COMPENSATION FOR NON-ECONOMIC LOSS (SOCIAL SECURITY AND VETERANS’ ENTITLEMENTS LEGISLATION AMENDMENT) BILL 1999
MAY 1999
© Parliament of the Commonwealth of Australia 1999
ISSN 1440-2572 |
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Committee Secretary
Senate Standing Committees on Community Affairs
PO Box 6100
Parliament House
Canberra ACT 2600
Australia
MEMBERSHIP OF THE COMMITTEE
| 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 |
REPORT
COMPENSATION FOR NON-ECONOMIC LOSS
(SOCIAL SECURITY AND VETERANS’ ENTITLEMENTS LEGISLATION
AMENDMENT) BILL 1999
1. THE INQUIRY
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. THE BILL
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:
- treating some non-economic loss lump sum payments as income for pension
eligibility purposes – the income treatment will only apply where
payments are solely for non-economic loss and are in excess of $10 000.
These amounts will be assessed as ordinary income for certain social
security and DVA pensions and the payment apportioned as income spread
over 26 fortnightly payments; and
- treating non-economic loss periodic payments as ordinary income for
pension eligibility purposes – the initial instalment will be treated
as a lump sum while, for the second and subsequent instalments which
exceed $2000 within a 28 day period, the total amount of the instalment
will be treated as ongoing ordinary income. Amounts paid up to $2000,
paid over a 28 day period, will be disregarded under the income test.
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:
The Government will ensure that people who receive compensation payments
use them for their support, at least for a reasonable period of time,
before calling on the taxpayer funded social security system….Compensation
paid in periodic instalments provides a more reliable, long term source
of income for injured people. Accordingly, this Bill aims at reducing
any social security incentive for compensation recipients to choose
lump sum payments in preference to ongoing periodic payments as well
as encouraging insurers and compensation authorities to make periodic
payments.
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.
3. ISSUES
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. RECOMMENDATION
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
Chairman
May 1999
MINORITY REPORT - AUSTRALIAN LABOR PARTY
COMPENSATION FOR NON-ECONOMIC LOSS (SOCIAL SECURITY AND
VETERANS’ ENTITLEMENTS LEGISLATION AMENDMENT) BILL 1999
TREATMENT OF LUMP SUM COMPENSATION PAYMENTS
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.
TREATMENT OF PERIODIC COMPENSATION PAYMENTS
The Opposition supports those measures in the Bill that would generally
exempt from the income test any periodic payments.
VETERANS' DISABILITY PENSION
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.
VICTIMS OF CRIME
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.
RECOMMENDATION
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
MINORITY REPORT BY SENATOR ANDREW BARTLETT
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.
Background
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.
Recommendations
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
Witnesses
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