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Tuesday, 22 June 1999
Page: 7018

Mr ANDREN (5:05 PM) —The A New Tax System (Family Assistance) (Administration) Bill 1999 and the A New Tax System (Family Assistance) (Consequential and Related Measures) Bill (No. 2) 1999 follow the main family assistance and consequential and related measures bills that passed through this House last month. Those bills contain measures designed to simplify the family assistance regime by reducing the current 12 different family benefits to three. The new payments will be delivered by a `virtual' Family Assistance Office to form part of Centrelink, the ATO and Medicare offices.

The A New Tax System (Family Assistance) (Administration) Bill 1999 before this place now contains the administrative, procedural and technical rules that will apply under this new system, while the A New Tax System (Family Assistance) (Consequential and Related Measures) Bill (No. 2) 1999 amends some 20 other Commonwealth acts to bring them in line with the proposed new scheme. With the changes contained in these bills, the government has tried to simplify the system and at the same time reduce the severity of poverty traps. The advice I have is that these changes will go some way towards reducing the poverty trap phenomenon, though there is still some way to go. The government has tried to achieve this by combining overlapping payments, income tax cuts, changing payment rates, increasing the income test free areas, removing the asset tests and cutting the taper rate.

The changes will see the new family tax benefit part A replace minimum family allowance, family allowance, family tax payment part A, and family tax assistance part A. A new tax benefit part B will replace the basic parenting payment, guardian allowance, family tax payment part B, family tax assistance part B, the children rate of dependent spouse rebate and the sole parent rebate. A new child-care benefit will combine and replace the current child-care fee relief and child-care cash rebate schemes.

Quite obviously an enormous amount of work has gone into devising the new payment scheme, and I do not intend to go into the detail of such workings at the moment. I want to confine my brief comments to the changes being implemented by these bills to four areas: first, questions about the need to extricate the family assistance system from the Social Security Act and the efficacy of setting up a virtual office to administer the system; second, the government's clamp down on supposed abuses of the current family benefits system; third, problems experienced helping families in my electorate deal with the current family benefits system; and, fourth, major concerns about the proposal contained in the bills to base assessments under the new system on income estimates for the current financial year.

According to the Minister for Community Services, while the legislation does not refer to it, because it will not really exist, the new system will be administered by a virtual government agency to be known as the Family Assistance Office. This office will use the infrastructure of Centrelink, the Australian Taxation Office and Medicare offices. One may ask, `What is the point?' We have seen the name of DSS's delivery arm changed to Centrelink, we have seen the responsible minister's title changed from Minister for Social Security to Minister for Family and Community Services and now, with the changes proposed with these bills, we will see the government excising the Family Assistance Scheme from the Social Security Act and setting up a virtual office that exists in name only but is really just part of the existing infrastructure. It appears the government has some difficulty facing the fact that what we are talking about here are social security payments—nothing more, nothing less, but payments, I might add, that are estimated to cost over $2 billion a year and form part of a welfare state budget of around $50 billion.

If you are trying to simplify the system to make it easier for families to deal with, why bother fiddling with the semantics? While families might welcome the simplification of the payments themselves, I do not think they will see the point of the smoke and mirrors trick the government is playing with these name changes. Might I add that, for a government that was quick to criticise the opposition last week for the member for Batman's statements about the Labor Party being captive to the middle classes, these bills could well be labelled middle-class welfare, increasing as they do the income thresholds below which family assistance is available.

Under the current system, entitlements to the minimum family allowance cut out at $68,600 plus $3,413 for each additional child and $70,000 plus $3,000 per additional child for the family tax benefit. Under the proposed new system, the cut-off has been increased to $73,000 plus $3,000 for each additional child. The combination of increased rates, higher income thresholds, lower taper rates and removal of the assets test proposed under the new system will result in assistance being available to people on higher incomes than under the current system. These changes are in addition to the tax cuts provided by the GST package.

The government has made much in recent times of its success in reducing social security fraud. Many of these so-called successes have been in the area of family benefits, but I contend that many of those successes have been the result of flawed legislation and flawed administration, and similar flaws seem to have been embedded in this legislation. In the minister's press release dated 13 May titled `Reducing social security fraud', he claimed:

Compliance activity in Centrelink in the six months to December 1998 resulted in savings to taxpayers of around $9.7 million a week in that period with 116,370 payments cancelled or reduced.

He also said:

The vast majority of social security recipients are honest and are entitled to the payments they receive, but there is still a small minority seeking to cheat the Australian taxpayer.

There is no real doubt that such endeavours to cheat are going on. The release included figures which are very telling. For the period 1 July to 31 December 1998, Centrelink conducted 86,000 family payment reviews. From these, 13,500 resulted in total cancellation, 4,075 resulted in a rate reduction and 27,477 had debts otherwise raised against them. These overpayments resulted in some $28.2 million being raised against families for this period alone. This means some 32 per cent of all families tested were wrongly paid during that period.

Given the size of the sample, I think it is quite reasonable to assume about 32 per cent of all family allowance claimants have been wrongly paid. This compared to around 10 per cent for other payments, such as age pension, disability support pension, sickness allowance, Newstart allowance, partner allowance, youth allowance, Austudy and others.

The minister and other members of the government have trumpeted these sorts of figures as examples of what a wonderful job the government is doing cracking down on welfare fraud. On the contrary, I would suggest they point to a broken system, a system that is too complicated for many to understand, a system unable to cope with the vagaries of the way people earn income today, particularly as it does relate most overwhelmingly to this family payment area.

My office, like all members' offices I suspect, has dealt with many of the human faces behind these statistics in recent times. Invariably, the families my office has dealt with accused of this so-called fraud by the government are honest, well-meaning, ordinary families who have done all they have thought was expected of them and have received their payments in good faith, only to be slugged sometimes two years later for overpayments.

My office has tried to assist these families by representing their cases to the department, advising them on their appeal rights and assisting them in fact to prepare their cases to the SSAT and so on. It is clear from most of these cases that most problems arise when families agree to have their payments based on estimates of their income for the current financial year rather than on their actual income for the financial year ending the previous calendar year. This mechanism is meant to accommodate families who experience a change of financial circumstances or families for whom it is difficult to estimate what their income will be from year to year. Once families agree to this method of assessment, it is then their responsibility to ensure their income estimates are as accurate as possible and to inform Centrelink of any subsequent changes to their circumstance. This is invariably where the breakdown occurs.

Families claim they have informed Centrelink of changes. Centrelink then does not act on this information or claims that notification has not occurred. The families think that, because they have told Centrelink about their change in circumstance, the continuing payments are correct and so accept the money in good faith only to find out some time down the track that they are not. What concerns me is that, while all members must be seeing the same sorts of cases that my office is, the government appears with these bills to apply the current income estimate system to all cases, and I would suggest that is just asking for trouble. As the minister stated when introducing this bill:

Families who choose to receive fortnightly payments will estimate their income for the current financial year. Their estimated income will be compared with their actual income at the end of the year.

If an overpayment has occurred, it will be obtained through a range of mechanisms. Has the government forgotten the debacle it presided over back in 1997 with the Austudy actual means test which then asked all families to estimate their income and expenditure for the coming financial year?

Let me remind the House: the result was a disaster as the families targeted—invariably farming families, small business people, the self-employed—could barely estimate what they would earn in the next fortnight, let alone a year down the track. These are the very same families that have fallen foul of the current family allowance system due to having their assessments based on estimates. Little wonder changes were made at the end of 1997 to base actual means assessment on the base tax year that was the actual expenditure of families during the financial year ending in the previous calendar year.

This change, along with the others, brought the Austudy system more in line with the family allowance system, and this test was then incorporated in the common youth allowance last year. I might add that a lot of the work on that went through my office and the minister at the time acknowledged the submission that was put in because it was based on hard, coalface experience with these people during that period. So there is a little reservoir of intelligence on this in my particular electorate office. As I am sure other members can attest, since the changes in the system were made, it has run much more smoothly.

But these bills propose to go the other way, as far as I can see it, to require all families who want to receive their payments on a fortnightly basis to have their assessment based on an estimate of their income for the current financial year. As the Bills Digest to the main bill considered here some weeks ago suggested:

. . . questions arise about how current income will be calculated before income tax assessments are available and how discrepancies between estimates of adjusted taxable income and actual taxable income will be resolved.

It goes on:

Frequent overpayments and under payments would seem to be inevitable under this arrangement.

The proposal to base payments on current financial year estimates would not be a problem if the breadwinners were in stable, unchanging PAYE employment as accurate estimates would then be possible. But the proliferation of part-time, contract, casual and consultancy work, people being out of work for shorter and longer periods as well as those self-employed, as outlined above, mean increasingly families will not be able to accurately say what their income will be for the coming year.

For families whose breadwinners earn income this way, the only fail-safe option will be to wait for a lump sum paid through the tax return system, but I suspect the vast majority of families will want to continue receiving the payments on a fortnightly basis. Those who can afford to wait for the lump sum, I would suggest, will be the ones who least need the payment to cope with day-to- day expenses—those at the higher income levels.

By basing the assessment system for the new regime on estimates of family income, the government risks further alienating the very families it says it is trying to help. I know it is genuinely trying to help many families but, as stated above, according to the government's own much publicised compliance figures, some 32 per cent of all family allowance recipients under the current system have been wrongly paid. The vast majority of these errors, I would suggest, have arisen where families have been assessed on the basis of their income estimates. At the very least, amendments need to be made to this bill so assessments can be based on actual income from the base tax years.

I understand the opposition is looking at technical amendments, although I hear it will be referred to a Senate committee. But I would suggest that government and other Senate representatives examine the points I have raised and these flaws I think we are building into this bill so we can not only minimise the overpayments, which is necessary, but also minimise the distress caused by the current system.