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Bills Digest No. 8  2000-01
Retirement Assistance for Farmers Scheme Extension Bill 2000

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
Endnotes
Contact Officer & Copyright Details

Passage History

Retirement Assistance for Farmers Scheme Extension Bill 2000

Date Introduced: 29 June 2000

House: House of Representatives

Portfolio: Finance and Administration

Commencement: Royal Assent

Purpose

To amend the Social Security Act 1991 and the Veterans' Entitlements Act 1986 in order to extend the operation of the Retirement Assistance for Farmers Scheme from 14 September 2000 to 30 June 2001.

Background

The Retirement Assistance for Farmers Scheme (RAFS) is designed specifically to help low income farmers of pension age and their partners to access the age pension after they have gifted their farm to the younger generation. Extension of the scheme for 9 months to 30 June 2001 was announced in the 2000-2001 Budget.⁽¹⁾

Age Distribution of Australian Farmers

In the 1996 Census, almost 200,000 people identified themselves as 'Farmers or Farm Managers'. The age distribution of these people is as follows:

Age Distribution of Australian Farmers

Source: ABS, 1996 Census

Income of Australian Farmers

A summary of the weekly income of farmers and farm managers according to the 1996 Census is as follows:

Census 1996

Persons with Farmer or Farm Manager Occupations By Age Group and Individual Income

This table shows that in 1996, approximately 13 307 farmers or farm managers aged 60 years or over were earning less than the age pension.

Intergenerational Transfer of Family Farms

n 1996 the Government constituted the Special Rural Task Force to investigate the impact of social security assets tests on farmers. The Task Force also considered the effect of social security assets tests on the intergenerational transfer of the family farm. The Task Force Report⁽²⁾ found the 'disposal provisions' meant that farmers were frequently unable to transfer the farm as they could be precluded from the pension for five years. The Report noted existing provisions hindered rather than encouraged the process. One farmer quoted by the Task Force observed: 'if I give the farm away my wife and I will have no money to live on for the next five years until we become eligible for the pension ... due to [harsh conditions] we haven't been able to return enough profit to support two families'.⁽³⁾ The Task Force found that structures to support long-term planning either had not been available or have been too expensive for farmers to access. It recommended that, in order to ease the transfer of the farm, a temporary exemption from the disposal provisions should be provided where farms were to be transferred to the children.

As a response to the perceived needs of the rural sector, the Government introduced its Agriculture - Advancing Australia package. The AAA Package provides both incentives for farm adjustment to ensure that there is an efficient and competitive farm sector, and a welfare safety net for farmers. The media release which accompanied the new policy noted how the aged pension test discouraged older farmers from gifting ownership of the farm to their younger offspring.⁽⁴⁾ The effect of the Retirement Assistance for Farmers Scheme is to introduce a moratorium on such gifts or 'disposal provisions' laws to assist the transfer of the farm.

The Retirement Assistance to Farmers Scheme was introduced by the Social Security and Veterans' Affairs Legislation Amendment (Retirement Assistance for Farmers) Act 1998 and commenced on 15 September 1997.⁽⁵⁾ Some of the features of the legislation are:

• farmers must take advantage of the scheme before 15 September 2000;
• the whole of the farm held by the farmer and his or her spouse must be transferred. The transfer must be made by way of gift and divest the farmer of the whole of the legal interest. An exception relates to the home;
• the value of the farming interest must not exceed $500,000;
• the transferor must be a natural person (not a company), but may be a farmer alone, or the farmer in conjunction with a spouse;
• to qualify, the farmer must have been in farming for 15 years, or, if he/she has been in farming for at least 20 years, have acquired the relevant interest in the farm prior to 15 September 1997;
• the farmer's income is means tested. An average of the farmer's income over three years preceding the completion of the transfer is compared with the pension entitlement, currently $ 10,059.40 a year for a single pensioner and $16,780.80 for a couple. (The rate for a single pensioner works out at $193.45 a week); and
• to be eligible, the transferee must be a natural person, related to the transferor (narrowly defined), and have a farming background. Furthermore, the transferee must have been actively involved in farming for three years before the transfer.

The aim of the scheme is to deliberately target low income farmers who are experiencing the most serious financial hardship. These families, it is argued, have not been able to afford the transfer of the family farm even in the States where there is an exemption from stamp duty.

The measure is aimed at assisting a full retirement from the farm. The intention is that to be eligible for RAFS, the farmer and his or her spouse must transfer all assets. Farmers may retain other assets, although they will be assessed by the usual assets tests.

This Bill does not alter the eligibility criteria for the scheme.

When RAFS was introduced in 1998 a number of commentators made the general criticism that the eligibility criteria are too restrictive, including that:

• the ceiling value of a property of $500,000 is very low for an average retiring couple given the average level of farm business equity for broadacre enterprises is $968,000 (Farm Survey Report 1997). Farmer groups advocated a figure of $800,000;⁽⁶⁾
• while the initial claim was that 10,000 farmers would benefit from the scheme, Social Security officers reported to a Senate Community Affairs estimates hearing that they expected only 6,000 farmers to apply and that only 2,100 would be successful;⁽⁷⁾
• the scheme is only available to those farmers or farming couples whose income is less that the maximum pension income. This low level is likely to exclude many families who, while not destitute, are not well off. Farmer groups requested that a figure of $20,000 apply;
• the involvement test for the younger generation needs to be more flexible for the situation where the younger generation has worked off the farm;
• the window of opportunity of three years provided for this program is too short given the length of time it will take to get the scheme up and running. Five years has therefore been suggested to enable people to start their succession planning earlier;⁽⁸⁾
• the requirement that the farmer must have owned the land for 15 years is too restrictive.⁽⁹⁾

Review of the RAF Scheme

The scheme has now been running for two years. In 1999 an in-house review of RAFS was carried out by the Department of Family and Community Services. Specific issues addressed by the review were:

• the extent to which RAFS is meeting its objective
• dentification of key factors that promote or inhibit access to the scheme, and
• the need for changes to address any perceived shortcomings in the scheme.⁽¹⁰⁾

On 10 May 2000 Hon Larry Anthony MP provided an answer to a Question on Notice about RAFS in which he agreed that the departmental review was also to 'examine the justification for, and the cost and equity of, any changes to the eligibility criteria for the scheme and its extension past September'.⁽¹¹⁾ At the time he said no decision had been made about whether the departmental report will be made public.

Legislation establishing RAFS received Royal Assent on 2 July 1998. The scheme was backdated to commence on 15 September 1997 and also applied to those eligible farmers who transferred legal title of their property in the five years preceding 15 September 1997 (therefore the scheme effectively applied for eight years). In the first year of the scheme 716 farmers (including spouses) were granted or received an increase in their age pension, or other income support payments under the RAFS provisions.⁽¹²⁾ In his Second Reading Speech the Parliamentary Secretary to the Minister for Finance and Administration Hon Peter Slipper said that, to June 2000, RAFS has assisted more than 1400 retiring farmers and their partners.⁽¹³⁾

Farmers and their spouses who are eligibile for RAFS receive the age pension five years earlier than they would have if the scheme did not exist. Costing for RAFS covers the five extra years that the farmer receives the pension. Initially the estimated cost of the scheme to 14 September 2000 was $77.6 million.⁽¹⁴⁾ However figures provided by Centrelink show that the actual expenditure on RAFS to March 2000 is $10,392,492.⁽¹⁵⁾ The estimated cost of the extending the scheme is as follows:

Source: Family and Community Services, Portfolio Budget Statements 2000-01, p. 173.

Main Provisions

Items 1-6 of Schedule 1 amend the Social Security Act 1991 to extend the operation of RAFS for an extra 9 months. Instead of ending on 14 September 2000, the Scheme will operate until 30 June 2001.

Schedule 2 makes the same amendments to the Veterans' Entitlements Act 1986. The effect of items 1-6 of Schedule 2 is to extend the operation of RAFS until 30 June 2001.

Concluding Comments

This concession has been granted exclusively to the farming community. No similar concession exists for the non-farming small business person who is an owner-operator, to allow him or her to transfer their business to a younger generation and become eligible for the age pension. Indeed the Government recently altered the gifting provisions so that other would-be applicants for the pension may be excluded from receiving a pension or allowance or have their entitlement reduced for five years should they give away assets of more that $5,000 a year. ⁽¹⁶⁾

t is not the purpose of RAFS to address the issue of viability of the family farm. Other parts of the AAA package, such as counselling assistance and the restart program available under the rural adjustment scheme are designed to help in assessing whether a farm is viable or not. Nevertheless commentators have suggested that a result of RAFS might be to postpone the need to look at the long-term viability of the enterprise⁽¹⁷⁾. The Government's objective for this scheme is to assist the intergenerational transfer of the family farm. However one commentator recently wrote that there is an increasing likelihood that the next generation does not want to farm.⁽¹⁸⁾ A report showed that 54% of farmers surveyed in the wheatbelt of Western Australia did not want to farm. Farming is increasingly difficult and returns are hard to predict. Moreover, farming is increasingly technical and multi-skilled which does not suit everyone.

The Western Australian survey also reported on the problems of succession. Only 14% of farmers said they had a firm succession plan. Many had reported that the process had been difficult (51 out of 67) and often led to family disagreements and a failure of family continuity. In many cases failure meant the family had left the community, the farm being sold to neighbours. The Special Rural Task Force Report recognised that there was a group of farmers who, for a number of reasons, had not planned for their retirement. RAFS was designed to give them a three year 'window of opportunity' to retire on the Age Pension. Farming organisations say they have been actively encouraging farmers to develop succession plans ⁽¹⁹⁾ but the fact that RAFS is to be extended for a further 9 months might suggest that this is not happening quickly.

Endnotes

1. Family and Community Services Portfolio, 'Portfolio Budget Statements 2000-01', Budget Related Paper No. 1.8, p. 173.
2. Special Rural Task Force, Impact of the Social Security Assets Tests on Rural Customers, Monograph, DSS, Canberra, 1997.
3. bid., p. 34.
4. Hon John Anderson, 'Federal Government gives farm sector "AAA" rating', Media Release, DPIE97/122A, 14 September 1997.
5. For more information on the original legislation see Bills Digest No. 161, 1997-98, 'Social Security and Veterans' Affairs Legislation Amendment (Retirement Assistance for Farmers) Bill 1998'. http://www.aph.gov.au/library/pubs/bd/1997-98/98bd161.htm
6. National Farmers Federation, 'NFF cautiously welcomes Retirement Assistance Bill', News Release NR 69/98, 25 June 1998.
7. Senate Community Affairs Legislation Committee, Hansard, 15 May 1998, p. CA25.
8. New South Wales Farmers Association, ibid., p. CA4.
9. Sen John Woodley, ibid., p. CA5.
10. Department of Family and Community Services, Annual Report 1998-99, Canberra, 1999, p. 179.
11. 'Question on Notice: Retirement Assistance for Farmers Scheme' (Question No. 1296), House of Representatives, Debates, 10 May 2000, p. 15337.
12. Department of Family and Community Services, Annual Report 1998-99, Canberra, 1999, p. 179.
13. Hon Peter Slipper, 'Second Reading Speech Retirement Assistance for Farmers Scheme Extension Bill 2000', House of Representatives, Debates, 29 June 2000, p. 17077.
14. Hon John Anderson, 'Federal Government gives farm sector "AAA" rating', Media Release, DPIE97/122A, 14 September 1997 p. 2.
15. Management information provided by Centrelink to the Department of Family and Community Services, 4 August 2000.
16. The Social Security Amendment (Disposal of Assets) Act 2000 which commenced on 1 July 2000 reduced from $10,000 to $5,000 the amount of assets that a person may dispose of for low or no consideration. See Bills Digest No. 25 99/00, 'Social Security Amendment (Disposal of Assets) Bill 1999. http://www.aph.gov.au/library/pubs/bd/1999-2000/2000BD025.htm
17. Senate Community Affairs Legislation Committee, Hansard, 15 May 1998, p. CA27.
18. Haslam McKenzie, Fiona and Loughton, Kate, 'The social and economic challenges for family farming in the Central Wheatbelt in Western Australia', 1998. Available on website http://www.sbaer.uca.edu/DOCS/98icsb/y005.htm (9 August 2000).
19. Senate Community Affairs Legislation Committee, Hansard, 15 May 1998, p. CA5.

Contact Officer and Copyright Details

Rosemary Bell
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.

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ISSN 1328-8091
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