Bills Digest no. 4 2014–15

PDF version  [665KB]

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.

Michael Klapdor
Social Policy Section
7 July 2014 

 

Contents

History of the Bill
Purpose of the Bill
Background
Policy position of non-government parties/independents
Position of major interest groups
Committee consideration
Financial implications
Statement of Compatibility with Human Rights
Key issues and provisions

 

Date introduced:  25 June 2014
House:  House of Representatives
Portfolio:  Education
Commencement: 1 July 2014

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

 

History of the Bill

The provisions of the Family Assistance Legislation Amendment (Child Care Measures) Bill (No. 2) 2014 (the Bill) were previously contained in the Family Assistance Legislation Amendment (Child Care Measures) Bill 2014 (the previous Bill).[1] The previous Bill proposed maintaining the current Child Care Rebate (CCR) annual limit and the Child Care Benefit (CCB) income test thresholds for three years, pausing the annual indexation of these amounts. Opposition amendments passed in the Senate removed the provisions affecting the CCB income test thresholds from the previous Bill.[2] The amended version of the previous Bill was passed by the Parliament on 23 June 2014, becoming the Family Assistance Legislation Amendment (Child Care Measures) Act 2014.[3] The Bill contains an amendment to pause the indexation of CCB income test thresholds, which is in identical terms to the provision removed from the previous Bill.

This Digest is an updated version of the Bills Digest for the previous Bill, drawing on the analysis of the relevant provisions and providing further information on the non-government parties’ positions on the proposed amendments.[4] For completeness, the reader should consult both Bills Digests.

Purpose of the Bill

The purpose of the Bill is to amend the A New Tax System (Family Assistance) Act 1999 (FA Act) to maintain the Child Care Benefit (CCB) income test thresholds at their current level for three years from 1 July 2014.[5] Under normal circumstances, the CCB income test thresholds are indexed on an annual basis in line with movements in the Consumer Price Index (CPI). The measures constitute a freeze on the annual indexation of these amounts.

Background

The freeze on the indexation of the CCB income test threshold was announced in the 2014–15 Budget as part of a broader measure affecting the indexation of income test thresholds for major welfare payments.[6]

Child care fee assistance

The Commonwealth Government’s main funding of the Early Childhood Education and Care sector comes in the form of fee assistance for families, primarily through CCB and CCR. The Commonwealth provides some limited funding for capital and running costs, but this is primarily for services that would otherwise be unable to operate (such as services in remote areas or services for children with special needs).

Child Care Benefit

CCB is paid to those using ‘approved’ or ‘registered’ childcare services. The differences between the two forms of care are outlined below.

Approved care

Most long day care, family day care, outside school-hours school care, vacation care and some in-home or occasional care services offer approved care. Approved care services must meet requirements set out in family assistance law, particularly in the A New Tax System (Family Assistance) (Administration) Act 1999 and relevant instruments.[7]

Parents/carers using approved care services can currently claim the CCB for between 24–50 hours care per child per week (either as a fee reduction paid directly to the child care provider or as a lump sum at the end of the financial year). Both parents/carers, or a single parent, must meet the work, training, study test for at least 15 hours (or have an exemption) to be eligible for more than 24 hours of CCB per child per week, up to 50 hours per child per week.[8] The work, training, study test looks at whether the parents/carers used child care for a work‑related commitment: paid work, looking for work, studying, training or volunteering.[9]

Registered care

Registered care is provided by grandparents or other relatives, friends or nannies that are registered with the Department of Human Services as carers. Registered care is paid at a lower rate than approved care, as noted below under the heading ‘Income test’.

CCB for registered care is paid when a claim is made to the Department of Human Services and can be for up to 50 hours of child care per week for a non-school aged child. For registered care, both parents or a single parent must meet the work, training, study test at some time during the week child care is used to receive up to the 50 hour limit (no minimum requirement and exemptions from the test can be granted).

Eligibility requirements

Eligibility for CCB requires parents/carers to have their child, if under the age of seven, immunised (or be considered exempt from immunisation requirements) and meet residency requirements, and those using approved care must meet an income test. There is no income test for parents/carers using registered care.

Income test

For those using approved care, the maximum CCB rate is currently payable for families with an annual adjusted taxable income under $42,997 per annum or families on income support.[10] Family income over this threshold amount reduces the maximum CCB rate (though the rate payable depends on the number of children in care, type of care and hours used). A separate upper threshold applies to families with more than one child in approved care that modifies the way CCB entitlements are calculated for families with income over this amount. Families with income above the income limit will not receive any CCB. The family income limit for one child in care is $149,597. For two children in care it is $155,013. For three children in care it is $175,041 (plus $33,106 for each child after the third).[11]

The current maximum CCB rates are:

• for approved care—up to $4.10 per hour for a non-school aged child ($205.00 for a 50 hour week) and
• for registered care—$0.684 per hour up to $34.20 per week.

Different rates apply for school age children, and children attending care part-time or outside standard hours.[12]

Child Care Rebate

CCR assists families further with out-of-pocket expenses for approved child care (not registered care).
Out-of-pocket expenses are total child care fees less CCB. CCR covers 50 per cent of out-of-pocket expenses up to a maximum of $7,500 per child per year (this amount is usually indexed to CPI but indexation has been paused since 2011–12).[13] To be eligible for CCR, an individual must meet all the eligibility conditions for CCB, with the exception of the means test. This means that parents/carers can still be eligible for CCR even if receiving no CCB because of a high income. CCR does have a participation test (that is, both parents/carers or a single parent must work, study or train at some time during the week in which child care is used), however, there is no minimum number of hours for such activities.[14]

CCR is paid fortnightly to families or child care service providers, or quarterly or as an annual lump sum to the family.

Indexation

In social security and family assistance legislation, indexation refers to the adjustment of payment rates or means test thresholds in line with movements in an economic index, usually the Consumer Price Index (CPI). The CPI measures changes in prices paid by households for a fixed basket of goods over time. Indexing rates or thresholds to CPI maintains their real value over time.

Child Care Benefit

CCB payment rates and the income test thresholds are normally indexed at the beginning of each financial year, adjusting the relevant amounts by the movement in the CPI over the year to the preceding December quarter.[15] So, the indexation for the amounts to apply in 2013–14 was based on the CPI increase between the December quarter in 2011 and the December quarter in 2012. The indexation of CCB rates and income thresholds has never been frozen since the payment commenced in July 2000.[16] Table 1 sets out the historical income thresholds for CCB.

Table 1: Child Care Benefit—historical income test thresholds

Year	One child - income threshold	More than one child - lower income threshold	More than one child - upper income threshold
2000–01	$28,200	$28,200	$66,000
2001–02	$29,857	$29,857	$69,828
2002–03	$30,806	$30,806	$71,993
2003–04	$31,755	$31,755	$74,153
2004–05	$32,485	$32,485	$75,933
2005–06	$33,361	$33,361	$77,907
2006–07	$34,310	$34,310	$80,088
2007–08	$35,478	$35,478	$82,731
2008–09	$36,573	$36,573	$85,213
2009–10	$37,960	$37,960	$88,366
2010–11	$38,763	$38,763	$90,222
2011–12	$39,785	$39,785	$92,658
2012–13	$41,026	$41,026	$95,530
2013–14	$41,902	$41,902	$97,632
2014–15*	$42,997	$42,997	$100,268

* These are the indexed amounts as at 1 July 2014 as shown on the DSS and DHS websites. The Bill’s proposal is for this indexation event not to have occurred and for indexation to not resume until 1 July 2017 (see discussion under ‘Retrospectivity and impact on entitlements’).

Source: Department of Social Services (DSS), ‘3.6.5.20 CCB—historical income thresholds’, Guide to Family Assistance, DSS website.

Bill proposal

The Bill proposes to pause indexation of the CCB income test thresholds for three years.[17] This means that the current CCB income test thresholds will remain the same over the next three years. CCB payment rates are unaffected by the measures proposed in the Bill and will continue to be indexed once a year in line with CPI movements.

Policy position of non-government parties/independents

The Opposition has criticised the measure proposed in the Bill stating that the freeze on the indexation of the CCB income thresholds is ‘cutting access to child care for those who can least afford it’.[18] The Shadow Minister for Education and Early Childhood, Kate Ellis, stated that the measures are ‘an aggressive attack on family budgets, and on women trying to return to work’.[19]

While the Opposition had also being critical of the indexation freeze on the CCR annual limit, it allowed the previous Bill to proceed and only demanded that the CCB measures be removed.[20] The freeze on the CCR limit had first been proposed in the Labor Government’s 2013–14 Budget. However, in Opposition, Labor stated that the freeze was intended to support the establishment of the Early Years Quality Fund which has been abolished by the Coalition Government.[21] The Coalition Government has since announced that it will direct the remaining funding for the Early Years Quality Fund into a new Long Day Care Professional Development Programme.[22]

It is unclear why the Opposition allowed the CCR freeze to proceed when it had repeatedly stated that it was opposed to the measure. In the second reading debate on the previous Bill, Ms. Ellis stated:

The remarks the assistant minister made about Labor in the past freezing the cap on CCR are quite true, but it was done only temporarily and only ever to offset the cost of important investment in improving the quality and affordability of child care by contributing towards the National Quality Framework and towards wage increases for low-paid educators in order to reduce turnover in the sector.

…

Labor does not support cuts to child care. What we see before us now are savings, plain and simple. There is no reinvestment, and there are no new programs and no improvements to services. There are just cuts, and massive cuts at that.

This is a proposal of government and they must take responsibility for it. If the government is listening, and they do respond to our call to split this bill, we will outline our opposition to these Child Care Rebate cuts and the impact they have, but we will not prevent them from progressing through the parliament.[23]

The Australian Greens are opposed to the measures and, in regards to the previous Bill, stated that ‘the Greens will do everything we can to stop these cuts in the Parliament’.[24] Senator Sarah Hanson-Young stated:

Ripping more than $200 million dollars out of the pockets of Australian mums and dads is not the way to fix our nation’s broken childcare system.

The Abbott Government should be investing money into childcare, not making savage cuts.

The only way to ensure that all Australian families have access to high quality, affordable childcare is to support the sector.

Many who work in childcare are worried that these cuts are just the beginning and that future Coalition Budgets will come with more pain for families.[25]

In the second reading debate on the previous Bill, Senator Hanson-Young urged the Opposition not to split the Bill:

The Greens will be voting against this legislation in its totality and we reject the freezing of the indexation in relation to the childcare benefit, which will affect half a million families. We also reject the freezing of the childcare rebate cap, which will affect another 105,000 families. I urge the Australian Labor Party to do the same. We heard from Senator Carr that the bill will be split by the Labor Party to allow them to vote for one of the cuts but not the other. I urge the Labor Party to reconsider that. This is a bad piece of legislation that is going to hit Australian families immediately.[26]

Position of major interest groups

Early Childhood Australia (ECA), the peak early childhood advocacy organisation, has stated that a complete rethink of government subsidies for child care is required and that the indexation freezes ‘will have a dramatic effect on the cost of care over the next few years’.[27] ECA modelled the combined impact of the changes proposed by the previous Bill and estimated that the measures ‘will leave a family with a household income of $135,000 per annum up to $6,000 worse off, per child, by 2017’.[28] ECA Chief Executive Officer, Samantha Page, stated that ‘without significant reform of the child care system, government subsidies would continue to lose real value and families could withdraw children from care’.[29]

One of the largest childcare providers in Australia, Goodstart Early Learning, stated that they were concerned at the impact the CCB income threshold freeze would have on affordability, particularly for low-income families:

We are certainly concerned about it over the longer term, because it is a slow burn impact. Low-income families, as I said, are struggling the most with childcare costs. We should be looking to increase assistance for that group rather than reduce it. We are worried that reducing the amount of CCB for working families will have an impact on whether parents can afford to go back to work. People do make very conscious decisions based on their tax after childcare benefit and whether they can return to work.

…

For the childcare benefit, both the rates and the income thresholds are indexed to CPI, but the cost of child care has been going up by more than CPI—roughly twice CPI over the last decade—and wages have been going up by more than CPI: roughly 1½ per cent more than CPI over the last decade. When CCB was introduced by John Howard, back in 2000 during the GST negotiations, the maximum CCB came in at 74 per cent of full-time average earnings. It is currently sitting at about 50 per cent, and with this pause the maximum rate will cut out at 40 per cent of average full-time earnings by 2017. So, if you look at it in a historical sense, inadequate indexation ultimately results in fewer and fewer people being eligible for these things. The actual maximum rate of CCB—at $40 a day, or $4 an hour—similarly has been indexed to CPI over a period. But the gap between it and what people are paying each year widens; although, I should note that if they are workers, half of that gap is picked up by the childcare rebate up to the cap.[30]

Committee consideration

On 26 June 2014, the Senate referred the Bill to the Education and Employment Legislation Committee for inquiry with a reporting date of 28 August 2014.[31]

The Senate referred the provisions of the previous Bill to the Education and Employment Legislation Committee on 5 June 2014.[32] The Committee’s report was tabled on 16 June 2014 and recommended that the Bill be passed.[33] In their Additional Comments, Labor Senators expressed concerns that the Bill would exacerbate child care cost pressures on families and negatively impact on women’s workforce participation.[34] The Labor Senators recommended that the Senate consider these issues when deliberating the Bill.[35] The Greens issued a Dissenting Report and recommended the Senate reject the Bill.[36]

Financial implications

The Explanatory Memorandum states that the measure relating to CCB income thresholds is expected to provide net savings of $230.4 million over four years (2014–15 to 2017–18).[37]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[38]

Key issues and provisions

Provisions

Item 1 inserts a new subclause 3(5B) into Schedule 4 of the FA Act (the Schedule which sets out how indexation and adjustments of amounts in the FA Act are to occur) so that the CCB lower and upper income thresholds are not indexed on 1 July 2014, 1 July 2015 and 1 July 2016. Indexation of the relevant amounts is to resume on 1 July 2017.

Impact on costs of child care and work incentives

The measure proposed by the Bill will increase out-of-pocket costs for many families making use of child care. This will occur partly as a result of family incomes gradually increasing over time (due to wage rises or parents working more hours), while the income test thresholds remain the same. As family income rises above the relevant thresholds, their entitlement for CCB will decrease and, for those whose income rises over the income limits, they will stop receiving any CCB.

While CCR will make up for some of the lost CCB entitlements, rising fees and the annual CCR cap will limit this offsetting effect.

The Department of Education expects that the freeze on the indexation of the CCB income thresholds will affect 500,000 families in 2014–15 (around half of those expected to use approved child care).[39]

Increasing costs of child care create work disincentives, particularly for second earners in couple families. The costs of placing children in care in order for parents/carers to undertake paid work, combined with the effect of the withdrawal of benefits such as Family Tax Benefit and taxation, can significantly reduce if not remove the monetary benefits of work.[40]

The proposed measure in the Bill forms part of suite of indexation freezes and benefit cuts in the 2014–15 Budget aimed at reducing the rate of growth in social security and family assistance payment expenditure.[41] Many families will be impacted by a combination of these measures resulting in significantly reduced rates of government assistance than they might have been expecting in the coming years.[42]

Reducing growth in expenditure on child care fee assistance

The measure proposed by the Bill is aimed at reducing the growth in expenditure on child care fee assistance. The Assistant Minister for Education, Sussan Ley, stated in her second reading speech:

We do not waiver on our commitment in regard to the Child Care Benefit measure because it is an important 2014–15 Budget measure that aims to help fix the Budget mess left by Labor.

…

It is fiscally responsible for this Government to maintain—not cut as the Opposition would have you believe but maintain—the current Child Care Benefit income thresholds pending the outcome of the Productivity Commission’s Inquiry into Child Care and Early Learning due to report in October 2014.[43]

Expenditure on CCB and CCR has been growing rapidly, in line with growth in the number of children in approved care, as well as fee rises averaging around seven per cent per year over the last eight years. In 2014–15, an estimated $6.3 billion will be spent on CCB and CCR and expenditure is expected to grow to $8.0 billion in
2017–18.[44] The estimated net savings of $230.4 million over the forward estimates arising from the measure in the current Bill seems minor in comparison to the total expenditure on these payments. However, the measure will have a large, long-term effect on expenditure having briefly paused the indexation of CCB income thresholds.

Retrospectivity and impact on entitlements

As the commencement date occurs before the Bill has passed the Parliament it will be necessary to reverse the indexation of the CCB income thresholds that occurred on 1 July 2014. Alternatively, the Bill could be amended so that the indexation freeze only applies from 1 July 2015, reducing the expected savings. If the Bill is not passed soon after 1 July and the indexation pause is applied retrospectively, this will mean that some families receive CCB payments they are not entitled to (if their income is above the relevant thresholds). The Department of Human Services will be required to claim back any overpayments or non-entitled payments.

The issues involved in applying the indexation pause retrospectively were not addressed in the Explanatory Memorandum nor in the Minister’s second reading speech. Media releases since 1 July 2014 have highlighted the indexation of CCB rates but did not state whether the indexation of the threshold amounts would be reversed.[45] The Departments of Human Services and Social Services have updated their websites to show the income thresholds as indexed on 1 July 2014 and Human Services will be using these amounts to calculate CCB entitlements. The retrospectivity issue is likely to cause significant confusion amongst families as to their level of CCB entitlement.

 

Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2500.

 

For copyright reasons some linked items are only available to members of Parliament.

---

© Commonwealth of Australia



Creative Commons

With the exception of the Commonwealth Coat of Arms, and to the extent that copyright subsists in a third party, this publication, its logo and front page design are licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia licence.

In essence, you are free to copy and communicate this work in its current form for all non-commercial purposes, as long as you attribute the work to the author and abide by the other licence terms. The work cannot be adapted or modified in any way. Content from this publication should be attributed in the following way: Author(s), Title of publication, Series Name and No, Publisher, Date.

To the extent that copyright subsists in third party quotes it remains with the original owner and permission may be required to reuse the material.

Inquiries regarding the licence and any use of the publication are welcome to webmanager@aph.gov.au.

Disclaimer: Bills Digests are prepared to support the work of the Australian Parliament. They are produced under time and resource constraints and aim to be available in time for debate in the Chambers. The views expressed in Bills Digests do not reflect an official position of the Australian Parliamentary Library, nor do they constitute professional legal opinion. Bills Digests reflect the relevant legislation as introduced and do not canvass subsequent amendments or developments. Other sources should be consulted to determine the official status of the Bill.

Any concerns or complaints should be directed to the Parliamentary Librarian. Parliamentary Library staff are available to discuss the contents of publications with Senators and Members and their staff. To access this service, clients may contact the author or the Library‘s Central Entry Point for referral.