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Farm Household Support Amendment (Debt Waiver) Bill 2021

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2019-2020-2021

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

HOUSE OF REPRESENTATIVES

FARM HOUSEHOLD SUPPORT AMENDMENT (DEBT WAIVER) BILL 2021

EXPLANATORY MEMORANDUM

(Circulated by authority of the Minister for Agriculture, Drought and Emergency Management, the Hon. David Littleproud MP)

 



FARM HOUSEHOLD SUPPORT AMENDMENT (DEBT WAIVER) BILL 2021

GENERAL OUTLINE

The Farm Household Support Amendment (Debt Waiver) Bill 2021 (the Bill) would waive the repayment of certain classes of debts in relation to the Farm Household Allowance (FHA) program through amendments to the  Farm Household Support Act 2014  (the FHS Act).

The FHA program provides time-limited, means-tested income support to farmers and their partners experiencing financial hardship. Farmers are eligible for the FHA for a maximum of 4 years (recorded as a 1,460 day clock) in every 10 year period (beginning 1 July 2014). The days do not need to be consecutive and can be taken only if, and when needed.

Previously, FHA recipients’ income estimate was reconciled annually through a process called business income reconciliation (BIR). T he FHS Act provided that the rate of FHA was determined on the basis of an estimate by a person and their partner of their farm’s income up to 12 months in advance. This estimate was reconciled against actual income at the end of the next financial year. A new determination of the person’s rate of FHA was then made based on the farm’s actual income. If the new determination reduced the rate of FHA payable for a period during which the farmer had already received FHA, resulting in an overpayment of FHA, there would be a debt to the Commonwealth of that amount.

The BIR determined whether a recipient received a ‘top up’ payment, no adjustment or incurred a debt. The BIR was removed from the FHS Act with effect from 1 July 2020 as part of a process to simplify the FHA following a 2018 independent review. While the BIR was removed i n 2020, some FHA recipients incurred debts from this process between 1 July 2015 and 30 June 2020 or have not yet been assessed.

 

The Bill would permanently waive the repayment of certain classes of debts for FHA recipients arising from the BIR process for FHA payments between 1 July 2015 and 30 June 2020. The Bill would assist farmers suffering financial hardship and eliminate the negative effects of the BIR process. To enhance fairness it would ensure that an FHA recipient who already has a BIR debt does not also receive the double benefit of having their clock re-credited if they choose to have their debt waived.

 

Under the current system if an FHA recipient incurred a debt that covered a full day’s payment, that day was no longer counted as ‘paid’ and the clock was re-credited . For example, a person who had been paid 260 days of FHA would have had their clock reduced to 1,200 days. If 100 of those days were raised as a debt, the clock would have been re-credited resulting in 1,300 days of payment remaining. The re-crediting of days occurred on the basis that the debt is recoverable, and would be repaid. Under this Bill an individual would not receive the double benefit of having their debt repayment waived and their clock re-credited. In the example above an individual who had their 100 day debt waived would not have those days re-credited and would have 1,200 days of payment remaining.

Under the Bill the Secretary would not be able to waive a BIR debt where a debt had already been raised, the FHA recipient had been re-credited days, and had subsequently used all of their 1,460 days of payment. The FHA recipient would remain liable for the whole debt. This is because if the debt was waived it would amount to the recipient having spent more than the allowed 1,460 days on payment and would result in the creation of a further debt. The impact of this provision is limited to a portion of the 2,300 BIR debts that have already been raised where the person has already accessed four years of payment.

The Bill also provides a method for determining how many days an FHA recipient is eligible to have waived, where they have been re-credited days but have not spent more than 1,460 days on payment. The Secretary would be able to waive a portion of a BIR debt where an FHA recipient still had days on the clock left to trade. Where a recipient’s BIR debt is more than the days they have left to trade, they could choose to trade the days they have as partial payment for the debt and pay the outstanding part. For example, if an FHA recipient’s debt relates to a payment of 25 days and they have 5 days left on the clock, the amount of debt that relates to 5 days is available to be waived. The 20 days of debt would remain outstanding to be paid.

 

FHA recipients with days to trade would have the choice of whether to accept the waiver. It is possible that some recipients would regard having days of FHA left to draw down in the future as more meaningful to them than the waiver. The Secretary would not waive a debt in these cases unless instructed to do so by the FHA recipient.

 

Under the current system a re-credit of days does not occur where a BIR debt covers part of a day. For example, a person may have received $45 as the maximum amount payable for a day. Where the rate for that person on that day was later determined through BIR to be $25 (as there was income that should have been taken into account), meaning $20 was overpaid, this would be raised as a debt. However, because $25 was still payable on that day, no adjustment would be made to the clock. The Bill would not change this.

The Bill would also provide an end date of 30 June 2023 for FHA recipients to supply their full financial statements for the BIR process. Any FHA recipients who do not provide this information would have their payment for the full financial year raised as a debt. The end date of 30 June 2023 provides sufficient time for FHA recipients to comply with their obligation and provides a definitive end to the BIR process. However, the Bill allows these new debts to be waived, thus allowing closure of the BIR system as no transactions will remain outstanding.

BIR debts for the 2014-15 financial year were previously waived through a legislative instrument in 2016 (F2016L00689) and would not be affected by these amendments.

 

Consultation occurred with appropriate Commonwealth agencies, including Services Australia.

FINANCIAL IMPACT STATEMENT

The measures in the Bill are expected to have a financial impact of approximately $14.7 million to the underlying cash balance through to 30 June 2024. The total financial impact to the fiscal balance until 30 June 2024 is $65.6 million. This figure includes $51.0 million in foregone revenue of debts that would otherwise have been repaid.



 

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

The full statement of compatibility with human rights is attached to this explanatory memorandum.



NOTES ON AMENDMENTS

Preliminary

Clause 1              Short Title

Clause 1 provides for the short title of the Act to be the Farm Household Support (Debt Waiver) Amendment Act 2021 .

Clause 2              Commencement

Clause 2 provides for the commencement of each provision in the Act, as set out in the table.

Item 1 in the table provides that the whole of the Act would commence on the day after the Act receives the Royal Assent.

Subclause 2(2) provides that any information in column 3 of the table is not part of the Act. It also clarifies that information may be inserted in column 3 of the table, or information in it may be edited, in any published version of the Act.

Clause 3              Schedules

Clause 3 provides that legislation that is specified in a Schedule to the Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule has effect according to its terms. This is a technical provision to give operational effect to the amendments contained in the Schedules.



 

Schedule 1—Amendments

Overview

1.       Schedule 1 to the Bill amends the Farm Household Support Act 2014 (FHS Act) to permanently waive the repayment of certain classes of debts for farm household allowance (FHA) recipients arising from the business income reconciliation (BIR) process for FHA payments for days between 1 July 2015 and 30 June 2020. It would also ensure that a recipient’s clock is not re-credited if their debt is waived.

Farm Household Support Act 2014

Item 1                  At the end of subsection 6(1A)

2.       Item 1 inserts a note at the end of subsection 6(1A) to alert the reader to section 102A, which deals with the waiver of certain debts and treats FHA as being payable to a person on certain days.

Item 2                  After section 102

3.       Item 2 inserts a new clause 102A after section 102 of the FHS Act.

Debts arising before commencement

4.       Subclauses 102A(1) to 102A(4) establishes the power of the Secretary to give a debt waiver where the debt was raised prior to the commencement of this Bill.

5.       Subclause 102A(1) establishes that if an FHA recipient has already had a debt raised for the payment of FHA in the period 1 June 2015 to 30 June 2020 under the old section 70 (as in force immediately before 1 July 2020), or a debt was due to the Commonwealth under the old paragraph 69(1)(b) (as in force immediately before 1 July 2020) before the commencement of this Bill, then the Secretary may, on behalf of the Commonwealth, waive the Commonwealth’s right to recover the whole or a part of the debt.

6.       Before the BIR was repealed with effect from 1 July 2020, section 69 provided that the rate of FHA could be reassessed where the Secretary subsequently considered that new information about the person’s amount of business income was available, and the person’s actual business income differed from the estimate on which the rate was originally based. This allowed for reconciliation of the FHA’s recipient’s actual income and this may result in a debt, no change or a top up payment being owed.

7.       The old section 70 of the FHS Act also provided for a BIR debt to arise where a person has not complied with a notice under s 68 or 69 of the Social Security (Administration) Act 1999 . That is, where an FHA recipient failed to provide the relevant financial information, the entire payment for the financial year was raised as a debt known as a non-lodger debt.

8.       Subclause 102A(2) operates to allow the Secretary to give a waiver only if the FHA recipient has not exhausted their allocation of 1,460 days in the ten year period beginning on 1 July 2014. This means that FHA recipients need to have days remaining on their clock to be eligible for the waiver. An FHA recipient, in effect, would trade days remaining on the clock for the debt waiver. Otherwise, the FHA recipient would have both the benefit of the re-credited days and the benefit of a waiver of the debt those days relate to. For example, a person who received 1,460 days on payment but had a debt raised of 60 days would have had those 60 days re-credited. If they subsequently used those 60 days and had their debt waived, they would have received 1,520 days on payment. If a person has no days remaining to trade, they cannot have their debt waived. Subclause 102A(2) gives effect to the policy intention that FHA is only payable for 1,460 days in a ten year period.

9.       Subclause 102A(3) requires the Secretary to ensure that an eligible FHA recipient’s debt waiver must not allow the recipient to exceed their allocation of 1,460 days. This means that if an FHA recipient has 5 days remaining on the clock, but has a debt that is the equivalent of 10 days, they may receive a debt waiver for 5 days. This gives effect to the policy intention that FHA is only payable for 1,460 days in a ten year period. If a recipient has days on the clock, they are able to choose whether to access the waiver and have their debt waived, or keep the debt active, and also keep the re-credited days.

10.   Subclause 102A(4) provides the method statement by which the Secretary determines the number of days an FHA recipient is eligible to have waived.

11.   The first step is to determine the dollar amount of the existing debt that an FHA recipient is eligible to have waived within the rules of subclauses 102A(2) and (3). The second step is to divide that amount by the nominated daily rate of $45, the result of which is then to be rounded down to the nearest whole in step three. This would result in the number of days an FHA recipient would have available to trade as part of the debt waiver process.

12.   Rounding down ensures that the FHA recipient receives the most beneficial calculation of days. For example, if a person has a debt of $85, this would be divided by 45 resulting in 1.9 and rounded down to 1 day. This means the person only has to trade 1 day for almost 2 days of payment.

13.   As a person can only trade days where it would not result in them receiving more than 1,460 days on payment, the method statement may result in only a partial waiver being given. The residual debt would still need to be repaid. For example, an FHA recipient has a debt of $1,200. When divided by $45 the debt equates to 26.6 days. Using the rounding at Step 3, the person could offer to trade 26 days to have the whole amount waived. The person has 10 days FHA remaining and this equates to $450. If the person chose to trade all of their days, $450 would be waived and they would have $750 left to pay.

14.   Subclause 102A(5) establishes the power of the Secretary to give a debt waiver where an FHA recipient raised a debt on part of an amount of FHA and this debt became due prior to the commencement of this Bill (i.e. a part day pre-commencement debt). In this circumstance, the Secretary may, on behalf of the Commonwealth, waive the Commonwealth’s right to recover the whole or a part of the debt (whether or not the debt has already been recovered in whole or in part).

15.   For clarity, a day ‘payable’ is any day where any payment was made. For example, if the maximum payable for a day was $45 and a debt was raised for $15 for the day, $30 was still paid. No change to the clock would occur because some payment was made.

 

 

Debts arising after commencement

16.   Subclauses 102A(6) and 102A(7) establish the power and operation of the debt waiver where the debt was raised after the commencement of this Bill. There are a number of BIR transactions outstanding.

17.   Subclause 102A(6) provides a debt waiver where an FHA recipient has a debt raised as a result of the old section 70, and the debt becomes due on or after the commencement of this Bill. This occurs where an FHA recipient does not supply their full financial statements and therefore incurs a debt referred to as a ‘non-lodger debt’. In these cases, payment for the entire financial year is raised as a debt. In this circumstance, the amount of the debt is taken to have been waived and the recipient’s clock is managed so that no extra days are ultimately credited.

18.   Subclause 102A(7) provides a debt waiver where an FHA recipient has a debt raised on or after the commencement of this Bill as a result of a determination under the old paragraph 69(1)(b) which covered the BIR process. In this circumstance, the amount of the debt is taken to have been waived and the recipient’s clock is managed so that no extra days are ultimately credited. As the raising of the debt and the waiver will be applied on the same day the clock adjustment will have no practical effect on the FHA recipient.

19.   Subclause 102A(8) establishes the power of the Secretary to give a debt waiver where an FHA recipient has a debt raised for part of an amount of FHA and the debt was raised on or after the commencement of this Bill (ie a part-day debt). In this circumstance, the amount of that debt is taken to have been waived. Part-day payments of FHA do not affect the clock and therefore there is no need to re-credit days if a waiver is given.

No limit on other waiver provisions

20.   Subclause 102A(9) is a technical clause providing that clause 102A does not limit the application of Chapter 5 of the Social Security Act in connection with debts arising in relation to payments of FHA, and rules made under section 92 of the FHA Act to the extent those rules modify that Chapter. For example, clause 102A does not limit the 2016 instrument effecting waivers for the 2014-15 financial year.

 

 



STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Farm Household Support Amendment (Debt Waiver) Bill 2021

This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Bill

The Farm Household Allowance (FHA) program provides time-limited, means-tested income support to farmers and their partners experiencing financial hardship. Farmers are eligible for the FHA for 4 years (recorded as a 1,460 day clock) in every 10 year period (beginning 1 July 2014).

Previously, FHA recipients’ income estimate was reconciled annually through a process called business income reconciliation (BIR). The BIR determined whether a recipient received a ‘top up’ payment, no adjustment or incurred a debt. If an individual incurred an FHA debt for a full day’s payment, the clock was re-credited before any repayment was made. For example, if a person had a debt raised for 30 days of payment this in effect means those days were not payable and would have 30 days added back to their clock. While the BIR was removed in 2020, some FHA recipients incurred debts from this process between 1 July 2015 and 30 June 2020 or have not yet completed the BIR process for that period and may incur a debt.

The Bill would permanently waive the repayment of certain classes of debts for FHA recipients arising from the BIR process for FHA payments between 1 July 2015 and 30 June 2020. It would also ensure that a recipient’s clock is not re-credited if they choose to have their debt waived. This includes the refund of debts already paid in full or in part.

In practice, this would mean that where the Secretary waives a debt relating to the payment of FHA, the number of days for which FHA may be payable to the recipient would be reduced by a corresponding amount. In other words, where a person’s debt relates to the payment of 25 days of FHA, the waiver of this debt would reduce the number of days on the recipient’s clock by 25 days. This ensures that the waiver of debt does not result in a person receiving both the benefit of a waiver and the benefit of re-credited days which could result in them receiving more than the maximum 1,460 days for which they are eligible.

The Bill would assist farmers suffering financial hardship and eliminate the negative effects of the BIR process.

Human rights implications

The Bill may engage the following rights under the International Covenant on Economic, Social and Cultural Rights (ICESCR):

·          Article 11(1) - right to an adequate standard of living

·          Article 6 - right to work

Right to an adequate standard of living

Article 11(1) of the ICESCR recognises the right to an adequate standard of living, including food, water and housing. States have an obligation to ensure the availability and accessibility of the resources necessary for the progressive realisation of this right. The UN Committee on Economic, Social and Cultural Rights has stated that the core content of the right to adequate food implies both the availability and (economic and physical) accessibility of food.

The livelihood of FHA recipients is subject to a range of factors beyond their control including natural disasters such as bushfires, flooding and drought. The Bill seeks to support the livelihood of FHA recipients experiencing financial hardship by waiving debts related to the BIR process for the period 1 July 2015 to 30 June 2020. The BIR process was removed from legislation in 2020 following an independent review of the FHA which found it was overly complex and confusing. Waiving BIR debts reduces uncertainty for farmers in hardship who may not yet have completed the BIR process for this period and may incur debts for those financial years. It also provides financial assistance to FHA recipients who have had a debt raised for this period and would no longer have to repay that debt, including repayment of debts already paid in full or in part

To the extent that the Bill reduces uncertainty and supports the livelihood of FHA recipients, the Bill may promote the right to an adequate standard of living in Article 11(1) of the ICESCR.

Right to work

Article 6 of the ICESCR protects the right to work. Article 6(2) provides that, to achieve the full realisation of this right, States should take steps to include “technical and vocational guidance and training programmes, policies and techniques to achieve steady economic, social and cultural development and full and productive employment under conditions safeguarding fundamental political and economic freedoms to the individual”.

While this right does not amount to an obligation to protect particular industries, Australian farmers have endured particular hardship in recent years from a range of factors beyond their control such as flooding and drought. The Bill promotes the right to work by supporting the agricultural and farming industry and removing the risk of an unanticipated debt, alleviating this financial stress and allowing farmers to focus their efforts on the recovery process.

To the extent the Bill supports FHA recipients to achieve steady economic development and recovery and continue to participate in the agricultural and farming industries, the Bill may be seen to promote the right to work in Article 6 of the ICESCR.

Conclusion

The Bill is compatible with human rights because it promotes the rights in Articles 6 and 11 of the ICESCR.

 

The Hon. David Littleproud MP

Minister for Agriculture, Drought and Emergency Management