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A New Tax System (Aged Care Compensation Measures Legislation Amendment) Bill 1998
Bills Digest No. 85 1998-99
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Diges t does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
A New Tax System (Aged Care Compensation Measu res Legislation Amendment) Bill 1998
The purpose of the A New Tax System (Aged Care Compensation Measures Legislation Amendment) Bill 1998 (the Bill) is to quarantine the 4 per cent increase provided to social security and veterans’ pensioners fr om the fees payable by residential aged care recipients.
It ensures that both pensioners and non-pensioners will not pay increased fees as a result of the 4 per cent increase to be paid upon the commencement of the goods and services tax legislation on 1 July 2000.
The Bill also ensures that war widows and widowers continue to pay the same amount in income tested fees as other care recipients on the same total income.
On 13 August 1998 the Federal Government released its prop osals for reform of the Australian tax system(1) of which, a Goods and Services Tax (GST) was the centrepiece.
On 2 December 1998 the Treasurer introduced a raft of 16 bills(2) to the House of Representatives comprising the first part of the reform package. Seven of the bills propose to replace the current Wholesale Sales Tax and to enact a GST that will be levied at a rate of 10 per cent with effect from 1 July 2000. Nine of the bills introduced non-GST measures contained in the tax reform plan.
The tax reform plan proposes to:
â¢ introduce a GST which eliminates sales tax and a range of nine other indirect taxes
â¢ change Commonwealth-State financial relations by providing States and Territories with an independent revenue base
â¢ implement significant change s to individual marginal tax rates
â¢ implement a major rationalisation of family assistance
â¢ replace the various existing taxation payment and reporting systems of company tax, provisional tax, PAYE,(3) PPS(4) and RPS(5) by one quarterly tax payment syste m, PAYG(6)
â¢ introduce a new universal business number system
â¢ move toward an ‘entity’ taxation system which is directed toward the elimination of tax advantages between different business structures, and
â¢ simplify the imputation system and introduce ref unds for excess franking credits.
The main Bill implementing the GST is the A New Tax System (Goods and Services Tax) Bill 1998. The Bills Digest for that Bill will contain a more detailed history of events leading up to the GST and, naturally, a detailed account of how the proposed GST wi ll operate.
There is no doubt that the reforms proposed by the government present sweeping and fundamental changes to the tax system in Australia.
The introduction of a GST necessarily raises questions per taining to the distributional impacts of such a tax. In particular, consideration is given to any potential disadvantage that may be incurred by sectors of the community due to the introduction of a value-added tax.
The compensation package introduced by the government purportedly avoids the situation where persons would be worse-off under the new tax system. The reform package will, therefore, provide an unambiguous increase in total economic welfare if, after implementation, a number of individuals are better off and nobody is made worse off.(7)
The contentious issue, of course, is whether the package succeeds in achieving its aims.
The key issue appears, therefore, to be the accuracy of the projected distributional impacts of the tax reform package. The accuracy of the estimates of the impact of change remain a legitimate concern for those most vulnerable in the community.
For further background information concerning the compensation package please refer to the Bills Digest for the A New Tax System (Compensation Measures Legislation Amendment) Bill 1998.
In general the Aged Care Act 1997 (the Act) provides for the Commonwealth to give financial support, through the payment of subsidies, for the provision of aged care.
The objects of the Act include:
â¢ the provision of funding of aged care
â¢ promoting a high quality of care and accommodation
â¢ ensuring that aged care services are targeted towards the people with the greatest need for tho se services, and
â¢ encouraging diverse, flexible and responsive aged care services.
Before the Commonwealth can pay a subsidy to a provider of aged care they must be approved.
Approved providers have certain responsibilities relating to accountability, the quality of care provided and the user rights for care recipients.
Failure to meet these responsibilities can lead to the imposition of sanctions that affect the status of approvals and may, therefore, affect amounts of subsidy payable to an approved provider.
One of the responsibilities of an approved provider relates to resident fees charged for, or in connection with, the provision of care and services.
Schedule 1 amends the Aged Care Act 1997 .
1.1 Division 58
Division 58 deals with responsibilities of approved providers relating to residential fees charged for, or in connection with, the provision of care and services.
Basically, the resident fee in respect of any day must not exceed the maximum daily amount.
The basic component of the maximum daily amount is the standard resident contribution as defined in section 58-3 or section 58-4. Section 58-3 specifies the standard resident contribution for people not receiving an income support payment and section 58-4 specifies the contribution for people receiving an income support payment.
1.2 Standard resident contribution for people not receiving income support payments
Subsection 58-3( 1) currently states that the standard resident contribution for a person who is not receiving an income support payment is the greater of a specified amount ($26.40), or that amount indexed in accordance with the Social Security Act 1991 . (The current amount, applicable from 1 October 1998, is $27.11.)
Item 2 proposes to repeal subsection 58-3(1) and substitute new subsection 58-3(1) , which dispenses with the current method of setting the amount of contribution and replaces it with a formula that refers to a multiple of the ‘standard pensioner contribution’. The definition of standard pensioner contribution is currently used in determining the rate of standard resident contribution for those people receiving income support payments.
The change in methodology provides consistency between the two sections.
The standard resident contribution for an individual who is not receiving an income support payment is proposed to be an amount equal to 1.25 times the standard pensioner contribution . ( New subsection 58-3(1) )
Standard pensioner contribution is defined in Clause 1 of Schedule 1. This definition is also subject to proposed amendment under the Bill. (Refer paragraph 1.3)
The current contribution for an individual who is not receiving an income support payment is approximately 1.25 times the contribution required from a person who is receiving an income support payment. Therefore, the proposed amendments do not impact upon the difference in contributions between these two groups.
The amendment to the definition of standard pensioner contribution means that the increase in the basic age pension amount will not flow through as an increase to resident fees for persons who do not receive an income support supplement.
1.3 Standard resident contribution for people receiving income support payments
Subsection 58-4(1) states that the standard resident contribution for a person who is receiving an income support payment is an amount equal to the standard pensioner contribution.
Standard pensioner con tribution is currently defined in Clause 1 of Schedule 1 to be an amount (rounded down to the nearest cent) equal to 85% of the basic age pension amount worked out on a per day basis.
Basic age pension amount means the annual maximum basic rate under point 1064-B1 of the Social Security Act 1991 that applies to a person who is not a member of a couple within the meaning of that section.
The basic age pension amount will be the subject of the 4 per cent increase proposed in the A New Tax System (Compensation Measures Legislation Amendment) Bill 1998. In the absence of amendment the 4 per cent increase would simply flow-on as an increase in resident fees.
It is therefore proposed to amend the definition of standard pensioner contribution to delete reference to ‘85%’ and substitute an amount of 81.5 per cent. Therefore, pursuant to Item 3 , Clause 1 of Schedule 1 will be amended so that the standard pensioner contribution will be 81.5 per cent of the basic pension amount worked out on a per day basis.
This reduction from 85 per cent to 81.5 per cent of the basic pension is to maintain the standard resident contribution at approximately the same dollar amount as care recipients currently pay. That is, none of the 4 per cent increase in social security payments will be ‘eaten up’ by increases in basic daily care fees for either pensioners or non-pensioners.
The amount of residential care subsidy payable to an approved provider is worked out under Division 44.
The amount of residential care subsidy payable is worked out by adding together the amounts of residential care subsidy for each care recipient.
The amount of residential care subsidy for each care recipient is worked out by reference to a residential care subsidy calculator in subsection 44-2(2). Essentially the basic subsidy amount is first calculated, from which, supplements are added and reductions worked out by applying the income test under subdivision 44-E are deducted.
Pursuant to subsection 44-21(3) where a care recipient’s ordinary income does not exceed the ordinary income free area for that individual there is no income tested reduction but a reduction applies where it is in excess of the ordinary income free area.
If a person is a war widow or widower the person’s ordinary income for the purposes of the calculation in subsection 44-21(3) is reduced in accordance with a formula set out in section 44-25.
Item 1 of Schedule 1 amends section 44-25 by omitting the words ‘2 times’ and substituting ‘five-thirds times’.
This in effect means that war widows and widowers pay the same income tested fees as other care recipients on the same total income as a result of the 4 per cent pension increase.
1. Treasurer, Tax Reform - not a new tax - a new tax system ; Tax Reform Plan, 13 August 1998, Commonwealth of Australia
2. Seven GST Bills: A New Tax System (Goods and Services Tax) Bill 1998; A New Tax System (Goods and Services Tax Transition) Bill 1998; A New Tax System (Goods and Services Tax Administration) Bill 1998; A New Tax System (Goods and Services Tax Imposition-General) Bill 1998; A New Tax System (Goods and Services Tax Imposition-Customs) Bill 1998; A New Tax System (Goods and Services Tax-Excise) Bill 1998; A New Tax System (End of Sales Tax) Bill 1998; and
Nine Non-GST Bills: A New Tax System (Aged Care Compensation Measures Legislation Amendment) Bill 1998; A New Tax System (Australian Business Number) Bill 1998; A New Tax System (Australian Business Number Consequential Amendments) Bill 1998; A New Tax System (Income Tax Laws Amendment) Bill 1998; A New Tax System (Bonuses for Older Australians) Bill 1998; A New Tax System (Compensation Measures Legislation Amendment) Bill 1998; A New Tax System (Fringe Benefits Reporting) Bill 1998; A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Bill 1998 and A New Tax System ( Personal Income Tax Cuts) Bill 1998
3. Pay As You Earn
4. Prescribed Payments System
5. Reportable Payments System
6. Pay As You Go
- Bannock, Baxter & Davis, The Penguin Dictionary of Economics , Penguin Reference, Fourth Edition, p 80.
This is, of course, economic theory and in practical terms it will be difficult to ascertain if there is an unambiguous increase in total economic welfare.
25 January 1999
Bills Digest Service
Information and Research Service s
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