Bills Digest no. 88 2012–13
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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
18 June 2013
This Digest replaces an earlier version dated 12 March 2013 as the original version did not deal with Schedules 2A and 2B, inserted by government amendments. This revised Digest reflects the Bill as passed by the House of Representatives on 29 May 2013.
Contents
Purpose of the Bill
Structure of the Bill
Baby bonus
Committee consideration
Policy position of non-government parties/independents
Position of major interest groups
Financial implications
Statement of Compatibility with Human Rights
Key issues and provisions
Other provisions
Date introduced: 13 February 2013
House: House of Representatives
Portfolio: Families, Housing, Community Services and Indigenous Affairs
Commencement: Various dates as set out in the table in clause 2 of the Bill.
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/.
The purpose of the Family Assistance and Other Legislation Amendment Bill 2013 (the Bill) is to amend the A New Tax System (Family Assistance) Act 1999 (the FA Act),[1] the A New Tax System (Family Assistance) (Administration) Act 1999 (the FA Admin Act),[2] the Paid Parental Leave Act 2010 (the PPL Act)[3], the Social Security Act 1991 (the SS Act)[4] and the Social Security (Administration) Act 1999 (the SS Admin Act)[5] to:
- reduce the amount of Baby Bonus paid for second and subsequent children from $5,000 to $3,000 from 1 July 2013
- align the age of eligibility for double orphan pension with that for family tax benefit
- allow certain families to continue to receive family tax benefit in respect of a child who has finished secondary school or its equivalent until the end of that calendar year
- make technical amendments to the eligibility rules for Schoolkids Bonus and
- clarify the meaning of the term ‘entrusted to care’ to reflect the policy intent of the Baby Bonus.
Government amendments to the Bill, passed by the House of Representatives, significantly extend the scope and impact of the Bill, proposing to implement a range of measures announced in the 2013–14 Budget:[6]
- cease payment of the Baby Bonus from 1 March 2014
- introduce three new payment components for Family Tax Benefit Part A (FTB-A)—the newborn supplement, newborn upfront payment and stillborn baby payment—to be paid in respect of newborn, newly adopted children and stillborn children
- amend the work test for Paid Parental Leave Pay (PPL Pay) and
- reduce the period of time individuals have to meet certain eligibility requirements and to make claims for various family assistance and child care fee assistance payments from two years to one year.
The Government amendments propose changes to the same Acts listed above as well as the Income Tax Assessment Act 1997 (the ITA Act).[7]
The Bill, as introduced, was divided into three schedules:
- Schedule 1, which amends the FA Act, FA Admin Act and the Family Assistance and Other Legislation Amendment Act 2012[8] in relation to the payment rates of Baby Bonus
- Schedule 2, which amends the FA Act and the SS Act in relation to Family Tax Benefit and Double Orphan Pension and
- Schedule 3, which clarifies the meaning of the term ‘entrusted to care’ and amends a number of statutes in relation to the Schoolkids Bonus, Family Assistance Clean Energy Payments, Social Security and Veterans’ Entitlements Supplements and to Dad and Partner Pay.
The Bill, as passed by the House of Representatives, contains two additional schedules:
- Schedule 2A, which amends the FA Act, FA Admin Act, PPL Act, SS Admin Act and the ITA Act to cease payment of the Baby Bonus and establish new payment components of FTB-A and
- Schedule 2B, which amends the FA Act and the FA Admin Act to amend the claim period for FTB, Child Care Benefit, Schoolkids Bonus and the Single Income Family Supplement.
This Bills Digest contains significant information and analysis in relation to the changes to the Baby Bonus and the new FTB components as these are the primary measures proposed by the Bill.
The other amendments are dealt with in less detail.
The main measure contained in the original Bill, as introduced in February 2013, proposed a reduction in the rate of Baby Bonus paid in respect of second and subsequent children from 1 July 2013. This measure had been announced in the Mid-Year Economic and Fiscal Outlook (MYEFO) on 22 October 2012.
Following amendments moved by the Government in the House of Representatives, the Bill now proposes to continue with the rate reduction of Baby Bonus but also to cease the payment altogether from 1 March 2014. The Bill, in its amended form, proposes the introduction of a replacement payment for families with newborn, newly adopted or stillborn children in the form of upfront components paid on top of FTB-A entitlements. These new measures were announced in the 2013–14 Budget on 14 May 2013.[9]
Upon announcing the reduction in the Baby Bonus rate for second and subsequent children, the Minister for Families, Community Services and Indigenous Affairs, Jenny Macklin, stated that the purpose of the change was to ‘ensure the family payments system is sustainable into the future’:[10]
The change recognises that families buy the big ticket nursery items when their first child is born.
Most families don’t face the same upfront costs for a second or third child as they do for their first. Expensive items such as the cot, pram, change table and baby capsule are generally reused for younger siblings.
It’s important that the family payment system is sustainable into the future.[11]
In announcing the budget measures, the Minister reiterated the Government’s intention of ensuring sustainability of the family payments system by using actual upfront costs of children as a guide to setting payment rates:
The Gillard Government is delivering further reforms to secure a fair and sustainable family payments system for Australia’s future…
… These new arrangements more closely reflect the essential upfront costs of having a baby and better targets assistance now that Australia has a Paid Parental Leave scheme.[12]
The Baby Bonus is a payment intended to help families with the costs of a newborn baby or adopted child (under the age of 16). It is payable to families who have not received Paid Parental Leave and whose estimated combined adjusted taxable income is $75,000 or less in the six months after the child is born or adopted. It is payable to parents whose baby is stillborn.[13] The current payment of $5,000 per eligible child is made in 13 fortnightly instalments.[14] The first instalment is paid at a higher rate of $846.20 and the other 12 fortnights are paid at a rate of $346.15.[15]
Reducing the Baby Bonus from $5,000 to $3,000 for second and subsequent children was expected to save the Budget $505.9 million over four years from the 2012–13 financial year.[16]
The expected savings from the replacement of the Baby Bonus with new FTB-A components which are part of the amended Bill have not been disaggregated from other budget measures. The total savings from the Baby Bonus/FTB-A measures combined with changes to the Paid Parental Leave work test are estimated to be $1.1 billion over five years (from 2014–15).[17]
At the time of its introduction, the payment now known as the Baby Bonus was called Maternity Payment. The lump sum Maternity Payment introduced by the Howard Government in July 2004 replaced the First Child Tax Rebate and the Maternity Allowance.[18] The First Child Tax Rebate, an income-tested tax offset available to families that had given birth to, or adopted, a child after 1 July 2001, was also referred to as the ‘baby bonus’.[19] The First Child Tax Rebate was criticised as offering a greater level of assistance to those on higher incomes (who had greater tax liabilities to claim the rebate against).[20] The combination of the two existing payments into one non-means tested lump sum maternity payment was seen as an alternative to the introduction of government-funded paid parental leave and one that would provide the same level of assistance to all parents.
The Maternity Allowance that the Maternity Payment also replaced was an income-tested lump sum introduced in 1996. From January 1998, a portion of the Maternity Allowance was turned into a separate payment, the Maternity Immunisation Allowance, paid to those whose children had received age-appropriate immunisation (unless exempt from the requirement). The Maternity Immunisation Allowance remained as a payment after the introduction of the Maternity Payment/Baby Bonus in 2004 but was closed to new recipients from July 2012. Immunisation requirements are now part of the eligibility requirements for the Family Tax Benefit Part A supplement.[21]
Following the 2004–05 Budget, the term Baby Bonus was used interchangeably for both the First Child Tax Rebate and new Maternity Payment. From 1 July 2007, Maternity Payment was formally renamed the Baby Bonus.[22]
From 1 January 2009, an income test was applied to the Baby Bonus limiting eligibility for the payment to families whose combined adjusted taxable income was expected to be $75,000 in the six months following the birth (including stillbirth) or adoption. Also, on the same date, the payment switched from being paid as a lump sum to most families to being paid in mandatory fortnightly instalments.[23]
There was significant discussion around the time of the introduction of the Maternity Payment and in subsequent years as to whether the payment provided an incentive for women to have children and whether the payment had any effect on the birth rates.[24] Issues were also raised about the lump-sum payment being used ‘irresponsibly’ by some mothers to make purchases unrelated to their newborn children. The payment has been dubbed the ‘plasma bonus’ by some in reference to the payment reportedly being used to buy high-end televisions and other luxuries.[25] However, there is little evidence to support this view.[26] The issue of birth rates is discussed below in the ‘Key issues and provisions’ section of this Bills Digest.
Maternity Payment/Baby Bonus was paid as a lump sum amount of $3,000 per child when first introduced in 2004.[27] This amount has increased over time due to indexation to movements in the Consumer Price Index (CPI) as well as ad-hoc increases. From 1 January 2009, the total amount has been paid in instalments over 13 fortnights. The following table sets out changes to the total amount of Baby Bonus paid:
Table 1: Maternity Payment/Baby Bonus historical payment rates
|
Date
|
Amount of Maternity Payment
|
Date
|
Amount of Baby Bonus
|
|
1 July 2004
|
$3,000
|
1 July 20072
|
$4,133
|
|
20 September 2004
|
$3,042
|
20 September 2007
|
$4,100
|
|
20 March 2005
|
$3,079
|
20 March 2008
|
$4,258
|
|
20 September 2005
|
$3,119
|
1 July 20083
|
$5,000
|
|
20 March 2006
|
$3,166
|
1 July 2009
|
$5,185
|
|
1 July 20061
|
$4,000
|
1 July 2010
|
$5,294
|
|
20 September 2006
|
$4,100
|
1 July 2011
|
$5,437
|
|
20 March 2007
|
$4,133
|
1 July 20124
|
$5,437
|
|
|
|
1 September 20125
|
$5,000
|
1. Ad-hoc increase.
2. Maternity Payment renamed Baby Bonus from 1 July 2007.
3. Ad-hoc increase and change to indexation so that it only occurs once a year.
4. Indexation frozen until 1 July 2015.
5. Baby Bonus reduced to $5,000.
Source: Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA), ‘3.6.4 Maternity payments – historical rates’, Family Assistance Guide, FaHCSIA website, accessed 21 February 2013.
The introduction of Paid Parental Leave in 2011 has significantly reduced the number of recipients of the Baby Bonus and government expenditure on the payment.[28] The following table outlines recipients and expenditure on the Baby Bonus since 2004 as reported in departmental annual reports and the latest estimates from the FaHCSIA Additional Estimates Statements 2013–14:
Table 2: Maternity Payment/Baby Bonus expenditure and recipients
|
Year
|
Expenditure ($ million)
|
No. of recipients
|
|
2004–05
|
727
|
235,371 families in respect of 239,431 children
|
|
2005–06
|
855
|
268,751 families in respect of 273,562 children
|
|
2006–07
|
1,161
|
286,770 families in respect of 291,876 children
|
|
2007–08
|
1,213
|
285,000 families in respect of 290,000 children
|
|
2008–09
|
1,399
|
278,000 families in respect of 283,000 children
|
|
2009–10
|
1,398
|
268,000 families in respect of 273,000 children
|
|
2010–11
|
1,176
|
219,000 families in respect of 223,000 children
|
|
2011–12
|
1,011
|
157,581 families in respect of 160,496 children
|
|
2012–13
|
807
|
(114,848 families in respect of 116,716 children)1
|
|
2013–142
|
365
|
Not available
|
- Recipient figures to March 2013.
- Estimates based on the implementation of the measures proposed in the Bill.
Sources: FaHCSIA and Department of Family and Community Services, Annual reports 2004–05 to 2011–12, FaHCSIA website, accessed 21 February 2013; Australian Government, Portfolio budget statements 2013–14: budget related paper no. 1.6: Families, Housing, Community Services and Indigenous Affairs Portfolio, p. 53, accessed 13 June 2013, Senate Community Affairs Legislation Committee, Proof Committee Hansard, 4 June 2013, p. 30, accessed 11 June 2013.
The introduction of Paid Parental Leave (PPL) in January 2011 provided a much more generous support to parents with newborn or newly adopted children and around half of new parents are now receiving support through this scheme.[29] Under the PPL statutory scheme, two payments are available to families of newborn, adopted or stillborn children: PPL Pay and Dad and Partner Pay (DAP Pay).
Eligible working parents who are the primary carers of newborn or newly adopted children may receive PPL Pay for up to 18 weeks at the rate of the national minimum wage ($606.50) funded by the Government. For long-term employees (12 months of continuous service at the one employer) the parental leave payment is to be paid via the employer. For others, the payment is made via the Department of Human Services. The PPL scheme is a payment only; it does not entitle a parent to a leave period or an additional leave period on top of existing leave entitlements offered by their employers. The payment can be made on top of any employer provided leave/payments that a new parent is entitled to.
Unlike the Baby Bonus, qualification for PPL Pay is based on a work test and an income test. To be eligible under the work test, a new parent must:
- have worked for at least ten of the 13 months prior to the birth or adoption of their child
- have worked for at least 330 hours in that ten month period (just over one day a week) and
- not have had more than an eight week gap between two-consecutive working days (where a working day is a day on which a person has worked for at least one hour).[30]
To be eligible under the income test, a person must have an individual adjusted taxable income of $150,000 or less in the financial year prior to the date of claim or the date of birth or adoption (whichever is earlier).[31]
The payment can be transferred to a person’s partner or the other parent of the eligible child if that person also meets the eligibility criteria.
DAP Pay commenced on 1 January 2013.[32] The scheme essentially provides fathers and partners access to two-weeks of PPL Pay if they have taken unpaid leave or are not working for the two weeks for which they claim the payment for. Those eligible for DAP Pay are:
- the biological father of the child
- a partner of the birth mother
- an adoptive parent
- a parent in a surrogacy arrangement and
- a legal parent or a partner of the legal parent.[33]
Dads and partners must meet the same work and income tests as apply to PPL Pay. Eligible dads and partners can receive DAP Pay if the primary carer is in receipt of Baby Bonus.
A person can only receive payments under the PPL Scheme for a maximum of 18 weeks in respect of a particular child. That means that an individual who receives DAP Pay for two weeks could only have a maximum of 16 weeks of PPL Pay transferred to them from their partner (that is, they cannot combine the two types of payment for more than an 18 week entitlement).
Unlike the Baby Bonus, parental leave payments are taxable. The total maximum payment for PPL paid over 18 weeks is currently $10,917 compared to a total maximum payment of $5,000 for Baby Bonus. Due to the taxable nature of paid parental leave and the fact that it is treated as income under the income tests for FTB-A and FTB-B (and other family assistance payments), there may be cases where a person is better off receiving Baby Bonus rather than paid parental leave if they are eligible for both. This would only arise in situations where an individual loses more through increased tax liabilities and lower family assistance payments than they would otherwise gain through the higher rate of parental leave pay.
In 2011–12, there were 125,177 recipients of PPL Pay (not including those whose payments started prior to July 2011).[34] Of these recipients, 124,397 were mothers representing 45.5 per cent of all mothers in 2011–12. Almost all (98.6 per cent) families who received PPL Pay in 2011–12 did so for the entire 18 weeks of the entitlement period.[35]
Around 6,000 dads or partners are reported to have applied for DAP Pay since its commencement on 1 January 2013.[36] It is not clear how many of those applicants were qualified for, and received, the payment.
The estimated expenditure on the PPL Scheme payments is as follows:
Table 3: Budgeted expenditure on Paid Parental Leave payments
|
|
2012–13 Revised Budget
$’000
|
2013–14 Budget
$’000
|
2014–15
$’000
|
2015–16
$’000
|
2016–17
$’000
|
|
Paid Parental Leave Pay
|
1,446,991
|
1,579,588
|
1,794,730
|
1,869,429
|
1,954,405
|
|
Dad & Partner Pay
|
34,707
|
72,312
|
74,506
|
76,947
|
79,407
|
Source: Australian Government, Portfolio budget statements 2013–14: budget related paper no. 1.6: Families, Housing, Community Services and Indigenous Affairs Portfolio, p. 53, accessed 4 March 2013.
The Baby Bonus and the PPL Scheme are discussed further below under the ‘Key issues and provisions’ section of this Bills Digest.
The Senate Selection of Bills Committee met on 27 February 2013 and referred the provisions of the Bill for inquiry by the Senate Community Affairs Legislation Committee (Community Affairs Committee). The Community Affairs Committee tabled its report on 19 March 2013, prior to the Government’s amendments being circulated in the House of Representatives.[37]
The Committee recommended the Bill be passed, finding:
1.25 With paid parental leave in place, the Baby Bonus no longer needs to be treated as a surrogate parental leave payment, which was one of the criticisms laid against it. It now needs only to reflect direct costs of having a child.
1.26 The committee is satisfied that those costs are more than adequately met by the amount of money included in the Baby Bonus under the current bill.[38]
The Coalition Senators Dissenting Report recommended that the Bill not be supported. Senators Dean Smith and Bridget McKenzie stated that the Baby Bonus rate reductions proposed by Schedule 1 of the Bill are:
… a cynical exercise by a Labor Government that fundamentally misunderstands Australian families and the financial costs associated with raising children
… Coalition Senators believe that these cuts will have a significant detrimental impact on Australia’s declining fertility rate, and subsequently, on future economic growth and development.[39]
In addition, the Bill was referred to the Senate Economics Legislation Committee (Economics Committee) for inquiry and report by 18 March 2013.[40] After discussion between the Chairs of the two Senate committees, the Economics Legislation Committee determined that the Senate Community Affairs Legislation Committee would conduct the inquiry and in doing so consider the economic implications of the Bill.[41]
The Joint Committee on Human Rights’ comments on the Bill are discussed in the ‘Statement of Compatibility with Human Rights’ section below.
The Senate Standing Committee for the Scrutiny of Bills (Scrutiny of Bills Committee) has considered this Bill and had no comment to make in relation to it.[42]
Members on the Opposition front bench criticised the cuts to Baby Bonus rates for second and subsequent children. Shadow Minister for Families, Housing and Human Services, Kevin Andrews said that ‘the changes to the Baby Bonus will mean having more than one baby in Australia will become more expensive, at a time when Australian families need all the assistance they can get with the rising cost of living’.[43] Shadow Treasurer, Joe Hockey, also criticised the cuts, likening the proposed measures to China’s one child policy: ‘the government seems to want to penalise anyone that has a second or third child … I think that worked quite well in China, didn’t it’.[44]
Following the Government’s amendments to the Bill, which propose replacing the Baby Bonus with two new FTB-A payment components, Mr Andrews stated that while the Coalition was opposed to the measures it would support the Bill as the savings were necessary to improve the Government’s budget position:
This is not a measure that the Coalition would have taken. The Coalition put in place the baby bonus for the very real economic and other reasons which I have briefly outlined in my contribution this evening. We would not have taken this measure, yet we now find ourselves in a very difficult situation. Since this legislation was introduced we find that we have yet another major deficit from the government. We have yet more increase in the Commonwealth debt and, therefore, we have to take a responsible position in relation to these matters. That is why we reluctantly accept these measures.[45]
The Australian Greens (the Greens) support the Government’s amendments to replace Baby Bonus with new FTB-A components but are concerned with the reduction in the level of support.[46]
Independent MP, Tony Windsor has stated his support for a reduction in the Baby Bonus rate for second and subsequent children. Mr Windsor has long called for the scrapping of the Baby Bonus arguing that it provides a short term incentive for a long term commitment: ‘it concerns me that some people who aren’t in a position financially or in maturity see the bonus as a short term gain but in reality it’s a lifetime responsibility that requires much more’.[47]
Fellow Independent Bob Katter has stated, however, that he is ‘tenaciously opposed’ to the proposed cuts to the rate of Baby Bonus for second and subsequent children. He was quoted as saying, ‘those poor struggling little mothers, they can’t get men to shoulder their responsibilities … the struggle for them to try and survive when they’re bringing up the nation’s future is appalling’.[48]
In its response to the MYEFO announcement of the cuts to Baby Bonus, the Australian Council of Social Service (ACOSS) stated that it ‘accepts the need to reduce the cost of the poorly designed Baby Bonus but would prefer to see the savings invested in better family payments for parents struggling on low incomes’.[49] ACOSS has long held the view that the Baby Bonus is a poorly targeted payment due to the fact that the same amount is paid to families on high incomes as is paid to families on very low incomes.
The National Welfare Rights Network (NWRN) stated that the Budget measures to replace Baby Bonus with new FTB-A components were reforms ‘headed in the right direction’ in terms of the improved targeting of this assistance.[50] However, the NWRN expressed concern that the poorest families would be $3,000 worse off following the birth of a child ‘when money is at its tightest’.[51]
Sex Discrimination Commissioner Elizabeth Broderick criticised the decision to cease payment of the Baby Bonus arguing that the payment provided an important safety net for those outside of paid work. Ms Broderick, while supporting the drive to find budget savings, queried the targeting of this particular payment: ‘I question whether those savings should come from women who are doing the important work of unpaid caring. After all, unpaid caring work is one of the main reasons women will live in poverty, particularly in later life’.[52]
The Explanatory Memorandum to the Bill states that the proposed changes to Baby Bonus rates for second and subsequent children will provide savings of $505.9 million over four years from 2012–13 to 2015–16.[53] However, the Revised Explanatory Memorandum states that the savings from the reduction of the Baby Bonus rates from 1 July 2013 will provide savings of $687.5 million over five years.[54] It is not clear why the savings have increased when the Baby Bonus will cease being paid from March 2014 and the difference in expenditure on the Baby Bonus between 2012–13 and 2013–14, as reported in the Portfolio Budget Statements, is only $442.5 million.[55] The figure in the Revised Explanatory Memorandum might also include savings resulting from the measures proposed by new Schedule 2A to the Bill (replacing the Baby Bonus and amending the PPL work test).
Separately, the Revised Explanatory Memorandum states that the measures proposed by new Schedule 2A to the Bill would produce savings of $1.1 billion over five years while the measures proposed by new Schedule 2B to the Bill (reducing time periods for various family assistance payment claims and other requirements) would produce savings of $562.0 million over five years.[56]
The other amendments proposed by the Bill are estimated to have a negligible financial impact.
As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government 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.[57] The Government considered that the Bill, as introduced, was compatible.
The Parliamentary Joint Committee on Human Rights noted a concern regarding the reduction in Baby Bonus rates for second and subsequent children, stating that this could be seen as a ‘retrogressive measure or limitation’.[58] The Committee was concerned that no empirical data was put forward to support the claim in the Statement of Compatibility with Human Rights that expenses would be less for second and subsequent children.[59] The Committee also noted that, due to the Baby Bonus being means tested:
… the reduction of the payment … may have a more severe effect on those families who are less well-off than on other families whose impact is closer to the cut-off amount for eligibility for the payment. It does not appear from the explanatory memorandum or statement of compatibility that any attention was given to the differential impact of the changes on less well-off families in deciding on the amount of the reduction or the across the board implementation of the change.[60]
The Supplementary Explanatory Memorandum does not contain a statement on the compatibility of the two additional schedules that have been added to the Bill (this is not required of amendments).
The two new schedules (Schedules 2A and 2B of the Bill) propose changes to the amount of social security certain families will be eligible for as well as the time period during which families can claim social security amounts they may be entitled to. The Schedules will therefore engage a number of human rights instruments. The Government’s decision to implement these significant budget measures via amendments to a Bill before the Parliament, rather than by introducing a new Bill, limits the level of scrutiny applied to these measures in relation to their compatibility with Australia’s human rights commitments.
The following discussion addresses the provisions affecting the Baby Bonus and new FTB-A components, in schedules 1 and 2A, followed by a discussion of relevant issues. The remaining parts and schedules of the Bill are addressed in consecutive order.
Schedule 1 of the Bill amends the A New Tax System (Family Assistance) Act 1999 (the FA Act), the FA Admin Act and the Family Assistance and Other Legislation Amendment Act 2012 to reduce the amount of Baby Bonus that is to be paid in respect of a child that is not the firstborn, first adopted or first entrusted into care child of an eligible individual.
The amendments proposed by Schedule 2A of the Bill will mean that these rate reductions apply for the period 1 July 2013–28 February 2014. Baby Bonus will cease from 1 March 2014.
Item 1 of Schedule 1 repeals existing section 66 of the FA Act and substitutes proposed section 66 setting out the amounts payable for Baby Bonus. The proposed section would provide for a total amount of $5,000 to be paid in respect of the firstborn child of an individual eligible for the Baby Bonus, the first child that becomes entrusted to the care of (through a foster care or surrogacy arrangement) or adopted by an eligible individual (or their partner), or the first stillborn child of an eligible individual who has not given birth to any other children previously. For all other children Baby Bonus is to be paid in respect of, except in cases of multiple births, the total amount payable is $3,000. The reduced rate will be payable in respect of:
- any children born after the firstborn (except in cases of multiple births)
- any children adopted or entrusted into the care of the individual after the first child adopted or entrusted into care and
- any stillborn children where the mother already has previously given birth to other children or has previously suffered a stillbirth.
The proposed provisions will pay the $5,000 amount for the first child born alive to a mother who has previously suffered a stillbirth[61] and will also pay the higher amount to mothers who have previously given birth to a child and later adopt or have a child entrusted into their care.[62]
Subsection 36(3) of the FA Act sets out that for an individual to be eligible for Baby Bonus in respect of a child entrusted into their care, through a foster care or surrogacy arrangement for example, then:
- the child must be entrusted into their or their partner’s care within 26 weeks of the child’s birth and
- the individual or their partner must continue to be, or likely to continue to be, the primary carer of the child for no less than 26 weeks.
In cases where both the birth mother and the child’s new primary carer wish to claim baby bonus, the relevant amount ($5,000 or $3,000) will be paid at a pro-rated amount according to the portion of the first 26 weeks of the child’s birth that each party had care of the child for.
Proposed subsections 66(2), (3) and (4) of the FA Act[63] set out the payment rates in multiple children cases. They provide for the higher rate of $5,000 to be paid in respect of each child in the following circumstances:
- for a child born as part of a multiple birth (including any stillborn children)
- for two or more children who are part of the same ‘entrustment to care’ process and
- for two or more children who are entrusted to care as part of the same adoption process.
Item 7 of Schedule 1 of the Bill repeals paragraphs 47(2A)(b) and (c) of the FA Admin Act and inserts proposed paragraphs 47(2A)(b), (c), (d), (e) and (f) setting out how the proposed new rates of Baby Bonus are to be paid as instalments. As noted above, the total amount of Baby Bonus has been paid in 13 fortnightly instalments since 1 January 2009 with the first fortnight paid at a higher rate. The proposed paragraphs set out the instalment amounts for the $5,000 Baby Bonus and the proposed lower rate of $3,000 for second and subsequent children.
Under the proposed changes, those eligible for the higher rate of Baby Bonus between 1 July 2013 and 1 July 2015 will continue to receive $846.20 for their first fortnightly instalment of Baby Bonus and $346.15 for the remaining 12 fortnights.[64] Those eligible for the lower rate will receive $692.40 as the upfront amount in the first fortnight and 1/12 of the remaining total ($192.30) over the remaining 12 fortnights.
The Family Assistance and Other Legislation Amendment Act 2012,[65] provides for indexation of the Baby Bonus from 1 July 2015.[66] Proposed paragraphs 47(2A)(e) and (f) of the FA Admin Act[67] provide that for claimants who become eligible for the Baby Bonus from 1 July 2015 (following the indexation of the total payment rates to movements in the Consumer Price Index (CPI)), the amount payable as the upfront amount for those receiving the higher amount will be 16.92 per cent of the total payment. Those who become eligible for the lower amount after 1 July 2015 will receive 23.08 per cent of the total payment as the upfront amount. The following 12 fortnights will be paid at a rate of 1/12 of the total payment remaining after the upfront amount has been deducted.
Importantly, these changes in respect of indexation arrangements will be superfluous if the Government amendments to the Bill are passed as Baby Bonus will not be payable for children born or stillborn, or entrusted into care, after 28 February 2014.[68]
Schedule 2A of the Bill amends the FA Act, the FA Admin Act and the ITA Act to remove provisions for payment of the Baby Bonus and create three new FTB-A payment components: the newborn supplement, newborn upfront payment and stillborn baby payment. Eligibility for these new payments will commence, and Baby Bonus will cease, from 1 March 2014.
The proposed FTB-A components that are intended to replace Baby Bonus are as follows:
- newborn supplement: an amount added to the maximum or base rate of FTB-A payable to an individual who is a parent of a newborn child or the carer of a newly adopted child or a child entrusted into their care. The total amount of newborn supplement is around $1,500 for a firstborn or first child adopted/entrusted into care or around $500 for subsequent children. This total amount is added to an eligible individual’s FTB-A rate for a maximum of 13 weeks. The supplement amount is added to an individual’s maximum or base rate and can be reduced under the FTB-A income test
- newborn upfront payment: a lump sum amount of $500 paid to a newborn or newly adopted child for whom the newborn supplement is payable and
- stillborn baby payment: a lump sum amount equal to the value of the newborn upfront payment and the newborn supplement payable to an individual who has given birth to a stillborn child and is already eligible for family tax benefit, becomes eligible for family tax benefit within a year of the stillborn delivery, or, if the individual’s income (combined with their partner if applicable) is less than or equal to $60,000 in the six months following the day of the delivery.
Item 2 of Schedule 2A inserts proposed section 58AA into the FA Act to provide for a newborn upfront payment of FTB-A to be paid to those who have had a newborn supplement added to their FTB-A entitlement. The amount will be $500, paid as a single lump sum payment. There are some exceptions to this general rule. First, the newborn upfront payment cannot be made twice in respect of the same child where the individual and the previous recipient were members of the same couple.[69] Second, two amounts cannot be paid to an individual in respect of the same child.[70] The Minister will also be able to set out additional circumstances in which the newborn supplement cannot be paid by a legislative instrument made under proposed subclause 35A(12)of Schedule 1 of the FA Act.[71]
Any legislative instrument which is made under subclause 35A(12) of Schedule 1 to the FA Act, must be tabled in each House within six sitting days following registration on the Federal Register of Legislative Instruments.[72] Unless laid before each House within this time limit, the legislative instrument will cease to have effect.[73] As the legislative instrument is a disallowable instrument, a Senator or Member of the House of Representatives may move a motion of disallowance within 15 sitting days of the day that the legislative instrument is tabled. The motion to disallow must be resolved or withdrawn within a further 15 sitting days of the day that the notice of motion is given. However, it should be noted that if there is no notice of motion to disallow the legislative instrument, then there is no debate about its contents.[74]
Item 6 inserts proposed Division 1A—Newborn supplement into Part 5 of Schedule 1 of the FA Act. Schedule 1 of the FA Act contains the rate calculators for family tax benefit and additional or supplementary benefits. Proposed clause 35A sets out the eligibility requirements for payment of newborn supplement. The newborn supplement is payable for those eligible for FTB-A in respect of an FTB-A child who meet the conditions relevant to whether they are the parent of the child, an individual or partner of an individual to whom the child is entrusted into care, or who has adopted the child. For a parent of the child, newborn supplement is payable on a particular day if:
- the individual or their partner is a parent of the child[75]
- the child is aged less than one[76]
- the individual’s FTB-A rate is greater than nil (on the day eligibility is determined)[77]
- that day occurs within a period of 13 weeks after the first three conditions are met[78] and
- the Department of Human Services (DHS) is notified, or becomes aware, that the birth has been registered by the individual who is responsible (whether alone or jointly), in accordance with the relevant state or territory law, for registering the birth of the child and in accordance with the law. DHS must be aware of the registration before the end of the income year after the income year in which the last day of the newborn supplement payment falls (that is, the person has until the end of the financial year after the year they receive the newborn supplement to register the birth). Income year refers to the financial year for which FTB-A eligibility is determined under the income test (FTB-A can be paid in instalments over that year or as a lump sum after the end of the financial year). Some extensions to this period can be granted by DHS in special circumstances (though no longer than two years after financial year in which the supplement is paid).[79]
The conditions for individuals who have a child entrusted into their care, set out in proposed subclauses 35A(5) and (6) of Schedule 1 of the FA Act, are very similar. However, the birth registration requirement does not apply to individuals in this circumstance. The child must have become entrusted to the care of the individual on, or before, the day eligibility is tested, they must be aged less than one on that day, and the individual must have care of that child for a continual period of 13 weeks from the day the eligibility conditions are met.
The conditions for adopted children, set out in proposed subclause 35A(7) of Schedule 1 of the FA Act, specify that the child must have been entrusted to the care of the individual or their partner by an authorised party as part of an adoption process and that they meet the other conditions within 12 months of the child being entrusted to the care of the individual or their partner.
Proposed subclauses 35A(8)–(13) of Schedule 1 of the FA Act set out exceptions to these eligibility conditions. The main circumstances which preclude eligibility for the newborn supplement and, as a consequence, the newborn upfront payment, are:
- PPL Pay is payable to the individual in respect of the child[80]
- PPL Pay is payable to the person’s partner in respect of the child, or was payable to the person’s former partner if they were in a couple relationship during the period Paid Parental Leave was payable[81]
- the newborn supplement was payable to the person’s partner for a period of 13 weeks when they were a couple[82]
- in circumstances prescribed by the Minister in a legislative instrument under proposed subclause 35A(12) of Schedule 1 of the FA Act. (See the comments above in relation to disallowable legislative instruments.) These circumstances must relate to PPL Pay being payable to another individual for the same child, newborn supplement being added in relation to another individual for the same child, or in relation to an individual being a member of a couple or former couple. This instrument may be used to determine eligibility for those who are eligible for newborn supplement for less than 13 weeks or who separated from their partner before receiving the full newborn supplement or PPL Pay entitlement in respect of their child.
Proposed clause 35B of Schedule 1 of the FA Act sets out the annualised rate of newborn supplement. Newborn supplement is to be paid at a daily rate for a maximum of 13 weeks (91 days). The annualised rate is set within the rate calculator in the FA Act and is used to calculate the relevant daily rate for an eligible person. For the firstborn, first adopted or first child entrusted into care, the annualised rate is $1501.50 multiplied by 365 (number of days in the year) divided by 91 (the number of payable days). The annualised rate is used as part of the FTB-A calculation which determines an individuals’ annual rate of family tax benefit. This is then converted to a daily rate relevant to the particular eligibility period. For first children, the maximum daily rate of newborn supplement is equivalent to $16.50 (or $115.50 per week, payable for 13 weeks). Second and subsequent children born, adopted or entrusted into care are entitled to a lesser annualised rate: $500.50 multiplied by 365 divided by 91. This would provide a daily rate of $5.50 ($38.50 per week, payable for 13 weeks). All children born as part of a multiple birth (that is, twins or triplets) are considered as eligible children for the higher rate of newborn supplement.
Including newborn supplement in the FTB-A rate calculator in this way will mean that the new payment is subject to the income test and will be paid at a lower rate for families with annual adjusted taxable income above $47,815. Total FTB-A entitlements (which would include the newborn supplement and any Multiple Birth Supplement amount) are currently reduced by 20 cents for each dollar of adjusted taxable income over $47,815 until the total amount payable reaches what is known as the base rate. The base rate is reduced by 30 cents for every dollar of income over $94,316 (plus $3,796 for each FTB child after the first).
Items 7, 8 and 10 of Schedule 2A of the Bill insert references to the newborn supplement and newborn upfront payment into relevant clauses of Schedule 4 of the FA Act so that the lump sum amount of the upfront payment and dollar figure used in the annualised amount of the supplement are indexed to movements in the Consumer Price Index (CPI) on 1 July each year starting in 2014.
Item 12 of Schedule 2A of the Bill inserts a reference to proposed section 58AA of the FA Act at the end of section 5 of the FA Admin Act so that a person does not have to make a separate claim in order to be paid newborn upfront payment. The payment can be made automatically where a person is determined to be eligible for the newborn supplement.
Item 21 of Schedule 2A of the Bill repeals and replaces Division 2 of Part 3 of the FA Act, which currently sets out eligibility for the Baby Bonus, with a new Division 2 setting out eligibility for the proposed stillborn baby payment. The stillborn baby payment is essentially the newborn supplement and upfront payment paid together as one lump sum in cases where a child is stillborn. A person is eligible for the payment if, in regards to their stillborn child:
- had the child been born alive the child would have been an FTB child of the individual, and the individual or their partner would have been the primary carer for the child at birth[83] and
- the individual would have been eligible for family tax benefit in respect of the child at any time in the 26 weeks following the delivery or would have been eligible but the income test for family tax benefit reduced their entitlement to zero.[84]
An income test applies to the payment. To meet the income test a person must:
- be already eligible for family tax benefit in respect of another child or becomes eligible within 52 weeks of the stillborn child’s delivery or
- the person’s estimated adjusted taxable income, or combined income if in a couple, for the period of six months following the delivery, as reported in their claim for the payment, is less than or equal to $60,000 (items 25–27 of Schedule 2A of the Bill propose amendments to Schedule 4 of the FA Act so that this amount will be indexed to CPI in July of each year starting from July 2017).[85]
Proposed subsection 36(4) of the FA Act will preclude those individuals and couples who are eligible for PPL Pay in respect of the stillborn child from receiving the stillborn baby payment. Proposed section 37 of the FA Act will preclude couples from receiving more than one stillborn baby payment.
Item 22 of Schedule 2A of the Bill repeals Division 2 of Part 4 of the FA Act which sets out the amounts of Baby Bonus and inserts a proposed Division 2 of Part 4 setting out the amount of stillborn baby payment. The amount of stillborn baby payment, as set out in proposed section 66 of the FA Act will be the combined value of the higher newborn supplement amount and the newborn upfront amount if the child is the first stillborn child of the woman who gave birth. Where the mother has previously delivered a stillborn baby, then the amount payable will be the combined value of the lower newborn supplement amount and newborn upfront amount. Where a multiple birth occurs, and at least one of the children is stillborn, then the higher amount will be payable for each stillborn child (other children will be eligible for the higher newborn supplement and newborn upfront payment amounts).
In announcing the replacement of the Baby Bonus with the newborn and stillborn payments, Minister Macklin stated that the Government was implementing a recommendation of the Australia’s Future Tax System Review (the Henry Review). The Henry Review had found that:
… the Baby Bonus provides a higher rate of assistance than is necessary to cover the direct costs associated with a new child.
Budget standards work and qualitative research undertaken by the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA) indicate that actual direct costs at birth for low income families are around $2,000 for a first child and $1,000 for a second child. The direct costs of the second child are lower as some items acquired for the first child can be reused for the second child (although this would not always be the case depending on gender and the age gap between children).[86]
The Review recommended that the Baby Bonus be abolished and replaced with a small supplementary payment that reflected the direct costs of a new born baby, to be paid over the first three months.[87]
The consensus of a large body of research into the costs of children is that while there are no fixed or absolute costs of a child, the costs of raising a child tend to increase with household income (in line with greater living standards) and the costs of the first child are often greater than the costs for subsequent children.[88] It is unclear which estimates the Henry Review was referring to in determining the ‘actual direct costs at birth for low income families’ and these estimates may be out of date considering the report was written in 2009 (and much of the research predates this report by a number of years). The Senate Community Affairs Committee found that, in general, the evidence suggests that the Baby Bonus covers more than the direct costs around the time of having a baby and that these costs declined for second and subsequent children.[89]
The Government has not provided any evidence that the new FTB components will meet the upfront costs of newborns with the exception of an example shopping list reportedly provided to media at the time of the budget announcement.[90] This list was criticised for not realistically depicting the full-range of items required for a newborn.[91] Given that the new payment components will be partially reduced under the FTB income test, it appears unlikely that the new arrangements will cover all the upfront costs of newborns for middle income families.
Baby Bonus rate reduction
No information has been provided by the Government as to how many people are expected to be affected by the changes to the Baby Bonus rates. The Explanatory Memorandum, Minister’s second reading speech and the original budget announcement are silent on the number of families who will receive a lower rate of payment due to the proposed amendments.
Very rough estimates can be made by dividing the total expected savings by the amount to be reduced—$2,000—giving a figure of 85,000 children. Birth statistics offer another way of guessing at the numbers affected: according to the Australian Bureau of Statistics, around 56 per cent of the 301,617 births in 2011 were to mothers with previous children.[92] The FaHCSIA Annual Report
2011–12 states that the Baby Bonus was paid in regards to 55 per cent of all births in that year.[93] Applying this proportion to the number of second and subsequent births in 2011 would give a rough figure of 83,000. These figures do not include the number of stillbirths, adoptions and children entering the care of others. The fact that multiple births will continue to receive the higher rate (there were 4,560 multiple births in 2011) also complicates attempts to try and estimate the number affected.[94] In the absence of any official figures the only realistic estimate that can be given is that tens of thousands of families will receive lower rates of Baby Bonus over the period July 2013 to March 2014.
Replacement of Baby Bonus with new FTB components
In terms of the March 2014 changes, officials informed a Senate budget estimates hearing that 113,000 families would receive the new FTB supplementary payments in their first year, with just under half receiving the $2,000 amount for a firstborn, or first adopted, child and just over half receiving the $1,000 amount for second, and subsequent, children.[95] Approximately 20,000 people are expected to receive PPL Pay instead of Baby Bonus in 2014–15 and around 28,000 families will not be eligible for any upfront payment for a new child as a result of these changes.[96] These families will not be eligible for the FTB components because of the FTB income test (which is stricter than that which currently applies for the Baby Bonus) and will not qualify for PPL (most will be single‑earner families with relatively high incomes where the primary carer does not meet the PPL work test).
At the time of its introduction and in subsequent years, the Baby Bonus has been held as a pro‑natalist policy intended to boost Australia’s birth rate. Boosting birth rates was, in reality, only a small part of the policy intent behind the various Howard Government maternity-related benefits. The immense pressure for a paid maternity leave scheme is more likely to have been the main reason for the introduction of benefits such as the Baby Bonus. One commentator described it as a ‘badly designed sop to women when Howard refused to introduce paid maternity leave’.[97]
The question as to whether the Baby Bonus did affect a rise in the birth-rate is in dispute. A 2009 working paper published by the Melbourne Institute of Economic Policy and Research examined birth intentions (as reported in the Household Income and Labour Dynamics in Australia survey) and birth rates before and after the introduction of the Maternity Payment/Baby Bonus. The paper concluded that the Baby Bonus ‘exerted a small though positive and significant effect on fertility. Further, the effect seemed to be stronger for second and possibly higher-order children’.[98] An earlier working paper published by the Productivity Commission found that while fertility levels rose in the relevant period following the introduction of the Maternity Payment/Baby Bonus, the Baby Bonus itself would have played only a partial role as it was only ‘one element of a package of other measures whose generosity has also increased substantially’.[99]
A study by Ross Guest and Nick Parr put forward a different micro-econometric model from that used by the authors of the Productivity Commission working paper to look at how family benefits might impact on a couple’s decisions regarding childbirth, particularly the timing of childbirth.[100] Their study found that benefits such as the Baby Bonus would need to be of much greater magnitude to effect a couple’s decisions regarding having children and that a combination of demographic and other economic factors played a much more influential role in the increase in fertility rates through the 2000s. Guest and Parr hold that past decreases in fertility and the increases during the 2000s are partly the result of decisions by women to postpone childbirth to later in life.[101] They also hold that policy measures which reduce the amount of time women spend out the workforce following childbirth, such as childcare fee assistance, have much more influence on decisions to have children than other forms of assistance.[102]
These studies suggest that the financial assistance offered by the Baby Bonus could have a small impact on decisions about childbirth, particularly for second and subsequent children. However, the effect would only be small and other forms of assistance to families such as Paid Parental Leave and the supplementary payments provided under the Clean Energy Household Assistance package will go some way to offsetting any disincentive effect arising from a reduction in Baby Bonus rates and the replacement of the Baby Bonus with new FTB payments.[103]
The introduction of the Maternity Payment/Baby Bonus on 1 July 2004 had a noticeable effect on the number of births occurring just before and just after the commencement date. In fact, 1 July 2004 saw more Australian children born than on any other single date in the thirty years prior.[104] Economists Joshua Gans and Andrew Leigh (now Member for Fraser) estimated that over 1,000 births were ‘moved’ so as to ensure that the parents would be eligible for the Baby Bonus, with around one quarter moved by more than a week. They found that most of this effect was produced due to changes in the timing of induction and caesarean section procedures.[105] Increases in the Baby Bonus rates in subsequent years are also believed to have led to women seeking to delay births in order to take advantage of the higher rates.[106]
There is some concern that an opposite trend could occur as a result of the amendments proposed in Schedule 1 and 2A of the Bill, with mothers pushing for earlier births to ensure they receive a higher Baby Bonus payment (before the 1 July 2013 changes) or a Baby Bonus payment rather than one of the new, lower, FTB payments (prior to the 1 March 2014 changes). Minister Macklin has reportedly written to the Royal College of Obstetricians and Gynaecologists regarding the 1 July changes, ‘urging doctors to counsel women on the risks of premature births’. The Sunday Telegraph quoted from a copy of the letter in which the Minister purportedly wrote:
I am conscious of the pressure that may be placed on obstetricians and other medical staff to reschedule elective procedures in the lead-up to the start date for the reduced rate of baby bonus …
I know that the government and your members share the concern that the health of mothers and babies remain the paramount consideration in scheduling such procedures.
I have included a fact sheet about those payments that your members may find useful when counselling mothers about the risks they may face in attempting to qualify for the higher rate of baby bonus.[107]
The rate reduction proposed in the Bill will affect a much smaller number of women than did the Baby Bonus introduction and subsequent rate increases. The fact that the measure affects only those having second or higher order children, the impact of Paid Parental Leave on the numbers of Baby Bonus recipients, the introduction of means testing on the payment and a number of other policy changes will see a much smaller group of mothers in a position to even consider the impact of the policy change on the timing of their giving birth. Those who are able to access private obstetric services, thereby having greater control over the timing of their birth, are much more likely to be from higher income households and therefore are much less likely than in 2004 to be eligible for the Baby Bonus. Also, the introduction in 2010 of a cap on the amount of benefits paid for obstetric services under the Extended Medicare Safety Net has made the use of such private services less affordable and less attractive to mothers compared to 2004.[108]
Despite the small numbers, an incentive to avoid, if possible, giving birth after 30 June 2013 is built into the proposed changes and the health risks to children from an induced early birth or early caesarean are of concern no matter how small the number.[109] These risks underscore Gans’ and Leigh’s conclusion to their 2009 paper and call into question whether any lessons have been learned from previous announcements of Baby Bonus changes:
… when policymakers are announcing a new policy, they should think not only about the behavioural distortions of the policy over the long-run, but also of the possibility that the introduction of the policy may itself cause distortions in the short-run. Such effects are likely to be largest when a sharp policy discontinuity is announced in advance.[110]
While it is not suggested that anyone, mother or doctor, will place a baby in danger for such a relatively small financial gain, the fact that the design of this policy change offers such an incentive for a birth to occur earlier than otherwise needed is a significant flaw. The same policy intent could have been achieved without this perverse incentive effect with either a gradual reduction in the rate of Baby Bonus for second and subsequent children or by shortening the time between the announcement and implementation of the measure.
The measures proposed by Schedule 2A of the Bill, commencing around nine months after their announcement, may have encouraged some families to adjust their plans in regards to having children and, for those families expecting around the end of February 2014, will still offer the same kind of perverse incentive for early births discussed above.[111]
Previously, cuts to the Baby Bonus not accompanied by any cuts to Paid Parental Leave have been criticised as favouring working mothers over women who choose to stay at home to care for their children.[112] The two forms of assistance are similar in that they are both payments paid in instalments to primary carers that can function as compensation for time out of the workforce. However, the policy intents behind the Baby Bonus and Paid Parental Leave are very different and changes to one scheme should not be seen as necessitating a change in the other.
As noted in the Bills Digest discussion of the 2012 cut to the Baby Bonus, the creation of Paid Parental Leave as a separate scheme, rather than simply boosting the amount of support offered through the Baby Bonus, was intended as recognition that such leave is a workplace entitlement:
The entitlement to Paid Parental Leave is also connected with objectives such as encouraging women to remain in the workforce and to take leave at a crucial stage of childhood development.
This is also the basis of the much more generous scheme proposed by the Coalition which proposes to provide new mothers with 26 weeks paid leave at their full wage or salary capped at an income level of $150 000. These approaches can be contrasted with Baby Bonus which is intended as a form of short term income support to assist with the costs of newborn or adopted children.[113]
The cuts proposed by the Bill are intended to better match levels of assistance with the actual costs of newborns, and the reduced costs associated with second and subsequent children. Paid Parental Leave is intended as a form of income replacement while a parent takes time away from work to care for their newborn and is therefore not directly connected with the costs of children.
The Baby Bonus is a poorly targeted form of support for families with newborn children providing the same level of financial assistance to all eligible households regardless of the needs of a particular family. The proposed amendments in Schedules 1 and 2A of the Bill recognise that the payment probably provides more assistance than the actual costs of a new child, and that costs for second and subsequent children tend to be lower than for firstborns. Integrating payments for new children within the family assistance system will improve targeting but the reduced rates of assistance will disadvantage many families and will be a significant cut to those families reliant on income support and unable to access PPL.
While the replacement of the Baby Bonus with an upfront supplement to family assistance payments was a recommendation of the Henry Review, the measures exacerbate the complexity of the family assistance system by adding three new payments and complicate the rate calculation process. The Henry Review envisaged a single family payment with a single means test and a limited number of supplementary payments for young children, large families, single parent families or foster parents. The Review recommended that the supplementary payment for younger children would be paid in addition to PPL, rather the proposed arrangement where receipt of PPL precludes receipt of the newborn supplement and upfront payment.[114]
The impact of the policy change on birth rates, if any, is likely to be minimal. Of more concern in the policy design is the perverse incentive offered to mothers to give birth prior to the application of the measures.
Schedule 2 of the Bill amends the FA Act and the SS Act to allow secondary school children to remain eligible as family tax benefit children until the end of the calendar year in which they finish school and to align the qualification period for the Double Orphan Pension with family tax benefit eligibility rules.
One of the requirements for an individual to be eligible for family tax benefit is that they have a ‘family tax benefit child’ (an FTB child) in their care.[115] A FTB child can be one for the following:
- a child aged up to 15 years
- a child aged 16 to 19 years in full-time secondary study (defined as a ‘senior secondary school child’) or
- a child aged 16 or 17 years who has completed their Year 12 or equivalent qualification, or is considered exempt from this requirement.
Paragraphs 22B(3)(a) and (b) of the FA Act provides that a senior secondary school child is still considered to be an eligible FTB child for a short period after they finish their secondary school education. The period depends on when the child finishes their secondary school year:
- if the day they complete the final year of secondary school or equivalent is in December then they continue to be considered a ‘senior secondary school child’ until the end of the calendar year and
- if the day they complete the final year of secondary school or equivalent is before December, then they continue to be considered a ‘senior secondary school child’ for a period of 28 days after the day they finish.
Items 1 and 2 of Schedule 2 of the Bill propose to add ‘November or’ to paragraph 22(3)(a) of the FA Act and replace the word ‘December’ with the word ‘November’ in paragraph 22(3)(b) so that those who finish secondary school in November or December can continue to be eligible family tax benefit children until the end of that calendar year, and those who finish before November continue to be eligible for a period of 28 days. The proposed changes ensure that parents and carers of children who happen to finish their secondary schooling in November will not have their family tax benefit payments reduced or cut off just before the end of the year.
Retrospective application
Item 3 of Schedule 2 of the Bill is an application provision which operates so that the amendments in items 1 and 2 will be applied retrospectively from 1 January 2012. This means that the proposed provisions extending eligibility for family tax benefit for children who finish school in November until the end of the year will be applied to the 2012 calendar year. Family tax benefit entitlements are reconciled at the end of each financial year so the retrospective application of these proposed measures could result in adjustments upward for some families’ family tax benefit entitlements.
Double Orphan Pension is a supplement payment designed to help with the costs of caring for children who are orphans or who are unable to be cared for by their parents in exceptional circumstances. To be eligible, an individual must:
- care for a child where both parents are deceased
- care for a child where one parent is deceased and the other parent is in prison, a psychiatric or nursing home, or is of unknown whereabouts or
- care for a child who is a refugee and their parents are outside Australia or of unknown whereabouts.[116]
There is no income or assets test, however, the individual must receive family tax benefit for the child, or would receive it except the family’s income is over the family tax benefit income test limits or the child is receiving another education payment that precludes the family from receiving family tax benefit on their behalf (such as ABSTUDY).[117] These eligibility criteria require the child to meet certain age criteria to be considered a family tax benefit child (described in the section above). Double Orphan Pension is currently paid at a rate of $57.90 per fortnight.
The qualification criteria for Double Orphan Pension set out at Part 2.20 of the SS Act make use of the definition of young person at subsection 5(1) of that Act. This definition states that a young person is someone under 16 years of age or is a ‘student child’. A student child is someone aged 16 or over but under the age of 22 who is receiving full-time education at a school college or university (whose personal financial year income will be less than $6404). This is slightly different from the definition used for a senior secondary school child in regards to family tax benefit, as discussed above. The main issue is that it does not allow someone to remain eligible for Double Orphan Pension beyond the date upon which they finish their schooling. That is, unlike the definition used for family tax benefit, payment of the Double Orphan Pension would cease immediately for someone whose eligible child is over 16 and finishes their schooling without immediately moving into full-time education at another school, college or university.
Item 4 of Schedule 2 of the Bill repeals and replaces the definition of young person in subsection 5(1) of the SS Act. The effect of the amendment is that the current definition of young person in subsection 5(1B) will apply except in relation to Part 2.20 of the SS Act (the section setting out qualification for Double Orphan Pension). The proposed definition of young person applicable to Double Orphan Pension will include those aged under 22 receiving full-time education at a school, college or university and those who meet the definition of secondary school child as described above. Item 5 sets out that this particular definition is applicable for working out qualification for Double Orphan Pension for days after 1 January 2012, applying retrospectively in the same way as item 3. It means that the rules relating to a child finishing school in November or December and remaining eligible for family tax benefit until the end of the calendar year will also apply for Double Orphan Pension retrospectively.
Items 6 and 7 propose to amend this new definition for the purposes of working out qualification for Double Orphan Pension for days after 1 January 2013. From this date forward, the applicable definition of young person relevant for Double Orphan Pension will be those aged under-20 years. This is the same as the current family tax benefit age limit (which was reduced on 1 January 2013 to no longer pay those aged 18 or over unless they were aged 18–19 and in full-time education). The proposed new definition applicable from 1 January 2013 will essentially mean that there are no anomalies between the age and study qualification criteria for Family Tax Benefit and Double Orphan Pension.
Part 3 of Schedule 2A proposes amendments to the PPL Act that will allow previous periods of time spent in receipt of PPL Pay or DAP Pay as qualifying work periods under the work test for PPL Pay. The intention is to allow parents with short periods between births to be eligible for PPL Pay when they have not accumulated the required number of hours of paid work or paid leave but would have if the period they were in receipt of PPL Pay or DAP Pay was included.
Item 64 of Schedule 2A of the Bill replaces subsection 34(1) of the PPL Act with new provisions to include days in a person’s PPL and DAP Pay periods in the definition of qualifying work days as part of the PPL work test. The proposed subsection 34(1) states that a person performs qualifying work on a particular day when:
- the person performs at least one hour of paid work on that day or
- the person takes a period of paid leave of at least one hour on that day and
- the day is in the person’s PPL or DAP Pay period for a previous child.
Item 65 inserts proposed section 35A into the PPL Act which sets out how many hours of work are considered to have been undertaken by a person who has qualifying work on day in a previous PPL or DAP pay period. This amendment is relevant to step five of the PPL work test which states that a person who has performed 330 hours of qualifying work in a qualifying period (295 consecutive days in the 392 days before the birth date or expected birth date in some circumstances) has satisfied the work test. The proposed section sets out for the purposes of step five, that where a day in a previous PPL or DAP Pay period is considered a qualifying work day, the person is considered to have undertaken 7.6 hours of work if the day is a weekday but no hours of work if the day is on a Saturday or Sunday. If a person has qualifying work on a day which falls within their PPL or DAP Pay period and they perform at least an hour of work then the person is taken to have worked either 7.6 hours or the number of actual hours worked, whichever is greater. The same rule will apply in regards to a day where a person has taken paid leave and that day falls within the person’s previous PPL or DAP Pay period.
This is a sensible measure, ensuring families that have children in quick succession do not face a significant financial disadvantage and ensuring that women can maintain their connection to the workforce over consecutive periods of childbirth.
Schedule 2B of the Bill amends various provisions in the FA Act and the FA Admin Act which will reduce the period within which certain requirements can be met, and claims made, for various family assistance payments from two ‘income years’ after the relevant period for which a payment or benefit is being claimed, down to one. An income year refers to the financial year for which a person’s income is assessed in order to qualify for the payment. Various provisions in the FA Act and FA Admin Act currently allow for a requirement to be met or a claim to be made so long as it is within two income years immediately following the income year in which the relevant period falls.
Payments affected by the proposed amendments include FTB-A, FTB-B, Schoolkids Bonus, Child Care Benefit (CCB) and, due to eligibility being linked to CCB, Child Care Rebate.
The specific two year periods that are to be amended to one year periods are:
- the period in which DHS must be notified or become aware of a child meeting the study requirements for Schoolkids Bonus, set out in paragraphs 35UB(2)(b)[118] and 35UD(1)[119] as well as subsection 65B(4)[120] of the FA Act
- the period by which DHS must be notified or become aware that a child who has turned four has met the health check requirement for the FTB-A supplement or is exempt from the requirement, set out in section 61A of the FA Act[121]
- the period by which DHS must be notified that child who has turned one, two or five has met the immunisation requirements for the FTB-A supplement or is exempt from the requirements, as set out in section 61B of the FA Act[122]
- the period in which claims for lump-sum claims of family tax benefit (part A or B) must be made, at subsection 10(2) of the FA Admin Act[123]
- the period in which a tax return must be lodged for some individuals to be able to claim family tax benefit supplement amounts, validate previous claims, or for a recalculation of their entitlement to occur, at proposed section 14A[124] and current section 28 of the FA Admin Act[125]
- the family tax benefit reconciliation periods, consequential to the changes to the tax return lodgement requirements, at various points in subdivision D of Division 1 of Part 3 of the FA Admin Act[126]
- the claim period for lump sum claims of Child Care Benefit, at subsection 49J(2) of the FA Admin Act[127] and
- the claim period and tax return lodgement requirements for the Single Income Family Supplement at various points of Division 4E of Part 3[128] of the FA Admin Act.[129]
The Bill proposes to insert clauses where necessary which will allow DHS to allow extensions to these time periods where there are ‘special circumstances’. However, this extension period will be limited to only one additional income year. It is unclear what kind of ‘special circumstances’ will be accepted. However, the Supplementary Explanatory Memorandum states that they will be consistent with arrangements in the taxation system.[130]
At budget estimates hearings, FaHCSIA officials explained who would be affected by the reduction in the reconciliation period:
Mr Whitecross: There are 113,000 families who currently do not finalise their entitlements in the first year, after the end of the entitlement year. We have looked at those customers, at when they actually do finalise their entitlements and at other things about their characteristics, and we have estimated that 69,500 are expected to bring forward their claims, or reconciliations, into the first year. That leaves around 43,500 who would fail to get their affairs in order within the first year, which is where the savings come from. We are projecting that, over time, the number of families that fail to get their affairs in order in the first year, would decline to 29,800 by 2016-17, as people better understand the new rules …
… The savings are in two forms. If you are a lump sum claimant and you do not get your claim in within the time limit, you will not be entitled to Family Tax Benefit. If you have not claimed during the year and you do not claim in the year after the entitlement year then you will not get Family Tax Benefit for that entitlement year … That is one source of savings. The second source of savings is where people have received FTB as instalments and then do not lodge their tax return to finalise their entitlements within the year, they will still be entitled to their instalments but they will not be entitled to end of year supplements.
Senator SIEWERT: Any of the top up?
Mr Whitecross: Yes and top ups. So there are savings from that.[131]
The average estimated loss for the 43,500 who fail to bring forward their claims or reconciliations was around $2,200. Lump sum customers who fail to claim or meet the new requirements are expected to lose, on average, $4,800.[132] Based on these figures, a large number of those affected are likely to be higher income earners with lower payment rates. Business owners are likely to constitute a large number of those affected as they are more likely to have difficulty reconciling their income amounts and lodging tax returns in the time required.
The proposed amendments, expected to save $562.0 million over five years, constitute an overhaul of the current reconciliation and claims process for family assistance and child care payments. Despite this, there has been very little notice given in regards to the changes and little time for the Parliament to scrutinise the measures. It would appear from the evidence presented at budget estimates (quoted above) that a portion of the expected savings will arise from people failing to understand the new rules and therefore missing out on their entitlements. It is poor policy to derive budget savings from a lack of understanding or awareness of rule changes.
Schedule 3 makes a number of technical and clarifying amendments.
Items in Part 2 of Schedule 3 of the Bill clarify the meaning of ‘becomes entrusted’ in reference to a child entrusted to the care of an individual, primarily in regards to eligibility for Baby Bonus. Various amendments are made to the FA Act, the FA Admin Act, the Families, Housing, Community Services and Indigenous Affairs and Other Legislation Amendment (2008 Budget and Other Measures) Act 2008,[133] the PPL Act, and the Paid Parental Leave (Consequential Amendments) Act 2010 [134] to clarify when a child is considered to have been entrusted to the care of a certain individual and that Baby Bonus is to be paid around the time a child first enters a person’s care, rather than at some time after a formal process of adoption commences.
Other items in this schedule relate to the Schoolkids Bonus and when the Department of Human Services should be notified that eligible study is being undertaken by potential recipients and their children. Also, amendments are made to allow people who switch from quarterly to fortnightly payments of the Clean Energy Supplement, Pension Supplement or Seniors Supplement to receive any arrears immediately.
Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2500.
[9]. Australian Government, Budget measures: budget paper no. 2: 2013–14, op. cit., p. 144.
[10]. J Macklin (Minister for Families, Community Services and Indigenous Affairs and Minister for Disability Reform),
A sustainable family payment system, media release, 22 October 2012, accessed 19 February 2013,
[13]. A New Tax System (Family Assistance) Act 1999, section 36.
[14]. A New Tax System (Family Assistance) Act 1999, section 66.
[17]. J Macklin (Minister for Families, Community Services and Indigenous Affairs and Minister for Disability Reform),
A more sustainable family payments system, op. cit.
[21]. N Roxon (Minister for Health and Ageing) and J Macklin (Minister for Families, Housing, Community Services and Indigenous Affairs), Stronger immunisation incentives, media release, 25 November 2011, accessed 8 March 2013.
[27]. K Patterson (Minister for Family and Community Services), Howard Government helps Australian women balance work and family, op. cit.
[29]. For detailed information on the introduction of the Paid Parental Leave Scheme see: S O’Neill and others, Paid Parental Leave Bill 2010, Bills Digest, 175, 2009–10, Parliamentary Library, Canberra, 2010, accessed 4 March 2013.
[30]. Paid Parental Leave Act 2010, section 32.
[31]. The income test for paid parental leave is set out in Division 4 of Part 2-3 of the Paid Parental Leave Act 2010.
[33]. Details about when, and whether a person is eligible for DAP Pay are contained in chapter 3A of the Paid Parental Leave Act 2010.
[34]. Senate Community Affairs Committee, Answers to Questions on Notice, Families, Housing, Community Services and Indigenous Affairs Portfolio, Supplementary Estimates 2012–13, 18 October 2012, Question 20, accessed 4 March 2013.
[35]. Department of Families, Housing Community Services and Indigenous Affairs (FaHCSIA), Annual report 2011–12, FaHCSIA, Canberra, 2012, p. 50, accessed 4 March 2013.
[36]. J Macklin (Minister for Families, Community Services and Indigenous Affairs and Minister for Disability Reform), ‘Answer to Question without notice: Families’, [Questioner: G Perrett], House of Representatives, Debates, 11 February 2013, p. 50, accessed 4 March 2013.
[37]. The details of the inquiry, accessed 17 June 2013.
[40]. Selection of Bills Committee, Report No. 2 of 2013, The Senate, Canberra, 28 February 2013, accessed 8 March 2013.
[57]. The Statement of Compatibility with Human Rights can be found after page 25 of the Explanatory Memorandum to the Bill.
[58]. Parliamentary Joint Committee on Human Rights, Third Report of 2013, The Senate, March 2013, p. 19, accessed 7 June 2013.
[61]. Proposed paragraph 66(1)(a) of Schedule 1 of the Bill.
[62]. Proposed paragraph 66(1)(b) of Schedule 1 of the Bill.
[63]. Inserted by item 1 of Schedule 1 of the Bill.
[64]. As set out above, Baby Bonus will be replaced from 1 March 2014. However, under item 67 of Schedule 2A of the Bill, the provisions in the FA Act and the FA Admin Act will continue to apply for children who are born or stillborn before 1 March 2014, or entrusted to care before that date. Under subsection 39(2) of the FA Admin Act, a claim will, in normal circumstances, need to be made within 52 weeks of the birth or entrusting to care (that is, by 28 February 2015) but this period can be extended by the Secretary. As a result, claims will be able to be made for the Baby Bonus for some time after 1 March 2014.
[67]. Inserted by item 7 of Schedule 1 of the Bill.
[68]. As set out in footnote 64, the Baby Bonus will be payable in some circumstances after 1 March 2014, however, no one will ‘become eligible’ for the payment from that date.
[69]. Proposed subsection 58AA(2) of the FA Act.
[70]. Proposed subsection 58AA(4) of the FA Act.
[71]. Inserted by item 6 of Schedule 2A of the Bill.
[74]. Section 42 of the Legislative Instruments Act 2003.
[75]. Proposed paragraph 35A(2)(a) of Schedule 1 of the FA Act.
[76]. Proposed paragraph 35A(2)(b) of Schedule 1 of the FA Act.
[77]. Proposed paragraph 35A(2)(c) of Schedule 1 of the FA Act.
[78]. Proposed paragraph 35A(2)(d) of Schedule 1 of the FA Act.
[79]. Proposed paragraph 35A(2)(e) of Schedule 1 of the FA Act.
[80]. Proposed subclause 35A(8) of Schedule 1 of the FA Act.
[81]. Proposed subclause 35A(9) of Schedule 1 of the FA Act.
[82]. Proposed subclause 35A(10) of Schedule 1 of the FA Act.
[83]. Proposed paragraph 36(1)(b) of the FA Act.
[84]. Proposed paragraph 36(1)(c) of the FA Act.
[85]. This is consistent with the proposed extension of a freeze on the indexation of other family assistance income limits until 2017 announced in the 2013–14 Budget. See M Klapdor, ‘Further savings from family assistance payments’, Budget review 2013–14, Research paper, 3, 2012–13, Parliamentary Library, Canberra, accessed 5 June 2013.
[87]. Ibid., recommendation 91.
[88]. See for example, M Gray and D Stanton, ‘Costs of children and equivalence scales: a review of methodological issues and Australian estimates’, Australian Journal of Labour Economics, 13(1), 2010, pp. 99–115, accessed 7 March 2013; Australian Institute of Family Studies (AIFS), A guide to calculating the costs of children, AIFS, Melbourne, 2000, accessed 7 March 2013; P Henman and others, Costs of children: research commissioned by the Ministerial Taskforce on Child Support, Occasional paper, 18, FaHCSIA, Canberra, 2007, p. 7, accessed 7 March 2013.
[89]. Senate Community Affairs Legislation Committee, Senate Community Affairs Legislation Committee, Family Assistance and Other Legislation Bill 2013 [Provisions], op. cit., p. 7.
[92]. Australian Bureau of Statistics (ABS), Births, Australia, 2011, cat. no. 3301.0, ABS, Canberra, 25 October 2012, accessed 6 March 2013.
[93]. FaHCSIA, Annual report 2011–12, op. cit., p. 50.
[98]. R Drago, K Sawyer, K Sheffler, D Warren and M Wooden, Did Australia’s baby bonus increase the fertility rate, Working paper, 1/09, Melbourne Institute of Applied Economic and Social Research, 2009, p. 24, accessed 6 March 2013.
[102]. R Guest and N Parr, ‘The effects of family benefits on childbearing decisions: a household optimising approach applied to Australia’, op. cit., p. 617.
[110]. J Gans and A Leigh, op. cit., p. 262.
[113]. L Buckmaster, Family Assistance and Other Legislation Amendment Bill 2012, op. cit., p. 12.
[114]. See Australia’s Future Tax System, op. cit., pp. 576–577.
[115]. The term FTB child is defined in section 3 of the A New Tax System (Family Assistance) Act 1999.
[117]. ABSTUDY is a payment that helps with the costs for Aboriginal and Torres Strait Islander Australians who are studying or undertaking an apprenticeship. See the Department of Human Services website, ‘ABSTUDY’, accessed 12 March 2013.
[118]. Item 1 of Schedule 2B of the Bill.
[119]. Item 3 of Schedule 2B of the Bill.
[120]. Item 13 of Schedule 2B of the Bill.
[121]. Items 5 and 6 of Schedule 2B of the Bill.
[122]. Items 9 and 10 of Schedule 2B of the Bill.
[123]. Item 15 of Schedule 2B of the Bill.
[124]. Item 17 of Schedule 2B of the Bill.
[125]. Item 18 of Schedule 2B of the Bill.
[126]. Items 22–36 of Schedule 2B of the Bill.
[127]. Item 37 of Schedule 2B of the Bill.
[128]. Items 39–46 of Schedule 2B of the Bill.
[129]. The Single Income Family Supplement was introduced as part of the Clean Energy Household Assistance Package, the first payments are to be made from 1 July 2013. See P Yeend and L Buckmaster, Clean Energy (Household Assistance Amendments) Bill 2011, Bills Digest, 58, 2011–12, Parliamentary Library, Canberra, 2011, pp. 32–33, accessed 6 June 2013.
[130]. Supplementary Explanatory Memorandum, Family Assistance and Other Legislation Amendment Bill 2013, op. cit., p. 15.
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