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Drought Relief Payment Bill 1994



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Date Introduced: 11 October 1994

House: House of Representatives

Portfolio: Primary Industries and Energy

Commencement: Royal Assent.

Purpose

To introduce a Drought Relief Payment for farmers in 'exceptional circumstances' due to severe drought and provide for such farmers to be eligible for a pharmaceutical entitlements card.

Background

The programs contained in this Bill result from the announcement by the Prime Minister on 21 September 1994 concerning drought assistance. The announcement was made in response to the prolonged drought in areas of Queensland and northern N.S.W. Other areas of Australia are also suffering drought conditions.

ABARE has forecast that the drought conditions in Queensland and N.S.W. will have a dramatic effect on the outlook for farm production and incomes in 1994-5, with the net value of farm production forecast at $2.6 billion for 1994-5 in September 1994, a fall of $1 billion from it's June estimate. The following table shows expected farm incomes and farm business profit for various sectors in 1994-5 compared with the previous year.

1993 - 94 1994-95(forecast)

$ $ % change

Farm Income

Wheat and other crops 89 000 35 300 - 60

Mixed livestock/crops 49 500 26 200 - 47

Sheep 14 300 17 000 19

Beef 34 300 34 600 1

<BREAK> </BREAK>

Farm Business Profit

Wheat and other crops 24 500 -30 000 -222

Mixed livestock/crops -3 100 -28 000 -803

Sheep -22 000 -21 700 1

Beef -3 200 -7 800 -144

Source: ABARE, Australian Commodities, Forecasts and Issues, September 1994.

The Rural Adjustment Scheme

The Rural Adjustment Scheme (RAS) is the major program implemented by the Commonwealth to assist rural industry structural adjustment and ease adjustment pressures. RAS objectives are to promote a better financial and technical and management performance from the farm sector by providing support to farmers who have prospects of sustained long term profitability. RAS aims to improve the performance of such farmers so that they may become financially independent within a reasonable period. Assistance is provided in the form of interest subsidies and grants for training and farm consultancy services for farmers facing financial difficulties. Farmers facing 'exceptional circumstances' due to factors such as floods or drought are also eligible for assistance.

RAS is financed by the Commonwealth and States, with the Commonwealth normally providing 90% of the funds. Funding for assistance under the exceptional circumstances provisions is met on an equal basis. 1 Commonwealth funding is provided by way of grants to the States. The Commonwealth Minister issues the States with guidelines that outline the purposes for which assistance is provided, assessment criteria, provision for review, how assistance is to be provided and the form the assistance is to take. The Commonwealth guidelines are used by the individual State's RAS authorities to formulate detailed State guidelines. There is a maximum limit on the assistance available under RAS and it is subject to an assets test, under which to be eligible for exceptional circumstances assistance farmers must dispose of all non-farm assets.

As noted above, RAS currently provides for assistance to be provided to potentially viable farms subject to unusually long or severe drought under the exceptional circumstances provisions of the scheme. Such support is provided in accordance with guidelines provided by the Commonwealth Minister. The eligibility criteria for assistance provide that the farm must be subject to exceptional drought conditions for two years to be eligible for assistance. It has been reported that the eligibility conditions for the measures announced by the Prime Minister will be that the farm has been drought declared for 24 of the past 36 months or, in some circumstances, 20 of the past 36 months. 2 This will involve only areas in N.S.W. and Queensland and people marginally outside such areas will not be eligible.

Farm Household Support

FHS provides financial assistance to farmers who are unable to meet day to day living expenses and cannot obtain commercial loans; and financial incentive for such people to leave farming. It is paid for a maximum of two years at the same rate as the jobsearch allowance (JSA) and is paid as a loan. However, if the farmer leaves the farm, the first nine month's payments may be converted to a grant. Eligibility is subject to the same assets test as applies in relation to social security benefits (see below). FHS can be seen as the other side of rural programs to RAS as it is directed towards those who do not have a long term sustainable future in farming.

Social Security

There are no uniform social security rules relating to eligibility for benefits for farmers. The two main areas affecting eligibility relate to JSA/newstart allowance (NSA) and the operation of the assets test.

People working on farms are generally not eligible to receive JSA/NSA as they cannot satisfy the activity test which requires recipients of such allowances to be actively searching for paid employment. Relief from the activity test is currently provided for members of the Defence Forces Reserves while attending a training camp, people who are capable of undertaking employment but it would be unreasonable in the circumstances for them to do so (farm workers are unlikely to be capable of undertaking paid employment due to their farm commitments) and certain people engaged in voluntarily work.

The assets test exempts the principal home of an applicant and an area of 2 hectares around the home if that area is used for private or domestic purposes. Farmland outside this area is taken into account for the purpose of the assets test for most social security benefits. An opportunity for a farmer to qualify for benefits may arise if a RAS authority has certified that the farmer has an unrealisable asset. However, the circumstances when such a certificate may be issued are restricted and, even if a certificate were granted, it would not resolve the JSA/NSA activity test requirements that apply to farm workers. Such certificates are relevant in relation to other social security benefits.

Government Announcement

On 21 September 1994, the Prime Minister announced a range of measures that would principally be available to farmers in exceptional circumstances (see above under RAS). The principal features of the measures are:

* the introduction of a Drought Relief Scheme (the Drought Relief Payment) subject to the same income and off-farm assets tests that apply for the JSA;

* the removal of the farm assets test in respect of AUSTUDY; and

* additional assistance under RAS relating to the total assistance available and easing of the assets test.

The measures are estimated to cost $164 million over two years and this amount will increase if the area subject to exceptional circumstances increases.

The announcement has generally been supported by major industry representatives, including the National Farmers Federation 3. Criticisms of the program include that it does not assist other rural industries such as small businesses in the areas covered by the exceptional circumstances provision; greater assistance could have been provided; and that the containing of the assistance to areas covered by an exceptional circumstances declaration may result in the additional assistance being available in one area but not available in an adjacent area which has suffered similar difficulties but has not been drought declared for the required period.

Main Provisions

Clause 3 will amend the Acts as set out in the Schedule to the Bill. The Schedule amends the following Acts:

Farm Household Support Act 1992

Amendments to this Act will introduce the Drought Relief Payment (DRF). The title and object section of this Act will be amended to also state that the Act is to provide for the relief of primary producers who are in exceptional circumstances due to extreme drought.

The DRF will be introduced by Item 6 of the Schedule. To be eligible for DRF a person must, on or after 1 October 1994, be a farmer at least 18 years of age who is an Australian resident in Australia and holder of a drought exceptional circumstances certificate. Such a certificate is defined to be one issued by an RSA authority on or after 7 October 1994 under a memorandum of understanding between the RSA and the Secretary of the Department of Primary Industries and Energy which relates to the farm enterprise of the person (Item 6).

A person will not qualify for DRF if, during a period for which they are qualified:

* no determination by the Secretary to the effect that the person's assets do not exceed their assets level is in effect;

* the person is a full time student;

* another social security benefit or pension, or a service pension, is payable to the person; or

* the person is in receipt of income from a community or group funded under a Commonwealth employment program.

The criteria relating to eligibility reflects the current provisions relating to FHS. In relation to the assets test for the payment, the value of a persons farm land, machinery livestock or other assets essential for the running of the farm, as well as superannuation and life policies, are excluded. This will ensure that farm assets are excluded from the operation of the assets test for DSP. The criteria will also mean that a recipient of DSP will not have to dispose of all of their non-farm assets, but will have to satisfy the general social security assets test.

Items 24 and 26 insert administrative provisions that reflect the administration of DRP by the Department of Social Security.

The rate of DRP is dealt with in proposed section 24A. The rate for the applicant will be the same as they would receive if they were eligible for JSA. If the person has a partner, the partner will be eligible for the partner allowance and if the person is not in receipt of family payment due to assets that are now exempt, family payment. Exempt assets (i.e. farm land, livestock, plant and machinery necessary to run the farm and any right under a life insurance or superannuation policy) are to be excluded in calculating the rate of DRP. Non-exempt assets, i.e. non-farm assets, are to be included in the calculation of the rate of DRP.

DRP will be payable from the day the Secretary determines that it becomes payable (Item 34).

Item 10 will insert a new section 9A into this Act which will provide that a person is not to receive both FHS and DRP.

Proposed Division 8A, which will be inserted by Item 65, provides that payment of FHS is to be suspended when a person receives DRP. If DRP ceases to be payable, the person will be taken to have automatically made an application for FHS and if eligible is to receive FHS from the time DRP ceases to be paid. The maximum period for which a person may receive FHS (2 years) and the maximum period for which FHS may be treated as a grant if the person leaves their farm (9 months) are each to be extended by the same period as the person was in receipt of DRP.

Proposed Division 2 contains transitional provisions that:

* validate applications and approvals for DRP made between 21 September 1994 and the commencement of this Bill;

* provide that any payment of DRP before commencement is to be deducted from FHS payable to the person (these provisions relate to the commencement of payments of DRP from 1 October 1994).

Health Insurance Act 1973

If a person is in receipt of DRP on or after 1 October 1994, they are to be declared to be a disadvantaged person. As a result, they will be entitled to free pharmaceuticals under the National Health Act 1953.

Income Tax Assessment Act 1936

Proposed section 24AIA of this Act, which will be inserted by Item 90, provides that for DRP the following amounts will be supplementary amounts:

* so much as was included because the person or their partner pays rent;

* so much as represents remote area allowance; and

* so much as represents family payment.Supplementary amounts will be exempt, with the remainder of the DRP being taxable income (proposed section 24AIB).

Endnotes

1. Rural Adjustment Scheme Advisory Council Report on Operations

1 January 1993 to 30 June 1993, p. 30.

2. Sydney Morning Herald, 12 October 1994.

3. News Release, 21 September 1994.

C. Field (Ph. 06 2772439)

Bills Digest Service

Parliamentary Research Service

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Commonwealth of Australia 1994.

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Published by the Department of the Parliamentary Library, 1994.