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Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017



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ISSN 1328-8091

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BILLS DIGEST NO. 76, 2016-17 22 MARCH 2017

Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017 Don Arthur, Anna Dunkley, Michael Klapdor, Matthew Thomas Social Policy Section

Contents

Glossary .............................................................................. 4

The Bills Digest at a glance ................................................... 5

Scrutiny of Omnibus Bills ..................................................... 6

Purpose of the Bill ............................................................... 7

Committee consideration .................................................... 8

Views on the Bill .................................................................. 8

Financial implications .......................................................... 8

Statement of Compatibility with Human Rights .................... 9

Parliamentary Joint Committee on Human Rights ................. 9

Schedules 1-3—Family payment measures .......................... 9

Purpose of the Schedules ...................................................... 9

Commencement ................................................................. 10

Background ......................................................................... 10

Previous committee consideration ...................................... 13

Policy position of non-government parties/independents ... 14

Position of major interest groups ........................................ 14

Financial implications .......................................................... 15

Key issues and provisions .................................................... 16

Concluding comments ......................................................... 19

Schedule 4—Jobs for Families Child Care Package ............... 19

Purpose of the Schedule ..................................................... 20

Commencement ................................................................. 20

Background ......................................................................... 20

Key elements of the Jobs for Families package .................... 20

Impact of the changes ......................................................... 21

Date introduced: 8 February 2017

House: House of Representatives

Portfolio: Social Services

Commencement: Various dates as set out in the table as clause 2 of the Bill (see also the analysis of each Schedule in this Bills Digest)

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at

March 2017.

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Stakeholder issues .............................................................. 21

Changed financial implications ............................................ 22

Schedules 5-8—Proportional payment of pensions outside Australia, cease pensioner education supplement, cease education entry payment, indexation ... 22

History ................................................................................ 22

Background ......................................................................... 24

Previous committee consideration ...................................... 25

Policy position of non-government parties/independents ... 26

Position of major interest groups ........................................ 26

Key issues and provisions .................................................... 26

Schedule 9—Closing energy supplement to new welfare recipients .......................................................................... 28

Background ......................................................................... 28

Rationale for closing off carbon tax compensation .............. 29

Previous committee consideration ...................................... 30

Policy position of non-government parties/independents ... 30

Position of major interest groups ........................................ 31

Financial implications .......................................................... 31

Key issues and provisions .................................................... 32

Schedule 10—stopping the payment of pension supplement after 6 weeks overseas ................................... 38

Purpose and background .................................................... 38

Policy position of non-government parties/independents ... 40

Position of major interest groups ........................................ 40

Financial implications .......................................................... 40

Key issues and provisions .................................................... 40

Schedule 11—automation of income stream review processes .......................................................................... 41

Purpose and background .................................................... 41

Policy position of non-government parties/independents ... 42

Position of major interest groups ........................................ 42

Financial implications .......................................................... 43

Key issues and provisions .................................................... 43

Schedule 12—Seasonal horticultural work income exemption......................................................................... 43

Commencement ................................................................. 43

Background ......................................................................... 44

Policy position of non-government parties/independents ... 44

Position of major interest groups ........................................ 44

Financial implications .......................................................... 45

Key issues and provisions .................................................... 45

Schedules 13-16—ordinary waiting periods, age requirements for various Commonwealth payments,

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income support waiting periods and other waiting period amendments (Rapid Activation of young job seekers) ............................................................................ 48

Schedule 13—ordinary waiting periods ............................... 48

Schedule 14—age requirements for various Commonwealth payments .................................................. 49

Schedule 15—income support waiting periods .................... 50

Schedule 16—other waiting period amendments (Rapid Activation of young job seekers) ......................................... 51

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Glossary ACCS Additional Child-Care Subsidy

ACOSS Australian Council of Social Service

ATI Adjusted taxable income

ATO Australian Taxation Office

AWLR Australian Working Life Residence

CCB Child Care Benefit

CCR Child Care Rebate

CCS Child Care Subsidy

CPI Consumer Price Index

DHS Department of Human Services

DVA Department of Veterans’ Affairs

ECEC Early Childhood Education and Care

FA Act A New Tax System (Family Assistance) Act 1999

FA Admin Act A New Tax System (Family Assistance) (Administration) Act 1999

FTB-A Family Tax Benefit Part A

FTB-B Family Tax Benefit Part B

Gold Card Repatriation Health Card—For All Conditions

Greens Australian Greens

ITAA 1936 Income Tax Assessment Act 1936

ITAA 1997 Income Tax Assessment Act 1997

Labor Australian Labor Party

MRC Act Military Compensation and Rehabilitation Act 2004

MTAWE Male Total Average Weekly Earnings

MYEFO Mid-Year Economic and Fiscal Outlook

NSSRN National Social Security Rights Network

NXT Nick Xenophon Team

PBLCI Pensioner and Beneficiary Living Cost Index

PES Pensioner Education Supplement

SS Act Social Security Act 1991

SS Admin Act Social Security (Administration) Act 1999

SWPP Seasonal Worker Preclusion Period

TA Act Taxation Administration Act 1953

VE Act Veterans Entitlements Act 1986

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The Bills Digest at a glance The Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017 (the Bill) passed the House of Representatives on 1 March 2017.

The Bill contains 18 schedules across the Social Services, Education and Training, and Employment portfolios. Most of the measures proposed are framed as budget savings measures with some of the intended savings intended to fund the child care measures proposed in Schedule 4.

This Bills Digest provides background and analysis for each of the Schedules separately. Where there are no significant changes from previously proposed provisions, the Bills Digest provides references to previous Bills Digests or analysis in other Parliamentary Library publications. Due to timing pressures related to Parliamentary debate of the Bill, Schedules 17 and 18 are not analysed in this Digest. It is intended that an updated Bills Digest that includes those schedules will be provided shortly.

As shown in the Table 1, many of the measures have been previously introduced to Parliament and many are currently proposed in other Bills before the Parliament. Table 1 sets out each of the Schedules and the most recent Bill in which the measures have been proposed.

Table 1: Schedules previously introduced

Schedule Previously introduced (most recent Bill only)

1—Payment rates Revised version of measures in the Social Services

Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016, currently before the House of Representatives.

2—Family tax benefit Part B rate Revised version of measures in the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016, currently before the House of Representatives.

3—Family tax benefit supplements Part of the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016, currently before the House of Representatives.

4—Jobs for families child care package Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2016 currently before the House of Representatives.

5—Proportional payment of pensions outside Australia Part of the Social Services Legislation Amendment (Budget Repair) Bill 2016, currently before the

House of Representatives.

6—Pensioner education supplement Part of the Social Services Legislation Amendment (Budget Repair) Bill 2016, currently before the House of Representatives.

7—Education entry payment Part of the Social Services Legislation Amendment

(Budget Repair) Bill 2016, currently before the House of Representatives.

8—Indexation Part of the Social Services Legislation Amendment

(Budget Repair) Bill 2016, currently before the House of Representatives.

9—Closing energy supplement to new welfare recipients Part of the Budget Savings (Omnibus) Bill 2016, which passed both Houses on 15 September 2016

following Government amendments which removed these measures.

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Schedule Previously introduced (most recent Bill only)

10—Stopping the payment of pension supplement after 6 weeks overseas Not previously introduced to Parliament (announced in the Mid-Year Economic and Fiscal

Outlook 2016-17, p. 194).

11—Automation of income stream review processes Not previously introduced to Parliament (announced in the Mid-Year Economic and Fiscal Outlook 2016-17, p. 192).

12—Seasonal horticultural work income exemption Not previously introduced to Parliament (announced in the Mid-Year Economic and Fiscal Outlook 2016-17, p. 195).

13—Ordinary waiting periods Part of the Social Services Legislation Amendment

(Youth Employment) Bill 2016, currently before the House of Representatives.

14—Age requirements for various Commonwealth payments Part of the Social Services Legislation Amendment (Youth Employment) Bill 2016, currently before the

House of Representatives.

15 -Income support waiting periods Part of the Social Services Legislation Amendment (Youth Employment) Bill 2016, currently before the House of Representatives.

16—Other waiting period amendments Part of the Social Services Legislation Amendment (Youth Employment) Bill 2016, currently before the House of Representatives

17—Adjustment of parental leave pay for primary carer pay and other amendments An earlier version of this measure was part of the Fairer Paid Parental Leave Bill 2016 currently before

the House of Representatives.

18—Removal of parental leave pay mandatory employer role Part of the Fairer Paid Parental Leave Bill 2016 currently before the House of Representatives.

The measures proposed in Schedules 1, 2, 3, 6, 7, 8, 13, 14 and 15 have their origin in the 2014-15 Budget. Schedules 4, 5, 16 and 17 have their origin in the 2015-16 Budget. Schedule 9 was included in the 2016-17 Budget and Schedules 10, 11 and 12 were announced in the 2016-17 Mid-Year Economic and Fiscal Outlook. The Coalition has attempted to introduce a measure similar to that proposed in Schedule 18 a number of times including whilst it was in Opposition in 2010.1

Scrutiny of Omnibus Bills The Bill proposes a wide range of amendments to various statutes in the Social Services, Education and Training, and Employment portfolios. Many of these amendments are complex. The measures proposed in Schedule 4 are the most significant changes to child care fee assistance arrangements in more than 16 years. The Bill bundles complicated, unrelated and wide-ranging measures together. This may reduce the ability of the Parliament to properly scrutinise and assess the proposed amendments.

While some of the measures have been proposed and scrutinised previously, many of these have been revised and others are completely new measures. Details of any revisions to previously proposed provisions have not been explicitly identified in the Explanatory Memorandum or in the joint departmental submission to the Senate Community Affairs Legislation Committee’s inquiry into the Bill.2

1. Parliament of Australia, ‘Paid Parental Leave (Reduction of Compliance Burden for Employers) Amendment Bill 2010 homepage’, Australian Parliament website. 2. Explanatory Memorandum, Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017; Department of Social Services (DSS), Department of Education and Training and Department of Employment, Submission to Senate Community Affairs Legislation

Committee, Inquiry into the Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, 3 March 2017.

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The Senate Scrutiny of Bills Committee has previously recommended that the Explanatory Memorandum to an Omnibus Bill should identify whether measures are new or whether they reflect a measure as it has been previously introduced on the grounds that ‘this would enable Senators and others with an interest in the matters covered in the Bill to quickly identify which measures are completely new and have not yet been considered by the Parliament’.3 The Explanatory Memorandum to this Omnibus Bill does not provide such information.

Purpose of the Bill The purpose of the Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017 (the Bill) is to amend various Acts to:

• from 1 July 2018, increase the standard fortnightly rate of Family Tax Benefit Part A (FTB-A) by $20.02 per

child, and increase the rate of Youth Allowance and Disability Support Pension for those aged under 18 years and living at home by $19.37 (Schedule 1)

• from 1 July 2017, remove eligibility for Family Tax Benefit Part B (FTB-B) for single parents from 1 January of

the calendar year in which their youngest child turns 17 (with parents aged 60 years or more and grandparent/great-grandparent carers exempt) (Schedule 2)

• from 1 July 2016, phase out the FTB-A and FTB-B end-of-year supplement amounts:

- the FTB-A supplement will be reduced from $726.35 to $602.25 for the 2016-17 financial year; to $302.95 for the 2017-18 year; and abolished from 1 July 2018 - the FTB-B supplement will be reduced from $354.05 to $302.95 for the 2016-17 financial year; to $153.30 for the 2017-18 year; and abolished from 1 July 2018 (Schedule 3) • to introduce the following elements of the Government’s Jobs for Families Child Care Package:

- a new child care fee assistance payment, the Child Care Subsidy (CCS), replacing two current payments: Child Care Benefit (CCB) and Child Care Rebate (CCR) - a new supplementary payment, the Additional Child Care Subsidy (ACCS), which provides additional financial assistance for children at risk of abuse or neglect, families experiencing temporary financial

hardship, families transitioning to work from income support, grandparent carers on income support, and low income families in certain circumstances. The ACCS partly replaces a number of current payments including Special Child Care Benefit, Grandparent Child Care Benefit and the Jobs, Education and Training Child Care Fee Assistance payment - an enhanced compliance framework. The new payments are to commence from July 2018, while some aspects of the new compliance framework will be introduced from Royal Assent (Schedule 4)

• reduce the period a pensioner can spend overseas before their payment may be reduced under the

Australian Working Life Residence proportionality rules from 26 weeks to six weeks (Schedule 5)

• cease payment of the Pensioner Education Supplement (Schedule 6)

• cease payment of the Education Entry Payment (Schedule 7)

• pause the indexation of income free areas for all working age allowances (other than student payments) and

for parenting payment single; and pause the indexation of income free areas and other means test thresholds for student payments, including the student income bank limits (Schedule 8)

• close off the Energy Supplement to new recipients of affected payments from 20 September 2017, and cease

payment of the Energy Supplement on 20 September 2017 for those who first received the Energy Supplement on or after 20 September 2016. Those in receipt of the Energy Supplement prior to 20 September 2016 who continue to satisfy eligibility criteria will still receive the payment after 20 September 2017 (Schedule 9)

• cease payment of the pension supplement once a pensioner has been outside Australia continuously for

six weeks, or when they leave Australia if departing permanently (Schedule 10)

3. Senate Standing Committee for the Scrutiny of Bills, Report, 8, 2016, The Senate, 9 November 2016, p. 461.

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• allow the Department of Human Services to automatically collect certain information from income stream

providers on a regular basis in order to conduct income reviews (Schedule 11)

• provide for a trial of an income test incentive aimed at encouraging job seekers on income support to

undertake seasonal horticultural work and payment of a $300 travel allowance if they undertake horticultural work that is more than 120 kilometres from their home (Schedule 12)

• make the following changes to the ordinary waiting period requirements:

- extend the ordinary waiting period of seven days to recipients of Parenting Payment and Youth Allowance (Other) - provide for the current exception to the ordinary waiting period to apply on the basis that a person is in severe financial hardship and that the person is experiencing a personal financial crisis, making it a

more stringent test and - clarify that the ordinary waiting period is to be served after certain other relevant waiting periods or preclusions have ended (Schedule 13) • raise, from 22 to 25 years, the eligibility age for Newstart Allowance and Sickness Allowance (Schedule 14)

• introduce a four-week waiting period for new claimants of Youth Allowance (Other) and Special Benefit who

are under 25 years of age (Schedule 15)

• require people subject to the four-week waiting period to participate in a RapidConnect Plus rapid activation

strategy (Schedule 16)

• reduce or remove access to government-funded parental leave pay for workers who receive paid primary

carer leave from their employer (Schedule 17) and

• remove any requirement for employers to administer government-funded parental leave pay (Schedule 18).

Committee consideration On 9 February 2017, the Bill was referred by the Senate to the Senate Community Affairs Legislation Committee for inquiry and report by 20 March 2017. The Committee was granted an extension and reported on 21 March 2017.4 Details of the inquiry are available from the inquiry homepage.5

The Senate Scrutiny of Bills Committee reported on some elements of the Bill, specifically Schedules 3, 4, 9 and 13.6 In particular, the Committee reiterated previous concerns and comments it had made in regards to elements of the child care changes in Schedule 4.7

Views on the Bill Public debate on the Bill has largely focused on particular Schedules, rather than the Bill as a whole. Information on the policy positions of non-government parties, independents and major stakeholders relating to particular measures is provided in the discussion of each Schedule.

Financial implications Table 2 sets out the estimated impact of each measure on the fiscal balance as detailed in the Explanatory Memorandum to the Bill.

Table 2: financial impact of the Bill over the forward estimates, 2016-17 to 2019-20 ($ million)

Schedule Title Indicative Financials

1 Payment rates -2,373.5

2 Family tax benefit Part B rate 440.6

4. Senate Community Affairs Legislation Committee, ‘Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017’, Inquiry homepage. 5. Ibid.

6. Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 2, 2017, The Senate, 15 February 2017, pp. 26-36. 7. See discussion of the Committee’s views in M Klapdor, Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2016, Bills digest, 39, 2016-17, Parliamentary Library, Canberra, 2016, pp. 18-20.

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Schedule Title Indicative Financials

3 Family tax benefit supplements 4,653.0

4 Jobs for families child care package* -1,290.9

5 Proportional payment of pensions outside Australia 213.9

6 Pensioner education supplement 201.0

7 Education entry payment 42.3

8 Indexation 69.0

9 Closing energy supplement to new welfare recipients 933.4

10 Stopping the payment of pension supplement after 6 weeks overseas 123.6

11 Automation of income stream review processes 38.1

12 Seasonal horticultural work income exemption -27.5

13 Ordinary waiting periods 189.4

14 Age requirements for various Commonwealth payments 431.3

15 Income support waiting periods 169.5

16 Other waiting period amendments -0.8

17 Adjustment of parental leave pay for primary carer pay and other amendments 491.2

18 Removal of parental leave pay mandatory employer role

*Including measures not requiring legislation, the Jobs for Families Child Care Package totals -$1,663.5.

Source: Explanatory Memorandum, Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, p. 6.

Information on the financial implications of particular measures is provided in the discussion of each Schedule.

Statement of Compatibility with Human Rights 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.8 Information on the human rights implications of particular measures may be provided in the discussion of each Schedule.

Parliamentary Joint Committee on Human Rights At the time of writing, the Parliamentary Joint Committee on Human Rights had not reported on the Bill.9

Schedules 1-3—Family payment measures Purpose of the Schedules Schedules 1-3 propose amendments to the A New Tax System (Family Assistance) Act 1999 (the FA Act), the A New Tax System (Family Assistance) (Administration) Act 1999 (the FA Admin Act), the Social Security Act 1991 (the SS Act) and the Social Services Legislation Amendment (Family Assistance Alignment and Other Measures) Act 2016 to implement the following measures:

8. The Statement of Compatibility with Human Rights can be found on pages 206 to 269 of the Explanatory Memorandum to the Bill. 9. Parliamentary Joint Committee on Human Rights, Scrutiny report, 1, 2017, The Senate Canberra, p. 53.

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• from 1 July 2018, increase the standard fortnightly rate of Family Tax Benefit Part A (FTB-A) by $20.02 per

child in the family aged up to 19, and increase the rate of Youth Allowance and Disability Support Pension for those aged under 18 years and living at home by $19.37 (Schedule 1)

• from 1 July 2017, remove eligibility for Family Tax Benefit Part B (FTB-B) for single parents from 1 January of

the calendar year in which their youngest child turns 17 (with parents aged 60 years or more and grandparent/great-grandparent carers exempt) (Schedule 2)

• from 1 July 2016, phase out the FTB-A and FTB-B end-of-year supplement amounts:

- the FTB-A supplement will be reduced from $726.35 to $602.25 for the 2016-17 financial year; reduced further to $302.95 for the 2017-18 year; and abolished from 1 July 2018 - the FTB-B supplement will be reduced from $354.05 to $302.95 for the 2016-17 financial year; reduced further to $153.30 for the 2017-18 year; and abolished from 1 July 2018 (Schedule 3).

Commencement Schedule 1 commences on 1 July 2018.

Schedule 2 commences on 1 July 2017.

Part 1 of Schedule 3 commences on 1 July 2016, Part 2 on 1 July 2017, Part 3 on 1 July 2018 and Part 4 on Royal Assent.

Background FTB-A and FTB-B are the two main forms of direct financial assistance the Commonwealth provides to families with children. Both payments are means tested to target assistance at lower-income families. FTB-A is available to all families who meet the care, residence and income test requirements.10 Different income test requirements for FTB-B restrict the payment to single parent families and couple families where one parent has a low income or is not in paid employment.11

Coalition has been attempting to implement savings measures since 2014 Since the Coalition won Government in 2013, it has proposed a range of savings measures targeting the Family Tax Benefit program. Some have passed, others have been revised, and some have stalled in the Parliament. In the 2015-16 Budget, the Government linked proposed Family Tax Benefit savings measures from the 2014-15 Budget with its Jobs for Families Child Care Package.12

2014-15 budget measures In the 2014-15 Budget, the Abbott Government proposed a range of savings measures targeting Family Tax Benefit Part A (FTB-A) and Family Tax Benefit Part B (FTB-B). These included:

• lowering the income cut-off point for FTB-B for single parents and primary earners in a couple from $150,000 per annum down to $100,000 per annum

• limiting FTB-B to families with a child under six years

• introducing a new FTB allowance for single parents on maximum rate of FTB-A who have a child aged six to twelve years, worth $750 per child, to partially makeup for the loss of access to FTB-B

• limiting the FTB-A Large Family Supplement to families with four or more children (increased from three or more children)

• maintaining FTB payments for two years, that is, they would not be indexed

• not indexing some of the FTB-A and FTB-B income test thresholds for three years

• removing the FTB-A ‘per child add-on’, a component of the FTB income test which reduced the payment withdrawal rate for those with more than one child and

10. Department of Human Services (DHS), ‘Family Tax Benefit’, DHS website, last updated 24 January 2017. 11. Ibid.

12. T Abbott (Prime Minister) and S Morrison (Minister for Social Services), Jobs for Families child care package delivers choice for families, media release, 10 May 2015.

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• reducing the FTB-A and FTB-B supplements to their 2004 values ($600 per FTB-A child and $300 per FTB-B family).13

The Government attempted to enact these measures, together with a range of other social security measures, in two Omnibus Bills: the Social Services and Other Legislation Amendment (2014 Budget Measures No. 1) Bill 2014 (the No. 1 Bill) and the Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014.14 Neither of these Bills proceeded beyond the second reading stage in the Senate, most likely because the Government was unable to secure their passage due to opposition to various measures from the Australian Labor Party (Labor), the Australian Greens (the Greens), minor parties and independent senators. Both Bills were discharged from the Notice Paper in the Senate on 28 October 2014.

On 2 October 2014, the Government reintroduced the measures in four new Bills. The family payments measures were contained in the Social Services and Other Legislation Amendment (2014 Budget Measures No. 4) Bill 2014 (the No. 4 Bill) and the Social Services and Other Legislation Amendment (2014 Budget Measures No. 6) Bill 2014 (the No. 6 Bill).15 The No. 6 Bill contained the measures that the Opposition had offered to support. The No. 6 Bill passed both Houses on 17 November 2014. The family payment measures it included were:

• the limit on the Large Family Supplement to families with four or more children

• the removal of the FTB-A per child add-on and

• the lowering of the income cut-off point for FTB-B for single parents and primary earners in a couple from

$150,000 per annum down to $100,000 per annum.

The remaining measures were included in the No. 4 Bill.

2015-16 Budget—measures linked to child care package In its 2015-16 Budget, the Abbott Government included its stalled measures and announced that it would move to abolish the Large Family Supplement altogether.16 The Government also linked the savings from the 2014-15 family payment budget measures with funding for its Jobs for Families Child Care Package.17

Measures were revised at the same time as the child care package was revised In October 2015, the proposed FTB savings measures were revised, together with a revision of the proposed child care package. In introducing the Bill containing the revised FTB measures, the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015, the Minister for Social Services, Christian Porter, stated that it would ‘supersede measures’ that had stalled in the Senate (the remaining 2014-15 budget measures).18

The savings from the measures proposed in the Bill were again linked with the 2015-16 Budget’s childcare measures.19

The revised FTB savings measures, as proposed in the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015 were:

• from 1 July 2018, increase the maximum fortnightly rate of FTB-A by $10.08 and increase by $10.44 per

fortnight the rate of Youth Allowance for those aged under 18 and living at home, and the rates of Disability

13. P Yeend and M Klapdor, ‘Family payments’, Budget review 2014-15, Research paper series, 2013-14, Parliamentary Library, Canberra, 2015, pp. 141-142. 14. Parliament of Australia, ‘Social Services and Other Legislation Amendment (2014 Budget Measures No. 1) Bill 2014 homepage’, Australian Parliament website; Parliament of Australia, ‘Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014

homepage’, Australian Parliament website. 15. Parliament of Australia, ‘Social Services and Other Legislation Amendment (2014 Budget Measures No. 4) Bill 2014 homepage’, Australian Parliament website; Parliament of Australia, ‘Social Services and Other Legislation Amendment (2014 Budget Measures No. 6) Bill 2014

homepage’, Australian Parliament website. 16. Australian Government, Budget measures: budget paper no. 2: 2015-16, p. 151. 17. T Abbott (Prime Minister) and S Morrison (Minister for Social Services), Jobs for Families child care package delivers choice for families, media

release, 10 May 2015. 18. C Porter, ‘Second reading speech: Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015’, House of Representatives, Debates, 21 October 2015, p. 11919. 19. Ibid.

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Support Pension (DSP) paid to a single recipient aged under 18 who is living in their parent’s home due to a medical condition

• from 1 July 2016:

- increase the standard rate of FTB-B by $1,000.10 per year for families whose youngest child is aged under one - reduce the rate of FTB-B for single parents with a youngest child aged 13-16 to $1,000.10 per annum (from the 2015-16 rate of $2,784.95 per annum) and remove FTB-B in respect of children aged 17-18 - reduce the rate of FTB-B for grandparent carer couples with a youngest child in their care aged 13-16 to

$1,000.10 per annum and remove FTB-B in respect of children 17-18 and - remove FTB-B for couple families (other than grandparent carers) with a youngest child aged 13 or over • phase out the FTB-A and FTB-B supplements by:

- reducing the FTB-A supplement from the 2015-16 rate of $726.35 per child to $602.25 for 2016-17, to $302.95 for 2017-18 and removing the supplement from 1 July 2018 - reducing the FTB-B supplement from the 2015-16 rate of $354.05 per family to $302.95 for 2016-17, to $153.30 for 2017-18 and removing the supplement from 1 July 2018.20

One measure was passed with Labor support After negotiations with Labor, the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015 was amended to remove all of the measures except the measure to remove FTB-B for couple families whose youngest child was aged 13 years or above (with grandparent and great-grandparent carers exempt).21 The amended Bill was passed on 30 November 2015 and the resulting Act received Royal Assent on 11 December 2015.22

Remaining measures stalled On 2 December 2015, the measures were reintroduced with some small amendments, in the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill (No. 2) 2015 (2015 No. 2 Bill).23 This Bill exempted single parents aged 60 years or over and grandparent carer couple families from the FTB-B rate reduction measures (and allowed these recipients to continue receiving FTB-B for children aged 17 or 18).

The 2015 No. 2 Bill passed the House of Representatives on 10 February 2016 and was introduced into the Senate on 22 February 2016. The No. 2 Bill was not debated in the Senate and lapsed on 17 April 2016, at prorogation of the Parliament prior to the 2016 Federal election.

2016 Bill On 1 September 2016, a new Bill, the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016 (the 2016 Bill), was introduced into the Parliament.24 The 2016 Bill contained similar provisions to the 2015 No. 2 Bill except that the commencement date was pushed back from 1 July 2016 to 1 July 2017.

This Bill has not been debated and remains before the House of Representatives.

20. M Klapdor, Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015, Bills digest, 50, 2015-16, Parliamentary Library, Canberra, 2015. 21. Parliament of Australia, ‘Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015 homepage’, Australian Parliament website. 22. Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Act 2015. 23. Parliament of Australia, ‘Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill (No. 2)

2015 homepage’, Australian Parliament website. 24. Parliament of Australia, ‘Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016 homepage’, Australian Parliament website.

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Budget Savings (Omnibus) Act 2016 changes As part of an agreement between the Government and Labor to secure passage of the Budget Savings (Omnibus) Bill 2016, an income limit of $80,000 was placed on the FTB-A supplement commencing 1 July 2016.25 This means that only families with adjusted taxable income below $80,000 are eligible to receive the FTB-A supplement.

The Government stated that despite this new limit, it would proceed with the proposal to phase out the supplements altogether via the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016.26

Another element of the agreement to secure passage of the Budget Savings (Omnibus) Bill 2016 was that the Government would not proceed with the increase in FTB-B rates for families whose youngest child is aged less than one year. This measure had been described as a new ‘baby bonus’.27

New measures The measures proposed in Schedules 1-3 of the Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017 were announced on the day the Bill was introduced. When compared with the 2016 Bill, the proposed measures essentially double the fortnightly rate increase for FTB-A, remove the reduction in FTB-B for single parents whose youngest child is aged 13-16, and no longer include the increase in FTB-B for families whose youngest child is aged under one. While the measures in the 2016 Bill were expected to save around $5.8 billion over the forward estimates, the measures in Schedules 1-3 of this Bill are expected to save around $2.7 billion.28 A significant part of the reduction in the fiscal impact between the two Bills is due to the income limit on the FTB-A supplement that was introduced by the Budget Savings (Omnibus) Act 2016 (which reduced the number of families eligible for the supplement and which was expected to provide savings of $1.6 billion over the forward estimates).29 The other major reason for the reduction in savings is the additional increase in the maximum fortnightly FTB-A rate.

Previous committee consideration The 2016 Bill, together with the Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2016, was referred to the Senate Education and Employment Legislation Committee for inquiry. The Committee tabled its report on 10 October 2016.30

The report of the Committee noted the earlier inquiries into the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015 and the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill (No. 2) 2015 by the Senate Community Affairs Committee and that the key issues held by stakeholders had been established by these inquiries.31 The Committee noted the concerns raised by stakeholders over the coupling of the savings measures in the 2016 Bill with the additional funding for the Jobs for Families Child Care Package but considered that this was justified.32 The Committee recommended both Bills be passed without amendment. Labor and Greens Senators dissented from the majority report.33

25. M Klapdor, ‘Omnibus Bill compromise to find further savings from family payments’, FlagPost, Parliamentary Library blog, 14 September 2016; Australian Parliament, ‘Budget Savings (Omnibus) Bill 2016 homepage’, Parliament of Australia website. 26. S Morrison (Treasurer) and M Cormann (Minister for Finance), Government secures support for over $6 billion in budget savings, joint media release, 13 September 2016; D Crowe, ‘Families to wear cost of budget savings deal’, The Australian, 14 September 2016, p. 1. 27. S Morrison (Treasurer) and M Cormann (Minister for Finance), Government secures support for over $6 billion in budget savings, op. cit. 28. Explanatory Memorandum, Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016,

p. 2; Explanatory Memorandum, Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, p. 6. 29. Revised Explanatory Memorandum, Budget Savings (Omnibus Bill) 2016, p. 6. 30. Senate Education and Employment Legislation Committee, Family Assistance Legislation Amendment (Jobs for Families Child Care Package)

Bill 2016 [Provisions] and the Social Services Legislation Amendment (Family Payment Structural Reform and Participation Measures) Bill 2016 [Provisions], The Senate, Canberra, 10 October 2016. 31. Ibid., p. 28. 32. Ibid., p. 29. 33. Labor Senators, Dissenting report, Senate Education and Employment Legislation Committee, Inquiry into the Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2016 [Provisions] and the Social Services Legislation Amendment (Family Payment Structural Reform and Participation Measures) Bill 2016 [Provisions], The Senate, Canberra, 10 October 2016; Australian Greens Senators, Dissenting report, Senate Education and Employment Legislation Committee, Inquiry into the Family Assistance Legislation

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The Bills Digest to the 2016 Bill provides a summary of the previous committee inquiries into the related Bills.34

Policy position of non-government parties/independents Labor has stated that it is opposed to the measures in Schedules 1-3. Shadow Minister for Families and Social Services, Jenny Macklin stated:

Labor will not support these cuts to family tax benefits, we think that the Government is going to hurt millions of Australian families with these cuts. These cuts will see some of the poorest families in Australia lose more money. If you’re a family on Family Tax Benefit Part A it will mean that you are around $200 a year per child worse off. If you’re receiving Family Tax Benefit Part B you’ll be around $350 a year worse off as a family. These are real cuts to families. It will leave a million families worse off as a result of these cuts.

35

The Greens have made critical comments on the measures in Schedules 1-3 but have not stated their position on the Bill per se. Greens spokesperson on Community Services, Senator Rachel Siewert stated:

… the Government is claiming those on FTB A will get an increase to their payment, that is not true. If you would have received the full FTB A supplement, you lose out on $8 a fortnight.

Those on FTB B may also miss out, potentially losing up to $13 a fortnight. To struggling families I would say: don’t let the Government fool you.

The Government is unrelentingly going after young families, and those relying on our social security safety net.

We will continue to scrutinise this legislation when it comes through the Senate. 36

The Greens made commitments in the 2016 Election to oppose Coalition ‘cuts to family payments’ and to actually reverse cuts that had already been made.37 In their Dissenting report to the Senate Education and Employment Committee’s inquiry into the 2016 Bill, Greens Senators recommended that the 2016 Bill be rejected.38

It is unclear what the position of the other crossbench Senators is in regards to Schedules 1-3. Senators Xenophon and Lambie have both stated concerns with the Bill in general.39

Position of major interest groups The Australian Council of Social Service (ACOSS) has stated that it is opposed to the Bill. In regards to the Family Tax Benefit measures, ACOSS Chief Executive Officer (CEO) Cassandra Goldie stated:

The so-called concessions the Government has made will be wiped out by other changes in the Bill, leaving many low-income people worse off.

Of course we all want greater support for families to get better quality childcare but it cannot be funded on the backs of some of the most disadvantaged people in our country.

Amendment (Jobs for Families Child Care Package) Bill 2016 [Provisions] and the Social Services Legislation Amendment (Family Payment Structural Reform and Participation Measures) Bill 2016 [Provisions], The Senate, Canberra, 10 October 2016. 34. M Klapdor, Social Services Legislation Amendment (Family Payment Structural Reform and Participation Measures) Bill 2016, Bills digest, 26, 2016-17, Parliamentary Library, Canberra, 2016, pp. 4-5. 35. J Macklin (Shadow Minister for Families and Social Services), Transcript of doorstop interview: Parliament House, Canberra, media release,

8 February 2017. 36. R Siewert (Australian Greens spokesperson on Community Services), Deal with crossbench tries to sneak through four week wait and other nasties, media release, 8 February 2017. 37. Australian Greens, Equality and compassion: lifting income support, Australian Greens policy document, Election 2016. 38. Australian Greens Senators, Dissenting report, Senate Education and Employment Legislation Committee, Inquiry into the Family Assistance

Legislation Amendment (Jobs for Families Child Care Package) Bill 2016 [Provisions] and the Social Services Legislation Amendment (Family Payment Structural Reform and Participation Measures) Bill 2016 [Provisions], The Senate, Canberra, 10 October 2016, p. 46. 39. ‘Xenophon Team, Lambie to vote against omnibus welfare bill’, SBS News, 14 February 2017.

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This is not the way to build a strong community - caring for each other through all stages of our lives has served our nation well. This new Bill risks weakening our social fabric.

The increase to the Family Tax Benefit Part A for families with children by $10 a week does not make up for cuts to the supplements. A sole parent with two children aged 13 and 15 will still lose between $14 and $20 per week, or around $1,000 a year.

Although this is less of a hit than under the previous proposal, it will still severely impact single parents, most of whom are struggling to keep a roof over their heads and feed their children as well as provide for them in the new school year. 40

The National Social Security Rights Network (NSSRN) stated that it was opposed to the measures:

The net impact of these changes is to reduce payments to families. Although there is an increase to the fortnightly rate of FTB-A of about $20 per fortnight for the majority of families, this is more than offset by the loss of the FTB-A supplement from 1 July 2018, currently $726 per child per year.

Single parents and single income families with pre-school and primary school age children will lose more, as they also lose the FTB-B supplement, currently $354 per year per family. Single parent families with older children in year 11 or year 12 (depending on the child’s age) will lose even more, as they lose eligibility for FTB-B entirely from the end of the year their child turns 16.

For the majority of families receiving FTB, who have household incomes under $80,000, this is a loss of income support of at least $200 per year per child, more if they are a single parent. If this Bill proceeds, the impact will be even harsher because other measures in it will further cut the incomes of the poorest families in our community.

Close to half of all families receiving FTB also receive an income support payment (such as parenting payment, carer payment or disability support pension). The closure of the energy supplement to new social security recipients will further cut the income of those households by between $228 and $366 per year (at current rates).

The NSSRN opposes these cuts. They are harsh and unfair and affect the poorest families in our community. Cuts of this kind need a very strong rationale, which the Government has not provided. 41

Other community sector groups have also criticised the measures. Benevolent Society CEO, Jo Toohey, stated:

For those relying on the aged pension [referring to other Schedules in the Bill] and family supports as their sole source of income, these cuts will hurt. They will drive older people further into poverty and will continue to entrench the disadvantage of Australia’s most vulnerable families. 42

Ms Toohey described the Bill as ‘appalling’ as it ‘pits different groups in the community against each other’.

Financial implications According to the Explanatory Memorandum to the Bill, the amendments in Schedules 1-3 will provide net savings of $2.7 billion over the forward estimates 2016-17 to 2019-20.43 The measures will see increased expenditure of $2.4 billion for the increase in the FTB-A standard rate and the related Youth Allowance/Disability Support Pension rates. This will be offset by savings of $440.6 million for the FTB-B eligibility changes, and $4.7 billion from the phasing out of the FTB-A and FTB-B supplements.44

40. Australian Council of Social Service (ACOSS), ACOSS urges Parliament to reject latest attempt to cut incomes of poorest in new Omnibus Bill, media release, 8 February 2017. 41. National Social Security Network, Submission to Senate Community Affairs Legislation Committee, Inquiry into the Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, Submission 9, 3 March 2017, p. 2. 42. Benevolent Society, The Benevolent Society concerned over proposed changes to social services legislation, media release, 8 February 2017. 43. Explanatory Memorandum, Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, p. 6. 44. Ibid.

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Key issues and provisions While the measures in Schedules 1-3 are modified versions of those previously proposed in the three ‘Family Payments Structural Reform and Participation Measures’ Bills, the key issues remain the same as those discussed in the Bills Digest for the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015.45

The key issues are:

• the measures will see rate reductions for FTB-A and FTB-B recipients, as the abolition of the end-of-year

supplements more than offsets the proposed fortnightly rate increases

• it is unclear if the new income reporting system will make the end-of-year supplements redundant and

• the measures will further complicate the family assistance payment system, despite one of the rationales

being the simplification of the system.

Rate reduction All FTB-A recipients with family income under $80,000 and all FTB-B recipients will, over time, receive reduced payments. This is because the increase in maximum FTB-A rates (proposed by Schedule 1) are more than offset by the soon-to-be-phased out FTB-A supplements (and the FTB-B supplement withdrawal is not being offset by any rate increase). FTB-A recipients with income over $80,000 have already lost eligibility for the FTB-A supplement as a result of amendments by the Budget Savings (Omnibus) Bill 2016.

The increase in fortnightly rates is equivalent to around $522 per child per annum if in receipt of the maximum rate. The FTB-A supplement is currently worth $726.35 per child per annum. This will mean a rate reduction of around $204 per child for those receiving the maximum rate.

FTB-B recipients (single parents and couple families with one low-income earner) will lose the full amount of the FTB-B supplement. Most FTB-B recipients also receive FTB-A so the impact of these measures on their income will be compounded. Single parents whose youngest child is turning 17 will also lose eligibility for the payment altogether. Based on current rates, this would amount to a loss of $3,186.45 in FTB-B for the financial year (including the end-of-year supplement). The design of the measure means that single parents would lose eligibility for FTB-B from 1 January of the year in which their youngest child turns 17, even if the child’s birthday is on 31 December of that year.

The role of the end-of-year supplements in minimising debts The supplements were not included in the FTB program introduced in 2000. They were introduced later (the FTB-A supplement in 2004 and the FTB-B supplement in 2005).46 While described at the time as an increase in the rates of FTB, the design of the supplements as lump-sums paid at the end of the financial year was mainly in response to the large number of FTB recipients who ended up with small debts. Debts arose as the vast majority of FTB recipients choose to be paid by way of fortnightly instalments during the year, rather than claiming a lump-sum at the end of the year when they lodge their tax return. When an FTB recipient is paid by instalment, they are required to estimate their adjusted taxable income (ATI) for the year of payment and the rate of FTB paid is based on their estimate. Once the financial year finishes and they lodge their tax return, their actual ATI (as assessed) is reconciled against the FTB paid to them for the year. As it is often difficult to estimate ATI over the year ahead, many families end up either underpaid (and then paid their arrears) or overpaid (thereby creating a recoverable debt).

While the supplements are included in an individual’s total FTB entitlement calculation, the value of the supplement is not paid until after the reconciliation process. As such, it can be used to offset any debts (partly or in full). Tax return payments from the Australian Taxation Office (ATO) can also be withheld to offset any debts. If any debt amount remains, fortnightly payment rates for the following year can be reduced to recover the outstanding amount (or other debt recovery actions can be taken if the person is no longer entitled to FTB). If

45. Klapdor, Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015, op. cit. 46. Family Assistance Legislation Amendment (More Help for Families—Increased Payments) Act 2004; Family and Community Services and Veterans’ Affairs Legislation Amendment (Further 2004 Election Commitments and Other Measures) Act 2005.

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the reconciliation process finds that a person has been underpaid, then any supplement entitlement will be added to the amount outstanding and paid as a top-up payment.47

The Government holds that such debts will not be an issue in the future as the ATO is introducing a ‘single touch payroll system’.48 This system is intended to automatically report payroll information to the ATO that can be shared in ‘real-time’ with the Department of Human Services (DHS), allowing DHS to make adjustments to an individuals’ FTB entitlements if there are any discrepancies with the individual’s income estimate for the year. The system is intended to be implemented from 1 July 2017, with employers with 20 employees or more required to use the system from 1 July 2018.49

There is an element of risk involved in removing the supplements before it is clear that the system will work as intended to minimise debts. Also, not all employers will be required to use the single touch payroll system meaning that many families will still be reliant on the current arrangements.

Complicated rate structure In his second reading speech to the Bill, the Minister for Social Services, Christian Porter, stated: ‘While the changes to family payments in this Bill will pay for the Jobs for Families Child Care Package, they will also simplify the Family Tax Benefit system … ’.50 While removing the FTB supplements does simplify the system, the proposed changes to FTB-B rates and the changes made via the Social Services Legislation Amendment (Family Payment Structural Reform and Participation Measures) Act 2015 and the Budget Savings (Omnibus) Act 2016 will add complexity to the rate structure and eligibility conditions for family assistance payments:

• In 2015-16 there were two different FTB-B rates available to eligible families, with a different income test

applying to single parent and couple families but with other eligibility conditions the same. As a result of recent changes, there are now different eligibility conditions for couple families and for single parent, grandparent and great-grandparent families: couple families who are not grandparent or great-grandparent carers are no longer eligible for FTB-B if their child is aged 13 or over.

• As a result of the Budget Savings (Omnibus) Act 2016, different payment rates are payable for FTB-A and

FTB-B depending on when a person commenced receiving the payments. Those eligible for FTB-A or FTB-B on 19 September 2016 can receive the Energy Supplement and can continue to receive it if they remain eligible for their FTB payment. Those who became eligible for FTB-A or FTB-B between 20 September 2016 and 19 March 2017 are eligible to receive the Energy Supplement up to 19 March 2017—they will no longer receive the Energy Supplement from 20 March 2017. Those who become eligible for FTB from 20 March 2017 will not receive an Energy Supplement.

• Also as a result of the Budget Savings (Omnibus) Act 2016, those in receipt of FTB-A with family income over

$80,000 per annum will not be entitled to the FTB-A supplement. This can mean a family with income just over $80,000 can have an FTB-A entitlement hundreds (and potentially thousands) of dollars less per annum than a family with income just under $80,000.

• The proposed changes in the Bill will add another eligibility category so that couples, single parents and

grandparent/great-grandparents and those aged 60+ will each have different eligibility criteria based on the age of their youngest child.

Key provisions of Schedule 1—Payment rates

A New Tax System (Family Assistance) Act 1999 Item 1 inserts proposed clause 7 at Part 2 of Schedule 4 of the FA Act to provide for a one-off increase in the standard per child rates of FTB-A of $521.95 (there are two rates: one for an FTB child aged under 13 years and one for an FTB child who has reached 13 years). This will increase the maximum annual rate of FTB-A for 2018-19

47. Department of Social Services (DSS), Annual report 2014-15, DSS, Canberra, p. 262. 48. S Morrison (Treasurer), C Porter (Minister for Social Services), S Birmingham (Minister for Education and Training), Transcript of joint press conference: Canberra, media release, 21 October 2015, p. 4; Budget Savings (Omnibus) Act 2016, Schedule 23. 49. Australian Tax Office (ATO), ‘Single Touch Payroll’, ATO website, last modified 22 September 2016. 50. C Porter, ‘Second reading speech: Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017’, House of

Representatives, Debates, 8 February 2017, p. 214.

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on top of the usual indexation to this rate that occurs on 1 July 2018 and is equivalent to an additional increase of $20.02 per fortnight.

The standard rate is the maximum rate of FTB-A. The increase does not apply to other FTB-A rates such as the base rate.

Social Security Act 1991 Items 3 and 4 substitute the annual and fortnightly maximum basic rates of Disability Support Pension (DSP) for recipients aged under-18, with no dependent children, considered not independent and living at home, currently set out in table item 1 of the table at Point 1066A-B1 of the SS Act with references to ‘annual linked rate’ and ‘fortnightly linked rate’ respectively. The definitions of the linked rates are inserted by item 6 as proposed points 1066A-B2 and 1066A-B3. The annual linked rate is the maximum FTB-A rate for an FTB child aged over 13 years (the amount specified in column 2 of table item 2 in clause 7 of Schedule 1 of the FA Act). The fortnightly linked rate is worked out by dividing the annual rate by 365 and multiplying the result by 14. Currently, the DSP rate for those aged under-18, not independent and living at home is $239.50 per fortnight compared to the FTB-A rate for children over 13 years of $237.86 per fortnight.51 The amendments align the rates of the two payments to ensure these DSP recipients also benefit from the proposed FTB-A rate increase.

Items 7-10 make similar amendments at point 1066B-B1 for blind DSP recipients aged under-18 in the same circumstances as the above child, to link the DSP rate for these recipients with the FTB-A rate for children over 13 years.

Items 11-16 make similar amendments at point 1067G-B2 and 1067G-B3 to link the Youth Allowance rates for those aged under-18, not considered independent and still living at home and for those aged under-18, considered independent and living in supported state care, with the FTB-A rate for children over 13 years. These Youth Allowance rates are currently the same as the rate for DSP recipients aged under-18, not independent and living at home ($239.50).

Key provisions of Schedule 2—Family Tax Benefit Part B rate

A New Tax System (Family Assistance) Act 1999 Item 1 inserts proposed subparagraphs 22B(1)(a)(ia) and (ib) into the FA Act so that FTB-B will no longer be payable for secondary school children of single parents in the calendar year these children turn 17. Single parents aged 60 years or more, and grandparent or great-grandparent carers of the relevant child are exempt from this restriction and can continue to receive FTB-B for secondary school children aged 16, 17 or 18.

Currently, for a parent/carer to be eligible for FTB-B in respect of a child aged 16 or over, the child must meet the definition of senior secondary school child at section 22B of the FA Act. This definition currently allows FTB-B to be paid in respect of children aged 16, 17 or 18 (where the calendar year in which the child turned 18 has not ended) if they meet the schooling requirements (also set out at section 22B). The new subparagraphs will amend the definition of secondary school child so that it refers to the different payment rate categories to be set out in clause 30 of Schedule 1 to the FA Act (amended by item 7). These rate categories will distinguish parents/carers of eligible children aged 13 years or over who are not members of a couple and are aged at least 60 years of age or are a grandparent/great-grandparent of the child, and parents/carers of eligible children aged 13 years or over who do not fit these criteria. Proposed subparagraphs 22B(1)(a)(ia) and (ib) will set different age limits for the definition of secondary school child depending on whether the child is under the care of a person aged at least 60 years or a grandparent/great-grandparent, and those under the care of a single parent who does not meet these criteria.

Item 7 substitutes proposed clause 30 into Schedule 1 of the FA Act setting out the different rate categories for FTB-B. There will be two different rates (one for children aged less than five years and one for older children) and four family situations which can determine eligibility for the rates:

1. family with youngest child aged under five years

2. family with youngest child aged at least five years but less than 13 years

51. Disability Support Pension recipients aged under-21 with no dependent children are also eligible for the Youth Disability Supplement of $124.70 per fortnight. DHS, A guide to Australian Government payments: 20 March-30 June 2017, DHS, Canberra, 2017, p. 15

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3. single parent/carer family with youngest child aged at least 13 years and the parent/carer is aged 60 years or more; or, single/couple family where the carer is a grandparent/great-grandparent of that youngest child

4. single parent/carer family with youngest child aged at least 13 years but less than 17 years where none of the criteria in (3) apply.

Key provisions of Schedule 3—Family Tax Benefit supplements Schedule 3 contains four Parts, the amendments in which will operate to gradually reduce the FTB-A and FTB-B supplements over two years before abolishing the supplements from 1 July 2018. Items 1-9 make amendments to the FTB-B supplement amount set out at subclause 31A(2) of Schedule 1 to the FA Act and the FTB-A supplement amount at subclause 38A(3) of Schedule 1 of the FA Act, and related provisions, to:

• reduce the FTB-B supplement from the current per family rate of $354.05 to $302.95 on 1 July 2016 (the

same rate as when it was introduced), and then further reduce to $153.30 from 1 July 201752

• reduce the FTB-A supplement from the current per child rate of $726.35 to $602.25 on 1 July 2016, and then

further reduce to $302.95 on 1 July 2017.53

From 1 July 2018, items 14 and 17 remove references to the FTB-A supplement in the method statements at clauses 3 and 25 of Schedule 1 of the FA Act which are used to calculate an individual’s FTB-A rate. Items 18- 20 remove references to the FTB-B supplement in the rules for calculating an individual’s FTB-B rates at clauses 29 and 29A of Schedule 1. Items 15 and 16 remove references to the FTB-A supplement used for calculating an individual’s maintenance income test ceiling, by repealing a method statement step at clause 24N of Schedule 1 and repealing clause 24R of Schedule 1. The maintenance income test ceiling is part of the calculation of how child support payments affect an individual’s FTB rate where there are both child support and non-child support children in the family, or where the individual has two or more child support cases.54 The maintenance income test ceiling ensures that any child support received only reduces the above base-rate amounts of FTB-A paid for the child support children.55

Concluding comments Schedules 1-3 are another attempt at presenting a more palatable range of FTB savings measures than those previously proposed by the Government, and those currently before the Parliament in a separate Bill.

Rather than reducing the rate of FTB-B for single parents with children aged 13 or over by more than $2,000 per annum (as previously proposed), the measures in Schedules 2 and 3 will allow these parents to continue to receive the standard FTB-B rate (minus the supplement) until the year in which their youngest child turns 17. This will still mean that these single parents may lose eligibility for FTB-B in the final one or two years of their youngest child’s schooling, but the cuts are smaller than those previously proposed.

The increase in FTB-A rates proposed in Schedule 1 (double those previously proposed) will partially offset the impact of phase out of the end-of-year supplements (in Schedule 3) for many FTB-A recipients. Not all FTB-A recipients will receive a benefit from the increase: those receiving less than the base rate will not receive an increase.

Phasing out the supplements carries an element of risk due to the uncertainty as to whether the ATO’s new income reporting system will significantly reduce the number of debts that arise in the reconciliation process.

Overall, the measures deliver significant savings to the Government but further complicate the family assistance system.

Schedule 4—Jobs for Families Child Care Package The Bills Digests for the Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2015 and the Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2016 provide a

52. Item 1 and item 7 of Schedule 3 to the Bill. 53. Item 2 and item 8 of Schedule 3 to the Bill. 54. DSS, ‘3.1.7.03 Maintenance income test ceiling’, Family assistance guide, version 1.192, DSS website, last reviewed 1 July 2016. 55. DSS, ‘1.1.M.22 Maintenance income test ceiling (FTB)’, Family assistance guide, version 1.192, DSS website, last updated 11 May 2015

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detailed background and analysis of the measures proposed in Schedule 4.56 There are no significant differences between the provisions in Schedule 4 and those proposed in the Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2016.

This section of this Bills Digest will only provide a brief summary of the measures, the legislative history, and a note on the changed financial implications of the measures.

Purpose of the Schedule Schedule 4 proposes amendments to the A New Tax System (Family Assistance) Act 1999 (the FA Act), the A New Tax System (Family Assistance) (Administration) Act 1999 (the FA Admin Act), the A New Tax System (Goods and Services Tax) Act 1999, the Fringe Benefits Tax Assessment Act 1986 and the Income Tax Assessment Act 1997 (ITAA 1997) to introduce the following elements of the Government’s Jobs for Families child care package:

• a new child care fee assistance payment, the Child Care Subsidy (CCS), replacing two current payments: Child

Care Benefit (CCB) and Child Care Rebate (CCR)

• a new supplementary payment, the Additional Child Care Subsidy (ACCS), which provides additional financial

assistance for children at risk of abuse or neglect, families experiencing temporary financial hardship, families transitioning to work from income support, grandparent carers on income support, and low income families in certain circumstances. The ACCS partly replaces a number of current payments including Special Child Care Benefit, Grandparent Child Care Benefit and the Jobs, Education and Training Child Care Fee Assistance payment

• an enhanced compliance framework.

Commencement The new payments are to commence from July 2018, while some aspects of the new compliance framework will commence on the day after Royal Assent.

Background The Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2015 was not debated following its introduction in the House of Representatives on 2 December 2015 and lapsed when the Parliament was prorogued on 15 April 2016. The Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2016, introduced on 1 September 2016, has also not been debated.

The Jobs for Families Package was announced in the 2015-16 Budget and is based on recommendations from the Productivity Commission’s inquiry into childcare and early childhood learning.57 The package, when announced, included an additional $3.5 billion in expenditure on child care assistance over five years.58 In December 2015, the Turnbull Government announced that it had revised the package following consultation with parents and stakeholders and following difficulties in passing savings measures from the Family Tax Benefit program in the Parliament (see Background to Schedules 1-3 above).59

Key elements of the Jobs for Families package The new CCS payment provides a subsidy rate based on a percentage of the actual fee or an hourly benchmark price (whichever is lower). The benchmark price is different for each service type. The percentage covered is determined by family income with a subsidy rate of 85 per cent of the benchmark price or actual fee for families with incomes at or below $65,710 per annum. This rate tapers by one percentage point for every $3,000 in income over this threshold to 50 per cent for family incomes at $170,710. A flat subsidy rate of 50 per cent applies for family incomes between $170,710 and $250,000 and then tapers for incomes over $250,000 until it reaches the base rate of 20 per cent of the benchmark price (for incomes at, or above, $340,000 per annum). Families with incomes over $185,000 will have their CCS entitlement capped at $10,000 per child per year.

56. M Klapdor, Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2015, Bills digest, 110, 2015-16, Parliamentary Library, Canberra, 2016; M Klapdor, Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2016, Bills digest, 39, 2016-17, Parliamentary Library, Canberra, 2016.

57. Productivity Commission (PC), Childcare and early childhood learning, Inquiry report, 73, PC, Canberra, 31 October 2014. 58. Australian Government, ‘Part 2: expense measures’, Budget measures: budget paper no. 2: 2015-16, p. 154-155. 59. S Birmingham (Minister for Education and Training) and C Porter (Minister for Social Services), Family tax reform to better support Australian children, joint media release, 2 December 2015.

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A three-part activity test determines the number of hours that can be subsidised:

• 8-16 hours per fortnight of approved activities provides up to 36 hours of CCS per fortnight

• 17-48 hours provides up to 72 hours of CCS and

• more than 49 hours of approved activities provides up to 100 hours of CCS.

For couple families, the partner with the lower number of hours of activity determines the CCS entitlement. Approved activities include work, training, study or certain other recognised activities such as volunteering, as well as participation requirements for income support payments. Families with incomes of up to $65,000, who do not meet the activity test, will be eligible to receive up to 24 hours of CCS per fortnight under a separate program known as the Child Care Safety Net.

The Child Care Safety Net will replace existing funding programs for service providers and also includes the ACCS. The ACCS will provide a top-up payment to the CCS for disadvantaged and vulnerable families.

Impact of the changes The Government estimates that around 815,600 families will receive a higher level of fee assistance under the changes compared to the current funding model; around 140,500 families will receive around the same level of assistance and around 183,900 families will receive a lower level of assistance.60 Alternative modelling by the Australian National University’s Centre for Social Research and Methods estimated 582,000 families will be better off, around 330,000 families will be worse off and 126,000 families will receive around the same level of subsidy.61

Stakeholder issues Providers, academics and interest groups are concerned that the activity test is too complex and will exclude many children from Early Childhood Education and Care (ECEC). There are also concerns at the new administrative requirements for providing assistance to children at risk of abuse and neglect. The design of the CCS payment may also lead to a decline in the real value of assistance provided to families over time, and significant child care fee increases will need to be borne by families without additional assistance from government.62

The key recommendation from child care stakeholders has been an increase in the minimum number of hours of subsidised care available to lower income families (families who would not meet the activity test requirements) from the 12 hours per week (as proposed in Schedule 4) to 15 hours per week.63 While the Government had previously been opposed to this recommendation, its responses to the Senate committee inquiries into the 2015 and 2016 Bills (both provided in February 2017) and the Department of Social Services’ and Department of Employment and Training’s submission to the Senate Community Affairs inquiry into the Bill all state that ‘the Government is considering this proposal as part of its negotiations and deliberations in preparation for Parliamentary debate’.64 This may indicate that the Government is willing to amend one of the more contentious elements of Schedule 4.

60. Department of Education and Training, Submission, no. 30, to Senate Education and Employment Legislation Committee, Inquiry into the Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2015, January 2016, pp, 24, 29. 61. B Phillips, Distributional modelling of proposed childcare reforms in Australia, ANU Centre for Social Research and Methods, Canberra, March 2016. 62. See discussion in Klapdor, Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2015, op. cit., pp. 29-45. 63. Joint group of 23 early childhood organisations, Submission to Senate Community Affairs Legislation Committee, Inquiry into the Social

Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, 3 March 2017, p. 1. 64. Department of Social Services (DSS) and the Department of Education and Training, Submission to Senate Community Affairs Legislation Committee, Inquiry into the Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, 3 March 2017, p. 4;

Australian Government, Australian Government response to the Senate Education and Employment Legislation Committee report: Inquiry into the Family Assistance Legislation Amendment (Jobs for Families Child Care Package Bill 2015 [Provisions], 9 February 2017, p. 512; Australian Government, Australian Government response to the Senate Education and Employment Legislation Committee report: Inquiry into the Family Assistance Legislation Amendment (Jobs for Families Child Care Package Bill 2016 and Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016, 9 February 2017, p. 8.

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Changed financial implications The Explanatory Memorandum to the Bill states that Schedule 4 will cost $1.29 billion over the forward estimates, with a note stating that the total Jobs for Families Child Care Package (including measures not requiring legislation) will cost $1.66 billion over the forward estimates.65

This is a significant reduction in costs from the previous Jobs for Families Bills. The Explanatory Memorandum to the Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2016 stated that $3 billion in additional expenditure would be provided to support the implementation of the package.66 The package, when announced, included an additional $3.5 billion in expenditure on child care assistance over the forward estimates.67 Each of these expenditure estimates includes a two-year period of the CCS.

Much of this reduction appears to be based on revised parameters and other variations. The 2016-17 Mid-Year Economic and Fiscal Outlook (MYEFO) stated that payments related to CCB, CCR and CCS are expected to decrease by $724 million in 2016-17 and $7.6 billion over the four years to 2019-20.68 The Government’s submission to the Senate Committee inquiry into the Bill states the downward ‘variation’ included:

- the impact of child care compliance measures that have been implemented in the past 18 months (notably the Family Day Care child swapping measure);

- a one-off major correction following a complete overhaul of the child care forward estimates model; and

- using new projection methodologies for growth in child care usage and fees, rather than a ten year rolling average. 69

Schedules 5-8—Proportional payment of pensions outside Australia, cease pensioner education supplement, cease education entry payment, indexation The measures in Schedules 5-8 were previously introduced in Social Services Legislation Amendment (Budget Repair) Bill 2016. The measures in this Bill are equivalent to those in the earlier Bill.

History The Government announced the first measure, earlier proportional payment of pensions outside Australia (Schedule 5), in the 2015-16 Budget.70 The remaining three measures were first announced in the 2014-15 Budget. These are:

• cease pensioner education supplement (Schedule 6) 71

• cease education entry payment (Schedule 7) 72 and

• pausing indexation for three years of:

- the income free areas for all working age allowances (other than student payments) and for parenting payment single and - the income free areas and other means test thresholds for student payments, including student income bank limits (Schedule 8).73

65. Explanatory Memorandum, Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, p. 6. 66. Explanatory Memorandum, Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2016, p. 4. 67. Australian Government, ‘Part 2: expense measures’, Budget measures: budget paper no. 2: 2015-16, p. 154-155. 68. Australian Government, Mid-Year Economic and Fiscal Outlook 2016-17, p. 45. The Portfolio Additional Estimates Statements stated that the

$7.6 billion decrease is in cash terms and equals a decrease of $6.2 billion in fiscal balance terms. Department of Education and Training, Portfolio Additional Estimates Statements 2016-17, p. 11. 69. Department of Social Services (DSS) and the Department of Education and Training, Submission to Senate Community Affairs Legislation Committee, Inquiry into the Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, Submission 7, 3 March

2017, p. 6.

70. Australian Government, Budget measures: budget paper no. 2 2015-16, p. 150. 71. Australian Government, Budget measures: budget paper no. 2 2014-15, p. 206. 72. Ibid., p. 197. 73. Department of Human Services (DHS), ‘Budget 2014-15: Maintain eligibility thresholds for Australian Government payments for three years’,

DHS website.

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Table 3 sets out previous Bills the measures in Schedules 5-8 have been proposed in.

Table 3: List of measures and previous Bills where the measure has appeared

Measure Previous Bills

Schedule 5—Proportional payment of pensions outside Australia. Measure removed from the Social Services Legislation Amendment (Fair and Sustainable

Pensions) Bill 2015 during its passage through the Parliament in June 2015.74

Measure reintroduced in the Social Services Legislation Amendment (Budget Repair) Bill 2016. This Bill was introduced into the House of Representatives and a second reading was moved on 1 September 2016.

Schedule 6—Cease pensioner education supplement.

Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014. This Bill was discharged from the Notice Paper on 28 October 2014.75

Reintroduced: Social Services and Other Legislation Amendment (2014 Budget Measures No. 4) Bill 2014. This Bill was introduced into the Senate on 28 October 2014 and second reading was adjourned on that date. The Bill lapsed when Parliament was prorogued for the 2016 Election.

Reintroduced: Social Services Legislation Amendment (Fair and Sustainable Pensions) Bill 2015. Measure removed during the passage of the Bill through the Parliament in June 2015.

Measure reintroduced in the Social Services Legislation Amendment (Budget Repair) Bill 2016.

Schedule 7—Cease education entry payment.

Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014.

Reintroduced: Social Services and Other Legislation Amendment (2014 Budget Measures No. 4) Bill 2014.

Reintroduced: Social Services Legislation Amendment (Fair and Sustainable Pensions) Bill 2015. Measure removed during the passage of the Bill through the Parliament in June 2015.

Measure reintroduced in the Social Services Legislation Amendment (Budget Repair) Bill 2016.

Schedule 8—Pausing indexation for three years of:

• the income free areas for all working age

allowances (other than student payments) and for parenting payment single and

Social Services and Other Legislation Amendment (2014 Budget Measures No. 1) Bill 2014 (working age payments). This Bill was discharged from the Notice Paper on 28 October 2014.

74. The Social Services Legislation Amendment (Fair and Sustainable Pensions) Bill 2015 passed both Houses on 22 June 2015 and received Royal Assent on 30 June 2015—see Social Services Legislation Amendment (Fair and Sustainable Pensions) Act 2015. 75. Senate, Bills list as at cob 15 December 2014, 2014 final edition, Senate Table Office, 2014.

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Measure Previous Bills

• the income free areas and other means test

thresholds for student payments, including student income bank limits.

Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014 (student payments).

Reintroduced: Social Services and Other Legislation Amendment (2014 Budget Measures No. 4) Bill 2014.

Reintroduced: Social Services Legislation Amendment (Youth Employment and Other Measures) Bill 2015. This Bill was negatived in the Senate at second reading.

Measure reintroduced in the Social Services Legislation Amendment (Budget Repair) Bill 2016.

Background

Proportional payment of pensions outside Australia An income support payment is ‘portable’ when a recipient can continue to receive the payment when they are overseas. Portability varies by payment type and the recipient’s circumstances. For most payments portability is temporary (usually limited to six weeks). However, in most circumstances, recipients of the Age Pension can continue to receive payment indefinitely. This is known as unlimited portability.76 A limited number of recipients of Wife Pension, Widow B Pension and Disability Support Pension also have unlimited portability.77

While income support recipients with unlimited portability can continue to receive a payment indefinitely while overseas, those who have not resided in Australia for at least 35 years (between the age of 16 and pension age) currently receive a reduced amount after they have been overseas for more than 26 weeks.

The reduction in payment is based on the period of time the person has resided in Australia between the age of 16 and pension age. This is known as their Australian Working Life Residence (AWLR). The payment rate is calculated by dividing the AWLR by 35. For example, a person who has resided in Australia for 10 years between 16 and age pension age will usually receive 10/35ths of the full means tested rate.78 This reduction in payments is known as ‘proportionality’.

Pensioner Education Supplement and Education Entry Payment

Pensioner Education Supplement The Pensioner Education Supplement (PES) helps eligible income support recipients meet some of the ongoing costs associated with study. The rationale for making the payment is to improve recipients’ later employment prospects.79

PES is not means tested and is non-taxable. Depending on their study load, eligible students receive $62.40 or $31.20 per fortnight.80 It is available to recipients of Parenting Payment (single), Disability Support Pension, Carer Payment, Widow B Pension, Widow Allowance, Wife Pension, and certain other groups of income support recipients (including recipients of some Veterans’ Affairs payments).81

76. DSS, ‘Portability of Australian income support payments’, DSS website. 77. For details on the application of portability rules see: DSS, ‘7.1.2.20 Application of Portability Rules (Portability Table)’, Guide to social security law, version 1.2226, released 4 October 2016, DSS website. 78. DHS, ‘Age Pension while travelling outside Australia’, DHS website. 79. DSS, ‘1.2.7.30 Pensioner Education Supplement (PES) - Description’, Guide to social security law, version 1.229, DSS website, last updated

2 January 2013. 80. Ibid.

81. DSS, ‘Pensioner Education Supplement’, DSS website.

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There is a separate ABSTUDY Pensioner Education Supplement available to Indigenous income support recipients.82 As the ABSTUDY Pensioner Education Supplement is not administered under the SS Act it is not affected by this measure (ABSTUDY is governed by the ABSTUDY Policy Manual).83

The National Commission of Audit noted that recipients of the PES received the payment during vacation periods as well as during study terms or semesters. The Commission recommended ‘that the Supplement only be provided to recipients during study terms or semesters.’84

As at September 2016, there were 37,717 PES recipients.85

Education Entry Payment The Education Entry Payment is a taxable lump sum payment of $208 to help recipients meet the up-front costs of education and training. It is paid once a year.86

The National Commission of Audit recommended that the Education Entry Payment be abolished, partly on the grounds that it duplicated the assistance available through the PES.87

In 2015-16, there were 68,967 recipients of the Education Entry Payment.88

Pause indexation for three years of income free areas Indexation of income free areas was explained in the Bills Digest for the Social Services and Other Legislation Amendment (2014 Budget Measures No. 1) Bill 2014:

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 [Consumer Price Index] CPI. The working age income support allowance payments that use this income test are Newstart Allowance, Widow Allowance, Partner Allowance and Sickness Allowance.

89

Since that Bills Digest was published the income free areas have been indexed. The current income test free area is $104 per fortnight; payments are reduced by 50 cents for each dollar between $104 and $254, and $75 plus 60 cents for each dollar over $254.90 Further background about the indexation of income free areas is available in the Bills Digest for the Social Services and Other Legislation Amendment (2014 Budget Measures No. 1) Bill 2014.91

Previous committee consideration

Senate Community Affairs Legislation Committee On 15 September 2016, the Senate referred the Social Services Legislation Amendment (Budget Repair) Bill 2016 to the Senate Community Affairs Legislation Committee for inquiry and report. The Committee reported in October 2016.92

82. DSS, ABSTUDY policy manual, DSS, 1 January 2016, pp. 237-240. 83. Ibid.

84. National Commission of Audit, Towards responsible government: the report of the National Commission of Audit, phase two, National Commission of Audit, Canberra, March 2014, pp. 107-108. 85. DSS and the Department of Education and Training, Submission to Senate Community Affairs Legislation Committee, Inquiry into the Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, Submission 7, 3 March 2017, p. 9. 86. DSS, ‘1.2.7.60 Education Entry Payment (EdEP) - Description’, Guide to social security law, version 1.229, DSS website, last updated

2 January 2014. 87. National Commission of Audit, op. cit., p. 107. 88. Department of Social Services (DSS) and the Department of Education and Training, Submission to Senate Community Affairs Legislation

Committee, Inquiry into the Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, 3 March 2017, p. 9. 89. P Yeend and L Buckmaster, Social Services and Other Legislation Amendment (2014 Budget Measures No. 1) Bill 2014, Bills digest, 14, 2014- 15, Parliamentary Library, Canberra, p. 12. 90. DHS, ‘Income test for Newstart Allowance, Partner Allowance, Sickness Allowance and Widow Allowance’, DHS website, 20 March 2017. 91. Yeend and Buckmaster, op. cit., p. 12. 92. Senate Community Affairs Legislation Committee, ‘Social Services Legislation Amendment (Budget Repair) Bill 2016’, Inquiry homepage.

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The Committee made two recommendations, that the Bill be passed and that it be amended to include transitional arrangements for current recipients of the Pensioner Education Supplement, to enable them to complete their education or training course.93

In their Dissenting report, Labor Senators rejected the majority report’s recommendations and recommended that the Senate reject the Bill.94 Greens Senators also recommended that the Bill not be passed.95

Senate Standing Committee for the Scrutiny of Bills The Senate Standing Committee for the Scrutiny of Bills had no comment on the measures proposed in the 2016 Bill or the 2015 Bill. 96 The Committee had no comment on Schedules 5 to 8 of the current Bill.97

Policy position of non-government parties/independents In their dissenting reports on the Social Services Legislation Amendment (Budget Repair) Bill 2016 to the Senate Community Affairs Legislation Committee, Labor and Greens Senators recommended that the Senate reject the Bill.

Position of major interest groups All of the measures in these schedules are savings measures. Much of the criticism from interest groups relates to the idea that the savings should come at the expense of people who are on low incomes.

As these measures have all been introduced in earlier Bills, interest groups have outlined their positions in previous submissions. A number of interest groups made submissions on the Social Services Legislation Amendment (Budget Repair) Bill 2016 Bill.98 None of the interest groups making a submission on the 2016 Bill indicated support for any of the measures in their current form.

Key issues and provisions

Schedule 5—Proportional payment of pensions outside Australia This measure was outlined in the Parliamentary Library’s Budget Review 2015-16:

While most income support payments can only be paid for a limited period of time if a recipient is overseas (known as the portability of the payment), the Age Pension, Widow B Pension, Wife Pension and the Disability Support Pension (in special circumstances) can continue to be paid while a person is overseas indefinitely and even where an eligible pensioner chooses to reside in another country. However, if a pensioner is overseas for a period longer than 26 weeks, their payment rate may be reduced to a proportion of the time they spent in Australia between the age of 16 years and the age pension age. This period is known as their Australian Working Life Residence (AWLR). Those with less than 35 years AWLR will, after 26 weeks overseas, have their payment reduced to a rate equivalent to the proportion of 35 years their AWLR represents. For example, a person with 16 years of AWLR will receive 46 per cent of the rate otherwise payable if they resided in Australia. Those with 35 years or more AWLR residence will not have their payment reduced.

The Budget proposes to commence payment of the proportionalised rate earlier—after six weeks overseas rather than 26 weeks … Pensioners overseas at the time of the measure’s commencement will not be affected unless they return to Australia and make another trip overseas. The measure follows on from an increase in the AWLR required to receive a full pension rate from 25 years to 35 years which commenced on 1 July 2014.

99

93. Senate Community Affairs Legislation Committee, Social Services Legislation Amendment (Budget Repair) Bill 2015 [Provisions], The Senate, Canberra, February 2016, p. vii. 94. Ibid., p. 20. 95. Ibid., p. 24. 96. Senate Standing Committee for the Scrutiny of Bills, Alert digest, 1, 2016, The Senate, 3 February 2016, p. 35; Senate Standing Committee for

the Scrutiny of Bills, Alert digest, 6, 14 September 2016, The Senate, Canberra, p. 31. 97. Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 2, 2017, op. cit. 98. Senate Standing Committees on Community Affairs, Social Services Legislation Amendment (Budget Repair) Bill 2016, Submissions received by

the Committee. 99. M Klapdor, ‘Pensions’, Budget review 2015-16, Research paper series, 2014-15, Parliamentary Library, Canberra, May 2015, pp. 143-145.

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The measure achieves savings by reducing the period of time some pensioners can receive the full means tested rate of payment while they are overseas from 26 weeks to six weeks. It affects recipients of the Age Pension and a limited number of recipients of Widow B Pension, Wife Pension, and Disability Support Pension who have unlimited portability and who have resided in Australia for less than 35 years between the age of 16 and age pension age.

Amendments to the Social Security Act 1991 Items 1-4 of Schedule 5 of the Bill apply the measure by omitting references to ‘26 weeks’ and substituting references to ‘6 weeks’ in sections referring to proportionality (see Table 4). Item 5 is an application provision which provides that the amendments only apply to periods of absence from Australia starting on or after the Schedule commences.

Table 4: Amendments to the Social Security Act 1991

Item 1: Subsection 1214(1) (note 2) Payments that are portable with no time limit—a consequential amendment is made to Note 2 to change the time period to ‘6 weeks’.

Item 2: Paragraph 1220A(a) Proportionality—age pension rate

Item 3: Paragraph 1220B(1)(a) Proportionality—Disability Support Pension rate for a severely disabled person

Item 4: Paragraph 1221(1)(a) Proportionality—wife pension and widow B pension rate for entitled persons

Schedule 6—Cease pensioner education supplement Under Schedule 6 of the Bill, the Pensioner Education Supplement will cease. Schedule 6 amends the SS Act, the Social Security (Administration) Act 1999 (the SS Admin Act), the FA Act, the Farm Household Support Act 2014 and the ITAA 1997. Item 17 of Schedule 6 repeals Part 2.24A of the SS Act which regulates the Pensioner Education Supplement.

Schedule 7—Cease Education Entry payment Under Schedule 7 of the Bill the Education Entry Payment will cease. The Schedule amends the SS Act, the SS Admin Act, the Veterans’ Entitlements Act 1986 (VE Act), the Farm Household Support Act, the Income Tax Assessment Act 1936 (ITAA 1936), the ITAA 1997 and the Taxation Administration Act 1953.

Item 3 of Schedule 7 of the Bill repeals Part 2.13A of the SS Act which currently regulates the education entry payment.

Other than the delayed commencement of the measure, there are no differences between the amendments proposed by Schedules 6 and 7 of this Bill and Schedules 6 and 7 of the Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014. According to the Bills Digest for that earlier Bill:

Since its introduction, the [Education Entry Payment] has been aimed at aiding people on income support to meet the one-off costs of commencing an education course such as entry fees, transport costs and books. The removal of the [Education Entry Payment] will make it financially harder for recipients of an income support payment to commence study. Study has been regarded as a desirable activity for income support recipients as it is considered to enhance their capacity to self support. The cancellation of the [Education Entry Payment] will save money, but, as with the cessation of the PES, it may also see some income support recipients ceasing their study or choosing not to undertake study.

100

Schedule 8—Indexation Schedule 8 of the Bill amends the SS Act to:

100. C Ey, M Klapdor, M Thomas and P Yeend, Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014, Bills digest, 16, 2014-15, Parliamentary Library, Canberra, p. 32.

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• pause the indexation of income free areas for all working age allowances (other than student payments) and

for parenting payment single; and

• pause the indexation of income free areas and other means test thresholds for student payments, including

the student income bank limits.

This measure was previously introduced as part of the Social Services Legislation Amendment (Youth Employment and Other Measures) Bill 2015.101 As the Bills Digest for that Bill explained:

These means test levels are usually adjusted once a year (on either 1 January or 1 July) in line with movements in the CPI. Pausing indexation (that is, not adjusting the amounts) is a simple way of finding budget savings without directly cutting benefits or limiting eligibility. The threshold amounts will decline in real value over time and savings arise as payment rates are reduced as recipients’ income and assets gradually increase beyond the relevant thresholds.

102

This measure is explained in the Bills Digests for the Social Services and Other Legislation Amendment (2014 Budget Measures No. 1) Bill 2014 and the Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014.103

Schedule 9—Closing energy supplement to new welfare recipients Schedule 9 proposes amendments to the Social Security Act 1991 (the SS Act), the Farm Household Support Act 2014, the Veterans’ Entitlements Act 1986 (the VE Act), the Military Rehabilitation and Compensation Act 2004 (the MRC Act) and the Budget Savings (Omnibus) Act 2016 to:

• close off entitlement to the Energy Supplement to new recipients of affected payments from

20 September 2017 and

• cease payment of the Energy Supplement on 20 September 2017 for those who first received the Energy

Supplement on or after 20 September 2016.

Those in receipt of the Energy Supplement prior to 20 September 2016 who continue to satisfy eligibility criteria will still receive the payment after 20 September 2017.

This measure was announced in the 2016-17 Budget with the savings intended to be directed towards funding the National Disability Insurance Scheme (NDIS).104 The measure was previously included in the Budget Savings (Omnibus) Bill 2016.105 That Bill was amended before it was passed so that the amendment applied only to new Family Tax Benefit recipients and new Commonwealth Seniors Health Card holders. The Bills Digest to the Budget Savings (Omnibus) Bill 2016 provides background and analysis of the measures as introduced.106

Background

Energy Supplement The Energy Supplement is paid to all recipients of social security income support payments (such as the Age Pension and Newstart Allowance), to recipients of Family Tax Benefit, to recipients of veterans’ payments (such as the Service Pension, Disability Pension and War Widow/Widower’s Pension), to recipients of the Farm Household Support Allowance and to holders of a Commonwealth Seniors Health Card and some holders of a Department of Veterans’ Affairs (DVA) Repatriation Health Card - For All Conditions (Gold Card). Rates of the Energy Supplement are based on the payment to which it is attached and range from $91.25 per annum for Family Tax Benefit Part A (child under 13 years) to $559.00 per annum for veterans receiving the Special Rate of Disability Pension. The Energy Supplement is generally paid fortnightly with the attached payment.

101. The last time it was introduced was in the Social Services Legislation Amendment (Budget Repair) Bill 2016. 102. M Klapdor and M Thomas, Social Services Legislation Amendment (Youth Employment and Other Measures) Bill 2015, Bills digest, 16, 2014- 15, Parliamentary Library, Canberra, p. 15. 103. Yeend and Buckmaster, op. cit., pp. 11-14; Ey, et al, op. cit., pp. 11-18. 104. Australian Government, Budget measures: budget paper no. 2: 2016-17, pp. 143-144. 105. Parliament of Australia, ‘Budget Savings (Omnibus) Bill 2016 homepage’, Australian Parliament website. 106. N Gupta et al, Budget Savings (Omnibus) Bill 2016, Bills digest, 7, 2016-17, Parliamentary Library, Canberra, 2016, pp. 68-81.

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The Energy Supplement was introduced from 2013 as part of the Clean Energy Household Assistance Package—a package of payments and supports intended to offset the impact of the carbon price on welfare recipients and those on low incomes.107 Most other households received compensation at the same time through income tax changes.108 Welfare recipients initially received a one-off lump sum payment, called the Clean Energy Advance, in May or June 2012, prior to the carbon pricing scheme commencing on 1 July 2012.109 The Clean Energy Supplement, as it was originally named, was intended as ongoing support for increased costs arising from the carbon price. Then Minister for Families, Housing, Community Services and Indigenous Affairs, Jenny Macklin, stated the Government was ‘directing revenue raised from putting a price on carbon to Australian families and pensioners through an increase to their payments’.110 The increase in payments was intended to be ‘permanent and indexed, so that payments keep pace with the cost of living now and into the future’, and ‘… greater than the average expected price increase from putting a price on carbon’.111

The value of the Clean Energy Supplement was set at around 1.7 per cent of the basic rate of the payment to which it was attached (the expected price impact of the carbon price—a 0.7 per cent increase—plus an additional one per cent). As most welfare payments are adjusted regularly in line with price movements, as measured by the Consumer Price Index (CPI), special provisions were put in place for the adjustments that took place immediately after the Clean Energy Supplement was introduced.112 These provisions effectively removed the expected impact of the carbon price (a 0.7 per cent increase in the CPI) from any CPI adjustment of the payments the Clean Energy Supplement was attached to. This meant that this 0.7 per cent CPI impact of the carbon price was to be delivered via the Clean Energy Supplement, not through the indexation of the attached payments. Taking this adjustment into account, the Clean Energy Supplement was a 1.0 per cent real increase in the value of most payment rates.

Abbott Government changes During the 2013 election, the Coalition committed to abolishing the carbon price while keeping the compensation measures that formed part of the Household Assistance package.113 However, after winning the election and repealing the carbon price in 2014, the Government made a number of changes to the package, including renaming the Clean Energy Supplement the ‘Energy Supplement’, ceasing indexation of the payment and abolishing some minor supplementary payments.114

Payment of the Energy Supplement The Energy Supplement is generally paid together with the regular payment it is attached to (usually fortnightly). However, pensioners, allowance recipients and Family Tax Benefit recipients can elect to receive the payment on a quarterly basis.115 Payments of the Energy Supplement to Commonwealth Seniors Health Card holders and veterans’ Gold Card holders can only be made quarterly. Family Tax Benefit recipients who choose to receive their payment as an annual lump sum will receive the Energy Supplement on an annual basis.

For means tested payments such as pensions, allowances and Family Tax Benefit, it is included in the rate that can be reduced under any applicable income or assets test.

Rationale for closing off carbon tax compensation In his second reading speech for the Bill the Minister for Social Services, Christian Porter, stated:

107. P Yeend and L Buckmaster, Clean Energy (Household Assistance Amendments) Bill 2011, Bills digest, 58, 2011-12, Parliamentary Library, Canberra, 21 November 2011 108. K Swoboda, Clean Energy (Income Tax Rates Amendments) Bill 2011 [and] Clean Energy (Tax Laws Amendments) Bill 2011, Bills digest, 65, 2011-2012, Parliamentary Library, Canberra, 27 October 2011. 109. DSS, ‘1.2.12.10 Clean Energy Advance (CEA) - description’, Guide to social security law, version 1.229, DSS website, last reviewed

20 March 2017. 110. J Macklin, ‘Second reading speech: Clean Energy (Household Assistance Amendments) Bill 2011’, House of Representatives, Debates, 13 September 2011, p. 9858. 111. Ibid. 112. Explanatory Memorandum, Clean Energy (Household Assistance Amendments) Bill 2011, pp. 30-34. 113. T Abbott (Leader of the Opposition), Address to the NSW Liberal Party State Council, Central Coast, speech, 1 June 2013. 114. Social Services and Other Legislation Amendment (2014 Budget Measures No. 6) Act 2014; Social Services Legislation Amendment (Low

Income Supplement) Act 2015. 115. DSS, ‘3.15.2 ES - Qualification & Payability’, Guide to social security law, version 1.229, DSS website, last reviewed 20 March 2017.

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The carbon tax was repealed from 1 July 2014. The Government does not consider that it is reasonable to continue to compensate people in the form of the Energy Supplement for a tax that no longer exists, particularly people who only started receiving income support after the carbon tax was abolished. 116

In his media release on the budget measure, the Minister stated:

The carbon tax compensation measures were introduced to make up for the expected cost on individuals and to mitigate what would otherwise have been long-term electricity price increases under Labor's carbon tax which has since been abolished. The compensation for long-term electricity price increases is no longer necessary for new entrants to the welfare system.

117

The Minister has not explained why current recipients would continue to receive the compensation payments, or why other components of the compensation package would remain (such as the income tax cuts).

This measure also runs counter to the Coalition’s 2013 Election commitment to keep the compensation measures, despite removing the carbon price.118

Previous committee consideration The Senate Economics Legislation Committee (Economics Committee) conducted an inquiry into the Budget Savings (Omnibus) Bill 2016.119 In regards to the Energy Supplement measure, the Economics Committee report noted concerns that had been raised around all of the welfare measures in that Bill and was ’cognisant that these measures will adversely affect the welfare benefits that some people may receive in the future’.120 However, the Economics Committee supported all of the measures, including the Energy Supplement measures, stating: ‘the committee considers that these measures will contribute to greater consistency across different welfare entitlements and improve the sustainability of the welfare system in the longer term’.121

Policy position of non-government parties/independents Labor has stated that it is opposed to the Bill. In regards to Schedule 9, Shadow Minister for Families and Social Services Jenny Macklin stated:

The Turnbull government also wants to abolish the energy supplement … That is a cut of $1 billion that will come out of the pockets of pensioners, people with disability, carers and Newstart recipients. This cut was first announced in the 2016 budget, so the Prime Minister cannot actually blame the member for Warringah for this one. If the Prime Minister gets his way, single pensioners will be $14.10 a fortnight worse off as a result of these cuts to the energy supplement. That is around $365 a year worse off. Couple pensioners will be $21.20 a fortnight worse off—that is around $550 a year worse off. This supplement was designed to help pensioners and other social security recipients with the cost of electricity and gas. Now the Turnbull government wants to scrap it.

Let us be clear: this cut will have a big impact on the most vulnerable members of our community—Australians on Newstart. Labor believes that Newstart is already too low. The Newstart payment for a single person is equivalent to just 28 per cent of the average wage. If the energy supplement is abolished, someone on Newstart will be $4.40 a week or $220 a year worse off. ANU's David Plunkett estimates that new recipients of Newstart will be around $3.60 a week worse off than had the energy supplement not been introduced in the first place. To put it another way, the Turnbull government is actually proposing a cut in real terms to Newstart. That is what everyone over

116. C Porter, ‘Second reading speech: Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017’, House of Representatives, Debates, 8 February 2017, p. 217. 117. C Porter (Minister for Social Services), Real money for a real commitment to the NDIS, media release, 3 May 2016. 118. Abbott, Address to the NSW Liberal Party State Council, Central Coast, op. cit. 119. Senate Economics Legislation Committee, Inquiry into the Budget Savings (Omnibus) Bill 2016, Inquiry homepage. 120. Senate Economics Legislation Committee, Inquiry into the Budget Savings (Omnibus) Bill 2016, The Senate, Canberra, 14 September 2016,

p. 40.

121. Ibid.

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there is going to be voting for. If you vote this, you are cutting Newstart in real terms. That is what this legislation means. 122

The Greens have stated that they will oppose the Bill in its entirety. In their Dissenting Report to the Budget Savings (Omnibus) Bill 2016, Greens Senators stated that the Energy Supplement measure was an ‘unfair cut that will hurt the most vulnerable’.123 They were also concerned about the impact on Newstart Allowance recipients stating: ‘The tragically low rate of Newstart is a disgrace. Further attempts to cut income support reflect a complete disregard for the real needs of vulnerable Australians, and the importance of a social safety net to our society’.124

It is unclear what the position of the Nick Xenophon Team is on the measures in Schedule 9. In regards to the measure in the Budget Savings (Omnibus) Bill 2016, Nick Xenophon Team MP Rebekha Sharkie stated:

Admittedly, according to simple logic, if there is no longer a carbon tax then the carbon tax compensation—the energy supplement and single income family supplement—should eventually be phased out. However, this simple logic ignores the effect that the removal of these supplement payments would have on our most disadvantaged communities. In addition to the basic social compassion there are also good economic arguments for ensuring that income supplement payments keep Australians out of poverty. Income and wealth inequality is rising in Australia, which is putting pressure on the demand side of the economy. The poorest in our society must by necessity spend a greater proportion of their incomes on goods and services than the richer end of the income distribution.

Businesses also require consumers to purchase their products in order to prosper. Given the continued uncertainty and weakness of global demand, it would seem a highly inauspicious time to be placing more pressure upon Australian businesses by deliberately cutting social security to the poorest and thus domestic demand. 125

Senator Lambie previously opposed the Budget Savings (Omnibus) Bill 2016.126

Senator Leyonhjelm has indicated that he supports all of the savings measures in the Bill.127

It is unclear what the position of Pauline Hanson’s One Nation Party is on Schedule 9.

Position of major interest groups The Australian Council of Social Service (ACOSS) is opposed to the measure stating that it will ‘cut between $4-$7 a week from people on the lowest incomes, including pensioners, students, families, and people locked out of paid work’.128

The Benevolent Society is also opposed to the measure with CEO Jo Toohey stating:

One of the most concerning cuts is the abolition of the energy supplement. We know that utility bills are a source of distress and financial hardship for people receiving the full age pension and young families struggling to make ends meet. We also know that older people, young and vulnerable families budget very carefully with their use of gas and electricity and that some people turn off their heating in the winter in order to save money.

129

Financial implications According to the Explanatory Memorandum to the Bill, the measures in Schedule 9 are expected to provide savings of $933.4 million over the forward estimates.130

122. J Macklin, ‘Second reading speech: Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017’, House of Representatives, Debates, 27 February 2017, p. 35. 123. Australian Greens, Dissenting report, Senate Economics Legislation Committee, Inquiry into the Budget Savings (Omnibus) Bill 2016, The Senate, Canberra, 14 September 2016, p. 59. 124. Ibid., p. 61. 125. R Sharkie, ‘Second reading speech: Budget Savings (Omnibus) Bill 2016’, House of Representatives, Debates, 14 September 2016, p. 831. 126. J Lambie, ‘Second reading speech: Budget Savings (Omnibus) Bill 2016’, Senate, Debates, 15 September 2016, p. 1162. 127. R Lewis, ‘Porter “testing” crossbench waters on omnibus bill’, The Australian, 24 February 2017, p.2. 128. Australian Council of Social Service, ACOSS urges Parliament to reject latest attempt to cut incomes of poorest in new Omnibus Bill, media

release, 8 February 2017. 129. Benevolent Society, The Benevolent Society concerned over proposed changes to social services legislation, media release, 8 February 2017. 130. Explanatory Memorandum, Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, p. 6.

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Key issues and provisions

Who will be affected The Department of Social Services told a Senate Estimates hearing on 2 March 2017 that, by 30 June 2020, 1.7 million income support and DVA clients would not receive the Energy Supplement as a result of the measures in Schedule 9.131

For the previous Omnibus Bill, the Government expected around 2.2 million people would be affected by the closure of the Energy Supplement to new recipients over the forward estimates (it is unclear if this number included those in receipt of veterans’ payments or eligible cardholders).132 Around 6.5 million people would continue to receive the Energy Supplement under the grandfathering provisions.133

Newstart Allowance recipients are likely to be one of the main payment recipient categories affected as there is a large turnover in the number of people in receipt of this payment—in the period between 1 October 2014 and 30 September 2015, there were 419,459 entries onto Newstart Allowance and 266,519 exits.134 Many Newstart Allowance recipients will move on and off the payment as they move to and from short-term employment. Under the proposed changes, those that are currently in receipt of an eligible payment who exit income support, even for a brief period, would no longer be eligible for the Energy Supplement.

The Department of Social Services provided a breakdown of the numbers affected over the forward estimates to June 2020 by payment type:

• ABSTUDY—6,524

• Age Pension—403,236

• Austudy—42,478

• Bereavement Allowance—173

• Carer Payment—105,628

• Disability Support Pension—109,327

• Newstart Allowance—472,962

• Parenting Payment Partnered—66,488

• Parenting Payment Single—138,894

• Sickness Allowance—7,935

• Special Benefit—12,443

• Widow Allowance—2,637

• Youth Allowance (Student)—199,338

• Youth Allowance (Other)—144,053

• Department of Veterans’ Affairs customers—18,626. 135

The adequacy of allowance payment rates During the debate on the Budget Savings (Omnibus) Bill 2016, one of the key concerns was the impact that the loss of the Energy Supplement would have on allowance payment recipients. This was partly because Newstart

131. Senate Community Affairs Legislation Committee, Proof committee Hansard, 2 March 2017, p. 81. 132. Senate Community Affairs Legislation Committee, Official committee Hansard, 6 May 2016, p. 127. 133. Ibid., p. 128. 134. DSS, ‘DSS Demographics September 2016’, data.gov.au website. 135. C Halbert (Group Manager, Payments Policy, Department of Social Services), Evidence to Senate Community Affairs Legislation Committee,

Inquiry into the Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, 9 March 2017, p. 59; Senate Community Affairs Legislation Committee, ‘Customer numbers affected by closure of energy supplement to new welfare recipients excluding FTB-B customers’, document tabled by Department of Social Services at Canberra public hearing 9 March 2017, Inquiry into the Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, The Senate, 2017.

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Allowance recipients are likely to be one of the most affected groups (see section above) but mainly because of an ongoing debate over whether allowance payment rates are adequate and should be subject to rate cuts.

As the Parliamentary Library noted in its 2013 Briefing Book for the 44th Parliament, there is widespread agreement that allowance payments are too low.136 A Coalition-chaired Senate committee inquiry found in 2012 that the payment rate for allowances was inadequate and impeded income support recipients’ ability to meet their basic costs of living over the longer term.137

Despite the concern from welfare, community and business groups at the low-rate of allowance payments, and a long-running campaign to increase rates, the Government is reducing the level of assistance provided to these payment recipients by closing off the Energy Supplement. New allowance payment recipients will not only be receiving $120-$250 less per year (depending on their age and family circumstances); they also miss out on the Income Support Bonus, a lump sum payment that was paid twice annually to allowance, student assistance and Parenting Payment recipients. The Income Support Bonus, worth $185.60 per year for each member of a couple and $223.00 per year for singles, was abolished for all recipients from 20 September 2016.138 Amendments were made to remove this small supplementary payment at the time the minerals resource rent tax (mining tax) was repealed in 2014.139

Indexation issue means many worse off than had the carbon price compensation never been introduced As noted in the ‘Background’ section, at the time the Energy Supplement commenced, special indexation arrangements effectively removed the expected impact of the carbon price (a 0.7 per cent increase in the CPI) from any CPI adjustment of the payments to which the Clean Energy Supplement was attached. This meant that this 0.7 per cent CPI impact of the carbon price was delivered via the Clean Energy Supplement, not through the indexation of the attached payments. As such, the basic payment rate of many of the attached payments was not increased by as much as they would have, had the Energy Supplement not being introduced—and this has had a flow-on effect where subsequent rate adjustments have been based on a lower base rate.

The consequence of this is that many of the new payment recipients not eligible for the Energy Supplement will be worse-off than had the Energy Supplement never been introduced—the basic rate of their payment will be lower than the basic rate of payment would have been without the 2013 indexation arrangements. This issue affects those payments indexed to CPI-only: primarily allowance payments, Parenting Payment Partnered, some transitional-rate pensions and Family Tax Benefit. Most pensions and Parenting Payment Single are not affected in the same way as a result of a different indexation process. Pensions are indexed to both CPI and another index, the Pensioner and Beneficiary Living Cost Index (PBLCI), and are also benchmarked to a percentage of Male Total Average Weekly Earnings (MTAWE). Parenting Payment Single is indexed to CPI and benchmarked to a percentage of MTAWE. In 2013, these payments were adjusted according to the MTAWE benchmark rather than CPI indexation. As a result, they were not affected by the 0.7 per cent CPI adjustment.

Former policy analyst with the Department of Social Security (and successor departments), David Plunkett, illustrated the immediate impact of 2013 indexation adjustment in his submission to the Senate Economics Committee inquiry into the Budget Savings (Omnibus) Bill 2016. The chart below shows Newstart Allowance rates in March 2013: the first column shows the rate prior to indexation, the second column shows the rate if normal CPI-indexation had occurred, and the third shows the actual rate with the two Clean Energy Supplement components (the 0.7 per cent inflation component deducted from the normal CPI indexation and the additional one per cent component):

136. M Klapdor, ‘Adequacy of income support payments’, Briefing book: key issues for the 44th Parliament, Parliamentary Library, Canberra, 2013, p. 76. 137. Senate Education, Employment and Workplace Relations References Committee, The adequacy of the allowance payment system for jobseekers and others, the appropriateness of the allowance payment system as a support into work and the impact of the changing nature of

the labour market, The Senate, Canberra, November 2012, pp. 50, 54. 138. Department of Human Services (DHS), ‘Income Support Bonus’, DHS website, last updated 7 March 2017. 139. Minerals Resource Rent Tax Repeal and Other Measures Act 2014. See also, T Dale, K Swoboda, K Sanyal, B Pulle and M Klapdor, Minerals

Resource Rent Tax Repeal and Other Measures Bill 2013, Bills digest, 27, 2013-14, Parliamentary Library, Canberra, 9 December 2013.

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Figure 1: Impact of 2013 indexation adjustment on Newstart Allowance rates

Source: D Plunkett, Submission to the Senate Economics Legislation Committee, Inquiry into the Budget Savings (Omnibus) Bill 2016, Attachment A, September 2016.

As can be seen, the rate after the normal indexation process is higher than the actual rate on 20 March 2013 minus the Clean Energy Supplement (comparing the second and third blue columns). With subsequent indexation adjustments being based on this lower base rate, many payments are now significantly lower than they would have been had normal indexation occurred:

Table 5: Fortnightly payment rates compared to those if Energy Supplement never introduced, as at 20 September 2016

Payment Current rates without Energy

Supplement

Rates if Energy Supplement never introduced

Single Newstart Allowance, no children

$528.70 $532.30

Single Newstart allowance, with dependent children

$571.90 $575.90

Partnered Newstart allowance (each)

$477.40 $480.60

Youth Allowance, 18+, at home $285.20 $287.00

Youth Allowance, 18+, away from home

$433.20 $436.20

Source: D Plunkett, Submission to the Senate Economics Legislation Committee, Inquiry into the Budget Savings (Omnibus) Bill 2016, Attachment C, September 2016.

Table 5 above shows that a single Newstart recipient will be around $94 a year worse-off without the Energy Supplement, than if the compensation payment had never been introduced and indexation had occurred as normal.

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Plunkett has argued that the effect of this indexation issue combined with the loss of the Energy Supplement, means that new income support recipients will be subject to a ‘double penalty’.140 New recipients will not only lose the 1.0 per cent compensation bonus that was a component of the Clean Energy Supplement; they also lose the 0.7 per cent price increase component that was deducted from the main payment rate.

Complexity of the social security system By closing off the Energy Supplement to new recipients and grandfathering existing recipients, the amendments in Schedule 9 will create two tiers of payment rates across the social security system:

• a pre-20 September 2017 tier and

• a post-20 September 2017 tier.

This will create new complexities for the administration of the system in terms of determining those eligible for the Energy Supplement as well as calculating rates under the means tests.

Introducing new complexities into the system is at odds with the Minister for Social Services’ statements about wanting to simplify the system and reduce the number payments and supplements. In his second reading speech for the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016, Minister Porter referenced the 2015 report of the Reference Group on Welfare Reform (the McClure Review)141 in promoting the alignment of different payment rates for young people and the abolition of the Family Tax Benefit end-of-year supplements:

Aligning these two rates of payment, is in itself a much needed part of the reform process to simplify payments where possible.

Crucially, these changes are consistent with the reform recommendations of the McClure Review to reduce the number of supplements in the system. McClure emphasised that there are far too many supplements—some 20 main payment types and 55 supplements. 142

The amendments in Schedule 9 of the Bill increase the complexity of the system by creating new categories of recipient ineligible for the Energy Supplement across all of the main payment types.

Comment The measures in Schedule 9 will deliver significant savings which are to be directed towards the National Disability Insurance Scheme (NDIS).143 Some of those in receipt of the payments affected by the removal of the Energy Supplement will also be beneficiaries of the NDIS. This raises the question as to whether the services offered by the NDIS should be funded by the withdrawal of direct financial support for people with disability and carers.

While the removal of carbon tax compensation runs counter to the Coalition’s 2013 Election commitments, it could be argued as justified given the abolition of the carbon price. However, the measures go further than trimming the compensation provided via the Household Assistance package and will actually leave some welfare recipients worse-off than had the carbon price never been introduced.

The removal of the Energy Supplement follows a number of benefit cuts and reductions over the last three years including the abolition of the Income Support Bonus and the Schoolkids Bonus and the proposed removal of Family Tax Benefit supplements, the Pensioner Education Supplement and the Education Entry Payment.144

140. D Plunkett, Submission to the Senate Economics Legislation Committee, Inquiry into the Budget Savings (Omnibus) Bill 2016, September 2016, [p. 1]. 141. Reference Group on Welfare Reform, A new system for better employment and social outcomes: final report of the Reference Group on Welfare Reform to the Minister for Social Services, (McClure Report), DSS, Canberra, 2015. 142. C Porter, ‘Second reading speech: Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill

2016’, House of Representatives, Debates, 1 September 2016, p. 277. 143. Australian Government, Budget measures: budget paper no. 2: 2016-1 , pp. 143-144. 144. Minerals Resource Rent Tax Repeal and Other Measures Act 2014; M Klapdor, Social Services Legislation Amendment (Family Payments

Structural Reform and Participation Measures) Bill (No. 2) 2015, Bills digest, 65, 2015-16, Parliamentary Library, Canberra, 2016; D Arthur, Social Services Legislation Amendment (Budget Repair) Bill 2015, Bills digest, 78, 2015-16, Parliamentary Library, Canberra, 2016.

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Critics may argue that at a time of growing concern as to the adequacy of some payments, the level of support offered by the social security system is being slowly eroded.

Key provisions

Social Security Act 1991 Item 4 of Schedule 9 of the Bill inserts proposed section 22 into Part 1.2—Definitions of the SS Act. Proposed section 22 defines when a person is considered to be a transitional energy supplement person. A person is a transitional energy supplement person if on 19 September 2016:

• they are receiving an income support payment where the Energy Supplement was used to work out the rate

• Energy Supplement is payable to the person (under section 1061UA)

• they are eligible to receive the Energy Supplement as a result of receiving a War Widow/War Widower

pension (under section 62B of the VE Act)

• they are eligible to receive the Energy Supplement as holders of a Commonwealth Seniors Health Card or

Gold Card under the VE Act (section 118PA)

• they are eligible to receive the Energy Supplement as a result of receiving a payment under the Veterans’

Children Education Scheme or the Military Rehabilitation and Compensation Act Education and Training Scheme

• the person receives an Energy Supplement as a result of receiving a compensation payment for the death of

their partner under section 238A of the MRC Act or

• the person is receiving an ABSTUDY living allowance.

A person ceases to be a transitional energy supplement person, and may never again be one, if none of the above criteria apply to a person on a day on or after 20 September 2016.

While War Widows/War Widowers pension recipients and veterans’ service pensioners are included in the definition of transitional energy supplement person (as a service pension is defined as an income support payment), veterans’ Disability Pension recipients and the recipients of certain payments under the MRC Act have been left out of this definition. Instead, separate definitions of transitional energy supplement person covering veterans’ Disability Pension recipients and certain MRC Act payments will be inserted into the VE Act and the MRCA Act by amendments in Parts 3 and 4 of Schedule 9, respectively.

Proposed subsections 22(3)-(7) of the SS Act provide for certain individuals to continue to be considered as transitional energy supplement persons, including those who have their payment rate reduced to nil on or after 19 September 2016; those who have their payment suspended on or after 19 September 2016; those who have an absence from Australia longer than six weeks; those who move between being a Commonwealth Seniors Health Card holder and being an income support payment recipient; and those who make a claim or are provided with a Commonwealth Seniors Health Card within a certain period of time after certain income support payments are cancelled. Specific criteria apply in each situation for persons in these situations to remain eligible for the Energy Supplement.

Proposed subsection 22(7), together with subsection 1061U(6) which was inserted by item 37 of Schedule 21 of the Budget Savings (Omnibus) Act 2016 (commencing 20 March 2017), will ensure that those who have their pension payment cancelled as a result of the new assets test arrangements which commenced on 1 January 2017, and who are therefore automatically issued with Commonwealth Seniors Health Card, will continue to be eligible for an Energy Supplement paid with the Commonwealth Seniors Health Card.145

Items 11-34, 36-39, 41-44, 46-52 and 54-55 amend various rate calculators for social security payments so the Energy Supplement is not added to the rate calculations for these payments from 20 September 2017 unless the person is a transitional energy supplement person on that day. The rate calculators apply to the following payments:

145. For information on the assets test changes and automatic-issue Commonwealth Seniors Health Cards, see: M Klapdor, Social Services Legislation Amendment (Fair and Sustainable Pensions) Bill 2015, Bills digest, 129, 2014-15, Parliamentary Library, Canberra, 2015.

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• Age Pension, Disability Support Pension, Wife Pensions and Carer Payment (people who are not blind) at

section 1064

• Age Pension and Disability Support Pension (blind people) at section 1065

• Bereavement Allowance and Widow B Pension at section 1066

• Disability Support Pension (people under 21 who are not blind) at section 1066A

• Disability Support Pension (people under 21 who are blind) at section 1066B

• Youth Allowance at section 1067G

• Austudy Payment at section 1067L

• Widow Allowance, Newstart Allowance, Sickness Allowance, Partner Allowance and Mature Age Allowance at

section 1068

• Parenting Payment Single at section 1068A and

• Parenting Payment Partnered at section 1068B.

Items 35, 40, 45 and 53 amend the partner income free area provisions for Youth Allowance, Austudy Payment, Widow Allowance, Newstart Allowance, Sickness Allowance, Partner Allowance, Mature Age Allowance and Parenting Payment Partnered so the Energy Supplement is not included where the person is not a transitional energy supplement person (unless their partner is a transitional energy supplement person). The partner income free area is the amount of income an income support recipient’s partner can have before the recipient’s payment rate is reduced—the income free area is based on the partner’s age, whether or not they receive a social security benefit, and the rate of benefit that would be payable if they were in receipt a benefit.

Item 56 amends point 1071A-2A to remove the Energy Supplement from the formula used to calculate the allowable income limits for a Low Income Health Care Card.146 These amendments will lower the amount of allowable income a person can earn and still qualify for the Health Care Card and will apply irrespective of whether the person held a card prior to 20 September 2017 (the commencement date). This will mean that some holders of a Low Income Health Care Card may lose their eligibility due to the tighter income test.

Farm Household Support Act 2014 Items 58-61 in Part 2 of Schedule 9 to the Bill make minor amendments and insert notes into the Farm Household Support Act 2014 to explain that some Farm Household Support Allowance recipients will not receive the Energy Supplement (that is, those who are not transitional energy supplement persons). The rates of Farm Household Support Allowance are tied to the payment rates of Newstart Allowance and Youth Allowance in the SS Act and are therefore affected by the amendments in Part 1 of Schedule 9.

Veterans’ Entitlements Act 1986 Items 65-67 in Part 3 of Schedule 9 to the Bill amend section 62A of the VE Act which currently provides for the payment of the Energy Supplement to recipients of the Disability Pension under the VE Act. Item 67 inserts proposed subsections 62A(4)-(6) to define a transitional energy supplement person as a person who on 19 September 2016 is in receipt of the Energy Supplement as a veterans’ Disability Pension recipient, or as a person eligible for permanent impairment payment under subsection 83A(1) of the MRC Act, or as a person eligible for the Special Rate Disability Pension under the MRC Act. Only those who meet the definition of transitional energy supplement person under either the VE Act or the SS Act can receive the Energy Supplement after 20 September 2017.

If a person ceases to meet the definition of transitional energy supplement person they cannot regain that status.147

Item 70 inserts proposed subsection 62B(4) into the VE Act so that a War Widow/War Widower pension recipient can be eligible for the Energy Supplement after 20 September 2017 if they meet the definition of

146. DSS, ‘3.9.1.70 low income HCC—assessment of income’, Guide to social security law, version 1.224, DSS website, 20 March 2017. 147. Proposed subsection 22(2) of the SS Act inserted by item 4 in Part 1 of Schedule 9 to the Bill and proposed subsection 62A(6) of the VE Act inserted by item 67 in Part 3 of Schedule 9 to the Bill.

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transitional energy supplement person set out in proposed section 22 of the SS Act (inserted by item 4 in Part 1 of Schedule 9 to the Bill).

Item 76 amends section 118P of the VE Act which sets out the eligibility for the Energy Supplement for holders of a Commonwealth Seniors Health Card or a DVA Health Card All Conditions (Gold) to prevent new Gold card holders after 20 September 2017 from receiving the Energy Supplement; to stop payment of the Energy Supplement for people who became Gold card holders on or after 20 September 2016 with effect from 20 September 2017; and to set out conditions where a person who claims or receives a card after having another payment cancelled, or who moves from being a cardholder to receiving an income support payment, can continue to receive the Energy Supplement. Items 81-87 (excluding item 85) in Part 3 of Schedule 9 to the Bill make amendments to the method statements for determining payment rates for the Service Pension. Item 85 provides for the Energy Supplement to not be included in the rate calculation process unless the person is a transitional energy supplement person as defined under the SS Act.

Military Rehabilitation and Compensation Act 2004 Item 89 of Part 4 of Schedule 9 to the Bill inserts proposed subsections 83A(4)-(6) into the MRC Act so that a person in receipt of a permanent impairment payment under the MRC Act will only be eligible for the Energy Supplement from 20 September 2017 if they are a transitional energy supplement person. A transitional energy supplement person for the purposes of this section of the MRC Act is defined in proposed subsection 83A(5) as a person who is eligible for the Energy Supplement on 19 September 2016 in respect of a permanent impairment payment under the MRC Act, a Special Rate of Disability Pension under the MRC Act or a Disability Pension payable under the VE Act. A person who ceases to meet the criteria to be a transitional energy supplement person after 19 September 2016 can never again become a transitional energy supplement person.148

Item 91 inserts proposed subsections 209A(3)- (5) into the MRC Act so that a person in receipt of a Special Rate Disability Pension under the MRC Act will only be eligible for the Energy Supplement from 20 September 2017 if they are a transitional energy supplement person. A transitional energy supplement person for the purposes of this section of the MRC Act is defined in proposed subsection 209A(4) as a person eligible for the Energy Supplement on 19 September 2016 in respect of a Special Rate Disability Pension, a permanent impairment payment under the MRC Act or a Disability Pension under the VE Act. A person who ceases to meet the criteria to be a transitional energy supplement person after 19 September 2016 can never again become a transitional energy supplement person.149

Item 93 inserts proposed subsection 238A(4) into the MRC Act so that a person in receipt of a compensation payment as a wholly dependent partner under the MRC Act will only be eligible for the Energy Supplement from 20 September 2017 if they are a transitional energy supplement person as defined in section 22 of the SS Act (as inserted by item 4 in Part 1 of Schedule 9 to the Bill).

Schedule 10—stopping the payment of pension supplement after 6 weeks overseas Purpose and background The purpose of this measure is to amend the Social Security Act 1991 (the SS Act) and the Veterans’ Entitlements Act 1986 (the VE Act) to limit the portability of the pension supplement. This measure was announced in the 2016-17 Mid-Year Economic and Fiscal Outlook, and has not been included in a previous Bill.150

Commencement This Schedule is intended to commence on 1 July 2017 if it receives Royal Assent before that date. If not, it will commence on the first 1 January, 1 April, 1 July or 1 October to occur after Royal Assent. Items 26 (in respect of the SS Act) and 38 (in respect of the VE Act) provide that the amendments in Schedule 10 ‘apply in relation to a temporary or permanent absence from Australia for a period that begins before, on or after the day this item commences’. Following the commencement date, any recipients who have been overseas for longer than six weeks continuously will stop being eligible for the pension supplement.

148. Proposed subsection 83A(6) of the MRC Act inserted by item 89 in Part 4 of Schedule 9 to the Bill. 149. Proposed subsection 209A(5) of the MRC Act inserted by item 90 in Part 4 of Schedule 9 to the Bill. 150. S Morrison (Treasurer) and M Cormann (Minister for Finance), Mid-year economic and fiscal outlook 2016-17, p. 194.

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Overview of the pension supplement and changes The pension supplement is a payment provided in addition to some pensions and income support payments, including the Age Pension, Carer Payment and Disability Support Pension.151

People who leave Australia temporarily for fewer than six weeks typically continue to receive the same rate of pension supplement during their travel period.152 Currently, people who leave Australia permanently or for more than six weeks and remain eligible for their qualifying payment (such as the Age Pension) receive a reduced rate of pension supplement, known as the basic amount.153 The amendments in Schedule 10 will change this arrangement so that pensioners cease receiving the pension supplement entirely once they have been outside Australia continuously for six weeks, or when they leave Australia if departing permanently.

The annual pension supplement for singles is $1,713.40 (basic amount $598.00) and for members of a couple is $1,292.20 (basic amount $491.40).154 Parenting Payment (Single) recipients under age pension age receive the pension supplement basic amount. The pension supplement is paid fortnightly, or quarterly at a reduced rate (known as the minimum pension supplement amount) if the recipient chooses.155

The pension supplement is subject to the pension income and assets test but the minimum pension supplement amount is the last component of the pension rate to be reduced when the income test is applied. The minimum pension supplement amount remains payable if any pension supplement is payable after the application of the income and assets test.

It is difficult to calculate how many people will no longer be eligible for the pension supplement due to this measure. September 2016 data shows more than 88,000 people receiving the Age Pension reside in an ‘unknown’ region (including but not exclusively outside Australia), as do approximately 7,000 people receiving the Disability Support Pension, and smaller numbers of people receiving other qualifying payments.156

History of the pension supplement The current pension supplement was created as part of a major pension reform in 2009 from a combination of existing supplements and allowances and an additional increase.157 These included the GST pension supplement, which had been introduced in 2000 to compensate for the reduced purchasing power of the pension, and ‘was structured as a supplement so as to ensure that the value of the compensation for the GST was always preserved as an amount additional to the pension rate’.158 Other payments bundled together in the pension supplement were:

• the Utilities Allowance, introduced in 2004 as a twice yearly payment to assist with utility bills

• the Telephone Allowance, introduced in 1992 as a payment for pensioners with a telephone account

• the Pharmaceutical Allowance, introduced in 1990 to compensate pensioners for reduced entitlements to

free pharmaceuticals.159

Policy basis for the measure The Government has stated that ‘the intent of the Pension Supplement is to assist with specific cost of living pressures for pensioners living in Australia’.160 In particular, the Explanatory Memorandum notes that the

151. Department of Social Services (DSS), ‘3.12.1 Pension Supplement—Qualification and Payability’, Guide to social security law, version 1.229, DSS website, last reviewed 2 January 2015. 152. Ibid. 153. Ibid. 154. The single rates also apply to each member of an eligible couple separated by illness or imprisonment. Rates are updated on 20 March and

20 September each year. DSS, ‘5.1.9.10 Pension Supplement—Current Rates’, Guide to social security law, version 1.229, DSS website, last reviewed 20 March 2017. 155. DSS, ‘3.12.1 Pension Supplement—Qualification and Payability’, op. cit.; DSS, ‘1.2.10.10 Pension Supplement—Description’, Guide to social security law, version 1.229, DSS website, last reviewed 1 July 2013. 156. DSS, ‘DSS Demographics September 2016’, data.gov.au website. 157. DSS, ‘1.2.10.10 Pension Supplement—Description’, Guide to social security law, op. cit. 158. D Daniels, L Buckmaster and P Yeend, Social Security and Other Legislation Amendment (Pension Reform and Other 2009 Budget Measures)

Bill 2009, Bills digest, 179, 2008-09, p. 13. 159. Ibid., pp. 12-13. 160. Morrison and Cormann, Mid-year economic and fiscal outlook 2016-17, op. cit., p. 194.

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pension supplement basic amount equates to the former GST supplement, and argues ‘Pensioners who leave Australia permanently or who are temporarily absent from Australia for more than six weeks are unlikely to be impacted by the Australian GST and it is therefore not appropriate to continue to pay them the pension supplement basic amount’.161

Policy position of non-government parties/independents Labor has described the measure as ‘stripping pensioners of the pension supplement’ as part of a broader sweep of pension ‘cuts’.162

Position of major interest groups The National Social Security Rights Network (NSSRN) is opposed to this measure, stating that the existing portability rules already ‘place great weight’ on the principle of residence and the further tightening is ‘unjustified because it does not give enough weight to the importance of travel overseas, especially for the many older Australians who are migrants and have strong ties to family and communities overseas’.163 Further, the NSSRN was concerned that the provisions would affect pensioners already overseas:

We also note our grave concern at the departure from basic principle in Schedule 10. Individuals already overseas have always been protected from the potential detrimental impact of portability changes. Schedule 5 is consistent with this principle, and only applies to departures after it commences. Schedule 10 departs from this principle unacceptably, as it applies to all pensioners whether overseas on date of commencement or not. Many of these pensioners will have already exercised the right they have under Australian social security law to choose their country of retirement and this will cut their incomes even though they may be unable to do anything about it.

164

The Australian Council of Social Service did not raise any significant concerns with the measure, noting only that:

In effect, this measure would only apply to the GST component of the Pension Supplement as the rest of the supplement is already no longer not payable after six weeks overseas. While in theory this measure should not disadvantage pensioners whilst overseas because they are not paying GST, in practice it reduces their income. 165

Financial implications The Government estimates this measure will provide savings of $123.6 million over the forward estimates 2016-17 to 2019-20.166

Key issues and provisions Items 1-26 of Schedule 10 amend the SS Act, and items 27-38 amend the VE Act.

A number of items in Schedule 10 insert the words ‘if any’ following mentions of the pension supplement, thereby indicating that some pensioners will not be eligible to receive any amount of pension supplement. The following affect the SS Act: items 1, 2, 7, 12 and 17. The VE Act is similarly amended by items 27, 31, 32 and 33.

The SS Act and VE Act include calculators for working out payment rates for particular pension types. Schedule 10 amends some of these calculators, including by removing the points in the calculators that allow those absent from Australia for more than six weeks to be paid the pension supplement basic amount. The details of these amendments are shown in Table 6.

161. Explanatory Memorandum, Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, p. 131. 162. J Macklin (Shadow Minister for Families and Social Services), Liberals are the party of pension cuts, media release, 20 December 2016. 163. National Social Security Rights Network, Submission to Senate Community Affairs Legislation Committee [no. 9], Inquiry into the Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, 3 March 2017, p. 3.

164. Ibid., p. 4. 165. ACOSS, Submission to Senate Community Affairs Legislation Committee, Inquiry into the Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, Submission 13, 3 March 2017, p. 5. 166. Explanatory Memorandum, Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, p. 6.

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Table 6: Payment calculators amended by Schedule 10

Item numbers

Amended calculator

Pension type/s affected Repealed/amended Amended Act

3-6 Pension Rate

Calculator A

Age Pension, Carer Payment, Disability Support Pension, Wife Pension

Point 1064-BA5 SS Act

8-11 Pension Rate

Calculator B

Age Pension and Disability Support Pension (permanently blind people aged 21 and older)

Point 1065-BA5

13-16 Pension Rate

Calculator C

Bereavement Allowance, Widow B Pension Point 1066-BA5

18-22 Parenting

Payment Rate Calculator

Parenting Payment (single) Point 1068A-BA5

34-37 Rate Calculator Service Pension Point SCH-BA5 of

Schedule 6

VE Act

The option for pensioners to elect to receive the minimum pension supplement amount on a quarterly basis as a separate payment is retained in each of the calculators listed above.

Items 24 and 25 respectively repeal the current method statements in the SS Act for calculating the transitional maximum pension payment rate for single people and coupled people outside Australia for longer than six weeks. These items also insert new method statements which do not include the step of calculating and adding the pension supplement for the person, because Schedule 10 renders them ineligible for the pension supplement. Items 29 and 30 similarly amend method statements in the VE Act.

Division 2 of Part 4.2 of Chapter 4 of the SS Act outlines the portability of social security payments. Item 23 inserts proposed section 1216A to put beyond doubt that, even if a person’s right to be paid a payment is not affected by their absence from Australia, their payment rate may be affected (in accordance with the relevant Rate Calculator listed in Chapter 3 of the SS Act). Item 28 makes a similar amendment to the VE Act.

Schedule 11—automation of income stream review processes Purpose and background The purpose of this measure is to amend the Social Security (Administration) Act 1999 (the SS Admin Act) to enable the electronic collection of income stream data from financial service providers by expanding what information can be obtained by the Secretary to verify claims.167 This measure was announced in the 2016-17 Mid-Year Economic and Fiscal Outlook, and has not been included in a previous Bill.168

Commencement This Schedule will commence on the day after Royal Assent. The Explanatory Memorandum states that once the Schedule commences, ‘DHS will coordinate a staged implementation in consultation with income stream providers’.169 In the Mid-Year Economic and Fiscal Outlook, the Government stated that the proposed six monthly electronic data collection from financial service providers will be introduced from 1 January 2018.170

167. C Porter, ‘Second reading speech: Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017’, House of Representatives, Debates, 8 February 2017, p. 213. 168. Morrison and Cormann, Mid-year economic and fiscal outlook 2016-17, op. cit., p. 192. 169. Explanatory Memorandum, Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, p. 136. 170. Morrison and Cormann, Mid-year economic and fiscal outlook 2016-17, op. cit., p. 192.

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Income streams and reviews For social security purposes, an income stream ‘is a series of related payments, over an identifiable period of time, with at least one payment being made on an annual basis’.171 The Social Security Act 1991 (the SS Act) specifies the types of payments which may be considered income streams (such as an income stream from a superannuation scheme or retirement savings account), and the types of payments that are excluded (such as a managed investment).172 Income from income streams is assessed for the purposes of the income tests that apply to social security payments.

Currently, the Department of Human Services (DHS) undertakes reviews into the income stream details of people receiving income support payments in order to ensure that they are receiving correct rate of payment. These reviews are conducted in February and August of each year. Payment recipients are sent letters if they are required to provide additional information to DHS for the reviews, and if they do not provide the required information in the designated timeframe, their payments may be stopped.173

In some cases, DHS can obtain details directly from income stream providers (such as superannuation funds) which means that income support recipients do not receive review letters and do not have to provide information to DHS themselves.174

Proposed changes and policy basis The Government states that this measure will support the introduction of ‘a six monthly electronic data collection process’ that ‘will improve the accuracy and efficiency of Australia’s social security system and reduce the regulatory burden on income stream providers (primarily financial institutions) and recipients of social security payments’.175

Policy position of non-government parties/independents On 9 February 2017, Greens Senator Rachel Siewert discussed Schedule 11 in the context of what she described as ‘the debacle over Christmas of the Centrelink automated debt recovery process’.176 Labor members have similarly commented on the amendments in Schedule 11 in this context.177 The concern is that the increased automation of the income stream review process may result in errors.

Position of major interest groups The National Social Security Rights Network (NSSRN) has stated that it does not oppose the measure in Schedule 11 and that obtaining income stream information directly from providers is a ‘sensible reform’.178 However, the NSSRN recommended that the Government provide assurances that the new system would not be used to retrospectively review entitlements in the same way as DHS’s online compliance intervention system has been used to review reported employment income.179

The Australian Council of Social Service stated that it did not have a ‘firm view’ on the measure but also expressed ‘concerns about the accuracy of an automated process in assessing revenue streams’.180

171. Department of Social Services (DSS), ‘4.9.1.10 Background to Income Streams’, Guide to social security law, version 1.229, 19 September 2014. 172. Social Security Act 1991 (the SS Act) Part 1.2—Definitions, subsection 9(1) . 173. DHS, ‘Income stream reviews webpage’, DHS website. 174. Ibid. 175. Morrison and Cormann, Mid-year economic and fiscal outlook 2016-17, op. cit., p. 192. 176. R Siewert, ‘Committees: Selection of Bills Committee Report’, Senate, Debates, 9 February 2017, p. 446. For discussion of Centrelink’s

automated debt recovery system see, for example: T McIlroy, ‘Centrelink debt system faces growing chorus of criticism’, The Age, 3 January 2017, p. 9 and C Knaus, ‘Centrelink debt notices based on 'idiotic' faith in big data, IT expert says’, Guardian Australia (online), 30 December 2016, The Commonwealth Ombudsman has launched an own motion investigation into the Centrelink system and the Senate Community Affairs References Committee is conducting an inquiry. 177. M Keogh, ‘Second reading speech: Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017’, House of

Representatives, Debates, 28 February 2017, p. 7; S Jones, ‘Second reading speech: Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017’, House of Representatives, Debates, 28 February 2017, p. 53. 178. National Social Security Rights Network, Submission to Senate Community Affairs Legislation Committee [no. 9], Inquiry into the Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, 3 March 2017, p. 6. 179. Ibid. 180. Australian Council of Social Service, Submission to Senate Community Affairs Legislation Committee [no. 13], Inquiry into the Social Services

Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, 3 March 2017, p. 5.

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Financial implications The Government estimates this measure will provide savings of $38.1 million over the forward estimates (2016- 17 to 2019-20).181

Key issues and provisions As noted above, some parliamentarians and advocacy organisations have raised concerns regarding Schedule 11 in relation to the recent Centrelink automated debt recovery issues. The Department of Social Services has reiterated Schedule 11 ‘is not a data matching or compliance measure’.182

Section 195 of the SS Admin Act provides for the Secretary of the Department of Social Services to require that a person give certain types of information about social security claimants and recipients to the Department for purposes including verifying the qualification of those claimants and recipients to any benefits and ensuring compliance with requirements. Subsection 195(2) sets out the specific information the Secretary can require a person to give them about social security claimants and recipients.

Item 1 of Schedule 11 adds proposed paragraph 195(2)(ja) to the SS Admin Act, to allow the Secretary to obtain 20 new points of information ‘in relation to an income stream received by the person’. These include specific information on the type of income stream, date of the first payment from the income stream, account balances and amounts paid. In addition to this specific data, proposed subparagraph 195(2)(ja)(xx), allows the Secretary to obtain ‘any other information required by the Minister in an instrument made under subsection (3A)’.

Consistent with this power, item 2 inserts proposed subsection 195(3A) into the SS Admin Act which permits the Minister to ‘specify information required to be given in relation to an income stream received by a person’ by making a legislative instrument. Item 2 also adds proposed subsection 195(3B), which requires the Minister to first ‘consult the Information Commissioner in relation to matters that relate to the [Commissioner’s] privacy functions’ and ‘have regard’ to the Commissioner’s submissions.

Schedule 12—Seasonal horticultural work income exemption Schedule 12 proposes amendments to the Social Security Act 1991 (the SS Act), the Farm Household Support Act 2014 and the Veterans’ Entitlements Act 1986 (VE Act)) to provide for an income test incentive aimed at encouraging job seekers on income support to undertake seasonal horticultural work.

The measures are part of a two-year trial program commencing 1 July 2017 to encourage jobseekers to undertake seasonal horticultural work such as fruit-picking. Under the measure, participants will be able to earn up to $5,000 from specified horticultural seasonal work during the 12 months after they join the trial program, without that income affecting their income support payment rate under the income test. Up to 7,600 job seekers who have been in receipt of Newstart Allowance or Youth Allowance (Other) for at least three months will be eligible to participate in the trial.183

The program will be run by employment services providers who will receive a ‘Provider Seasonal Work Incentive Payment’ of $100 a week for up to six weeks a year for each participant they place with eligible farmers.184 Participants will be eligible for a travel allowance of $300 if they undertake horticultural work that is more than 120 kilometres from their home.185

Commencement Parts 1 and 2 of Schedule 12, the main provisions, commence on 1 July 2017. Part 3 of Schedule 12, which repeals the amendments made by Parts 1 and 2, commences on 1 July 2020 so that it is clear that the trial has a start date and an end date.

181. Explanatory Memorandum, Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bills 2017, p. 6. 182. DSS and the Department of Education and Training, Submission to Senate Community Affairs Legislation Committee, Inquiry into the Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, 3 March 2017, p. 12. 183. Youth Allowance (Other) is paid to jobseekers aged 16-21 and Newstart Allowance is paid to jobseekers aged 22 and over (but see proposed

changes to eligibility age in Schedule 14 of this Bill). Youth Allowance (Student) is paid to full-time students and apprentices and has different eligibility criteria. Department of Human Services (DHS), ‘Youth Allowance’, DHS website, last updated 3 January 2017; Explanatory Memorandum, Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, p. 139. 184. DSS and the Department of Education and Training, Submission to Senate Community Affairs Legislation Committee, Inquiry into the Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, 3 March 2017, p. 12. 185. Ibid.

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Background The measure was announced in the 2016-17 Mid-Year Economic and Fiscal Outlook (MYEFO).186

A trial of such an income test incentive for jobseekers was proposed by the Nick Xenophon Team (NXT) in the context of debate over changes to the income tax rates for working holiday makers (the ‘backpacker tax’).187 The NXT secured support for its proposal as part of an agreement to support the backpacker tax legislation (the Income Tax Rates Amendment (Working Holiday Maker Reform) Bill 2016 (No. 2).188 NXT MP Rebekha Sharkie stated:

We need to address the work force shortage that our local growers experience during harvest time. With the uncertainly surrounding a backpacker tax, we have developed a seasonal regional employment strategy for Government that will encourage unemployed people to take on short term fruit picking work and assist the horticulture and viticulture industries to address the ever challenging issue of finding enough hands to get fruit into the packing shed. This is a win-win for farmers and for local employment.

Our plan gives unemployed Australians the opportunity to ‘taste’ work in primary production without fear of losing unemployment benefits. We are assisting farmers to access a wider pool of casual labour though the Job Active program, which for many unemployed Australians could likely lead to on-going work on the land. 189

Policy position of non-government parties/independents It is unclear what the position of non-government parties is on this measure, other than NXT Members and Senators who proposed the measure and secured the Government’s support for it.

Position of major interest groups The Australian Council of Social Service (ACOSS) is ‘broadly supportive’ of the measure but stated that it should be broadened to apply to all people in receipt of an unemployment payment. ACOSS has recommended an ‘income bank’ of $4,000 that accrues over time to ‘enable all receiving an unemployment payment to undertake casual or sporadic work without incurring a sharp or total loss of payment’.190

The Australian Council of Trade Unions (ACTU) stated that it held no substantial objections to the proposed trial program but was ‘concerned about the underlying issue of worker exploitation in the agriculture sector especially amongst temporary work visa holders’.191 The ACTU stated that the ‘Government must take action to end the exploitation in this industry and, if this program goes ahead, ensure that job seekers are not exposed to exploitation and abuse’.192

The National Social Security Rights Network (NSSRN) suggested that incentives such as that proposed in the trial ‘have generally been unsuccessful in the past … because there are other far more significant factors affecting the take up of work’.193 The NSSRN also suggested that the program would be a departure from the ‘very fundamental principles of payment according to need and can therefore lead to inequity’.194 The NSSRN stated it could support the measures as a trial, provided it is rigorously evaluated.195

186. Morrison and Cormann, Mid-year economic and fiscal outlook 2016-17, p. 195. 187. N Xenophon and R Sharkie, Relax dole rules to give Aussies a chance to work on farms, media release, 20 September 2016. 188. N Xenophon and R Sharkie, A win for NXT’s seasonal workers incentive trial and Aussie job seekers, media release, 28 November 2016. 189. N Xenophon and R Sharkie, Relax dole rules to give Aussies a chance to work on farms, op. cit. 190. ACOSS, Submission to Senate Community Affairs Legislation Committee, Inquiry into the Social Services Legislation Amendment (Omnibus

Savings and Child Care Reform) Bill 2017, 3 March 2017, p. 5. 191. Australian Council of Trade Unions, Submission to Senate Community Affairs Legislation Committee, Inquiry into the Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, Submission 11, 3 March 2017, p. 10. 192. Ibid. 193. National Social Security Rights Network, Submission to Senate Community Affairs Legislation Committee, Inquiry into the Social Services

Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, 3 March 2017, p. 6. 194. Ibid. 195. Ibid.

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Financial implications According to the Explanatory Memorandum to the Bill, the measure is expected to cost $27.5 million over the forward estimates.196

Key issues and provisions

Income support eligibility and work disincentives

Eligibility conditions for unemployment payments The qualification criteria for Newstart Allowance require that an individual be considered unemployed and meet the activity test.197 The qualification criteria for Youth Allowance require an individual to meet the activity test but an individual undertaking full-time work of at least 35 hours a week is considered to have not met the activity test.198 This means that for both payments, an individual undertaking full-time work would normally be disqualified.

The activity test for Newstart Allowance and Youth Allowance (Other) requires claimants to look for and take up any offers of suitable paid work (unless an exemption from activity test requirement applies).199

Suitable paid work includes seasonal work, though certain types of seasonal work might be considered unsuitable if the person has to commute for more than 90 minutes.200 If a recipient has indicated they would be prepared to live away from home for work or are accustomed to undertaking employment away from home, then they would be expected to take up employment opportunities outside their local area. Different types of employment are considered unsuitable for different types of recipients—for example, those with caring responsibilities.201

Income testing Income testing is intended to target income support to those without the means to support themselves. Income over certain thresholds reduces payments rates, and income over a certain amount means that a person receives a zero rate or is ineligible for payment. While the income test is necessary for targeting payments to those in need, it can also act as a disincentive to work as the withdrawal of income support partly offsets any increased income from working. When combined with income tax, income test withdrawals can significantly reduce the amount of disposable income gained from undertaking paid work (the combined effect of income support reductions and income tax is known as an effective marginal tax rate).

Newstart Allowance recipients can earn $104 a fortnight before their payment rate is affected.202 Fortnightly rates of Newstart are reduced by 50 cents for every dollar of income between $104 and $254, and by 60 cents in the dollar for every dollar of income over $254 in a fortnight. Single parents have a different income test—their fortnightly rates reduce by 40 cents for every dollar of income over $104.

Single Newstart Allowance recipients with no children will not receive any payment if their fortnightly income is over $1,036.34. Single principal carers of dependent children will not receive any payment if their fortnightly income is over $1,576.00.

Youth Allowance (Other) recipients can earn up to $143 per fortnight before their payment rate is affected.203 Fortnightly rates of Youth Allowance (Other) are reduced by 50 cents for every dollar of income between $143 and $250, and by 60 cents for every dollar of income over $250 per fortnight. A single Youth Allowance (Other)

196. Explanatory Memorandum, Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, p. 6. 197. Social Security Act 1991, sections 593 and 595. 198. Social Security Act 1991, subsection 541(3). 199. DSS, ‘3.2.8.10 mutual obligation requirements for NSA/YA job seekers overview’, Guide to social security law, version 1.229,

DSS website, 4 January 2016. 200. DSS, ‘3.2.8.60 unsuitable work’, Guide to social security law, version 1.229, DSS website, 1 July 2015. 201. Ibid. 202. DHS, ‘Income test for Newstart Allowance, Partner Allowance, Sickness Allowance and Widow Allowance’, DHS website, last updated

23 November 2016. 203. DHS, ‘Personal income test forAustudy and Youth Allowance’, DHS website, 10 January 2017.

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recipient living away from their family home will not receive any payment if their fortnightly income is over $901.67.204

If a person is a member of a couple, their partner’s income can also affect their payment rates.

Working credit The Working Credit scheme allows Newstart Allowance and Youth Allowance (Other) recipients to build up credits during periods when little or no income is earned which can reduce the amounts that are counted under the income test when earned income increases.205 Recipients typically accrue one credit for each dollar of difference between $48 and their income in each fortnight. For example, if an individual has no income in a fortnight they can accrue 48 credits; if they earn $40 they can accrue eight credits and if they earn $48 or more they cannot receive credits in that fortnight. Newstart Allowance recipients can accrue a maximum of 1,000 credits (so $1,000 of income can be excluded from the income test if they do take up work). Youth Allowance (Other) recipients can accrue 3,500 credits.

The Working Credit scheme is intended as an incentive for payment recipients to take up work, including short-term work such as seasonal work. It works to reduce the disincentive effect of high effective marginal tax rates.

Employment income nil rate periods Another incentive for income support recipients to take up short-term or seasonal work is the Employment Income Nil Rate Period. Where a Newstart Allowance or Youth Allowance (Other) recipient’s payment is reduced to nil due to employment income they can still be considered a benefit recipient for a set period of time known as an ‘employment income nil rate period’.206 If the person’s income falls during this period, and they become eligible for some income support again, they can recommence payment without having to reapply and serve a waiting period. An employment income nil rate period can last for up to six fortnights after the fortnight during which the payment was reduced to nil (in effect this means a nil rate period can last for six or seven fortnights).

Seasonal worker preclusion period People claiming income support payments who have undertaken seasonal or intermittent work (or whose partner has undertaken such work) in the six months prior to making a claim may be subject to a ‘seasonal worker preclusion period’ (SWPP).207 The SWPP applies to a range of working-age income support payments, including Newstart Allowance and Youth Allowance (Other).208 The SWPP is a period during which a person is not eligible to receive a social security payment—it is calculated based on the amount of earnings a person or their partner earned, the number of weeks spent undertaking seasonal/intermittent work and any intervening weeks.

The SWPP only affects those lodging new claims for affected payment if they are single and earned income above Average Weekly Ordinary Time Earnings (or a member of a couple who earned more than twice Average Weekly Ordinary Time Earnings) and the income was earned during a period of seasonal or intermittent work that ended in the six months before lodging a claim.209

Exemptions from the SWPP can be granted where a person was in receipt of income support for a continuous period exceeding 12 months on the day before they commenced intermittent work (does not apply to seasonal work). Exemptions can also be granted if the person is undertaking certain employment services or rehabilitation activities. SWPPs can be waived if the claimant is in severe financial hardship and the hardship is a result of unavoidable or reasonable expenditure.210

Seasonal horticultural seasonal work trial The measures proposed in Schedule 12 are aimed at alleviating some of the disincentives to take up seasonal work built into the design of income support payments for jobseekers. Primarily, the measure will remove some of the disincentive effect of the income test by allowing jobseekers to earn income without losing part of their

204. Ibid. 205. DHS, ‘Working Credit’, DHS website, 29 September 2016. 206. DSS, ‘3.1.12 employment income nil rate period’, Guide to social security law, version 1.229, DSS website, 3 January 2017. 207. DSS, ‘1.1.S.455 SWPP’, Guide to social security law, version 1.229, DSS website, 7 November 2016. 208. DSS, ‘3.1.7.10 who is affected by an SWPP’, Guide to social security law, version 1.229, DSS website, 9 November 2016. 209. DSS, ‘1.1.S.455 SWPP’, op. cit. 210. DSS, ‘3.1.7.10 who is affected by an SWPP’, op. cit.

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income support payment. Secondly, it will allow Youth Allowance (Other) recipients to work full-time hours without losing eligibility for the payment.

The trial is, in effect, providing an enlarged Working Credit balance to a select group of income support recipients who are willing to undertake seasonal work. This will provide a significant incentive for eligible jobseekers to take up seasonal work.

A study by Roger Wilkins and Andrew Leigh on the effects of the Working Credit program estimated that it has positive effects on the employment participation of people receiving income support and the income of these people (Wilkins and Leigh note that the way the program was implemented and the data available make it difficult to credibly evaluate the causal effects of the program).211 However, the study estimated that there were ‘ambiguous—or possibly zero—effects on exits from the income support system’.212

The measures in Schedule 12 have, however, not been framed as measures that will encourage jobseekers to move off of welfare. Instead, the Minister has stated that ‘the measure responds to concerns about the ability of the Australian horticulture industry to attract sufficient numbers of seasonal workers’.213 As such, the measure is intended to boost labour supply rather than encouraging people to move from welfare and into work.

It is unclear whether trial participants will be affected by the SWPP.214 Only those who become ineligible for their Newstart Allowance or Youth Allowance (Other) payment during the trial period could be affected by the SWPP as it only affects new claims. It could affect those who earn a significant amount of income while participating in the trial over a long period so that their payment rate is reduced to zero under the income test (after accounting for the proposed $5,000 exemption) and receive a zero rate for longer than the permissible employment income nil rate period (six or seven fortnights). It is unlikely that such a circumstance would arise during the trial period.

Key provisions Item 2 adds the ‘seasonal work living away and travel allowance’ to the list of amounts excluded from the definition of income at subsection 8(8) of the SS Act. This is the payment of $300 for those who move 120 kilometres or more to participate in the trial program. The amendment will mean that this amount is not included in the social security income test.

As noted above, the qualification criteria for Youth Allowance require an individual to meet the activity test but an individual undertaking full-time work of at least 35 hours a week is considered to have not met the activity test.215 Item 3 inserts proposed subsection 541(3A) into the SS Act so that a person in receipt of Youth Allowance will not be disqualified for undertaking full-time work of 35 hours a week or more if that work is qualifying seasonal horticultural work (as defined at proposed subsection 1073K(6) inserted by item 7) and the income earned, derived or received from that work is being disregarded under the income test (under proposed subsection 1073K(2) inserted by item 7).

Item 7 inserts proposed Division 1AC—Seasonal horticultural work income exemption, which consists of proposed section 1073K, into Part 3.10 of the SS Act. To qualify for the exemption, the Secretary of the Department of Social Services must be satisfied that a person is placed in qualifying seasonal horticultural work under the program known as the ‘Seasonal Horticultural Work Program’ in 2017-18 or 2018-19. If the person qualifies for the income test exemption, they will have the first $5,000 of any ordinary income earned, derived or received by the person under that program disregarded when working out their payment rate. The exemption applies for up to 12 months from the first day of the instalment period (payment fortnight) that includes the day the person is placed in the program. However, the $5,000 exemption is respective to each of the financial years

211. R Wilkins and A Leigh, ‘Effects of temporary in-work benefits for welfare recipients: examination of the Australian Working Credit programme’, Fiscal Studies, 33(3), 2012, p. 367. 212. Ibid. 213. C Porter, ‘Second reading speech: Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017’, House of

Representatives, Debates, (proof), 8 February 2017, p. 7. 214. Concern about the potential impact was raised by the National Social Security Rights Network. See National Social Security Rights Network, Submission to Senate Community Affairs Legislation Committee, Inquiry into the Social Services Legislation Amendment (Omnibus Savings and

Child Care Reform) Bill 2017, submission no. 9, 3 March 2017, p. 6. 215. Subsection 541(3), Social Security Act 1991 (Cth).

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of the program and a person eligible in both years cannot transfer any unused balance from their total from the first year over to the second year.

Proposed subsection 1073K(3) provides for this exemption to also apply in relation to the person’s partner (for example, under the partner income test if the partner is also receiving an income support payment).

Proposed subsection 1073K(5) states that qualifying payments for the seasonal horticultural work income exemption are Newstart Allowance and Youth Allowance (Other).216

Proposed subsections 1073K(6) and (7) provide for the Secretary of the Department of Employment to determine, by legislative instrument, what kinds of seasonal work are to be considered qualifying seasonal horticultural work.

Part 3 of Schedule 12 (items 10-18) will repeal all of the amendments made by the Schedule on 1 July 2020.

Schedules 13-16—ordinary waiting periods, age requirements for various Commonwealth payments, income support waiting periods and other waiting period amendments (Rapid Activation of young job seekers) With the exception of their commencement dates, the measures in Schedules 13 to 16 to this Bill are identical to those contained in the Social Services Legislation Amendment (Youth Employment) Bill 2016, which is currently before the House of Representatives.217

Schedule 13—ordinary waiting periods

Commencement The measures in Schedule 13 commence on the first 1 January or 1 July after Royal Assent.

Purpose Schedule 13 amends the Social Security Act 1991 (the SS Act) to make changes to the ordinary waiting period requirements. These changes:

• extend the application of the ordinary waiting period to new recipients of Parenting Payment and Youth

Allowance (Other).218 The ordinary waiting period is seven days. It currently applies to Newstart Allowance and Sickness Allowance recipients

• create a more stringent test for waiver of the waiting period. The current grounds for waiver are that a

person is in severe financial hardship.219 The proposed changes tighten the waiver provisions by introducing an additional requirement—that the person is experiencing a personal financial crisis,220 and

• clarify that the ordinary waiting period is to be served after certain other relevant waiting periods or

preclusions have ended.221

216. Youth Allowance (Other) means for recipients other than Australian Apprentices or full-time students. 217. Parliament of Australia, Social Services Legislation Amendment (Youth Employment and Other Measures) Bill 2016 homepage, Australian Parliament website. 218. Social Security Act, proposed sections 500WA and 500WB (re. parenting payment ordinary waiting period) and 549CA and 549CB (re. youth

allowance ordinary waiting period). 219. A person is in severe financial hardship if the value of their liquid assets is less than their fortnightly rate of payment if they are single, or less than double their fortnightly payment if they are partnered. See subsections 19C(2) and (3) of the Social Security Act, 220. Social Security Act, proposed section 19DA. A person will be considered to be ‘experiencing a personal financial crisis’ if they are in severe

financial hardship and have been subject to domestic violence; or incurred unavoidable or reasonable expenditure in the preceding four weeks. Additional circumstances can be prescribed by the Secretary though a legislative instrument. Note: Other existing exemptions from the ordinary waiting period will continue to be available, including:

• reclaiming within 13 weeks of last receiving income support

• participating in certain employment services designed for vulnerable job seekers with multiple barriers to work.

221. The proposed changes remove the concurrent application of the waiting period. This means the ordinary waiting period will be served after the liquid assets test waiting period, income maintenance period, seasonal work preclusion period and newly arrived resident’s waiting period (as relevant to the specific claimant).

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History of the measure This Schedule represents the sixth time the proposed changes have been put forward in the last three years.

The measure was first introduced in the Social Services and Other Legislation Amendment (2014 Budget Measures No. 1) Bill 2014.222 The Government was unable to secure the passage of this Bill through the Senate and it was discharged from the Notice Paper in the Senate on 28 October 2014. Subsequently, the measure was reintroduced in the Social Services and Other Legislation Amendment (2014 Budget Measures No. 4) Bill 2014.223 This Bill did not proceed beyond the second reading stage in the Senate and a revised version of the measure was introduced in the Social Services Legislation Amendment (Youth Employment and Other Measures) Bill 2015.224

Under this revised version, claimants of Widow Allowance were excluded from the ordinary waiting period and additional circumstances in which a person may meet the definition of experiencing a personal financial crisis, and thus be exempt from the ordinary waiting period, were set out. The Government failed to secure the passage of this Bill through the Senate.

The measure was then reintroduced in the Social Services Legislation Amendment (Youth Employment) Bill 2015 which was before the House of Representatives when Parliament was dissolved.225 The measure was then reintroduced in the Social Services Legislation Amendment (Youth Employment) Bill 2016, which is currently before the House of Representatives.226

Further information For an analysis of the measure, see the Bills Digest for the Social Services Legislation Amendment (Youth Employment and Other Measures) Bill 2015.227

Schedule 14—age requirements for various Commonwealth payments

Commencement The measures in Schedule 14 commence on the first 1 January or 1 July after Royal Assent.

Purpose Schedule 14 amends the SS Act and the Farm Household Support Act 2014 to:

• raise the eligibility age for Newstart Allowance and Sickness Allowance, from 22 to 25 years, 228

• raise the current ceiling age for Youth Allowance, from 21 years to 24 years, and

• make consequential amendments to align the rates for Farm Household Allowance with Newstart Allowance

and Youth Allowance.229

History of the measure This Schedule represents the sixth time the proposed changes have been put forward in the last three years.

This measure was originally introduced in the Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014.230 The Government was unable to secure the passage of this Bill through the Senate

222. Parliament of Australia, ‘Social Services and Other Legislation Amendment (2014 Budget Measures No. 1) Bill 2014 homepage’, Australian Parliament website. 223. Parliament of Australia, ‘Social Services and Other Legislation Amendment (2014 Budget Measures No. 4) Bill 2014 homepage’, Australian Parliament website. 224. Parliament of Australia, ‘Social Services and Other Legislation Amendment (Youth Employment and Other Measures) Bill 2015 homepage’,

Australian Parliament website. 225. Parliament of Australia, ‘Social Services Legislation Amendment (Youth Employment) Bill 2015 homepage’, Australian Parliament website. 226. Parliament of Australia, ‘Social Services Legislation Amendment (Youth Employment) Bill 2016 homepage’, Australian Parliament website. 227. M Klapdor and M Thomas, Social Services Legislation Amendment (Youth Employment and Other Measures) Bill 2015, Bills digest, 120, 2014-

15, Parliamentary Library, Canberra, 15 June 2015. 228. See items 3 to 5 of Schedule 14 to the Bill. Note existing Newstart and Sickness Allowance recipients aged 22-24 years will remain in receipt of Newstart Allowance (grandfathering applies). See items 16-17 of Schedule 14 to the Bill. Also note the age at which a person is regarded as

‘independent’ (currently 22 years) will not change under the proposed amendments, meaning persons above 22 will continue to not be subject to parental means testing. 229. Items 19, 21, 22, 24 and 25 of Schedule 14 to the Bill.

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and it was discharged from the Notice Paper on 28 October 2014. The measure was reintroduced in the Social Services and Other Legislation Amendment (2014 Budget Measures No. 4) Bill 2014.231 This Bill did not proceed beyond the second reading stage in the Senate and the measure was reintroduced in the Social Services Legislation Amendment (Youth Employment and Other Measures) Bill 2015.232 The Government failed to secure the passage of this Bill through the Senate and the measure was reintroduced in the Social Services Legislation Amendment (Youth Employment) Bill 2015 which, as noted above, lapsed on the prorogation of Parliament.233 The measure was reintroduced in the Social Services (Youth Employment) Bill 2016, which is currently before the House of Representatives.234

Further Information The proposed changes are controversial. For an analysis of the measure, and discussion of the key issues, see the Bills Digest for the Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014.235

Schedule 15—income support waiting periods

Commencement The measures in Schedule 15 commence on the first 1 January or 1 July after Royal Assent.

Purpose Schedule 15 amends the SS Act to introduce a four-week waiting period for new claimants of Youth Allowance (Other) and Special Benefit who are under 25 years of age.236

The waiting period will apply to those new claimants who are determined to be the most work-ready, that is, those claimants who are assessed as being eligible for Stream A services under jobactive employment services arrangements.237 During the four-week waiting period, new claimants will be obliged to participate in a RapidConnect Plus rapid activation strategy, introduced under Schedule 16 of the Bill (see below).

History of the measure This Schedule represents the sixth time a proposed waiting period for income support for young people has been put forward in the last three years.

230. Parliament of Australia, ‘Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014 homepage’, Australian Parliament website. 231. Parliament of Australia, ‘Social Services and Other Legislation Amendment (2014 Budget Measures No. 4) Bill 2014 homepage’, Australian Parliament website. 232. Parliament of Australia, ‘Social Services and Other Legislation Amendment (Youth Employment and Other Measures) Bill 2015 homepage’,

Australian Parliament website. 233. Parliament of Australia, ‘Social Services Legislation Amendment (Youth Employment) Bill 2015 homepage’, Australian Parliament website. 234. Parliament of Australia, ‘Social Services Legislation Amendment (Youth Employment) Bill 2016 homepage’, Australian Parliament website. 235. C Ey, M Klapdor, M Thomas and P Yeend, Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014, Bills

digest, 16, 2014-15, Parliamentary Library, Canberra, 21 August 2014, in particular, pp. 33 to 36. 236. See Social Security Act, proposed subsections 549CAA(3)-(4), at item 6 of Schedule 15 to the Bill (youth allowance) and proposed subsections 739AA(3)-(4), at item 9 of Schedule 15 to the Bill (special benefit).

The income support waiting period will be served in addition to the one week ordinary waiting period. Other waiting periods may also be applicable. The social security benefit becomes payable once all waiting periods have elapsed. 237. Exemptions from the income support waiting period include:

• young people with barriers to employment (people classified as eligible for Stream B or C services)

• Disability Employment Services participants

• parents with 35% or more care of a child

• young people in (or recently left) State care

• people with an activity test exemption of 15 days or more (eg. pregnant women within six weeks of birth, domestic violence victims,

disability support pension claimants, and others in special circumstances).

• people who have served a four-week income support waiting period within the last six months.

• people who have transferred from another social security payment.

See Social Security Act, proposed section 549CAB and proposed subsection 549CAA(2), at item 6 of Schedule 15 to the Bill (re. youth

allowance); and proposed section 739AB and proposed subsection 739AA(2), at item 9 of Schedule 15 to the Bill (re. special benefit).

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A measure that would have imposed a six-month waiting period on a majority of new claimants of Newstart Allowance, Youth Allowance (other) and Special Benefit under the age of 30 was introduced in the Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014.238 The Government was unable to secure the passage of this Bill through the Senate and it was discharged from the Notice on 28 October 2014. Subsequently, the measure was reintroduced in the Social Services and Other Legislation Amendment (2014 Budget Measures No. 4) Bill 2014.239 This Bill did not proceed beyond the second reading stage in the Senate.

A revised measure that would apply a waiting period of four weeks on new claimants of Youth Allowance (other) and Special Benefit aged under 25 years was introduced in the Social Services Legislation Amendment (Youth Employment and Other Measures) Bill 2015.240 The Government failed to secure the passage of this Bill through the Senate and the measure was reintroduced, with a relatively minor change, in the Social Services Legislation Amendment (Youth Employment) Bill 2015.241 This Bill lapsed on the prorogation of Parliament and the measure was reintroduced in the Social Services Legislation Amendment (Youth Employment) Bill 2016, which is currently before the House of Representatives.242

Further Information The proposed changes are controversial. For a brief analysis of the measure, see the Bills Digest for the Social Services Legislation Amendment (Youth Employment) Bill 2016243 and the 2015-16 Budget Review article Waiting period for young people to access income support.244

Schedule 16—other waiting period amendments (Rapid Activation of young job seekers)

Commencement The measures in Schedule 16 commence immediately after the commencement of Schedule 15.

Purpose Schedule 16 amends the SS Act to introduce a requirement that young people subject to the new four-week income support waiting period (introduced under Schedule 15) undertake a number of additional job search activities245 during this period in order to qualify for the receipt of income support.246

This measure, which was announced as a part of the 2015-16 Budget, was first introduced in the Social Services Legislation Amendment (Youth Employment) Bill 2015.247 This Bill lapsed on the prorogation of Parliament and the measure was reintroduced in the Social Services Legislation Amendment (Youth Employment) Bill 2016, which is currently before the House of Representatives.248

238. Parliament of Australia, ‘Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014 homepage’, Australian Parliament website. 239. Parliament of Australia, ‘Social Services and Other Legislation Amendment (2014 Budget Measures No. 4) Bill 2014 homepage’, Australian Parliament website. 240. Parliament of Australia, ‘Social Services and Other Legislation Amendment (Youth Employment and Other Measures) Bill 2015 homepage’,

Australian Parliament website. 241. Parliament of Australia, ‘Social Services Legislation Amendment (Youth Employment) Bill 2015 homepage’, Australian Parliament website. 242. Parliament of Australia, ‘Social Services Legislation Amendment (Youth Employment) Bill 2016 homepage’, Australian Parliament website. 243. M Thomas, Social Services Legislation Amendment (Youth Employment) Bill 2016, Bills digest, 16, 2016-17, Parliamentary Library, Canberra, 5

October 2016. A brief analysis of the measure in its original form is contained in C Ey, M Klapdor, M Thomas and P Yeend, Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014, Bills digest, 16, 2014-15, Parliamentary Library, Canberra, 21 August 2014, pp. 33-36. 244. M Thomas, ‘Waiting period for young people to access income support’, Budget review 2015-16. 245. The activities include: • meeting with a job search provider • agreeing to a Employment Pathway Plan • developing an up-to-date resume • creating an online job seeker profile, and • providing evidence of satisfactory job search activities (20 job applications) 246. Social Security Act, proposed subsections 549CAC(1) and 739AC(1) (youth allowance or special benefit not payable when a claimant fails to comply with an employment pathway plan during waiting period). 247. Parliament of Australia, ‘Social Services Legislation Amendment (Youth Employment) Bill 2015 homepage’, Australian Parliament website. 248. Parliament of Australia, ‘Social Services Legislation Amendment (Youth Employment) Bill 2016 homepage’, Australian Parliament website.

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For an analysis of the measure, see the Bills Digest for the Social Services Legislation Amendment (Youth Employment) Bill 2015.249

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249. M Thomas, Social Services Legislation Amendment (Youth Employment) Bill 2015, Bills digest, 34, 2015-16, Parliamentary Library, Canberra, 16 October 2015.