Bills Digest no. 14 2014–15
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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.
Peter Yeend and Luke Buckmaster
Social Policy Section
19 August 2014
List of acronyms
Purpose of the Bill
Structure of the Bill
Policy position of non-government parties/independents
Schedule 1—Cessation of Seniors Supplement
Schedule 2—Energy Supplement replacing Clean Energy Supplement
Schedule 4—Disability Support Pension
Schedule 5—Portability for students and new apprentices
Schedule 6—Waiting periods
Schedule 7—Family Tax Benefit
Schedule 8—Social and Community Services Pay Equity Special Account
Date introduced: 18 June 2014
House: House of Representatives
Portfolio: Social Services
Commencement: Various dates as set out in the table at 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/.
adjusted taxable income
Clean Energy Supplement
Commonwealth Seniors Health Card
Consumer Price Index
Disability Support Pension
Family Tax Benefit
Family Tax Benefit Part A
Family Tax Benefit Part B
Male Total Average Weekly Earnings
Parenting Payment (Partnered)
Parenting Payment (Single)
Pensioner Beneficiary Living Cost Index
Pharmaceutical Benefits Scheme
The purpose of the Social Services and Other Legislation Amendment (2014 Budget Measures No. 1) Bill 2014 (the Bill) is to amend social services and veterans’ legislation to:
- from 20 June 2014, cease payment of the Seniors Supplement for holders of the Commonwealth Seniors Health Card or the Veterans’ Affairs Gold Card
- from 1 July 2014, rename the Clean Energy Supplement as the Energy Supplement and permanently cease its indexation
- from 1 July 2014, pause indexation for three years of income free areas and assets value limits for all working age allowances (other than student payments) and Parenting Payment (Single)
- from 20 September 2014, index Parenting Payment (Single) to the Consumer Price Index only by removing benchmarking to Male Total Average Weekly Earnings)
- from 1 July 2014, pause indexation for three years of several Family Tax benefit free areas
- from 1 July 2014, apply Program of Support requirements to certain Disability Support Pension recipients aged under 35 years who have had their eligibility reviewed against the current Impairment Tables
- from 1 October 2014, limit the six-week overseas portability period for student payments
- from 1 October 2014, extend and simplify the ordinary waiting period for all working age payments
- from 1 July 2014, maintain the Family Tax Benefit Part A and Family Tax Benefit Part B standard payment rates for two years and
- from 1 July 2014, add the Western Australian Industrial Relations Commission decision of 29 August 2013 as a pay equity decision under the Social and Community Services Pay Equity Special Account Act 2012, allowing payment of Commonwealth supplementation to service providers affected by the decision.
Most of the proposed amendments arise from initiatives in the Social Services portfolio announced in the 2014‑15 Budget.
This Bill, as passed by the House of Representatives, is an omnibus Bill divided into eight schedules with differing purposes, mainly amending the Social Security Act 1991. This Digest will address each of the eight schedules separately including background information, analysis of the provisions and comments on key issues.
The Bill, along with the Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014, was referred on 19 June 2014 to the Community Affairs Legislation Committee for inquiry and report by 4 September 2014. At the time of writing this Bills Digest the Committee had not published its report. The submissions received by the Committee related to the measures in the 2014 Budget Measures No. 2 Bill, rather than this Bill.
The Senate Standing Committee for the Scrutiny of Bills (Scrutiny of Bills Committee) commented on proposed subsection 19DA(3) of the Social Security Act, at item 1 of Schedule 6 of the Bill. This provision would allow the Secretary of the Department of Social Services to make a legislative instrument prescribing the circumstances that a person must satisfy in order to be considered to be ‘experiencing a personal financial crisis’. The Scrutiny of Bills Committee noted that these prescribed circumstances ‘will form part of the requirements necessary to establish an exception to ordinary waiting periods (that is, a period which must be served before certain allowances are payable)’ and therefore ‘may have an important impact on entitlements to benefits when a person is in severe financial crisis’. Accordingly, the Committee has sought the Minister’s advice as to why these matters are not addressed in the primary legislation. As at the date of writing this Digest, the Committee had not published a response from the Minister.
On 23 June 2014 the Assistant Minister for Defence presented a correction to the Explanatory Memorandum in the House of Representatives. The Scrutiny of Bills Committee has stated that it ‘has no comment on the additional material’.
As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has 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. The Government considers that the Bill is compatible.
The Parliamentary Joint Committee on Human Rights (Human Rights Committee) commented on the Bill in its report of July 2014. The Human Rights Committee highlighted a number of significant deficiencies in the Statement of Compatibility with Human Rights about which it has requested further information from the Minister. In particular it noted that:
Women are more likely than men to be recipients of a broad range of social security benefits and more likely to be reliant on some form of social security than men. Accordingly, a number of measures in the bill, which seek to reduce the amount of a social security payment, or restrict eligibility for a benefit may have a disproportionate effect on women.
The committee notes that the statement of compatibility fails to consider the impact of the bill on women. Accordingly, no analysis is provided as to the relative impact of individual measures on women as opposed to men and fails to justify any discriminatory effect.
It is not clear at this stage how non-Government Senators will vote on the Bill, though the Opposition has said it opposes abolition of the Seniors Supplement and freezing of the rates for Family Tax Benefits (FTB) payments. It also opposes a number of other Budget measures contained in another Bill, the Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014. The Opposition has said it will not oppose some measures in the Bill, including:
- pauses in asset tests for student payments, pensions and all working age allowances (However, it will oppose the proposed freezes to the low income free areas, ‘to protect those on low incomes’)
- limiting the six-week overseas portability period for student payments and
- ceasing indexation of the Clean Energy Supplement (to be renamed Energy Supplement).
There is very little information available on the position of other non-Government Senators on the measures in the Bill, though media reports have suggested that the Greens, Palmer United Party and others are inclined to oppose many of the changes to the social services portfolio proposed in the Budget.
Details of the financial implications are discussed in the separate sections below, where relevant. The following table adapted from the Financial Impact Statement in the Explanatory Memorandum summarises the impact of the proposed measures:
Financial impact over the forward estimates
1. Cessation of seniors supplement
Saving of $1,059.4 million
2. Clean energy supplement renamed energy supplement and indexation ceased
Saving of $479.2 million
3. Changes to Australian Government payments:
CPI-only indexation for parenting payment single from September 2014.
Maintaining the eligibility thresholds for Australian Government payments (Family Tax Benefit, working age allowance payments (excluding student payments) and Parenting Payment Single) for three years.
Saving of $134.2 million
Saving of $1,055.2 million
4. Disability support pension – ability to work
Expense of $46.4 million over five years
5. Limit the six-week portability period for student payments
Saving of $153.1 million
6. Extend the ordinary waiting period for working age payments
Saving of $231.7 million
7. Family payment reforms – maintain family tax benefit payment rates for two years
Saving of $2,598.6 million over five years
Social and Community Services Pay Equity Special Account
No further financial impact from this Bill ($104 million was set aside in the contingency reserve in the 2013 Budget to cover the cost of supplementation until 2020–21).
Source: Correction to Explanatory Memorandum, Social Services and Other Legislation Amendment (2014 Budget Measures No. 1) Bill 2014, p. 2, accessed 9 July 2014.
This Schedule implements the Government’s 2014–15 Budget proposal to abolish the Seniors Supplement provided to holders of a Commonwealth Seniors Health Card (CSHC). According to the Explanatory Memorandum:
Under this measure, the seniors supplement will be abolished for holders of the Commonwealth Seniors Health Card. Veterans who hold a Commonwealth Seniors Health Card or Gold Card would also no longer receive the seniors supplement.
CSHC holders will receive their last quarterly seniors supplement payment in June 2014.
The principal amendments in Schedule 1 of the Bill are made to the following statutes:
- Social Security Act
- Social Security (Administration) Act 1999 and
- Veterans’ Entitlements Act 1986.
Consequential amendments are made to:
- Income Tax Assessment Act 1997 and
- Military Rehabilitation and Compensation Act 2004.
To be eligible for a Commonwealth Seniors Health Card (CSHC) an individual must:
- be permanently living in Australia and be an Australian citizen, a holder of a permanent visa or a holder of a special category visa (and not subject to a newly arrived resident’s waiting period—usually 104 weeks for new migrants)
- have reached age pension age (currently 65) but not qualify for Age Pension (or other income support payments or Veterans’ Affairs pensions)
- have an adjusted taxable income (ATI) of less than:
– $50,000 for singles
– $80,000 for couples (combined income)
– $100,000 combined for couples separated by illness, respite care or prison.
CSHC holders are able to access discounts on prescription medicines through the Pharmaceutical Benefits Scheme (PBS). CSHC holders may also be able to access:
- bulk-billed GP appointments (at the discretion of the GP—doctors are provided with financial incentives to bulk-bill concession card holders)
- a reduction in out-of-hospital medical expenses above the concessional threshold of the Medicare Safety Net
- discounted rail travel on Great Southern Railway services: the Ghan, Overland and Indian Pacific and
- additional health, transport, education and recreation concessions may be offered by state and territories, local governments and private providers to CSHC holders. The availability of additional concessions varies between states and territories and they are offered at the discretion of the provider.
Holders of a CSHC are entitled to Seniors Supplement. The Seniors Supplement was introduced as a part of major reforms to the Age Pension that commenced from 20 September 2009. At that time, the Seniors Supplement replaced the Telephone Allowance and Seniors Concession Allowance. The current annual rate of Seniors Supplement is $876.20 (single) and $660.40 each ($1,320.80 combined) and it is paid quarterly.
Seniors Supplement is essentially targeted at self-funded retirees, that is, persons of retired age not receiving an income support payment.
From 20 March 2013, a Clean Energy Supplement (CES) was added to CSHC holders’ Seniors Supplement payment to compensate low-income households for the introduction of the carbon price. This supplement is worth $356.20 per year for singles and $267.80 a year for a member of a couple (paid in quarterly instalments with the Seniors Supplement).
As at April 2014 there were about 290,000 holders of a CSHC and for the 2013–14 year it is estimated the Seniors Supplement will cost $290.4 million.
Items 1–9 in Part 1 of Schedule 1 amend the Social Security Act. In particular, item 7 repeals existing Part 2.25B—Seniors Supplement from the Social Security Act and inserts proposed Part 2.25B—Energy Supplement in its place. Proposed Part 2.25B sets out qualification, payability and rate of the proposed Energy Supplement. The rates of payment for the Energy Supplement are set out in the table in proposed section 1061UB of the Social Security Act as follows:
- Single: $361.40
- Partnered: $273.00 (each)
- Illness separated couple: $361.40
- Member of a respite care couple: $361.40
- Partnered (partner in gaol): $361.40
These rates are the same as the current rates of CES.
Items 10–24 in Part 1 of Schedule 1 of the Bill make consequential amendments to the Social Security (Administration) Act to replace references to ‘seniors supplement’ with references to ‘energy supplement’.
Items 26–48 in Part 1 of Schedule 1 of the Bill amend Part VIIAD—Seniors Supplement of the Veterans’ Entitlements Act. As with the changes to the Social Security Act outlined above, the amendments operate as follows:
- Part VIIAD is renamed as proposed Part VIIAD—Energy Supplement
- the rates of payment for the Energy Supplement are set out in the table in proposed subsection 118PB(1) of the Veterans’ Entitlements Act as follows:
– Single: $361.40
– Partnered: $273.00 (each)
– Illness separated couple: $361.40
– Member of a respite care couple: $361.40
- in addition, consequential amendments are made to the text and headings in the Veterans’ Entitlements Act to replace references to ‘seniors supplement’ with references to ‘energy supplement’.
The effect of these amendments is to abolish the Seniors Supplement and to leave the Energy Supplement (the amendments in Schedule 2 of the Bill change the name of the Clean Energy Supplement to Energy Supplement) as a standalone payment for CSHC or eligible Veterans’ Affairs Gold Card holders.
The financial impact statement in the Explanatory Memorandum details the estimated savings from the cessation of the Seniors Supplement at $1.1 billion.
The Seniors Supplement replaced the Telephone Allowance and the Seniors Concession Allowance provided to holders of the CSHC. The amount of Seniors Supplement paid has increased since its inception in 2009 as it has been indexed to the CPI. The original purpose of the CSHC was to provide access to the PBS for those not on an income support pension but who were still in need of some assistance, for example, farmers who were asset rich but income poor. It could be argued that the provision of supplementary payments attached to the CSHC has seen it drift from its original purpose and, for a government seeking to make savings in the Social Services portfolio, the Seniors Supplement was considered an expense that could be easily cut.
The Government has made, or proposes to make, other changes affecting the CSHC. It has introduced separate legislation to index the income test limits for the CSHC. The Government also announced in the 2014–15 Budget, a proposal to include tax-free superannuation income in the income test for the CSHC from 1 January 2015. Superannuation received from private taxed superannuation sources (that is, private, non-government superannuation), is currently not considered taxable income for those aged 60 and over. It has therefore been excluded from the definition of ATI which is used to calculate entitlement to the CSHC. The indexation of the income test limits for the CSHC will, at first instance, allow an increase of CSHC holders; but the inclusion of tax‑free superannuation income in the income test will see a gradual decrease in the number of CSHC holders (as existing tax-free superannuation income will be grandfathered and not affected by the proposed changes).
Schedule 2 proposes to rename the CES as the ‘Energy Supplement’ and to cease indexation of the payment.
The principal amendments in Schedule 2 of the Bill are made to the following statutes:
- Social Security Act
- Social Security (Administration) Act
- A New Tax System (Family Assistance) Act 1999
- A New Tax System (Family Assistance) (Administration) Act 1999
- Veterans’ Entitlements Act and
- Military Rehabilitation and Compensation Act.
Consequential amendments are made to:
- Farm Household Support Act 2014 and
- Income Tax Assessment Act 1997.
The CES was introduced as part of the compensation package that was made available to low-income households for the introduction of the carbon price. It is paid to income support, Family Tax Benefit (FTB) and Seniors Supplement recipients and is added to the normal instalment amounts of these payments. At the time it was introduced, the CES was equivalent to 1.7 per cent of the basic rate of the payment it was attached to. The CES rate is currently indexed in line with movements in the Consumer Price Index (CPI) on the same day as the underlying payment is indexed (20 March and 20 September for most pensions and allowances), to preserve its real value over time.
The provisions in Part 1 of Schedule 2 of the Bill amend the Social Security Act so that references to the CES are replaced with references to the Energy Supplement. In addition, amendments to the Clean Energy Supplement modules in the rate calculators in sections 1064–1068 of the Social Security Act operate to freeze the rate of the renamed Energy Supplement at the amounts set out in table form in those modules.
Items 124–137 make consequential amendments to the Social Security (Administration) Act so that references to the quarterly clean energy supplement become references to quarterly energy supplement. The amendments do not alter the operation of the relevant sections.
The provisions in Part 2 of Schedule 2 of the Bill amend the family assistance law as set out in the A New Tax System (Family Assistance) Act in a similar manner to the amendments in Part 1 of Schedule 2. That is:
- references to the Clean Energy Supplement are replaced with references to the Energy Supplement and
- the amount of energy supplement payable is calculated by reference to specified sums. These rates are the same as the current CES rates. They will not be indexed and therefore will be fixed.
Likewise, provisions presented in Parts 3, 4, 5, and 6 of Schedule 2 amend the various other acts specified above so that references to the Clean Energy Supplement are replaced with references to the Energy Supplement and the amount of energy supplement that is payable is calculated by reference to specified sums.
Ceasing indexation of the CES/Energy Supplement from 1 July 2014 is projected by the Government to achieve savings of $479.2 million over five years.
The Government has committed to removing carbon pricing and, arguably, the CES and other forms of carbon price compensation will therefore not be required. However, the Coalition committed to removing the carbon price while keeping the compensation measures:
The Coalition will keep the current income tax thresholds and the current pension and benefit fortnightly rates while scrapping the carbon tax.
This means that Australian workers, families and pensioners will keep the tax cuts and fortnightly pension and benefit increases provided in Labor's carbon tax package, but without the carbon tax.
As a result these tax cuts and fortnightly benefit increases will become genuine cost of living relief …
The measure will not reduce the nominal value of the CES but it will mean its real value will decline over time and benefit recipients will not receive the increases they had expected. The measure continues a theme for the Budget: savings proposed through changed indexation methods or by halting the normal indexation of some rates and means test limits, rather than through direct cuts to payments.
The principal amendments in Schedule 3 of the Bill are made to the following statutes:
- A New Tax System (Family Assistance) Act
- Farm Household Support Act and
- Social Security Act.
This Schedule contains amendments to do three things:
- from 1 July 2014, pause the indexation of the income test free areas and assets value limits for all working age allowances (other than student payments) and also the income test free area and the assets value limits for Parenting Payment (Single) (PPS)
- from 20 September 2014, index PPS to the CPI alone and remove any indexation to movements in Male Total Average Weekly Earnings (MTAWE) and
- from 1 July 2014 pause the indexation of several FTB income test free areas.
The Government announced a proposal in the 2014–15 Budget to maintain the eligibility thresholds at their current level for three years from 1 July 2014. The thresholds refer to the amount of income a person can have before the maximum rate of payment begins to be reduced.
Currently, the income test free area for a single person for most of the working age income support allowance payments is $100 per fortnight. The free area is $200 a fortnight (combined) for partnered persons. Once income is in excess of these free areas in a fortnight, the maximum rate payable is reduced by 50 cents for each dollar of income over the free area. Income over $250 in a fortnight reduces the rate by 60 cents in each dollar. These income test free areas are indexed once a year on 1 July to increases in the CPI.
The working age income support allowance payments that use this income test are Newstart Allowance, Widow Allowance, Partner Allowance and Sickness Allowance.
The allowance payments income test free area has only recently been increased from $62 per fortnight to $100 per fortnight (on 20 March 2014). Indexation to the CPI was to have commenced from 1 July 2015. Until recently, the amount of the free area remained fixed unless the government legislated to change it. The former Labor Government increased the free area for allowances from $62 per fortnight (commencing 20 March 2014) and introduced indexation to CPI commencing 1 July 2015. The income test for working age payments is intended to target support at those who need it most but it creates a tension between the adequacy of the support offered by the payment and incentives to work. If the income test is too generous, individuals may continue to receive the payment rather than return to full time work. If it is too stringent, there is no incentive for persons to access even part time employment and thereby improve their prospects of self–support.
The amendments contained in Schedule 3 operate so that annual indexation of the income test free area amount to the CPI will pause from 1 July 2014 and not resume until 1 July 2017.
PPS is more commonly referred to as the sole parent pension and has its origins in the Supporting Mother’s Benefit introduced by the Whitlam government in 1973. For a long time PPS (and its predecessors) were classified as a pension regime payment and had the same income testing and payment rates as other pension payments like the Age Pension, the Disability Support Pension (DSP) and the Carer Payment. This changed in September 2009 with the former Labor Government’s pension reforms that saw a one-off $30 per week increase in the single rate of pension and different indexation arrangements introduced for most pension payments.
In these pension reforms, PPS did not get the one-off $30 per week increase that was provided to the other pension payments and the PPS indexation arrangements were left unchanged. That is, PPS continued to be indexed to movements in the CPI and benchmarked to 25 per cent of MTAWE while other pension payments were, from 20 September 2009, indexed to the greater of the movement in the CPI and a new index, the Pensioner and Beneficiary Living Cost Index (PBLCI), and benchmarked to around 27.7 per cent of MTAWE (single rate).
The net effect of this was the indexation of the PPS rate since September 2009 has been unique and anomalous. The PPS rate is not adjusted by CPI indexation alone, as applies to the other allowance payments provided to persons of working age like Newstart Allowance (as set out above). Likewise, the indexation of the PPS rate is different to the indexation of the pension rates which are indexed to the CPI, the PBLCI and also to percentages of the rate of MTAWE.
The amendments to the Social Security Act presented in Schedule 3 will see the cessation of the benchmarking of the rate of PPS to 25 per cent of MTAWE. In future the rate of PPS will only be adjusted according to CPI indexation, as currently applies to allowance payments for persons of working age.
Schedule 3 of the Bill also contains amendments to the A New Tax System (Family Assistance) Act to place a pause on the annual CPI indexation of certain FTB income test free areas.
The purpose of Schedule 4 of the A New Tax System (Family Assistance) Act is to, amongst other things, provide that certain payments made under that Act are subject to increases in line with CPI (Consumer Price Index) and to specify the time on which those increases are to be calculated.
In particular, clause 3 of Schedule 4 of the A New Tax System (Family Assistance) Act sets out in the CPI Indexation Table a list of payments which are to be so indexed and the relevant indexation day. Item 1 of Schedule 3 of the Bill inserts proposed subclause 3(7A) into Schedule 4 of the A New Tax System (Family Assistance) Act. The amendment provides that the payments listed in proposed subclause 3(7A) are not to be indexed on 1 July 2014, 1 July 2015 and 1 July 2016. The relevant payments are items 13–17 in the CPI indexation table. The effect of the amendment is to pause the indexation to the CPI of the FTB(A) income test free area, the FTB(B) income test free area and the FTB(A) Maintenance Income Test Free Area until 1 July 2017.
Items 3–10 of Schedule 3 of the Bill amend the Social Security Act. Part 3.16 of that Act provides for the indexation and adjustment of amounts. Section 1191 of the Social Security Act contains a CPI Indexation Table which lists the amounts to be indexed and the indexation day.
Item 6 of Schedule 3 of the Bill amends subsection 1192(4AB) of the Social Security Act affecting the indexation of the income test free area for allowance income support payments. The amendment will place a pause on the normal 1 July CPI indexation until 1 July 2017. Similarly, item 7 inserts proposed subsections 1192(5AA) and 1192(5AB) into Social Security Act to:
- pause the scheduled CPI indexation of pensions’ income test free area for PPS (item 14 of the CPI Indexation Table) until 1 July 2017 and
- pause the scheduled CPI indexation of the benefits assets test cut-off limits for homeowners and
non–homeowners (items 21, 22 and 23 of the CPI Indexation Table) until 1 July 2017.
Item 10 repeals and replaces section 1204 in the Social Security Act so that that section will control the indexation of the benefits assets test limits. This is necessary as the current section 1204 links the assets test limits for allowance payments to the same limits for the pension assets tests. As it is not proposed to pause the indexation of the pension assets test limits until 2017, allowing them to continue to be indexed to the CPI over the next three years, there needs to be a separation between the assets limits for pension and allowance payments.
This is unprecedented. Historically, the asset test limits for pensions have been the same as applies for allowance payments; it is just that the allowance payment assets test has no taper. Once the value of assets exceeds the assets test free area, no payment is payable. The result will see differing assets limits emerge for the first time between pension regime payments and allowance regime payments.
The estimated savings from the measures proposed by Schedule 3 of the Bill total $1.2 billion over four years.
The pauses to the indexation of income test free areas and other means test limits will not be felt immediately but they do achieve savings. The change to the indexation of PPS is permanent and brings its indexation into line with other income support payments for people of working age.
This schedule implements budget measures through amendments to the Social Security Act affecting Disability Support Pension (DSP) recipients aged under 35 years.
The first measure proposes to make those DSP recipients aged under 35 years who began receiving the payment between 2008 and 2011 subject to a review of their level of impairment and current work capacity. The review will be based on the revised Impairment Tables which commenced from 2012.
The second, related, measure applies to a person who is subject to such a review. It requires that the person actively participate in a program of support—that is, activities designed to build their capacity to work. The program of support must be one that is wholly, or partly, funded by the Commonwealth.
The DSP provides income support for people who have a disability and are unable to work for 15 hours or more per week. Recipients must be permanently blind or have been assessed as having a physical, intellectual, or psychiatric impairment of at least 20 points under a classification system known as the Impairment Tables. They must also be considered to have a continuing inability to work (defined below) because of an impairment. A person may be sufficiently impaired but still not qualify for the DSP because they do not have a continuing inability to work.
Receipt of DSP has grown substantially over the last three decades, despite various attempts to tighten criteria for eligibility. The numbers of people on DSP grew from 216,649 in June 1982 to 832,533 in March 2014. This has led the Government to question the sustainability of the DSP in the absence of further reform. The interim report of the Government’s current review of the welfare system (McClure review) has proposed significant changes to the DSP. These include restricting DSP to people with a permanent impairment and no capacity to work; and assistance for people with disability who have current or future capacity to work to be provided through a tiered payment including all people of working age.
The previous Government made a number of changes to arrangements for accessing the DSP in 2011 and 2012.
One of these changes was to introduce the requirement that from 3 September 2011 new DSP claimants would need to have actively participated in a program of support in order to demonstrate that they have a continuing inability to work. The change did not apply to those assessed as having a ‘severe impairment’—that is, those assessed as having at least 20 points or more under the impairment tables, of which at least 20 points is a result of a rating under a single impairment table.
As a result of these changes, a person who applies for DSP is considered to have a continuing inability to work due to an impairment if the Secretary of the Department of Social Services (the Secretary) is satisfied that:
- they have a severe impairment or
- they have actively participated in a program of support and
- has an inability to:
– work independently of a program of support within the next two years and
– undertake a training activity to prepare for such work within the next two years because of an impairment or
– such an activity is unlikely, because of their impairment/s, to enable the person to work within the next two years.
A person may be considered to have actively participated in a program of support if:
- the person participated in the program for 18 months (or completed a program that was less than 18 months duration)
- the person complied with the requirements of the program
- the person participated in the program during the 36 months immediately before the relevant date of claim
- the program was specifically tailored to address the person’s level of impairment, individual needs and barriers to employment and
- the program provided vocational, rehabilitation or employment services with a particular focus on developing skills the person requires to build their employment capacity.
A further change was to introduce revised impairment tables from 1 January 2012. The Impairment Tables ‘assign ratings in proportion to the severity or impact of the impairment on function as it relates to work performance’.
In 2010, the Government commissioned an Advisory Committee to review the Impairment Tables to ensure that they are consistent with contemporary medical and rehabilitation practice. The Advisory Committee found that the then Impairment Tables were ‘outdated and inappropriate for current use’. It found that the then ‘medical diagnosis, body system-based approach’ contained in the Impairment Tables was ‘not effective in assessing the functional abilities required for work and/or training activities’. It recommended that ‘a functional basis to work-related impairment assessment would be more appropriate and productive’.
Revised Impairment Tables reflecting the recommended approach were introduced through a 2011 Ministerial Determination. The new tables are function based rather than diagnosis based; describe functional activities, abilities, symptoms and limitations; and are designed to assign ratings to determine the level of functional impact of impairment and not to assess conditions.
In another change, from 1 July 2012, the Government imposed participation requirements on new and existing DSP recipients aged under 35 years. These requirements include:
- attending an initial participation interview
- agreeing to and signing a participation plan and
- for those not engaged in work, a requirement to attend ongoing interviews quarterly for 18 months and six‑monthly thereafter until the person no longer meets the criteria for participation requirements or
- for DSP recipients who are working, a requirement to attend ongoing interviews on an annual basis.
Plans may be revised as required as part of the ongoing interviews in order to better meet the needs and objectives of participants.
From 1 July 2014, DSP recipients aged under 35 years with participation requirements are also required to have at least one compulsory work focused activity included in their participation plan. Work related activities may include connection with an employment service provider, work for the dole and work experience.
Further, recipients aged up to 22 years are required to include a compulsory education or employment activity in their plan. Recipients aged under 35 years with a psychological/psychiatric condition are required to include a treatment, rehabilitation, reconnection with work or social skills activity in their plan.
The amendments in Schedule 4 of the Bill are intended to introduce a mechanism which adds to efforts to ‘help young people with disability to enter the workforce if they are able to do so’. It reflects aspects of each of the DSP changes from 2011 and 2012 discussed above in that it creates a new category of DSP recipients (aged under 35 years, who are to be reassessed under the post 1 January 2012 Impairment Tables) who may be required to actively engage in a program of support funded wholly or partly by the Commonwealth.
The three main aspects of this mechanism are discussed in the following sections.
First, DSP recipients aged under 35 years who made a claim for DSP before 3 September 2011 and whose start date was after 2007 will have their eligibility reviewed against the current Impairment Tables. As noted above, under the revised tables, eligibility for support is focused more on the extent to which a person is impaired from working and less on whether a person has been diagnosed with a disabling condition. Those found eligible would continue to receive DSP and be subject to new participation requirements. Those found ineligible would need to find employment and/or apply for income support through an Australian Government payment such as Newstart Allowance (NSA). Currently, the maximum payment rate of DSP for a person aged over 21 is $766.00 per fortnight, while the maximum payment for a single person on NSA is $510.50.
It should be noted that Schedule 4 does not include provisions intended to introduce this first change. The Secretary has existing powers under section 63 of the Social Security Administration Act to give a recipient of a particular payment (including DSP) a notice setting out various requirements such as contacting the Department, providing information and undergoing a medical, psychiatric or psychological examination.
Second, Schedule 4 of the Bill amends the Social Security Act to extend the requirement to actively participate in a program of support to recipients aged under 35 years found eligible to continue receiving DSP following a review, where they are not found to have a severe impairment and are able to work at least eight hours per week (on wages that are at, or above, the relevant minimum wage). This expands the participation requirements for under 35s introduced in 2012 by adding the requirement that affected recipients must actively participate in a program of support—that is, a comprehensive, tailored program aimed at building work capacity.
Item 4 in Schedule 4 of the Bill inserts a new category of DSP recipient being reviewed 2008-2011 DSP starter into subsection 94(5) of the Social Security Act. The category of reviewed 2008-2011 DSP starter will consist of persons who satisfy all of the following:
- made a claim for DSP before 3 September 2011, with the determination granting the claim having taken effect after 2007: proposed paragraphs (a) and (b) of the definition
- received a notice in relation to assessing their qualification for DSP on or after 1 July 2014: proposed paragraph (c) of the definition
- were under 35 years of age when the notice was given: proposed paragraph (d) of the definition
- after the notice was given, have not had their access to DSP cancelled by the Secretary: proposed paragraph (f) of the definition
- as a result of the assessment involving the notice it was determined that the person:
– does not have a severe impairment and
– is able to work at least eight hours per week: proposed paragraph (g) of the definition
- does not have a dependent child under six years of age: proposed paragraph (h) of the definition.
Item 1 in Schedule 4 of the Bill inserts the words ‘or is a reviewed 2008-2011 DSP starter’ into subparagraph 94(1)(da)(i). The amendment will operate so that any person falling into this category will be subject to participation requirements under section 94A of the Social Security Act.
Similarly, item 2 inserts the words ‘or the person is a reviewed 2008-2011 DSP starter who has had an opportunity to participate in a program of support’ into paragraph 94(2)(aa) of the Social Security Act. This means that a reviewed 2008-2011 DSP starter will need to have actively participated in a program of support in order to demonstrate that they have a continuing inability to work. The effect of the words ‘who has had an opportunity to participate in a program of support’ is that a reviewed 2008-2011 DSP starter will be able to continue receiving DSP while they are waiting to undertake a program of support or while they are undertaking such a program. The person’s continuing ability to work will be assessed after their program of support requirements have been met.
Currently, section 96 of the Social Security Act provides that a person continues to be qualified for DSP if they are receiving DSP and they obtain paid work that is for at least 15 hours per week but less than 30 hours per week. The section was inserted by the Social Security and Other Legislation Amendment (Disability Support Pension Participation Reforms) Act 2012 so that disability support pension recipients who participate in paid work for between 15 and 30 hours per week can do so without affecting their qualification for disability support pension despite the increased number of hours worked.
Item 5 of Schedule 4 of the Bill inserts proposed subsection 96(3) into the Social Security Act. The purpose of the amendment is that a reviewed 2008-2011 DSP starter who obtains paid work for at least 15 hours per week but less than 30 hours per week will not be entitled to the safety-net (that is, continuing qualification for DSP) which is provided by section 96 during the period specified in proposed paragraphs 96(3)(a) and 96(3)(b).
Proposed paragraph 96(3)(a) specifies that the relevant period starts when the person becomes a reviewed 2008-2011 DSP starter. As the definition of that term states that all the specified conditions in paragraphs (a)–(h) are to be met it appears that a person does not become a reviewed 2008-2011 DSP starter until after the relevant notice is given, and an assessment has been made which has the effect of requiring the person to actively participate in a program of support.
Proposed paragraph 96(3)(b) defines the ending as the first time, after the person becomes a reviewed 2008‑2011 DSP starter at which the Secretary reviews the determination granting DSP to the person.
This drafting of the period during which a person would cease to be qualified for DSP is unclear and the Explanatory Memorandum is not of assistance. As set out above, given that a person must meet all the conditions set out in the definition of reviewed 2008-2011 DSP starter in order to come within that definition, it may be assumed that the first time the Secretary reviews the determination granting DSP to the person after the person becomes a reviewed 2008-2011 (as described in proposed paragraph 96(3)(b)), could not be the review that takes place for the purpose of deciding that the person is a reviewed 2008-2011 DSP starter (as logically, such a review does not take place after the person comes within that definition). As a result, it is not clear what review is being referred to in proposed paragraph 96(3)(b) or how soon after the person comes within the definition of reviewed 2008-2011 DSP starter it is likely to take place. The reasoning behind specifying the period in this way is also unclear—the period ends the first time the Secretary reviews the determination granting DSP to the person, but if the result of that review is that the determination is unchanged, why would it be appropriate for the person’s ability to access the safety-net provided by section 96 to change? If proposed subsection 96(3) was intended to operate so that the period starts when the person is given a notice as referred to in paragraph (c) of the definition of reviewed 2008-2011 DSP starter and ends at the time the Secretary’s assessment under that definition is completed, this would not appear to be achieved by the current Bill. It may be that the period could be better identified by reference to the various steps in the definition of reviewed 2008-2011 DSP starter, or that the date on which a person becomes a reviewed 2008-2011 DSP starter could be specified. Generally, once a person ceases to be qualified for DSP, they would be required to lodge a fresh application if their circumstances changed. As this is a serious matter, a more detailed explanation of the provision may be required.
The Government’s intention is, ‘where appropriate, to require a person receiving [DSP] to demonstrate that they have undertaken and actively participated in a program of support’. Schedule 4 of the Bill includes an amendment to the Social Security Act ensuring that only programs funded by the Commonwealth, including Disability Employment Services, Job Services Australia and Australian Disability Enterprises will qualify as programs of support.
The Government says that this is necessary because generally, non-government programs ‘do not provide a comprehensive, tailored plan for the participant, taking into account the person’s disability, designed to prepare or retrain them for work’. The requirement that a program of support be wholly or partly funded by the Commonwealth is intended to ensure that people with mild to moderate disability participate in a more rigorous program to ‘try to build their capacity to work’.
The 2014–15 Budget announced that the Government will provide:
- $46.4 million over five years for the review of eligibility for under 35s measure, which will terminate on 30 June 2019 and
- $29.3 million over five years from 2013–14 for the Requirement to participate in a program of support measure.
The financial impact statement for this Bill refers only to the former amount ($46.4 million over five years for the budget measure, ‘Disability support pension—ability to work’).
As noted above, the Government has raised concerns about growth in the numbers of people receiving DSP. It should be noted, though, that there is evidence that such growth has been driven by factors external to the payment itself. For example, economists, Duncan McVicar and Roger Wilkins recently found that around 117,000 of the 600,000 additional DSP recipients since 1982 can be accounted for by population growth in the working age population (those aged 16-64 years). A further 17 per cent of the increase in the working age population receiving DSP can be attributed to population ageing.
According to McVicar and Wilkins, the main driver of growth in DSP receipt has been changes to other payments, such as the increase in the age at which women can receive the Age Pension; the closure of other income support payments such as Mature Age Allowance and Partner Allowance; and tightening of eligibility for Parenting Payment. The increasing disparity in payment rates between NSA and DSP in recent years has also probably made it much more likely that people with some capacity to work who may previously have registered for the former, are more likely to apply for the latter so as to receive higher rates of payment and be subject to a more liberal means test.
Importantly, the authors show that the percentage of the working age population with a disability receiving welfare has declined since 1993, leading them to wonder ‘whether there would be quite so much concern about the rise in DSP receipt were this simple fact widely appreciated’.
The measures introduced (in part) by this Schedule expand on changes to the DSP made by the previous Government.
While they may result in some slowing in the growth of DSP receipt, they are unlikely to lead to a general improvement in the workforce participation and self-support of people with disabilities. The Government says that it ‘will continue to provide employment support to people with disability through Disability Employment Services, which offer a range of services including helping people with disability to prepare for work, providing job search support and providing support once placed into a job’. However, the 2014–15 Budget did not include any additional funding for Disability Employment Services.
It is likely that improving employment rates for people with a disability will require more than changes to the DSP and the continued provision of employment services. This is particularly so, given that unemployment is forecast to increase over the next few years.
In the Statement of Compatibility with Human Rights for the Bill, the Government explains its focus on people aged under 35 years as follows:
Targeting the requirement to participate in a program of support to disability support pension recipients who are under 35 years of age at the time of a review of their qualification ensures those at the greatest risk of spending extended periods of time dependent on income support and most likely to benefit from employment assistance, participate in a program of support.
Evidence indicates that the impairment levels of disability support pension recipients who have been receiving this pension for long periods worsen over time, so those most recently granted the pension are more likely to have more work capacity and be able to participate economically and socially.
Recipients assessed as having an ability to work at least eight hours a week will be provided with the support needed to assist them develop their work capacity while still receiving disability support pension. This will assist people to build their capacity and may increase their chance of gaining employment.
However, it should be noted that the majority of DSP recipients in this age group have either intellectual/learning conditions (51.0 per cent) or psychological/psychiatric (19.4 per cent) as their primary medical condition. This is important, given there is evidence that employers are particularly reluctant to hire people with non-physical disabilities. This suggests the risk that participation incentives for young DSP recipients (the ‘supply side’) may be confounded by lack of employer demand.
As noted above, the measures proposed by this Schedule largely continue the previous Government’s approach of attempting to ensure that DSP recipients maximise their potential work capacities. However, as noted above, measures of this kind have had only limited impact on recipient numbers and it is to be expected that the measures in this Schedule will also probably have only limited impact. Given the Government’s concerns about the numbers of people receiving DSP, the relatively modest DSP changes in this Bill may indicate that the Government may consider more substantive DSP changes in the future, arising, for example, from proposals in the McClure review of welfare payments.
The Government announced in the 2014–15 Budget a proposal to tighten access to the six-week portability period for student payments. The duration of the six week limitation period is not proposed to be changed, but the circumstances in which a person can access the six-week temporary absence portability of payment will be narrowed. The payments affected are Youth Allowance, Austudy and ABSTUDY. The relevant amendments are made to the Social Security Act.
Portability refers to the facility that allows payments to continue to be made to an eligible person who is outside Australia. There are some payments which are portable for indefinite periods, such as Age Pension, Wife Pension and Widow B Pension. For most payments a limited time period of six weeks, in which a person can receive payment for temporary absences, applies. Some payments, such as Newstart Allowance, are not portable except in special circumstances. The primary reason for this is that it is targeted to unemployed persons in Australia looking for work in Australia.
The main income support payments for students are Youth Allowance (full-time student), Austudy and ABSTUDY.
Some apprentices can access Youth Allowance (full-time student), Austudy or ABSTUDY while doing their apprenticeship. This arrangement is in place to allow apprentices to top up their apprenticeship wages. Apprenticeship wages are counted as income under the income tests that apply to these payments but in some cases the apprenticeship wage is low enough to also allow some payment of these full-time student income support payments.
Currently, under section 1217 of the Social Security Act, a recipient of Youth Allowance (full–time student) and Austudy can be paid for temporary absences of up to six weeks. For ABSTUDY, the same arrangements apply and this is provided for under regulations enabled by the Student Assistance Act 1973.
The previous Government made substantive changes to the temporary portability rules arising out of the
2012–13 Budget. The Social Security and Other Legislation Amendment (2012 Budget and Other Measures) Act 2012 saw the reduction of the maximum portability periods for a significant number of income support payments for persons of working age down from thirteen weeks to six weeks.
The proposed changes to the maximum portability period of the student payments will no longer allow automatic access to up to six weeks of payment while a recipient is temporarily overseas. The change will see the portability of student payments become more like the current NSA arrangements, whereby payment can only be made in specified circumstances.
The amendments to the Social Security Act in Schedule 5 of the Bill relate to Youth Allowance (YA) (full-time student) and Austudy. As noted above, ABSTUDY is provided for under regulations and these can be amended without the need for legislation to be passed by the Parliament. The proposed change will restrict payment during temporary absences of up to six weeks for the purposes of seeking eligible medical treatment or to attend an acute family crisis.
There are also amendments to insert provisions allowing the Secretary to set out, in a legislative instrument, principles to allow payment where a person is absent overseas for the purposes of undertaking studies as a part of a course of education. There are also provisions presented in the Bill to align the portability rules for apprentices with those that are proposed to apply to students.
Section 1217 of the Social Security Act contains a table setting out the maximum portability period for different payments. Item 1 in Schedule 5 of the Bill inserts a reference to section 1218BA in item 12 of the table to set the maximum portability period for recipients of youth allowance who are not engaged in full time study, at six weeks, subject to that section. Item 5 inserts proposed section 1218BA to allow new apprentices on YA payment or Austudy payment the facility to travel overseas for up to six weeks where the purpose of the travel is a part of their apprenticeship training.
Currently items 13 and 14 of the table in section 1217 allow a person in receipt of YA and Austudy payment respectively to continue to receive payment for any temporary absence. Item 2 of Schedule 5 amends table items 13 and 14 so that the temporary absence must be either to seek eligible medical treatment or to attend to an acute family crisis.
Item 4 inserts proposed subsection 1218(4) into the Social Security Act to empower the Secretary to make principles in a legislative instrument for deciding how much of a period of absence should be considered as being for the purpose of undertaking studies that form part of the course of education. For example, the principles may provide that only a short time prior to commencing overseas study can be included in the period of study. In such a case, the social security payment may not be payable for some of the period that the person is overseas. Proposed subsection 1218BA(3) (inserted by item 5) empowers the Secretary to make principles in a legislative instrument detailing how much of a period of absence is for the purpose of undertaking a full-time apprenticeship, traineeship or trainee apprenticeship.
The Government estimates that the portability changes will realise savings of $153.1 million over five years from 1 October 2014. The Government detailed in the Budget papers that the savings realised from this proposal would be redirected to ‘repair the Budget and fund policy priorities’.
Up until fairly recently the maximum portability periods in the Social Security Act have allowed payment, in some cases, for up to 13 weeks while a person was temporarily overseas. This has not applied to Newstart Allowance, which for a long time has not permitted any payment for absences overseas. Generally, income support payments are provided to persons in Australia undertaking required activities in Australia, like looking for work or studying. The proposed changes will restrict student payments during temporary absences of up to six weeks for the purposes of seeking eligible medical treatment or to attend an acute family crisis.
Consistent with the Government’s 2014–15 Budget proposal, this Schedule amends the Social Security Act to make several changes to the Ordinary Waiting Period for working age payments from 1 October 2014. These changes include:
- applying the Ordinary Waiting Period of seven days, currently applying to Newstart Allowance and Sickness Allowance, to recipients of Widow Allowance, Parenting Payment and Youth Allowance for a person who is not undertaking full-time study and is not a new apprentice (Youth Allowance (Other))
- providing that the current exception to the Ordinary Waiting Period on the basis of severe financial hardship will only apply if the person is currently experiencing a personal financial crisis (the circumstances under which a person will be considered to be experiencing such a situation will be prescribed by legislative instrument made by the Secretary) and
- clarifying that the Ordinary Waiting Period is to be served after certain other relevant waiting periods or preclusions have ended.
For NSA and its predecessor the Unemployment Benefit, the requirement to serve the Ordinary Waiting Period has existed since the payment was first legislated for in 1945. The main purpose of the Ordinary Waiting Period is to discourage frivolous and unnecessary claims for assistance from persons who are between jobs or who are unemployed for a short period. The Ordinary Waiting Period is based on the principle that persons should use their own resources first to support themselves before seeking assistance from the taxpayer by way of income support payments.
People found eligible for Newstart Allowance or Sickness Allowance are generally required to serve a seven day Ordinary Waiting Period before they receive their first payment. This commences on either:
- the recipient’s ‘start day’ (the first day for which a social security payment is payable to a person) or
- if the recipient is subject to a ‘Liquid Assets Waiting Period’, the day after that period ends.
Recognising that most income support payments are paid fortnightly in arrears, the net effect of the Ordinary Waiting Period is that for the first fortnight after the date of commencement of qualification, the person receives only one week’s payment. A person is exempted from serving the Ordinary Waiting Period if they are:
- reclaiming within 13 weeks of last receiving a social security benefit or allowance, a social security pension or service pension
- undertaking a recognised labour market program or a rehabilitation program or
- in severe financial hardship.
Recipients who are not a member of a couple are considered to be in severe financial hardship when the total value of their liquid assets is less than their fortnightly maximum payment rate. Members of a couple are considered to be to be in severe financial hardship when the total value of their joint liquid assets is less than twice the recipient's fortnightly maximum payment rate.
Currently there are several waiting or non-payment periods that can apply to persons of working age claiming NSA. These commonly include the Income Maintenance Period and the Liquid Assets Test Waiting Period (LATWP).
The Income Maintenance Period applies where employment has been terminated and the person has received termination payments. It applies for the equivalent number of weeks that the termination payments represent. For example, where the termination payments were made up of eight weeks annual leave and long-service leave payments, the Income Maintenance Period is eight weeks. The weekly rate of the leave is treated as income in those eight weeks.
The Liquid Assets Test Waiting Period applies to all Newstart Allowance, Sickness Allowance, Youth Allowance and Austudy recipients whose liquid assets exceed a specified amount. It refers to the liquid assets a claimant might have, such as cash and monies in a bank account. The length of the Liquid Assets Test Waiting Period can vary from one to 13 weeks in duration depending on:
- the amount of the recipient’s liquid assets
- whether they are a member of a couple and
- whether they have dependent children.
The Government estimates that the extension of the OWP to other income support payments will realise savings of $231.7 million over five years from 1 October 2014. The Government detailed in the Budget papers that the savings realised from this proposal would be redirected to ‘repair the Budget and fund policy priorities’.
Item 1 inserts proposed section 19DA into the Social Security Act to empower the Secretary to make a legislative instrument to prescribe what constitutes experiencing a personal financial crisis. Under the current waiting period provisions, the OWP can be waived where the claimant is in severe financial hardship. That term is defined in the Social Security Act as being where a person’s liquid assets are less than the fortnightly rate of income support payment otherwise being claimed.  The effect of the amendment is that in order to have their OWP waived, a person will need to establish that they are experiencing a personal financial crisis. To do this they will have to satisfy two criteria:
- firstly, the person must be suffering severe financial hardship and
- secondly, the person must satisfy prescribed circumstances.
The details of the circumstances that a person will be required to satisfy to be considered to be ‘experiencing a personal financial crisis’ are not set out in the Bill (though, there are examples set out on page 32 of the Explanatory Memorandum). They will be in the legislative instrument. It is probably safe to read into this new, extra criterion that the government wishes to make it harder to have the OWP waived.
Item 4 amends the definition of waiting period in subsection 23(1) of the Social Security Act to include references to WA, PPP, PPS and YA (other). Item 3 amends the definition of the OWP in subsection 23(1) of the Social Security Act to include references to WA, PPP, PPS and YA (other). The amendments to these definitions refer to the new sections that are proposed to be inserted by items 6, 7 and 9, which apply the OWP to WA, PPP and YA (other) and set out the duration of the OWP.
Items 11 and 15 amend the OWP provisions for NSA and SA in equivalent terms to repeal the requirement that a person is in severe financial hardship (in order that the OWP can be waived) and replace it with a requirement that a person is experiencing a personal financial crisis. As the definition of experiencing a personal financial crisis includes a requirement that a person is suffering severe financial hardship, the effect is to add an additional burden of proof on to a claimant.
Items 13 and 17 repeal and substitute sections 621 and 694 respectively so that the OWP for NSA and SA is not served concurrently with other waiting periods that may apply. The OWP is to be served consecutively.
The application of the OWP to other related income support payment for persons of working age will see more consistency in the application of waiting periods across like payments. It will at the same time create significant savings as outlined under the heading ‘Financial Impact’ above. The new requirement for a person to be experiencing a personal financial crisis before the OWP may be waived incorporates the current requirement for the person to be in ‘severe financial hardship’ and then adds additional requirements, to be detailed in a legislative instrument. This change appears to be aimed at making it harder to have the OWP waived. As set out above, the Scrutiny of Bills Committee has questioned whether it is appropriate to prescribe the additional requirements in a legislative instrument, rather than the Bill, given that they ‘may have an important impact on entitlements to benefits when a person is in severe financial crisis’.
The Government announced several proposed changes and initiatives relating to the FTB program in the
2014–15 Budget. One of the proposals was to pause the indexation of the maximum and base rates of FTB(A) and also the rate of FTB(B) for two years until July 2016.
Indexation in the family assistance system is the automatic adjustment of certain amounts or limits in line with movements in prices, as measured by CPI. The affected amounts are usually indexed once a year to maintain their real value over time.
For FTB(A) there are several different rates. The ‘maximum rate’ applies where family adjusted taxable income is below the income test free area, which for the 2014–15 year is $48,837. Where income is over this free area, the maximum rate of FTB(A) is reduced by 20 cents in each $1 of excess income. The other rate that can be paid is called the ‘base rate’. This is a rate paid where the maximum rate is reduced by a certain amount under the 20 cent in the $1 taper. For a family with one child aged under 13 years, once income is in excess of $64,350, the base rate of FTB(A) is payable until family income reaches $94,316. Thereafter a second taper applies being 30 cents in $1 to reduce the base rate of FTB(A).
The maximum FTB(A) rates as at 30 June 2014 are set out in Table 1:
Table 1: Maximum FTB(A) rates, per fortnight, 1 July 2014
For each child aged
Maximum rate per fortnight
0–19 years in an approved care organisation
Source: ‘Payment rates for Family Tax Benefit Part A’, Department of Human Services website, accessed 18 August 2014
The base rates of FTB(A), as at 30 June 2014, is $55.16 per child per fortnight.
FTB(B) is paid to single parent families and couple families where the second earner has a low income. To be eligible, the single parent or higher income earner in a couple must have adjusted taxable income of $150,000 per year or less. Single parents with income under this limit will receive the maximum rate of FTB(B). For eligible couple families, the lower earner can have income up to $5,183 per year and still receive the maximum FTB(B) rate. Payments are reduced by 20 cents for each dollar of income over this amount.
Current payment rates for FTB(B) as at 30 June 2014 are set out in Table 2:
Table 2: Maximum FTB(B) rates, per fortnight, 1 July 2014
Age of youngest child
Maximum rate per fortnight
under 5 years
Source: ‘Payment rates for Family Tax Benefit Part B’, Department of Human Services website, accessed 18 August 2014
FTB rates are increased once a year on 1 July with increases in the CPI as the indexation factor.
The FTB program is estimated to cost $19.24 billion in 2014–15.
In announcing the proposed rate indexation pause in the Budget, the Government estimated the pause would save $2.6 billion over four years. The Government detailed in the Budget papers that the savings realised from this proposal would be redirected to repair the Budget and fund policy priorities.
Item 1 in Schedule 7 of the Bill repeals and replaces subclause 3(3) of Schedule 4 of the A New Tax System (Family Assistance) Act. This Schedule contains the indexation provisions (in a table) for the rates of payments provided under the Family Assistance Act. Proposed subclause 3(3) places a pause on the normally scheduled indexation of the FTB(A) child rates (method 1), which refers to the rate for a child aged under 13 years and also (method 2) which refers to the rate payable to a child aged 13 to 15 years. The other rates to be paused are the standard rates of FTB(B) and also the FTB(A) rate payable where the child is in an approved care organisation. The pause is for the normally scheduled indexation on 1 July 2014 and 1 July 2015, so the next scheduled indexation would be on 1 July 2016.
Previous Governments have attempted to reduce the cost of FTB by pausing the indexation of certain FTB amounts, like the end-of-year supplement. The pausing of indexation can be seen as a more benign way of generating savings as opposed to cutting payment rates or ceasing payments. The pausing of the scheduled CPI indexation presented in this Bill is temporary and for it to be made a long-term pause, further legislation would be required to amend the Family Assistance Act.
How much each FTB recipient will lose as a result of the pausing of the indexation will vary between recipients depending on their level of income, how many qualifying children they have and the ages of those children.
In answers to questions from Senator Siewert about the proposed changes to the FTB program in Senate Estimates for the 2014–15 Budget, officers from the Department of Social Services responded by providing some case examples:
A single father with a nine-year-old and a six-year old—he is the primary carer and has an income of $45,000 per annum, working part time. He has been eligible for the maximum rate of part A and part B. The measures that will impact on him are the pausing of the part A rate, which would have an impact of $444.30 for the year. There is also a loss of $132.14 for the year in FTB part B.
The loss set out in this example is solely due to the pausing of indexation. The estimates are based on projected estimates of the FTB rates that would otherwise apply if the CPI indexation was not paused. There would also be other losses to such a family arising from other proposed changes to the FTB program from 1 July 2015 such as the loss of FTB(B) altogether as a result of closing eligibility in respect of children age six or older. There are also reductions to the FTB end-of-year supplement payments, worth $252.70 for the FTB(A) supplement and $54.05 for the FTB(B) supplement.
This Schedule proposes to amend the Social and Community Services Pay Equity Special Account Act 2012 (Pay Equity Act) to add the Western Australian Industrial Relations Commission decision of 29 August 2013 as a pay equity decision, allowing payment of Commonwealth supplementation to service providers affected by the decision.
The Pay Equity Act was introduced to provide for the Commonwealth’s agreed funding for pay increases awarded to employees in the social and community services (SACS) sector, and specify what programs or arrangements were to receive additional funding. This was in response to:
- a decision of Fair Work Australia on 1 February 2012 in relation to the wage rates of employees in the SACS sector and
- the Queensland Industrial Relations Commission’s decision in relation to SACS employees who were transferred to the Fair Work Act 2009 regime on 1 January 2010.
The Government announced on 15 July 2012 that it would provide funding to supplement the SACS sector’s capacity to meet the costs of these decisions, because many of the services are partly Commonwealth funded. Under the Pay Equity Act $2.8 billion was transferred to a special account (the Pay Equity Special Account) within the meaning of the Financial Management and Accountability Act 1997, from which funds are to be drawn for the purpose of supplementing the various programs funded in whole or in part by the Commonwealth.
On 29 August 2013, the Western Australian Industrial Relations Commission decided to bring the SACS awards in that state into line with the National Award. This means that SACS employees in Western Australia would also be entitled to pay increases commensurate with those provided to their national and Queensland counterparts.
The amendments in this Schedule enable the Commonwealth Government, from 1 July 2014, to pay supplementation to eligible service providers to assist with the costs of pay rises for SACS employees in Western Australia (Items 1 and 2).
Item 3 repeals the table in section 6 of the Pay Equity Act detailing the amounts with which the SACS special account is to be credited between 1 July 2014 and 1 July 2020 and substitutes this with a new table showing new amounts reflecting the commitment to supplement pay increases for Western Australian SACS employees.
The financial impact statement in the Explanatory Memorandum to the Bill stated that there is no further financial impact from this measure because ‘$104 million was set aside in the contingency reserve in the 2013 Budget to cover the cost of supplementation until 2020-21’.
The measure proposed by this Schedule is uncontroversial in that it simply extends supplementation for pay rises to SACS employees in Western Australia already provided to counterparts in other jurisdictions.
This Bill includes proposals for over $5.7 billion in savings, most of which were announced in the 2014–15 Budget. The biggest single savings items are the cutting of Seniors Supplement ($1 billion), pausing eligibility thresholds for certain payments ($1 billion) and maintaining FTB rates for two years ($2.6 billion).
Most of the savings in the Bill involve changes to indexation of payments rates or eligibility thresholds, rather than cuts to or abolition of payments. This approach was used by the previous Government throughout its term.
Some points worth highlighting in relation to specific measures include:
- while the Government had committed to maintaining carbon price compensation, removing indexation of the Energy Supplement means that its real value will decline over time and benefit recipients will not receive the increases they had expected
- the introduction of a new requirement for a person to be experiencing a personal financial crisis before the Ordinary Waiting Period for allowance payments may be waived will encompass, and expand on, the current requirement to be in severe financial hardship, and therefore appears to be aimed at making it harder to have the OWP waived. The extra requirements that will need to be satisfied before a person who is in severe financial hardship will be considered to be experiencing a personal financial crisis are not set out in this Bill and
- the pausing of indexation for FTB payments is temporary and further legislation would be required to make this a permanent change.
The changes to DSP in Schedule 4 largely continue the previous Government’s approach of attempting to ensure that DSP recipients maximise their potential work capacities, but previous experience suggests that these will probably have only limited impact. Item 5 of Schedule 4 of the Bill, intended to ensure that a reviewed 2008-11 DSP starter who obtains paid work for at least 15 hours per week but less than 30 hours per week will not be entitled to continuing qualification for DSP (provided by section 96) during the period specified, is unclear and the Explanatory Memorandum is not of assistance. As such, a more detailed explanation of the provision may be required.
Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2500.
. Details of the inquiry including the terms of reference, submissions to the Committee and the final report (when published are on the inquiry webpage, accessed 10 July 2014.
. Senate Standing Committee for the Scrutiny of Bills, Alert Digest No. 7 of 2014, Senate, Canberra, 25 June 2014, p. 37, accessed 10 July 2014.
. Senate Standing Committee for the Scrutiny of Bills, Alert Digest No. 8 of 2014, Senate, Canberra, 9 July 2014, p. 42, accessed 15 July 2014.
. Department of Human Services (DHS), ‘Commonwealth Seniors Health Card’, DHS website, accessed 18 August 2014.Adjusted taxable income includes taxable income, foreign income, total net investment losses, employer provided benefits and reportable superannuation contributions (concessionally-taxed contributions).
. D Daniels, L Buckmaster, P Yeend, Social Security and Other Legislation Amendment (Pension Reform and Other 2009 Budget Measures) Bill 2009, Bills digest, 179, 2008–09, Parliamentary Library, Canberra, 2009, accessed 9 July 2014.
. Items 1 and 3–6 in Part 1 of Schedule 1 of the Bill make changes to the Social Security Act in equivalent terms.
. Item 35 in Part 1 of Schedule 1 of the Bill.
. Items 27, 35–45 and 48 in Part 1 of Schedule 1 of the Bill.
. Items 46, 52, 58, 64, 70, 76, 82, 89, 95 and 102 of Part 1 in Schedule 2 of the Bill.
. Items 160, 165 and 180 of Part 2 in Schedule 2 of the Bill.
. Ibid. Newstart Allowance is commonly referred to as the unemployment benefit. Partner Allowance is an income support payment payable to a partner of an income support recipient with very limited recent workforce experience. There have been no new grants of Partner Allowance since 20 September 2003. Sickness Allowance is an income support payment for a person aged 22 years or more temporarily unable to work due to an illness/injury who has a job to return to. Special benefit is an income support payment for persons in severe financial hardship and not entitled to any other income support payment.
. Carer Payment is commonly referred to as the Carer Pension.
. Under the A New Tax System (Family Assistance) Act there is a separate income test for maintenance received that is separately applied to the rate of FTB(A) payable.
. Department of Families, Community Services and Indigenous Affairs (FaCS), Statistical paper no. 1: income support customers: a statistical overview 2002, Canberra, FaCS, 2006, p. 11, accessed 9 July 2014; Australian Government, ‘DSS payment demographic data’, data.gov.au, accessed 9 July 2014.
. Advisory Committee, Review of the tables for the assessment of work-related impairment for Disability Support Pension: final report, DSS website, 30 June 2011, accessed 9 July 2014. For further information, see D Daniels, L Buckmaster and M Thomas, Social Security and Other Legislation Amendment Bill 2011, Bills digest, 37, 2011–12, Parliamentary Library, Canberra, 2011, accessed 9 July 2014.
. Advisory Committee, op. cit., p. ii.
. Australian Government, ‘184.108.40.206 Participation requirements for DSP recipients’, Guide to Social Security Law, DSS website, accessed 9 July 2014. For further information, see P Yeend, Social Security and Other Legislation Amendment (Disability Support Pension Participation Reforms) Bill 2012, Bills digest, 116, 2011–12, Parliamentary Library, Canberra, 2012, accessed 9 July 2014.
. Item 7 in Part 2 of Schedule 4 of the Bill.
. Statement of compatibility with human rights (Explanatory Memorandum), Social Services and Other Legislation Amendment (2014 Budget Measures No. 1) Bill 2014, p. 6.
. Australian Government, Portfolio budget statements 2014–15: budget related paper no. 1.15A: Social Services Portfolio, op. cit., p. 47. Youth Allowance provides income support for young people who are studying and training full time, undertaking a full time Australian apprenticeship and aged up to age 24. Austudy provides income support to full time students and Australian apprentices aged 25 or more. ABSTUDY provides income support for Aboriginal and Torres Strait Islander Australians who are studying or undertaking an Australian apprenticeship.
. A legislative instrument can be subject to disallowance if either a Senator or Member of the House of Representatives moves 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 a legislative instrument, then there is no debate about its contents.
. Item 3 in Schedule 5 of the Bill makes a consequential amendment to column 5, table item 14 for recipients of Austudy payment.
. Sickness Allowance is a payment for people aged 22 years or older but under Age Pension age who temporarily cannot work or study because of an injury or illness. The rate payable is the same as applies for NSA.
. Widow Allowance can be paid to a woman born on or before 1 July 1955, who has become widowed, divorced, or separated since turning 40 and has no recent workforce experience.
. Parenting Payment – Single (PPS) can be paid to a sole parent with a qualifying child aged up to eight years. Parenting Payment – Partnered (PPP) can be paid to a partnered parent with a qualifying child aged up to six years.
. Youth Allowance (other) refers to income support payable to an unemployed jobseeker aged 16 to 22 years looking for work or satisfying other approved activities.
. D Daniels, Social security payments 2: the unemployed, the sick and those in special circumstances, 1945 to 1995, Background paper, 3,
1995–96, Parliamentary Library, Canberra, 1995, accessed 1 July 2014.
. Proposed sections 408CGA and 408CGB of the Social Security Act.
. Proposed sections 500WA and 500WB of the Social Security Act.
. Proposed sections 549CA and 549CB of the Social Security Act.
. Proposed paragraph 620(1)(g) of the Social Security Act.
. Proposed paragraph 693(f) of the Social Security Act.
.See P Yeend and M Klapdor, ‘Family payments’, Budget review 2014–15, Research paper series, 2013–14, Parliamentary Library, 2014, p. 141, accessed 9 July 2014.
. D Weight, op. cit., p. 3.
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