The Farm Household Support Amendment (Debt Waiver) Bill 2021 (the Bill) amends the Farm Household Support Act 2014 (the FHS Act) to permanently waive the repayment of certain classes of debt owed by Farm Household Allowance (FHA) recipients. These debts have arisen as a result of overpayments of the FHA due to inaccurate estimates of business income provided by claimants. According to the Explanatory Memorandum, the amendments in the Bill will have a total financial cost of $65.6 million, including $51.0 million in foregone revenue from debts that would otherwise have been repaid (p. 2). In his second reading speech, Assistant Treasurer Michael Sukkar stated that the Bill will provide debt relief to up to 5,300 farmers and their partners.
The Bill also proposes to introduce a final date of 30 June 2023 for FHA recipients to supply their full financial statements for the business income reconciliation process. This process ceased from 30 June 2020 as a result of amendments made by the Farm Household Support Amendment (Relief Measures) Act (No. 1) 2020 (2020 Relief measures Act) but claimants are still required to supply the statements for previous years. Any debts raised after the statements are provided and the reconciliation process is completed will also be waived.
Farm Household Allowance
The FHA is an income support payment which assists eligible farmers and their partners who are experiencing financial hardship. It is paid at the same rate as the social security payment JobSeeker Payment (or the same rate as Youth Allowance if the recipient is aged under 22 years). The payment is time-limited: farmers can only receive the payment for up to four cumulative years in every ten-year period starting from 1 July 2014. Recipients also have mutual obligation requirements under a Financial Improvement Agreement.
FHA recipients can access a Health Care Card, a supplement worth up to $10,000 to pay for approved activities including training or professional advice, and $1,500 to assist with the cost of a Farm Financial Assessment.
According to the Department of Agriculture, Water and the Environment (DAWE), as at 4 June 2021, close to 16,600 people had received the FHA since it was introduced in 2014. There were approximately 6,950 people receiving the FHA as at 4 June 2021. More than 2,350 farmers and their partners had exhausted their first four years of entitlement to the FHA.
Estimated actual expenditure for the FHA in 2020–21 was $209.3 million but this was expected to decrease to $192.7 million in 2021–22 (p. 74). Expenditure in 2020–21 includes the Coronavirus Supplement paid to FHA recipients (pp. 7–8).
FHA means tests
The FHA is means-tested and subject to an income test and an assets test. Both tests are quite different from those that apply to social security payments such as JobSeeker Payment. For example, unlike JobSeeker, the FHA income test (since June 2020) does not reduce FHA payment rates: if any FHA is payable under the income test then the recipient will receive the maximum rate (p. 33). Under the income test, a single FHA recipient with no children can have up to $1,217.00 in income per fortnight and remain eligible; a member of a couple can have up to $1,123.17 per fortnight in income and remain eligible.
The assets test is also much more generous than for other payments: claimants can have up to $5.5 million in assets (including farm and non-farm assets but excluding the family home) and be eligible for the FHA (p. 43). The higher limit ensures farmers do not have to sell off some or all of their farm assets in order to qualify for support.
The income test assesses farm and non-farm income. The FHA income test allows for farm business losses to offset some off-farm income—that is, to exclude some or all of the off-farm income from assessment under the income test (p. 42). Up to $100,000 per couple per financial year in farm losses can be used to offset off-farm income.
Business income reconciliation
Individuals need to provide an estimate of their farm business income for the financial year they make their FHA claim in. Claimants must agree to alter the estimate if any errors or omissions are later identified, or if their financial circumstances change during the year (pp. 38–39).
Prior to 1 July 2020, business income estimates were reconciled against actual business income received using tax returns and financial statements (see the Bills Digest for the 2020 Relief measures Act for an explanation of the former process, pp. 12–16). The reconciliation process could result in a person receiving a top-up FHA payment if they did not receive their full entitlement; or a debt being raised if they received an overpayment. The 2020 Relief Measures Act removed the reconciliation process, with payment accuracy to be determined by auditing a sample of recipients. As noted above, FHA claimants must agree to update their estimates during the year if needed—but from 1 July 2020 only those audited have their business income estimates checked.
Removing the business income reconciliation process was based on a recommendation of the 2019 Independent Review of the FHA (p. 21). The review had found that difficulties in estimating income ‘was a source of anxiety for people on the FHA and anger for those who ended up with a debt’ (p. 21).
Proposed debt waiver
The Bill proposes to waive debts raised as part of the business income reconciliation process for FHA amounts paid between 1 July 2015 and 30 June 2020.
As noted above, the FHA is time-limited and can only be received for a maximum of four years (1,460 days) in every ten-year period beginning 1 July 2014. Where a debt is incurred for a full day’s payment, an FHA recipient is re-credited that day against their FHA time limit, as they are not considered to have been in receipt of the payment for that day. Those eligible to have their debt waived under the Bill’s proposed amendments would lose an equivalent number of days from their FHA time limit so that they are not provided with a double benefit. Where the debt is equivalent to more days than the individual has left out of their 1,460 day total, then they can choose to trade the days left for a partial waiver of the debt. Those with debts raised prior to commencement of the waiver provisions and who have no days to trade will not be eligible for the debt waiver.
Different treatment for FHA debts compared to other government payments
The rationale for the proposed debt waiver is not that the debts were raised in error, rather, the Government has determined that it is difficult for farmers to estimate their income and, as a result, some farmers got their estimates wrong despite ‘acting in good faith’. Under the revised income test in place since July 2020, farmers still have to estimate their income when claiming the FHA and can have debts raised if their estimates are incorrect. However, the revised income test does not subject all claimants to a reconciliation process and only those subject to an audit or review face the risk of having a debt raised against them.
This approach to overpayments of FHA payments differs from the Government’s policy on overpayments of social security payments, where debt recovery is often considered fundamental to maintaining the integrity of the system. For example, Minister for Social Services Anne Ruston, in presenting the Government Response to a Senate committee report on the social security compliance program known as ‘robodebt’, stated:
Protecting the integrity of the Commonwealth social security system is a core responsibility of any government. The proper administration and distribution of taxpayer funds to those who are eligible for them, and the recovery of debts from those who are not, is essential to fulfilling that responsibility. There is a longstanding principle that people should be paid correctly according to their individual circumstances. If people receive welfare payments they are not eligible for, it is only fair that they pay that money back to the taxpayer.
While the requirement to estimate business income to access the FHA was always likely to result in inaccuracies due to the uncertainties involved in agriculture, revised estimates could be provided at any time during a financial year. Further, the use of income estimates with a formal reconciliation process at the end of the financial year is applied to other government payments such as the Family Tax Benefit and the Child Care Subsidy.