These two proposals are part of a range of proposals presented in the Budget aimed at simplifying and rationalising Social Security programs of assistance and their administrative arrangements.
One of the major and long-standing sources of confusion and frustration for Social Security recipients (and staff) has been the many different and inconsistent rules that apply to the delivery of payments. These differences do not have their origins in the different legislative and policy purposes of the payments and there are no essential or necessary reasons for the differences. Rather, the differences owe their existence to the different administrative evolutionary paths the payments have taken.
Pay all Social Security Payments Fortnightly in Arrears
Currently the three main different payments regimes for Social Security are:
Pension Paydays-A fortnightly payment cycle with qualification linked the circumstances of the recipient on each Thursday payday. The payment is neither for the fortnight past or that to come, but a payment for qualification on the payday.
Family Paydays-A payday based cycle essentially the same as the pension regime but paid on the alternate Thursday to the pension payday.
Allowance Paydays-A daily entitlement regime in which payments are also paid fortnightly but in arrears, i.e. for the fortnight just past and ending on the payday. The payday can be on any one of the ten working days in a fortnight and usually is set from the date of commencement.
The different payday regimes arbitrarily advantage and disadvantage different recipients depending on the relationship between the date of the particular event and the payday.
For example, a Sole Parent Pension claimant who separates on the Friday immediately after the Thursday pension payday (and claims on that Friday), does not qualify for the first pension payment until the next payday, a wait of thirteen days. However, if the claimant had separated and claimed on the Thursday payday, a full payment can be made that same day. The same anomaly generally applies to the family payment regime.
In contrast, the allowance payment regime more closely aligns qualification to the actual day of the event. For example, where a person becomes unemployed and claims Newstart Allowance the next day, being the first day they are unemployed, eligibility commences immediately, subject to any waiting or deferment periods.
The proposal is supported by departmental estimates indicating that a one-off large saving of $100 million in 1999-2000. This is to be achieved by not having to pay 27 Family Allowance paydays (one extra to the usual 26 in a year). An average of $18 million is estimated will be saved each year. This is largely due to the closer alignment of the payment cycle to the date of an event that affects qualification or rate of payment.
There are also potentially significant administrative savings to be achieved from far less customer confusion and resultant inquiries. Savings will probably also be achieved with less staff confusion arising from the many different payment rules to learn.
There is the potential for significant customer confusion and concern in the transition phase, especially for the pension population who for many years has organised its financial affairs around the fortnightly Thursday payday. This also applies to family payment recipients, albeit to a lesser extent on account of it being income supplement rather than income support.
Simplify and Amend Date of Effect Rules for Income Support Payments
Currently, different rules apply when recipients are required to notify of a change in their circumstances (notifiable events) under the Social Security Act and the Veterans' Entitlements Act. Notifiable events are those that may affect a recipient's qualification to payment and/or rate of payment under the legislation. Some examples are:
Once a change has been notified there are also different rules under the legislation prescribing the effect on any change of rate, underpayment, overpayment, or the recovery of any overpayment. Some of the major inconsistencies with the current rule differences are:
The reverse is also true where the event causes a payment increase. Those who advise late in the 14-day period may not give enough time for the next payment to be adjusted upwards and may be underpaid.
The 14-day notification period for pension is partially on account of pension payments having been in existence for longer than allowance payments. In the past, notification was more commonly made in person or by mail. The seven-day notification period for allowance payments stems from notification being possible by phone and the existence of far more locally based offices and agencies.
For those people whose notifiable event will result in an increase in payment and who notify with seven days, the increased rate will apply from the date of event. Under current arrangements for both pensions and allowances the rate increase occurs from date of notification.
The projected program savings from 1999-2000 onwards largely arise from two elements. Firstly, the uniform application of the seven day notification period to include pension payments. Secondly, this proposal is designed in conjunction with the proposal to pay all Department of Social Security payments fortnightly in arrears. The fortnightly arrears payment regime more closely aligns payment to date of the event rather than fortnightly paydays.
There are potentially significant administrative savings to be achieved arising from less customer confusion and inquiries, less staff confusion and complexity of payment rules to learn. Standardisation of rules produces equity of treatment between different clients and different payments.
Other Related Budget Proposals
Savings estimates for this proposal are limited by the lack of detailed and accurate information about the working population of retirement age. The anticipated take-up rate is 18% of age pension claimants, i.e. 22 000 in 1998-99 who are expected to elect to defer. It is estimated that over the first three years a total of 35 000 will elect to defer.
The Department of Social Security does not record or collect for age pension claimants any information about earned income foregone or able to be accessed after retirement age. The only information known is the amount of earned income received after payment commences. This is collected for the purposes of the income test. This does not identify any potential to earn more income, or the financial capacity to forego the pension. No information is available regarding decisions made about employment given the impact of the income test on the rate of pension, or the weight attached to accessing a pension relative to employment participation or to earning capacity. However, it is probably safe to assume these decisions are influenced by access to the pension income and the associated concession card.
The estimates have used information from the Australian Bureau of Statistics (ABS) surveys presenting data on working hours patterns and earned income levels for people over retirement age. This data only represents choices made against the current pension income test rules.
About 30% of age pension claimants delay lodging their claim, i.e. do not claim immediately upon reaching retirement age. There are several reasons for delayed claims. These include people electing to work beyond retirement age, claimants not having the necessary 10 years residence in Australia at retirement age and changes in the financial circumstances of claimants after retirement age.
In addition to reduced pension outlays there are other benefits to Government associated with deferrals:
The deferred bonus option will probably be only taken up by those able to support themselves without accessing the pension. Therefore, those otherwise entitled to be paid the maximum rate pension, i.e. those who either have little or no income will probably not be able to opt to defer.
Costing models can be prepared to broadly identify at what level of income a claimant would benefit from deferring, but the data is not complete and is obtained from an environment that is different from that which will apply after the proposal commences. The deferred bonus choice will primarily be made in terms of earning capacity options against the benefits of the pension income and concessional fringe benefits. More subjective considerations such as the value placed on work, attachment to work, contribution to the community, financial or other pressures to remain in the workforce may also be significant.
No mention has been made in the proposal to allow any extension of the treatment of the capital component of superannuation roll-over monies or resultant products. The deferment choices may be limited if there is not some form of incentive or concessional arrangement to allow superannuation arrangements to continue after age 65.
These proposals touch on expansions to the three main Commonwealth income support and supplement payments clearly identifiable as carer assistance. Most carers receiving income support from Government are on payments other than Carer Pension (CP), ranging across Sole Parent Pension, Parenting Allowance, Partner Allowance, Age Pension, Widow Pension, Widow Allowance and Wife Pension. As at May 1997 there were about 25 000 CP recipients.
Extension of Carer Pension to Carers of Profoundly Disabled Children under the Age of 16 Years
Over the past five years, the CP has seen a series of initiatives aimed at meeting the particular income support needs of in-home carers such as:
This proposal addresses a long-standing demand from individual carers and carer representative groups.
It has been hard to rationalise the existing CP restriction to only carers of adults given the care requirements for people with severe disabilities are in many cases not age specific. In the past, some carers of children with disabilities have been forced to claim special benefit as a carer pension has not been payable where the person being cared for was aged less than 16 years. However, an issue that has regularly surfaced in this debate about paying carer pension to carers of young people centres on drawing the distinction between care arising from the child's disability as opposed to care arising from the young age of the child.
This issue has parallels with the Child Disability Allowance (CDA) initiative, where the explosion in the numbers on CDA is partially driven by the administrative and policy difficulties in distinguishing between the disability care needs and young-age child care needs. It is primarily for this reason that the proposal refers to profoundly disabled children requiring high levels of care rather than all children with a disability requiring some level of extra care.
Extend Carer Pension to Carers Caring for a Disabled Adult as well as Caring for a Child
This proposal also addresses a long-standing demand from individual carers and carer representative groups. For the first time CP will be paid to a carer providing care for more than one person. CP, having its origins as a spouse carer payment, is currently not payable where the carer is caring for more than one person, where none of them individually require full-time care, but collectively the carer requirements are full-time. One of the concerns with extending CP to these types of care situations has been the risk of providing income support to carers in informal in-home institutional care situations.
These proposals for CP continue the series of responses by Governments to both the overall increase of in-home care situations and the increased diversity of care situations in addition to the traditional partnered care or familial care arrangements.
Child Disability Tables for Child Disability Allowance
The growth in CDA numbers from about 50 000 to 102 000 in the past five years has been of concern to Governments and to administrators. There is no evidence that the growth in numbers is driven by increased incidence of childhood disabilities in the community.
The exceptions to this are asthma and diabetes, conditions which the medical profession reports as generally increasing in the community, but not to a sufficient extent to explain the growth in CDA numbers.
The Department of Social Security does not record the medical conditions of the children attracting CDA. For data about the child disability population we are reliant on Australian Bureau of Statistics research. The male to female ratio of children attracting CDA is 65% male. This male dominance partially reflects the high reported incidence of behavioural conditions diagnosed by treating doctors such as Attention Deficit Disorder, as well as other conditions like Developmental Delay.
Other factors considered to have driven the CDA population increase are:
One of the issues raised by the increased and expanded coverage of the child disability population, which has seen a move away from a predominance of children with intellectual and physical disabilities, is that a universal rate of payment does not acknowledge those with very high care needs. While CDA has never aimed to cover the extra costs of care, a tighter targeting of the payment may allow greater scope to provide increased assistance to those who need it most.
Limitation of Arrears of CDA at Claim to Six Months
The proposal to limit arrears of CDA at grant to six months, down from the current 12 months, is a modification of a like proposal presented in the 1996-97 Budget to limit arrears at grant to three months.
The past ten years have seen the introduction of a series of targeted waiting and deferment periods for allowance payments resulting in additions and/or variations to the original universal one week waiting period. Some of these periods now in place include:
Waiting/deferment periods are aimed at ensuring those claimants with sufficient means to support themselves use those resources for a period before payment commences, and also to time the commencement of payment appropriately by considering the claimant's circumstances immediately prior to claiming.
This proposal applies a new waiting period and means test for seasonal and intermittent contract workers. These types of workers are commonly those regularly unemployed for short periods between seasons or contracts, e.g. meat workers in northern Australia, workers employed in the fishing industry and contract teachers. Although these workers usually do not receive leave payments when not working, their wage rates often recognise the short-term nature of the work by rolling in leave payments. In some cases, the rate of payment during the working period is not high, but the receipts of the seasons work will be received at a later date, e.g. on sale of the catch.
Access by these types of workers to assistance in the form of Newstart Allowance as a bridging payment between seasons or contracts has been a long-standing issue. This contrasts with self-employed persons who experience periods of no work but are not able to access the same assistance as they are not considered to be unemployed.
Hardship provisions proposed to Newstart Allowance and related payments will apply.
The estimated savings are based on approximately 6000 claimants being affected.
Other Related Proposals
The 1996-97 Budget announced the replacement of the annual leave deferment period with the Income Maintenance Period commencing 20 September 1997. This initiative is also paralleled by the proposal to standardise the hardship test rules which apply to waiting periods.
The proposal to apportion lump-sum payments over twelve months and no longer just maintain the sum as income only in the fortnight of receipt.
Sole Parent Pension (SPP) has its origins as the Supporting Mother's Benefit which was introduced in 1973. Supporting Mother's Benefit was changed to the SPP in November 1977, allowing payment to any person with a dependent child, including, male sole parents.
Parenting Allowance (PgA) was introduced from July 1995, replacing the then Home Child Care Allowance (HCCA). HCCA had its origins as the dependent spouse tax rebate. PgA is paid to the parent of a couple at home caring for at least one dependent child aged 15 years or less. PgA is means tested to target payment to those on low incomes.
The maximum rate of PgA ($225.00 per fortnight-May 1997), is made up of two components. The basic PgA ($65.10 per fortnight-May 1997) and additional PgA (up to $159.90 per fortnight-May 1997). The basic PgA payment only considers the income of the parent at home, is not assets tested and is not taxable income. The additional PgA is based on the combined incomes of both partners, is assets tested and is treated as taxable income.
This proposal is historic in terms of seeing the demise of a sole parent specific income support payment. The new proposed payment is essentially a parent payment (single or partnered), parents being carers of children. A possible extension of the proposal would have been the absorption of Carer Pension (CP) as well, especially considering that this Budget also proposes to expand CP to carers of severely disabled children.
The proposal aims to resolve the inherent tensions arising from the different rules and means testing that apply between pension based and allowance based payments. Pension based payments, which are usually longer term that allowance payments, have traditionally had more generous means testing, rates of payment and fringe benefit.
The main differences currently between SPP and PgA arrangement are in the areas of:
What is proposed is a new hybrid payment that has some elements of both payments. This process together with the cost considerations inevitably involves compromises resulting in 'winners and losers'. The results as proposed are:
The conditions to be retained for sole parents are:
The benefits of rationalisation are consistency and equity of rules and their application between like payments. This is important given one of the main reasons sole parents relinquish SPP to re-partnering. Other benefits include reduced administrative costs in terms of transferring people from one payment to another and reduced complexity resulting in less confusion and inquiries from customers.
The full extension of a rationalisation of income support payments, for persons of working age unable to support themselves from employment for reasons of parenting or caring, is to consider all like payments paid to persons not employed, for any reason(s), be it parenting, caring, illness, disability or unemployment.
Other Related Proposals
The basic Family Payment has its origins as the Child Endowment and then the Family Allowance, both of which were payable for periods where the child and/or parent/s were overseas for short periods. Payment continued so long as the absence was temporary and Australia was still the place of residence, e.g. for holidays and Defence and Foreign Affairs staff posted overseas.
The Family Allowance Supplement was introduced in 1987. It was a means tested payment for families paid in addition to the then Family Allowance, to assist with the extra costs of raising children. The Family Allowance Supplement was never payable for any periods where the child was outside Australia.
When the Family Allowance Supplement and Family Payment were amalgamated into a single two tiered family payment in January 1993 (i.e. Basic Family Payment and Additional Family Payment), the overseas payment rules were largely retained. Basic Family Payment was payable for periods overseas but the Additional Family Payment was not. This has been seen to be anomalous especially in those circumstances where the absence of the child from Australia was short-term for medical treatment or even school excursion reasons. In partial recognition of this, the rules were amended from January 1995 to allow the Additional Family Payment to be payable for periods of up to 13 weeks, where either or both parent/s is temporarily absent overseas, but the child remained in Australia.
This proposal will see a further step in aligning the payment of the two components of Family Payment where the child is temporarily overseas, with the Basic Family Payment payable for up to 13 weeks and any Additional Family Payment payable up to 8 weeks.
Budget measures related to Rent Assistance do not impact on outlays in Program 5, Housing.
From 1 January 1998, Rent Assistance will not be paid to those people living (as sub-tenants) in public housing except where the primary tenant is paying the market rate of rent to a State or Territory housing authority. Around 44 000 people are likely to be affected. The estimated number of Rent Assistance recipients for 1997-98 is 1 005 400, and the estimated expenditure is $1.5 billion.
Rent Assistance is specifically denied to public housing tenants on the basis that this group is already subsidised by State and Territory housing authorities. Where sub-letting has been authorised, housing authorities assess additional rent payable by the primary tenant. As the additional rent is also generally assessed at subsidised levels, the Commonwealth has decided to stop paying Rent Assistance to sub-tenants of public housing.
A small proportion of eligible DSS, Department of Veterans Affairs and DEETYA customers live as sub-tenants in public housing where the primary tenant pays market or unsubsidised rent to the State housing authority. These customers will not be affected by this measure and can still access Rent Assistance.
Following negotiations with the States and Territories, an Interim Commonwealth-State Housing Agreement (CSHA) came into effect from 1 July 1996 for up to three years.
While the Commonwealth has offered States and Territories funding for the remaining two years of the current CSHA ($975.0 million in 1997-98 and $964.4 million in 1998-99), overall funding levels have been reduced by $50 million per year. The rationale for the cut relates to expected savings flowing from increased efficiencies and reform in the delivery of public housing. The details of how efficiencies are to be identified and applied have not been agreed upon and the process of reform has stalled.
Given the reduction in Commonwealth funds, matching grants required of States and Territories under the CSHA could be reduced by $45 million, from $427 million this financial year to $382 million in the next financial year.
Existing funding levels will be maintained for the Aboriginal Rental Housing Program, the Crisis Accommodation Program and for expenditure on community housing.
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