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Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015



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BILLS DIGEST NO. 50, 2015-16 18 NOVEMBER 2015

Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015 Michael Klapdor Social Policy Section

Contents

List of abbreviations ............................................................ 3

Purpose of the Bill ............................................................... 4

Background ......................................................................... 4

2014-15 budget measures ...................................................... 4

2015-16 Budget ...................................................................... 5

Stalled measures now dropped ............................................... 6

Committee consideration .................................................... 6

Senate Community Affairs Legislation Committee .................. 6

Senate Standing Committee for the Scrutiny of Bills .............. 6

Policy position of non-government parties/independents ..... 6

Position of major interest groups ......................................... 7

Financial implications .......................................................... 7

Statement of Compatibility with Human Rights .................... 8

Parliamentary Joint Committee on Human Rights .................. 8

Key issues and provisions..................................................... 8

The role of family assistance payments .................................. 8

The role of the FTB supplements ............................................. 9

Number of recipients ............................................................. 10

Expenditure on FTB ............................................................... 11

Rationale for the changes ...................................................... 12

Simplifying the system ........................................................ 12

Increasing fortnightly rates while reducing total annual entitlements ........................................................................ 13

Additional support for families with infants ....................... 14

Impact of the measures ......................................................... 15

Date introduced: 21 October 2015

House: House of Representatives

Portfolio: Social Services

Commencement: Schedule 1 and Part 3 of Schedule 3 commence on 1 July 2018; Schedule 2 and Part 1 of Schedule 3 on 1 July 2016; Part 2 of Schedule 3 on 1 July 2017; remaining sections on Royal Assent.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website.

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Cameos ................................................................................ 15

Main provisions ..................................................................... 16

Schedule 1 ........................................................................... 16

A New Tax System (Family Assistance) Act 1999 .............. 16

Social Security Act 1991 .................................................... 17

Schedule 2 ........................................................................... 17

A New Tax System (Family Assistance) Act 1999 .............. 17

Schedule 3 ........................................................................... 18

A New Tax System (Family Assistance) Act 1999 .............. 18

Concluding comments ....................................................... 18

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List of abbreviations

Abbreviation Definition

ACOSS Australian Council of Social Service

ATI Adjusted taxable income

ATO Australian Taxation Office

CPI Consumer Price Index

DSP Disability Support Pension

FA Act A New Tax System (Family Assistance) Act 1999

FTB Family Tax Benefit

FTB-A Family Tax Benefit Part A

FTB-B Family Tax Benefit Part B

GDP Gross Domestic Product

No. 4 Bill Social Services and Other Legislation Amendment

(2014 Budget Measures No. 4) Bill 2014

No. 6 Bill Social Services and Other Legislation Amendment

(2014 Budget Measures No. 6) Bill 2014

SkB Schoolkids Bonus

SS Act Social Security Act 1991

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Purpose of the Bill The Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015 (the Bill) amends the A New Tax System (Family Assistance) Act 1999 (the FA Act)1, the A New Tax System (Family Assistance) (Administration) Act 19992 and the Social Security Act 1991 (the SS Act)3:

• from 1 July 2018, increase the fortnightly rate of Family Tax Benefit Part A (FTB-A) by $10.08 and increase by $10.44 per fortnight the rate of Youth Allowance for those aged under 18 and living at home, and the rates of Disability Support Pension (DSP) paid to a single recipient aged under 18 who is living in their parent’s home due to a medical condition (as well as some related payment rates)

• from 1 July 2016:

- increase the standard rate of Family Tax Benefit Part B (FTB-B) by $1000.10 per year for families whose youngest child is aged under one - reduce the rate of FTB-B for single parents with a youngest child aged 13-16 to $1000.10 per annum (from the 2015-16 rate of $2,784.95 per annum) and remove FTB-B in respect of children 17-18 - reduce the rate of FTB-B for grandparent carer couples with a youngest child in their care aged 13-16 to

$1000.10 per annum and remove FTB-B in respect of children 17-18 and - remove FTB-B for couple families (other than grandparent carers) with a youngest child aged 13 or over • phase out the FTB-A and FTB-B supplements by:

- reducing the FTB-A supplement from the 2015-16 rate of $726.35 per child to $602.25 for 2016-17, to $302.95 for 2017-18 and removing the supplement from 1 July 2018 - reducing the FTB-B supplement from the 2015-16 rate of $354.05 per family to $302.95 for 2016-17, to $153.30 for 2017-18 and removing the supplement from 1 July 2018. Overall, the measures will see an increase in FTB-B rates for families whose youngest child is aged under one year, accompanied by a reduction in payment rates for all FTB-A families, a significant reduction in FTB-B payment rates for single parents and grandparent carers with teenagers, and the loss of FTB-B for couple families whose youngest child is aged 13 or over, and for single parents and grandparent carers whose youngest child is aged 17 or 18.

Background FTB-A and FTB-B are the two main forms of direct financial assistance the Commonwealth provides to families with children. Both payments are means tested to target assistance at lower-income families. FTB-A is available to all families who meet the care, residence and income test requirements.4 Different income test requirements for FTB-B restrict the payment to single parent families and couple families where one parent has a low income or is not in paid employment.5

2014-15 budget measures In its 2014-15 Budget, the Abbott Government proposed a range of savings measures targeting family payments. These included:

• lowering the income cut-off point for FTB-B for single parents and primary earners in a couple from $150,000 per annum down to $100,000 per annum

• limiting FTB-B to families with a child under six years

• introducing a new FTB allowance for single parents on maximum rate of FTB-A who have a child aged six to twelve years, worth $750 per child, to partially makeup for the loss of access to FTB-B

• limiting the FTB-A Large Family Supplement to families with four or more children

• maintaining FTB payments for two years, that is, they would not be indexed

1. A New Tax System (Family Assistance) Act 1999 (Cth), accessed 6 November 2015. 2. A New Tax System (Family Assistance) (Administration) Act 1999 (Cth), accessed 6 November 2015. 3. Social Security Act 1991 (Cth), accessed 6 November 2015. 4. Department of Human Services (DHS), ‘Family Tax Benefit’, DHS website, last updated 14 October 2015, accessed 10 November 2015. 5. Ibid.

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• not indexing some of the FTB-A and FTB-B income test thresholds for three years

• removing the FTB-A ‘per child add-on’, a component of the FTB income test which reduced the payment withdrawal rate for those with more than one child and

• reducing the FTB-A and FTB-B supplements to their 2004 values ($600 per FTB-A child and $300 per FTB-B family).6

The Government stated that the intent of the measures was to ‘ensure the family payments system is sustainable in the long term’ and is ‘better targeted to support those who need it most’.7 Expenditure savings of $8.5 billion over five years to 2017-18 were anticipated.8

The Government attempted to legislate these measures, together with a range of other social security measures, in two omnibus Bills: the Social Services and Other Legislation Amendment (2014 Budget Measures No. 1) Bill 2014 (the No. 1 Bill) and the Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014.9 Neither of these Bills proceeded beyond the second reading stage in the Senate, most likely because the Government was unable to secure their passage due to opposition to various measures from the Labor Opposition, the Australian Greens, minor parties and independent senators. Both Bills were discharged from the Notice Paper in the Senate on 28 October 2014.

On 2 October 2014, the Government reintroduced the measures in four new Bills. The family payments measures were contained in the Social Services and Other Legislation Amendment (2014 Budget Measures No. 4) Bill 2014 (the No. 4 Bill) and the Social Services and Other Legislation Amendment (2014 Budget Measures No. 6) Bill 2014 (the No. 6 Bill).10 The No. 6 Bill contained the measures that the Opposition had offered to support. This Bill passed both Houses on 17 November 2014. The family payment measures it included were:

• the limit on the Large Family Supplement to families with four or more children

• the removal of the FTB-A per child add-on and

• the lowering of the income cut-off point for FTB-B for single parents and primary earners in a couple from $150,000 per annum down to $100,000 per annum.

The remaining measures were included in the No. 4 Bill which has been before the Senate since 28 October 2014.

2015-16 Budget In its 2015-16 Budget, the Abbott Government included its stalled measures and announced that it would move to abolish the Large Family Supplement altogether.11 The Government also linked the savings from the 2014-15 family payment budget measures with funding for its Families Package—primarily the $3.5 billion in additional funding allocated to replace two existing child care fee assistance payments with a single payment, the Child Care Subsidy, and to overhaul the funding programs for non-mainstream services.12

6. P Yeend and M Klapdor, ‘Family payments’, Budget review 2014-15, Research paper series, 2013-14, Parliamentary Library, Canberra, 2015, accessed 22 October 2015. 7. K Andrews (Minister for Social Services), Supporting parents through a sustainable, better targeted family payments system, media release, 13 May 2014, accessed 22 October 2015. 8. Australian Government, Budget measures: budget paper no. 2: 2014-15, 2014, pp. 197-200, accessed 22 October 2015; Parliamentary Budget

Office (PBO), 2014-15 Budget and forward estimates—charts, PBO, Canberra, 10 June 2014, p. 10, accessed 18 November 2015 9. Parliament of Australia, ‘Social Services and Other Legislation Amendment (2014 Budget Measures No. 1) Bill 2014 homepage’, Australian Parliament website; Parliament of Australia, ‘Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014

homepage’, Australian Parliament website, both accessed 6 November 2015. 10. Parliament of Australia, ‘Social Services and Other Legislation Amendment (2014 Budget Measures No. 4) Bill 2014 home page’, Australian Parliament website; Parliament of Australia, ‘Social Services and Other Legislation Amendment (2014 Budget Measures No. 6) Bill 2014

homepage’, Australian Parliament website, both accessed 6 November 2015. 11. Australian Government, Budget measures: budget paper no. 2: 2015-16, p. 151, accessed 22 October 2015. 12. T Abbott (Prime Minister) and S Morrison (Minister for Social Services), Jobs for Families child care package delivers choice for families, media

release, 10 May 2015, accessed 22 October 2015; M Sheppard, ‘Early childhood education and care’, Budget review 2015-16, Research paper series, 2014-15, Parliamentary Library, Canberra, 2015, accessed 22 October 2015.

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Stalled measures now dropped In introducing the Bill, the Minister for Social Services Christian Porter stated that it would ‘supersede measures’ that had stalled in the Senate.13 Treasurer Scott Morrison stated that, as Minister for Social Services, he had worked with ‘crossbench senators over many, many months to reengineer the measures that have been put forward in the 14-15 Budget.’14 The savings from the measures proposed in the Bill have again been linked with the 2015-16 Budget’s childcare measures.15

Committee consideration Senate Community Affairs Legislation Committee The Bill has been referred to the Senate Community Affairs Legislation Committee for inquiry and report by 30 November 2015. Details of the inquiry are available on the committee website.16

Senate Standing Committee for the Scrutiny of Bills The Senate Scrutiny of Bills Committee had no comment on the Bill.17

Policy position of non-government parties/independents The Opposition has stated that it will only support the measure to remove FTB-B for couple families (other than grandparent carers) with a youngest child aged 13 or over and will oppose all remaining measures in the Bill. A joint media release from the Opposition Leader Bill Shorten, Shadow Treasurer Chris Bowen and Shadow Minister for Families and Payments Jenny Macklin stated:

Labor will oppose the Liberal Government’s unfair cuts to low and middle income families and fight its plans to introduce a new $1,000 baby bonus.

In particular, our position will protect grandparent carers and single parent families from the Government’s harsh cuts.

It’s both fair and fiscally responsible …

Malcolm Turnbull says fairness means the burden should be “borne by the best able to pay it.”

But these harsh cuts fail that fairness test—they will hurt millions of low and middle income families and should be rejected. 18

The Opposition characterised the proposed increased FTB-B rate of children under one year as a ‘new baby bonus’, referring to the payment for families with new children abolished by the Labor Government in 2014 (and replaced with the Newborn Upfront Payment and Newborn Supplement components of FTB-A):19

This new baby bonus was all about Malcolm Turnbull buying off the National Party to get the top job. Australians shouldn’t have to pay the price for this Liberal/National deal.

13. C Porter (Minister for Social Services), ‘Second reading speech: Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015’, House of Representatives, Debates, [proof], 21 October 2015, p. 7, accessed 22 October 2015. 14. S Morrison (Treasurer), C Porter (Minister for Social Services), S Birmingham (Minister for Education and Training), Transcript of joint press conference: Canberra, media release, 21 October 2015, accessed 22 October 2015. 15. C Porter, ‘Second reading speech: Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill

2015’, op. cit. 16. Senate Community Affairs Legislation Committee, Inquiry into the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015, The Senate, Canberra, accessed 18 November 2015. 17. Senate Standing Committee for the Scrutiny of Bills, Alert digest, 12, 2015, The Senate, 11 November 2015, p. 21, accessed

17 November 2015. 18. B Shorten (Leader of the Opposition), C Bowen (Shadow Treasurer) and J Macklin (Shadow Minister for Families and Payments), Turnbull’s big fail on fairness for families, media release, 10 November 2015, pp. 1-2, accessed 10 November 2015. 19. M Klapdor, Family Assistance and Other Legislation Amendment Bill 2013, Bills digest, 88, 2012-13, Parliamentary Library, Canberra,

18 June 2013, accessed 10 November 2015.

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If ever there was a demonstration of how out of touch Malcolm Turnbull and the Liberals are with the lives of Australian families, this is it. 20

The Australian Greens have stated that they will oppose the Bill and have criticised the Opposition for supporting the removal of FTB-B for couple families with a youngest child aged 13 or over. In a joint media release, Leader of the Australian Greens Richard Di Natale and spokesperson on families and community services Rachel Siewert stated:

The Government's package of cuts targets some of the most vulnerable members of our community.

The Australian Greens will also not support Labor’s proposal for a revised cut that will only target coupled families on a low income with children over 13.

Raising teenagers is also expensive for low income coupled families. It is still fundamentally unfair that both the Turnbull Government and Labor party are seeking to make savings at the expense of such families. 21

Media reports suggest crossbench Senators Lambie and Lazarus were concerned about cuts to families while Senators Day, Muir and Wang were undecided.22 Senator Xenophon has said that the government had ‘made some effort to improve things, but there’s a lot of consultation and negotiation to be done’.23 Senator John Madigan was quoted as saying that there are ‘other segments of the Australian population far better placed to do the heavy lifting when it comes to budgetary repair than hard-working Australian mums and dads’.24

Liberal Democrat Senator David Leyonhjelm has stated that he will support the Bill ‘if it meant less spending on “middle class welfare” ’.25

Position of major interest groups The Australia Council of Social Service (ACOSS) has criticised the measures in the Bill. ACOSS Chief Executive, Cassandra Goldie, stated:

We cannot support this. Single parents and their children have already been hit hard with cuts over the last few years which have reduced their safety net significantly. On the latest analysis, we have over 600,000 children living below the poverty line and children in single-parent households are in poverty at over twice the rate of children living with two parents.

26

ACOSS has stated that it supports reform of FTB-B, particularly limiting access for couple families with children over 13 while increasing FTB-A rates. ACOSS, however, has argued that support for single parent families needs to be increased, and the indexation of family payments should be linked to wage growth.27

Financial implications According to the Explanatory Memorandum, the Bill will provide net savings of around $4.8 billion over the forward estimates.28 This consists of:

20. B Shorten, op. cit., p. 2. 21. R Di Natale and R Siewert, Government and Labor must abandon watered down cuts to FTB B that will hurt low income families, media release, 11 November 2015, accessed 11 November 2015. 22. J Ireland, ‘Revised family payments plan may struggle’, Canberra Times, 22 October 2015, p. 5, accessed 6 November 2015. 23. L Taylor, ‘Welfare sector says family payment cuts unfair to low paid families, solo parents’, The Guardian, (online edition), 21 October 2015,

accessed 6 November 2015. 24. J Ireland, op. cit. 25. J Ireland, op. cit. 26. Australian Council of Social Service (ACOSS), Back to the drawing board on family payments: new bill still hits poorest families, media release,

21 October 2015, accessed 6 November 2015. 27. Ibid.

28. Explanatory Memorandum, Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015, p. 1, accessed 29 October 2015.

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• a cost of $584.2 million to increase FTB-A rates and the rates of some income support payments for young people

• a saving of $1,361.8 million from changing payment rates of FTB-B and

• a saving of $4,063.9 million from phasing out the FTB-A and FTB-B supplements. 29

This compares with the $4.6 billion in savings anticipated from the measures stalled in the Senate.30

Statement of Compatibility with Human Rights As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.31

Parliamentary Joint Committee on Human Rights The Parliamentary Joint Committee on Human Rights considered the Bill in its Thirtieth Report of the 44th Parliament. The Committee questioned whether the limitations on the rights to social security and to an adequate standard of living (under articles 9 and 11(1) of the International Covenant on Economic, Social and Cultural Rights, respectively) posed by the reduced rates of FTB-B for single parent families were justified, and found that the statement of compatibility did not sufficiently justify the limitations for the purposes of international human rights law.32 The Committee made similar findings in regards to the removal of the FTB-A and FTB-B supplements.33 The Committee has sought further information from the Minister on these issues.

Key issues and provisions The role of family assistance payments FTB-A and FTB-B are payments intended to help families with the cost of raising children.34 The role of these payments is separate to the role of income support payments, as the report of the Australia’s Future Tax System Review (the Henry Review) explains:

Parents have primary responsibility for the financial support of their children. However, some families do not have a level of private income sufficient to adequately support their children. As income support payments are designed to be adequate only for their recipients, these families need additional income to adequately support their dependent children.

The primary role of family payments, as distinct from income support payments, is to ensure all children have access to a basic acceptable standard of living … The provision of a basic acceptable standard of living encompasses both poverty alleviation and social inclusion objectives. 35

FTB-A and FTB-B, were introduced in July 2000, as part of a broader reform and simplification of the existing family payments.36 The reforms coincided with the introduction, and compensated for the impact, of the Goods and Services Tax in July 2000.37 FTB-A and FTB-B were more generous than previous payments and provided more immediate assistance to families (many of the previous forms of family assistance were paid via the tax system as lump sums or rebates at the end of the financial year).38 FTB-A replaced Family Allowance, Family Tax

29. Ibid.

30. C Porter, ‘Second reading speech: Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015’, op. cit., p. 7. 31. The Statement of Compatibility with Human Rights can be found at page 12 of the Explanatory Memorandum to the Bill. Explanatory Memorandum, Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015, p. 12,

accessed 6 November 2015. 32. Parliamentary Joint Committee on Human Rights, Thirtieth report of the 44th Parliament, The Senate, 10 November 2015, pp. 53-60. 33. Ibid., pp. 59-60. 34. DHS, ‘Family Tax Benefit’, op. cit. 35. Australia’s Future Tax System Review, Australia’s future tax system: report to the Treasurer: part two: detailed analysis, volume 2 (Henry Tax

Review), The Treasury, Canberra, 2010, p. 556, accessed 6 November 2015. 36. A New Tax System (Family Assistance) Act 1999 (Cth), accessed 29 October 2015. 37. D Daniels, Social security payments for people caring for children, 1912-2008: a chronology, Background note, 2008-09, Parliamentary

Library, Canberra, 29 January 2009, accessed 29 October 2015, p. 7, 18-19, 55. 38. Ibid., p. 18, 55.

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Assistance Part A and Family Tax Payment Part A.39 FTB-B replaced a number of payments and income tax rebates for sole-parents and single-income families: Guardian Allowance, Basic Parenting Payment, Family Tax Payment Part B, Family Tax Assistance Part B, Sole Parent Rebate and Dependent Spouse Rebate (with Children).40

At the time of their introduction, then Prime Minister John Howard emphasised that the reforms were partly intended to provide greater choice to families as to how they balanced work and family responsibilities— particularly to allow for one parent in couple families to remain out of the paid workforce to provide care for their children:

The philosophy of the Government and the personal philosophy of the Prime Minister in this area has always been that maximising choice is the desirable thing. It is not the role of the Prime Minister or the role of the Government to stereotype a particular pattern of family behaviour or to say what families ought to do in relation to the arrangements of their infant children. It is the responsibility of the Government, within the bounds of fiscal capacity, to give maximum choice. And one of the features you will find as you absorb the detail of the new arrangements regarding family payments is that not only are they more generous, not only will we be achieving the consolidation of 12 payments down into three, not only will we be simplifying their delivery to the public by the establishment of a special family office, but they will particularly enhance the choices available to parents in relation to their young children. And they will capture the need that many of us are very familiar with, of having a tax and welfare system that allows people to go from a situation of two parents in full-time work to one for a period of time and then one of those back to part-time work and then one of those, over another period of time, back into the full-time workforce.

41

FTB-B was partly intended to provide additional assistance to single parent families (on top of the assistance provided by FTB-A) but was also intended to address the issue where single earner families pay higher income tax than dual-income families with the same total household income (dual income families benefit from two tax-free thresholds).42

The role of the FTB supplements The FTB supplement amounts were not included in the FTB program introduced in 2000. They were introduced later (the FTB-A supplement in 2004 and the FTB-B supplement in 2005). At the time the FTB-A supplement was introduced, as part of the More Help for Families package, it was described as an ‘increase of $600 a year in the maximum and base rates of FTB (A) for each dependent child’.43 The increase was paid as lump sum at the end of the financial year, mainly in response to the large number of FTB recipients who ended up with small debts after their end of year reconciliation.44 Debts arose as the vast majority of FTB recipients choose to be paid by way of fortnightly instalments during the year, rather than claiming a lump-sum at the end of the year when they lodge their tax return. When an FTB recipient is paid by instalment, they are required to estimate their adjusted taxable income (ATI) for the year of payment and the rate of FTB paid is based on their estimate. Once the financial year finishes and they lodge their tax return, their actual ATI (as assessed) is reconciled against the FTB paid to them for the year. As it is often difficult to estimate ATI over the year ahead, many families end up either underpaid (and then paid their arrears) or overpaid (creating recoverable debt).

While the supplement is included in an individual’s total FTB entitlement calculation, the value of the supplement is not paid until after the reconciliation process. As such, it can be used to offset any debts (partly or in full). Tax return payments from the Australian Taxation Office (ATO) can also be withheld to offset any debts. If any debt amount remains, fortnightly payment rates for the following year can be reduced to recover the outstanding amount (or other debt recovery actions can be taken if the person is no longer entitled to FTB). If

39. Ibid., p. 18. 40. Ibid., p. 55. 41. J Howard (Prime Minister), Transcript of press conference [Government’s tax package], Parliament House, media release, 13 August 1998, accessed 29 October 2015.

42. Henry Tax Review, op. cit., pp. 556-557. 43. Australian Government, 2004-05 Budget: overview, p. 6, accessed 6 November 2015. 44. Family Assistance Legislation Amendment (More Help for Families—Increased Payments) Act 2004 (Cth), accessed 29 October 2015; Family and Community Services and Veterans’ Affairs Legislation Amendment (Further 2004 Election Commitments and Other Measures) Act 2005

(Cth), accessed 29 October 2015.

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the reconciliation process finds that a person has been underpaid, then any supplement entitlement will be added to the amount outstanding and paid as a top-up payment.45

For the 2013-14 financial year, only four per cent of the 1,963,640 FTB ‘customers’ had no change made to their entitlements following reconciliation.46 Around 79 per cent received a top-up payment (in addition to what they had been paid during the year) and eight per cent (163,380) were deemed to have been overpaid (with an average overpayment amount of $1,672).47 A further three per cent were granted FTB following reconciliation and for around five percent of customers their reconciliation process had not been completed.48

Most FTB debts are for small amounts and the end-of-year supplement was aimed at mitigating the adverse impacts of FTB families incurring a debt. For the 2002-03 year, there were 560,633 families with an end-of-year FTB debt and the average debt was $860.80.49 The end-of-year supplement payments of $600 for each FTB-A qualifying child commenced for the 2003-04 year and served to eliminate the majority of small debts arising from families understating their ATI for the year.

The end-of-year supplement for FTB-B was introduced for the 2004-05 year (it was initially worth $300 but only a half-rate was payable for the 2004-05 year).50 The introduction of the FTB-B end-of-year supplement was done for basically the same reasons as was previously done for FTB-A, that is, to ameliorate the impact of FTB recipients having small debts after FTB reconciliation. The legislation also provided for annual indexation of these amounts to the CPI to ensure the amounts did not fall behind the primary payment rate of FTB payments (also indexed annually to the CPI).51

At the time the FTB-B supplement was introduced, then Minister for Family and Community Services Kay Patterson stated the lump-sum amounts were beneficial for reasons other than covering small debts: ‘Parents have told me the lump sum allowed them to purchase items such as school uniforms, replace household goods, pay for a special sporting activity and provide a boost to saving for their children’s future’.52 The National Welfare Rights Network has stated that many families continue to make use of the lump sum payments in this way, using the payments for larger purchases that they cannot afford within their weekly budget including car registration, the replacement of household goods and insurance costs.53

Number of recipients The 2012-13 financial year is the most recent for which the reconciliation process has been completed. In 2012- 13, there were 1.81 million eligible customers for FTB-A with 94 per cent (1.69 million) paid in the form of fortnightly instalments.54 In the same year, there were 1.58 million eligible customers for FTB-B with 95 per cent (1.5 million) receiving their payment in fortnightly instalments.55

Around 39 per cent of all FTB-A recipients received the maximum rate (the rest receiving reduced rates under the income test) in 2012-13.56 Around 71 per cent of FTB-B recipients received the maximum rate (49 per cent of FTB-recipients were single parent families receiving the maximum rate).57

45. Department of Social Services (DSS), Annual report 2014-15, DSS, Canberra, p. 262, accessed 29 October 2015. 46. Ibid., p. 263. 47. Ibid.

48. Ibid.

49. Department of Families and Community Services (FaCS), Annual report 2003-04: volume 2, FaCS, Canberra, p. 28, accessed 29 October 2015. 50. D Daniels, Family and Community Services and Veterans' Affairs Legislation Amendment (Further 2004 Election Commitments and Other Measures) Bill 2005, Bills digest, 122, 2004-05, Parliamentary Library, Canberra, 2005, p. 3, accessed 29 October 2015. 51. Ibid.

52. K Patterson (Minister for Family and Community Services), Extra assistance for 1.3 million Australian families, media release, 9 February 2005, accessed 29 October 2015. 53. National Welfare Rights Network, Submission to DSS, Review of Australia’s welfare system, 125, 8 August 2014, p. 21, accessed 29 October 2015. 54. DSS, Annual report 2014-15, op. cit., p. 34. 55. Ibid., p. 35. 56. Ibid., p. 34. 57. Ibid., p. 35.

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Expenditure on FTB The 2015-16 Budget estimated that total expenditure on the FTB program would be $20.1 billion in 2015-16.58 FTB-A represents $14.8 billion of this total, and FTB-B $4.2 billion.59 The remaining $1.1 billion is for the Schoolkids Bonus (paid to FTB-A recipients with school-age children and an ATI under $100,000). The Schoolkids Bonus will cease from December 2016.60 In 2014-15, actual expenditure on the FTB program totalled $21.0 billion.61

While nominal expenditure on the FTB programs has doubled over the last 15 years, real expenditure has plateaued since around 2008-09 when the Rudd Government commenced a series of measures to slow expenditure growth.62 These measures included the introduction of the primary income earner limit on FTB-B (of $150,000), changes to the way income is defined for the purposes of the income test, removing the link between FTB-A indexation and pension indexation, indexation pauses on some income test thresholds and pausing indexation of the FTB-A and FTB-B supplements.63 Chart 1 shows nominal and real expenditure (adjusted for inflation) on the FTB program (excluding the Schoolkids Bonus) since 2000-01.

Chart 1: Expenditure on the Family Tax Benefit program

Notes: 2001-01 to 2012-13 actual expenditure figures; *2013-14 and 2014-15 estimated actual expenditure; ** 2015-16 Budget estimate.

Sources: Parliamentary Library estimates. Expenditure data from Australian Government, Additional Estimates Statements and Portfolio Budget Statements for Social Services; Families, Housing, Community Services and Indigenous Affairs; Families, Community Services and Indigenous Affairs; and Families and Community Services Portfolios, 2000-01 to 2015-16, accessed 10 November 2015.

58. Australian Government, Portfolio budget statements 2015-16: budget related paper no. 1.15A: Social Services Portfolio, p. 46, accessed 2 November 2015. 59. Ibid.

60. DSS, ‘Schoolkids Bonus’, DSS website, last updated 27 May 2015, accessed 2 November 2015. 61. DSS, Annual report 2014-15, op. cit., p. 253. 62. P Yeend, ‘Welfare’, Budget review 2008-09, Research paper, 31, 2007-08, Parliamentary Library, Canberra, 26 May 2008, pp. 92-97, accessed 2 November 2015.

63. D Daniels, ‘Reform of family payments’, Budget review 2009-10, Research paper, 33, 2008-09, Parliamentary Library, Canberra, 29 May 2009, pp. 167-169; D Daniels, ‘Family assistance retargeted’, Budget review 2011-12, Research paper, 13, 2010-11, Parliamentary Library, Canberra, 31 May 2015, pp. 160-163; P Yeend, ‘Family Tax Benefit Part A-change to age of eligibility’, Budget review 2012-13, Research paper, 9, 2011-12, Parliamentary Library, Canberra, 31 May 2012, pp. 120-121; M Klapdor, ‘Further savings from family assistance payments’, Budget review 2013-14, Research paper, 3, 2012-13, Parliamentary Library, Canberra, 30 May 2013, pp. 166-167, all accessed 6 November 2015.

0.0

5.0

10.0

15.0

20.0

25.0

$ billion

Family tax benefit expenditure (nominal) Family tax benefit expenditure (real, in June 2015 dollars)

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The 2015-16 Budget estimated that expenditure on the FTB program would decline to around $18.1 billion in 2018-19 had all the proposed savings measures passed.64 Up to date estimates have not been published.

The 2015 Intergenerational Report anticipated a reduction in spending on family assistance payments, primarily as a result of demographic change (the proportion of the population aged less than 15 is projected to fall from 18.8 per cent in 2014-15 to 17.5 per cent in 2054-55).65 The Treasury estimated that, based on the existing FTB arrangements, expenditure on assistance to families (which includes childcare payments) would fall as a percentage of Gross Domestic Product (GDP) from 1.8 per cent in 2014-15 to 0.9 per cent in 2054-55.66 If all the 2014-15 Budget measures were implemented, Treasury estimated that assistance to families would reach 0.8 per cent of GDP by 2054-55.67

Rationale for the changes Apart from offering replacement savings measures to those stalled in the Senate (which have been linked to the funding for the proposed childcare payment reforms), the Government has outlined other reasons for the measures in the Bill:

• to simplify the payment structure of the FTB system

• to provide ‘more assistance to families when they need it most’ and

• to support ‘family choice to spend more time with their children when they are very young if they wish to do so’.68

Simplifying the system Minister for Social Services Christian Porter stated in his second reading speech that the ‘fundamental and critical reform component inherent in the changes now proposed is that the measures reduce the number of supplements in the system’. The Minister cited the report of Patrick McClure’s Reference Group on Welfare Reform, A new system for better employment and social outcomes (the McClure Report), in saying that there were ‘far too many payments and supplements’ and that ‘the system is unworkable’.69

The McClure Report recommended a reduction in the number of income support and family assistance payment categories, and suggested that all supplement payments should be reviewed by the Government alongside the development of these new payment categories.70 In regards to supplements for family payments the McClure Report found that it would ‘be appropriate in the new system to cover the ongoing costs of children through the new Child and Youth Payment rather than through specific supplements’.71 Supplements would be reserved for specific extra costs, such as the costs of a new born baby.72 The ‘Child and Youth Payment’ recommended by the Report would be a single, means tested payment that recognised the cost of dependent children and young people, and ‘would increase with the age of children at defined life transition points’.73

The proposed measure to phase-out the FTB-A and FTB-B supplements does not directly align with the McClure Report’s recommendations. The Report suggested that supplements be reviewed alongside broader reforms of the welfare system. It also suggested that the main benefit payments should be designed to cover the relevant costs of the target group so that supplementary payments would only be needed for specific costs. The Bill proposes a small increase in the rate of the main FTB-A payment, equivalent to around 36 per cent of the

64. Australian Government, Portfolio budget statements 2015-16: budget related paper no. 1.15A: Social Services Portfolio, op. cit., p. 46. 65. Australian Government, 2015 Intergenerational report: Australia in 2055, March 2015, p. 74, accessed 2 November 2015. 66. Ibid., p. 75. 67. Ibid.

68. C Porter, ‘Second reading speech: Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015’, op. cit., pp. 7-8. 69. Ibid., p. 8; S Morrison (Treasurer), C Porter (Minister for Social Services), S Birmingham (Minister for Education and Training), Transcript of joint press conference: Canberra, op. cit., p. 3. 70. Reference Group on Welfare Reform (P McClure, chair), A new system for better employment and social outcomes (McClure Report), report

prepared for DSS, DSS, Canberra, 2015, pp. 37-38, 92, accessed 2 November 2015. The purpose of the McClure Review was to ‘identify how to make Australia’s welfare system fairer, more effective, coherent and sustainable and encourage people to work’. DSS, ‘Review of Australia’s Welfare System’, DSS website, accessed 10 November 2015. 71. McClure Report, op. cit., p. 92. 72. McClure Report, op. cit., p. 93. 73. McClure Report, op. cit., p. 87.

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current value of the FTB-A supplement. The Bill will remove the supplements without the recommended review or broader reform of the welfare system; and will reduce the level of support available through the main payments without an assessment of the design of the payment and its adequacy.

The proposed changes to FTB-B eligibility and rates for children over the age of 13 run counter to the McClure Report’s recommendations that family assistance increase with the age of children. Having examined research on the costs of children, the McClure Report found:

The costs of children increase markedly at the following points in the lifecycle: starting primary school, starting secondary school and entering the final two years of secondary school. The new Child and Youth Payment will better reflect this and be higher for older children than for younger children.

Payments for low income families with children and young people should support children to finish their education and transition to the workforce. 74

The Bill’s proposed changes to FTB-B will instead reduce or remove the financial assistance provided by that payment when children enter secondary school, and will remove the payment for all currently eligible families with children entering the final two years of secondary school. The Minister did not refer to this particular section of the McClure Report in his second reading speech but stated that limiting FTB-B for couple families to those with children under the age of 13 ‘strongly supports the policy imperative that families be encouraged and enabled to re-enter the workforce as their children begin secondary school’.75 This statement suggests FTB-B’s role—as a dual purpose payment aimed at providing additional support to single parents and at improving horizontal equity between dual and single-earner couple families—is to be limited to families with younger children in order to encourage work participation. While the proposed changes are not as dramatic as those proposed in the 2014-15 Budget, they signify a step away from the Howard Government’s view of the role FTB-B would play.

Removing the FTB supplements does simplify the system but the other changes proposed by the Bill will further complicate the array of different rates and eligibility conditions for different family assistance payments. Increasing the FTB-A rate for children under one year of age will add a fifth FTB-A payment rate category, and will add to the existing payments for infant children—currently, families may be eligible for the Newborn Upfront Payment and Newborn Supplement components of FTB-A, or they may receive Paid Parental Leave Pay.76 The changes to FTB-B will add two new payment rate categories (single parents and grandparent carer couples with children over the age of 13) to the two existing rates and add new eligibility conditions based around the age of children and marital status.

Increasing fortnightly rates while reducing total annual entitlements The Minister’s argument that the FTB-A rate increase will provide ‘more assistance to families when they need it most’ is based on the position that fortnightly payments provide the most relevant assistance for families managing a budget and the supplement payments are no longer fit for purpose:

If I might put to you all ‐ one of the virtues of this approach is that - and again we've listened on this - is that family expenses and family budgets flow in this fortnightly cycle. Things that happen at the end of the year are separate to that fortnightly cycle. So, the cost of living has happened at this fortnightly cycle so we are taking savings from a payment that is no longer fit for purpose in the end of year supplements, transferring it to the child care package and then using some part of it to buttress up and increase the fortnightly payment so that as the daily living cycle and weekly living cycle and fortnightly living cycle goes on, families are better equipped to cope with that rhythmic fortnightly pattern and the real‐time demands of fortnightly budgeting.

77

74. McClure Report, op. cit., p. 88. 75. C Porter, ‘Second reading speech: Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015’, op. cit., p. 7. 76. Parents cannot receive both Parental Leave Pay and the Newborn Upfront Payment/Newborn Supplement. See DHS, ‘Newborn Upfront

Payment and Newborn Supplement’, DHS website, accessed 3 November 2015. 77. S Morrison (Treasurer), C Porter (Minister for Social Services), S Birmingham (Minister for Education and Training), Transcript of joint press conference: Canberra, op. cit., p. 4.

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The Government holds that the issue the supplements were partly intended to address—small debts arising from the reconciliation process—will not be an issue in the near future as the ATO will be introducing a ‘single touch payroll system’ in 2018-19.78 This system is intended to automatically report payroll information to the ATO when employees are paid.79 The ATO can share this data on income with Centrelink in ‘real-time’, allowing Centrelink to make adjustments to an individual’s FTB entitlements if there are any discrepancies with that individual’s ATI estimate for the year. The new payroll reporting system was intended to be introduced from July 2016 but the commencement date has been pushed back to within ‘a couple of years’.80 In October 2015, an ATO spokesperson stated:

Consultation is continuing on the scope and timing for the Single Touch Payroll initiative and the feasibility of conducting targeted pilots subject to a final Government decision to proceed with the initiative. 81

The new system should, if it works, reduce the number of people who are overpaid FTB but the Government is yet to make a final decision to implement the system. The Bill will phase out the supplements partly aimed at minimising the impact of small debts on FTB recipients, based on the uncertain prospect that the new payroll reporting system will be implemented within the same timeframe and will actually work to minimise the number of FTB overpayments.

As noted above, some have suggested that the provision of lump-sum supplements (as opposed to increased instalment payments) are beneficial in that they allow families to make large, one-off, purchases or make large annual payments such as car registration and insurance. Thus, it is unclear whether all families will appreciate the loss of the annual supplement payment in exchange for a small increase in their fortnightly rate, particularly when, for most recipients, the overall rate of assistance provided via FTB is being reduced. The Government has argued that many families will also benefit from increased childcare assistance in the proposed ‘Jobs for Families’ package, and will therefore be better off overall.82 It is difficult to assess the financial impact of the proposed childcare package as the legislation implementing the package is yet to be introduced. Also, those families not using childcare, particularly those with older children, will not receive any benefit from this package to offset the reduction in their FTB entitlements.

Additional support for families with infants Increasing the maximum FTB-A rate for children under the age of one by $1,000.10 is intended to support ‘family choice to spend more time with their children when they are very young’.83 The increase has also been linked with a deal between Prime Minister Malcolm Turnbull and The Nationals, securing their status as Coalition partner following the ousting of Tony Abbott as Prime Minister—it was described at the time as an extra $1,000 payment for ‘stay-at-home mums’.84

The higher payment rate will be in addition to the existing FTB-A components paid to new parents who do not receive Paid Parental Leave Pay—the Newborn Supplement and the Newborn Upfront Payment. Together, these two components provide a maximum annual increase in FTB-A of $2,091.84 for a first child, and $1,046.25 for second and subsequent children (for 2015-16).85

The increased support for FTB-A eligible families with very young children contrasts with the Government’s moves to restrict access to Paid Parental Leave Pay for parents able to access equivalent (or greater)

78. Ibid.

79. B Billson (Minister for Small Business), Government moves to get Single Touch Payroll right, media release, 10 June 2015, accessed 3 November 2015. 80. B Billson (Minister for Small Business) and J Frydenberg (Assistant Treasurer), Cutting red tape for employers through Single Touch Payroll, media release, 28 December 2014, accessed 3 November 2015; A King, ‘ATO still wants payroll reporting’, Australian Financial Review,

14 October 2015, p. 7, accessed 3 November 2015. 81. E Keating, ‘ATO pushing ahead with plans to introduce real-time payroll reporting’, SmartCompany website, 14 October 2015, accessed 3 November 2015. 82. S Morrison (Treasurer), C Porter (Minister for Social Services), S Birmingham (Minister for Education and Training), Transcript of joint press

conference: Canberra, op. cit., p. 7. 83. C Porter, ‘Second reading speech: Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015’, op. cit., p. 7. 84. S Maher, ‘Nats turned screws to gain optimum leverage’, The Australian, p. 7, 17 September 2015; S Benson and E Whinnett, ‘$4b deal wins

over Nationals’, Hobart Mercury, 16 September 2015, p. 4, accessed 3 November 2015. 85. DHS, ‘Newborn Upfront Payment and Newborn Supplement’, op. cit.

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employer-provided paid parental leave entitlements.86 Currently, eligible parents can access Paid Parental Leave Pay and any employer-provided entitlements.

Impact of the measures At Senate Supplementary Budget Estimates hearings, the Department of Social Services provided some information on the estimated number of people expected to be affected by the proposed measures:

• 76,000 couple families with a youngest child aged 13 or over will lose eligibility for FTB-B when the measures commence on 1 July 2016

• 136,000 single parent families with a youngest child aged 13-16 will receive a reduced FTB-B payment (from $3,139 to $1,000 per annum)

• 3,900 grandparents will receive the reduced FTB-B rate for children aged between 13-16

• 1.2 million families will receive the increase in the fortnightly FTB-A rate

• 15,600 Youth Allowance (aged 18 and living at home) recipients; 4,390 DSP recipients; 1,050 Abstudy recipients; and, around 1,160 Special Benefit (under 18 and living at home) recipients will receive an increase in payment rates (so that the rates are equivalent to the relevant FTB-A rate) and

• 1.5 million FTB-A recipient families and 1.3 million FTB-B recipient families will receive a reduced entitlement as a result of the phasing out of the end of year supplements (there will be significant overlap in the number of families affected by this particular measure).87

Cameos In terms of the direct financial impact on families, little information has been published by the Government. The Minister for Social Services’ media release announcing the measures included four ‘cameos’ representing the fortnightly cash impact on different family-types resulting from the FTB changes and the proposed new childcare package in 2018-19, but inexplicably excluded the impact of the supplement loss.88

To illustrate the fortnightly cash impact of the Bill’s proposed measures, Table 1 presents calculations of the current FTB entitlements for different families compared with estimates of what these entitlements would be if the proposed changes were implemented now. The estimates of entitlements under the proposed changes calculate the impact of the changes in FTB-A and B rates, the abolition of the end-of-year supplements, and changes in age of eligibility for FTB-B as if they applied to the current FTB rates and income test settings. This means that the impact of indexation on FTB rates and income test thresholds is not taken into account. As such, the estimates should only be considered as indicative of the impact the changes will have. Childcare payments (both current and proposed) have been excluded as these entitlements depend on the use and cost of childcare services (as well as family income) and the table is intended to reflect only the possible impact of the FTB changes. The impact of the abolition of the Schoolkids Bonus (SkB), from January 2017, is included as it is currently part of the FTB program and the removal of this payment will affect many of the same families at the same time.

Table 1: Estimates of the impact of the proposed changes to Family Tax Benefit on different family types

Family circumstances Current rates (including all supplements), pa

2018 changes applied now, pa Difference between current and proposed

FTB entitlements

Single parent, one child aged 13 years, no private income, Newstart Allowance

FTB-A: $6,942

FTB-B: $3,190

SkB: $856

FTB-A: $6,479

FTB-B: $1,051

SkB: $0

-$3,458

86. M Sheppard and L Buckmaster, Fairer Paid Parental Leave Bill 2015, Bills digest, 12, 2015-16, Parliamentary Library, Canberra, 19 August 2015, accessed 3 November 2015. 87. Senate Community Affairs Legislation Committee, Proof committee Hansard, 22 October 2015, p. 24, 26, 32, accessed 3 November 2015. 88. C Porter (Minister for Social Services), S Morrison (Treasurer) and S Birmingham (Minister for Education and Training), Revised Family Tax

Benefit measures to fund $3.5 billion child care investment, media release, 21 October 2015, accessed 3 November 2015.

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Family circumstances Current rates (including all supplements), pa

2018 changes applied now, pa Difference between current and proposed

FTB entitlements

Single parent, one child aged 13 years, $70,000 in earnings

FTB-A: $3,148

FTB-B: $3,190

SkB: $856

FTB-A: $2,684

FTB-B: $1,051

SkB: $0

-$3,459

Couple family, two children aged 14 and 16 years, Parent 1 with $80,000 in earnings, Parent 2 with $0 in earnings

FTB-A: $8,090

FTB-B: $3,190

SkB: $1,712

FTB-A: $7,163

FTB-B: $0

SkB: $0

-$5,829

Couple family, two children aged 14 and 16 years, Parent 1 with $60,000 in earning, Parent 2 with $30,000 in earnings

FTB-A: $6,090

FTB-B: $0

SkB: $1,712

FTB-A: $5,162

FTB-B: $0

SkB: $0

-$2,640

Couple family, two children aged 9 months and 3 years, Parent 1 with $80,000 in earnings, Parent 2 with $0 (no PPL Pay)

FTB-A: $6,260

FTB-B: $4,413

SkB: $0

FTB-A: $5,333

FTB-B: $5,059

SkB: $0

-$281

Notes: FTB amounts include the FTB-A and FTB-B supplements, the Energy Supplement, and the Newborn Supplement/Newborn Upfront Payment where applicable. Amounts rounded to the nearest dollar.

Source: Parliamentary Library estimates. Payments rates and income test thresholds from DHS, A guide to Australian Government payments: 20 September-30 December 2015, DHS, Canberra, 2015, accessed 5 November 2015.

For families with older children, the financial impact of the proposed changes will be dramatic, with a reduction in assistance ranging from $2,000 to $6,000 (in the examples above). For the single parent on Newstart, the loss of $3,500 is equivalent to around 13 per cent of their total income (under current settings). Larger families stand to lose more, as a result of losing both the per-child FTB-A supplement and any Schoolkids Bonus payments. Even those with very young children who will benefit from the increased FTB-B rates for children under one and the increased FTB-A rates could still face a financial loss due to the abolition of the FTB supplements.

While many low income families with younger children will benefit from the proposed childcare package, those who do not use childcare and those who will not qualify under the package, will not receive any such offset for the reduction in FTB entitlements.

Main provisions

Schedule 1

A New Tax System (Family Assistance) Act 1999 Item 1 inserts new clause 7 at Part 2 of Schedule 4 of the FA Act to provide for a one-off increase in the standard per child rates of FTB-A of $262.80 (there are two rates: one for an FTB child aged under 13 years and one for an FTB child who has reached 13 years).89 This will increase the maximum annual rate of FTB-A for 2018-19 on top of the usual indexation to this rate that occurs on 1 July 2018 and is equivalent to an additional increase of around $10.08 per fortnight.

89. A New Tax System (Family Assistance) Act 1999 (Cth), accessed 6 November 2015.

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Social Security Act 1991 Items 3 and 4 substitute the annual and fortnightly maximum basic rates of Disability Support Pension (DSP) for recipients aged under-18, with no dependent children, considered not independent and living at home, currently set out in table item 1 of the table at Point 1066A-B1 of the SS Act with references to ‘annual linked rate’ and ‘fortnightly linked rate’ respectively.90 The definitions of the linked rates are inserted by item 6 as new points 1066A-B2 and 1066A-B3. The annual linked rate is the standard FTB-A rate for an FTB child aged over 13 years (the amount under column 2 of table item 2 in clause 7 of Schedule 1 of the FA Act). The fortnightly linked rate is worked out by dividing the annual rate by 365 and multiplying the result by 14. Currently, the DSP rate for those aged under-18, not independent and living at home is $233.60 per fortnight compared to the FTB-A rate for children over 13 years of $233.94 per fortnight.91 The amendments align the rates of the two payments to ensure these DSP recipients also benefit from the proposed FTB-A rate increase.

Items 7-10 make similar amendments at point 1066B-B1 for blind DSP recipients aged under-18 in the same circumstances as the above child, to link the DSP rate for these recipients with the FTB-A rate for children over 13 years.

Item 11-15 make similar amendments at point 1067G-B2 and 1067G-B3 to link the Youth Allowance rates for those aged under-18, not considered independent and still living at home and for those aged under-18, considered independent and living in supported state care, with the FTB-A rate for children over 13 years. These Youth Allowance rates are currently the same as the rate for DSP recipients aged under-18, not independent and living at home ($233.60).92

Schedule 2

A New Tax System (Family Assistance) Act 1999 Item 1 inserts new subparagraph 22B(1)(a)(ia) into the FA Act, so that FTB-B will no longer be payable for secondary school children aged 17 or 18.93 Currently, for a parent/carer to be eligible for FTB-B in respect of a child aged 16 or over, the child must meet the definition of secondary school child at section 22B of the FA Act. This definition currently allows FTB-B to be paid in respect of children aged 16, 17 or 18 (where the calendar year in which the child turned 18 has not ended) if they meet the schooling requirements (also set out at section 22B). The new subparagraph will amend the definition of secondary school child for the purposes of calculating a person’s FTB-B rate so that it only applies to children aged 16 (where the calendar year in which the child turned 16 has not ended) who meet the schooling requirements. Older children will still meet the definition for the purposes of other sections of the FA Act (for example, for the purposes of calculating FTB-A rates) due to consequential amendments by items 2 and 3.

Item 4 inserts new clause 28D at Subdivision AA of Division 1 of Part 4 of Schedule 1 of the FA Act so that an individual who is a member of a couple and whose youngest child is aged 13 years or over will have a nil rate of FTB-B unless that individual is considered a grandparent of the child. The new clause sets out relationships that can be considered biological parent-child relationships for the purposes of determining whether the individual is a ‘grandparent’ including: adoptive parents, step-parents and relationship-parents.

Item 6 repeals clause 30 at Division 2 of Part 4 of Schedule 1 of the FA Act which sets out the two standard rates of FTB-B, and inserts new clause 30 which provides for four different standard rates. They are:

• where the family’s youngest child is aged under one year, the annual rate will be whatever the current rate for children under five years would be on 1 July 2016 if it were indexed under the existing settings, plus $1000.10

• where the family’s youngest child is aged over one year but under five years of age, the annual rate will be whatever the current rate for children under five years would be on 1 July 2016 if it were indexed under the existing settings

90. Social Security Act 1991 (Cth), accessed 6 November 2015. 91. DSP recipients aged under 21 with no dependent children are also eligible for the Youth Disability Supplement of $121.70 per fortnight. DHS, A guide to Australian Government payments: 20 September—30 December 2015, DHS, Canberra, 2015, p. 15, accessed 5 November 2015. 92. Ibid., p. 23. 93. A New Tax System (Family Assistance) Act 1999 (Cth), accessed 6 November 2015.

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• where the family’s youngest child is at least five years of age but not yet 13 years of age, the annual rate will be whatever the current rate for children at least five years of age would be on 1 July 2016 if it were indexed under the existing settings and

• where the family’s youngest child is at least 13 years of age but not yet 17 years of age, the annual rate will be $1000.10 (where the claimant is a single parent or grandparent carer).94

This complicated arrangement provides for the rate provided to families with a youngest child under one-year of age to receive an increase of $1000.10 from 1 July 2016, and for the rate provided to single parents and grandparent carers with a youngest child aged 13-16 from 1 July 2016 to be reduced to $1000.10. The wording of this clause is complex and could be simplified closer to 1 July 2016 once the relevant indexation factor has been determined. The new rates will be indexed for the first time on 1 July 2017.

Schedule 3

A New Tax System (Family Assistance) Act 1999 Schedule 3 contains three parts, which will gradually reduce the FTB-A and FTB-B supplements over two years before abolishing the supplements from 1 July 2018. Items 1-8 make amendments to the FTB-B supplement amount set out at subclause 31A(2) and the FTB-A supplement amount at subclause 38A(3) of Schedule 1 of the FA Act, and related provisions, to:

• reduce the FTB-B supplement from the current per family rate of $354.05 to $302.95 on 1 July 2016 (the same rate as when it was introduced), and then to $153.30 from 1 July 2017

• reduce the FTB-A supplement from the current per child rate of $726.35 to $602.25 on 1 July 2016, and then to $302.95 on 1 July 2017.

From 1 July 2018, items 13 and 16 remove references to the FTB-A supplement in the method statements at clauses 3 and 25 of Schedule 1 which are used to calculate an individual’s FTB-A rate. Items 17-19 remove references to the FTB-B supplement in the rules for calculating an individual’s FTB-B rates at clauses 29 and 29A of Schedule 1. Items 14 and 15 remove references to the FTB-A supplement used for calculating an individual’s maintenance income test ceiling, by repealing a method statement step at clause 24N of Schedule 1 and repealing clause 24R of Schedule 1. The maintenance income test ceiling is part of the calculation of how child support payments affect an individual’s FTB rate where there are both child support and non-child support children in the family, or where the individual has two or more child support cases.95 The maintenance income test ceiling ensures that any child support received only reduces the above base-rate amounts of FTB-A paid for the child support children.96

Items 20 and 21 repeal Division 2A of Part 4 and Division 2A of Part 5 of Schedule 1 which set out the rates of the FTB-B and the FTB-A supplements, respectively. These amendments effectively abolish the FTB supplements from 1 July 2018.

Concluding comments The Bill attempts to present a more palatable range of FTB savings measures than those contained in Bills stalled before the Senate. Rather than stop FTB-B payments to eligible families when their youngest child turns six, the Bill proposes that the cut off for couple families will be when the youngest child turns 13 and single parents and grandparent carers can continue to receive a reduced rate until their youngest turns 17. To offset the lost savings from this softer approach to FTB-B, the Bill proposes to completely phase out the end-of-year supplement amounts (which goes much further than the previous proposal to slightly reduce these supplement amounts). This measure effectively constitutes an overall reduction in the rate of FTB-A and FTB-B. While the cut is tempered by a small increase in fortnightly rate of FTB-A, it still equivalent to a 7-9 per cut in the current maximum per child rate of FTB-A, and an 8-11 per cent cut in the current maximum family rate of FTB-B.

94. Indexation of FTB rates occurs on 1 July each year in line with movements in the Consumer Price Index (CPI). DSS, ‘3.1.1.60 Indexation of FTB’, Family assistance guide, version 1.181, released 21 September 2015, DSS website, last updated 1 July 2015, accessed 5 November 2015. 95. DSS, ‘3.1.7.03 Maintenance income test ceiling’, Family assistance guide, version 1.181, released 21 September 2015, DSS website, last updated 1 July 2015, accessed 5 November 2015. 96. DSS, ‘1.1.M.22 Maintenance income test ceiling (FTB)’, Family assistance guide, version 1.181, released 21 September 2015, DSS website, last

updated 11 May 2015, accessed 5 November 2015.

Warning: All viewers of this digest are advised to visit the disclaimer appearing at the end of this document. The disclaimer sets out the status and purpose of the digest. Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2015 19

The new savings proposals spread the financial impact on a broader group of family assistance recipients than those proposed in the 2014-15 Budget. Vulnerable groups such as single parent and grandparent carer families still face a significant loss of income and a much larger group of families now face the loss of thousands of dollars in financial assistance from the Government.

The new proposals have not received a particularly welcoming reception, though there is some support from the Opposition and welfare groups for measures limiting FTB-B assistance to couple families. If it insists on drawing savings from the family assistance program, the Government may need to look at measures that minimise the impact on vulnerable families and instead target higher income groups (through changes to the income test). Alternatively, the Government could pursue real structural reform of the family assistance system, as recommended by the reports of the Henry and McClure reviews.

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