated on the announcement of this
policy.[12]
Indexation
to the CPI or AWE who benefits can depend on timing
While it is true in more recent times, average
weekly earnings (AWE) increases have been greater than CPI
increases, the table below demonstrates that there have been times
in the past when the CPI has grown at a greater rate than the other
two AWE indexes. In particular, between the 1985-86 and 1989-90,
the CPI was increasing at a greater rate than earnings rates,
mainly due to increasing interest rates and the then Wages Accords.
Also, this again happened in the 2000-01 year, due to a spike in
the CPI induced by the introduction of the Goods and Services Tax
(GST).
The main criticism of indexing payment rates
to the CPI is that while it maintains rates with rises in the cost
of living it does not maintain rates with comparative living
standards. This especially applies in the more recent periods,
where inflation rates and interest rates are low and increases in
earnings rates are comparatively high. However, it is relevant to
note that more than 60 per cent of earners earn less than
AWE.[13] Also, one
of the big drivers of increasing average earnings rates is the top
2 to 5 percent of earners achieving significant increases in
earnings, driving the average upwards. It could be argued that
calls for pension rates to be indexed to AWE, as opposed to being
indexed to CPI, are opportunistic.
In considering whether the disability pensions
provided under the VEA should be indexed to earnings rates, it
should be remembered the disability payments are different to the
income support pension payments like the service pension and the
age pension provided under the SSA. See Income support and
compensation payments under the VEA above. While there is
probably a good case to maintain that the compensation payments
should be maintained with increased living costs (that is the CPI),
it is debateable as to whether the government should be required to
maintain compensation payment rates with earnings rates.
Item 1 raises 100 per cent
general rate disability pension to $338.94 per fortnight. This
reflects the one-off 5 per cent increase over the 20 March 2007 to
19 September 2007 rate of this pension, which is $322.80 per
fortnight.
Item 2 amends the EDA rate
raising it to $510.40, being a one-off $15 increase applied to the
20 March 2007 to 19 September 2007 EDA rate of $495.40 per
fortnight.
Item 3 amends the non-indexed
component of the WWP rate from $25 per fortnight increasing it to
$35 per fortnight.
Items 4 to 10 amend section
198 of the VEA to provide for the indexation of the general rate of
disability pension to movements in both the CPI and MTAWE, which
ever provides for the greater increase. The increases in rate are
to apply from 20 March and 20 September of each year. Currently the
general rate is indexed to movements in the CPI alone.
Item 11 provides transitional
provisions to ensure that the one-off increases in the rates are to
apply from 20 March 2008 and the new indexation processes are also
to apply from 20 March 2008 and are to include the one-off
increases in the rates.
The indexation of the general rate of
disability pension to movements in both the CPI and MTAWE addresses
a long standing concern of disability pension recipients.
Disability pensioners have considered that the indexation of income
support pension rates to both the CPI and MTAWE has seen them
comparatively disadvantaged.
It is arguable as to whether the government
should be required to index the rates of compensation pension
payments to movements in earnings rates. Compensation payments are
not paid for income support reasons and are not means tested. The
Clarke Review recommended that the part of the disability pension
rates that are paid above 100 per cent general rate should be
indexed to earnings rates[14] and the Howard government provided for that
recommendation.[15]
Perhaps this move to index all disability pension rates to both the
CPI and earnings rates was done with the looming 2007 November
election in mind.
The one-off increases in the rates of
disability pension, that is 5 per cent for the general rate and $15
per fortnight for the EDA rate, will be welcomed. Likewise the
one-off increase of $10 to the non-indexed component of the WWP
rate, raising it to $35 per fortnight will be welcomed.
[1]. The EDA rate is payable to a person aged 65 or more and
the degree of incapacity from war or defence caused conditions must
be extreme. The assessment only takes into account the medical
impairment and lifestyle effects of a disability.
[9]. Peter Yeend, Veterans'
Entitlements (Clarke Review) Bill 2004, Bills Digest No. 134
2003-04, Parliamentary Library, Canberra, 28 May 2004,
http://www.aph.gov.au/library/pubs/bd/2003-04/04bd134.htm#Contact
Peter Yeend
20 August 2008
Bills Digest Service
Parliamentary Library
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