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Social Services Legislation Amendment (Maintaining Income Thresholds) Bill 2018



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ISSN 1328-8091

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BILLS DIGEST NO. 125, 2017-18 20 JUNE 2018

Social Services Legislation Amendment (Maintaining Income Thresholds) Bill 2018 Lauren Cook Social Policy Section Contents Purpose of the Bill ........................................................... 2

Background ..................................................................... 2

Family Tax Benefit ....................................................... 2

FTB A income test ...................................................... 2

FTB B income test ...................................................... 3

Parental Leave Pay and Dad and Partner Pay ............. 3 Proposed change ......................................................... 3

Committee consideration ................................................ 5

Senate Standing Committee for Selection of Bills ...... 5 Senate Standing Committee for the Scrutiny of Bills .............................................................................. 5

Policy position of non-government parties/independents...................................................... 5

Position of major interest groups..................................... 5

Financial implications ...................................................... 5

Table 1: financial impact ........................................... 5

Statement of Compatibility with Human Rights................ 5

Parliamentary Joint Committee on Human Rights ..... 6 Key issues and provisions ................................................ 6

Family Tax Benefit ....................................................... 6

Numbers affected...................................................... 6

Provisions .................................................................. 6

Parental Leave Pay and Dad and Partner Pay ............. 7 Numbers affected...................................................... 7

Provisions .................................................................. 7

Date introduced: 10 May 2018

House: House of Representatives

Portfolio: Social Services

Commencement: 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 Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at June 2018.

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Purpose of the Bill The purpose of the Social Services Legislation Amendment (Maintaining Income Thresholds) Bill 2018 (the Bill) is to:

• amend the A New Tax System (Family Assistance) Act 1999 to extend the indexation pause of the Family Tax Benefit Part A (FTB A) family higher income free area, and the Family Tax Benefit Part B (FTB B) primary earner income limit until 30 June 2021

• amend the A New Tax System (Family Assistance) Act to pause the indexation of the FTB A and FTB B end-of-year supplements until 30 June 2021 and

• amend the Paid Parental Leave Act 2010 to extend the indexation pause of the Parental Leave Pay (PLP) and Dad and Partner Pay (DAPP) income limits until 30 June 2021.

The measures were announced in the 2017-18 Mid-Year Economic and Fiscal Outlook (MYEFO) and will commence on Royal Assent.1

The pauses to indexation are expected to provide combined savings of approximately $321.9 million over four years.2

Background

Family Tax Benefit Family Tax Benefit (FTB) is the main form of direct financial assistance the Australian Government provides to families with children. There are two FTB payments: FTB A and FTB B. Both payments are means tested to target higher levels of assistance at lower income families. FTB A is available to all families who meet the care, residence and income test requirements.3 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.4

FTB A income test In calculating FTB A entitlements, two different income tests are generally applied with the one that provides the highest rate being used.5 The first test (Method 1) reduces the maximum rate of FTB A by 20 cents for each dollar of adjusted taxable income above $52,706 (this amount is known as the lower income free area).

The maximum fortnightly rate is currently $182.84 for each child aged 0-12 years and $237.86 for each eligible teenager.6

The second test (Method 2) reduces the base rate of FTB A by 30 cents for each dollar above $94,316 (the higher income free area). The fortnightly base rate is $58.66 per fortnight.

Families with income under $80,000 per annum are also eligible for the annual end-of-year FTB A supplement of $737.30 per child.7

1. S Morrison (Treasurer) and M Cormann (Minister for Finance), Mid-year economic and fiscal outlook 2017-18, p. 179. 2. Explanatory Memorandum, Social Services Legislation Amendment (Maintaining Income Thresholds) Bill 2018, p. 1. 3. Department of Human Services (DHS), ‘Family tax benefit’, DHS website, last updated 12 May 2018. 4. Ibid.

5. DHS, A guide to Australian Government payments: 20 March-30 June 2018, DHS, Canberra, p. 3. 6. Ibid., p. 2.

7. Ibid., pp. 2-3.

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The income test methods are applied in the following way:

• families with income equal to, or below $52,706 receive the maximum rate of FTB A

• families whose income falls in the range of $52,706-$94,316 receive either the reduced rate worked out under Method 1 or the base rate of FTB A (whichever is higher) and

• families with income over $94,316 receive the rate worked out under Method 1 or Method 2 (whichever is higher).

FTB B income test A family is not entitled to FTB B where the higher income earner in a couple, or a single parent, has an income of $100,000 per year or more.8

Families receiving FTB B are also eligible for the annual end-of-year FTB B supplement of $357.70 per family.9

Parental Leave Pay and Dad and Partner Pay PLP is a short term payment for the primary carer of a newborn or newly adopted child while they are on leave from work, for a maximum period of 18 weeks.10 DAPP is a short term payment for the biological father of a child, the partner of a birth mother, or an adoptive parent while they are on leave from work, for a maximum of two weeks.11

Under the income test, a person is not eligible for PLP or DAPP if they have an individual adjusted taxable income over $150,000 in the financial year prior to the date of their claim, or the date of birth or adoption, whichever is earlier.12

Proposed change Indexation in the family assistance system is the automatic adjustment of certain amounts or limits in line with movements in prices, as measured by the Consumer Price Index (CPI). The affected amounts are usually indexed once a year to maintain their real value over time.

The relevant threshold amounts to be affected by the proposed measures are:

• the FTB A higher income free area of $94,316 (plus $3,796 for each child after the first) - under the FTB A Method 2 income tests, the basic rate of FTB A reduces by 30 cents for each dollar above this ‘free area’ until it reaches zero13

• the FTB B upper income limit of $100,000 - if the higher income earner in a couple, or a single parent, has an annual adjusted taxable income over this amount then they will not be eligible for FTB B14

• the FTB A supplement ($737.30 per child) and the FTB B supplement ($357.70 per family) - these supplements are paid to families in receipt of FTB A and earning under $80,000 and to families in receipt of FTB B at the end of the financial year15 and

8. Ibid., p. 6.

9. Ibid., p. 5.

10. Ibid., p. 7. 11. Ibid., p. 8. 12. Ibid., pp. 7-8. 13. A New Tax System (Family Assistance) Act 1999, Schedule 1, clauses 3 and 28; Department of Social Services (DSS), ‘3.1.8.10

Method 2 - calculating the maximum rate of FTB Part A’, Family Assistance Guide, version 1.203, released 7 May 2018, DSS website, last updated 20 March 2017. 14. A New Tax System (Family Assistance) Act 1999, Schedule 1, clause 28B. 15. A New Tax System (Family Assistance) Act 1999, Schedule 1, clauses 31A and 38A; DSS, ‘3.1.1.20 Current FTB rates & income test amounts’, Family Assistance Guide, version 1.203, released 7 May 2018, DSS website, last updated 3 July 2017.

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• the upper income limit of $150,000 for claimants of PLP and DAPP - if a potential recipient has adjusted taxable income over this amount in the year prior to the date of claim, or the date of birth or adoption, then they are not eligible for these payments.16

The FTB A higher income free area has not been indexed since 1 July 2008.17 Under the current legislation, the FTB A higher income free area is to be next indexed on 1 July 2020.18

The FTB B upper income limit was introduced from July 2008. While the limit was reduced from $150,000 to $100,000 from 1 July 2015, the limit has not been indexed to date.19 Under the current legislation, the FTB upper income limit is to be indexed for the first time on 1 July 2020.20

Indexation for the FTB A and FTB B end-of-year supplements did not occur from 1 July 2011 to 1 July 2016.21 On 1 July 2017, the supplement amounts were indexed for the first time in six years and will continue to be indexed every July.22

The upper income limit for claimants has not been indexed since it was introduced for PLP in 2010, and for DAPP in 2012.23 Under the current legislation, the upper income limit for PLP and DAPP is to be indexed for the first time on 1 July 2020.24

These indexation freezes produce savings as a result of families gradually earning more income and moving above these limits, in which case they either lose eligibility or receive a lower rate of payment. In the case of the FTB A and FTB B supplements, savings are produced by preventing entitlements increasing.

The ongoing freeze on the indexation of various limits and payments to families will produce significant savings to the Budget over the forward estimates period and will primarily affect those with higher incomes. Concerns have been raised by some commentators in the past that the pursuit of these savings may have inadvertent effects, such as increasing rates of child poverty (as payment levels do not keep pace with growth in income), and decreasing public and political support for the family assistance system (as fewer families find that they are eligible for the payments).25

16. Paid Parental Leave Act 2010, sections 31, 37, 115CB and 115CG; DSS, ‘1.1.I.20 Income test’, Paid Parental Leave Guide, version 1.50, released 7 May 2018, DSS website, last updated 3 July 2017. 17. Social Security and Family Assistance Legislation Amendment (2009 Budget Measures) Act 2009, Schedule 2, clause 1; Family Assistance and Other Legislation Amendment Act 2011, Schedule 2, clause 1; Social Services and Other Legislation Amendment

Act 2014, Schedule 9, clause 7; Budget Savings (Omnibus) Act 2016, Schedule 17, clause 1. 18. A New Tax System (Family Assistance) Act 1999, Schedule 4, subclause 3(7). 19. Social Services and Other Legislation Amendment (2014 Budget Measures No. 6) Act 2014, Schedule 9, clause 4; A New Tax

System (Family Assistance) Act 1999, Schedule 4, subclause 3(7). 20. A New Tax System (Family Assistance) Act 1999, Schedule 4, subclause 3(7). 21. Family Assistance and Other Legislation Amendment Act 2011, Schedule 2, clause 2; Social Services and Other Legislation

Amendment Act 2014, Schedule 9, clause 9. 22. DSS, ‘3.6.1 FTB Part A - historical rates’, Family Assistance Guide, version 1.203, released 7 May 2018, DSS website, last updated 3 July 2017; DSS ‘3.6.3 FTB Part B - historical rates’, Family Assistance Guide, version 1.203, released 7 May 2018,

DSS website, last updated 3 July 2017; A New Tax System (Family Assistance) Act 1999, Schedule 4, subclause 3(8). 23. Family Assistance and Other Legislation Amendment Act 2011, Schedule 2, clauses 3-5; Social Services and Other Legislation Amendment Act 2014, Schedule 9, clauses 11-14; Budget Savings (Omnibus) Act 2016, Schedule 17, clauses 2-5. 24. Paid Parental Leave Act 2010, section 42. 25. G Redmond and P Whiteford, ‘Middle class welfare - are we hitting the target?’, The Conversation, 16 May 2013.

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Committee consideration

Senate Standing Committee for Selection of Bills On 10 May 2018, the Senate Standing Committee for the Selection of Bills deferred consideration of the Bill until its next meeting.26

Senate Standing Committee for the Scrutiny of Bills At the time of writing, the Senate Standing Committee for the Scrutiny of Bills had not reported on the Bill.

Policy position of non-government parties/independents At the time of writing, there have not been any publicly expressed policy positions on the Bill by non-government parties or independents.

Position of major interest groups The Australian Council of Social Service (ACOSS) has criticised the extension of the indexation freeze to FTB supplements and income thresholds, stating that the extension means ‘families will have to cover higher living costs with less’.27

Financial implications According to the Explanatory Memorandum, the pauses to indexation are expected to provide combined savings of approximately $321.9 million over four years.28

In response to a question on notice from a Senate Estimates hearing on 1 March 2018, the Department of Social Services provided a breakdown of this saving.

Table 1: financial impact

Measure Financial impact over the forward estimates

Family assistance measures (FTB) Savings of $312.6 million

Paid parental leave measures (PLP and DAPP) Savings of $9.3 million

Source: Senate Community Affairs Legislation Committee, Answers to Questions on Notice, Social Services Portfolio, Additional Estimates 2017-18, Question SQ18-000035.

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.29

26. Senate Standing Committee for Selection of Bills, Report, 5, 2018, The Senate, 10 May 2018. 27. Australian Council of Social Services (ACOSS), Goods new in MYEFO undone by more mean-spirited social security cuts, media release, 18 December 2017. 28. Explanatory Memorandum, op. cit., p. 1. 29. The Statement of Compatibility with Human Rights can be found at page 5 of the Explanatory Memorandum to the Bill.

However the Statement of Compatibility with Human Rights is incorrectly labelled page 1.

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Parliamentary Joint Committee on Human Rights The Parliamentary Joint Committee on Human Rights considers that the Bill does not raise human rights concerns.30

Key issues and provisions

Family Tax Benefit

Numbers affected On 10 May 2018, the Minister for Social Services, Dan Tehan, announced that extending the indexation freeze for the FTB A higher income free area would affect around 132,600 families. Of those families, around 119,400 families would receive a reduced rate of FTB A, and around 13,200 families would no longer be entitled to receive FTB A.31

Additionally, the Minister stated that extending the indexation freeze for the FTB B upper income limit would affect around 9,300 families who would no longer be eligible to receive FTB B.32

The Minister for Social Services did not provide figures for the numbers of families that would be affected by introducing a pause on indexation for the FTB A and FTB B end-of-year supplements for three years. In 2015-16 there were:

• 1,246,710 recipients of FTB A earning less than $80,000 who would have been entitled to receive the FTB A end-of-year supplement and

• 1,344,466 recipients of FTB B who would have been entitled to receive the FTB B end-of-year supplement.33

Provisions Item 1 repeals current subclause 3(7) of Schedule 4 of the A New Tax System (Family Assistance) Act 1999 that states that the FTB A higher income free area and the FTB B upper income limit are not to be indexed between 1 July 2009 and 1 July 2019.

In its place, proposed subclause 3(7) will extend this indexation pause by 12 months. As a result, the FTB A higher income free area and the FTB B upper income limit will not be indexed on 1 July 2018, 1 July 2019, and 1 July 2020. The next indexation date for these income limits would be 1 July 2021.

Item 1 also repeals subclause 3(8) of Schedule 4 of the A New Tax System (Family Assistance) Act, which states that the FTB A and FTB B supplement amounts were not to be indexed between 1 July 2011 and 1 July 2016.

In its place, proposed subclause 3(8) will introduce an indexation pause for three years. As a result, FTB A and FTB B supplement amounts will not be indexed on 1 July 2018, 1 July 2019, and 1 July 2020. The next indexation date for these supplement amounts would be 1 July 2021.

However, if the Bill does not receive Royal Assent by 1 July 2018, indexation for FTB A and FTB B supplements will occur on this date.

30. Parliamentary Joint Committee on Human Rights, Report, 5, 2018, Canberra, 19 June 2018, p. 53. 31. D Tehan (Minister for Social Services), ‘Second reading speech: Social Services Legislation Amendment (Maintaining Income Thresholds) Bill 2018’, House of Representatives, Debates, 10 May 2018, p. 3643. 32. Ibid. 33. DSS, Annual report 2016-17, DSS, Canberra, 2017, p. 204.

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Parental Leave Pay and Dad and Partner Pay

Numbers affected There have been no announcements on the number of people estimated to be affected by extending the indexation pause for PLP and DAPP income limits.

Provisions Items 2 to 5 amend the Paid Parental Leave Act 2010 by extending the indexation freeze for the PLP and DAPP income limit for twelve months. In doing so, the next indexation date for this income limit would be 1 July 2021.

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