This Digest was prepared for debate. It reflects the legislation as
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consulted to determine the subsequent official status of the
Background - Tax Reform Package
Background - Compensation Package
Background - Aged Care Act 1997
Contact Officer & Copyright Details
Date Introduced: 2 December 1998
House: House of Representatives
Portfolio: Aged Care
Commencement: At the same time as Schedule 1
to the A New Tax System (Compensation Measures Legislation
Amendment) Act 1998, which is proposed to commence 1 July 2000.
The purpose of the A New Tax System (Aged Care
Compensation Measures Legislation Amendment) Bill 1998 (the Bill)
is to quarantine the 4 per cent increase provided to social
security and veterans' pensioners from the fees payable by
residential aged care recipients.
It ensures that both pensioners and
non-pensioners will not pay increased fees as a result of the 4 per
cent increase to be paid upon the commencement of the goods and
services tax legislation on 1 July 2000.
The Bill also ensures that war widows and
widowers continue to pay the same amount in income tested fees as
other care recipients on the same total income.
Background - Tax Reform Package
On 13 August 1998 the Federal Government
released its proposals for reform of the Australian tax system(1)
of which, a Goods and Services Tax (GST) was the centrepiece.
On 2 December 1998 the Treasurer introduced a
raft of 16 bills(2) to the House of Representatives comprising the
first part of the reform package. Seven of the bills propose to
replace the current Wholesale Sales Tax and to enact a GST that
will be levied at a rate of 10 per cent with effect from 1 July
2000. Nine of the bills introduced non-GST measures contained in
the tax reform plan.
The tax reform plan proposes to:
- introduce a GST which eliminates sales tax and a range of nine
other indirect taxes
- change Commonwealth-State financial relations by providing
States and Territories with an independent revenue base
- implement significant changes to individual marginal tax
- implement a major rationalisation of family assistance
- replace the various existing taxation payment and reporting
systems of company tax, provisional tax, PAYE,(3) PPS(4) and RPS(5)
by one quarterly tax payment system, PAYG(6)
- introduce a new universal business number system
- move toward an 'entity' taxation system which is directed
toward the elimination of tax advantages between different business
- simplify the imputation system and introduce refunds for excess
The main Bill implementing the GST is the A New
Tax System (Goods and Services Tax) Bill 1998. The Bills Digest for
that Bill will contain a more detailed history of events leading up
to the GST and, naturally, a detailed account of how the proposed
GST will operate.
Background - Compensation Package
There is no doubt that the reforms proposed by
the government present sweeping and fundamental changes to the tax
system in Australia.
The introduction of a GST necessarily raises
questions pertaining to the distributional impacts of such a tax.
In particular, consideration is given to any potential disadvantage
that may be incurred by sectors of the community due to the
introduction of a value-added tax.
The compensation package introduced by the
government purportedly avoids the situation where persons would be
worse-off under the new tax system. The reform package will,
therefore, provide an unambiguous increase in total economic
welfare if, after implementation, a number of individuals are
better off and nobody is made worse off.(7)
The contentious issue, of course, is whether the
package succeeds in achieving its aims.
The key issue appears, therefore, to be
the accuracy of the projected distributional impacts of the tax
reform package. The accuracy of the estimates of the
impact of change remain a legitimate concern for those most
vulnerable in the community.
2. Additional background information
For further background information concerning
the compensation package please refer to the Bills Digest for the A
New Tax System (Compensation Measures Legislation Amendment) Bill
- Aged Care Act 1997
In general the Aged Care Act 1997 (the
Act) provides for the Commonwealth to give financial support,
through the payment of subsidies, for the provision of aged
The objects of the Act include:
- the provision of funding of aged care
- promoting a high quality of care and accommodation
- ensuring that aged care services are targeted towards the
people with the greatest need for those services, and
- encouraging diverse, flexible and responsive aged care
Before the Commonwealth can pay a subsidy to a
provider of aged care they must be approved.
Approved providers have certain responsibilities
relating to accountability, the quality of care provided and the
user rights for care recipients.
Failure to meet these responsibilities can lead
to the imposition of sanctions that affect the status of approvals
and may, therefore, affect amounts of subsidy payable to an
One of the responsibilities of an approved
provider relates to resident fees charged for, or in connection
with, the provision of care and services.
Schedule 1 amends the Aged
Care Act 1997.
1. Ensuring pensioners and non-pensioners will not pay increased
fees for residential aged care
1.1 Division 58
Division 58 deals with responsibilities of
approved providers relating to residential fees charged for, or in
connection with, the provision of care and services.
Basically, the resident fee in respect of any
day must not exceed the maximum daily amount.
The basic component of the maximum daily amount
is the standard resident contribution as defined in section 58-3 or
section 58-4. Section 58-3 specifies the standard resident
contribution for people not receiving an income support payment and
section 58-4 specifies the contribution for people receiving an
income support payment.
1.2 Standard resident contribution for people not
receiving income support payments
Subsection 58-3(1) currently states that the
standard resident contribution for a person who is not receiving an
income support payment is the greater of a specified amount
($26.40), or that amount indexed in accordance with the Social
Security Act 1991. (The current amount, applicable from 1
October 1998, is $27.11.)
proposes to repeal subsection 58-3(1) and substitute new
subsection 58-3(1), which dispenses with the current
method of setting the amount of contribution and replaces it with a
formula that refers to a multiple of the 'standard pensioner
contribution'. The definition of standard pensioner contribution is
currently used in determining the rate of standard resident
contribution for those people receiving income support
The change in methodology provides consistency
between the two sections.
The standard resident contribution for an
individual who is not receiving an income support payment is
proposed to be an amount equal to 1.25 times the standard pensioner
contribution. (New subsection 58-3(1))
Standard pensioner contribution is defined in
Clause 1 of Schedule 1. This definition is also subject to proposed
amendment under the Bill. (Refer paragraph 1.3)
The current contribution for an individual who
is not receiving an income support payment is approximately 1.25
times the contribution required from a person who is receiving an
income support payment. Therefore, the proposed amendments do not
impact upon the difference in contributions between these two
The amendment to the definition of standard
pensioner contribution means that the increase in the basic age
pension amount will not flow through as an increase to resident
fees for persons who do not receive an income support
1.3 Standard resident contribution for people receiving
income support payments
Subsection 58-4(1) states that the standard
resident contribution for a person who is receiving an income
support payment is an amount equal to the standard pensioner
Standard pensioner contribution is currently
defined in Clause 1 of Schedule 1 to be an amount (rounded down to
the nearest cent) equal to 85% of the basic age pension amount
worked out on a per day basis.
Basic age pension amount means the annual
maximum basic rate under point 1064-B1 of the Social Security
Act 1991 that applies to a person who is not a member of a
couple within the meaning of that section.
The basic age pension amount will be the subject
of the 4 per cent increase proposed in the A New Tax System
(Compensation Measures Legislation Amendment) Bill 1998. In the
absence of amendment the 4 per cent increase would simply flow-on
as an increase in resident fees.
It is therefore proposed to amend the definition
of standard pensioner contribution to delete reference to '85%' and
substitute an amount of 81.5 per cent. Therefore, pursuant to
Item 3, Clause 1 of Schedule 1 will be amended so
that the standard pensioner contribution will be 81.5 per cent of
the basic pension amount worked out on a per day basis.
This reduction from 85 per cent to 81.5 per cent
of the basic pension is to maintain the standard resident
contribution at approximately the same dollar amount as care
recipients currently pay. That is, none of the 4 per cent increase
in social security payments will be 'eaten up' by increases in
basic daily care fees for either pensioners or non-pensioners.
2. War widows and widowers
The amount of residential care subsidy payable
to an approved provider is worked out under Division 44.
The amount of residential care subsidy payable
is worked out by adding together the amounts of residential care
subsidy for each care recipient.
The amount of residential care subsidy for each
care recipient is worked out by reference to a residential care
subsidy calculator in subsection 44-2(2). Essentially the basic
subsidy amount is first calculated, from which, supplements are
added and reductions worked out by applying the income test under
subdivision 44-E are deducted.
Pursuant to subsection 44-21(3) where a care
recipient's ordinary income does not exceed the ordinary income
free area for that individual there is no income tested reduction
but a reduction applies where it is in excess of the ordinary
income free area.
If a person is a war widow or widower the
person's ordinary income for the purposes of the calculation in
subsection 44-21(3) is reduced in accordance with a formula set out
in section 44-25.
Item 1 of Schedule
1 amends section 44-25 by omitting the words '2 times' and
substituting 'five-thirds times'.
This in effect means that war widows and
widowers pay the same income tested fees as other care recipients
on the same total income as a result of the 4 per cent pension
- Treasurer, Tax Reform - not a new tax - a new tax
system; Tax Reform Plan, 13 August 1998, Commonwealth of
- Seven GST Bills: A New Tax System (Goods and Services
Tax) Bill 1998; A New Tax System (Goods and Services Tax
Transition) Bill 1998; A New Tax System (Goods and Services Tax
Administration) Bill 1998; A New Tax System (Goods and Services Tax
Imposition-General) Bill 1998; A New Tax System (Goods and Services
Tax Imposition-Customs) Bill 1998; A New Tax System (Goods and
Services Tax-Excise) Bill 1998; A New Tax System (End of Sales Tax)
Bill 1998; and
Nine Non-GST Bills: A New Tax System (Aged Care
Compensation Measures Legislation Amendment) Bill 1998; A New Tax
System (Australian Business Number) Bill 1998; A New Tax System
(Australian Business Number Consequential Amendments) Bill 1998; A
New Tax System (Income Tax Laws Amendment) Bill 1998; A New Tax
System (Bonuses for Older Australians) Bill 1998; A New Tax System
(Compensation Measures Legislation Amendment) Bill 1998; A New Tax
System (Fringe Benefits Reporting) Bill 1998; A New Tax System
(Medicare Levy Surcharge - Fringe Benefits) Bill 1998 and A New Tax
System ( Personal Income Tax Cuts) Bill 1998
- Pay As You Earn
- Prescribed Payments System
- Reportable Payments System
- Pay As You Go
- Bannock, Baxter & Davis, The Penguin Dictionary of
Economics, Penguin Reference, Fourth Edition, p 80.
This is, of course, economic theory and in practical terms it will
be difficult to ascertain if there is an unambiguous increase in
total economic welfare.
25 January 1999
Bills Digest Service
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