Bills Digest 39 1996-97 Social Security Legislation Amendment (Budget and Other Measures) Bill 1996

Numerical Index | Alphabetical Index

This Digest is prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest was available from 10 October 1996.


Passage History

Social Security Legislation Amendment (Budget and Other Measures) Bill 1996

Date Introduced: 12 September 1996
House: House of Representatives
Portfolio: Social Security
Commencement: The Bill contains a large number of measures with varying commencement dates which will be referred to in the Main Provisions section of this Digest.


The main amendments contained in the Bill relate to:

  • abolition of minimum rates for certain benefits for those under 18;
  • tightening the activity test and penalty periods for those on Newstart and Youth Training Allowance;
  • extension of the waiting period relating to industrial action;
  • increased waiting periods in regard to unused annual leave and liquid assets waiting periods;
  • removing the connection between sickness allowance and a loss of wages;
  • abolition of the earnings credit scheme;
  • abolition of the employment entry payment and restriction on the availability of the education entry payment;
  • alteration of the treatment of lump sum compensation payments; and
  • the removal of administrative error as a reason for excluding debt recovery provisions.


As there is no central theme to the Bill, the Background to the amendments will be discussed below.

Main Provisions

Schedule 1 - Abolition of Minimum Rate for Under 18 year Olds

Currently, people under 18 receiving Newstart, Sickness or Youth Training Allowance are subject to a parental income and assets tests unless they satisfy a number of criteria, such as being independent, a member of a couple, have a dependent child or are homeless. If the parental means tests apply, the payment to the under 18 year old will be reduced by the amount that the parents income or assets exceed the appropriate threshold. However, there is a limit on the maximum reduction that can be made under the parental means test so that there is a minimum payment to such people when their parents assets or income would otherwise reduce their payment to zero. This amount is known as 'parental means test minimum rate' and is currently approximately $65.75 per fortnight. Since the 1996 Election, the government has announced that the minimum rate would be abolished.

For the Newstart allowance (NSA) and the Sickness allowance (SA), the abolition will be achieved by amending Point 1067 of the Social Security Act 1991 (SS Act) which contains the method for calculating amount of reduction for parental income. The amendments remove parental means test minimum rate from the calculation and makes subsequential amendments on the removal.

The Youth Training Allowance (YTA) is available to those under 18 unemployed and satisfying similar criteria as for NSA (eg satisfying the activity test). YTA recipients are also required to enter into a Youth Training Activity Agreement to be eligible for the allowance. YTA payments also contain parental means tests calculated in the same way as under the SS Act. Part 3 of Schedule 2 will abolish the minimum rate by making similar amendments to the Student and Youth Assistance Act 1973 (SYA Act) to those described above.

The measures are estimated to save $3.7 million in 1996-97, $8.2 million in 1997-98 and $8.5 million in 1998-99 (as with other estimated financial figures in this Digest, these figures are taken from the Explanatory Memorandum to the Bill).

Application: 1 January 1997

Schedule 5 - Activity Test and Penalty Periods for Newstart and the Youth training Allowance.

Section 601 of the SS Act provides that a person will satisfy the activity test if the Secretary is satisfied that person is actively seeking and willing to undertake paid work that is not unsuitable. Part 3 of the Schedule will alter the circumstances in which work will be taken to be unsuitable. Major differences between the current and proposed tests are:

  • currently a job is considered unsuitable if person lacks the skills experience or qualifications to perform the job. It will be an additional requirement that the employer provides no training;
  • currently a job is unsuitable if the person has an illness, disability or injury that will be aggravated by the conditions of the employment. Under the Bill, it is proposed that there will need to be medical evidence of such a condition;
  • a job is also currently considered unsuitable if the conditions in which it is to be performed are a risk to health or safety and would breach occupational health or safety law. Under the amendments the person would also have to make a reasonable attempt to remove or reduce the risk through discussions with the employer concerned (as the payments relate to unemployment, this additional requirement means that the person is aware of the work conditions and must discuss the matter with the potential employer before becoming employed);
  • a job will currently be unsuitable if it will involve the person becoming self-employed. This ground for unsuitability will be removed.

Currently a job would be unsuitable if commuting between home and work would be unreasonably difficult. This will be maintained with a minor modification and a new ground added, ie that they would be required to move home and none of the grounds in proposed subsection 601(2AB) - see below- applies. It is likely that if a job requires a person to move home and they are not covered by one of the grounds in proposed subsection 601(2AB) that makes the job unsuitable, the job will be considered suitable and they will be required to move home to be eligible for benefits. The grounds contained in proposed subsection 201(2AB) are:

  • the person is under 18 or over 50;
  • the person is pregnant;
  • the person's partner is pregnant but in all the circumstances it is reasonable for the person to move;
  • the person's partner has a severe medical condition but in all the circumstances it is reasonable for the person to move;
  • the person resides with a partner who performs full time, permanent part time or casual work;
  • the person resides with a dependent child/children;
  • having regard to the person's education and cultural background it is unreasonable for them to move; or
  • moving would cause the person severe financial stress.

The amendments also provide that if a job is suitable and the person is required to move home (ie the above amendments apply), the grounds for a job not being suitable cannot include that the person's commuting would be unreasonably difficult.

Similar amendments will also be made to the SYA Act in respect of the youth training allowance.

The Principal Act contains a number of circumstances where a person will not be eligible for Newstart allowance for the period of the 'activity test deferment period' (the Period), including where a person fails the activity test, leaves their job voluntarily, refuses a suitable job or where their unemployment is due to their own conduct (also see below). The Period is currently based on the number of breaches that occur in the three years prior to the breach under consideration. If it is the first breach in that time, the Period is 2 weeks, six weeks for the second, 12 weeks for the third and an additional 6 weeks for each other breach in the prior 3 years. The Period will be altered by Item 51 to 6 weeks for the first breach or, if there has been one or more breaches during the past three years, 13 weeks. The 13 weeks will apply regardless of the number of the breaches.

Proposed section 601A (Item 119) will deem failure to attend an interview and voluntarily cease to attend a labour market program without reasonable excuse to be a breach of the activity test. Similarly, a failure to provide information about income from remunerated work without reasonable excuse, or knowingly or recklessly providing false or misleading information in relation to such income, will also be deemed to be a breach of the activity test.

Administrative Breaches

Currently, where a person breaches certain administrative requirements, principally non-attendance at a CES interview when requested to do so and failure to comply with notification requirements, the same Periods apply as in relation to breaches of the activity test. During those periods the person is not eligible to receive the allowance. The proposal contained in the Bill is to remove the ineligibility for the allowance but to provide that it will be payable at a reduced rate. The Bill will substitute new rules in relation to administrative breaches (AB).

An AB will occur when a person breaches the following requirements without reasonable excuse:

  • failure to supply a partner's tax file number;
  • notification of a change of event or circumstances;
  • a requirement to supply information relating to the payment of the allowance; and
  • a breach of section 1034 of the Principal Act (this appears to be an error. Section 1034 deals with the calculation of lump sum bereavement payments under the double orphan pension. It has nothing to do with either administrative requirements or Newstart. I presume it is meant to be a reference to section 1304 which is the general power to gain information).

If a person commits an AB, Newstart will be payable to the person at a reduced rate until the end of the AB rate reduction period (AB Period).

The AB Period will be 8 weeks. If the person is also subject to an activity test deferment period, the AB Period will commence at the end of the activity test deferment test period. Similar rules apply in relation to any applicable waiting periods.

The AB rules will not apply where all of the following conditions are satisfied:

  • the allowance ceases to payable due to non-compliance with a request to attend a CES interview or a failure to comply with notification requirements;
  • payment has been cancelled or terminated; and
  • the person lodges an application for Newstart more than 14 days after the cancellation or termination occurred.

The effect of this is that if a person has not received Newstart for 2 weeks they may apply to receive the full allowance (this will impose a minimum penalty equal to the rate reduction).

The rate of reduction during the AB period will be 25% of the person's entitlement (proposed section 644H).

Items 79 to 113 propose similar amendments in respect of the youth training allowance.

Item 112 will insert a section 630BD which deals with the situation where a failure to provide information is both an AB and a breach of the activity test due to the new categories of activity test violations relating to the provision of information (see above). The effect of the amendment is that where an event could trigger both penalties, only the penalty for the breach of the activity test will apply. Again there is a similar amendment in respect of the Youth Training Allowance.

Schedule 6 - Unemployment Due to Industrial Action

People are not eligible to receive Newstart if the Secretary is satisfied that the unemployment is due to industrial action. However, they are eligible for benefits after the relevant industrial action has stopped if they meet the criteria for Newstart. Schedule 6 will amend various sections of the SS and YTA Acts to provide that people who are unemployed due to industrial action will not be eligible for Newstart for 6 weeks after the industrial action ceases.

Schedule 7 - Waiting Periods Unused Annual Leave and Liquid Assets Tests

Under both the SS Act and the SYA Act, various waiting periods apply before a person who is otherwise eligible for a benefit or allowance will receive the payment. There is a general waiting period of 7 days, so that a person will not be eligible for payment until 7 days has lapsed since their application (there are exceptions to this rule, such as where a person transfers from one benefit to another). In addition, an applicant may be subject to other waiting periods, principally the unused annual leave, education leavers, newly arrived residents and liquid assets test periods. These periods may be additional to each other or, depending on the circumstances and the type of waiting period involved, only the longest waiting period will apply. The waiting periods generally aim to require people to use their own resources for a period before being paid a benefit. The education leavers waiting period is also designed to prevent students claiming benefits during annual breaks in education.

In relation to the unused annual leave waiting period, a person who is otherwise eligible for payment will cease to be eligible during their 'notional leave period', which is the time of unused annual leave they have since the day their employment ceased up to a maximum of 28 days. It was announced in the 1996 Budget that the unused annual leave waiting period, which as noted above has a maximum period of 28 days, will be replaced by an income maintenance period, which has no maximum period.

The changes to the unused annual leave waiting period will be achieved by removing from the SS Act references to this waiting period and introducing the income maintenance period in the Modules used to calculate the ordinary income of the person (which is used to determine if the person is eligible for benefits. In normal circumstances receipt of leave payments for a period will make that persons income such that they are not eligible for benefits). As a result, if a person is receiving annual leave for the period they will be deemed to be in receipt of ordinary income for the period covered by the unused annual leave and so generally not eligible for benefits. However, if the person is entitled to receive a lump sum payment in respect of the leave and this amount is rolled-over (ie. generally used for retirement purposes such as superannuation) the amount will not be taken into account.

The changes will apply to those payments currently covered by the unused annual leave period, ie. NSA, SA, parenting allowance and partner allowance.

Schedule 7 will also make complementary changes to the SYA Act.

The changes are estimated to cost $262 000 in 1996-97 and save $20.4 million in 1997-98 and $27.7 million in 1998-99.

As noted above, the amendments will also effect the liquid assets test applicable to a person. The liquid assets test provides that if a person has liquid assets, ie cash and certain other assets easily convertible to cash, above a certain level ($5000 for an individual and $10 000 for a couple) they will be required to serve a waiting period of, generally, 4 weeks or until their relevant asset level is reached. In changes announced by the government, the maximum level of liquid assets exempt from the test will be reduced to $2 500 for an individual and $5 000 for a couple and the maximum period of the waiting period will be removed. The length of the liquid assets test waiting period will now be calculated by subtracting from the persons liquid assets the new exempt amount referred to above and dividing this amount by the 'Divisor', which is $500 for a single person without a dependent and $1000 otherwise. This will determine the number of weeks of the waiting period with fractions of a week disregarded. (This means that the test deems a single person to consume $500 of liquid assets a week and others $1000 per week).

Similar amendments will be made to the YTA Act.

The changes are estimated to cost $165 000 in 1996-97 and save $3.7 million in 1997-98 and $4.9 million in 1998-99.

Application: 20 September 1997.

Schedule 8 - Sickness Allowance

To be eligible for SA an applicant must currently show that they satisfy the relevant criteria, the most important of which are that they are: incapacitated for work due to an illness or disease; the incapacity is, or is likely to be, temporary; and the Secretary is satisfied that the person has, or is likely to, suffer a loss of salary, wages or other income due to the incapacity. Residency requirements must also be satisfied. Where a person cannot qualify for sickness benefits due to a failure to met the criteria they may be eligible for other benefits, such as special benefit. Schedule 8 contains two changes to the payability of SA:

  • first, the need for the Secretary to be satisfied as to loss or wages etc will be removed, so that the eligibility criteria will now be based on the incapacity to work; and
  • secondly, sick leave entitlements that a person has but is not using will be deemed to be included in ordinary income, and so included for the income test. Currently, sick leave is considered to be ordinary income if actually received. Under the new test, a person will be deemed to be on sick leave for a day if the have sufficient entitlements to cover that day, they have a right to claim the leave, the employer is able to pay the leave (eg the employer is not bankrupt) and the person is not on another type of leave on that day.

This measure, together with minor changes to the way in which applications may be made, is estimated to cost $797 000 in 1996-97, $2.8 million in 1997-98 and $2.9 million in 1998-99.

Application: 20 March 1997.

Schedule 10 - Abolition of the Earnings Credit Scheme

This scheme was introduced in 1991 and applies to those in receipt of a pension, other than the carers pension. The scheme aims to address the situation where an eligible person has a short period of remunerated work the income from which would exceed the amount they can earn before the pension is reduced. Normally, such income would be considered to have been earned during the period of the work and this would result in a reduction of the pension for the period of work and a potential loss of other benefits, such as a health card. Under the earnings credit scheme, credits can be accumulated in an account to a certain maximum level (approximately $1 100 for an individual and $2 200 for a couple). Credits are accrued where the persons income for a fortnight is less than the income free level for that period. The amount accumulated is the difference between the actual income and the income free level. The account is debited each time the person's income exceeds the income free level and the amount of the debit is difference between the income and income free level. If the account balance is nil, the ordinary income test applies. The earning credits scheme therefore allows income earned during a short term of paid work to be spread over a period so that the pension is not immediately effected.

Schedule 10 will amend the SS Act and the YTA Act to remove references to the credit earnings scheme, thereby abolishing the scheme.

The measure is estimated to save $20.6 million in 1996-97, $75.8 million in 1997-98 and $79.6 million in 1998-99.

Application: 20 March 1997.

Schedule 11 - Abolition of the Employment Entry Payment and Restriction on the availability of the Education Entry Payment

These schemes provide for the payment of a lump sum amount to people who are on benefits and satisfy certain criteria. For NSA and Jobsearch recipients the payment is available where the person has been registered with the CES for a least 12 months, they will cease to be eligible for the allowance because of the employment and the employment is likely to continue for more than 4 weeks. The payment is only available once each 12 month period. For recipients of other benefits other tests apply, the main other type of test being that the payment may be made when the persons income exceeds a threshold level and is likely to do so for more than 4 weeks. The payment was introduced to help off-set initial costs associated with commencing employment (clothes, tools, fares etc). The payment is generally $100 for those 18 and over and $50 for those under 18.

Restrictions on eligibility for the employment entry payment are estimated to save $5 million in 1996-97, $17.3 million in 1997-98 and $79.6 million in 1998-99.

Item 1 of Schedule 11 will repeal provisions relating to the employment entry payment, so abolishing the scheme.

The education entry payment is similar to the employment entry payment but applies to situations where people on benefits enter a full-time education course that is approved under AUSTUDY or ABSTUDY. The benefit may also be available where the applicant satisfies the Secretary that they intend to enrol in such a course. As with the employment entry payment, different criteria may apply depending on the benefit received before entering education.

The effect of Items 2 to 4 of Schedule 11 is to remove the education entry payment to those who are transferring from special benefits, job search, youth training allowance, NSA, mature age allowance, widow allowance, mature age partner allowance, and partner allowance.

Changes to the education allowance are estimated to cost $270 000 in 1996-97, and save $2.3 million in 1997-98 and $2.5 million in 1998-99.

Application: 20 March 1997.

Schedule 15 - Lump Sum Compensation Payments

The SS Act, and the YTA Act as it adopts this part of the SS Act, contains provisions designed to prevent people from receiving both compensation for an injury and social security benefits in respect of the same injury. This is generally done by either making benefits not payable during the period that the person is receiving the compensation or by providing for the recovery of amounts where benefits have been paid prior to the compensation being payable. Where compensation is settled by agreement, the SS Act deems 50% of the payment to be the compensation part of the lump sum and in other circumstances will be the amount determined by the Secretary.

To determine the period for which the lump sum contribution will preclude the payment of benefits, the compensation part of the lump sum is currently divided by average weekly earnings. Part 2 of Schedule 15 provides for the introduction, from 20 March 1997, of a new formula to calculate the period for which benefits will not be payable. The formula is the compensation part of the lump sum (as currently applied) divided by the income cut-out amount. This is based on the maximum basic (single) rate and the pharmaceutical allowance, plus the income free area for a single person. As this amount will be less average weekly earnings, for a given lump sum payment the preclusion period will be greater under the new rules than those currently in force. To prevent any impact on lump sum payments received before 20 March 1997, the Schedule also contains transitional provisions that provide that payments received before this date are to be treated under the old rules.

The measure is estimated to save $778 000 in 1996-97, $13.6 million in 1997-98 and $20.2 million in 1998-99.

Application: 20 March 1997.

Schedule 21 - Debt Recovery

The SS Act provides that debts due under the Act and under certain other legislation and schemes are recoverable by deductions from payments, legal proceedings and garnishee notices. Examples of debts that may become due under the SS Act relate to overpayments, prepayments, automatic termination or reduction of benefits that are paid before the rate is reduced (eg a reduced benefit is payable due to a change of circumstances that is not notified but is paid at the full rate until the changed circumstances are discovered). However, if the person is entitled to a benefit and the benefit is paid at a higher rate than the person is eligible for and the person has notified the changed circumstances, the overpayment is currently not recoverable due to the Departments administrative error.

Amendments contained in Schedule 21 fall into three main categories:

  • automatic rate reduction will apply where a person has provided the appropriate notification of changed circumstances and the payment has not been reduced (ie where the Department has not reduced the payment although provided with the relevant information, the overpayment will be recoverable by reduction to future payments);
  • an overpayment will be a debt even if the person is entitled to the benefit but it is paid at a greater rate that that due to the person (eg administrative error);
  • the SS Act currently gives the Secretary a discretion to waive a debt due to the Commonwealth under the Act. Part 5 of Schedule 21 will restrict the circumstances under which a debt may be waived to those where the debt is irrecoverable at law, the debtor has no capacity to pay, the debtors whereabouts are unknown and all reasonable steps have been taken to locate the debtor or the debtor is not in receipt of a social security benefit and recovery would not be cost-effective. This will restrict the circumstances when a debt may be waived, and excludes waiver due to administrative error.

Estimates of the savings from these measures are combined with those from a general tightening of the enforcement of the current provisions and, therefore the following figures relate to more than the savings expected from the legislation. Estimated savings in 1996-97 are $5.9 million, $56.6 million in 1997-98 and $148.5 million in 1998-99.

Application: 1 October 1997.

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8 October 1996
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ISSN 1323-9031
© Commonwealth of Australia 1996

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Published by the Department of the Parliamentary Library, 1996.

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Last updated: 4 October 1996

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