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Thursday, 6 September 1984
Page: 523


Senator GRIMES (Minister for Social Security)(10.16) —I move:

That the Bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows-

This Bill is an omnibus Bill implementing many of the major social security and repatriation initiatives of the 1984-85 Budget. It also gives effect to the Government's policy on the asset testing of pensions announced in the Senate on 1 June 1984.

The Budget measures contained in this Bill amount to an increase in expenditure on income security and social welfare of $397 million in 1984-85 and $616m in a full year. On top of the $938m increase in expenditure that automatically results in 1984-85 from factors such as increased numbers of pensioners and beneficiaries, and the indexation of pensions and benefits, this increase is considerable and demonstrates the Government's commitment to improving the lot of the poor and disadvantaged. It has necessarily been achieved within an overall economic strategy that, of itself, also will be of substantial benefit to low income groups by reducing unemployment and inflation.

The Bill provides substantial increases in assistance for those most in need. For example, a sole parent with one child and renting privately will receive in November 1984 up to $11.50 a week, or 9.6 per cent more as a result of the measures contained in this Bill.

At the same time, the Bill also provides for the application of an assets test to ensure that resources will not be dissipated on those who do not require assistance.

I will give details of the financial impact of these measures as I deal with each major initiative.

BUDGET MEASURES

Social Security Act 1947

The major Budget initiatives dealt with in Part II of this Bill consolidate and extend the steps taken by the Government in last year's Budget to provide additional assistance to those in greatest need in our community.

The Bill provides for a special increase in the basic rate of all indexed pensions and benefits for single people and married couples. Additional assistance will be provided to single adult unemployment beneficiaries without dependants, to private renters, and to pensioners, beneficiaries and other low income families with children.

Social Security (Budget Measures and Assets Test) Bill

Social Security (Budget Measures and Assets Test) Bill

Social Security (Budget Measures and Assets Test) Bill

Social Security (Budget Measures and Assets Test) Bill

Social Security (Budget Measures and Assets Test) Bill

Social Security (Budget Measures and Assets Test) Bill

Increase in Pensions and Benefits

One of the Government's major concerns is to improve the adequacy of pension and benefit rates by raising, over time, the basic pension and benefit rates to 25 per cent of Average Weekly Earnings.

As progress towards this objective, we have decided to increase the rate of all indexed pensions and benefits by $2.50 a week for single people from November 1984. Married couples will receive an extra $4.20 a week.

In the absence of these increases, the rates of indexed pensions and benefits would have remained unchanged in November 1984 due to the negative movement in the Consumer Price Index in the six months ending June 1984. Without this increase, the single pension as a proportion of Average Weekly Earnings would have represented about 23.2 per cent. It is estimated that this measure will lift the single pension as a proportion of Average Weekly Earnings in November 1984 to about 23.8 per cent.

The maximum rate of pension or benefit for single adults, other than unemployment beneficiaries with no dependants (for whom special provision is made in this Bill), will be lifted to $91.90 a week, and for a married couple to $153.30 a week.

Under the income test, a single person without children will be able to have income of $213.80 a week before the pension ceases. For married couples without children, the pension will cease at $356.60 a week. These limits are higher where there are children.

The limits are also higher for age pensioners aged 70 or over, to whom a more lenient income test applies.

Some 1,934,000 pensioners and 213,500 beneficiaries will benefit from this initiative at an estimated cost of $192.1m in the current financial year and $ 279.0m in a full year.

The new rates for pensions and supporting parents' benefits will operate from pay day 1 November 1984, while unemployment, sickness and special benefit instalments will be paid at the new rates on and after that date.

Initiatives for the Unemployed

One of the Government's major election commitments was to restore progressively the rate of unemployment benefit for single adults to parity with the standard rate of pension.

Before November 1978, the single adult rate for unemployment beneficiaries was set at the same level as the single rate of pension and sickness benefit. After its exclusion from automatic pension and benefit indexation arrangements by the previous Government, its real value declined substantially. Single adult unemployment beneficiaries were thereby subjected to the greatest discrimination and required to bear the greatest burden during the economic recession.

Since coming to office, we have moved progressively to end this discrimination by closing the gap between this group and single pensioners and sickness beneficiaries. We increased the rate by $4.25 a week in May last year, and then by $4.95 a week in November 1983. As well, we provided for automatic indexation of the rate from May this year, which added $3 a week, in addition to a special increase in May of $2 a week.

In keeping with our election commitment, this Bill provides further assistance. From November 1984, the rate of unemployment benefit for single people aged 18 years and over who have no dependants will be increased by $2.50, bringing that rate to $81.10 a week, and, it will be increased by $2 a week, in addition to any automatic indexation increase, from May 1985.

These initiatives will affect some 381,000 beneficiaries at an estimated cost of $39.4m in the current financial year and $89.4m in a full year.

In our first Budget, we increased the rate of benefit for single unemployment and sickness beneficiaries aged 16 and 17 years by $5, to $45 a week, from November 1983. This Bill provides for a further $5 a week increase for this group from November 1984, where they have been in continuous receipt of an income security payment for 6 months.

An estimated average of some 13,600 young beneficiaries will benefit from this increase. The estimated cost will be $2.3m in the current financial year and $3. 5m in a full year.

To ensure that single beneficiaries aged 16 and 17 years with dependants receive the same level of basic assistance as other single pensioners and beneficiaries caring for dependent children, their maximum rate of benefit will be increased to the standard rate of pension from November 1984. Normal indexation provisions will apply in future. This will be of particular benefit in tragic cases where the loss of both parents has given young people the responsibility of caring for younger brothers and sisters.

An estimated 300 beneficiaries will benefit from this initiative at an estimated cost of $0.5m in the current financial year and $0.7m in a full year.

Assistance to Renters

Rent assistance is available for pensioners, supporting parent beneficiaries and long term sickness beneficiaries (that is, those of 6 or more weeks standing ) who have little or no income apart from the pension or benefit and pay private rent or lodging. The maximum rate of payment currently is $10 a week.

In recognition of the particular difficulties faced by people forced to pay high rents in the private market, the maximum rate of rent assistance will be increased by 50 per cent to $15 a week from November 1984. This will significantly improve the level of assistance to eligible pensioners and beneficiaries who rent privately.

The rate of incentive allowance paid to people in sheltered workshops and to invalid pensioners undertaking activity therapy and adult training programs, will also increase to $15 a week from November 1984.

Some 288,000 pensioners and 17,300 sickness beneficiaries will benefit from this initiative, at an estimated cost of $46.0m in the current financial year and $66.6m in a full year.

Assistance for Pensioners, Beneficiaries and other Low Income Families with Children

In keeping with this Government's strong commitment to improving the level of assistance provided to low income families with dependent children, we have built on the priority we gave these families in last year's Budget by again increasing payments to them.

From November 1984 the maximum rates of additional pension or benefit paid for each child of a pensioner or beneficiary and the Family Income Supplement paid to assist low income working families, will be lifted by $2 to $14 a week per child. Together with the $2 increase also provided last year, these payments will have been increased by 40 per cent since 1983 when this Government came to office.

These measures will benefit an estimated 287,000 pensioner and 128,500 beneficiary families, as well as 27,000 families in receipt of the Family Income Supplement. They will cost an estimated $60.8m in the current financial year and $89.5m in a full year.

The Bill also provides for a 25 per cent increase in the rate of mother's/ guardian's allowance from November 1984, bringing the maximum rate to $10 a week . This allowance is provided in recognition of the greater needs of sole parents relative to other pensioners and beneficiaries with dependent children, and is paid in addition to additional pension or benefit paid for each child.

An estimated 258,000 pensioners and beneficiaries will benefit from this measure at an estimated cost of $18.5m in the current financial year and $26.8m in a full year.

Repatriation Act 1920

Repatriation Budget initiatives are also dealt with in Part II of this Bill. Pension increases are to extend to service pensioners and to those in receipt of war or defence widows' pensions. In addition, increases are made in the rates of pensions payable to orphans, pension additions for certain amputations or loss of vision, and attendant allowance.

Other initiatives for increases in Recreation Transport Allowance, Clothing Allowance and Funeral Benefit will be achieved by amendment of regulations.

Increase in Pensions and Allowances

Repatriation service pensions are similar to age and invalid pensions except that, where granted on the ground of age, they are available at the age of 60 for men and 55 for women. Service pension rates are calculated by reference to the rates of age pension payable under the Social Security Act 1947, and accordingly, single service pensioners receive an increase of $2.50 a week and married couples will receive an increase of $4.20 a week from 8 November 1984. Some 401,000 service pensioners will benefit from this initiative.

War and defence widows will also receive an additional $2.50 a week to maintain parity with Social Security widows' pensions. This initiative will affect some 59,000 war and defence widows.

Increases in additional pension for children, guardian's allowance and rent assistance, which apply to Social Security pensioners, will also flow to service pensioners in similar circumstances.

Some 5,600 Repatriation pensioners will benefit from increases in additional pension for children and a further 300 families will benefit from increases in guardian's allowance. Some 12,000 service pensioners are affected by our initiative in relation to rent assistance.

These measures will cost an estimated $37.3m in the current financial year and $60.3m in a full year.

The Bill provides for increases in allowances paid to Veterans suffering certain amputations or loss of vision, in attendant allowance and in pensions paid to orphans. The increases will have effect from 8 November 1984 and represent movements in the Consumer Price Index in the twelve months since increases in last year's Budget.

Additions to pension vary according to the type of disability. The range of benefits will be from $5.50 per week for loss of a leg below the knee, up to $35 .90 a week for the loss of both legs. These amounts represent an addition to any General Rate disability pension otherwise payable.

Higher amounts for certain other amputations are adjusted automatically in line with any movements in the Consumer Price Index and were increased in May of this year. They will remain unchanged in November 1984 due to the negative movement in the Consumer Price Index in the six months ending June 1984.

The rate of attendant allowance is to be increased from $25.90 to $26.90 a week in the case of the Veteran who is blind or is suffering a cerebro-spinal injury. In the case of a Veteran who has had both arms amputated or who is blind and has lost hearing or speech, the allowance is to be increased from $51.80 to $53.80. This allowance is also paid in addition to disability pension.

A double orphan's pension will be increased from $36.90 to $38.40 a week while the increase for a single orphan will be from $18.45 to $19.20 a week.

These measures will cost an estimated $70,000 in the current financial year and $100,000 in a full year.

The opportunity has been taken to make a number of minor consequential amendments to the Acts dealt with in this Bill, to update the indexed rates of pensions and benefits to reflect the actual position of those rates as at November 1984.

Assets Test

In my statement to the Senate on 1 June 1984, I announced the Government's decisions on the Report of the Panel of Review of the Proposed Income and Assets Test.

I said-

'It is time for us all to recognise that the real issue is not whether we should have an assets test, but what is the fairest and best form of assets test .'

As long as we have a needs-based welfare system, it is necessary to have a measure of need which takes account fully of the financial resources of a person . Clearly, it is not fair for those with little or no assets to be treated on the same basis as those with substantial assets. Yet this is the effect of a means test which looks only to a person's income.

Traditionally, the measure of need in the Australian social security system has been a means test based on both income and assets. In 1976 the assets component of the means test was removed. Since then, there has been widespread concern about wealthy people receiving a pension, especially where their asset wealth was arranged to avoid producing income.

Inevitably, the absence of an assets test provided greater opportunities for the circumvention of the income test. Avoidance schemes are now widely available and readily accessible. If no steps are taken to discourage the proliferation of these schemes, basic inequities are increased, resources are mis-directed, and public confidence in the pension system is undermined.

The Government believes it is necessary to take account of both assets and income in any pensions test in order to be both a fair measure of need and equitable to all members of the community.

The key features of the assets test are as follows.

The test will apply to all social security and repatriation service pensions that are currently subject to the income test, but the majority of people receiving these pensions will not be affected by the assets test. It will not apply to blind pensions, to unemployment, sickness or special benefits, to repatriation war or defence widows' pensions, or to repatriation disability pensions.

It will come into effect on pay day 21 March 1985 for social security pensions and pay day 14 March 1985 for repatriation service pensions.

The principal home owned and occupied by the pensioner, no matter what its value, is completely excluded from the test. So is that part of the land surrounding the home (known as ''curtilage'') that is used for domestic purposes .

The land allowed for domestic purposes cannot exceed the size of a normal building block in the immediate area and also cannot exceed 2 hectares ( approximately 5 acres). In the case of a farm, market garden, hobby farm or bush block, this means that an area of up to 2 hectares will be treated as '' curtilage'' if it is used mainly for domestic purposes.

Other exemptions include pre-paid funeral expenses, including the cost of a cemetery plot, awards for valour not held for investment or hobby purposes, and special aids for disabled people such as wheelchairs, hearing aids, and orthopaedic irons and braces.

The first $70,000 of other assets is exempt for single pensioners who live in their own homes. For married couples who occupy their own homes, the first $100, 000 of other assets is exempt. These exemption levels are $50,000 higher for non -home owners such as people renting.

The eligibility limits for fringe benefits and for Repatriation medical treatment for service pensioners are $80,000 for single persons and $115,000 for married couples living in their own homes. An additional $50,000 is added to these limits for non-home owners.

All these limits will be indexed annually for movements in the Consumer Price Index.

These limits, in conjunction with the exemptions outlined above, are most reasonable and give due recognition to people's efforts in accumulating assets to provide themselves with financial security. At the same time, they will ensure that the mis-direction of resources to people with substantial wealth who do not have a real need for pensions, is addressed.

Above these limits, assets will have the effect of reducing the maximum rate of pension by $26 a year for every $250 of assets, that is, by $1 per fortnight for each $250 of assessable assets.

On the basis of estimated rates of pension applying in March 1985, no pension will be payable where assessable assets exceed about $116 000 or $177 000, respectively, for single pensioners and married couples who occupy their own homes. For those who do not occupy their own homes, the corresponding amounts are $166 000 and $227 000.

The assets test and the current income test will apply separately but only one will determine the amount of pension to be paid. The actual rate payable will be the lower of the rates produced by the income or the assets test.

The value of assets to be taken into account will be their net market value. This means the amount of money a person could reasonably expect to receive if the assets were to be sold, less any debts on that asset such as a registered mortgage or a hire purchase debt. It does not mean the amount paid for the asset , its insured value or its replacement cost.

To minimise intrusion into the personal affairs of a pensioner, a net market value of $10 000 is set on contents of the pensioner's principal home and other personal effects where they are used primarily within the home for private and domestic use. The valuation of assets in this area is based largely on self- assessment. Pensioners can claim a lower amount if they consider $10 000 to be in excess of the actual net market value of these assets. Where they consider that the net market value of those assets exceeds $10 000, people will be required to notify that value.

The Departments of Social Security and Veterans' Affairs will normally accept the pensioners's advice; only where there is strong evidence suggesting that there has been a substantial under or over-valuation will the Departments query the information supplied. Any such follow-up would be by telephone or mail. Officers of the Departments will be available to help pensioners fill in the form in their own homes in circumstances of ill-health. In no case, however, will officers enter a home to value or check the valuation of household contents or personal effects.

In cases where professional valuation of assets such as real estate, farms or businesses is required, the valuation will be arranged through the Australian Taxation Office at no cost to the pensioner.

Special arrangements will apply to people who move from their homes into a nursing home, mental hospital or long term hospital care, and retain ownership of their former home, and to other people who are temporarily absent from their homes.

In the case of people who move into a nursing home, the value of their former home will continue to be exempt for 2 years after they enter the nursing home or similar institution. This benefits mainly single people as the home is exempt for a married couple as long as one remains in the home. For those who are temporarily absent from their homes, the value of their homes will continue to be exempt for up to 1 year. Periods of absence prior to March 1985 when the assets test starts, are not counted in calculating these exemption periods.

There are a wide variety of arrangements under which people enter aged persons' homes. Where such a home is the principal residence and pensioners have acquired a right or interest in relation to the home, such as a right to accommodation for life, they will be allowed the home owner's exemption, and any charge or donation paid to obtain such accommodation or equity in the home would be exempt . Other people in aged persons' homes who have no right or interest in the home, will be allowed the extra $50 000 exemption as non-home owners.

The Bill contains provisions to ensure that the income or assets test is not circumvented by pensioners depriving themselves of income or assets without receiving adequate value in return.

Similar provisions apply in the current income test but, in the absence of an assets test, they have had limited effect.

However, to allow for modest gifts, such as to relatives or charities, pensioners will be permitted to dispose of assets to the value of $2 000 if single or $4 000 combined for a married couple, in each year without affecting pension entitlement.

As I announced in the Senate on 1 June 1984, any gifts or other forms of divestment which occurred on or after that date can affect pension once the test is introduced.

These provisions will not, however, prevent pensioners selling or reducing their assets for legitimate reasons, such as buying consumer goods, maintaining or improving their homes, or financing holidays. Their purpose is to ensure that people cannot avoid the test, and thereby continue to receive a pension, by transferring or gifting assets to family or friends. Public subsidy of such arrangements is not a purpose of the pension system.

The exclusion of the principal home and the assets exemption levels means that the assets test will not affect the majority of pensioners. However, special provision is made to ensure that people affected by the assets test are not placed in severe financial hardship. In keeping with the intention of the assets test, these provisions will generally only apply where it would be unreasonable or impossible to sell or raise money on an asset, and that as a result of not exempting all or part of the assets, the pensioner would have insufficient income.

They will be administered on a case-by-case examination of individual circumstances, but will not be generally available to people whose hardship results from having deprived themselves of assets or income.

In addition, people of age pension age who are affected by the assets test and have at least 70 percent of their assets (excluding exempt property such as their principal home) in non-liquid form may, if they choose, be paid a loan. The loan is payable on the basis that the assets test does not apply, and is the difference between the pension payable under the income test and any pension that would otherwise have been payable under the assets test. In line with the recommendation of the Gruen Panel, interest on the loan will be levied at a commercial rate. For this purpose, it has been decided to use a rate related to the most common rate charged by trading banks on overdrafts of less than $100 000. This is currently 13.5 per cent. It is intended to apply the rate prevailing at July each year for each succeeding twelve months. The value of the loan, plus interest, will be a statutory charge on the person's assets. Generally, the loan will be recoverable only from the person's estate, but in no case will the value of an estate be reduced below $100,000.

Social security pensioners unhappy with decisions made under the assets test will be able to utilise the established appeals system. In the first instance, they will have the right to have decisions which affect them reconsidered by a Department of Social Security review officer. If such a review is unsuccessful, they can seek further review by the Social Security Appeals Tribunal. An additional right of appeal exists to the Administrative Appeals Tribunal.

Under the Repatriation Legislation Amendment Bill 1984, a review process will be provided for people dissatisfied with service pension decisions. Reviews will be conducted by senior delegates of the Repatriation Commission. If a further review on the merits of the case is desired, a service pensioner can appeal to the Administrative Appeals Tribunal. These provisions will apply from 1 January 1985 and, therefore, be in operation for service pensioners affected by the assets test.

It is difficult to estimate the overall effect of the assets test on outlays, owing to the lack of data on pensioners' asset holdings and income distribution.

When the assets test is in full effect in 1985-86, it is expected to save in the order of $60m in pension outlays. After allowing for the costs of administration, the net savings will be about $50m. Net savings will rise steadily in subsequent years with the number of pensioners, and increasing wealth of potential pensioners. For example, it could be expected that Australians in future will take more assets to retirement through the growth of entitlement to superannuation lump sums, and through the coming to retirement of a generation whose lifetime accumulation of assets, unlike that of their parents , has not been affected by depression and the Second World War.

The savings in later years also will be greater to the extent that artificial schemes to avoid the income test would have proliferated in the absence of an assets test.

Establishment costs are higher than on-going administrative costs. This, together with the commencement of the operation of the test in March 1985, means that there will be a net cost of about $12m in 1984-85. Savings in pension outlays are estimated to be about $18m and establishment costs are estimated to be about $30m.

The assets test seeks to reduce significant inequities in the current pensions income test and to address the increasingly important problem of income test avoidance. Most importantly, it strengthens our capacity to provide further increases in assistance for Australians in need through the types of measures we have introduced in this Bill, in the period ahead when the ratio of aged to working Australians is going to be rising. The majority of pensioners will be unaffected by the introduction of the assets test. Those who will be affected will be those who will be able to adequately support themselves without a pension. The system of administration depends heavily on self-declaration, which makes the administration less costly and less intrusive. Overall, it is a simple and fair system of assets testing.

Mr President, the measures contained in this Bill demonstrate the Government's commitment to assisting those most in need in our community.

I commend the Bill to the Senate.

Debate (on motion by Senator Reid) adjourned.