Referral of the inquiry
1.1
On 17 October 2019, the Senate referred the provisions of the Farm Household Support Amendment (Relief Measures) Bill (No. 1) 2019 (the bill) to the Senate Rural and Regional Affairs and Transport Legislation Committee (the committee) for inquiry and report by 7 November 2019.
1.2
The Senate Selection of Bills Committee noted that the reasons for the referral were to investigate the consequences of the amendment on farmers currently accessing the Farm Household Allowance, and any other related matters.
Conduct of the inquiry
1.3
The committee advertised the inquiry on its webpage, and set 28 October 2019 as the closing date for submissions. The committee also wrote to a range of key stakeholder groups, organisations and individuals drawing their attention to the inquiry and inviting them to make written submissions.
1.4
The committee received six submissions which are listed in Appendix 1. Submissions were published on the committee's inquiry webpage.
1.5
The committee completed its inquiry on the basis of these submissions, and on other publicly available information regarding the bill and the household allowance program.
Acknowledgement
1.6
The committee thanks those organisations and individuals who provided written submissions to the inquiry.
Structure of the report
1.7
The report consists of two chapters. Chapter 1 provides background information regarding the Farm Household Allowance (FHA), and the context of the bill. The second chapter outlines the key provisions of the bill, presents the views of submitters, and presents the committee's views and recommendation.
Consideration by other committees
1.8
At the time of the committee's reporting, neither the Parliamentary Joint Committee on Human Rights nor the Senate Standing Committee for the Scrutiny of Bills had considered the bill. A statement of compatibility with human rights accompanies the bill, which notes that the bill engages (or has the ability to engage) a number of human rights including the rights to social security, health, work and an adequate standard of living.
Farm Household Allowance
1.9
The FHA, first introduced in July 2014, is legislated by the Farm Household Support Act 2014 (FHS Act) and is a payment available to farming families experiencing financial hardship, due to a range of circumstances (it is not limited to those experiencing drought).
1.10
The FHA currently provides fortnightly income support to farmers and their partners, up to a maximum of four cumulative years (or 1460 days of payment) while farmers take action to address their long‑term financial security. There is no limitation on the timeframe over which an individual can be paid (payments don't need to be received in one go), and the periods of support do not need to be consecutive.
1.11
The Department of Agriculture's guidelines for the FHA note that:
This four-year period will provide recipients with sufficient time to develop strategies for self-reliance and create an incentive to make significant business decisions where the farm business is unsustainable.
1.12
The FHA payment is usually the same rate as the Newstart Allowance (or the Youth Allowance if under 22), legislated under the Social Security Act 1991. The amount of the FHA depends on individual circumstances; to receive the FHA, farmers must have an income below the cut off for the Newstart Allowance income test, which is variable depending on personal circumstances.
1.13
Under the FHA, eligible farmers receive:
allowances to assist with expenses such as rent and medication;
a financial assessment of the farm business (worth up to $1500);
a Health Care Card to help reduce health care costs; and
funding to help develop skills, access training and pay for professional advice (worth up to $4000).
1.14
An independent review of the FHA in February 2019 indicated that per farming household with two FHA recipients, four years of cumulative payments would total $103,597.43.
1.15
Currently, recipients must meet the following conditions to receive the FHA:
be a farmer or a partner of a farmer, 16 years or older, and an Australian resident;
contribute labour and capital to an Australian farm, or be the partner of a farmer who does;
had less than four years of FHA;
the farm must have a significant commercial purpose; and
have income or assets below certain amounts (with a farm assets threshold of $5 million, which includes shares held in order to operate the farm, and any tradeable water assets from the Murray‑Darling Basin).
Off‑farm income
1.16
In some circumstances, the FHA allows for deductions made from a person's ordinary income for the purposes of the FHA income test.
1.17
These circumstances are outlined in the Farm Household Support Minister's Rule 2014 (Minister's Rule). The Minister's Rule is made under the FHS Act and sets a number of criteria for the FHA program, including the allowable deductions from ordinary and off-farm income, and the maximum amount of certain financial supplements under the program.
1.18
The Minister's Rule prescribes a deduction from a person’s off-farm income for a tax year where an amount has been used to pay interest on a loan related to the farm enterprise. According to the Department of Agriculture's FHA guidelines, a key requirement of the allowable deduction is that the person’s ordinary income from the farm enterprise is less than zero in the relevant tax year. The guidelines go on to state that:
This setting recognises that farmers experiencing financial hardship often rely on off-farm income to support the farm enterprise rather than using that income for self-support. In these cases the interest component of farm losses can be used to offset an individual’s off farm income where they meet the criteria listed in the Minister’s Rule.
1.19
Off‑farm income includes any income not earned from the relevant farm enterprise, for example, through off‑farm employment, interest or rental income, or contracting for harvesting or fencing.
1.20
Farmers can apply to offset up to $80 000 of off‑farm income against interest payments on the loan (provided the farmer can prove that the loan contract cannot be renegotiated). For a farmer and a partner applying for the FHA, each may claim a portion of the deduction, but the total between them cannot exceed $80 000.
Review of the FHA program
1.21
In September 2018, the government commissioned an independent panel to review the FHA program. The panel examined whether:
the FHA was reaching farmers in need;
the original program objectives were being met;
the program remained fit‑for‑purpose; and
the FHA 'contributed to an enduring approach to income support for farmers in hardship, including drought'.
1.22
In May 2019, the panel's final report on the FHA was presented, which made a number of recommendations for improving the program. Its primary recommendation was to decouple the FHA from the social security framework and redesign the program to ensure it took a farmer centric approach.
1.23
The review panel suggested that the treatment of non‑farm income, such as that earnt from contracting, should not create disincentives for farmers to generate cash flow. The review panel also advocated for farmers to have access to the FHA for a maximum period of four in every ten years (as opposed to four years across a farmer's lifetime).
1.24
On 27 September 2019, the Prime Minister announced that the government would deliver a radical simplification of the FHA program. The Department of Agriculture noted that the government's response to the review panel:
…accepted the intent of the review Panel's recommendations but held a different view on some of the remedies.
Farm Household Support Amendment Bill
1.25
The bill, introduced to the House of Representatives on 17 October 2019, proposes a number of amendments to improve the FHA, and represents the second instalment of the government's response to the review panel's recommendations. The bill:
(a)
introduces an expanded off-farm income offset, by increasing the upper limit from $80 000 to $100 000;
(b)
increases the maximum time a person is able to access the FHA program, from four years over their lifetime to four years in every specified ten year period; and
(c)
introduces a one‑off lump sum payment for recipients who exhaust 1460 days of FHA by 1 July 2020, with the capacity for the Minister's Rule to prescribe further lump sum payments, if required.
Financial impact
1.26
The February 2019 independent review of the FHA program noted that since its inception on 1 July 2014, there had been 10 054 eligible FHA recipients. As of December 2018, 5136 people were on the payment.
1.27
The bill's Explanatory Memorandum (EM) states that the measures introduced by the bill will have a financial impact of approximately $47 million through to 30 June 2023—this does not include flow-on impacts, including service delivery costs or taxation.
1.28
The following chapter considers the bill and its proposed amendments in more detail.