MAY 1999

© Parliament of the Commonwealth of Australia 1999

ISSN 1440-2572

View the report as separate downloadable parts:












APPENDIX 1 - Submissions received by the Committee


APPENDIX 2 - Public hearing


For further information, contact:

Committee Secretary
Senate Standing Committees on Community Affairs
PO Box 6100
Parliament House
Canberra ACT 2600

Phone: +61 2 6277 3515
Fax: +61 2 6277 5829




Senator Sue Knowles, Chairman LP, Western Australia
Senator Andrew Bartlett, Deputy Chair AD, Queensland
Senator Kay Denman ALP, Tasmania
Senator Alan Eggleston LP, Western Australia
Senator Chris Evans ALP, Western Australia
Senator David MacGibbon LP, Queensland
Senator the Hon Eric Abetz for Senator Knowles for the period 24 to 28 May 1999. Senator Abetz was elected as Committee Chair for this period. LP, Tasmania
Senator the Hon Chris Schacht for Senator Denman for the Committee’s inquiry ALP, South Australia
Senator the Hon Eric Abetz LP, Tasmania
Senator Bob Brown Greens, Tasmania
Senator Mal Colston Ind, Queensland
Senator the Hon Rosemary Crowley ALP, South Australia
Senator the Hon John Faulkner ALP, New South Wales
Senator Michael Forshaw ALP, New South Wales
Senator Brenda Gibbs ALP, Queensland
Senator Brian Harradine Ind, Tasmania
Senator Meg Lees AD, South Australia
Senator Dee Margetts GWA, Western Australia
Senator the Hon Chris Schacht ALP, South Australia
Senator John Woodley AD, Queensland






1.1 The Compensation for Non-Economic Loss (Social Security and Veterans’ Entitlements Legislation Amendment) Bill 1999 was introduced into the House of Representatives on 25 March 1999. On 31 March 1999, the Senate, on the recommendation of the Selection of Bills Committee (Report No. 5 of 1999), referred the provisions of the Bill to the Committee for report by 24 May 1999.

1.2 The Committee considered the Bill at a public hearing on 13 May 1999. Details of the public hearing are referred to in Appendix 2. The Committee received 13 submissions relating to the Bill and these are listed at Appendix 1.



2.1 The Compensation for Non-Economic Loss (Social Security and Veterans’ Entitlements Legislation Amendment) Bill 1999 amends the Social Security Act 1991 and the Veterans’ Entitlements Act 1986 to provide for changes to the treatment of non-economic loss compensation payments, depending on whether they are paid as lump sums or as periodic payments. The proposal was announced in the 1998-99 Budget and seeks to encourage the take-up of periodic payments.

2.2 Currently, non-economic loss compensation payments are disregarded in setting the rate of income support payments. Under the legislation it is proposed that these payments will be treated in such a way as to effect the rate of income support payments otherwise payable. This is to ensure that recipients of non-economic loss compensation are no longer advantaged compared to recipients of compensation paid for economic loss such as lost wages or lost income. Under the proposed legislation the treatment of certain payments of compensation made solely for non-economic loss will be modified by:

2.3 The Bill relates to ‘personal injury’ compensation payments where they are made solely for non-economic loss, that is, where there is no component for lost earnings or lost capacity to earn. These payments are typically made under workers’ and traffic accident compensation schemes. The Bill will not encompass criminal injuries compensation payments.

2.4 The proposed changes are consistent with the Government’s broader policy of encouraging self reliance through the security of a steady income stream, and with the directions in some compensation jurisdictions. Compensation paid in periodic instalments provides a more stable source of income for injured people than one-off lump sums.

2.5 The Minister in the Second Reading Speech stated that:

2.6 Currently, the treatment of compensation payments provides significant inequities in the treatment of payments for non-economic loss depending on whether they are paid as a lump sum or as a series of periodic payments. The favourable treatment of lump sums over periodic payments creates an incentive for recipients to select them in preference to ongoing payments. Further, while a lump sum payment in respect of non-economic loss is disregarded for income purposes, a similar payment in respect of lost earnings or lost capacity to earn can result in a person being precluded from receiving social security payments for a considerable time.

2.7 Under the proposed measures, the treatment of non-economic loss lump sums will still be more generous than the treatment of other types of lump sum income, because the first $10 000 will be disregarded under the income test, and the income test free areas and withdrawal rates will apply. Similarly, for periodic payments in respect of non-economic loss, payments which do not exceed $2000 in a 28 day period will be disregarded for the purposes of the income test. This approach is in recognition that there are additional costs to be met in respect of injury.



Dissipation of lump sums

3.1 Some groups, including the Law Council of Australia and Injuries Australia argued that there was little evidence of compensation lump sums being dissipated, that is, being used for purposes unrelated to long term income support.

3.2 The Department of Family and Community Services (DFaCS) stated, however, that ‘evidence that a high proportion of compensation lump sums are not being used for ongoing income support is actually quite readily available’. DFaCS advised the Committee that the Department and Centrelink see many cases where lump sums are dissipated resulting in people turning to the social security system for income support. The Department stated that in 1997-98, over 880 appeals were made relating to compensation preclusion periods, that is, where the compensation payment included a component for economic loss. Of these, the overwhelming majority of appeals were specifically for ‘special circumstances’, that is, where clients had not used their lump sum for their future income support and sought early access to social security payments. The Department noted that this money may have been spent paying off mortgages, or on investments, or business ventures – ‘however, many people use their compensation for overseas holidays, gifts, and gambling’.

Compensation for non-economic loss

3.3 Some submissions and witnesses argued that the Bill does not take account of the distinction between compensation for economic loss and compensation for non-economic loss and that these payments should not be treated as ‘income’ when they do not contain a component for loss of income. The Australian Plaintiff Lawyers Association (APLA) argued that compensation for non-economic loss ‘is not to provide financial assistance as such, not to provide income support. It is to compensate for specific items such as pain and suffering [and] interruption to lifestyles’.

3.4 DFaCS, argued, however, that the Bill reflects the principle that the social security system is a targeted, means tested safety net for those with no alternative means of support – ‘it looks at a person’s total means (including compensation) in determining the rate payable for all income support payments’. The Department further stated that the Social Security Act adopts a broad concept of ‘income’. Income under the Act is defined as an amount earned, derived or received by the person, by any means and from any source, for the person’s own use or benefit. Income can include personal earnings or moneys or profits, whether of a capital nature or not. DFaCS stated that periodic non-economic loss compensation payments are already assessed as income under the Act and non-economic loss components are included in the calculation of the compensation preclusion period in the case of mixed compensation lump sums.

Income streams

3.5 DFaCS stated that for people who receive a lump sum non-economic loss compensation payment the introduction of the income stream option, to be provided for under Regulations to the Act, provides them with an effective choice to take periodic payments. The Department stated that this option was a direct result of extensive consultation with both the compensation and financial sectors.

3.6 These income streams provide secure, regular payments without the need to manage large amounts of money and can assist with meeting the future support needs of the injured person. The Department noted that it is proposed that these income streams be assessed under the existing income stream rules. This means that the amount used to purchase the income stream (up to the non-economic loss lump sum) would be disregarded under the income test.

3.7 Some groups including the Law Council argued against the perceived ‘compulsory’ nature of the income streams proposal. APLA argued that carefully designed voluntary structured settlement packages would be a preferred option.

3.8 DFaCS advised the Committee that in some circumstances it may be unreasonable or unfair for the non-economic loss compensation recipient to purchase an income stream with some or all of their lump sum payment. In these circumstances a Secretarial discretion is proposed whereby the Secretary would be able to disregard all or part of a non-economic loss lump sum in certain clearly defined circumstances. The Department stated that this option ‘could potentially assist customers facing significant up-front costs that may not be recoverable from another source’.

Effect on veterans’ benefits

3.9 The Department of Veterans’ Affairs (DVA) advised the Committee that the proposed changes to the income and assets test assessments of non-economic loss compensation only affect DVA income support pensions. DVA stated that the proposal will have no affect on disability pensions and war widow or widower pension paid under the Veterans’ Entitlements Act as these are not income tested. DVA stated that the numbers of veterans, widows or widowers who are likely to be affected by the proposal are ‘low’ – estimated at some 1 000 recipients.

3.10 The Bill also provides that a compensation payment solely for non-economic loss that has already offset a person’s disability pension, is not assessed again when determining the person’s income support payment from either DVA or Centrelink. This means that any amount of non-economic loss compensation that is currently affecting the rate of disability paid will be deducted from the total non-economic loss compensation amount before the income test rules are applied.

Criminal injuries compensation

3.11 There was some confusion in some submissions over the coverage of certain categories of compensation under the Bill. The Victims of Crime Assistance League argued that the Bill should exclude compensation payments for victims of crime. DFaCS advised the Committee that the Bill does not encompass compensation payments for victims of crime and that their beneficial treatment in respect of criminal injuries compensation will continue. The Department stated that the Bill and existing compensation provisions in the Social Security Act would be amended to make this clear in the legislation.


4.1 The Committee reports to the Senate that it has considered the Compensation for Non-Economic Loss (Social Security and Veterans’ Entitlements Legislation Amendment) Bill 1999 and recommends that the Bill proceed.

Senator the Hon Eric Abetz
May 1999





The Bill would signficantly increase the extent to which lump sum payments for non-economic loss would be assessed in determining social security and veterans' pension entitlements, when the lump sum exceeds $10,000.

The Opposition opposes this measure on two grounds. Firstly, compensation for non-economic loss is by definition not compensation for lost earnings and the essential flaw in the Bill is to regard it as such. Rather, payments of this type are intended to restore the quality of life lost as a result of the injury, or other event for which an award has been made. If social security entitlements were consequently reduced then this compensation for lost quality of life would be diminished, partially negating the purpose of the award. Secondly, the periodic compensation which the government claims to favour is not widely available. Evidently the government expects that many people will not be able to take their payments in this form and will have to accept the more commonly-provided lump sum payments. People forced to take lump sums would lose social security entitlements as a result. In fact, the government anticipates that this measure will save the Commonwealth $14 million in 2001-02, through reduced social security payments.

The Opposition will move amendments in the Senate to prevent the treatment of lump sums proposed in the Bill, and to maintain their status: that is, largely exempt from the income test.


The Opposition supports those measures in the Bill that would generally exempt from the income test any periodic payments.


At present, Veterans' Disability Pension reduces entitlement for social security benefits but not for Veterans' Service Pension. The Bill would continue this injustice, by excluding Veterans' Disability Pension from the relatively generous treatment it confers on other periodic payments. The Opposition regards this aspect of the measures as unfair as it fails to recognise the purpose of Disability Pension, and we intend to move to amend this provision in the Senate.


During the Committee hearings into the Bill, officials from the Department of Family and Community Services maintained that the Government did not intend that the Bill should apply to payments made to victims of crime, and that it was their understanding that in fact it would not affect such payments. The Department acknowledged, however, that there was a perception that victims of crime could be affected, and stated that the Government would move an amendment in the Senate to ensure that payments to victims of crime were indeed excluded. The Opposition intends to support such an amendment, and will introduce one itself if the Government does not. However, if the Opposition succeeds in amending the treatment of all lump sums, whether for victims of crime or for others, then such an amendment would not be necessary.



The Opposition recommends that the Bill be passed, subject to the amendments outlined above.

Senator Chris Evans
(ALP, Western Australia)

Senator the Hon Chris Schacht
(ALP, South Australia)


Compensation for Non-Economic Loss (Social
Security and Veterans’ Entitlements Legislation Amendment) Bill 1999



The Bill

This Bill proposes to modify the treatment of certain payments of compensation made for non-economic loss by:

(a) treating lump sum payments exceeding $10,000 as ordinary income spread over the 26 weeks following receipt.

(b) treating periodic payments as ordinary income. The initial instalment will be treated as a lump sum with subsequent instalments exceeding $2000 within a 28 day period treated as ongoing ordinary income.


At present, if an economic loss component of a lump-sum payment can be identified, 50 percent of that payment will be treated as income. That figure is then divided by average weekly earnings to give a figure for the number of weeks the recipient is not entitled to a social security payment.

If no economic loss component can be found, it will be deemed a purely non-economic loss payment, and the ‘50 percent rule’ will not be applied.

Where a person takes a non-economic loss compensation payment as a lump sum, those on allowances have that payment included in the fortnight of receipt only (ie. they’ll lose payments for only a short time) and those on pensions do not have the payment included at all.

If the payment is taken as a periodic payment, then it is included in the ordinary income test each fortnight for the period of receipt.

Non-economic loss lump sum payments

This Bill targets lump-sum payments for non-economic loss. Payments of this nature in excess of $10,000 would be treated as ordinary income for the purposes of assessing eligibility for social security and veterans’ pension entitlements.

The Australian Democrats view this approach as inappropriate. Payments for non-economic loss are generally to compensate for pain and suffering, rather than for loss of earnings or earning capacity. For many recipients of non-economic loss payments, the money is used for modifications to adjust to post-injury or post-hardship life. For others, the payment is a means of restoring lost quality of life.

It is the view of the Australian Democrats that this Bill would erode the capacity of non-economic loss payments to perform this function in two ways.

Firstly, it provides a strong disincentive for recipients to take their payment as a lump sum. This is a stated aim of the Bill, which seeks to avert what the Government claims is a widespread problem of dissipation of lump-sum payments.

This Government view misunderstands the nature of a non-economic loss payment. These payments are not intended to replace earnings or earning capacity, but to compensate for loss of quality of life and for suffering by the recipient. As such, providing such strong incentives to recipients to use the money as a form of income through periodic payments is inappropriate, particularly given the existing incentives for economic loss payments to be received through income streams.

The Australian Democrats do not believe forcing people to live off their payments for pain and suffering, by reducing their eligibility for social security entitlements is acceptable, a concern which is exacerbated by the large projected Budget savings from this measure.

Secondly, it may be more appropriate for recipients to receive their payment as a lump sum, to enable them to cover ‘one-off’ expenses such as relocation. The Australian Democrats do not believe these people should be penalised for using their payment in this way.

As such, the Australian Democrats propose to amend the Bill to ensure lump sum payments are not subject to the income test for social security eligibility.

Veterans’ Disability Pensions

The Australian Democrats do not support the distinction between eligibility of Veterans’ Disability Pension recipients for social security entitlements and Veterans’ Service Pension recipients and will move amendments in the Senate to ensure Veterans’ Disability Pension recipients are no longer disadvantaged in this respect.


Unless the above concerns are addressed through amendment in the Senate, the Australian Democrats do not propose to support this Bill.

Senator Andrew Bartlett
Australian Democrats Senator for Queensland


APPENDIX 1 - submissions received by the committee

1 Vietnam Veterans Association of Australia
2 Injuries Australia
3 Welfare Rights Centre
4 The Australian Federation of Totally and Permanently Incapacitated Ex-Servicemen and Women Limited
5 Australian Council of Social Service
6 Australian Plaintiff Lawyers Association
7 The Australian Veterans and Defence Services Council (AVADSC)
8 Department of Veterans’ Affairs
9 Incapacitated Servicemen and Womens’ Association
10 Victims of Crime Assistance League (ACT) Inc
11 Law Council of Australia
12 Department of Family and Community Services
13 CPSU (Vic) Injured Workers Support Group


APPENDIX 2 - public hearing

A public hearing was held on the Bill on 13 May 1999 in Senate Committee Room 2S1.

Committee Members in attendance

Senator Sue Knowles (Chairman)

Senator Andrew Bartlett (Deputy Chairman)

Senator the Hon Eric Abetz

Senator Alan Eggleston

Senator Chris Evans

Senator the Hon Chris Schacht


Injuries Australia

Mr George Cooper, Director

Mr Bill Weston, Director

Law Council of Australia

Mr Gerry Murphy AM, former President, Law Council, Chairman, Accident Compensation Standing Committee

Australian Plaintiff Lawyers Association

Mr Richard Faulks, ACT Branch President

Welfare Rights Centre

(via teleconference)

Ms Carla Mullins, Policy Projects Coordinator

Australian Veterans and Defence Services Council

Mr Clive Mitchell-Taylor, Representative

Vietnam Veterans Association of Australia

Mr Clive Mitchell-Taylor, President

Department of Family and Community Services

Mr Evan Mann, Assistant Secretary, Seniors & Means Test

Ms Glenys McIver, Director, Means Test Policy

Mr Mark Jimmieson, Assistant Director, Compensation

Department of Veterans’ Affairs

Mr Peter Reece, Divisional Head, Compensation and Support

Mr Bob Hay, Branch Head, Income Support

Ms Jeanette Ricketts, Director, Income Support Policy