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Budget Savings (Omnibus) Bill 2016



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ISSN 1328-8091

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BILLS DIGEST NO. 7, 2016-17 12 SEPTEMBER 2016

Budget Savings (Omnibus) Bill 2016 Nitin Gupta, Kai Swoboda, Daniel Weight Economics Section

Paula Pyburne Law and Bills Digest Section

Alex St John Science, Technology, Environment and Resources Section

Don Arthur, Amanda Biggs, Luke Buckmaster, Dale Daniels, Alex Grove, Marilyn Harrington, Michael Klapdor, Matthew Thomas Social Policy Section

Contents

The Bills Digest at a glance ................................................... 9

Table 1: Schedules previously introduced and analysed in this Digest .......................................................................... 9

Purpose of the Bill ............................................................. 10

Committee consideration .................................................. 12

Views on the Bill ................................................................ 12

Financial implications ........................................................ 12

Table 2: Financial impact table ($m) ................................... 13

Schedules 1-3—Higher education provisions ...................... 13

History of the measures ........................................................ 13

Purpose of the Schedules ...................................................... 13

Background ............................................................................ 13

Financial implications ............................................................ 14

Table 3: Impact over the forward estimates ($m) .............. 14

Statement of Compatibility with Human Rights .................... 14

Key provisions ........................................................................ 14

Schedule 4—Job commitment bonus.................................. 14

Purpose of the measure ........................................................ 14

Commencement .................................................................... 14

Background ............................................................................ 15

Date introduced: 31 August 2016

House: House of Representatives

Portfolio: Treasury

Commencement: Various (see analysis of each Schedule)

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

September 2016.

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Policy position of non-Government parties/Independents ............................................................ 16

Position of major interest groups .......................................... 16

Financial implications ............................................................ 16

Statement of Compatibility with Human Rights .................... 16

Key Issues and Provisions ...................................................... 17

Concluding Comments........................................................... 17

Schedule 6—Indexation of private health insurance thresholds ......................................................................... 17

Purpose of the Schedule ........................................................ 17

Commencement .................................................................. 17

Background .......................................................................... 17

Private health insurance rebate ........................................ 18

Medicare levy surcharge ................................................... 18

Policy position of non-government parties/independents .......................................................... 18

Position of major interest groups ........................................ 19

Financial implications .......................................................... 19

Statement of Compatibility with Human Rights .................. 20

Parliamentary Joint Committee on Human Rights ............ 20

Key issues and provisions .................................................... 20

Schedule 7—Abolishing the National Health Performance Authority ...................................................... 20

Purpose .................................................................................. 20

Commencement .................................................................... 20

Background ............................................................................ 20

Performance of the Authority ............................................. 21

The MYEFO announcement ................................................. 21

Committee consideration ...................................................... 22

Policy position of non-government parties/independents ... 22

Position of major interest groups .......................................... 22

Financial implications ............................................................ 22

Table 4: Expected savings $m ....................................... 22

Statement of Compatibility with Human Rights .................... 22

Parliamentary Joint Committee on Human Rights .............. 22

Key issues and provisions ...................................................... 22

Schedule 8—Aged care ...................................................... 23

History of the measures ........................................................ 23

Commencement .................................................................. 23

Purpose of the Schedule ........................................................ 23

Background ............................................................................ 23

Provider funding and compliance ....................................... 24

Red tape reduction ............................................................ 25

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Committee consideration .................................................... 26

Previous committee consideration ................................... 26

Economics Legislation Committee ...................................... 26

Senate Standing Committee for the Scrutiny of Bills .......... 26

Policy position of non-government parties/independents .......................................................... 26

Position of major interest groups ........................................ 27

Financial implications .......................................................... 27

Statement of Compatibility with Human Rights .................. 28

Parliamentary Joint Committee on Human Rights ............ 28

Key issues and provisions .................................................... 28

Part 1—Compliance .......................................................... 28

Part 2—Adviser and administrator panels ........................ 29

Part 3—Approved provider obligations ............................ 30

Comment ............................................................................. 30

Schedule 9—Dental services .............................................. 30

History of the Schedule ......................................................... 30

Purpose of the Schedule ........................................................ 31

Commencement .................................................................. 31

Background ............................................................................ 31

Dental health status ............................................................ 31

Government funding of dental services .............................. 31

Dental Benefits Act 2008 ................................................... 32

Eligibility ............................................................................ 32

Table 5: CDBS eligibility in 2014 by government payment received ................................................................ 33

Utilisation and cost of CDBS .............................................. 33

National Partnership Agreements (NPAs) on dental services .............................................................................. 33

Policy position of non-government parties/independents .......................................................... 34

Position of major interest groups ........................................ 34

Financial implications .......................................................... 35

Table 6: Savings over the forward estimates provided in the EM ............................................................................. 35

Table 7: Savings over the forward estimates provided in the 2016-17 Budget ........................................................ 35

Table 8: Funding allocation under the National Partnership on the child and adult public dental scheme ................................................................................ 36

Statement of Compatibility with Human Rights .................. 36

Parliamentary Joint Committee on Human Rights ............ 36

Key issues and provisions .................................................... 36

Schedule 11—Student start-up scholarships ....................... 37

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History of the amendment .................................................... 37

Purpose of the Schedule ........................................................ 38

Commencement .................................................................. 38

Background ............................................................................ 38

Removing the grandfathering arrangements ...................... 39

Financial implications ............................................................ 39

Table 9: Impact over the forward estimates ($m) .............. 39

Statement of Compatibility with Human Rights .................... 39

Key provisions ........................................................................ 39

Schedule 12 Interest charge ............................................... 40

Purpose of the Schedule ........................................................ 40

Commencement .................................................................. 40

Background ............................................................................ 40

History of the Schedule ....................................................... 40

Why impose an interest charge on debt? ........................... 40

Committee consideration ...................................................... 43

Senate Community Affairs Legislation Committee ............. 43

Policy position of non-government parties/independents .......................................................... 43

Position of major interest groups ........................................ 43

Financial implications ............................................................ 44

Statement of Compatibility with Human Rights .................... 44

Key provisions and issues ...................................................... 44

Key provisions...................................................................... 44

Issues ................................................................................... 46

Schedule 14—Parental leave payments .............................. 47

History of the measure .......................................................... 47

Purpose of the Schedule ........................................................ 47

Commencement .................................................................. 48

Background ............................................................................ 48

Paid Parental Leave Scheme ............................................... 48

Baby Bonus and newborn payments ................................ 48

Impact of PLP and DAPP on other payments .................... 49

Why were PLP and DAPP excluded from the income tests? ................................................................................. 50

Rationale for the change ..................................................... 50

Policy position of non-government parties/independents .......................................................... 50

Position of major interest groups ........................................ 51

Statement of Compatibility with Human Rights .................. 51

Financial implications ............................................................ 51

Key issues............................................................................... 51

Key provisions ........................................................................ 51

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Schedule 15—Fringe benefits ............................................. 52

Purpose of the Measure ........................................................ 52

Commencement .................................................................. 53

Background ............................................................................ 53

Financial implications ............................................................ 53

Position of major interest groups .......................................... 53

Key issues............................................................................... 54

Key provisions ........................................................................ 54

Schedule 16—Carer Allowance ........................................... 54

Purpose of the Schedule ........................................................ 54

Commencement .................................................................... 54

Background ............................................................................ 54

Origins of the backdating provisions ................................... 55

2006 changes ....................................................................... 56

Rationale for the change ....................................................... 56

Policy position of non-government parties/independents ... 56

Position of major interest groups .......................................... 56

Carers Australia ................................................................... 56

Australian Council of Social Service ..................................... 57

Statement of Compatibility with Human Rights .................... 57

Key issues............................................................................... 57

Provisions .............................................................................. 58

Schedule 20—Psychiatric confinement ............................... 58

History of the schedule .......................................................... 58

Purpose of the schedule ........................................................ 58

Background ............................................................................ 58

Recent media coverage — the Toki case............................. 59

The Government’s rationale for the measure ..................... 59

The original policy intent ..................................................... 60

Committee consideration ...................................................... 61

Senate Community Affairs Legislation Committee ............. 61

Parliamentary Joint Committee on Human Rights .............. 62

Position of major interest groups .......................................... 63

Policy intent ......................................................................... 63

Forensic patients should not be treated in the same way as those convicted of a crime ...................................... 63

Discrimination against people with a mental impairment .......................................................................... 64

Distinction between serious and non-serious crimes is not relevant ......................................................................... 64

Impact on rehabilitation and reintegration ......................... 64

Need for consultation with states and territories ............... 65

Financial implications ............................................................ 65

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Table 10: Savings over the forward estimates .................... 65

Key issues and provisions ...................................................... 65

Meaning of ‘course of rehabilitation’ .................................. 65

Introduction of a distinction between serious and non-serious offences .................................................................. 66

Meaning of serious offence ................................................. 66

Period of integration back into the community .................. 67

Responsibilities of the states/territories and the Commonwealth ................................................................... 67

Concluding comments ........................................................... 68

Schedule 21—Closing carbon tax compensation to new welfare recipients .............................................................. 68

Purpose of the measure ........................................................ 68

Commencement .................................................................. 69

Nature of the Energy Supplement ......................................... 69

Background .......................................................................... 69

Abbott Government changes ............................................ 70

Payment of the Energy Supplement ................................. 70

Current payment rates ...................................................... 70

Table 11: Selected Energy Supplement payment rates ...... 70

Nature of the Single Income Family Supplement .................. 71

Rationale for closing off carbon tax compensation ............... 72

Policy position of non-government parties ......................... 72

Australian Labor Party ....................................................... 72

Australian Greens .............................................................. 72

Minor parties and independents....................................... 72

Position of major interest groups ........................................ 73

Statement of compatibility with Human Rights .................. 73

Key issues............................................................................... 73

Who will be affected? ......................................................... 73

The adequacy of allowance payment rates......................... 74

Indexation issue means many worse off than had the carbon price compensation never been introduced ......... 74

Figure 1: Impact of 2013 indexation adjustment on Newstart Allowance rates ................................................... 75

Table 12: Fortnightly payment rates compared to those if Energy Supplement never introduced, as at 20 September 2016 ............................................................. 76

Complexity of the social security system .......................... 76

Comment ........................................................................... 77

Key provisions ........................................................................ 77

Part 1—A New Tax System (Family Assistance) Act 1999 ................................................................................... 77

Part 2—Social Security Act 1991 ....................................... 78

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Part 3—Farm Household Support Act 2014 ...................... 79

Part 4—Veterans’ Entitlements Act 1986 ......................... 80

Part 5—Military Rehabilitation and Compensation Act 2004 ................................................................................... 80

Part 6—Social Security Act 1991 ....................................... 80

Part 7—A New Tax System (Family Assistance) Act 1999 ................................................................................... 81

Schedule 22—Rates of R&D tax offset ................................ 81

History of the measure .......................................................... 81

Purpose of the measure ........................................................ 81

Commencement .................................................................. 81

Background ............................................................................ 81

Committee consideration ...................................................... 82

Senate Economics Legislation Committee .......................... 82

Senate Standing Committee for the Scrutiny of Bills .......... 82

Policy position of non-government parties/independents ... 82

Position of major interest groups .......................................... 82

Financial implications ............................................................ 83

Table 13: Financial implications of Schedule 22 .................. 83

Statement of Compatibility with Human Rights .................... 83

Key issues and provisions ...................................................... 83

Schedule 24—Single appeal path under the Military Rehabilitation and Compensation Act ................................ 84

History of the amendments ................................................... 84

Commencement .................................................................. 84

Purpose .................................................................................. 84

Background ............................................................................ 84

Current military compensation arrangements .................... 84

Military Rehabilitation and Compensation Commission ..... 85

Review of determinations of the Commission .................. 85

Figure 2: Outline of current review arrangements ............. 86

Review of Military Compensation Arrangements ............... 86

Rationale for the changes ................................................... 87

Senate Foreign Affairs, Defence and Trade Legislation Committee......................................................................... 87

Committee consideration ...................................................... 88

Senate Standing Committee for the Selection of Bills ........ 88

Senate Standing Committee for the Scrutiny of Bills .......... 88

Policy position of non-government parties/independents ... 88

Labor Party .......................................................................... 88

Senator Lambie ................................................................... 89

Senator Xenophon ............................................................... 89

Position of major interest groups .......................................... 89

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Financial implications ............................................................ 89

Table 14: Impact over the forward estimates ..................... 89

Statement of Compatibility with Human Rights .................... 90

Parliamentary Joint Committee on Human Rights ............ 90

Key issues and provisions ...................................................... 90

Single appeal path ............................................................... 90

Recovery of costs................................................................. 90

Commencement ................................................................ 91

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The Bills Digest at a glance The Budget Savings (Omnibus) Bill 2016 (the Bill) contains 24 schedules across eight portfolios:

• Education

• Employment

• Environment and Energy

• Health and Aged Care

• Social Services

• Veteran’s Affairs

• Industry, Innovation and Science and

• Treasury.

As shown in the table below, many of the measures have been previously introduced to Parliament. This Digest includes discussion of schedules for which analysis had been completed at the time of publication. Schedules for which analysis has been provided are highlighted in the table. It is intended that an updated Bills Digest that includes those schedules not analysed here, will be provided at a later date.

Table 1: Schedules previously introduced and analysed in this Digest

Schedule Previously introduced Analysed in this Digest

1—Minimum repayment income for HELP debts Higher Education and Research Reform Amendment Bill 2014 (first attempt)

Higher Education and Research Reform Bill 2014 (second attempt)

Yes - preliminary comments

2—Indexation of higher education support amounts Higher Education and Research Reform Amendment Bill 2014 (first attempt)

Higher Education and Research Reform Bill 2014 (second attempt)

Yes- preliminary comments

3—Removal of HECS-Help benefit Higher Education and Research Reform Amendment Bill 2014 (first attempt)

Higher Education and Research Reform Bill 2014 (second attempt)

Yes- preliminary comments

4—Job commitment bonus Not previously introduced Yes

5—Australian Renewable Energy Agency’s finances Not previously introduced No

6—Indexation of private health insurance thresholds Not previously introduced Yes

7—Abolishing the National Health Performance Authority New measure. Announced in MYEFO in December 2015. The National Health

Performance Authority closed on 30 June 2016.

Yes

8—Aged Care Part 1—Compliance— new measure

Part 2—Adviser and administrative panels Omnibus Repeal Day (Spring 2015) Bill 2015

Part 3—Approved provider obligations Omnibus Repeal Day (Spring 2014)

Yes

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Schedule Previously introduced Analysed in this Digest

Omnibus Repeal Day (Spring 2015) Bill 2015

9 —Dental Services Dental Benefits Amendment Bill 2016 Yes

10—Newly arrived resident’s waiting period Not previously introduced No

11—Student start-up scholarships

Not previously introduced Yes

12—Interest charge Social Services Legislation Amendment (Interest Charge) Bill 2016 Yes

13—Debt recovery Social Services Legislation Amendment (Enhanced Welfare Payment Integrity) Bill 2016

No

14—Parental leave payments Social Services Legislation Amendment (Consistent Treatment of Parental Leave Payments) Bill 2016

Yes

15—Fringe benefits Not previously introduced Yes

16—Carer allowance Not previously introduced Yes

17—Indexation of family tax benefit and parental leave thresholds

Not previously introduced No

18—Pension means testing for aged care residents Not previously introduced No

19—Employment income Not previously introduced No

20—Psychiatric confinement Social Services Legislation Amendment Bill 2015 Yes

21—Closing carbon tax compensation to new welfare recipients

Not previously introduced Yes

22—Rates of R&D tax offset Schedule 2 of Tax and Superannuation Laws Amendment (2015 Measures no. 3) Bill 2015

Schedule 3 of Tax and Superannuation Laws Amendment (2014 Measures no. 5) Bill 2014

Yes

23—Single touch payroll reporting

Not previously introduced No

24—Single appeal path under the Military Rehabilitation and Compensation Act

Previously introduced as

Veterans’ Affairs Legislation Amendment (Single Appeal Path) Bill 2016

Yes

Purpose of the Bill The purpose of the Budget Savings (Omnibus) Bill 2016 is to amend various acts to:

• introduce a new minimum threshold for repaying Higher Education Loan Programme debts from 1 July 2018, lowering it from the current income threshold of $54,868 per annum to $51,956 per annum, and establish a

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repayment rate of two per cent for those whose income exceeds the threshold amount but which is less than $57,730 (Schedule 1)

• change the indexation arrangements for grants made under the Higher Education Support Act 2003 from 1 January 2018, replacing the current Higher Education Grants Index (HEGI), which comprises 75 per cent of 90 per cent of the Professional, Scientific and Technical Services Labour Price Index and 25 per cent of the Consumer Price Index (CPI), with the CPI (Schedule 2)

• discontinue the HECS-HELP benefit, which provides an incentive for graduates of particular courses (mathematics, statistics or science; education, nursing or midwifery; and early childhood education) to take up related occupations or work in specified locations by reducing their compulsory HELP repayments, from 1 July 2017 (Schedule 3)

• abolish the Job Commitment Bonus (Schedule 4)

• reduce funding to the Australian Renewable Energy Agency, giving effect to the Government’s policy to discontinue providing grants for renewable energy research and development in favour of a limited new loans and equity investment scheme known as the Clean Energy Innovation Fund (Schedule 5)

• extend the pause on the indexation of the income tiers that apply to the Medicare Levy Surcharge and the private health insurance rebate for three years from 1 July 2018 (Schedule 6)

• abolish the National Health Performance Authority and transfer its assets and liabilities to the Australian Institute of Health and Welfare (Schedule 7)

• strengthen compliance measures for aged care providers when assessing residents for funding purposes; reduce the regulation of advisers and administrators who may be appointed to assist non-compliant providers; and reduce reporting requirements relating to key personnel of providers (Schedule 8)

• close the Child Dental Benefits Schedule from 1 January 2017, and establish a framework to provide financial assistance to the states and territories for the purpose of rendering dental services after 1 January 2017 (Schedule 9)

• remove the exemption from the newly arrived resident’s waiting period for social security payments and benefits for new migrants who are family members of Australian citizens or long-time permanent residents (Schedule 10)

• remove grandfathering arrangements for current recipients of the Student Start-up Scholarship, thereby terminating this benefit (Schedule 11)

• provide for a new interest charge scheme for debts arising in relation to family assistance, social security, paid parental leave and student assistance payments (Schedule 12)

• provide that a person who does not have satisfactory arrangements in place to repay their family assistance, social security, paid parental leave and student assistance debt(s) may be prevented from leaving Australia without either having paid their debt(s) or made arrangements to pay (Schedule 13)

• include Parental Leave Pay and Dad and Partner Pay payments in the income test for income support payments (such as pensions and allowances) (Schedule 14)

• change the way the value of fringe benefits is assessed for the purpose of the income test for family assistance payments and some income support payments (Schedule 15)

• remove backdating provisions for Carer Allowance (Schedule 16)

• continue a freeze on the indexation of certain income test thresholds and limits for Family Tax Benefit and paid parental leave (Schedule 17)

• remove certain exemptions from the social security and veterans’ affairs income and assets tests for aged care residents who are renting out their former home (Schedule 18)

• include employment income earned by income support recipients during a 12 week ‘employment nil rate period’ in the income test for Family Tax Benefit Part A and the parental income test for payments to young people, such as Youth Allowance (Schedule 19)

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• provide that that people who are undergoing psychiatric confinement because they have been charged with a serious offence cannot receive social security payments except during a period when they are being integrated back into the community (Schedule 20)

• close two carbon price compensation payments, the Energy Supplement and Single Income Family Supplement, to new recipients of social security, family assistance and veterans’ affairs payments (Schedule 21)

• reduce the rates of tax offset available under the research and development (R&D) tax incentive for the first $100 million of eligible expenditure by 1.5 percentage points (Schedule 22)

• create a new reporting framework, known as Single Touch Payroll for substantial employers to automatically provide payroll and superannuation information to the Commissioner of Taxation at the time it is created (Schedule 23)

• create a single appeal path with respect to the review of original determinations made under the Military Rehabilitation and Compensation Act 2004; and extend the circumstances in which the Administrative Appeals Tribunal may award costs to a claimant with respect to a review of a decision made by the Veterans’ Review Board (Schedule 24).

Committee consideration The Bill has been referred to the Senate Economics Legislation Committee for inquiry and report by 13 September 2016. Details of the inquiry are at: Budget Savings (Omnibus) Bill 2016.

Views on the Bill Public debate on the Bill has largely focused on particular Schedules, rather than the Bill as a whole. Some stakeholders noted the length of time allowed for consideration of the Bill and submission to the Senate Economics Legislation Committee inquiry was short, and indicated this limited their consideration of the Bill.1 Information on the policy positions of non-government parties, independents and major stakeholders relating to particular measures is in the discussion of each Schedule.

In his second reading speech, the Treasurer Scott Morrison argued the Labor Party ‘should honour their commitments in the election to support these savings measures that they included in their own budget costings during the election’.2 However, Manager of Opposition Business, Tony Burke, stated the Bill included measures that had not been part of Labor’s election commitment costings.3

The Greens have indicated that they oppose a number of the Schedules, stating: ‘The Greens refuse to accept that the only way to balance the budget is at the expense of the health of millions of Australian kids or by cutting investment and jobs in clean energy technology’.4

Financial implications The Explanatory Memorandum to the Bill includes a table showing the anticipated financial implications of the Bill.5 A correction was made to the Explanatory Memorandum to update an error relating to the financial impact of Schedule 11—Student start-up scholarships.6 Including this correction, the Government anticipates the financial impact of the Bill overall to be as follows:

1. Catholic Health, Submission, no. 154, to the Senate Economics Legislation Committee, Inquiry into the Budget Savings (Omnibus) Bill 2016, 7 September 2016. 2. S Morrison, ‘Second reading speech: Budget Savings (Omnibus) Bill’, House of Representatives, Debates, 31 August 2016, p. 33. 3. K Murphy, ‘Labor says Coalition has lied and included additional cuts in ‘omnibus’ savings bill’, Guardian, 30 August 2016. 4. The Greens, ‘Save clean energy and kids’ dental care’, The Greens website. 5. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, pp. 5-6. 6. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, pp. 5-6; Correction to the Explanatory Memorandum, Budget Savings

(Omnibus) Bill 2016.

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Table 2: Financial impact table ($m)

2015-16 2016-17 2017-18 2018-19 2019-20 Total

-92.1 467.9 1,601.6 1,917.4 2,101.9 5,996.6

Source: Correction to the Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016.

Information on the financial implications of particular measures is provided in the discussion of each Schedule.

Schedules 1-3—Higher education provisions History of the measures Schedules 1-3 of the Bill propose measures that will change the repayment requirements for Higher Education Loan Programme (HELP) debts, change the indexation arrangements for higher education grants and discontinue the HECS-HELP benefit.

The Bill’s higher education measures were first announced in the in the 2014-15 Budget.7 Two previous attempts were made to legislate the measures through:

• the Higher Education and Research Reform Amendment Bill 2014 (the HERRAB)8 and

• the Higher Education and Research Reform Bill 2014, which essentially replicated the HERRAB.9

Both these Bills failed to pass the Senate.

As one of his first acts as Minister for Education and Training, Senator Simon Birmingham announced in October 2015 that the higher education reforms proposed in the 2014-15 Budget would be delayed until 2017 at the earliest and consultation would follow.10 This decision was confirmed in the 2016-17 Budget, which announced that the implementation of the higher education reforms proposed in the 2014-15 Budget, together with other reforms announced in the Mid-year Economic and Fiscal Outlook 2014-15, would be delayed by an ‘additional year’ in order to ‘undertake further consultation’.11

Purpose of the Schedules The purpose of Schedules 1-3 of the Bill is to amend the Higher Education Support Act 2003 (the HESA) to:

• introduce a new minimum repayment income threshold for all HELP debts from 1 July 2018, lowering it from the current income threshold of $54,868 per annum to $51,956 per annum, and establish a repayment rate of two per cent for those whose income exceeds the threshold amount but is less than $57,730 (Schedule 1)

• change the indexation arrangements for grants made under the HESA from 1 January 2018, replacing the current Higher Education Grants Index (HEGI), which comprises 75 per cent of 90 per cent of the Professional, Scientific and Technical Services Labour Price Index and 25 per cent of the Consumer Price Index (CPI), with the CPI (Schedule 2) and

• discontinue the HECS-HELP benefit, which provides an incentive for graduates of particular courses (mathematics, statistics or science; education, nursing or midwifery; and early childhood education) to take up related occupations or work in specified locations by reducing their compulsory HELP repayments, from 1 July 2017 (Schedule 3).12

Background For further information about the measures contained in Schedules 1-3, see the following Bills Digests:

7. Australian Government, Budget measures: budget paper no. 2: 2014-15, pp. 77 and 85-6. 8. Parliament of Australia, ‘Higher Education and Research Reform Amendment Bill 2014 homepage’, Australian Parliament website. C Ey, Higher Education and Research Reform Amendment Bill 2014, Bills digest, 33, 2014-15, Parliamentary Library, Canberra, 2014. 9. Parliament of Australia, ‘Higher Education and Research Reform Bill 2014 homepage’, Australian Parliament website. J Griffiths, Higher

Education and Research Reform Bill 2014, Bills digest. 69, 2014-15, Parliamentary Library, Canberra, 2015. 10. S Birmingham (Minister for Education and Training), The challenge of world-class higher education: opening keynote address: Times Higher Education (THE) World Academic Summit, University of Melbourne, speech, 1 October 2015. 11. Australian Government, Budget strategy and outlook: budget paper no. 1: 2016-17, p. 3-27. 12. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, pp. 23-34.

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• C Ey, Higher Education and Research Reform Amendment Bill 2014, Bills digest, 33, 2014-15, Parliamentary Library, Canberra, 2014 and

• J Griffiths, Higher Education and Research Reform Bill 2014, Bills digest. 69, 2014-15, Parliamentary Library, Canberra, 2015.

Note: this section will be revised at a later date should time allow for this Bills Digest to be updated.

Financial implications It is estimated that the measures in Schedules 1, 2 and 3 of the Bill will have a total impact on the underlying cash balance of $79.4 million over the forward estimates as shown in the following table.

Table 3: Impact over the forward estimates ($m)

Schedule Measure 2015-16 2016-17 2017-18 2018-19 2019-20 Total

1 Minimum repayment income for HELP debts

0.0 -2.1 -2.2 2.8 4.8 3.3

2 Indexation of higher education support amounts

0.0 0.0 0.0 9.7 44.9 54.6

3 Removal of HECS-HELP benefit

0.0 0.0 7.2 7.1 7.3 21.5

Source: Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 5.

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 compatibility of Schedules 1, 2 and 3 of the Bill 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 Schedules are compatible.13

At the time of writing this Bills Digest, the Parliamentary Joint Committee on Human Rights had not commented on the Bill.

Key provisions This section will be provided at a later date should time allow for this Bills Digest to be updated.

Schedule 4—Job commitment bonus Purpose of the measure The purpose of the amendments in Schedule 4 to the Bill is to repeal provisions of the Social Security Act 1991, the Social Security (Administration) Act 1999 (the SS Admin Act), the Farm Household Support Act 2014 and the Income Tax Assessment Act 1997 which provide for the Job Commitment Bonus.

Commencement The provisions in Schedule 4 commence on the later of 1 January 2017 and the day after Royal Assent.

13. The Statement of Compatibility with Human Rights for Schedules 1 to 3 can be found at pages 32-34 of the Explanatory Memorandum to the Bill.

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Background The introduction of a Job Commitment Bonus was a Coalition Commitment at the 2010 and 2013 Federal elections.14 The measure was included in the Coalition Government’s December 2013 Mid-Year Economic And Fiscal Outlook and a Bill giving effect to it—the Social Security Legislation Amendment (Increased Employment Participation) Bill 2014—was passed by both Houses Of Parliament on 16 June 2014.15 The Job Commitment Bonus (the Bonus) commenced in 2014.16

Under the Bonus, job seekers aged 18 to 30 years who have been unemployed and in receipt of income support for 12 months or more are eligible for a $2,500 tax-free payment if they gain paid employment and remain off income support for a continuous period of 12 months. If they remain in continuous gainful work for an additional 12 months (a continuous period of 24 months in total) job seekers are eligible for a further $4,000 tax-free payment.17

The Bonus is demand-driven and was originally predicted to cost $157.1 million over five years.18

Take up of the Bonus has been far less than was anticipated. In a Senate Estimates hearing of 6 May 2016 a representative from the Department of Employment stated that, as at 31 March 2016, there had been only 16 per cent of the expected claims for the 2015-16 financial year.19 According to the Explanatory Memorandum to this Bill, less than 30 per cent of expected claims for the 2015-16 Financial Year were achieved.20

Expenditure on the Bonus as at 31 March 2016 was $5.53 million, and, according to Employment Portfolio Budget Statements for 2016-17, total spending on the Bonus for 2015-16 was expected to be $34.234 million.21 This higher figure is likely to be due largely to a number of Bonus claimants having qualified for their second payment on 1 July 2016. Expected expenditure on the Bonus for the 2016-17 financial year is $15.686 million.22

Given the lower than expected take-up of the Bonus, and evidence of deadweight loss (that is, claimants of the Bonus who would most likely have stayed in work without the incentive), the Government made the decision to cease the Bonus as part of the 2016-17 Budget.23 Beyond its low take up, the stated rationale for ceasing the Bonus is:

… the Job Commitment Bonus did not increase job seekers’ efforts to find a job and generally was not an incentive for potentially eligible individuals to stay in a job. Survey results showed that, of those people who were aware of the Bonus, the majority said that the Bonus did not increase their job application effort, the number of jobs they applied for, or their motivation to find a job. Individuals who were potentially eligible for the Bonus generally stated that their main motivation was to move from welfare into work. Once they got work, they expressed a desire to stay in work and off income support, regardless of the Bonus.

24

These findings bear out the observations made in the Bills Digest for the Social Security Legislation Amendment (Increased Employment Participation) Bill 2014.25

14. Liberal Party of Australia and the Nationals, The Coalition’s plan for real action on employment participation, Coalition policy document, Election 2010; Liberal Party of Australia and the Nationals, The Coalition’s policy to increase employment participation, Coalition policy document, Election 2013.

15. J Hockey (Treasurer) and M Cormann (Minister for Finance), Mid-Year Economic and Fiscal Outlook 2013-14, December 2013, p. 135; Parliament of Australia, Social Security Legislation Amendment (Increased Employment Participation) Bill 2014 homepage, Australian Parliament website.

16. Social Security Legislation Amendment (Increased Employment Participation) Act 2014, section 2. 17. Part 2.16A of the Social Security Act 1991. 18. Explanatory Memorandum, Social Security Legislation Amendment (Increased Employment Participation) Bill 2014, p. 3. 19. Senate Education and Employment Legislation Committee, Official committee Hansard, 6 May 2016, p. 53. 20. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 35. 21. Senate Education and Employment Legislation Committee, Official committee Hansard, 6 May 2016, p. 54; Australian Government, Portfolio

budget statements 2016-17: budget related paper no. 1.6: Employment Portfolio, p. 22. 22. Ibid.

23. Australian Government, ‘Part 2: expense measures’, Budget measures: budget paper no. 2: 2016-17, p. 83. 24. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 35. 25. M Klapdor and M Thomas, Social Security Legislation Amendment (Increased Employment Participation) Bill 2014, Bills digest, 48, 2013-14, Parliamentary Library, Canberra, 18 March 2014.

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In the Bills Digest it was argued that the Bonus was an experiment that was premised on two highly questionable assumptions.26 The first of these was that young people who are long-term unemployed do not want to take up ongoing work and the second, that a large financial incentive would entice many more young long-term unemployed people into employment.

The Bills Digest argued that, based on the available evidence, the majority of young people do want to work, or to work more hours, but face a number of barriers to achieving their employment goals. It also contended that, whether or not long-term unemployed people are unwilling to work, they must meet strict participation requirements if they are to remain eligible for their payment.27

Perhaps most importantly, the Bills Digest pointed out that long-term unemployed people have significant financial incentives to find paid work as Newstart Allowance and Youth Allowance are paid at low rates that are calculated to encourage people to participate in paid employment.28

Policy position of non-Government parties/Independents Neither Labor nor other non-Government parties or Independents appear to have publicly expressed a position with regard to the proposed cessation of the Job Commitment Bonus.

Position of major interest groups There has been very little commentary on the proposal to cease the Bonus. This is perhaps to be expected, as those stakeholders who commented on the measure when it was introduced argued that it was unlikely to reduce youth unemployment.

In its Employment Proposals for the 2015-16 Federal Budget the Australian Council of Social Service (ACOSS) recommended that the Bonus be abolished, with the savings to be diverted into the Employment Fund.29

Financial implications According to the 2016-17 Budget Papers, ceasing the Bonus from 31 December 2016 will result in savings of $242.1 million over the five years from 2015-16.30

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 acknowledges that the amendments in Schedule 4 engage the following rights:

• the right to social security in Article 9 of the International Covenant On Economic, Social And Cultural Rights (ICESCR)

• the right to an adequate standard of living in Article 11(1) of the ICESCR

• the right to work in Article 6 of the ICESCR and

• the right to equality and non-discrimination in Article 2(2) of the ICESCR and Article 26 of the International Covenant on Civil and Political Rights (ICCPR).

However, the Government considers that the amendments in Schedule 4 to the Bill are compatible with human rights because to the extent that they may limit human rights, those limitations are reasonable, necessary and proportionate.31

26. Ibid., pp. 10-11. 27. Ibid.

28. Ibid.

29. Australian Council of Social Service, ACOSS employment proposals for 2015 Budget. The Employment Fund is a pool of funds that can be accessed by employment service providers to assist job seekers into paid employment. It is made up of a general account and a wage subsidy account.

30. Australian Government, ‘Part 2: expense measures’, Budget measures: budget paper no. 2: 2016-17, p. 83. 31. The Statement of Compatibility with Human Rights can be found at pages 40 to 43 of the Explanatory Memorandum to the Bill.

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Key Issues and Provisions Part 1 of Schedule 4 to the Bill repeals those parts of the SS Act and SS Admin Act that refer to and provide for the payment of the Bonus.

Part 2 of the Schedule similarly repeals those parts of the Farm Household Support Act and Income Tax Assessment Act that provide for or relate to the Bonus.

Part 3 spells out the transitional arrangements associated with the cessation of the Bonus.

Within Part 3, subitem 13(1) emphasises that a jobseeker cannot become qualified for the Bonus on or after the cessation of the Bonus. However, if a person is overpaid or incurs a debt in relation to the payment of the Bonus, this will still apply on or after the date the Bonus ceases (Part 3, subitem 13(2)).

Part 3, Division 1, Subdivision FD of the SS Admin Act provides for the claims process for the Bonus. Under this subdivision a person's claim for a Bonus must generally be made within 90 days of the person’s qualifying for the Bonus. Nevertheless, if a jobseeker qualified for a Bonus and was permitted to make a claim before the cessation of the Bonus, they will still be able to make a claim after the Bonus ceases, provided that claim is made within 90 days of the person qualifying for the Bonus (Part 3, subitem 13(3)).

The Bonus claims process under the SS Admin Act will continue to apply on and after the cessation of the Bonus in relation to decisions and determinations made before, on or after the cessation of the Bonus (Part 3, subitem 13(4)). Parts 4 and 4A of the SS Admin Act provide for the internal review of decisions and review of decisions by the Administrative Appeals Tribunal (AAT), respectively. These provisions will continue to apply on and following the cessation of the Bonus with regard to Bonus-related decisions made before, on or after the cessation of the Bonus (Part 3, subitem 13(5)).

The Bonus is tax-free, and this will continue to be the case on and after the cessation of the Bonus, in relation to all Bonus payments (Part 3, subitem 13(6)).

Concluding Comments It might be argued that the abolition of the Bonus is consistent with the Government’s stated general approach to social welfare, under which ‘policies that are found to be effective will be continued or enhanced, while ineffective policies will be improved or ceased, with funding made available to new approaches’.32

Schedule 6—Indexation of private health insurance thresholds Purpose of the Schedule The purpose of Schedule 6 is to amend the Private Health Insurance Act 2007 to extend the pause on the indexation of the income tiers that apply to the Medicare Levy Surcharge (MLS)33 and the private health insurance rebate (the rebate) for three years from 1 July 2018.34

Commencement The provisions in Schedule 6 to the Bill commence on the day after Royal Assent.

Background The MLS and private health insurance rebate were introduced by the Howard Government as part of a suite of measures to halt and reverse the slide in private health insurance membership which had emerged in the

32. C Porter (Minister for Social Services), , Ensuring the Government lives within its means: a targeted welfare safety net, media release, 3 May 2016. 33. The Medicare Levy Surcharge (MLS) is levied on Australian taxpayers who do not have an appropriate level of private hospital insurance and who earn above a certain income. It is designed to encourage individuals to take out private hospital cover, and where possible, to use the

private hospital system to reduce demand on the public Medicare system. The MLS is payable in addition to the Medicare levy. Source: Australian Taxation Office (ATO), ‘Medicare Levy Surcharge’, ATO website. 34. The private health insurance rebate is an amount the government contributes towards the cost of a person’s private hospital health insurance premiums. This rebate is income tested, which means a person’s eligibility to receive it depends on their income. If a person has a higher

income, their rebate entitlement may be reduced, or they may not be entitled to any rebate at all. Source: Australian Taxation Office (ATO), ‘Private Health Insurance Rebate’, ATO website.

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mid-1990s.35 Along with Lifetime Health Cover (LHC)36 the MLS and the rebate were intended to encourage the take-up of private health insurance and reduce pressure on the public hospital system.

Private health insurance rebate The cost of purchasing private health insurance is made more affordable through the means-tested rebate. Income tiers determine the level of rebate for which an individual or family is eligible. Those on incomes below the base tier of $90,000 (for individuals) or $180,000 (for families) receive the highest level of rebate, while those in the three higher income tiers receive a proportionally lower rebate. Those on incomes above the highest income tier of $140,000 (for individuals) and $280,000 (for families) receive zero rebate on the cost of their premiums. Higher rebates are available to those aged over 65.37

The cost to the Government of the rebate was $6.2 billion in 2015-16.38

A three year pause on indexation of the income tiers was announced in the 2014-15 budget.39 The pause was effected by the enactment of the Private Health Insurance Amendment Act (No. 1) 2014. Extending the pause for an additional three years is expected to slow the growth rate of the rebate but budget estimates still forecast it will grow 2.5 per cent in real terms over the period 2015-16 to 2016-17, and 1.3 per cent over the period 2016- 17 to 2019-20.40 This is due to expectations that uptake of private health insurance will continue.

Some 55.7 per cent of the population is covered by some form of private health insurance.41

The extension of the pause on indexation was announced in the 2016-17 budget.42 It will mean that those on incomes that have increased above the base tier level or moved into higher income tiers, will see the value of their rebate reduce relative to the premium they pay for their health insurance policy. The budgetary effect will be to reduce government outlays on the rebate.

Medicare levy surcharge Higher income earners who choose not to purchase private health insurance are liable for the MLS (in addition to the two per cent Medicare levy on taxable income). The MLS is calculated at a rate of between 1.0 to 1.5 per cent of taxable income, depending on which of the three income tiers the taxpayer falls into.

Medicare itself is funded through a combination of general taxation, plus a two per cent levy on taxable income (the Medicare Levy) and the means-tested MLS. The MLS contributes only a small proportion of the total raised. In 2013-14, some 177,000 individuals paid the MLS which raised around $232.2 million.43

As a result of this measure, some individuals who previously would not have been liable for the MLS may become liable if their incomes increase and move them into the higher income tiers where liability for the MLS applies. Others may see the rate of their levy liability increase.

In total, the income thresholds will have been paused at 2014-15 levels for a period of six years.

Policy position of non-government parties/independents During the Federal election campaign, Labor indicated it would support the pause in indexation being extended for a further three years.44 The measure was included in Labor’s Plan for budget repair that is fair package which was provided to the independent Parliamentary Budget Office for costing.45

35. A Biggs, Private Health Insurance Amendment Bill (no. 1) 2014, Bills digest, 38, 2014-15, Parliamentary Library, Canberra, 2014. 36. Lifetime Health Cover (LHC) is a Government initiative designed to encourage people to take out hospital insurance earlier in life and to maintain their cover. LHC imposes a 2% loading on the cost of premiums for every year a person aged over 30 delays taking out private health insurance. Private Health Insurance Ombudsman (PHIO), ‘Lifetime Health Cover’, PHIO website.

37. Australian Government, ‘Australian Government Private Health Insurance Rebate’, PrivateHealth website. 38. Australian Government, Budget strategy and outlook: budget paper no. 1: 2016-17, p. 5-22. 39. Australian Government, Budget measures: budget paper no. 2: 2014-15, p. 139. 40. Australian Government, Budget strategy and outlook: budget paper no. 1: 2016-17, p. 5-22. 41. Estimate applies to general treatment or ancillary cover only. Membership of private hospital cover is 47 per cent. Australian Prudential

Regulation Authority (APRA), ‘Statistics: private health insurance membership and coverage,’ June Quarter 2016. 42. Australian Government, Budget measures: budget paper no. 2: 2016-17, p. 113. 43. Australian Taxation Office, Australian taxation statistics 2013-14, Table 1: Individuals. 44. B Shorten (Leader of the Opposition), C Bowen (Shadow Treasurer) and T Burke (Shadow Minister for Finance), Labor’s Plan for budget repair

that is fair, joint media release, 10 June 2016.

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The Greens support phasing out private health insurance, but they have yet to state a position on this measure. When legislation introducing the indexation pause was debated in 2014, the Greens supported the savings that would result from fewer people qualifying for the rebate; but they criticised the measure in relation to the MLS as punishing people who choose not to purchase private health insurance.46

Independent Senator Nick Xenophon did not support the measure either, but for different reasons. He argued in favour of maintaining indexation as it would support the private health sector, and criticised the Government for moving away from its commitment to fully restore the private health insurance rebate.47

Other Independents did not participate in the debate at the time.

The positions of current cross-benchers have yet to be stated.

Position of major interest groups Major stakeholder groups have yet to respond to the amendments that are proposed in Schedule 6 of the Bill. However, when it was announced at the budget that the pause in indexation would continue for a further three years a number of stakeholders and health experts offered comment.

Then President of the Australian Medical Association (AMA) Professor Brian Owler responded by saying that ‘patients will be further disadvantaged’ by the measure and that ‘it will be another hit to household budgets, and represent extra disincentives to people accessing health care when they need it’.48 Suzanne Greenwood of Catholic Health Australia (CHA) also noted that ‘[m]any private health insurance members will also face higher premium costs from 2018 as a result of a three year freeze in the indexation of the income tiers thresholds’.49

Jennifer Doggett reported that she received advice from the Department of Health that the measure is only expected to affect 27 per cent of private health insurance members.50 Doggett also observed that the Government was ‘contradicting its rhetoric about improving the value and attractiveness of PHI to consumers’, but added ‘given the scale of consumer dissatisfaction and the fact that it will only impact upon 27% of fund members, this additional move is unlikely to be a game changer for PHI membership’.51

Health economist Ian McAuley has reportedly argued that ‘the freeze in the threshold for private health rebates and the Medicare Levy Surcharge takes the cost of subsidising the insurance sector off the budget and into the "dark world of hidden subsidies"’. Over time he says, ‘the government will gradually shell out less for the rebate, while the pressure on individual taxpayers to buy private health cover will increase’.52

No specific commentary from private health insurers on the extension of the indexation pause was identified. However, in a media statement Private Healthcare Australia, representing private health insurers, commented generally on budget measures relating to private health insurance. While welcoming ‘the Government’s commitment to improving the sustainability and affordability of the private healthcare sector’, it warned ‘the Government should take immediate steps to reduce pressure on premiums’ and pointed out that many members of private health funds ‘are not wealthy’.53

Financial implications The Explanatory Memorandum (EM) details savings to 2019-20 of $381.0 million.54 This is different to the savings of $744.2 million over three years forecast in the 2016-17 budget.55 This difference is likely due to the

45. Parliamentary Budget Office (PBO), Post-election report of election commitments: 2016 general election, PBO website, 5 August 2016, p. 20. 46. Senator R Di Natale, ‘Second reading speech: Private Health Insurance Amendment Bill (No. 1) 2014’, Senate, Debates, 18 November 2014, p. 8696. 47. Senator N Xenophon, ‘Second reading speech: Private Health Insurance Amendment Bill (No. 1) 2014’, Senate, Debates, 18 November 2014,

p. 8699.

48. J Doggett, ‘Health budget 2016—the reaction’, Croakey, 4 May 2016, p. 5. 49. Ibid., p. 4. 50. J Doggett, ‘Health budget 2016/17—part 2’, Croakey, 5 May 2016. 51. J Doggett, ‘From the budget to the election’, Croakey, 8 May 2016. 52. C Fitzsimmons, ‘How average income earners will be pushed into private health insurance by 2020’, Sydney Morning Herald (online version),

23 July 2016. 53. Private Healthcare Australia, Sustainable and Affordable Private Healthcare, media statement, 4 May 2016. 54. Explanatory memorandum, Budget Savings (Omnibus) Bill 2016, p. 5.

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different time periods covered by the EM compared to that in the budget document. The EM figure relates to the total savings for the two years 2018-19 and 2019-20, while the budget estimate is for a three year period.

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 Schedule’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 Schedule 6 is compatible.56

Parliamentary Joint Committee on Human Rights At the time of writing this Bills Digest the Parliamentary Joint Committee on Human Rights had not made any comments about the Bill.

Key issues and provisions Schedule 6 of the Bill contains one item that amends the indexation provision in the Private Health Insurance Act 2007. Subsection 22-45(3A) specifies the years that indexation of the income tiers is not to apply. Currently, this is the financial years 2015-16 to 2017-18. Item 1 of Schedule 6 specifies that the provision be amended to include the years 2018-19, 2019-20 and 2020-21.

Schedule 7—Abolishing the National Health Performance Authority Purpose The provisions in Schedule 7 of the Bill amend the National Health Reform Act 2011 to abolish the National Health Performance Authority and to transfer its assets and liabilities to the Australian Institute of Health and Welfare (AIHW).

Commencement The amendments in Schedule 7 of the Bill commence on the earlier of a single day to be fixed by Proclamation or six months after the Royal Assent.

Background Prime Minister Rudd first outlined plans to introduce national performance standards for health care providers in his address to the National Press Club on health reform on 3 March 2010.57 The subsequent National Health and Hospitals Network Agreement (NHHN Agreement) made in April 2010 between the Commonwealth and all state and territory governments, except Western Australia, committed governments to establishing an independent National Performance Authority that would be responsible for:

• monitoring the performance of health care providers from 1 July 2011

• reporting against clinical safety and quality performance standards developed by the Australian Commission on Safety and Quality in Health Care (ACSQHC), and

• producing reports on waiting times, adverse events, patient satisfaction and financial management in public and private hospitals.58

Accordingly the National Health Performance Authority (the Authority) was established, by statute, in 2011.59

The main functions of the Authority were to monitor and publish reports on the performance of:

• local hospital networks

55. Australian Government, Budget measures: budget paper no. 2: 2016-17, p. 113. 56. The Statement of Compatibility with Human Rights can be found at page 48 of the Explanatory Memorandum to the Bill. 57. K Rudd (Prime Minister), Better health, better hospitals: the National Health and Hospitals Network, speech to the National Press Club, Canberra, 3 March 2010.

58. Council of Australian Governments (COAG), Communiqué, COAG meeting, Canberra, 19 and 20 April 2010. 59. See A Boxall, R de Boer and J Tomaras, National Health Reform Amendment (National Health Performance Authority) Bill 2011, Bills digest, 86, 2010-11, Parliamentary Library, Canberra, 2011.

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• public hospitals

• private hospitals

• primary healthcare organisations, and

• other healthcare organisations providing health services.60

Performance of the Authority The Authority was the first national body to report on both hospitals and Medicare Locals61 across Australia.62

The Authority has fulfilled its role by producing numerous reports comparing the performance of healthcare services and facilities across the country. These reports have helped identify where performance is variable or where improvement is needed. For example, the Authority’s reports into vaccination rates helped identify regions where childhood vaccination levels were below target levels.63 Another significant report highlighted differences in the length of time patients with the same condition spend in hospital, with the report finding that the average length of stay can vary by as much three or four times.64 One of the most valuable reports produced by the Authority in partnership with the ACSQHC was the Australian Atlas of Healthcare Variation, published in 2015. The Atlas aimed to identify unnecessary variation in health care and thus improve health outcomes. For the first time, data from the Medicare Benefits Schedule (MBS), Pharmaceutical Benefits Scheme (PBS) and Admitted Patient Care National Minimum Data Set (APC NMDS) was used to identify variations across healthcare settings.65 The Authority has also reported regularly on rates of hand hygiene and healthcare-associated Staphylococcus aureus bloodstream infections across health facilities. Its recent report comparing costs of acute care in public hospitals was the first report internationally that compared the relative efficiency of a nation’s hospitals.66

The Authority also contributed data for the MyHospitals and MyHealthyCommunities websites. In 2014-15, reports on the Authority’s corporate website, MyHospitals and MyHealthyCommunities websites generated more than three million page views.67

All Authority reporting was underpinned by performance indicators in the Council of Australian Governments’ (COAG) Performance and Accountability Framework.68

The MYEFO announcement In its Mid-year Economic and Fiscal Outlook statement for 2015-16, the Government announced that it would rationalise the functions of a number of agencies. In particular, it would abolish the Authority from 30 June 2016 and transfer its functions to the AIHW, the ACSQHC, and the Department of Health.69 Consistent with this statement the Authority closed with effect from 30 June 2016.

The amendments in Schedule 7 to the Bill formalise that action.

The rationale for the closure is set out in the Explanatory Memorandum to the Bill as follows:

The responsibilities of the National Health Performance Authority (NHPA) overlap with those of the Australian Institute of Health and Welfare (AIHW) in terms of the collection and dissemination of accurate, relevant and useful information on the performance of Australia’s health system and health services. The overlap resulted in the

60. National Health Reform Act 2011, section 58. 61. Medicare Locals were primary healthcare organisations established to coordinate primary health care delivery, address local health care priorities, support health professionals and improve access to primary care. There were a total of 61 Medicare Locals operational across Australia. Medicare Locals ceased operations on 30 June 2015 and were replaced by Primary Health Networks. Source: Department of Health,

Review of Medicare Locals, Department of Health website, page last reviewed 9 July 2015. 62. National Health Performance Authority (NHPA), Strategic Plan: 2012-2015, NHPA, 2012, p. 2. 63. A Rollins, ‘Low vax rates raise disease risk’, Australian Medicine, 22 October 2013. 64. Australian Institute of Health and Welfare (AIHW), Hospital Performance: Length of stay in public hospitals in 2011-12, AIHW, November

2013.

65. Australian Commission on Safety and Quality in Health Care, Australian atlas of healthcare variation, 2015, Australian Commission on Safety and Quality in Health Care website. 66. NHPA, Annual Report 2014-15, NHPA, October 2015, p. 6. 67. Ibid., p. 27. 68. NHPA, ‘Performance and accountability framework’, NHPA website, published 11 December 2015. 69. S Morrison (Treasurer) and M Cormann (Minister for Finance), Mid-year Economic and Fiscal Outlook 2015-16, December 2015, p. 183.

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duplication of functions and an uncoordinated approach to reporting. The closure of the NHPA and the rationalisation of functions across the two agencies will strengthen AIHW’s national leadership role in the collection and publication of health information and statistics. 70

Committee consideration The measures in Schedule 7 to the Bill are new measures and have not been the subject of earlier consideration by the Parliament.

The Bill was referred to the Economics Legislation Committee for consideration on 1 September 2016, but a reporting date was not specified.71 At the time of writing this Bills Digest the amendments contained in Schedule 7 have not been the subject of report by any Senate Committee.

Policy position of non-government parties/independents The Authority has closed. Neither the non-government parties nor independent members appear to have commented about the closure.

Position of major interest groups Similarly there are no comments from major interest groups.

Financial implications According to the Explanatory Memorandum, the measures in Schedule 7 to the Bill will result in the following savings:

Table 4: Expected savings $m

2015-16 2016-17 2017-18 2018-19 2019-20 Total

-0.7 22.1 21.8 22.7 22.7 88.6

Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 5.

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 Schedule’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 Schedule 7 is compatible.72

Parliamentary Joint Committee on Human Rights At the time of writing this Bills Digest the Parliamentary Joint Committee on Human Rights had not made any comments in relation to the measures in Schedule 7 to the Bill.

Key issues and provisions Item 10, in Part 1 of Schedule 7 to the Bill repeals Chapter 3 of the National Health Reform Act which establishes the Authority. The other items in Part 1 of Schedule 7 to the Bill make consequential amendments to the National Health Reform Act to remove references to the Authority.

Part 2 of Schedule 7 to the Bill contains application and transitional provisions to, amongst other things:

• transfer the assets and liabilities of the Authority to the AIHW73

• ensure that anything done by, or in relation to the Authority before the transition time has effect at and after that time as if it had been done by the AIHW—the transition time being the date on which the provisions of Schedule 7 commence74

70. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, pp. 9-10. 71. Senate Standing Committee for Selection of Bills, Report, 5, 2016, The Senate, Canberra, 1 September 2016. 72. The Statement of Compatibility with Human Rights for Schedule 7 can be found at page 55 of the Explanatory Memorandum to the Bill. 73. Items 15-18 in Part 2 of Schedule 7 to the Bill. 74. Items 19 and 14 respectively in Part 2 of Schedule 7 to the Bill.

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• transfer any legal proceedings of the Authority and any of its records and documents to the AIHW75 and

• require the Health Secretary to prepare and give to the Health Minister for presentation to the Parliament a final report on the activities of the Authority.76

Schedule 8—Aged care History of the measures Part 1 of Schedule 8, which amends compliance measures for residential aged care providers, has not been previously included in a Bill.

The measures in Part 2 of Schedule 8, which amend arrangements for adviser and administrator panels, were set out in equivalent terms in items 3-12 of Part 3 in Schedule 7 of the Omnibus Repeal Day (Spring 2015) Bill 2015 (the Spring 2015 Bill), which was introduced into the House of Representatives on 12 November 2015.77 The Spring 2015 Bill lapsed on prorogation of the 44th Parliament on 15 April 2016. A Bills Digest was prepared in respect of the Spring 2015 Bill.78

The measures in Part 3 of Schedule 8, which amend provider obligations relating to key personnel, have a lengthy history. They were first set out in equivalent terms in items 2-6 of Part 2 to Schedule 7 of the Omnibus Repeal Day (Spring 2014) Bill 2014 (the Spring 2014 Bill), which was introduced into the House of Representatives on 22 October 2014.79 The Spring 2014 Bill was debated in both Houses of the Parliament. However, the House of Representatives disagreed to certain amendments proposed by the Senate in relation to other provisions of the Spring 2014 Bill and the Bill lapsed on prorogation of Parliament. A Bills Digest was prepared in respect of the Spring 2014 Bill.80The measures were again set out in equivalent terms in items 13-17 in Part 4 of Schedule 7 to the Spring 2015 Bill.

Commencement The provisions in Part 1 of Schedule 8 to the Bill commence on the earlier of a date to be fixed by Proclamation or six months after Royal Assent.

The provisions in Part 2 of Schedule 8 to the Bill commence on the day after Royal Assent.

The provisions in Part 3 of Schedule 8 to the Bill commence on the 28th day after the Royal Assent.

Purpose of the Schedule The purpose of the amendments in Schedule 8 of the Budget Savings (Omnibus) Bill 2016 (the Bill) is to amend the Aged Care Act 1997 to:

• strengthen compliance measures for providers when assessing residents for funding purposes

• reduce the regulation of advisers and administrators who may be appointed to assist non-compliant providers and

• reduce reporting requirements relating to key personnel of providers.

Background The Australian Government subsidises aged care services for older people who cannot live without support in their own homes.81

The Aged Care Act and associated Principles provide the regulatory, funding and quality framework for residential aged care, home care and flexible care services.82

75. Items 22 and 23 in Part 2 of Schedule 7 to the Bill. 76. Item 26 in Part 2 of Schedule 7 to the Bill. 77. Parliament of Australia, ‘Omnibus Repeal Day (Spring 2015) Bill 2015 homepage’, Australian Parliament website. 78. L Ferris, Omnibus Repeal Day (Spring 2015) Bill 2015, Bills digest, 81, 2015-16, Parliamentary Library, Canberra, 2016. 79. Parliament of Australia, ‘Omnibus Repeal Day (Spring 2014) Bill 2014 homepage’, Australian Parliament website. 80. D Spooner, Omnibus Repeal Day (Spring 2014) Bill 2014, Bills digest, 62, 2014-15, Parliamentary Library, Canberra, 2014. 81. Department of Social Services (DSS), ‘Using the Guide to Aged Care Law’, Guide to Aged Care Law, version 1.10, released 16 May 2016, DSS

website, last updated 9 February 2015.

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As at 30 June 2015, under the Aged Care Act there were:

• 72,702 operational home care packages providing aged care services to individuals in their homes83

• 192,370 operational residential care places providing permanent and respite care in aged care homes and84

• 7,629 operational flexible care places in a variety of care environments, such as Multi-Purpose Services in rural or remote areas and transition care for people returning home after a hospital stay.85

The majority of Australian Government expenditure under the Aged Care Act in 2014-15 was for residential care subsidies and supplements ($10.6 billion), with $1.28 billion spent on home care packages and $407.5 million on flexible care programmes.86

Provider funding and compliance Australian Government subsidies for residential aged care are largely determined by a tool known as the Aged Care Funding Instrument (ACFI). Aged care providers apply the ACFI to determine the base funding for each resident. The ACFI assesses the care needs of permanent residents through a series of questions that determine funding across three domains: Activities of Daily Living (ADL), Behaviour and Complex Health Care (CHC). The greater the assessed need in each domain, the higher the basic subsidy for the resident. This basic subsidy (determined by the ACFI) accounted for the majority of the funding ($9.7 billion out of $10.6 billion) the Australian Government paid for permanent residential care subsidies and supplements in 2014-15.87

Even though the Australian Government caps the number of aged care places it will subsidise, residential aged care funding can still exceed forecasts because ACFI assessments completed by individual providers affect the level of subsidy that each place attracts. Growth in ACFI funding has been higher than forecast since 2014. In 2014-15, annual real growth in the daily average ACFI funding per resident was 7.4 per cent (compared to projected real growth of 5.6 per cent). In the 2016-17 Budget, annual real growth was revised from 3.2 per cent to 5.2 per cent to reflect the growth in ACFI expenditure.88

The Government has taken steps to rein in this higher than expected growth, particularly in the CHC domain, which it believes cannot be explained by an increase in the frailty of residents (as the other two domains have not grown at the same rate).89 In the Mid-Year Economic and Fiscal Outlook 2015-16 (MYEFO), the Government announced $472.4 million in savings over four years through changes to the ACFI scoring matrix.90 This was followed in the 2016-17 Budget by a further $1.2 billion in savings over four years through further changes to the scoring matrix and scoring questions, as well as halving the indexation of the CHC component of the basic subsidy in 2016-17.91 Stakeholders such as aged care providers and health peak bodies have reacted negatively to these ‘cuts’, expressing concern that they may adversely affect resident care and investment in the industry.92

This is not the first time ACFI has been revised due to concerns about excessive growth. For example, the Gillard Labor Government tightened ACFI assessment criteria and strengthened compliance powers in 2012 in order to redirect funding to its Living Longer. Living Better aged care reform package.93

82. Department of Health (DoH), 2014-15 Report on the operation of the Aged Care Act 1997, DoH, Canberra, 2015, p. 2. The Principles are made under section 96-1 of the Aged Care Act 1997. 83. Ibid. pp. 36-37. 84. Ibid., p. 49. 85. Ibid., p. 70. 86. Ibid., p. xiii. 87. Ibid., pp. 53-55. 88. DoH, ACFI Monitoring Report - April 2016, DoH website. 89. DoH, ‘Aged care provider funding - further revision of the Aged Care Funding Instrument’, 3 May 2016. 90. S Morrison (Treasurer) and M Cormann (Minister for Finance), Mid-Year Economic and Fiscal Outlook 2015-16, p. 172. The scoring matrix is in

Schedule 1 of the Classification Principles 2014. 91. Australian Government, Budget measures: budget paper no. 2: 2016-17, p. 101; DoH, Changes to residential aged care funding arrangements - Budget 2016-17, fact sheet, 9 May 2016. The dollar value of basic subsidy attached to each ACFI domain category is set out in the Aged Care

(Subsidy, Fees and Payments) Determination 2014. 92. A Grove and A Dunkley, ‘Aged care’, Budget review 2016-17, Research Paper series 2015-16, Parliamentary Library, Canberra, May 2016. 93. Australian Government, Budget measures: budget paper no. 2: 2012-13, p. 184.

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Some of the ACFI savings have already been implemented through amendments to legislative instruments made under the Aged Care Act.94 Others are due to be implemented on 1 January 2017, presumably through further amendment of legislative instruments.95 These savings are not implemented by this Bill, and are not discussed further in this Bills Digest (other than briefly in the section on the policy position of non-government parties and independents).

This Bill does, however, implement a related 2015-16 MYEFO measure to improve provider compliance when completing ACFI assessments of residents. This is in response to the high level of ACFI claims by providers that are deemed to be incorrect or false when audited by the Department of Health.96 The latest data show that between 1 January and 31 March 2016, 12.3 per cent of ACFI reviews led to a downgraded classification for the resident, but only 0.7 per cent led to an upgraded classification (87.0 per cent resulted in no change).97 This represents a downgrading of around one in eight audited ACFI claims, although providers have pointed out that the Department adopts a risk management approach when choosing which claims to audit.98

The measure, titled ‘Aged Care Provider Funding - improved compliance’, is described in MYEFO as follows:

The Government will achieve savings of $61.9 million over four years by strengthening compliance activities associated with the provision of funding to residential aged care providers. The Government will update audit processes and systems to better target high risk claimants, strengthen debt recovery arrangements and expand fees and fines for repetitive false claims. Providers will also receive training on the claiming process.

99

The updating of audit processes and provider training will presumably be implemented administratively, but the strengthened debt recovery arrangements, fees and fines are implemented by Part 1 of Schedule 8 of the Bill.

Red tape reduction The Coalition committed to reducing red tape and paperwork for aged care providers during the 2013 Federal election campaign. As part of this commitment, the Coalition pledged to ‘reduce the requirement to provide the same information in multiple forms’, noting that when ‘there is an addition in key personnel, the provider has to complete an 11 page form and a four page form when they cease to be key personnel’. 100

Following its 2013 election win, the Coalition Government established the Aged Care Sector Committee (ACSC) to provide advice to Government on aged care policy and reform. The ACSC includes ‘representatives from across the aged care sector, including, peak bodies, large for-profit and not-for-profit providers, consumers, workforce, the National Aged Care Alliance and the Department.’101 The ACSC worked with the Government to develop a Red Tape Reduction Action Plan (RTRAP), which was approved by former Prime Minister, Tony Abbott, in 2014.102

The RTRAP ‘sets out a range of actions that can be taken to reduce unnecessary red tape for aged care providers and consumers’.103 Parts 2 and 3 of Schedule 8 of the Bill implement two minor deregulatory measures contained in the RTRAP. Part 2 implements item 34 of the RTRAP, which is to explore ‘abolishing the administrator/advisor panels and associated legislative requirements’.104 These panels consist of advisors and administrators, approved by the Secretary of the Department, who can be appointed to assist providers who

94. Halving the indexation of Complex Health Care (CHC) domain in 2016-17 was implemented in the Aged Care (Subsidy, Fees and Payments) Amendment (July Indexation) Determination 2016. The 1 July 2016 changes to the ACFI scoring matrix were made by the Classification Amendment (CHC Domain Scores) Principles 2016.

95. DoH, Changes to residential aged care funding arrangements - Budget 2016-17, fact sheet, 9 May 2016. 96. S Ley (Minister for Aged Care) and K Wyatt (Assistant Minister for Health), Stronger compliance to protect integrity of aged care sector, media release, 16 December 2015. 97. DoH, ‘ACFI Quarterly Reports 2015-16: web quarterly stats March 2016’, Table 1, DoH website. 98. D O’Keeffe, ‘Risk of a two-tier aged care system emerging after ACFI cuts: CEO’, Australian Ageing Agenda website, 10 June 2016. 99. S Morrison (Treasurer) and M Cormann (Minister for Finance), Mid-Year Economic and Fiscal Outlook 2015-16, p. 172. 100. Liberal Party of Australia and the Nationals, The Coalition's policy for healthy life, better ageing, Coalition policy document, Election 2013,

pp. 5-6.

101. DoH, ‘Aged Care Sector Committee’, DoH website, last updated 19 July 2016. 102. S Ley, ‘Second reading speech: Aged Care Amendment (Red Tape Reduction in Places Management) Bill 2015’, House of Representatives, Debates, 25 November 2015, p. 13641. 103. Aged Care Sector Committee (ACSC), Red Tape Reduction Action Plan, DSS, Canberra, 3 August 2015, p. 1. 104. Ibid., p. 16.

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have been non-compliant in their ACFI appraisals or in their responsibilities under the Aged Care Act.105 The rationale given for their abolition in the RTRAP is that:

Including these arrangements in legislation limits flexibility and can result in responses that do not take account of the fact that, in most cases, approved providers are best placed to determine what resources are required to meet their obligations. 106

Part 3 implements item 16 of the RTRAP, which is to ‘Simplify Key Personnel requirements’.107 Providers are currently required to inform the Department every time one of their key personnel (such as a director, chief executive officer or head of nursing) changes.108 The RTRAP contends that this requirement should be removed because it adds no value, as providers are ‘already responsible for ensuring the basic suitability of their Key Personnel’, and repeatedly notifying changes in key personnel provides ‘little probative value’ to the Department as a regulator.109

Committee consideration

Previous committee consideration The Spring 2014 Bill, which originally contained the measures which now form Part 3 of Schedule 8 of the Bill, was not referred to a Committee for inquiry and report. The Senate Scrutiny of Bills Committee and the Parliamentary Joint Committee on Human Rights both commented on the Spring 2014 Bill 2014, but not specifically on the aged care measures.110

The Spring 2015 Bill, which contained the amendments which now form Parts 2 and 3 of Schedule 8 of the Bill, was referred to the Senate Finance and Public Administration Legislation Committee. The Committee recommended that the Spring 2015 Bill be passed, but did not make any specific comment on the aged care measures.111 The Senate Scrutiny of Bills Committee and the Parliamentary Joint Committee on Human Rights both commented on the Spring 2015 Bill, but not specifically on the aged care measures.112

Economics Legislation Committee The Bill has been referred to the Economics Legislation Committee for inquiry and report by 13 September 2016. Details of the inquiry are at the inquiry webpage.

Senate Standing Committee for the Scrutiny of Bills At the time of writing this Bills Digest, the Senate Standing Committee for the Scrutiny of Bills had not considered the Bill.

Policy position of non-government parties/independents Labor expressed its support for the measures dealing with adviser and administrator panels and approved provider obligations relating to key personnel when they were previously introduced.113 No statements by other non-government parties and independents relating to these measures have been identified.

Shayne Neumann, former Shadow Minister for Ageing, described the $472 million ACFI savings in the 2015-16 MYEFO as ‘cruel and heartless’, and the $1.2 billion ACFI savings in the 2016-17 Budget as a ‘savage cut’.114

105. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, pp. 63-64. 106. ACSC, Red Tape Reduction Action Plan, DSS, Canberra, 3 August 2015, p. 16. 107. Ibid., p. 7. 108. Aged Care Act 1997, sections 8-3A and 9-1. 109. ACSC, Red Tape Reduction Action Plan, DSS, Canberra, 3 August 2015, p. 7. 110. Senate Standing Committee for the Scrutiny of Bills, Alert digest,13, 2015, The Senate, 19 November 2014; Parliamentary Joint Committee on

Human Rights, Nineteenth report of the 44th Parliament, 3 March 2015. 111. Senate Standing Committee on Finance and Public Administration, Omnibus Repeal Day (Spring 2015) Bill 2015 [Provisions], The Senate, Canberra, 3 February 2016. 112. Senate Standing Committee for the Scrutiny of Bills, Alert digest, 13, 2015, The Senate, 25 November 2015; Parliamentary Joint Committee on

Human Rights, Thirty-first report of the 44th Parliament, November 2015. 113. S Neumann, ‘Second reading speech: Omnibus Repeal Day (Spring 2014) Bill 2014, Amending Acts 1970 to 1979 Repeal Bill 2014, Statute Law Revision Bill (No. 2) 2014’, House of Representatives, Debates, 29 October 2014, p.12400 ; S Neumann, ‘Second reading speech: Omnibus

Repeal Day (Spring 2015) Bill 2015, Amending Acts 1990 to 1999 Repeal Bill 2015, Statute Law Revision Bill (No. 3) 2015’, House of Representatives, Debates, 1 December 2015, p. 14385.

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However, he indicated during the 2016 election campaign that Labor would not reverse the Budget cuts if elected.115 As noted previously, these cuts are not implemented by this Bill.

No statements specifically setting out Labor’s position on the ACFI compliance measures announced in the 2015-16 MYEFO (and included in Part 1 of Schedule 8 of this Bill) have been identified.

The Australian Greens and Senator Nick Xenophon are opposed to the ACFI cuts from the 2015-16 MYEFO and 2016-17 Budget.116 Senator Jacqui Lambie is opposed to the cuts from the Budget.117 However, their position on the ACFI compliance measures contained in this Bill is not known. Senator Siewert has indicated that the Greens will support “sensible reform” on ACFI, whilst Senator Xenophon has stated that “[i]f there has been any rorting of the current complex healthcare payments, then that needs to be dealt with rather than penalising all providers”.118

Position of major interest groups As noted above, the measures relating to adviser and administrator panels and key personnel notification are in keeping with the red tape reduction measures recommended by the ACSC. As the ACSC has representation from key stakeholders including providers, health and consumer groups, these measures are unlikely to be controversial.

The recent aged care ‘cuts’ have been very controversial.119 However, there has been less debate specifically on the compliance measures enacted by this Bill.

While the Government cites data showing significant downgrading of ACFI claims as evidence of ‘non-compliance or sharp practices’, provider peak bodies contend that the same data show that providers are ‘administering the ACFI reasonably’.120 Aged and Community Services Australia (ACSA), the peak body for not-for-profit and faith-based aged care providers, has noted that the sector has not been provided with data by the Government to support the allegations of ACFI claiming misuse. However, it was also reported that ACSA ‘welcomed the government’s “more intense” regime as it knew the vast majority of aged care providers complied faithfully with the funding instrument’.121

There have been media reports of aged care companies achieving a significant ‘uplift’ in ACFI funding per resident.122 Cameron O’Reilly, Chief Executive of the Aged Care Guild (an association of large for-profit residential aged care providers), has defended ACFI claiming practices, contending that as older people receive more support to stay at home for longer, those who do enter residential aged care have higher levels of need, which are reflected in ACFI claiming patterns.123

Financial implications The measures dealing with adviser and administrator panels and approved provider obligations relating to key personnel have previously been included in Bills that were described as having ‘no financial implications’.124

The measures aimed at improving provider compliance for ACFI claims were announced in the 2015-16 MYEFO, with savings estimated at $61.9 million over four years from 2015-16.125

114. S Neumann, ‘Second reading speech: Appropriation Bill (No. 3) 2015-2016, Appropriation Bill (No. 4) 2015-2016’, House of Representatives, Debates, 22 February 2016, p. 1684; S Neumann (Shadow Minister for Ageing) and H Polley (Shadow Parliamentary Secretary for Aged Care), Budget 2016: Turnbull chooses big business over vulnerable older people, media release, 4 May 2016.

115. S Neumann (Shadow Minister for Ageing), Interview David Speers, Sky News, Liberal cuts to aged care funding, transcript, 5 June 2016. 116. R Morton, ‘$1.6bn savings plan faces Senate block’, The Australian, 17 June 2016, p. 8. 117. N Clark, R Harris and A Smethurst, ‘Milk, aged care on Lambie's list’, Mercury, 5 July 2016, p. 6. 118. R Morton, ‘$1.6bn savings plan faces Senate block’, The Australian, 17 June 2016, p. 8. 119. See for example A Grove and A Dunkley, ‘Aged care’, Budget review 2016-17, Research Paper series 2015-16, Parliamentary Library,

Canberra, May 2016. 120. S Ley and K Wyatt , Stronger compliance to protect integrity of aged care sector, media release, 16 December 2015; D O’Keeffe, ‘Government clamps down on ACFI claims’, Australian Ageing Agenda website, 16 December 2015. 121. D O’Keeffe, ‘Government clamps down on ACFI claims’, Australian Ageing Agenda website, 16 December 2015. 122. A White and K Loussikian, ‘Aged care and fast money make for unhealthy mix’, The Weekend Australian, 11 June 2016, p. 25 123. Ibid. 124. Explanatory Memorandum, Omnibus Repeal Day (Spring 2014) Bill 2014, p. 2; Explanatory Memorandum, Omnibus Repeal Day (Spring 2015)

Bill 2015, p. 2.

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It is now expected that the measures in Schedule 8 of this Bill will result in savings of $80.5 million over five years from 2015-16.126

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 measures contained in Schedule 8 of the Bill are compatible.127

Parliamentary Joint Committee on Human Rights At the time of writing this Bills Digest, the Parliamentary Joint Committee on Human Rights had not commented on the Bill.

As discussed in the section on previous committee consideration above, although the Parliamentary Joint Committee on Human Rights considered the Spring 2014 Bill and the Spring 2015 Bill it did not comment on the aged care measures included in those Bills

Key issues and provisions

Part 1—Compliance Aged care residents are appraised against the ACFI by their aged care provider. This appraisal is sent to the Secretary, who then determines the appropriate ACFI classification level for the resident. The ACFI classification is important because it determines the amount of subsidy that the provider will receive to care for the resident.128

When determining the classification level for a resident, the Secretary must take into account the appraisal made by the provider, as well as any other matters specified in the Classification Principles.129 For example, the Classification Principles specify that providers must complete the Aged Care Funding Instrument (ACFI) Answer Appraisal Pack (the Appraisal Pack) when appraising a resident, and that they must use the completed Appraisal Pack when applying to the Secretary for classification of the resident.130

Items 1 and 2 in Schedule 8 clarify and validate the application of the Classification Principles. Item 1 inserts proposed subsection 25-1(3A) into the Aged Care Act so that the Classification Principles may require the Secretary to take into account the manner in which care is provided and the qualifications of the person providing the care. This is in keeping with the current Appraisal Pack, which specifies that in order to contribute to an ACFI score, certain complex health care procedures must be delivered by a registered nurse or allied health professional in a specified manner.131

Item 2 is an application provision that operates so that anything previously done under the Aged Care Act that would otherwise be invalid because the Classification Principles required the Secretary to take into account the manner in which care is provided and the qualifications of the person providing the care, is taken to be as valid and effective as it would have been if subsection 25-1(3A) (inserted by Item 1) were in force. Taken together, items 1 and 2 appear to be retrospective ‘housekeeping’, designed to ensure that classification decisions made by the Secretary prior to the commencement of these items are valid, even if the Aged Care Act may not have contained sufficient authority for the making of those decisions at the time they were made.132 The Explanatory

125. S Morrison (Treasurer) and M Cormann (Minister for Finance), Mid-Year Economic and Fiscal Outlook 2015-16, p. 172. 126. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 5. 127. The Statement of Compatibility with Human Rights for Schedule 8 can be found at page 67 of the Explanatory Memorandum to the Bill. 128. Aged Care Act 1997, Divisions 24 and 25. 129. Aged Care Act 1997, section 25-3; Classification Principles 2014. 130. Classification Principles 2014, section 15; Department of Health and Ageing (DoHA), Aged Care Funding Instrument (ACFI) Answer Appraisal

Pack, DoHA, Canberra, 1 July 2013. 131. Ibid. p. 11. 132. As a matter of practice, there is no prohibition on a Bill which seeks to have retrospective impact. Retrospectivity is something that happens

regularly in civil matters and it can happen in criminal matters. The High Court considered this in the case of Polyukhovich v The Queen. Generally the Scrutiny of Bills Committee will comment on the effect of retrospective legislation and seek an explanation from the relevant Minister if one is not contained in the Explanatory Memorandum.

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Memorandum notes that it ‘is a long standing practice that certain types of care must be provided by qualified health professionals for providers to be eligible for the commensurate level of Commonwealth funding under the ACFI.’133

Aged care providers may be suspended from appraising their residents, or required to reappraise some or all of their residents, if the Secretary is satisfied that the provider has given false, misleading or inaccurate information in an appraisal relating to a classification that was reviewed and changed by the Secretary.134 It has been reported in the media that since early 2013, five approved providers have been required to reappraise all their residents after substantial and repeated findings of incorrect ACFI claiming.135

Currently, the provider may only be suspended or required to reappraise residents if they provide false, misleading or inaccurate information for a second time after they have already had at least one classification of a resident reviewed and changed. Items 4 and 8 repeal paragraphs 25-4(1)(c) and 27-3(1)(c) respectively to remove this ‘second chance’, meaning that providers may be suspended from appraising their residents or required to reappraise residents if they provide false, misleading or inaccurate information in one appraisal that is subsequently reviewed and changed.

Item 11 inserts proposed subsections 27-3(3A)-27-3(3C) into the Aged Care Act to empower the Secretary to require a provider to reappraise a resident if the Secretary reasonably suspects that the resident’s care needs have significantly decreased.

Currently, if the Secretary reviews and changes a resident’s classification, the changed classification can only be backdated for a maximum of six months.136 Item 15 removes this six month limit, meaning that overpayments can be recovered from the provider for the whole period that the inaccurate or incorrect classification was in force.137

The Aged Care Act does not currently include civil penalties for providers who make false, misleading or inaccurate ACFI claims. Item 17 inserts proposed Division 29A which introduces such penalties. Under the proposed Division, the Secretary may issue a warning notice relating to appraisals that have been reviewed and changed:

• on one occasion if the provider gave false or misleading information in the appraisal or

• on two or more occasions if the appraisals were incorrect or inaccurate and the changes made to the classifications are regarded as significant.

Once issued with a warning notice, the provider enters a warning period for two years. If, during that period, the provider again has a classification changed due to false or misleading information (on one occasion) or incorrect or inaccurate appraisals (on two or more occasions), the provider is liable for a civil penalty of up to 60 penalty units.138 The provider may receive a separate civil penalty for each classification that the Secretary changes during the warning period.

The Secretary’s decision to change a resident’s classification is a reviewable decision under the Aged Care Act.139 This means that providers can seek reconsideration by the Secretary of the decision, and if dissatisfied with the reconsideration decision, review by the Administrative Appeals Tribunal.140 Items 19 and 20 introduce an application fee specifically for providers seeking a reconsideration of a decision to change the classification of a resident. The fee is to be specified in the Classification Principles.

Part 2—Adviser and administrator panels Providers may be able to avoid penalties for non-compliance by appointing advisers or administrators in the following circumstances:

133. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 58. 134. Aged Care Act 1997, sections 25-4, 27-3 and 29-1. 135. M Cranston, ‘Disclosure call on aged care overclaiming’, Australian Financial Review, 6 July 2016, p. 7. 136. Aged Care Act 1997, section 29-2. 137. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, pp. 60-61. 138. Under section 4AA of the Crimes Act 1914, a penalty unit is equivalent to $180. This means that the maximum penalty is equivalent to

$10,800.

139. Aged Care Act 1997, section 85-1. 140. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 61.

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• aged care providers may be suspended from appraising their residents if they have been found to have given false, misleading or inaccurate information in appraisals.141 The provider may be able to avoid such a suspension by agreeing to appoint an adviser (approved by the Secretary) to assist with resident appraisals142

• aged care providers who do not meet their responsibilities (relating to quality of care, user rights and accountability) under the Aged Care Act may have their approval as a provider of aged care suspended or revoked.143 The provider may be able to avoid this revocation if they agree to appoint an adviser to help them comply with their care responsibilities, or an administrator to help them comply with governance requirements.144 In this circumstance, the adviser or administrator must be drawn from a panel managed by the Secretary, and their appointment by the provider must be approved by the Commonwealth.145

Items 24 and 25 in Schedule 8 remove the requirement for appraisal advisers to be approved by the Secretary.

Item 27 provides that the Classification Principles may exclude a class of persons from being appointed as an adviser to assist with ACFI appraisals.

Item 29 removes the requirement that an adviser or administrator appointed to help a provider meet their responsibilities be approved by the Commonwealth.

Item 32 repeals existing sections 66A-1, 66A-2 and 66A-3 which require the Secretary to maintain an administrator and an adviser panel of people suited to help providers comply with their responsibilities. It replaces this requirement with the provision that the Sanctions Principles may exclude a class of persons from being appointed as an adviser or administrator.146

Part 3—Approved provider obligations Approved providers are currently required to notify the Secretary every time there is a change in any of the provider’s key personnel.147 Key personnel include executives and directors, managers and nursing managers.148

Items 34 to 37 remove the requirement to notify changes to key personnel (unless they materially affect the provider’s suitability to provide aged care).

Comment Schedule 8 of the Bill implements measures to improve aged care provider compliance when assessing residents for funding purposes. These measures include imposing fines for false or incorrect claims and extending the period in which overpayments can be recovered. The position that the Parliament and key stakeholders will take on these measures is difficult to predict.

Schedule 8 also contains minor deregulatory measures that could be considered ‘red tape reduction’, and which are unlikely to be controversial.

Schedule 9—Dental services History of the Schedule The Dental Benefits Amendment Bill 2016 (the first Bill) was introduced into the House of Representatives on 5 May 2016, but lapsed at the dissolution of second session of the 44th Parliament on 9 May 2016.149

The provisions in Schedule 9 to this Bill are in similar but not equivalent terms to those in the first Bill. No Bills Digest was prepared in relation to the first Bill.

141. Aged Care Act 1997, subsection 25-4(1). 142. Aged Care Act 1997, section 25-4A. 143. Aged Care Act 1997, paragraph 66-1(a). 144. Aged Care Act 1997, section 66-2. 145. Aged Care Act 1997, subparagraphs 66-2(1)(a)(iii) and (iv) .and sections 66A-1 to 66A-3. 146. Sanctions Principles 2014. 147. Aged Care Act 1997, section 9-1. 148. Aged Care Act 1997, section 8-3A. 149. Parliament of Australia, ‘Dental Benefits Amendment Bill 2016 homepage’, Australian Parliament website.

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Purpose of the Schedule The purpose of Schedule 9 is to amend the Dental Benefits Act 2008 to repeal entitlement to dental benefits from 1 January 2017, and establish a framework to provide financial assistance to the states and territories for the purpose of rendering dental services after 1 January 2017.

Commencement The amendments in Schedule 9 to the Bill commence on the day after Royal Assent.

Background

Dental health status The latest report on dental and oral health from the Australian Institute of Health and Welfare (AIHW) presents key statistics on the dental health of the Australian population.150 This report found that in 2010 a majority of six year olds (55 per cent) experienced dental decay while for 12 year olds the rate was 48 per cent. Among adults, some 16 per cent reported toothache in 2013, and 27 per cent reported feeling uncomfortable about their dental appearance.151

Poor oral health impacts on overall health and wellbeing and can lead to poor nutrition, discomfort and pain. If oral disease is left untreated it can result in infection and even hospitalisation. Dental conditions were the third leading cause of preventable hospitalisations in 2013-14, with more than 63,000 Australians hospitalised in 2013-14.152

In 2012-13, expenditure on dental services totalled $8.7 billion. The majority of this expenditure was paid for by individuals, who covered 58 per cent of this spending from out of their own pockets.153

Government funding of dental services Historically, dental benefits were not included on the Medicare Benefits Schedule (MBS), except for some oral and maxillofacial surgery and treatment for cleft palate. Public dental services were largely the responsibility of state and territory governments.

Efforts to improve access to affordable dental services by national governments have been undertaken at various times. Generally, these approaches have favoured funding either public dental schemes or subsidising private dentistry. The Whitlam Government funded a Child School Dental Scheme. In 1994, the Keating Government funded the states and territories to provide public dental services to adult concession card holders under its Commonwealth Dental Health Program (CDHP)—which was then closed by the Howard Government in 1996. In 2004, the Howard Government first introduced capped dental benefits under Medicare for patients with chronic and complex conditions with its Allied Health and Dental Care initiative. This was expanded and became known as the Medicare Chronic Disease Dental Scheme (CDDS). In 2008, the Rudd Government directed the CDDS be replaced by the Commonwealth Dental Health Scheme (similar to the CDHP) and capped dental benefits under a new Teen Dental Plan.154 The Dental Benefits Act came into force in 2008. 155 However, it was not until 2012 that the CDDS was closed due to opposition from Coalition and Greens Senators in the Senate.156

150. Australian Institute of Health and Welfare (AIHW) and the University of Adelaide, Oral health and dental care in Australia: key facts and figures 2015, AIHW, Canberra, 2016, p. vii. 151. Ibid. 152. Australian Government, Healthy mouths, healthy lives: Australia's National Oral Health Plan 2015-24, COAG Health Council, Adelaide, 2015,

p. ix.

153. AIHWand the University of Adelaide, Oral health and dental care in Australia: key facts and figures 2015, AIHW, Canberra, 2016, p. vii.

154. K Rudd (Prime Minister) and N Roxon (Minister for Health and Ageing), One million Australian kids to benefit from Teen Dental Plan, joint media release, 2 March 2008. 155. A Biggs, Overview of Commonwealth involvement in funding dental care, Research paper series, 1, 2008-09, Parliamentary Library, Canberra, 13 August 2008; A Biggs, M Biddington, Dental Benefits Bill 2008, Bills digest, 135, 2007-08, Parliamentary Library, Canberra, 2008; A Biggs,

‘New dental package announced, but it’s not Denticare’, Flagpost, Parliamentary Library blog, 29 August 2012. 156. A Biggs, ‘Stalemate looms over closure of chronic disease dental scheme’, Flagpost, Parliamentary Library blog, 11 November 2011. The Greens later accepted the closure of the CDDS when a new dental package was announced, see A Biggs, ‘New dental package announced, but

it’s not Denticare’, Flagpost, Parliamentary Library blog, 29 August 2012.

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In addition to these arrangements, the Government subsidises the cost of dentistry through its rebate on private health insurance premiums.

Dental Benefits Act 2008 Under the Dental Benefits Act the Australian Government provides means-tested benefits for dental services to eligible patients. The Dental Benefits Act:

• establishes an entitlement to dental benefits

• provides for the issuing of vouchers for dental benefits

• provides for the payment of dental benefits

• establishes provisions to protect information and authorise its disclosure

• creates offence provisions in relation to assignment of benefits and the giving of false or misleading information

• gives the Minister for Health power to make rules by legislative instrument, and

• provides for funds to be appropriated for dental benefits.

Broadly, the Dental Benefits Act is modelled on provisions in the Health Insurance Act 1973 which provides the framework for Medicare benefits.157

As noted, initially the Dental Benefits Act provided dental benefits to eligible teenagers under the Teen Dental Plan. In January 2014 the Teen Dental Plan was replaced by the Child Dental Benefits Schedule (CDBS). The CDBS provides eligible children aged between two and 17 years with up to $1,000 in dental benefits for basic dental services over two calendar years. These services include:

• dental examination

• x-rays

• cleaning

• fissure sealing

• fillings

• root canal therapy

• extractions, and

• partial dentures.158

In order to claim dental benefits, services must be provided by dentists who are registered with the Dental Board of Australia and who have obtained a Medicare provider number. Claims are processed by the Department of Human Services (DHS).

Most services provided under the CDBS are delivered by dentists in private practice, but public dental clinics run by state and territory governments are able to provide services as well.

Eligibility As noted, the CDBS provides a means-tested dental benefit in the form of a voucher to eligible children. To be eligible children must be:

• eligible for Medicare

• aged between two and 17 years, and

• satisfy a means test.159

157. Department of Health (DoH), Report on the third review of the Dental Benefits Act 2008, DoH, Canberra, 17 December 2015, p. 1. 158. Ibid., p. 9. Benefits are not available for cosmetic dentistry, crowns, bridges or orthodontics. 159. Ibid., p. 10.

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Children satisfy the means-test if they or their family is in receipt of a government payment outlined in the table below.

Table 5: CDBS eligibility in 2014 by government payment received

Source: Department of Health (DoH), Report on the third review of the Dental Benefits Act 2008, DoH, Canberra, 17 December 2015. 160

Utilisation and cost of CDBS The Department of Health (DoH) estimates that in its first year around 3.0 million children were notified they were eligible for the CDBS but only 29.4 per cent accessed the scheme.161 Medicare data from DHS shows that in the 2015 calendar year, around 5 million dental services were provided and $311.4 million in benefits were paid.162 In its first full year of operation (2014), $290.2 million in benefits was paid.163

Most services provided under the CDBS are bulk billed, with bulk billing rates generally above 90 per cent.164

The lower than forecast level of utilisation was raised as a concern in the last review of the CDBS completed in 2015.165

National Partnership Agreements (NPAs) on dental services The Rudd Government dental package included grants of financial assistance to the states and territories for the delivery of public dental services to low income adults under a National Partnership Agreement (NPA) on adult public dental services.166 Funding of $1.3 billion over four years was announced at the Mid-Year Economic and Fiscal Outlook 2012-13.167

160. Ibid., p. 11. 161. Ibid., p. 13. 162. Department of Human Services (DHS), ‘Medicare statistics: Group Reports: Category 10 Dental Benefit Schedule’, DHS website. Users should select Category 10, Dental Benefits Schedule, then select the relevant year and services or benefits from the drop down menu.

163. Ibid. 164. Department of Health (DoH), Report on the third review of the Dental Benefits Act 2008, DoH, Canberra, 17 December 2015, p. 31. 165. Ibid., p. ix. 166. DoH, National Partnership Agreement (NPA) for adult public dental services, DoH website (archived). See also, Council of Australian

Governments (COAG), Treating more public dental patients, COAG website, was due to expire in December 2015. It included a provision that the Agreement was not legally enforceable. 167. W Swan (Treasurer) and P Wong (Minister for Finance and Deregulation), Mid-year economic and fiscal outlook 2012-13, 2012, p. 229.

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In the 2014-15 Budget, the Abbott Government announced funding under the NPA would be deferred for one year.168 In the 2015-16 Budget, the Government announced the existing agreement would be replaced with a new one year NPA, with funding of $155 million for one year provided.169 The Government indicated that future funding arrangements for public dental services would be subject to further negotiations.170

In the 2016-17 Budget, the Turnbull Government announced the establishment of a new Child and Adult Public Dental Service (caPDS) to replace existing funding arrangements from 1 July 2016. The caPDS will be established under a new five year NPA. The Budget allocated $1.7 billion over the first four years of the scheme from 2016- 17.171 As part of this measure, the Government announced the closure of the CDBS.

The caPDS is intended to provide expanded access to state-run public dental services for all children under 18 as well as adult concession card holders. Commonwealth funding will be calculated at 40 per cent of the national efficient price (NEP) for dental services provided under the scheme, until 2019-20.172 From 2019-20, growth in Commonwealth funding will be capped to the consumer price index and population.

Legislation to abolish the CDBS and establish the caPDS was introduced at the time of the budget, but failed to progress before Parliament was dissolved.173

Policy position of non-government parties/independents Labor criticised the closure of the CDBS at the time of the budget, claiming it represented a funding cut of $1 billion.174 During the most recent Federal election campaign Labor continued to attack the decision, but did not release a specific policy on dental care.175

The Greens, who supported the introduction of the CDBS and want to see it expanded, have stated they would reject the plan.176 Their commitment to the CDBS was re-stated during the 2016 Federal election campaign.177

Independent MP Andrew Wilkie also criticised the closure of the CDBS and has called on the Health Minister to retain the scheme.178

The views of other cross-benchers and Independents have yet to be identified.

Position of major interest groups At the time of the budget, the announcement of the establishment of the caPDS received a mixed response from stakeholders. The Australian Healthcare and Hospitals Association (AHHA) endorsed the Government’s commitment to support public dental services, but voiced concern that the funding is ‘not as generous as suggested’ and warned it ‘won’t underpin equitable access to care’. The National Oral Health Alliance (NOHA) indicated it supported the move to legislate the scheme, but claimed the funding ‘represents a cut, not an increase’. The Australian Dental Association (ADA) has described the proposal as a ‘back of the envelope approach’ which will leave many patients ‘high and dry’.179 While supporting enshrining funding in legislation, the ADA has warned that ‘patients from smaller states and regional and rural areas stand a real risk of missing out on dental care under the Coalition’s caPDS’.180

Reaction to the specific provisions in this Bill is yet to emerge. However, concerns may be raised over the capacity of the public dental system to absorb additional demand. Waiting times for public dental services can

168. Australian Government, Budget measures: budget paper no. 2: 2014-15, Commonwealth of Australia, p. 137. 169. Australian Government, Budget measures: budget paper no. 2: 2015-16,, p. 107; Council of Australian Governments (COAG), National Partnership Agreement (NPA) on adult public dental services, 2015. The Agreement expired in June 2016. 170. Australian Government, Federal financial relations: budget paper no. 3: 2015-16, p. 26. 171. Australian Government, Budget measures: budget paper no. 2: 2016-17, p. 102. 172. The National Efficient Price is set by the Independent Hospital Pricing Authority (HPA). It is used to work out the funding for a public hospital

activity. See IHPA, ‘FAQS’, HPA website. 173. Parliament of Australia, ‘Dental Benefits Amendment Bill 2016 homepage’, Australian Parliament website. 174. C King (Shadow Minister for Health), Turnbull Government cuts another $1 billion from kids dental care’, media release, 23 April 2016. 175. Australian Labor Party (ALP), ‘A stronger Medicare for all Australians’, 100 positive policies Factsheet, ALP policy document, Election 2016. 176. A Biggs, ‘Dental health’, Budget Review 2016-17, Research paper, 2016-17, Parliamentary Library, Canberra, 2016, p. 57. 177. The Greens, Brushing up our dental care, The Greens policy document, Election 2016. 178. A Wilkie (Independent MP), Child dental cuts will bite hardest in Tasmania, Wilkie (Independent MP) policy document, Election 2016. 179. A Biggs, ‘Dental health’, Budget Review 2016-17, Research paper, 2016-17, Parliamentary Library, Canberra, 2016, p. 57. 180. M Hawthorne, ‘Govt fails to put bite on dental scheme’, Australian Medicine, 24 May 2016.

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be long. In Victoria, wait times for general treatment are 12.6 months (although emergencies are prioritised under a triage system).181

In addition, children have different dental needs compared to adults. Services currently provided under the CDBS reflect this, with a focus on prevention (44 per cent of services) and early diagnosis of dental disease (37 per cent of services).182 It is not yet clear how the new NPA will ensure that public dental services dedicate appropriate preventative and early diagnostic resources to meet the needs of children, while maintaining existing services for adult concession card holders.

Debate may also emerge over whether services provided under the CDBS constitute a Medicare funded service, and are therefore subject to the Prime Minister’s commitment to retain Medicare services in full.183

Financial implications The cost of the new caPDS is to be offset by savings from closing the CDBS and not proceeding with the existing NPA on public dental services.184

The financial implications of the measure on the underlying cash balance over the forward estimates are outlined in the Explanatory Memorandum (EM). Over the period, savings of $52.4 million are forecast:

Table 6: Savings over the forward estimates provided in the EM

No. Measure

title

2015-16 2016-17 2017-18 2018-19 2019-20 Total

9 Dental

services

-4.1 95.0 50.5 32.9 -121.9 52.4

Source: Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016. 185

These estimates appear to differ slightly from those provided in the 2016-17 budget, with the greatest variance occurring in the year 2016-17.

Table 7: Savings over the forward estimates provided in the 2016-17 Budget

Source: Australian Government, Budget measures: budget paper no. 2: 2016-17. 186

The discrepancy in estimates amounts to around $35.1 million, or equivalent to the difference noted in the two 2016-17 year estimates. The budget estimates were based on the assumption that the CDBS would be closed

181. Department of Health (Victoria), ‘Statewide - average time to treatment for general dental care - quarterly data’, Victorian Health Services Performance website. 182. Department of Health (DoH), Report on the third review of the Dental Benefits Act 2008, DoH, Canberra, 17 December 2015,p 26. 183. AAP, ‘Medicare safe in Coalition hands’, SBS News, 20 June 2016. 184. Explanatory Memorandum, p. 79. Although as noted, this NPA expired in June 2016. 185. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016,, p. 5. 186. Australian Government, Budget measures: budget paper no. 2: 2016-17p. 102. Note, a minus symbol in the budget papers indicates a saving

to the budget, while in the Explanatory Memorandum a minus symbol indicates a cost to the cash balance.

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from July 2016; a Bill to enact the measure had been introduced in May 2016, but lapsed at dissolution of the Parliament before it could progress. The provisions proposed in this Bill assume closure of the CDBS from January 2017—six months later. This later closure date may explain the discrepancy in the figures.

The total allocation to be made to the states and territories under the National Partnership on the child and adult public dental scheme is shown in budget paper number three:

Table 8: Funding allocation under the National Partnership on the child and adult public dental scheme

Source: Australian Government, Budget measures: budget paper no. 2: 2016-17. 187

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 Schedule’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 Schedule 9 is compatible.188

Parliamentary Joint Committee on Human Rights The Parliamentary Joint Committee on Human Rights has not considered Schedule 9 or the first Bill.

Key issues and provisions Most of the proposed amendments in Schedule 9 are to the Dental Benefits Act. Some minor amendments are proposed for the Age Discrimination Act 2004 and the Human Services (Medicare) Act 1973; the reader is advised to consult the Explanatory Memorandum in relation to these. Only significant provisions are discussed further below.

Item 3 of Schedule 9 to the Bill proposes to amend the simplified outline of the Dental Benefits Act (existing section 3) to clarify that it no longer provides a framework for dental benefits except for those provided before 1 January 2017, and instead provides for grants of financial assistance to the states and territories for dental services after this date.

Several proposed amendments limit the entitlement to a dental benefit to services provided before 1 January 2017. Item 7 proposes to amend section 8 of the Dental Benefits Act, which provides a simplified outline of Part 2 of the Act, including a description of how Part 2 creates a basic entitlement to dental benefits. This statement will be removed from section 8 and replaced with a statement that specifies that the basic entitlement to a benefit only applies to a dental service provided before 1 January 2017. Similarly, item 10 proposes amendments to the current section 10 of the Dental Benefits Act, dealing with payment of dental benefits, to specify that payments of dental benefits will only be made for services rendered before 1 January 2017.

Currently, dental benefits are provided through the issuing of a voucher to eligible children, as specified in Part 4 of the Dental Benefits Act. Items 16 to 18 propose amendments to Part 4 that specify that these vouchers cannot be issued after 31 December 2016, and that a voucher issued for the calendar year starting 1 January 2016 will cease to have effect at the end of 31 December 2016.

187. Australian Government, Federal financial relations: budget paper no. 3: 2016-17, p. 27. 188. The Statement of Compatibility with Human Rights can be found at page 86 of the Explanatory Memorandum to the Bill.

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According to the Health Minister, Sussan Ley the closure of the CDBS is required because ‘it is an inherently inefficient use of taxpayers' money’.189

Item 5 of Schedule 9 to the Bill proposes significant provisions relating to establishing a framework to provide capped grants of assistance to the states and territories for the provision of dental services rendered on or after 1 January 2017 through proposed Part 1A-Grants of financial assistance. Notably, proposed section 7E in this part provides that the Commonwealth may enter into written agreements with the jurisdictions to provide grants of assistance in relation to dental services.

It is important to note that previous agreements on dental funding for the states and territories have been entered into without such provisions having been enacted. The Explanatory Memorandum is silent as to why it has become necessary or preferable to now legislate such provisions. However, the Health Minister Sussan Ley offered this explanation when she introduced the first Bill at the time of the budget:

As well as providing record levels of funding, the Bill for the first time ever puts Commonwealth payments to the states for dental services on a legislative basis. This will give states the long-term certainty they need to invest in infrastructure and ensure that Australia has a high-quality public dental service into the future. 190

She noted that this approach appears to have found favour with at least one state health Minister:

As one state health minister said to me: the fact that we are legislating and locking in the structure of a truly public scheme now and into the future gives them—that state health minister—the confidence to build the infrastructure to deliver what, as I said, is the best possible use of taxpayers' money in targeting the oral health of Australians where they need it most.

191

As noted above, a number of stakeholders have also welcomed legislating for dental funding agreements.

Proposed section 7G of the Dental Benefits Act specifies that grants of financial assistance will be subject to a cap. For 2016-17 the cap is to be set at $175.0 million, for 2017-18 it will be set at $415.6 million and for 2018- 19 it will be set at $420.2 million.192 From 2019-20 onwards, the cap will be determined through a specified formula. Significantly, proposed subsection 7G(2) allows the Minister, by legislative instrument, to specify a lesser amount for the 2016-17 year. According to the Explanatory Memorandum, this is considered necessary to ensure that the total quantum of funding for dental services does not exceed the Government’s planned expenditure for the year.193 Total spending on the CDBS between July and December 2016 will not be known until after the passage of this legislation, so this provision allows for an adjustment if needed.

Proposed section 7H of the Dental Benefits Act specifies the indexation factor that will apply to grants from 1 July 2019. The amount of the grants will be based on the previous year’s funding cap, multiplied by the growth in the consumer price index since the previous December quarter as specified in proposed section 7H, multiplied by a population growth factor as specified in proposed section 7J.

Proposed section 7L of the Dental Benefits Act specifies that a review of new Part 1A must be conducted before 31 December 2020 and be presented to Parliament, and specifies the composition of the panel that is to conduct the review.

Schedule 11—Student start-up scholarships History of the amendment Schedule 11 of the Bill proposes to remove the ‘grandfathering arrangements’ for the Student Start-up Scholarship (the SSS), thereby terminating it.194 The proposal to remove these arrangements was first announced as a 2014-15 budget measure, modifying the previous Labor Government’s 2013-14 budget

189. S Ley, ‘Second reading speech: Dental Benefits Amendment Bill 2016,’ House of Representatives, Debates, 5 May 2016, p. 4469. 190. Ibid. 191. Ibid., p. 4471. 192. These amounts are the same as those reported in budget paper number three. See Australian Government, Federal financial relations: budget

paper no. 3: 2016-17p. 27. 193. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 74. 194. S Morrison, ‘Second reading speech: Budget Savings (Omnibus) Bill 2016’, House of Representatives, Debates, 31 August 2016, p. 35.

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measure to establish an income-contingent loan for full-time higher education students (the Student Start-up Loan (SSL)) which would replace the SSS.195

However, contrary to the 2014-15 budget measure, the subsequent Labor 2013-14 Budget Savings (Measures No. 2) Act 2015, which established the SSL, included grandfathering arrangements for the SSS.196 This meant that existing SSS recipients at the time of the SSL’s implementation retained their scholarship.

The following ‘Background’ section, which includes a brief history of the SSS and legislative attempts to replace it with the SSL, explains the history of the grandfathering arrangements more fully.

Purpose of the Schedule The purpose of Schedule 11 of the Bill is to amend the Social Security Act 1991 (the SS Act), the Social Security (Administration) Act 1999 (the SS Admin Act) and the Student Assistance Act 1973 (the SA Act) to remove the grandfathering arrangements for current recipients of the Student Start-up Scholarship (SSS).197 If enacted, the measure will terminate the SSS.

Commencement The measure will take effect from 1 July 2017 if the Act receives Royal Assent before 1 January 2017. If the Act receives Royal Assent on or after 1 January 2017, the measure will take effect from the first 1 January or 1 July to occur after the day the Act receives Royal Assent.

Background The SSS was implemented in 2010 by the Social Security and Other Legislation Amendment (Income Support for Students) Act 2010 in response to the recommendations of the Bradley Review of Higher Education.198 As introduced, the SSS was automatically provided to eligible recipients of Youth Allowance, Austudy and ABSTUDY Living Allowance, to assist with the costs of study while undertaking an approved higher education course. When introduced it was worth $2,254 per year (paid in two instalments).199 The 2016 rate is $2,050.200

The original proposal to replace the SSS with an income contingent loan (the SSL) was a 2013-14 budget measure introduced by the Gillard Government as one of a set of measures to offset the costs of the then proposed new school funding system.201 The measure was to apply only to new recipients of Youth Allowance, Austudy and ABSTUDY and existing recipients would continue to receive the SSS (referred to as the grandfathering arrangements).

It was not until 2015 that the Coalition Government, after several attempts, was able to get legislation passed— the Labor 2013-14 Budget Savings (Measures No. 2) Act 2015 (the Act)—to implement the SSL.202 As mentioned previously, the Government included a proposal in the 2014-15 Budget to alter Labor’s original design for the SSL by removing the grandfathering arrangements for existing SSS recipients. However, the Act, contrary to the budget measure, retained the arrangements.

The SSL, which was implemented from 1 January 2016, is a voluntary income-contingent loan repayable under the same arrangements as Higher Education Loan Programme (HELP) debts. Similar to the SSS, it is available to eligible full-time students in higher education who receive Youth Allowance, Austudy or ABSTUDY Living Allowance. The SSL also provides the same annual amount (currently $2,050) as the SSS.203

195. Australian Government, Budget measures: budget paper no. 2: 2014-15, pp. 206-7. 196. Labor 2013-14 Budget Savings (Measures No. 2) Act 2015 (Cth), schedule 1. 197. S Morrison, ‘Second reading speech: Budget Savings (Omnibus) Bill 2016’, House of Representatives, Debates, 31 August 2016, p. 35. 198. L Buckmaster, D Daniels and C Dow, Social Security and Other Legislation Amendment (Income Support for Students) Bill 2009, Bills digest, 42,

2009-10, Parliamentary Library, Canberra, 2009, pp. 2-5. 199. Ibid., p. 18. 200. Department of Human Services (DHS), ‘Student Start-Up Scholarship’, DHS website, last updated 25 July 2016. 201. Australian Government, Budget measures: budget paper no. 2: 2013-14, pp. 220-1. 202. Labor 2013-14 Budget Savings (Measures No. 2) Act 2015 (Cth), schedule 1. A history of the previous legislative attempts to establish the

Student Start-up Loan (SSL) is provided in M Klapdor, ‘$1.2 billion in higher education and welfare savings set to pass’, Flagpost, Parliamentary Library blog, 1 December 2015. 203. For further information about the Student Start-up Scholarship (SSS) and the SSL, see the Department of Human Services’ SSS and SSL websites.

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Removing the grandfathering arrangements Schedule 11 of the Bill proposes to revert to the intent of the Government’s 2014-15 budget measure by removing the grandfathering arrangements for the SSS and thereby effectively terminating the SSS. This will mean that existing SSS recipients will forgo their scholarship. However, they may be eligible to apply for an SSL.204 The Government estimates about 80,000 existing SSS recipients will be affected should the measure be implemented from 1 July 2017.205

At the time of writing this Bills Digest, there does not appear to be any responses by the Opposition, other non-government parties, independents or sectoral interests, to this latest proposal regarding the SSS. The Government is assuming that Labor has ‘implicitly supported’ the measure.206 This may be because Labor first proposed and then supported the final establishment of the SSL. However, Labor’s support was for an SSL that included grandfathering arrangements for the SSS, which they had originally devised. Therefore, as no recent statements on the issue appear to have been made, Labor’s support for the measure cannot be confirmed.

The Greens’ support for the measure is also uncertain given their 2016 election commitment to advocate for the reinstatement of the SSS as a grant.207

Financial implications It is estimated that the measures in Schedule 11 of the Bill will have the following impact on the underlying cash balance over the forward estimates:

Table 9: Impact over the forward estimates ($m) 2017-18 2018-19 2019-20 Total

146.7 92.6 58.7 298.1

Source: Correction to the Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016.

Note: these estimates correct those provided in the Explanatory Memorandum.208

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 compatibility of Schedule 11 of the Bill 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 Schedule is compatible.209

At the time of writing this Bills Digest, the Parliamentary Joint Committee on Human Rights had not commented on the Bill.

Key provisions • items 1 to 12 of Schedule 11 propose amendments to the SS Act. These amendments are the substantive part of the Schedule and their effect is to repeal the SSS—in particular by repealing references to a scholarship-entitled person

• items 13 to 19 of Schedule 11 propose consequential amendments to the SS Admin Act by removing references to the SSS

• items 20 to 23 of Schedule 11 to the Bill make consequential amendments to the SA Act, including those provisions in section 7D relating to the ABSTUDY Student Start-up Loan

• item 24 of Schedule 11 proposes a number of ‘application and saving provisions’ in relation to the SSS which continue to apply in spite of the repeal of the SSS. It is also proposed that debt, claims and payment rules will continue to apply to previous SSS holders.

204. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 122. 205. Ibid., pp. 122-3. 206. D Crowe, ‘$130m gripes delay $6bn plan’, The Australian, 31 August 2016, p. 1. 207. The Greens, Supporting university students, Greens policy document, 2016 election. 208. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, pp. 5-6. 209. The Statement of Compatibility with Human Rights can be found at pages 125-128 of the Explanatory Memorandum to the Bill.

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The Explanatory Memorandum to the Bill provides detailed information about the Schedule’s provisions.210

Schedule 12 Interest charge Purpose of the Schedule The purpose of this Schedule is to:

• provide for a new interest charge scheme for debts that arise under the A New Tax System (Family Assistance) (Administration) Act 1999211 (Family Assistance Administration Act), Paid Parental Leave Act 2010212, Social Security Act 1991213 and Student Assistance Act 1973214

• retain the existing penalty interest scheme for debts that arise under the Veterans’ Entitlements Act 1986215 while setting the rate of interest independently from the Social Security Act (and allowing the Minister to change this rate by legislative instrument).

Commencement Schedule 12 will commence on 1 January 2017 if the Act receives the Royal Assent before that day. If the Act receives the Royal Assent on or after 1 January 2017 the Schedule will commence the 28th day after the Act receives the Royal Assent.

Background

History of the Schedule The provisions in this Schedule (with minor differences) were introduced into the 44th Parliament on 2 March 2016 in the Social Services Legislation Amendment (Interest Charge) Bill 2016.216 That Bill had passed the House of Representatives and was before the Senate when Parliament was prorogued. The Bill lapsed on prorogation of Parliament.

The Family Assistance Administration Act, Paid Parental Leave Act, Social Security Act, and Veterans’ Entitlements Act all include provisions that allow the Commonwealth to charge interest on debts. These interest charge schemes are similar to the scheme proposed in this Schedule but set the rate of interest in a different way.

Why impose an interest charge on debt? There are at least three reasons governments charge interest on debts like underpayments of tax liabilities and overpayments of income support or family assistance:

• compensation for the time value of money: delaying payment imposes a cost on government. This cost includes the cost of government borrowing. An interest charge designed to compensate government for the time value of money is typically based on the yield from Treasury notes plus a small uplift (to cover administration).217

• incentive to encourage prompt repayment: if the interest charge on debts to government is lower than that for consumer credit, debtors may have little incentive to negotiate a repayment agreement. To encourage debtors to enter an agreement, governments need to set the interest charge above the rate financial institutions charge for credit cards and similar products. If the rationale is to encourage debtors to enter into and abide by a repayment agreement there is no reason to charge interest once the debtor enters into an agreement or it is clear they are unable to repay

210. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, pp. 121-5. 211. Error! Hyperlink reference not valid.A New Tax System (Family Assistance) (Administration) Act 1999 (Cth). 212. Paid Parental Leave Act 2010 (Cth). 213. Social Security Act 1991 (Cth). 214. Student Assistance Act 1973 (Cth). 215. Veterans’ Entitlements Act 1986 (Cth). 216. Parliament of Australia, ‘Social Services Legislation Amendment (Interest Charge) Bill 2016 homepage’, Australian Parliament website. 217. An example of an interest charge designed to reflect the time value of money is the interest charge the Australian Taxation Office applied

before the introduction of the General Interest Charge (GIC). See: J Short, ‘Answer to Question without notice: taxation returns’, [Questioner: N Bolkus], Senate, Debates, 24 June 1996, p. 2023.

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• deterrent/punishment: governments can also use an interest charge to encourage income support recipients and taxpayers to accurately report their income and meet other obligations and avoid incurring a debt. If the primary rationale is deterrence or punishment government would not charge if the debt was primarily the result of administrative error by government rather than action or inaction by the debtor.

Previous interest charge schemes Penalty interest applied to student assistance payments

In 1991 the Government introduced an interest charge of 20 per cent per year for debts under the Student Assistance Act. This was combined with a flat late payment charge of $100.218

The Australian Democrats unsuccessfully tried to prevent the Government from introducing the 20 per cent interest charge by moving to disallow an amendment to the Austudy Regulations. Senator Sowada of the Democrats argued that amount was punitive and not linked to market rates of interest. In response to claims that the Australian Taxation Office (ATO) charged similar rates of interest on debts, the Senator noted that the Government was seeking to amend the tax laws to reduce the level of interest.219Penalty interest applied to payments under the Social Security Act

In 1993 the Government introduced a Bill to apply an interest charge of 20 per cent per year for debts under the Social Security Act. Described as ‘penalty interest’ the new charge replaced an existing scheme that charged $15 plus 10 per cent of the debt to a maximum of $515. During Committee hearings, an official from the Department of Social Security (DSS) explained that the interest charge was an incentive to encourage prompt repayment:

The charge is intended purely as an incentive to get clients who otherwise refuse to talk sensibly to us about repayment of debts to do so, and it will have application only in those cases where we find clients who for one reason or another are not prepared to deal sensibly with us. It will not apply, for example, where we establish that the person does not have the capacity to repay.

220

Opposition and minor party Senators on the Committee queried why the rate was so high and how it compared with interest charges by other government agencies. DSS acknowledged that the ATO had moved to an interest charge based on Treasury note yields combined with a fixed penalty (an arrangement that separated the interest element of the charge from the penalty element). DSS argued that the ATO system was ‘unnecessarily complex’ and went on to explain:

A penalty interest rate set at 20% per annum on the balance outstanding from time to time would be consistent with the rate applied by DEET [to AUSTUDY debts] and not significantly different overall from the ATO. It also ensures that debts to the Commonwealth are not afforded a lower priority that other liabilities such as Bankcard and other commercial debts. Most importantly, it acts as an incentive to non-client debtors to negotiate an arrangement with the Department and it will not apply to debtors who cannot afford to repay their debt.

221

Penalty interest applied to family assistance paymentsIn 2000 the Government introduced Family Tax Benefit Parts A and B and Child Care Benefit as part of a simplification of family assistance payments. The new payments were created by A New Tax System (Family Assistance) Act 1999 (Family Assistance Act).222 The Government incorporated the Social Security Act’s penalty interest arrangements into the Family Assistance (Administration Act.223Penalty interest extended to payments under the Veterans’ Entitlements Act

In 2001 the Family and Community Services and Veterans’ Affairs Legislation Amendment (Debt Recovery) Act 2001 extended the arrangements for charging interest to payments made under the Veterans’ Entitlements Act 1986.224A consistent approach to penalty interest across payment types

218. Explanatory Memorandum, Student Assistance Amendment Bill 1991, pp. 2-3. AUSTUDY Regulations (Amendment), Statutory Rules 1991 No. 480, p. 20. 219. K Sowada, ‘Motion for disallowance: Austudy Regulations (Amendment)’, Senate, Debates, 27 May 1992, p. 2781. 220. R Elmes (DSS), Evidence to Senate Standing Committee on Legal and Constitutional Affairs, Inquiry into the Social Security Legislation

Amendment Bill 1994, 22 February 1994, p. 80. 221. Senate Standing Committee on Legal and Constitutional Affairs, Social Security Legislation Amendment Bill 1994: report, Appendix 3: further information provided by the Department of Social Security, February 1994. 222. A New Tax System (Family Assistance) Act 1999 (Cth). 223. A New Tax System (Family Assistance) (Administration) Act 1999 (Cth). 224. Family and Community Services and Veterans' Affairs Legislation Amendment (Debt Recovery) Act 2001 and Veterans’ Entitlements Act 1986

(Cth).

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With the Family and Community Services and Veterans’ Affairs Legislation Amendment (Debt Recovery) Act 2001 the Government applied the same penalty interest arrangements across the three main social welfare payment types:

• income support payments under the Social Security Act

• family assistance payments under the Family Assistance Act and

• veterans’ payments under the Veterans’ Entitlements Act.

Penalty interest rate reduced to three per cent

Each of the three Acts set the interest rate at 20 per cent per year but allowed the Minister to determine a lower rate by legislative instrument. During debate on the Family and Community Services and Veterans’ Affairs Legislation Amendment (Debt Recovery) Act 2001 then Minister for Family and Community Services, Jocelyn Newman, announced:

The government proposes to reduce the interest charge from the current punitive 20 per cent—that is the current legislated rate—to the lower deeming rate of 3.5 per cent. 225

In July 2001 the then Minister for Family and Community Services, Amanda Vanstone, reduced the rate of penalty interest from 20 per cent to three per cent (the ‘below threshold’ or ‘lower’ deeming rate at the time).226 This was done through determinations under the Social Security Act and the Family Assistance Administration Act.227

Penalty interest not applied after 2005

According to the Explanatory Memorandum for the Social Services Legislation Amendment (Interest Charge) Bill 2016, Centrelink has not applied interest charges on debt since 2005.228

No interest charged on debts due to administrative error

During its passage through the Parliament the Family and Community Services and Veterans’ Affairs Legislation Amendment (Debt Recovery) Bill 2000 was amended to ensure that interest would not be charged on debts that were incurred due to administrative error. Labor Party Senator Chris Evans gave the following reasons for moving these amendments:

Labor has moved these amendments in fairness to those who have been inflicted with a debt, thanks to the administrative bungle of someone else. These people have not sought in any way to gain a benefit to which they were not entitled. They have done no wrong and have received payments in good faith. We think there is quite a difference in terms of the way they ought to be handled and that to apply some of the interest and administrative charges on these people is quite unfair. Whilst Labor has subsequent amendments to deal with administrative debts, we believe those who receive debts through no fault of their own should be given broader latitude to repay than those who receive a debt due to their own actions. We believe it is most unfair that the government would

225. J Newman, ‘Second reading speech: the Family and Community Services and Veterans’ Affairs Legislation Amendment (Debt Recovery) Bill 2000’, Senate, Debates, 29 November 2000, p. 20073 226. Centrelink uses the deeming rate as part of the income test for income support payments. It is used to assess income from certain types of assets. According to the Guide to Social Security Law, ‘Deeming assumes that financial investments are earning a certain rate of income,

regardless of the amount of income they’re actually earning.’ There are two deeming rates which apply to the value of income-earning assets in respect of a certain threshold: the below threshold rate (lower rate) and the above threshold rate (higher rate). See: Department of Social Services (DSS), ‘4.4.1.10 Overview of Deeming’, Guide to social security law, version 1.220, last reviewed 7 August 2015, accessed 21 March 2016. It is not clear why the Government chose to apply the deeming rate to penalty interest. Subsequent changes in the deeming rate were not

reflected in changes to the rate of penalty interest. 227. A New Tax System (Family Assistance) (Administration) (Penalty Interest) Determination 2001; Social Security (Penalty Interest) Determination 2001. 228. Explanatory Memorandum, Social Services Legislation Amendment (Interest Charge) Bill 2016, p. 2.

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contemplate penalising those who have not done any wrong and are in fact the victims of another person's oversight or error. 229

Recent attempt to introduce new interest charge scheme for student assistance debts

In 2013 and 2014 the Coalition Government attempted to create a new interest charge scheme, similar to the one proposed in the current Schedule, through amendments to the Social Security Act and the Student Assistance Act. The measure had been announced by the previous Labor Government in the 2012-13 Mid-Year Economic and Fiscal Outlook (MYEFO).230

In his second reading speech for the first Bill which included these interest charge provisions, then Minister for Social Services Kevin Andrews said that the Bill would ‘allow for an interest charge to be applied to certain debts incurred by recipients of Austudy payment, fares allowance, youth allowance for full-time students and apprentices, and ABSTUDY living allowance’.231 However, the Bill also allowed the Minister to extend the measure to debts incurred by recipients of other social security payments through a legislative instrument. The Senate Standing Committee for the Scrutiny of Bills questioned why the Government was attempting to deal with an important matter of policy through a statutory instrument rather than through primary legislation.232

The proposed measure was initially included in the Social Services and Other Legislation Amendment Bill 2013 but the relevant Schedule was removed prior to that Bill being passed.233 The measure was reintroduced in the Social Services and Other Legislation Amendment (Student Measures) Bill 2014234 That Bill was not passed and lapsed at prorogation of the Parliament on 15 April 2016. The measure was also included in the Labor 2013-14 Budget Savings (Measures No. 2) Bill 2015 but the relevant Schedule was removed prior to the Bill being passed.235

Committee consideration

Senate Community Affairs Legislation Committee The Social Services Legislation Amendment (Interest Charge) Bill 2016 was referred to the Senate Community Affairs Legislation Committee for inquiry and report by 20 June 2016. The inquiry lapsed on dissolution of Parliament.236

Policy position of non-government parties/independents There was no significant comment on the equivalent provisions in the earlier Social Services Legislation Amendment (Interest Charge) Bill 2016 from non-government parties or independents. The Labor Party indicated that it would reserve coming to a final position on the Bill until after the Senate inquiry had reported.237

Position of major interest groups Two interest groups made submissions on the Social Services Legislation Amendment (Interest Charge) Bill 2016: the National Welfare Rights Network (NWRN) and the National Council for Single Mothers and their Children (NCSMC).

229. C Evans, ‘Second reading speech: ‘Family and Community Services and Veterans’ Affairs Legislation Amendment (Debt Recovery) Bill 2000’, Senate, Debates, 29 November 2000, pp. 20072-20073 230. W Swan (Treasurer) and P Wong (Minister for Finance and Deregulation), Mid-year economic and fiscal outlook 2012-13, p. 167. For further background see A Biggs, L Buckmaster, C Ey and M Klapdor, Social Services and Other Legislation Amendment Bill 2013, Bills digest, 29, 2013-

14, Parliamentary Library, Canberra, 2013. 231. K Andrews, ‘Second reading speech: Social Services and Other Legislation Amendment Bill 2013’, House of Representatives, Debates, 20 November 2013, pp. 758-760. 232. Senate Standing Committee for the Scrutiny of Bills, Alert digest, 8, 2013, The Senate, 4 December 2013, p. 47. 233. Parliament of Australia, ‘Social Services and Other Legislation Amendment Bill 2013 homepage’, Australian Parliament website. 234. Parliament of Australia, ‘Social Services and Other Legislation Amendment (Student Measures) Bill 2014 homepage’, Australian Parliament

website.

235. Parliament of Australia, ‘Labor 2013-14 Budget Savings (Measures No. 2) Bill 2015 homepage’, Australian Parliament website. 236. Senate Community Affairs Legislation Committee, Social Services Legislation Amendment (Interest Charge) Bill 2016, The Senate, Canberra, 2016. 237. J Macklin, ‘Second reading speech: Social Services Legislation Amendment (Interest Charge) Bill 2016’, House of Representatives, Debates,

17 March 2016, p. 3493.

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The NWRN had a number of concerns about the proposed interest charge. They argued that instead of applying only to debtors who are deliberately trying to evade their obligations, it would also affect vulnerable debtors who are not fully aware of their rights and obligations. NWRN recommended that any new Bill ‘should restrict the application of the interest charge to situations where the Secretary is satisfied that the former payment recipient has persistently and deliberately failed to enter into a repayment arrangement.’238

The NCSMC made three recommendations:

• recipients should have their debit automatically waived if it is ‘due to the interactions and the failings of the Child Support scheme and/or the Australian Taxation Office’

• recipients should have their debt waived if it is due to administrative error by the Department of Human Services

• debt recovery should be a negotiated process that takes the debtor’s financial capacity to repay into account. If the recipient is in financial hardship or housing stress repayments should be suspended.239

Financial implications According to the Explanatory Memorandum, the Schedule’s impact on the underlying cash balance over the forward estimates is $387 million.240

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 Schedule 12 of the Bill is compatible.241Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights examined the earlier Social Services Legislation Amendment (Interest Charge) Bill 2016 and did not raise any concerns.242

Key provisions and issues The new interest charge scheme has the same aims as the existing scheme—to encourage people with social welfare debts to enter into a repayment arrangement. Like the existing scheme it would apply to people who are not currently receiving a payment. Debtors can avoid the interest charge if they enter into a repayment agreement and make repayments.

Unlike the existing scheme, the new scheme does not have an administrative charge in addition to the penalty interest charge.

Key provisions Only applies to debtors not currently receiving a social welfare payment

When a debtor is receiving a social welfare payment there is no need to give the person an incentive to enter into a repayment plan since the Government can recoup the debt by making deductions from the debtor’s payments.

Schedule 12 contains provisions that exempt people currently receiving payments from the interest charge. These provisions are included in amendments to the Family Assistance Administration Act (proposed section 78D, inserted by Item 3 of Schedule 12), Paid Parental Leave Act (proposed section 178 at item 20), Social Security Act (proposed section 1229E at item 35) and Student Assistance Act (proposed section 41D at item 43).

238. National Welfare Rights Network (NWRN), Submission, Senate Community Affairs Legislation Committee, Inquiry into Social Services Legislation Amendment (Interest Charge) Bill 2016, p. 10. 239. National Council for Single Mothers and their Children (NCSMC), Submission, Senate Community Affairs Legislation Committee, Inquiry into Social Services Legislation Amendment (Interest Charge) Bill 2016, 15 April 2016. 240. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 5. 241. The Statement of Compatibility with Human Rights for Schedule 12 can be found on pages 146-156 of the Explanatory Memorandum to the

Bill.

242. Parliamentary Joint Committee on Human Rights, Thirty-sixth report of the 44th Parliament, 16 March 2016.

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Debtors will be given an opportunity to avoid the interest charge

The aim of the interest charge scheme is not to punish recipients for acquiring a debt but to encourage them to enter into an arrangement to repay the debt (as well as encouraging them to abide by the arrangement).

Schedule 12 contains provisions that mean a person can avoid paying an interest charge if they enter into and make a payment under an arrangement for repayment of the debt. Debtors will receive a notice giving them 28 days to enter into an arrangement to repay. They will be liable to pay an interest charge if they have not either paid the debt or entered into an arrangement to pay the debt by the end of that period. Equivalent provisions are proposed to be inserted into the following acts:

• Family Assistance Administration Act, proposed section 78 at item 3

• Social Security Act, proposed section 1229A at item 35

• Student Assistance Act, proposed section 41 at item 43

• Paid Parental Leave Act, proposed section 174 at item 20.

Debtors will also be liable to pay an interest charge if they fail to comply with or terminate a repayment arrangement:

• Family Assistance Administration Act, proposed section 78A at item 3

• Social Security Act, proposed section 1229B at item 35

• Student Assistance Act, proposed section 41A at item 43

• Paid Parental Leave Act, proposed section 175 at item 20.

Secretary can exempt a person from interest charge

Schedule 12 inserts provisions which enable the Secretary to make a determination to exempt a person from the interest charge:

• Family Assistance Administration Act, proposed section 78E at item 3

• Social Security Act, proposed section 1229F at item 35

• Student Assistance Act, proposed section 41E at item 43

• Paid Parental Leave Act, proposed section 179 at item 20.

The new scheme removes the $50 administrative charge

The existing scheme for payments under the Social Security Act, Family Assistance Act, Paid Parental Leave Act and the Veterans’ Entitlements Act includes an administrative charge of $50 when a person first becomes liable to pay interest. Under the new scheme there will be no administrative charge under the Social Security Act and Family Assistance Act (the existing scheme will continue to apply to payments under the Veterans’ Entitlements Act).

The existing sections in the Social Security Act (section 1229AB), Family Assistance Administration Act (section 78B) and Paid Parental Leave Act (section 179) that provide for the administrative charge are replaced by proposed sections that do not contain such a charge. (See items 3, 20 and 35 of Schedule 12). The Student Assistance Act does not currently provide for an administrative charge.

Rate of interest

The proposed interest charge is set in the same way as the General Interest Charge in the Taxation Administration Act 1953 (section 8AAD).243 It is based on the 90-day Bank Accepted Bill rate (approximately two per cent) plus an additional seven per cent.244 See:

• Family Assistance Administration Act, proposed section 78C at item 3

243. Taxation Administration Act 1953. 244. The current 90-day Bank Accepted Bill rate is available from the Statistics section of the Reserve Bank of Australia’s website (Interest Rates and Yields - Money Market - Daily - F1).

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• Social Security Act, proposed section 1229D at item 35

• Student Assistance Act, proposed section 41C at item 43

• Paid Parental Leave Act, proposed section 177 at item 20.

Issues No explanation of the need for a new scheme

While the Explanatory Memorandum explains the need for an interest charge, it does not explain why the Government has not applied an interest charge under the existing scheme since 2005 or why the existing scheme ought to be replaced. The Explanatory Memorandum draws attention to only one problem with the existing scheme—the rate of interest:

The interest rate is determined by the Minister in a legislative instrument. The most recent determination by the Minister set the interest rate at three per cent per year. The initial rate of 20 per cent was considered too high and resulted in a rapidly increasing debt base and financial hardship for debtors. The subsequent rate of three per cent was too low and did not provide an incentive for debtors to enter into payment arrangements, and administrative costs outweighed recovery of debts. The interest charge scheme has not been applied since 2005.

245

As the Explanatory Memorandum itself makes clear, the Minister is able to vary the interest rate between zero and 20 per cent without amending the Act. It is unclear why, if the current penalty interest rate is not suitable, the Minister has not simply set a different rate via legislative instrument.

New scheme does not apply to payments under the Veterans’ Entitlements Act

Since 2001 payments under the Veterans’ Entitlements Act have been subject to the same interest charge scheme as payments under the Family Assistance Act and Social Security Act. The changes proposed in Schedule 12 will mean that the Veterans’ Entitlements Act will keep the existing scheme while a new scheme is applied to payments under other Acts.

Under section 205AAE of the Veterans’ Entitlements Act, ‘the penalty interest rate is the rate in force from time to time under section 1229B of the Social Security Act.’246 Existing section 1229B provides for a penalty interest rate of 20 per cent or a lower rate determined by the Minister using a legislative instrument. The current rate is three per cent.

Item 35 of Schedule 12 replaces existing section 1229B of the Social Security Act. So as to retain the current interest charge scheme in the Veterans’ Entitlements Act, item 45 of Schedule 12 replaces existing section 205AAE Veterans’ Entitlements Act with proposed section 205AAE, which provides that the penalty interest rate is three per cent per year unless the Minister determines another percentage in a legislative instrument.

The Explanatory Memorandum does not explain why the new interest charge scheme will not apply to payments under the Veterans’ Entitlements Act.

Veterans receiving compensation payments under Military Rehabilitation and Compensation Act 2004

The version of this measure set out in the Social Services Legislation Amendment (Interest Charge) Bill 2016 exempted veterans receiving compensation under the Military Rehabilitation and Compensation Act 2004 from the interest charge.247 Under the measure in this Schedule these veterans will be subject to the interest charge.

Treatment of debt incurred due to administrative error

The current interest charge scheme provides that interest is not charged on debts that are incurred due to administrative error (except under the Student Assistance Act).248 The amendments in Schedule 12 to the Bill alter this position.

245. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 129. 246. Veterans’ Entitlements Act 1986 (Cth). 247. In the Social Services Legislation Amendment (Interest Charge) Bill 2016 veterans receiving only compensation under the Military Rehabilitation and Compensation Act 2004 were included in amendments to the Family Assistance Administration Act (proposed section 78D,

inserted by item 3 of Schedule 1 to that Bill), Paid Parental Leave Act (proposed section 178 at item 20), Social Security Act (proposed section 1229E at item 35) and Student Assistance Act (proposed section 41D at item 43).

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For instance, item 35 of Schedule 12 to the Bill repeals and replaces sections 1229A-1229C of the Social Security Act. Importantly the effect is to repeal existing subsection 1229A(2A).249 That subsection provides that a person is not liable to pay interest on a debt, or the proportion of a debt, that was incurred because of an administrative error made by the Commonwealth or an agent of the Commonwealth. Proposed section 1229A does not include an equivalent provision. This will affect recipients whose debts are not entirely due to administrative error insofar as interest will be payable where as currently it is not. This means that a protection which currently exists will be extinguished.

Some might argue that the current protection under the Social Security Act (section 1237A), the Family Assistance Administration Act (section 97) and the Student Assistance Act (section 43B) that the Secretary must waive the right to recover the proportion of a debt that is attributable solely to an administrative error by the Commonwealth and was received by the person in good faith is sufficient.

However the requirement that the debt is solely due to administrative error and received in good faith sets the bar high. According to the Department of Social Service’s Guide to Social Security Law:

The requirement that part of the debt must have arisen 'solely' from administrative error means that there must have been no other factors that caused the debt to arise or contributed to the debt arising. The part of the debt must have arisen as a result of administrative error alone.250

As a 2009 report by the National Welfare Rights Network explains: ‘the balance of risk rests almost entirely with the client because any slight contributory error on their part makes them liable to repay the debt.’251 Under the new scheme, the Minister can provide for exemptions from the interest charge using a statutory instrument.252

The amendments in Schedule 12 to the Bill are directly targeted to a class of persons. Those persons who are no longer in receipt of benefit, have not entered into a debt agreement or have not adhered to the terms of the debt agreement will have interest charged to their outstanding debts. This class of persons will be directly affected by the repeal of existing subsection 1229A(2A) of the Social Security Act.

Schedule 14—Parental leave payments History of the measure The measure was announced in the 2015-16 Mid-Year Economic and Fiscal Outlook.253 The Social Services Legislation Amendment (Consistent Treatment of Parental Leave Payments) Bill 2016 (the first Bill), was introduced into the House of Representatives on 16 March 2016. However, the first Bill lapsed when the Parliament was prorogued on 15 April 2016.254 A Bills Digest was not prepared for the first Bill.

The amendments in Schedule 14 of this Bill are in similar but not equivalent terms to those in the first Bill.

Purpose of the Schedule The purpose of Schedule 14 is to amend the Social Security Act 1991 (the SS Act), the Veterans’ Entitlements Act 1986 (the VE Act), and the Paid Parental Leave Act 2010 (the PPL Act) to include Parental Leave Pay255 (PLP) and Dad and Partner Pay256 (DAPP) payments in the income test for income support payments (such as pensions and allowances).

248. A New Tax System (Family Assistance) (Administration) Act 1999, section 78(2A), Social Security Act 1991, section 1229A(2A), Paid Parental Leave Act 2010, section 175(7). 249. The Schedule repeals equivalent section in the Family Assistance Administration Act (item 4 omits section 78). 250. Department of Social Services (DSS), ‘Waiver for Administrative Error Debt’, Guide to social security law, version 1.220, last reviewed 7 August

2015, accessed 20 April 2016. 251. National Welfare Rights Network (NWRN), Redressing the balance of risk and responsibility through active debt prevention strategies, May 2009, p. 14. 252. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 136. 253. S Morrison (Treasurer) and M Cormann (Minister for Finance), Mid-year economic and fiscal outlook 2015-16, p. 209. 254. Parliament of Australia, ‘Social Services Legislation Amendment (Consistent Treatment of Parental Leave Payments) Bill 2016 homepage’,

Australian Parliament website. 255. DHS, ‘Parental Leave Pay’, DHS website, last updated 24 August 2016. 256. DHS, ‘Dad and Partner Pay’, DHS website, last updated 8 September 2016.

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Commencement The amendments in Schedule 14 of the Bill commence on the first 1 January, 1 April, 1 July or 1 October that occurs after Royal Assent.

Background

Paid Parental Leave Scheme The Australian Government’s Paid Parental Leave (PPL) Scheme provides for the payment of PLP to eligible primary carers in the first years after the birth or adoption of a child. PLP is paid for a particular period (the PPL period) for up to 18 weeks at the rate of the national minimum wage (currently $672.60 per week).257 To be eligible, claimants must have incomes of $150,000 per annum or less in the year prior to the birth or adoption of the child.258 They must also have worked at least one day a week for at least ten of the 13 months before the birth or adoption of the child.259

PLP is a government payment but is generally paid through the recipient’s employer. PLP is taxable income and does not include superannuation contributions. Working fathers or partners may be eligible for DAPP, a separate two-week payment, paid at the national minimum wage.260

There were 158,974 families who started receiving PLP in 2014-15.261 There were also 70,785 fathers or partners who received DAPP in 2014-15.262 Estimated actual expenditure on PLP in 2014-15 was $1.9 billion and was expected to decrease to $1.6 billion in 2016-17.263 Estimated actual expenditure on DAPP in 2015-16 was $100.8 million, rising to $105.3 million in 2016-17.264

Baby Bonus and newborn payments Prior to January 2011, when the PPL scheme was introduced, the main form of financial assistance offered by the Australian Government specifically for newborns was the Baby Bonus. The Baby Bonus (known as Maternity Payment when first introduced in July 2004) was initially a non-means tested, lump sum payment to the parents of newborn or newly-adopted children.265 From 1 January 2009 an income test was applied to the Baby Bonus, limiting eligibility for the payment to families whose combined, adjusted, taxable income was expected to be $75,000 in the six months following the birth (including stillbirth) or adoption.266 At the same time, the payment switched from being paid as a lump sum to most families to being paid in mandatory fortnightly instalments.

The Baby Bonus was initially paid at a rate of $3,000 and indexed to the Consumer Price Index twice each year (in March and September).267 An ad hoc increase to $4,000 occurred on 1 July 2006.268 On 1 July 2008 another ad hoc increase lifted the rate to $5,000 and indexation was changed so that it only occurred once each year on 1 July.269 On 1 July 2012 indexation was frozen for three years and, on 1 September 2012, the rate was reduced to $5,000.270 On 1 July 2013 a new rate structure was introduced with $5,000 payable for a parent’s first child and multiple births, and $3,000 for second, and subsequent, children.271

257. DHS, ‘Parental Leave Pay’, DHS website, last updated 24 August 2016. 258. DHS, ‘Eligibility for Parental Leave Pay’, DHS website, last updated 12 August 2016. 259. Some exemptions apply. DHS, ‘Work test for Parental Leave Pay’, DHS website, last updated 19 May 2016. 260. DHS, ‘Dad and Partner Pay’, DHS website, last updated 8 September 2016. 261. Department of Social Services (DSS), Annual report 2014-15, DSS, Canberra, 2015, p. 60. 262. Ibid. 263. Australian Government, Portfolio budget statements 2016-17: budget related paper no. 1.15a: Social Services Portfolio, p. 66. 264. Ibid. 265. K Patterson (Minister for Family and Community Services), Howard Government helps Australian women balance work and family, media

release, 19 August 2004. 266. P Yeend, Families, Housing, Community Services and Indigenous Affairs and Other Legislation Amendment (2008 Budget and Other Measures) Bill 2008, Bills digest, 150, 2007-2008, Parliamentary Library, Canberra, 23 June 2008. 267. DSS, ‘3.6.4 Maternity Payments - Historical Rates’, Family assistance guide, version 1.188, released 15 August 2016, DSS website, last

reviewed 21 September 2015. 268. M Klapdor, Family Assistance and Other Legislation Amendment Bill 2013, Bills digest, 88, 2012-13, Parliamentary Library, Canberra, 18 June 2013, p. 8. 269. DSS, ‘3.6.4 Maternity Payments - Historical Rates’, op. cit. 270. DSS, ‘3.6.4 Maternity Payments - Historical Rates’, op. cit. 271. DSS, ‘3.6.4 Maternity Payments - Historical Rates’, op. cit.

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When the PPL scheme commenced on 1 January 2011 parents eligible for PLP and Baby Bonus could only receive one of the payments. Generally, PLP offered a higher rate of payment. However, due to the taxable nature of PLP and the fact that it was treated as income under the income tests for family assistance payments, there were certain situations in which an individual would be better off receiving the Baby Bonus rather than PLP. This would arise mainly in situations where an individual loses more through increased tax liabilities and lower family assistance payments than they would otherwise gain through the higher rate of PLP.

On 1 March 2014 the Baby Bonus was abolished and replaced with two new supplementary amounts paid with Family Tax Benefit Part A (FTB-A)—the Newborn Upfront Payment and the Newborn Supplement.272 Family Tax Benefit is paid to families with dependent children aged up to 19 years who meet an income test—it is the Australian Government’s main form of financial assistance for families with dependent children. The Newborn Upfront Payment is a lump sum payment paid to a parent or carer of a newborn child, a newly adopted child or a child entrusted into their care, who is eligible for FTB-A and not in receipt of PLP.273 It was initially worth $500 and indexed once a year on 1 July (the rate for 2016-17 is $532). The Newborn Supplement is an amount paid in instalments for up to 13 weeks to new parents or carers who are eligible for FTB-A and not in receipt of PLP.

When first introduced, the total amount of Newborn Supplement for a firstborn or first child adopted/entrusted into care was around $1,500 ($115.50 per week) and $500 ($38.50 per week) for subsequent children. As such, the new payments offered $3,000 less than the Baby Bonus offered for first children and $2,000 less than the Baby Bonus offered for second and subsequent children. The current total rate of the Newborn Supplement for first children is $1,595.23 and for second and subsequent children it is $532.35.274 The Newborn Upfront Payment’s current payment rate is $532.00.275

Impact of PLP and DAPP on other payments PLP and DAPP are taxable income and can affect means-tested social welfare benefits such as family assistance and some social security payments.

The income test for family assistance payments—including Family Tax Benefit, Child Care Benefit and Child Care Rebate—assesses adjusted taxable income and this includes PLP and DAPP.276

The income test for social security payments such as Parenting Payment, Disability Support Pension and Newstart Allowance assesses a broader range of income than the family assistance income test but currently excludes PLP and DAPP from assessment for most payments covered by the SS Act.277 PLP and DAPP are also excluded from the income test for veterans’ payments under the VE Act and the Farm Household Allowance under the Farm Household Support Act 2014.

PLP and DAPP are included in some income tests for some social security payments, specifically:

• the parental income tests for Youth Allowance and ABSTUDY as these tests assess adjusted taxable income

• the Carer Payment income test for care receivers

• the income test for the Commonwealth Seniors Health Card (including for veterans) and low income Health Care Card and

• the means test for the Additional Boarding Allowance under the Assistance for Isolated Children Scheme.278

272. A separate payment was also introduced for stillborn children known as the Stillborn Baby Payment. DSS, ‘3.6.4 Maternity Payments - Historical Rates’, op. cit.; DSS, ‘1.2.18 Newborn Supplement (NBS) - description’, Family assistance guide, version 1.188, DSS website, last reviewed 20 March 2014; DSS, ‘1.2.19 Stillborn Baby Payment (SBP) - description’, Family assistance guide, version 1.188, DSS website, last reviewed 20 March 2014.

273. DHS, ‘Eligibility for Newborn Upfront Payment and Newborn Supplement’, DHS website, last updated 16 August 2016. 274. DSS, ‘3.11 NBS rate’, Family assistance guide, version 1.188, DSS website, last reviewed 1 July 2016. 275. DSS, ‘3.6.1 FTB Part A - Historical Rates’, Family assistance guide, version 1.188, DSS website, last reviewed 1 July 2016. 276. Adjusted taxable income is taxable income plus the value of any adjusted fringe benefits, target foreign income, total net investment losses,

tax free pensions or benefits and reportable superannuation contributions minus any child maintenance expenditure. DSS, ‘1.1.A.20 Adjusted taxable income (ATI)’, Family assistance guide, version 1.188, DSS website, last reviewed 11 May 2015. 277. DSS, ‘1.2.2.20 PLP, DAPP and impacts on social security and other payments’, Paid parental leave guide, version 1.36, DSS website, last reviewed 11 February 2013. 278. Ibid.

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PLP and DAPP are also included in income assessments for the purpose of determining child support payments.279

Why were PLP and DAPP excluded from the income tests? In his second reading speech for the first Bill, the Minister for Social Services explained why a decision had been made to exclude PLP and DAPP from the income tests for most social security payments:

This situation arose because, when government funded paid parental leave was first introduced, the non-taxable baby bonus was valued at $5,294 such that a family could potentially be better off receiving both the baby bonus and an additional income support payment rather than receiving paid parental leave.

To ensure that the level of financial assistance available to those choosing paid parental leave was worth more than the financial assistance provided to those who chose the baby bonus, paid parental leave was at that point in time excluded from being counted as income for income support payments.

One of the objectives of paid parental leave is to encourage workforce participation, and its value relative to welfare type payments is important.

These interactions with other payments and the tax systems mean that a family may have been better off at the time choosing the baby bonus instead of PPL when they were also eligible for PPL.

In order to make this less likely, the decision at the time was taken that PLP and DAPP would not count as income for income support payments. 280

As such, the main purpose of the exclusion was to encourage parents to take PLP rather than Baby Bonus.

Rationale for the change As the Baby Bonus has been abolished, and the PLP rate is now much higher than the combined Newborn Upfront Payment and Newborn Supplement, there is now a strong financial incentive for parents to choose PLP over the Family Tax Benefit supplementary amounts without the need for income test concessions. As the Minister explained in relation to the previous Bill:

As the baby bonus has subsequently been abolished and the newborn supplement has been introduced, along with the increase in the PLP rate which is now worth $11,826 over 18 weeks, the original rationale for the exclusion no longer exists. 281

Policy position of non-government parties/independents The Australian Labor Party (Labor) has not stated a position on the measure in this Schedule. Labor has been opposed to the Coalition Government’s broader changes to the PPL scheme which would limit the amount of PLP a person is eligible for if they are also entitled to employer-provided paid parental leave.282 Labor promised to reverse these broader changes in the 2016 Federal Election.283

At the time of writing, the other non-government parties and independents had not stated a position on the measure in the Schedule.

279. Ibid. 280. C Porter, ‘Second reading speech: Social Services Legislation Amendment (Consistent Treatment of Parental Leave Payments) Bill 2016’, House of Representatives, Debates, 16 March 2016, p. 3249. 281. Ibid. 282. M Sheppard and L Buckmaster, Fairer Paid Parental Leave Bill 2015, Bills digest, 12, 2015-16, Parliamentary Library, Canberra,

19 August 2015; Morrison and Cormann, op. cit., p. 216. 283. B Shorten (Leader of the Opposition), J Macklin (Shadow Minister for Families and Payments) and C Moore (Shadow Minister for Women), Labor will protect paid parental leave, media release, 8 May 2016.

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Position of major interest groups The main community sector groups have not commented in detail on this measure. In its submission to the Senate Economics Committee inquiry into the Bill, the National Welfare Rights Network stated that it was not opposed to the measure.284

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. According to the Statement, Schedule 14 engages the right to social security under Article 9 of the International Covenant on Economic, Social and Cultural Rights (ICESCR), the right to equality and non-discrimination under Article 3 of the ICESCR, and the right to work and maternity leave under Article 7 of the ICESCR. The Government considers that the Schedule is compatible and that where it may limit certain human rights, those limitations are ‘reasonable, necessary and proportionate’.285

Note that the number given for the financial implications of the Schedule in the Statement of Compatibility indicates that the Government has re-used the Statement prepared for the first Bill which did not include the changes to DAPP which are part of the amendments in this Schedule.286

Financial implications According to the Explanatory Memorandum to the Bill, the measures in Schedule 14 are expected to provide savings of $133.7 million over the forward estimates.287

Key issues By removing the income test exemption for PLP and DAPP payments, a relatively small number of income support payment recipients will have their payments reduced as a result of receiving paid parental leave. According to the Government, an estimated 11,000 income support payment recipients who receive PLP or DAPP will be affected: 5,000 will experience a reduction in income support while 6,000 will lose eligibility for income support altogether.288

For most income support payments, income at a rate equivalent to the National Minimum Wage would preclude eligibility under the income test. Those in receipt of Parenting Payment Single or a pension payment will most likely be those who can still receive a reduced income support payment while receiving PLP as these payments have a more generous income test.

While the rationale for the income test exemption no longer stands, removing it will have a significant impact on the financial resources of new parents. This measure will deliver savings to Government at the expense of reduced assistance to new parents on low incomes.

Key provisions Item 2 of Schedule 14 repeals paragraphs 8(8)(d) and (da) of the SS Act so that instalments of PLP and DAPP are no longer included in the list of amounts excluded from the social security income test (section 8 of the SS Act sets out income test definitions for the purpose of social security law). Item 1 is consequential to item 2 and adds proposed paragraphs 8(1A)(h) and (i) to the SS Act so that PLP and DAPP, while being considered income for the purposes of the income test, are not to be treated as employment income. Employment income can be treated differently under some components of the income test for some payments (such as the pension Work Bonus).289

Item 3 makes similar amendments to those in item 2 but for the VE Act.

284. National Welfare Rights Network, Submission to the Senate Economics Legislation Committee, Inquiry into the Budget Savings (Omnibus) Bill 2016, 7 September 2016, submission no. 163, pp. 18-19. 285. The Statement of Compatibility with Human Rights for Schedule 14 can be found at page 192 of the Explanatory Memorandum to the Bill. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 192 286. Ibid., p. 194. 287. Ibid., p. 6. 288. Ibid., p. 194. 289. DSS, ‘3.1.14.30 Work Bonus - Application’, Guide to social security law, version 1.224, released 15 August 2016, DSS website, last updated

19 September 2014.

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Item 5 inserts a definition of income support payment into section 6 of the PPL Act, stating that is has the same meaning as in section 23 of the SS Act.290

Item 7 inserts proposed section 69A into the PPL Act so that deductions can be made to an instalment of PLP to offset possible overpayments of any income support payment payable to the same person—that is, where an instalment of PLP that is to be paid to a person will result in an income support payment already paid to the same person being considered an overpayment, then the PLP instalment can be reduced by an amount equal to what the overpayment would be. This provision will allow the Department of Human Services to minimise the number of overpayments made to recipients of both income support and PLP and, therefore, reduce the need to raise debts against individuals. Item 12 inserts proposed section 115EI to allow for the same arrangement for DAPP.

Item 9 inserts proposed subsection 101(3A) into the PPL Act so employer determinations cannot be made in respect of a person if they are receiving an income support payment. Item 10 inserts proposed item 2A into the table at subsection 108(1) of the PPL Act so that employer determinations must be revoked where a person is in receipt of an income support payment. An employer determination means that instalments of PLP are made via the employer.291 These amendments mean that the Department of Human Services will be the paymaster for a PLP recipient who is receiving income support payments.292 The Statement of Compatibility with Human Rights states that this ‘will ensure that PLP payments to income support recipients are paid promptly and not delayed because of the timing of the employer’s payroll’.293 The Explanatory Memorandum states that the amendments will ensure that the Department of Human Services can make the deductions provided for by item 7. While the provisions allows for simpler administrative processes for the Department of Human Services, they will sever the link between employer and employee (for those also in receipt of income support). This link was considered an important component of the scheme when introduced, to ensure mothers would remain connected to work and their careers.294

Schedule 15—Fringe benefits Purpose of the Measure The income tests for Family Assistance and Youth Allowance (also ABSTUDY and Assistance for Isolated Children) take account of fringe benefits when assessing the income of families.295 This also applies to the income test for Paid Parental Leave and Dad and Partner Pay. The value of fringe benefits is also used when assessing eligibility for a low income superannuation contribution payment, a net medical expenses offset, the dependant (invalid and carer) tax offset and the tax rebate for low income aged persons and pensioners.

Schedule 15 proposes to amend the A New Tax System (Family Assistance) Act 1999296 (the FA Act), the Income Tax Assessment Act 1936297 (ITAA 1936) and the Social Security Act 1991298 (the SS Act) to change the measure of those fringe benefits for some claimants from an ‘adjusted’ to a ‘gross’ value.

The adjusted value that is currently used is the grossed up value of the benefit reduced by the current Fringe Benefit Tax rate (49 per cent for the year ending 31 March 2017). This value would continue to be used for employees who receive fringe benefits from public benevolent institutions, health promotion charities and some hospitals and public ambulance services. These employees are estimated to make up 65 per cent of employees

290. Section 23 of the SS Act defines income support payment as a payment of: a social security benefit; a job search allowance; a social security pension; a youth training allowance; a service pension or an income support supplement. 291. DSS, ‘6.1 Employer determinations for PLP’, Paid parental leave guide, version 1.36, DSS website, last reviewed 2 October 2012. 292. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 193. 293. Ibid. 294. See discussion of the employer paymaster role in Sheppard and Buckmaster op. cit., pp. 4-6. 295. The adjusted taxable income used for the family assistance income test also takes account of certain foreign income, total net investment

losses, tax free pensions or benefits, reportable superannuation contributions and deductible child maintenance expenditure in order to arrive at a comprehensive measure of family income. Department of Social Services (DSS), ‘1.1.A.20 Adjusted taxable income (ATI)’, Family assistance guide, version 1.188, DSS website, last reviewed 11 May 2015. 296. A New Tax System (Family Assistance) Act 1999. 297. Income Tax Assessment Act 1936. 298. Social Security Act 1991.

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receiving reportable fringe benefits.299 Other employees who receive fringe benefits would have the gross value used.

Commencement The amendments in Schedule 15 will commence on the first 1 January or 1 July to occur after Royal Assent.

Background The value of some employer provided fringe benefits have been included as income in the income tests for family assistance and the parental income tests for certain youth payments since January 1994. The present arrangement where the adjusted value of fringe benefits was used in these income tests goes back to July 2000 for Family Tax Benefit and January 2001 for Youth Allowance. The adoption of this method reflected changes in the provisions of the Fringe Benefits Tax as part of the New Tax System reform package.300

One of those reforms was the inclusion on the group certificates of employees of the grossed up value of fringe benefits received. The non-grossed up amount (now known as the adjusted amount) could then be calculated and used in the calculation of adjusted taxable income for assessing eligibility for Family Tax Benefit and Youth Allowance. This new approach was part of a broader reform of Fringe Benefit Tax that was going ‘to make the system fairer for all taxpayers’.301

In 2006, as part of reforms to the child support scheme, legislative changes were made to the definition of reportable fringe benefits for the income tests for family assistance payments. This change was intended to align the adjusted taxable income definitions used for family assistance payments with that for child support assessments.302 As a result of the amendments, the income tests for family assistance would assess gross reportable fringe benefits from 1 July 2008, not the adjusted amount.303 Before this amendment commenced, it was reversed by the Labor Government amid concerns about the adverse impact of the measure on employees of charitable organisations and the not-for-profit sector.304 Many charities and not-for-profit organisations make use of a fringe benefits tax exemption to offer salary packaging arrangements to their staff.

Financial implications According to the Explanatory Memorandum to the Bill, the measure in Schedule 15 is estimated to save $132.1 million over the period 2015-16 to 2019-20.305

Position of major interest groups The National Welfare Rights Network (NWRN) commented on the change in its submission to the Senate Economics Committee inquiry into the Bill. The NWRN stated that it was not opposed to the Bill in the absence of more extensive reforms of fringe benefit arrangements:

[the measure will] improve equity in the treatment of some similarly placed families by disregarding differences in how their income is received. It also avoids past concerns about the impact on the community sector workforce. However, it does so at the expense of treating some families with similar financial means differently, on the basis of whether they are employed by a not-for-profit organisation or not.

A preferable and more principled overall outcome would be adequate funding of community sector organisations and other not for profit organisations, followed by more comprehensive reform of Fringe Benefits Tax arrangements. In the absence of this, the NWRN does not oppose this measure. 306

299. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 198. 300. B Dapre, A Compendium of legislative changes in social security 1983-2000, Department of Families, Community Services and Indigenous Affairs, Occasional paper, 13, Canberra, 2006, pp. 290 and 534. 301. P Costello (Treasurer), Tax reform: not a new tax, a new tax system, Treasury, Canberra, 1998, pp. 49-50. 302. P Yeend, Families, Housing, Community Services and Indigenous Affairs and Other Legislation Amendment (2008 Budget and Other Measures)

Bill 2008, Bills digest, 150, 2007-08, Parliamentary Library, Canberra, 23 June 2008, p. 28. 303. Ibid. 304. Ibid., p. 29. 305. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 6. 306. National Welfare Rights Network, Submission to the Senate Economics Legislation Committee, Inquiry into the Budget Savings (Omnibus) Bill

2016, 7 September 2016, submission no. 163, pp. 19-20.

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Key issues The changes proposed by Schedule 15 will reduce the value of some payments to families who receive income in the form of fringe benefits but will protect employees of public benevolent institutions, health promotion charities and some hospitals and public ambulance services that make up the majority of those who receive reportable fringe benefits. The exemption for this group addresses the main issue raised when a similar measure was almost implemented in 2008.

Key provisions Item 1 of Schedule 15 repeals clause 4 of Schedule 3 of the FA Act which contains the present definition of the adjusted fringe benefits total. The item substitutes a proposed clause 4 containing the new definition of adjusted fringe benefits total to alter the calculation of ‘adjusted fringe benefits total’ so that the gross (rather than adjusted net value) of reportable fringe benefits is used.

The current definition for adjusted fringe benefits total is the reportable fringe benefits total307 reduced by the current Fringe Benefit Tax rate (49 per cent for the year ending 31 March 2017). So, for example, the adjusted fringe benefit total would be the reportable fringe benefits total multiplied by (1-FBT rate) or 51 per cent.308

Under the proposed definition, the value of the adjusted fringe benefits total would be taken from the gross value of reportable fringe benefits, except in the case of fringe benefits that are provided by an employer described in section 57A of the Fringe Benefit Tax Assessment Act 1986.

The present treatment of people who receive fringe benefits from public benevolent institutions, health promotion charities and some hospitals and public ambulance services is maintained under proposed clause 4. They are people employed by employers described in section 57A of the Fringe Benefits Tax Assessment Act. The fringe benefits to be assessed for this group are defined by section 135Q of that Act.

Item 2 repeals the definition of ‘adjusted fringe benefits total’ in subsection 6(1) of the ITAA 1936 and substitutes a new definition that refers to the meaning given by proposed clause 4 of Schedule 3 of the FA Act.

Schedule 16—Carer Allowance Purpose of the Schedule Schedule 16 amends the Social Security (Administration) Act 1999309 (the SS Admin Act) to remove backdating provisions for Carer Allowance.

The measure was announced in the 2016-17 Budget as part of the National Disability Insurance Scheme (NDIS) Savings Fund measure.310 The changes are expected to provide $108.6 million in savings over four years.311

Commencement This Schedule will commence on the later of 1 January 2017 or the day after the Act receives the Royal Assent.

Background Carer Allowance is an income supplement for people providing daily care to someone with a disability or medical condition or who is frail aged.312 It is a non-means test payment and can be paid in addition to the means tested income support payment for carers—Carer Payment—or other income support payments. The current rate of Carer Allowance is $123.50 per fortnight. A person receiving Carer Allowance on 1 July for a care-receiver aged under 16 years is also eligible for a $1,000 lump sum Child Disability Assistance payment.313 A separate payment,

307. The reportable fringe benefits total is the grossed up value of the fringe benefit (under Part XIB of the Fringe Benefit Tax Assessment Act 1986). 308. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, pp. 197, 198. 309. Social Security (Administration) Act 1999. 310. Australian Government, Budget measures: budget paper no. 2: 2016-17, pp. 143-144. 311. Ibid. 312. DHS, ‘Carer Allowance’, DHS website, last updated 29 August 2016. 313. DHS, ‘Child Disability Assistance Payment’, DHS website, last updated, 28 April 2016.

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the Carer Supplement, worth $600, can be paid to recipients of Carer Allowance for each person being cared for—it is paid annually in July.314

Currently, payments of Carer Allowance may be backdated from the day of claim up to 12 weeks to the day of qualification or, if a claim is made more than 12 weeks after the day of qualification, the payment can be backdated 12 weeks prior to the day the claim was made.315 The day of qualification is the day the person meets the qualification criteria (which primarily relate to the disability of the care-receiver and the level of care provided by the carer).316 Backdating means that a person is considered to have been entitled to a payment earlier than their claim date, and can receive a lump sum payment to cover any payment in arrears.

For Carer Allowance claimed in respect of an adult care-receiver, these backdating provisions only apply where the adult’s disability is due to an acute event.317 For Carer Allowance claimed in respect of a child care-receiver, the backdating provisions will not apply where the claimant’s qualification is based on them being qualified for Carer Payment (a carer providing care for a child under 16 years in receipt of Carer Payment receives Carer Allowance automatically).318

For most other social security payments, payments start on the day a claim is made or the day the person becomes qualified for a payment. Backdating provisions for other payments generally only apply in specific circumstances, such as where a person’s partner has made a claim for a payment at an earlier date, following childbirth, where the claimant was incapacitated, or following the death of a partner.319

Origins of the backdating provisions Carer Allowance has its origins in the Handicapped Child Allowance (HCA) introduced in 1974.320 The HCA was replaced by the Child Disability Allowance (CDA) from November 1987 and the CDA was replaced by Carer Allowance as part of the 1998 Staying at Home - Care and Support for Older Australians package.321 Carer Allowance also replaced a separate payment for those caring for adults with disability, the Domiciliary Nursing Care Benefit. Carer Allowance commenced from July 1999.322

Both the HCA and CDA allowed for backdating start dates of up to 12 months. The main justification for this arrangement was that it could take a long period of time for very young children to be diagnosed with a disability or medical condition, and to understand the severity of any condition and their care requirements.323 Also, the backdating provisions provided relief to those who did not lodge their claims in a timely manner— claims for financial support would not necessarily be a priority for many parents caring for children with a disability or medical condition and many may not have been aware of the existence of these payments.324

The Howard Government announced in the 1996-97 Budget that it intended to reduce the backdating provisions for the CDA from 12 months down to three months but the measure was not implemented.325 In the 1997-98 Budget, the Government proposed reducing the backdating provisions for CDA from 12 months down to six months (again this was not implemented).326

314. DHS, ‘Carer Supplement’, DHS website, last updated 7 June 2016. 315. DSS, ‘8.3.3.50 Backdated start days - CA’, Guide to social security law, version 1.224, released 15 August 2016, DSS website. 316. DSS, ‘3.6.7.30 Qualification for CA’, Guide to social security law, version 1.224, released 15 August 2016, DSS website. 317. An acute event or acute onset is defined as a disability or medical condition acquired suddenly (such as a in a car accident) or over a short

period of time, including psychological/psychiatric conditions that arise after a traumatic event; or, a situation where a pre-existing disability or medical condition comes sharply to a crisis (such as when someone with a heart condition suffers a major heart attack). DSS, ‘1.1.A.52 Acute onset (CA)’, Guide to social security law, version 1.224, released 15 August 2016, DSS website. 318. DHS, ‘Eligibility for Carer Allowance’, DHS website, last updated, 19 May 2016. 319. DSS, ‘8.3.3.10 Backdated Start Days - General Provisions’, Guide to social security law, version 1.224, released 15 August 2016, DSS website. 320. D Daniels, Social security payments for the aged, people with disabilities and carers 1901 to 2010, Background note, 2010-11, Parliamentary Library, Canberra, 21 February 2011, pp. 21-23. 321. Ibid.; W Smith (Minister for Family Services), What older Australians want, media release, 2 April 1998. 322. Ibid. 323. P Yeend, Family Assistance, Social Security and Veterans’ Affairs Legislation Amendment (2005 Budget and Other Measures) Bill 2006, Bills digest, 104, 2005-06, Parliamentary Library, Canberra, 2006, p. 12. 324. Ibid. 325. Ibid.; Australian Government, Portfolio budget statements 1996-97: budget related paper no. 1.14: Social Security Portfolio, Commonwealth of Australia, Canberra, 1996, p. 84. 326. Australian Government, Portfolio budget statements 1997-98: budget related paper no. 1.14: Social Security Portfolio, Commonwealth of Australia, Canberra, 1997, p. 74.

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When Carer Allowance was introduced in 1999, Carer Allowance for those caring for children allowed for backdating up to 12 months while Carer Allowance for those caring for an adult allowed for backdating up to six months (this was an improvement on the Domiciliary Nursing Care Benefit which did not allow for backdating).327

2006 changes In the 2005-06 Budget, the Howard Government announced that it would reduce the backdating provisions for Carer Allowance down to three months for carers of both children and adults.328 The measure was contentious at the time and the Government-chaired Senate Community Affairs Legislation Committee recommended that the Bill implementing the measure be amended to allow a discretion for the backdating of Carer Allowance for periods in excess of three months where it would have been unreasonable for the claimant to have made an earlier claim or where a failure to backdate would occasion significant financial hardship.329 The Australian Labor Party (Labor) moved amendments in the Senate to give effect to this recommendation and allow for discretionary backdating extensions (up to an addition 14 weeks or 26 weeks in total) for a broad range of reasons.330 The Australian Greens and Australian Democrats also moved amendments to remove the changes to backdating arrangements. The amendments were negatived and the Bill passed without amendment.331

Rationale for the change The budget papers state that removing the measure is about ‘aligning’ the backdating arrangements for Carer Allowance claims with other social security payments.332 Evidence provided by the Department of Social Services at Senate Budget Estimates suggested that the backdating provisions are no longer necessary:

It is unusual, across the social security system, to have backdating of this nature. It is a bit historical. It actually originates from when child disability allowance was the payment, prior to carer allowance being introduced. Backdating was argued to be necessary. The rationale was that it had a very strong diagnostic basis and some families took some time to get a diagnosis for their child that would qualify them for child disability allowance. Now that we have tools that look at the impact on functioning and the care load rather than taking a diagnostic specific approach, there is not the same need for a diagnosis in order to qualify for carer allowance.

333

Policy position of non-government parties/independents At the time of writing, non-government parties and independents had not stated their positions on the measure proposed by this Schedule.

Position of major interest groups

Carers Australia In its submission to the Senate Economics Legislation Committee’s inquiry into the Bill, Carers Australia recommended that the measure not proceed. Carers Australia argued that the current backdating provisions recognise the fact that it can be difficult for new carers to come to terms with their role, and that it can take a long time for carers to understand the financial impact of their responsibilities and to navigate the supports available to them (such as Carer Allowance):

It is hard to over-dramatise the devastating effect of the combined shock of someone you love suddenly becoming disabled or incurring a debilitating illness - having to deal with their pain and suffering and the loss of life chances - accompanied by the sudden loss of income; especially at a time when extra expenses are incurred as a result of having to adjust to the tragedy.

327. D Daniels and M Tapley, Assistance for Carers Legislation Amendment Bill 1999, Bills digest, 148, 1998-1999, Parliamentary Library, Canberra, 1999, p. 9. 328. Australian Government, Budget measures: budget paper no. 2: 2005-06, p. 160. 329. Senate Community Affairs Legislation Committee, Provisions of the Family Assistance, Social Security and Veterans’ Affairs Legislation

Amendment (2005 Budget and Other Measures) Bill 2006, The Senate, Canberra, March 2006, p. 8. 330. J McLucas, ‘In committee: Family Assistance, Social Security and Veterans’ Affairs Legislation Amendment (2005 Budget and Other Measures) Bill 2006’, Senate, Debates, 30 March 2006, p. 132. 331. Parliament of Australia, ‘Family Assistance, Social Security and Veterans' Affairs Legislation Amendment (2005 Budget and Other Measures)

Bill 2006 homepage’, Australian Parliament website. 332. Australian Government, Budget measures: budget paper no. 2: 2016-17, pp. 143-144. 333. Senate Community Affairs Legislation Committee, Official committee Hansard, 6 May 2016, p. 129.

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Families who find themselves in this situation are unlikely initially to have clarity around how this tragedy will impact upon them and the person they care for.

They may never have given any thought to income support and may initially have no idea that there is such a thing as a Carer Payment or Carer Allowance or what steps they would need to go through to apply for these payments. Unlocking the mysteries of Centrelink, let alone subjecting themselves to the onerous processes of finding their way through its complex and time-consuming requirements, is unlikely to be the first thing on their minds.

The capacity to be reimbursed for even a comparatively modest amount of the extra costs carers have incurred can make a real difference when they have finally reached the point of understanding that they are entitled to financial assistance. 334

Australian Council of Social Service The Australian Council of Social Service (ACOSS) also raised concerns with the Bill in its submission to the Senate Economics Committee inquiry, particularly the ‘potential impact on low-income carers who experience financial disadvantage because of a loss of employment income when they take on a caring role’.335 ACOSS stated that a distributional analysis of the impact of the change should be undertaken before it is considered.336

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. According to the Statement, Schedule 16 engages with the right to social security under Article 9 of the International Covenant on Economic, Social and Cultural Rights. The Government considers that the Bill is compatible as, to the extent that there is a reduction in the period Carer Allowance is payable, the reduction ‘is reasonable, necessary and proportionate to achieving a legitimate aim’.337 According to the Government, the aims of the measure are to ensure the social security system remains sustainable and targeted to those recipients with the greatest need, and to align the commencement dates for Carer Allowance with other social security payments.338

Key issues Schedule 16 will remove the current backdating provisions for payment of Carer Allowance, meaning that some carers will no longer be able to receive a lump sum payment in respect of a period up to 12 weeks prior to their date of contact with Centrelink. The earliest date of effect for a grant of Carer Allowance will be the date a claim is lodged or the date of first contact with Centrelink.

The Government expects that around 40,000 of the 120,000 new claimants of Carer Allowance each year will be affected by the measure.339

As noted above, officials from the Department of Social Services have argued that the backdating provisions are no longer necessary as eligibility for Carer Allowance is no longer based on a specific diagnosis, but on the impact of a disability or medical condition on a care-receiver’s functioning and on the ‘care load’. As such, there is not the same delay in determining eligibility for payment. However, the other rationales for the backdating provisions remain: it may take some time for a carer to realise the full extent of their role and responsibilities; seeking out financial support may not be a key priority for carers following birth or an event giving rise to caring responsibilities, and knowledge of Carer Allowance (and the need to contact Centrelink) may not be widespread.

334. Carers Australia, Submission to the Senate Economics Legislation Committee, Inquiry into the Budget Savings (Omnibus) Bill 2016, submission no. 71, 7 September 2016, p. 4. 335. Australian Council of Social Service (ACOSS), Submission to the Senate Economics Legislation Committee, Inquiry into the Budget Savings (Omnibus) Bill 2016, submission no. 86, September 2016, p. 5. 336. Ibid. 337. The Statement of Compatibility with Human Rights for Schedule 16 can be found at page 212 of the Explanatory Memorandum to the Bill.

Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 212. 338. Ibid., p. 213. 339. Senate Community Affairs Legislation Committee, Official committee Hansard, 6 May 2016, p. 129.

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Such issues were raised in relation to the 2006 changes and were the primary focus of the Senate Community Affairs Legislation Committee’s report in 2006.340

Provisions Item 1 repeals clauses 16 and 17 of Schedule 2 of the SS Admin Act. These clauses set out special provisions for determining the start day for payments of Carer Allowance, allowing for payments to be backdated to the day a person becomes qualified for Carer Allowance (if a claim is made within 12 weeks of becoming qualified) or 12 weeks prior to the date of claim (if the person makes a claim more than 12 week after they become qualified for Carer Allowance).

Schedule 20—Psychiatric confinement History of the schedule The Social Services Legislation Amendment Bill 2015 (the first Bill) was introduced into the House of Representatives on 25 March 2015.341 The first Bill had passed the House of Representatives and was before the Senate when the Parliament was prorogued on 15 April 2016. The Bill lapsed on prorogation of Parliament.

The provisions of Schedule 20 of the Budget Savings (Omnibus) Bill 2016 (this Bill) which was introduced into the House of Representatives on 31 August 2016 are in equivalent terms to the first Bill. A Bills Digest was prepared in respect of the first Bill.342 The material in this Bills Digest has been sourced from that earlier Bills Digest.

Purpose of the schedule The purpose of this schedule is to amend the Social Security Act 1991 (the 1991 Act) so that people who are undergoing psychiatric confinement because they have been charged with a serious offence cannot receive social security payments except during a period when they are being integrated back into the community.

Background In some circumstances a person suffering from mental impairment can be held in psychiatric confinement after being charged with an offence even though they have not been convicted. This can happen when they are found unfit to stand trial because of mental impairment or are found not guilty because of mental impairment. People in this group are referred to as forensic patients.

Mental impairment is a broad category that covers psychiatric impairment due to mental disorders such as schizophrenia and bipolar disorder as well as intellectual disability, acquired brain injury and other conditions that impair mental functioning.343

Forensic patients are usually released from custody through a staged process. For example, before the court considers discharging them into the community, forensic patients from Victoria’s Thomas Embling Hospital generally undertake an 18 to 24 month program of graduated supported leave.344

Currently people in psychiatric confinement because they have been charged with an offence can receive payments such as Disability Support Pension (DSP) if they are undertaking a course of rehabilitation. A 2014 report in The Daily Telegraph referred to this as a ‘loophole’.345

Under section 1158 of the 1991 Act:

340. Senate Community Affairs Legislation Committee, Provisions of the Family Assistance, Social Security and Veterans’ Affairs Legislation Amendment (2005 Budget and Other Measures) Bill 2006, op. cit. 341. Parliament of Australia, ‘Social Services Legislation Amendment Bill 2015 homepage’, Australian Parliament website. 342. D Arthur and J Mills, Social Services Legislation Amendment Bill 2015, Bills digest, 108, 2014-15, Parliamentary Library, Canberra,

26 May 2015. 343. Department of Social Services (DSS), ‘3.1.4.10 Situations that Constitute Being in Gaol or Psychiatric Confinement’, Guide to social security law, DSS website, 20 March 2015. 344. Victorian Institute of Forensic Mental Health (Forensicare), The public housing needs of offenders with a mental illness, submission to Family

and Community Development Committee, Inquiry into the Adequacy and Future Directions of Public Housing in Victoria, [2010], p. 4. 345. G Chambers, ‘Prisoner made a killing on pension’, The Daily Telegraph, 26 March 2014, p. 3.

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An instalment of a social security pension, a social security benefit, a parenting payment, a carer allowance, a mobility allowance or a pensioner education supplement is not payable to a person in respect of a day on which the person is:

(a) in gaol; or

(b) undergoing psychiatric confinement because the person has been charged with an offence.

Psychiatric confinement is defined by subsection 23(8) of the 1991 Act to include ‘confinement in a psychiatric section of a hospital, and any other place where persons with psychiatric disabilities are, from time to time, confined.’ However, subsection 23(9) states: ‘The confinement of a person in a psychiatric institution during a period when the person is undertaking a course of rehabilitation is not to be taken to be psychiatric confinement.’ The Social Security Act 1947 (the 1947 Act) contained a similar subsection that referred to people ‘undertaking a course of rehabilitation’.346 This was introduced in a 1986 amendment. Neither the 1947 Act nor the 1991 Act made a distinction between serious and non-serious offences.

In administering the 1991 Act the Department of Social Security (which was subsequently renamed Centrelink) interpreted the term ‘course of rehabilitation’ narrowly. However, in a series of cases where income support recipients challenged this interpretation in the Administrative Appeals Tribunal (AAT), a broader interpretation has been developed. In a 2002 case the Federal Court upheld a broad interpretation (see discussion below).347 Centrelink responded by incorporating the broader interpretation into its guidelines.

Recent media coverage — the Toki case This issue attracted little public attention until recently. In March 2014 The Daily Telegraph’s Geoff Chambers reported that convicted murderer Martin Toki had applied for, and received, a DSP while being held at Long Bay prison hospital.348 Centrelink cancelled his payment after discovering that he was serving a 22 year sentence for murdering his de facto wife in 2001. The case attracted media attention when Toki unsuccessfully appealed the cancellation decision in the AAT, but was not required to repay the money as the AAT characterised the payments as an administrative error by Centrelink.349

AAT senior member Jill Toohey found that Toki was not eligible for DSP. According to the 1991 Act a person who is in gaol cannot receive DSP (or other pension or social security benefits). However, she acknowledged that some people being held as ‘forensic patients’ could receive payments such as DSP.

According to The Daily Telegraph, then Human Services Minister Marise Payne asked ‘the department to investigate this urgently with a view to determining if there are further cases of similar payments that require immediate review’.350

While Toki was ineligible for DSP because he was serving a sentence after being convicted of an offence, the case drew attention to the fact that some people charged with serious offences could legitimately receive income support payments while they were held in psychiatric confinement. Their eligibility would in part depend on whether they were undertaking a course of rehabilitation.

The Government’s rationale for the measure The provisions of Schedule 20 implement a savings measure announced in the Government’s 2014-15 Mid-Year Economic and Fiscal Outlook (MYEFO):

The Government will achieve savings of $29.5 million over four years from 2014-15 by ceasing payment of social security benefits to people who are incarcerated or confined in a psychiatric institution under state or territory law due to serious criminal charges because they were considered unfit to stand trial or were not convicted due to

346. Social Security Act 1947 (Cth), subsection 167(8). 347. Secretary, Department of Family and Community Services v Franks [2002] FCA 575, 348. G Chambers, ‘Prisoner made a killing on pension’, op. cit. 349. Toki and Secretary, Department of Social Services [2014] AATA 144. 350. G Chambers, ‘Prisoner made a killing on pension’, op. cit.

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mental impairment. This will ensure the same social security treatment of people in the criminal justice system whether they reside in a psychiatric or penal institution. 351

Officers of the Department of Social Services (DSS) explained a rationale for the measure in response to questions in Senate Estimates hearings. According to Cath Halbert, manager of the Payments Policy Group:

Currently under the Social Security Act, you cannot be paid income support payments if you are in jail because you have been charged and convicted; or if you are in jail because you have been charged and you are on remand; or if you have been charged and you are in psychiatric confinement but either have been unable to plead because you are unfit to plead or you have had a conviction but it has not been recorded by dint of mental impairment. So that is established policy in the Social Security Act now.

However, there is an exception for psychiatric confinement, that if you are undergoing a course of rehabilitation you are considered not to be in psychiatric confinement. I can go into that a little. In 2003 [sic] a Federal Court case significantly broadened the definition of ‘course of rehabilitation’ such that almost anybody who had been charged and who was in psychiatric confinement could be paid income support payments. That was not the original intention of the measure. In this case I guess the government has decided to reinstate the original intention of the measure for people who have been charged with serious crimes.352

Then Social Services Minister, Scott Morrison, reiterated this rationale in the second reading speech to the first Bill in which he referred to the Federal Court case and stated: ‘This essentially represents a return to the original policy intention for people in these circumstances—that a person cannot access social security payments while in psychiatric confinement as a result of criminal charges.’353

The original policy intent The policy originates with a 1985 amendment to the 1947 Act. Prior to the amendment there was a general rule that a person could not receive an income support payment if they were imprisoned in connection with their conviction for an offence. The amendment extended that rule to people who were confined in a psychiatric institution after having been charged with an offence.354

The following year the bar on payments to people in psychiatric confinement was modified by another amendment that added a new subsection. According to the Explanatory Memorandum for that Bill, the new subsection:

… would modify the effect of the bar on payment of an income support payment under the Principal Act to a person confined in a psychiatric institution after being charged with an offence. The new provision would not apply the bar to such a person who was undertaking a course of rehabilitation. The modification would also apply retrospectively, so that persons adversely affected by the current bar could be restored to their previous position.

355

This exception to the bar on payment of income support was carried over into subsection 23(9) of the 1991 Act when the 1947 Act was rewritten and then repealed. According to the subsection:

The confinement of a person in a psychiatric institution during a period when the person is undertaking a course of rehabilitation is not to be taken to be psychiatric confinement. 356

In 1999 the AAT considered the meaning of ‘course of rehabilitation’ in Re Fairbrother.357 In making his decision, Deputy President Blow noted that neither the Explanatory Memorandum nor the second reading speech were of

351. Australian Government, Budget 2014-15: mid-year economic and fiscal outlook, Commonwealth of Australia. 352. Senate Community Affairs Legislation Committee, Official committee Hansard, 26 February 2015, pp. 184-85. 353. S Morrison, ‘Second reading speech: Social Services Legislation Amendment Bill 2015’, House of Representatives, Debates, 25 March 2015, p. 3353.

354. Explanatory Memorandum, Social Security and Repatriation Legislation Amendment Bill 1985, p. 7. 355. Explanatory Memorandum, Social Security and Veterans' Affairs (Miscellaneous Amendments) Bill 1986, p. 59. 356. Social Security Act 1991, subsection 23(9). 357. Fairbrother; Department of Family and Community Services (1999) 56 ALD 784; [1999] AATA 580.

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any use in determining the meaning. However, he concluded that ‘Parliament had in mind a formal course of rehabilitation with a finite duration, a structure, a beginning and an end’.358

In two later cases the AAT rejected Deputy President Blow’s interpretation of the term ‘course of rehabilitation’. In Re Pardo Senior Member John Handley rejected the claim that a course of rehabilitation must have a finite duration. Instead, he found a period in which a person undertakes a course of rehabilitation ‘will of course involve a structure and a beginning and an end but all of which may be flexible and may need to be reviewed from time to time.’359 In Re Franks Senior Member Keith Beddoe applied this reasoning when he found that Cyril Franks was undertaking a course of rehabilitation and was entitled to DSP.360

Franks had been receiving DSP when he was charged with an indictable offence and found unfit to plead. He was transferred to a psychiatric hospital with criminal proceedings against him deferred while he remained unfit to stand trial. After Centrelink suspended his payment he successfully appealed to the Social Security Appeals Tribunal (SSAT). The Secretary of the Department of Family and Community Services then appealed to the AAT arguing that Franks was not undertaking a course of rehabilitation.

The Department then took the issue to the Federal Court where Justice Richard Cooper set aside the SSAT’s decision without reaching a view about the meaning of ‘course of rehabilitation’.361 Franks responded by appealing the decision in the Federal Court. This appeal was successful.

In this appeal the Federal Court returned again to the issue of how to interpret the term ‘course of rehabilitation’ finding that, depending on the circumstances of the case, ‘a planned series of activities that may include medical and other treatments directed towards improving the person’s physical, mental and/or social functioning’ could be a ‘course of rehabilitation’.362

Committee consideration

Senate Community Affairs Legislation Committee The first Bill was referred to the Senate Community Affairs Legislation Committee (the Community Affairs Committee). The Community Affairs Committee reported in June 2015.

The Community Affairs Committee’s report recommended that:

• the [first] Bill be passed and

• the Department continue with its proposed consultation on the definition of a 'period of integration’.363

The Labor Senators’ dissenting report recommended that the first Bill not proceed and discussed concerns about the policy rationale, the definition of serious offence, the financial impact of the Bill, its impact on clinical service delivery and reintegration, consultation and the definition of a ‘period of reintegration’.364

The Australian Greens’ dissenting report recommended that the first Bill not be passed and:

That the Federal Government continues to work with its state and territory counterparts to establish an alternative method of sharing the costs of gradual reintegration into the community and reflects the intention of both the Social Security Act and the UN Convention on the Rights of Persons with Disabilities.

358. Ibid., [21]. 359. Pardo and Department of Family and Community Services (2000) 32 AAR 381; [2000] AATA 1105. 360. Franks; Department of Family and Community Services (2001) 66 ALD 196; [2001] AATA 738. 361. Secretary, Department of Family and Community Services v Franks [2002] FCA 575. 362. Franks v Secretary, Department of Family and Community Services (2002) 125 FCR 212; [2002] FCAFC 436. 363. Senate Standing Committee on Community Affairs, Social Services Legislation Amendment Bill 2015 [Provisions], The Senate, June 2015, p. vii. 364. Labor Senators, Dissenting report, Senate Standing Committee on Community Affairs, Social Services Legislation Amendment Bill 2015, The

Senate, 15 June 2015.

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That if the Bill is to pass, the definition of serious offence should be improved so as to clarify that it refers only to harm to others (not self-harm) and references to property offences should be removed.

That if the Bill is to pass, a robust appeal right is established and access to that right is clearly explained in Easy English documents, so as to ensure that a ruling on whether the charges constitute a serious offence can be appealed, not merely on administrative grounds but also on evidentiary ones. 365

Details of the inquiry are at the inquiry webpage.366

Parliamentary Joint Committee on Human Rights As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government assessed the first Bill for compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considered that the first Bill was compatible.367 The Government has also assessed Schedule 20 of the current Bill for compatibility with the Human Rights (Parliamentary Scrutiny) Act and considers the Schedule to be compatible.368

In its Twenty-second Report of the 44th Parliament the Human Rights Committee found the statement of compatibility for the first Bill inadequate and requested the Minister provide further information regarding the justification for the measures in the Bill, which otherwise might be seen to have contravened the right to social security protected by Article 9 of the International Covenant on Economic, Social and Cultural Rights (ICESCR).369 The Committee explained that this right ‘recognises the importance of adequate social benefits in reducing the effects of poverty and plays an important role in realising many other economic, social and cultural rights, particularly the right to an adequate standard of living and the right to health.’ The Human Rights Committee also observed that ‘[u]nder Article 2(1) of ICESCR, Australia has certain obligations in relation to the right to social security. These include:

 the immediate obligation to satisfy certain minimum aspects of the right;

 the obligation not to unjustifiably take any backwards steps that might affect the right;

 the obligation to ensure the right is made available in a non-discriminatory way; and

 the obligation to take reasonable measures within its available resources to progressively secure broader enjoyment of the right. 370

In the light of these requirements the Human Rights Committee found that the Minister had not provided sufficient information to justify the provisions in the first Bill, which limited the right to social security, and in particular the Human Rights Committee asked for further information regarding:

 whether the proposed changes are aimed at achieving a legitimate objective;

 whether there is a rational connection between the limitation and that objective; and

 whether the limitation is a reasonable and proportionate measure for the achievement of that objective. 371

365. R Siewert (Australian Greens), Dissenting report, Senate Standing Committee on Community Affairs, Social Services Legislation Amendment Bill 2015, The Senate, 15 June 2015. 366. Senate Standing Committee on Community Affairs, Inquiry into the Social Services Legislation Amendment Bill 2015, The Senate, 2015. 367. The Statement of Compatibility with Human Rights can be found at page 1 of the Explanatory Memorandum to the Bill: Explanatory

Memorandum, Social Services Legislation Amendment Bill 2015. 368. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 239. 369. Parliamentary Joint Committee on Human Rights, Twenty-second report of the 44th Parliament, 13 May 2015, pp. 105-107. 370. Ibid., pp. 105-106. 371. Ibid., p. 107.

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The Minister responded arguing that the measure is legitimate because it is the responsibility of the states and territories, not the Australian Government, to provide for the basic needs of people in psychiatric confinement. He reiterated the Government’s position that this measure restores the original policy intent that most people who are undergoing psychiatric confinement as a result of being charged with an offence are not eligible to receive social security payments and that the measure contributes to the sustainability of the social security system. He argued that is not intended to be punitive but is a recognition that people in psychiatric confinement have a reduced need for social security payments because their basic needs are met the states and territories.

The Minister also stated:

The Government recognises that the transition of these vulnerable people from psychiatric confinement back into the community is not as straightforward as for those who have been imprisoned. It is for this reason that the Bill allows for a Legislative Instrument to be made to set out circumstances in which a person can be taken to be in a period of integration back into the community. During this period, the person will not be taken to be undergoing psychiatric confinement and as a result, they may be eligible to receive social security payments, particularly where the person has a degree of autonomy. The Government believes that this goes some way to support the original intent of the psychiatric confinement provisions in the Act, and is a reasonable and proportionate way to address this issue.

372

This point is also made in the Explanatory Memorandum for the schedule.373 The Committee was not persuaded by the Minister’s arguments. In its response the Committee stated:

… the committee considers that the Bill, which would result in certain individuals in psychiatric confinement losing existing entitlements to social security, may be incompatible with the right to social security. The committee recommends that the Bill be amended to set out the circumstances in which a person will be considered to be undertaking integration back to the community and, as such, eligible for social security.

374

Position of major interest groups Submissions from interest groups were critical of the first Bill, arguing that it should not proceed in its current form. Interest groups expressed a number of common concerns. These are outlined below.

Policy intent The Victorian Institute of Forensic Mental Health challenges the idea that policymakers intended to exclude most forensic patients from income support payments before 2002:

… forensic patients have remained eligible for social security payments throughout the various legislative changes, with the exception of a fifteen month period in 1985/6. However, the 1986 amendments applied retrospectively, so in effect forensic patients had full entitlement to social security payments up until 1985 after which time the payment of social security was limited to forensic patients who were undertaking a course of rehabilitation. This remains the position to date.

375

Forensic patients should not be treated in the same way as those convicted of a crime According to the National Mental Health Commission ‘The Bill fails to recognise the significant difference in legal status between those convicted of a criminal offence, and those who are not convicted due to mental illness or intellectual disability.’376

Many submissions made the same point and noted that the purpose of psychiatric confinement is care, rehabilitation and the protection of the community rather than punishment and deterrence.377 In its submission the Victorian Government noted its concern:

372. Parliamentary Joint Committee on Human Rights, Twenty-fifth report of the 44th Parliament, 11 August 2015, pp. 155-166 373. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, pp. 241-242. 374. Parliamentary Joint Committee on Human Rights, Twenty-fifth report of the 44th Parliament, 11 August 2015, p. 167. 375. Victorian Institute of Forensic Mental Health, Submission to Senate Community Affairs Legislation Committee, Inquiry into the Social Services

Legislation Amendment Bill 2015, submission no. 15, May 2015, p. v. 376. National Mental Health Commission, Submission to Senate Community Affairs Legislation Committee, Inquiry into the Social Services Legislation Amendment Bill 2015, submission no. 13, 15 May 2015, p. 1.

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… that the Bill discriminates against people who have been found by a court to have no criminal responsibility for their offending behaviour because of mental impairment. It is a well established sentencing principle that persons who are not morally culpable for their offending behaviour should not be punished. 378

Discrimination against people with a mental impairment Along with a number of other submissions, Mental Health Australia’s submission argued that ‘The Bill should not proceed in its current state, as it further entrenches systemic discrimination against people with a mental illness.’379

The National Mental Health Commission argued that in one respect, the [first] Bill treats forensic patients less favourably than people convicted of an offence:

Under proposed subsection 23(9D), the Bill proposes to remove a person’s access to social security payments even during periods of leave outside the psychiatric institution, if this is not taken to be a period of integration back into the community. No such provisions exist for people found guilty of an offence who are on periodic detention - they instead receive social security payments for any days outside detention. The Commission is concerned that this provision, in its present form, appears to discriminate against persons with a mental illness or intellectual disability.

380

Distinction between serious and non-serious crimes is not relevant A number of submissions argued that the distinction between serious and non-serious crimes is not relevant to eligibility for income support. According to the National Mental Health Commission:

The nature of the offence with which a person was charged - but not convicted - should not define whether they are taken to be in psychiatric confinement or undertaking a course of rehabilitation, nor should it be relevant to whether they have access to social security payments. 381

The South Australian Public Advocate argued that distinguishing between people charged with serious crimes and those charged with non-serious crimes undermines the Government’s argument that state and territory governments should be responsible for the cost of supporting forensic patients.382

Impact on rehabilitation and reintegration Many submissions argued that the proposed measure would have a negative impact on rehabilitation and reintegration.

According to the National Mental Health Commission, ‘The practical effect of removing access to social security payments would be detrimental to rehabilitation and recovery for people with a mental illness …’383

Professor Dan Howard SC, President of the NSW Mental Health Review Tribunal argues that, if passed, the proposal will ‘have a seriously detrimental impact upon the wellbeing and therapeutic progress of this group of forensic patients, who are one of the most vulnerable (and most poorly understood) groups in our society’. He noted that NSW has over 400 forensic patients (the largest number of any Australian jurisdiction) and that the majority have been charged with offences that would fall within the Bill’s definition of ‘serious offence’.384

377. Western Australian Association for Mental Health, Submission to Senate Community Affairs Legislation Committee, Inquiry into the Social Services Legislation Amendment Bill 2015, submission no. 17, 15 May 2015. 378. Victorian Government, Submission to Senate Community Affairs Legislation Committee, Inquiry into the Social Services Legislation Amendment Bill 2015, submission no. 24, 12 May 2015. 379. Mental Health Australia, Submission to Senate Community Affairs Legislation Committee, Inquiry into the Social Services Legislation

Amendment Bill 2015, submission no. 4, May 2015, p. 4. 380. National Mental Health Commission, op. cit., p. 3. 381. Ibid., p. 2. 382. South Australian Public Advocate, Submission to Senate Community Affairs Legislation Committee, Inquiry into the Social Services Legislation

Amendment Bill 2015, submission no. 22, May 2015, pp. 9-10. 383. National Mental Health Commission, op. cit., p. 1. 384. NSW Mental Health Review Tribunal, Submission to Senate Community Affairs Legislation Committee, Inquiry into the Social Services

Legislation Amendment Bill 2015, submission no. 3, 22 April 2015, pp. 1-2.

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A submission by the Victorian Government argues that the first Bill would limit the effectiveness of a highly successful model of rehabilitation that involves a gradual release into the community.385 Explaining how income support helps people move from confinement back into the community, one Victorian patient said ‘In order to be discharged we need to have housing, many of us rent houses prior to discharge and would not be able to fund renting a home without the pension.’386

Need for consultation with states and territories In some cases when forensic patients have been receiving income support, state and territory government institutions have taken a share of the payment as a fee. Matthew Butt of the Welfare Rights Network has raised concerns that suddenly removing a source of funding may affect the quality of care available to those in psychiatric confinement. He argued that there needs to be more consultation with experts and state and territory governments.387 The National Mental Health Commission raised similar concerns. The Commission acknowledged:

… that there may be worthwhile policy and budgetary questions to explore about the adequacy of current funding arrangements, in which rehabilitation is subsidised by those undertaking a course of rehabilitation (using Commonwealth social security payments) rather than States or Territories. However, moving to alter the situation rapidly (as per the Bill) could result in significant funding shortfalls that would impact on a person’s rehabilitation and place greater financial burden on the individual’s family and support people. Practical discussions between the Commonwealth and the States and Territories should be undertaken before such provisions are put into effect.

388

Financial implications According to the Explanatory Memorandum for this Bill, the Government expects the amendments to the 1991 Act in Schedule 20 to produce savings of $37.8 million over the forward estimates as set out in the table below

Table 10: Savings over the forward estimates

2015-16 2016-17 2017-18 2018-19 2019-20 Total

0.0 4.2 9.6 11.1 12.9 37.8

Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 6.

Key issues and provisions

Meaning of ‘course of rehabilitation’ According to departmental officers (see background above), the Federal Court interpreted the term ‘course of rehabilitation’ in a broader way than the drafters intended.389 The amendments in Schedule 20 do not attempt to impose a narrower interpretation and allow the Federal Court’s interpretation to stand, instead creating specific provisions that will preclude those charged with a ‘serious offence’ from payment of DSP.

The term ‘course of rehabilitation’ appears currently in section 23(9) of the 1991 Act, which states: ‘The confinement of a person in a psychiatric institution during a period when the person is undertaking a course of rehabilitation is not to be taken to be psychiatric confinement.’390 The amendments in Schedule 20 propose the insertion of an exception to this ‘course of rehabilitation’ provision in the case of serious offenders, rather than more generally narrowing the meaning of ‘course of rehabilitation’.

385. Victorian Government, Submission to Senate Community Affairs Legislation Committee, Inquiry into the Social Services Legislation Amendment Bill 2015, submission no. 24, 12 May 2015. 386. Forensicare Patients, Submission to Senate Community Affairs Legislation Committee, Inquiry into the Social Services Legislation Amendment Bill 2015, submission no. 10, 8 May 2015, p. 3. 387. M Butt, ‘Bill to restrict income support payments to people in psychiatric confinement’, WelfareWrites blog, 26 March 2015. 388. National Mental Health Commission, op. cit., p. 2. 389. Senate Community Affairs Legislation Committee, Official committee Hansard, 26 February 2015, p. 185. 390. Social Security Act 1991.

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Introduction of a distinction between serious and non-serious offences The amendments to the 1991 Act in Schedule 20 introduce a distinction between serious and non-serious offences. Proposed subsection 23(9A), at item 6 of Schedule 20, states that subsection 23(9) does not apply to a person whose confinement in a psychiatric institution is because they have been charged with a serious offence.

Proposed subsections 23(9E) and 23(9F) of the 1991 Act in Schedule 20 provide a definition of ‘serious offence’.

The distinction between serious and non-serious offences appears to be a new addition to the 1991 Act not directly related to the original policy intent.

Meaning of serious offence Proposed subsection 23(9E) provides that an offence is a serious offence if it is murder or attempted murder, manslaughter or rape or attempted rape.

Proposed subsection 23(9F) of the 1991 Act further provides that an offence is also a serious offence if it is an offence against the law of the Commonwealth or a state or territory, punishable by imprisonment for life or for a period, or maximum period, of at least seven years, and if the conduct constituting the offence involves:

• loss of life or serious risk of loss of life

• serious personal injury or serious risk of serious personal injury or

• serious damage to property in circumstances endangering the safety of a person.

The additional offences which would be included by proposed subsection 23(9F) of the 1991 Act have been criticised as being too broad and for possibly including property damage offences in which the offender was the only person injured or at risk, or in instances of arson where there may have been no awareness of any danger to other people.391

By way of comparison, the term ‘serious offence’ is used in many other pieces of legislation. The term is defined differently in many instances and is adapted according to the circumstances.

For example, under the Proceeds of Crime Act 2002 (Cth) a ‘serious offence’ is defined as an offence which is punishable by three years or more imprisonment and various other offences defined in section 338.392 Generally the offence in question must be a financial crime under the Criminal Code Act 1995 or involve a financial benefit or loss of at least $10,000.

Under the Criminal Code Act 1995, a serious offence is variously defined as one which, for example, attracts a penalty of at least 12 months, two years or five years imprisonment.393

Under the Migration Act 1958, a ‘serious Australian offence’ means an offence against a law in force in Australia, where the offence is punishable by imprisonment for life or not less than three years, and involves violence against a person; is a serious drug offence; involves serious damage to property; or is one of certain offences relating to immigration detention.394

Finally, the Telecommunications (Interception and Access) Act 1979 defines serious offences as offences involving murder, kidnapping, terrorism and other higher level offences under the Criminal Code, as well as offences punishable by imprisonment for life or at least seven years and which involve harm or risk of harm to a person, or arson, trafficking, fraud or corruption.395

The definitions in proposed subsection 23(9E) and proposed paragraph 23(9F)(a) may thus be considered to fall within the higher range of seriousness of offences covered by the term elsewhere. However, as noted by National Welfare Rights Network, the phrasing of subparagraphs 23(F)(b)(i) to (iii) expands the scope of the term to include offences in which the endangerment or harm to a person may be ancillary to the offender’s

391. M Butt, op. cit. 392. Proceeds of Crime Act 2002, s338. 393. Criminal Code Act 1995 (Cth), sections 71.9, 117.1 and 473.1. 394. Migration Act 1958, section 5. 395. Telecommunications (Interception and Access) Act 1979, section 5D.

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behaviour. 396 This broadening of scope is mitigated by the requirement in proposed paragraph 23(9F)(a) that such offences be punishable by imprisonment for life or a maximum term of at least seven years.

The criticisms regarding the possible inclusion of an offence such as arson, or other damage in in circumstances in which no other person was put at risk, should also be considered in light of the seriousness with which Australian jurisdictions consider such offences.397

Overall, however, arguments about the appropriate boundaries for ‘serious’ and ‘non-serious’ offences would seem to miss the key criticism of the schedule, which focuses on the principle that the offender in all these cases has not been found guilty of any criminal offence due to their psychiatric condition. Thus distinctions between serious and non-serious offences are immaterial, since none of the offenders can be regarded as ‘morally culpable’, however serious the offence. The offences were performed by a person who has been found incapable of bearing guilt on the grounds of their psychiatric condition and they do not, therefore, possess the requisite degree of moral culpability, however much the charge itself may reflect a distinction between serious and non-serious offences.

Period of integration back into the community The amendments in Schedule 20 allow a person confined in a psychiatric institution because they have been charged with a serious offence to receive income support payments during ‘a period of integration back into the community.’ It does this in proposed subsections 23(9B) and 23(9C) of the 1991 Act which provide that a period of integration back into the community is not taken to be psychiatric confinement.

The amendments in Schedule 20 do not define ‘a period of integration back into the community’ but provide for the Minister to determine whether a period is a period of integration into the community through a legislative instrument. The Department of Social Services has been consulting with state governments about how they integrate people back into the community.398 The previously discussed need to justify any ‘backward step’ in relation to the right to social security will be made more difficult in the case of arrangements to be made by legislative instrument, which would preclude consideration of the precise arrangements by the Human Rights Committee.

The Explanatory Memorandum notes that ‘(i)t is appropriate for a period of integration back into the community to be worked out in accordance with a legislative instrument to enable the relevant factors to be set out with the necessary detail and to allow for modification of the period over time’.399 However, the National Welfare Rights Network noted in respect of the first Bill that this definition affects basic income support qualifications and believes that, as a result, the main criteria for such periods should be set out in legislation.400

Responsibilities of the states/territories and the Commonwealth One of the effects of the 2002 Federal Court decision in Franks v Secretary, Department of Family and Community Services was to shift responsibility for supporting certain people in psychiatric confinement away from state and territory governments towards the Commonwealth. When people in psychiatric confinement receive income support payments, state and territory governments may be able to capture some of this income by charging accommodation fees.401 A consequence of the amendments in Schedule 20 of this Bill may therefore be that state and territory governments experience some reduction in the income derived from payments which would no longer be provided to persons undergoing psychiatric confinement because they have been charged with a serious offence.

396. National Welfare Rights Network, Submission to Senate Community Affairs Legislation Committee, Inquiry into the Social Services Legislation Amendment Bill 2015, 2015, p. 5. 397. Australian Institute of Criminology (AIC), ‘Summary of arson legislation - indictable offences’, AIC website, last modified 10 May 2016. 398. Senate Community Affairs Legislation Committee, Official committee Hansard, 26 February 2015, p. 130. 399. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 236. 400. National Welfare Rights Network, Submission to Senate Community Affairs Legislation Committee, op. cit., p. 7. 401. While it is not clear how common the practice of charging accommodation fees is, it clearly takes place in some jurisdictions. For example, in a

letter to Minister Morrison, the South Australian Public Advocate John Brayley wrote: As they are long term patients Health Departments or Disability Providers can appropriately charge for accommodation and expenses, as is the case for other long stay patients in the health system. I understand in South Australia in the health setting, this can correspond to a rent of up to 87.5% [of] the pension. As a person then transitions into the community, they also use their own money to budget for food and other expenses. (J Brayley, Letter to Scott Morrison, Minister for Social Services, 11 May 2015).

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In his second reading speech for the first Bill, Minister Morrison stated: ‘it is the relevant state or territory government that is responsible for taking care of a person's needs while in psychiatric confinement, including funding their treatment and rehabilitation.’ However he also acknowledged that ‘a social security payment will continue to be payable to a person who is undergoing psychiatric confinement because the person has been charged with an offence that is not a serious offence, if a person is undertaking a course of rehabilitation’.402

While the amendments in Schedule 20 push responsibility for support back towards state and territory governments, they do not directly enforce the principle that the care of people in psychiatric confinement is a state and territory responsibility.

Concluding comments Allowing people in psychiatric confinement to receive income support payments after they have been charged with a serious offence is a politically sensitive issue. On a number of occasions the issue has attracted critical media attention.

In 2002 The Age’s Padraic Murphy reported:

Some of Victoria's most dangerous individuals are building financial nest eggs worth up to $50,000 from fortnightly disability pensions being paid to them in the state's highest security hospital for the criminally insane.

… A spokesman for the federal Health and Community Services Minister, Amanda Vanstone, said there were about 400 forensic psychiatric patients receiving pension benefits nationwide.

He said the minister was considering a review of the legislation.

"Successive governments have tried to tighten the rules in this area, but have consistently met with resistance. It's another example why the disability support pension needs to be looked at under welfare reform," the spokesman said. 403

On the other hand cutting the DSP to psychiatric patients can also be a sensitive issue, with headlines such as ‘[w]arnings as welfare cut for mentally-ill’ provoking concern amongst other sections of the community.404

The stated intent of the amendments in Schedule 20 is to return to the original policy intent for people who have been charged with a serious offence, whereby prior to the 2002 Federal Court decision, people who had been in psychiatric confinement after being charged with criminal offences were not able to access social security payments.

The amendments in Schedule 20 define the term ‘serious offence’ but have been criticised [in respect of the first Bill] for drawing an arbitrary distinction between serious and non-serious offences for the purposes of restricting social security payments.

The Government has asserted that it is appropriate to withhold payments in these circumstances because ‘(w)hile the person is undergoing psychiatric confinement, the relevant state or territory government is responsible for taking care of their needs, including funding their treatment and rehabilitation’.405

Interest groups have argued that income support payments help a vulnerable group of patients to rehabilitate while in detention and to build up modest savings that help them reintegrate with the community on release.

Schedule 21—Closing carbon tax compensation to new welfare recipients Purpose of the measure The purpose of Schedule 21 is to amend the A New Tax System (Family Assistance) Act 1999406 (the FA Act), the Social Security Act 1991407 (the SS Act), the Social Security (Administration) Act 1999408 (the SS Admin Act), the

402. S Morrison, op. cit. 403. P Murphy, ‘Row over benefits to criminally insane’, The Sunday Age, 14 April 2002. 404. R Yosufzai, ‘Warnings as welfare cut for mentally-ill’, The Sydney Morning Herald, (online edition), 23 December 2014. 405. Explanatory Memorandum, Social Services Legislation Amendment Bill 2015, op. cit., p. 1. 406. A New Tax System (Family Assistance) Act 1999. 407. Social Security Act 1991.

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Farm Household Support Act 2014,409 the Veterans’ Entitlements Act 1986410 (the VE Act), and the Military Rehabilitation and Compensation Act 2004411 (the MRC Act) to close two payments introduced as part of the Clean Energy Household Assistance package to new recipients. The two payments are:

• the Energy Supplement (previously known as the Clean Energy Supplement) and

• the Single Income Family Supplement (SIFS).

The Energy Supplement will be closed to all new recipients from 20 March 2017. Those who become eligible for the Energy Supplement after 20 September 2016 will only receive the payment until 20 March 2017, at which point they will no longer be deemed eligible. Those eligible for the Energy Supplement prior to 20 September 2016 will continue to receive the payment as long as they remain continuously eligible for an income support payment or eligible concession card.

The SIFS will close to new recipients from 1 July 2017. Those eligible for the SIFS on 30 June 2017 will be entitled to the payment for the 2016-17 financial year and will continue to receive the payment in later years as long as they remain continuously eligible.

The amendments proposed in Schedule 21 were announced in the 2016-17 Budget and are expected to save $1.4 billion over the forward estimates period.412 Some of these savings are intended to be directed towards the proposed National Disability Insurance Scheme (NDIS) Savings Fund—a special account which will collect underspends and identified budget savings to help meet the Australian Government’s contribution to the NDIS from 2019-20.413

Commencement The amendments in Parts 1-6 of Schedule 21 commence on 20 March 2017. The amendments in Part 7 of Schedule 21 commence on 1 July 2017.

Nature of the Energy Supplement The Energy Supplement is paid to all recipients of social security income support payments (such as the Age Pension and Newstart Allowance), to recipients of Family Tax Benefit, to recipients of veterans’ payments (such as the Service Pension, Disability Pension and War Widow/Widower’s Pension), to recipients of the Farm Household Support Allowance and to holders of a Commonwealth Seniors Health Card and some holders of a Department of Veterans’ Affairs (DVA) Health Card - For All Conditions (Gold Card). Rates of the Energy Supplement are based on the payment to which it is attached and range from $91.25 per annum for Family Tax Benefit Part A (child under 13 years) to $559.00 per annum for veterans receiving the Special Rate of Disability Pension. The Energy Supplement is generally paid fortnightly with the attached payment.

Background The Energy Supplement was introduced from 2013 as part of the Clean Energy Household Assistance Package—a package of payments and supports intended to offset the impact of the carbon price on welfare recipients and those on low incomes.414 Most other households received compensation at the same time through income tax changes.415 Welfare recipients initially received a one-off lump sum payment, called the Clean Energy Advance, in May or June 2012, prior to the carbon pricing scheme commencing on 1 July 2012.416 The Clean Energy

408. Social Security (Administration) Act 1999. 409. Farm Household Support Act 2014. 410. Veterans’ Entitlements Act 1986. 411. Military Rehabilitation and Compensation Act 2004. 412. Australian Government, Budget measures: budget paper no. 2: 2016-17, pp. 143-144. 413. M Klapdor, ‘Welfare savings to fund the National Disability Insurance Scheme’, Budget review 2016-17, Research paper series, 2015-16,

Parliamentary Library, Canberra, 2016. 414. P Yeend and L Buckmaster, Clean Energy (Household Assistance Amendments) Bill 2011, Bills digest, 58, 2011-12, Parliamentary Library, Canberra, 21 November 2011. 415. K Swoboda, Clean Energy (Income Tax Rates Amendments) Bill 2011 [and] Clean Energy (Tax Laws Amendments) Bill 2011, Bills digest, 65,

2011-2012, Parliamentary Library, Canberra, 27 October 2011. 416. Department of Social Services (DSS), ‘1.2.12.10 Clean Energy Advance (CEA) - description’, Guide to social security law, version 1.224, released 15 August 2016, DSS website.

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Supplement, as it was originally named, was intended as ongoing support for increased costs arising from the carbon price. Then Minister for Families, Housing, Community Services and Indigenous Affairs, Jenny Macklin, stated the Government was ‘directing revenue raised from putting a price on carbon to Australian families and pensioners through an increase to their payments’.417 The increase in payments was intended to be ‘permanent and indexed, so that payments keep pace with the cost of living now and into the future’, and ‘… greater than the average expected price increase from putting a price on carbon’.418

The value of the Clean Energy Supplement was set at around 1.7 per cent of the basic rate of the payment to which it was attached (the expected price impact of the carbon price—a 0.7 per cent increase—plus an additional one per cent). As most welfare payments are adjusted regularly in line with price movements, as measured by the Consumer Price Index (CPI), special provisions were put in place for the adjustments that took place immediately after the Clean Energy Supplement was introduced.419 These provisions effectively removed the expected impact of the carbon price (a 0.7 per cent increase in the CPI) from any CPI adjustment of the payments the Clean Energy Supplement was attached to. This meant that this 0.7 per cent CPI impact of the carbon price was to be delivered via the Clean Energy Supplement, not through the indexation of the attached payments. Taking this adjustment into account, the Clean Energy Supplement was a 1.0 per cent real increase in the value of most payment rates.

Abbott Government changes During the 2013 election, the Coalition committed to abolishing the carbon price while keeping the compensation measures that formed part of the Household Assistance package.420 However, after winning the election and repealing the carbon price in 2014, the Government made a number of changes to the package, including renaming the Clean Energy Supplement the ‘Energy Supplement’, ceasing indexation of the payment and abolishing some minor supplementary payments.421

Payment of the Energy Supplement The Energy Supplement is generally paid together with the regular payment it is attached to (usually fortnightly). However, pensioners, allowance recipients and Family Tax Benefit recipients can elect to receive the payment on a quarterly basis.422 Payments of the Energy Supplement to Commonwealth Seniors Health Card holders and veterans’ Gold Card holders can only be made quarterly. Family Tax Benefit recipients who choose to receive their payment as annual lump sum will receive the Energy Supplement on an annual basis.

For means tested payments such as pensions, allowances and Family Tax Benefit, it is included in the rate that can be reduced under any applicable income or assets test.

Current payment rates There are over a hundred different rates of Energy Supplement, reflecting the array of different rates for the payments the Energy Supplement is attached to.423 The table below presents a sample of some of the current payment rates:

Table 11: Selected Energy Supplement payment rates

Primary payment Fortnightly Energy Supplement rate Annual Energy Supplement rate

Single pension $14.10 $366.60

Partnered pension (each) $10.60 $275.60

Single allowance, no children $8.80 $228.80

417. J Macklin, ‘Second reading speech: Clean Energy (Household Assistance Amendments) Bill 2011’, House of Representatives, Debates, 13 September 2011, p. 9858. 418. Ibid. 419. Explanatory Memorandum, Clean Energy (Household Assistance Amendments) Bill 2011, pp. 30-34. 420. T Abbott (Leader of the Opposition), Address to the NSW Liberal Party State Council Central Coast, speech, 1 June 2013. 421. Social Services and Other Legislation Amendment (2014 Budget Measures No. 6) Act 2014; Social Services Legislation Amendment (Low

Income Supplement) Act 2015. 422. DSS, ‘3.15.2 ES - Qualification & Payability’, Guide to social security law, version 1.224, released 15 August 2016, DSS website. 423. Senate Community Affairs Legislation Committee, Official committee Hansard, 6 May 2016, p. 127.

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Primary payment Fortnightly Energy Supplement rate Annual Energy Supplement rate

Single allowance, with dependent children

$9.50 $247.00

Partnered allowance (each) $7.90 $205.40

Parenting Payment (single) $12.00 $312.00

Youth Allowance, 18+, at home

$4.60 $119.60

Youth Allowance, 18+, away from home

$7.00 $182.00

Family Tax Benefit Part A (child under 13 years)

$3.51 $91.25

Family Tax Benefit Part A (child 13-19)

$4.49 $116.80

Family Tax Benefit Part B (youngest under five years)

$2.81 $73.00

Family Tax Benefit Part B (youngest 5-18)

$1.97 $51.10

Veterans’ Disability Pension Special rate - $21.50

Intermediate rate - $14.50

Extreme Disablement Rate - $11.80

General rate - $7.70

Special rate - $559.00

Intermediate rate - $377.00

Extreme Disablement Rate - $306.80

General rate - $200.20

Sources: Department of Social Services (DSS), ‘5.1.10.20 ES - current rates’, Guide to social security law, version 1.224, released 15 August 2016, DSS website; DSS, ‘3.1.1.25 Current ES rates’, Family assistance guide, version 1.188, released 15 August 2016, DSS website; Department of Veterans’ Affairs (DVA), ‘Rate of Energy Supplement’, Compensation and support policy library, DVA website.

Nature of the Single Income Family Supplement The Single Income Family Supplement (SIFS) is paid to single income families who did not receive the same level of compensation as dual-income families from the income tax cuts that were introduced as part of the carbon price compensation package. It is an annual lump-sum payment worth $300 per annum.424

To be eligible for the SIFS, a person must have a qualifying child and the main income earner in the family must have a taxable income of between $68,000 and $150,000 per annum. If there is a second earner in the family, their income must be below $18,000.

The maximum payment rate of the SIFS is $300. The rate can be affected by the income of the main income earner and any secondary income earner. The SIFS rate is zero if the main earner’s taxable income is $68,000 or below. If the main income earner’s income is above this threshold, the SIFS rate is worked out by applying one or both of the following income tests:

• for each dollar of the main income earner’s taxable income over $68,000 per annum, their SIFS rate increases by $0.025 until the maximum rate of $300 is reached (at $80,000 per annum). The maximum rate is paid for income between $80,000 and $120,000. For each dollar of the main earner’s income over $120,000, their SIFS rates decrease by $0.01 until it is reduced to zero (at $150,000 per annum)

• for couple families, where the SIFS rate is greater than zero after applying the main earner income test, a secondary income earner test applies. If the second income earner’s annual taxable income exceeds $16,000

424. DHS, ‘Single Income Family Supplement’, DHS website, last updated 11 August 2016.

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then the SIFS rate is reduced by $0.15 for each dollar over $16,000. If the SIFS rate was $300 under the main earner’s income test, then it would be reduced to zero if the second earner’s income was $18,000 or over.425

Families in receipt of Family Tax Benefit are automatically assessed for eligibility for the SIFS as part of the Family Tax Benefit reconciliation process at the end of each financial year. Other individuals who may be eligible need to submit a claim for the payment.

Rationale for closing off carbon tax compensation In his second reading speech for the Bill, Treasurer Scott Morrison stated:

Carbon tax compensation will be closed to new welfare recipients as we will no longer compensate people for a tax that no longer exists and that this government abolished. 426

In his media release on the budget measures, Minister for Social Services Christian Porter stated:

The carbon tax compensation measures were introduced to make up for the expected cost on individuals and to mitigate what would otherwise have been long-term electricity price increases under Labor's carbon tax which has since been abolished. The compensation for long-term electricity price increases is no longer necessary for new entrants to the welfare system.

427

In both cases, the Ministers did not state why current recipients would continue to receive the compensation payments, or why other components of the compensation package would remain (such as the income tax cuts).

This rationale also runs counter to the Coalition’s 2013 Election commitment to keep the compensation measures, despite removing the carbon price.

Policy position of non-government parties

Australian Labor Party In Labor’s Fiscal Plan, released prior to the 2016 Election, the Australia Labor Party (ALP) states that, while it had included the 2016-17 budget measure to close off the carbon price compensation in its assessment of the fiscal impact of its election policies, it had not taken a definitive position on the policy:

The Opposition has not been given the opportunity to properly scrutinise the Government’s removal of the clean energy supplement or seek advice from the Department on its effects. In government, Labor will seek further advice on the impacts of this measure. Labor has already confirmed that we will conduct an independent review of the adequacy of the Newstart Allowance—to ensure it can keep people out of poverty while also helping people into work.

428

At the time of writing, the ALP had not announced a position on the particular measure. Concern has been expressed about the measures from senior frontbenchers, including Shadow Minister for Infrastructure and Transport, Cities and Tourism, Anthony Albanese, who said that the ALP should be ‘very cautious about voting for anything that hurts some of the most underprivileged people in our community’.429

Australian Greens The Australian Greens have stated that they oppose the measures proposed in Schedule 21 of the Bill.430

Minor parties and independents At the time of writing, other minor parties and independents had not stated their position on the amendments set out on Schedule 21.

425. DSS, ‘3.10 Determining the SIFS Rate’, Family assistance guide, version 1.188, released 15 August 2016, DSS website. 426. S Morrison, ‘Second reading speech: Budget Savings (Omnibus) Bill 2016’, House of Representatives, Debates, (proof), 31 August 2016, p. 33. 427. C Porter (Minister for Social Services), Real money for a real commitment to the NDIS, media release, 3 May 2016. 428. Australian Labor Party (ALP), Labor’s fiscal plan, ALP policy document, Election 2016, p. 12. 429. M Grattan, ‘Albanese warns Labor over clean energy supplement in omnibus bill’, The Conversation, 28 August 2016. 430. R Siewert, Greens will oppose cuts to Newstart in the budget, media release, 2 September 2016.

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Position of major interest groups A large group of community sector organisations and peak bodies have stated their opposition to the measures in Schedule 21 and called on the Government to retain the Energy Supplement. The Australian Council of Social Service (ACOSS), National Welfare Rights Network, People with Disability Australia, Carers Australia, Australian Youth Affairs Coalition, Jobs Australia, National Council of Single Mothers and their Children, Australian Unemployed Workers’ Union and the Welfare Rights Centre have written a joint letter to the Prime Minister and the Leader of the Opposition calling on them to maintain the Energy Supplement:

As organisations representing people who rely on social security payments, we urge you to withdraw this proposal to remove the Energy Supplement which will plunge people further below the poverty line. Whatever its original purpose, this is money that people in poverty need every fortnight for their most basic living costs, as well as those of their children.

431

A separate open letter criticising the measures was signed by a group of prominent academics, community group leaders, lawyers, former politicians, writers and union leaders including former Leader of the Liberal Party John Hewson and former Western Australia Premier Carmen Lawrence. The letter focuses on the impact of the removal of the Energy Supplement on Newstart Allowance recipients and states:

A government that plans to give more to the richest Australians while cutting support for people below the poverty line will only further entrench inequality in Australia. We urge the Prime Minister and all political leaders not to cut Newstart. 432

Statement of compatibility with Human Rights The Statement of Compatibility with Human Rights for Schedule 21 can be found at page 285 of the Explanatory Memorandum to the Bill.433

According to the Statement, the Schedule engages the right to social security under Article 9 of the International Covenant on Economic, Social and Cultural Rights, and the right to an adequate standard of living under Article 11. It also engages the rights of the child in Article 26 of the Convention on the Rights of the Child. While limiting these rights for some individuals (those no longer eligible for the Energy Supplement or the SIFS), the Statement holds that these limitations are ‘reasonable, necessary and proportionate and people are otherwise provided for’.434

Key issues

Who will be affected? The Government expects around 2.2 million new payment recipients will be affected by the closure of the Energy Supplement to new recipients over the forward estimates (it is unclear if this number includes those in receipt of veterans’ payments or eligible cardholders).435 Around 6.5 million people will continue to receive the Energy Supplement under the grandfathering provisions.436 Newstart Allowance recipients are likely to be one of the main payment recipient categories affected as there is a large turnover in the number of recipients on this payment—in the period between 1 April 2014 and 31 March 2015, there were 418,071 entries onto Newstart Allowance and 261,772 exits.437 Many Newstart Allowance recipients will move on and off the payment as they move to and from short-term employment. Those that are currently in receipt of an eligible payment who exit income support on or after 20 September 2016, even for a brief period, would no longer be eligible for the Energy Supplement.

431. C Goldie, O Bennett, K Acheson, A Cresswell, D Thompson, T Edwards, M Butt, B Mullen and K Boyle, ‘Letter to the Prime Minister’, 19 August 2016; Australian Council of Social Service (ACOSS), Unemployed and pensioners collateral damage in budget fight, media release, 22 August 2016.

432. The Australia Institute, Prominent Australians urge PM: don’t cut Newstart, media release, 26 August 2016. 433. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 285. 434. Ibid., p. 287. 435. Senate Community Affairs Legislation Committee, Official committee Hansard, 6 May 2016, p. 127. 436. Ibid., p. 128. 437. DSS, ‘DSS Demographics March 2016’, data.gov.au website, 8 July 2016.

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The Government expects around 113,000 families will lose eligibility for the SIFS in the three years from 1 July 2017.438

The adequacy of allowance payment rates The focus of most commentary on the measures in Schedule 21 has been on the impact on new Newstart Allowance recipients.439 This is partly because Newstart Allowance recipients are likely to be one of the most affected groups (see section above) but mainly because of an ongoing debate over whether allowance payment rates are adequate and should be subject to rate cuts.

As the Parliamentary Library noted in its 2013 Briefing Book for the 44th Parliament, there is widespread agreement that allowance payments are too low.440 A Coalition-chaired Senate committee inquiry found in 2012 that the payment rate for allowances was inadequate and impeded income support recipient’s ability to meet their basic costs of living.441

In a recent report on solving government budget deficits, consulting firm KPMG recommended an increase in the Newstart Allowance rate. The report states: ‘Due to political rhetoric, payments for those who are unemployed have fallen behind other payments, to the point that it is commonly recognised that Newstart is inadequate, and significantly so’.442 It argued four reasons why Newstart should be increased:

• it is difficult to deal with budget expenditure issues when there is a clear inadequacy in a particular area— ignoring an area of obvious need reduces the political capital needed to deal with other areas in the system

• the low level of Newstart is forming a barrier to work—the rate needs to be sufficient to allow for the unemployed to actively seek work

• the low rate of Newstart creates a perverse incentive to seek access to higher-rate payments such as the Disability Support Pension and

• the low rate has the effect of locking people into jobs for fear they would not survive on income support and cannot risk moving jobs—the low safety net may act as disincentive to take risks.443

Despite the concern from welfare, community and business groups at the low-rate of allowance payments, and a long-running campaign to increase rates, the Government is instead reducing the level of assistance provided to these payment recipients by closing off the Energy Supplement. New allowance payment recipients will not only be receiving $120-$250 less per year (depending on their age and family circumstances); they will also miss out on the Income Support Bonus, a lump sum payment paid twice annually to allowance, student assistance and Parenting Payment recipients. The Income Support Bonus, worth $185.60 per year for each member of a couple and $223.00 per year for singles, will be abolished for all recipients from 20 September 2016.444 Amendments were made to remove this small supplementary payment at the time the minerals resource rent tax (mining tax) was repealed in 2014.445

Indexation issue means many worse off than had the carbon price compensation never been introduced As noted in the ‘Background’ section, at the time the Energy Supplement commenced, special indexation arrangements effectively removed the expected impact of the carbon price (a 0.7 per cent increase in the CPI) from any CPI adjustment of the payments to which the Clean Energy Supplement was attached. This meant that this 0.7 per cent CPI impact of the carbon price was delivered via the Clean Energy Supplement, not through the indexation of the attached payments. As such, the basic payment rate of many of the attached payments was

438. Senate Community Affairs Legislation Committee, Official committee Hansard, 6 May 2016, p. 127. 439. P Martin, ‘You can’t take the fair out of welfare’, The Age, 1 September 2016, p. 19; L Taylor, ‘Axing clean energy supplement has barely caused a ripple, but it should’, the guardian.com, 13 August 2016. 440. M Klapdor, ‘Adequacy of income support payments’, Briefing book: key issues for the 44th Parliament, Parliamentary Library, Canberra, 2013,

p. 76.

441. Senate Education, Employment and Workplace Relations References Committee, The adequacy of the allowance payment system for jobseekers and others, the appropriateness of the allowance payment system as a support into work and the impact of the changing nature of the labour market, The Senate, Canberra, November 2012, pp. 50, 54.

442. KPMG, Solving the structural deficit, KPMG, April 2016, p. 14. 443. Ibid. 444. Department of Human Services (DHS), ‘Income Support Bonus’, DHS website, last updated 24 August 2016. 445. Minerals Resource Rent Tax Repeal and Other Measures Act 2014. See also, T Dale, K Swoboda, K Sanyal, B Pulle and M Klapdor, Minerals

Resource Rent Tax Repeal and Other Measures Bill 2013, Bills digest, 27, 2013-14, Parliamentary Library, Canberra, 9 December 2013.

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not increased by as much as they would have, had the Energy Supplement not being introduced—and this has had a flow-on effect where subsequent rate adjustments have been based on a lower base rate.

The consequence of this is that many of the new payment recipients not eligible for the Energy Supplement will be worse-off than had the Energy Supplement never been introduced—the basic rate of their payment will be lower than the basic rate of payment would have been without the 2013 indexation arrangements. This issue affects those payments indexed to CPI-only: primarily allowance payments, Parenting Payment Partnered, some transitional-rate pensions and Family Tax Benefit. Most pensions and Parenting Payment Single are not affected in the same way as a result of a different indexation process. Pensions are indexed to both CPI and another index, the Pensioner and Beneficiary Living Cost Index (PBLCI), and are also benchmarked to a percentage of Male Total Average Weekly Earnings (MTAWE). Parenting Payment Single is indexed to CPI and benchmarked to a percentage of MTAWE. In 2013, these payments were adjusted according to the MTAWE benchmark rather than CPI indexation. As a result, they were not affected by the 0.7 per cent CPI adjustment.

Former policy analyst with the Department of Social Security (and successor departments), David Plunkett, has illustrated the immediate impact of 2013 indexation adjustment in his submission to the Senate Economics Committee inquiry into the Bill. The chart below shows Newstart Allowance rates in March 2013: the first column shows the rate prior to indexation, the second column shows the rate if normal CPI-indexation had occurred, and the third shows the actual rate with the two Clean Energy Supplement components (the 0.7 per cent inflation component deducted from the normal CPI indexation and the additional one per cent component):

Figure 1: Impact of 2013 indexation adjustment on Newstart Allowance rates

Source: D Plunkett, Submission to the Senate Economics Legislation Committee, Inquiry into the Budget Savings (Omnibus) Bill 2016, Attachment A, September 2016.

As can be seen, the rate after the normal indexation process is higher than the actual rate on 20 March 2013 minus the Clean Energy Supplement (comparing the second and third blue columns). With subsequent indexation adjustments being based on this lower base rate, many payments are now significantly lower than they would have been had normal indexation occurred:

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Table 12: Fortnightly payment rates compared to those if Energy Supplement never introduced, as at 20 September 2016

Payment Current rates without Energy

Supplement

Rates if Energy Supplement never introduced

Single Newstart Allowance, no children

$528.70 $532.30

Single Newstart allowance, with dependent children

$571.90 $575.90

Partnered Newstart allowance (each)

$477.40 $480.60

Youth Allowance, 18+, at home $285.20 $287.00

Youth Allowance, 18+, away from home

$433.20 $436.20

Family Tax Benefit Part A (child under 13 years)

$182.84 $184.24

Family Tax Benefit Part A (child 13-19)

$237.86 $239.54

Family Tax Benefit Part B (youngest under five years)

$155.54 $156.66

Family Tax Benefit Part B (youngest 5-18)

$108.64 $109.34

Source: D Plunkett, Submission to the Senate Economics Legislation Committee, Inquiry into the Budget Savings (Omnibus) Bill 2016, Attachment C, September 2016.

The Table above shows that a single Newstart recipient will be around $94 a year worse-off without the Energy Supplement, than if the compensation payment had never been introduced and indexation had occurred as normal.

Plunkett has argued that the effect of this indexation issue combined with the loss of the Energy Supplement, means that new income support recipients will be subject to a ‘double penalty’.446 New recipients will not only lose the 1.0 per cent compensation bonus that was a component of the Clean Energy Supplement; they also lose the 0.7 per cent price increase component that was deducted from the main payment rate.

Complexity of the social security system By closing off the Energy Supplement to new recipients and grandfathering existing recipients, the amendments in Schedule 21 will create two-tiers of payment rates across the social security and family assistance system: a pre-20 September 2016 tier and post-20 September 2016 tier. This will create new complexities for the administration of the system in terms of determining those eligible for the Energy Supplement as well as calculating rates under the means tests.

Introducing new complexities into the system is at odds with the Minister for Social Services’ statements about wanting to simplify the system and reduce the number payments and supplements. In his second reading speech for the Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016, Minister Porter referenced the 2015 report of the Reference Group on Welfare Reform (the McClure

446. D Plunkett, Submission to the Senate Economics Legislation Committee, Inquiry into the Budget Savings (Omnibus) Bill 2016, September 2016, [p. 1].

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Review)447 in promoting the alignment of different payment rates for young people and the abolition of the Family Tax Benefit end-of-year supplements:

Aligning these two rates of payment, is in itself a much needed part of the reform process to simplify payments where possible.

Crucially, these changes are consistent with the reform recommendations of the McClure Review to reduce the number of supplements in the system. McClure emphasised that there are far too many supplements—some 20 main payment types and 55 supplements. 448

The amendments in Schedule 21 of the Bill increase the complexity of the system by creating new categories of recipient ineligible for the Energy Supplement across all of the main payment types.

Comment The measures in Schedule 21 will deliver significant savings which are to be directed towards the NDIS. Some of those in receipt of the payments affected by the removal of the Energy Supplement and the SIFS will also be beneficiaries of the NDIS. This raises the question as to whether the services offered by the NDIS should be funded by the withdrawal of direct financial support for people with disability and carers.

While the removal of carbon tax compensation runs counter to the Coalition’s 2013 election commitments, it could be argued as justified given the abolition of the carbon price. However, the measures go further than trimming the compensation provided via the Household Assistance package and will actually leave some welfare recipients worse-off than had the carbon price never been introduced.

The removal of the Energy Supplement and the SIFS follows a number of benefit cuts and reductions over the last three years including the abolition of the Income Support Bonus and the Schoolkids Bonus and the proposed removal of Family Tax Benefit supplements, the Pensioner Education Supplement and the Education Entry Payment.449 Critics may argue that at a time of growing concern as to the adequacy of some payments, the level of support offered by the social security system is being slowly eroded.

Key provisions Note that the item numbers in Schedule 21 of the Bill are out of sync with the item numbers referred to in the Explanatory Memorandum to the Bill. This Bills Digest refers to the item numbers which are specified in Schedule 21 of the Bill.

Part 1—A New Tax System (Family Assistance) Act 1999 Items 1 and 2 insert a note to subsections 58(2) and proposed subsections 58(2C) and (2D) respectively into the FA Act to prevent the Energy Supplement being included in the Family Tax Benefit rate calculation for approved care organisations (organisations providing residential care to young people) from 20 March 2017 unless they were eligible for Family Tax Benefit on 19 September 2016. Energy Supplement will also no longer be included in the rate of Family Tax Benefit for approved care organisations if they were entitled to Family Tax Benefit on 19 September 2016 but cease to be entitled on or after 20 September 2016 with the rate no longer being included from 20 March 2017 or the date their entitlement to Family Tax Benefit ceases (if after 20 March 2017).

Set out in Schedule 1 of the FA Act are a number of different income tests used to determine the rate of Family Tax Benefit an individual is entitled to. The income test used depends on the families’ circumstances and which test provides the highest rate. The main income tests are known as Method 1, Method 2 and the maintenance income test (really a component of Method 1 but applicable to those maintenance payments).

447. Reference Group on Welfare Reform, A new system for better employment and social outcomes: final report of the Reference Group on Welfare Reform to the Minister for Social Services, (McClure Report), Commonwealth of Australia, 2015. 448. C Porter, ‘Second reading speech: Social Services Legislation Amendment (Family Payments Structural Reform and Participation Measures) Bill 2016’, House of Representatives, Debates, 1 September 2016, p. 29. 449. Minerals Resource Rent Tax Repeal and Other Measures Act 2014; M Klapdor, Social Services Legislation Amendment (Family Payments

Structural Reform and Participation Measures) Bill (No. 2) 2015, Bills digest, 65, 2015-16, Parliamentary Library, Canberra, 2016; D Arthur, Social Services Legislation Amendment (Budget Repair) Bill 2015, Bills digest, 78, 2015-16, Parliamentary Library, Canberra, 2016.

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Item 8 adds proposed clause 6A at the end of Division 1 of Part 2 of Schedule 1 (the Family Tax Benefit Method 1 rate calculator) to prevent the Energy Supplement being included in the Family Tax Benefit rate calculation for individuals from 20 March 2017 unless they were entitled to Family Tax Benefit on 19 September 2016 and they received a Family Tax Benefit Part A per child rate (some individuals with less than 35 per cent care of a child only qualify for Rent Assistance and not a per child rate of Family Tax Benefit Part A). Energy Supplement will also no longer be included in the rate of Family Tax Benefit for individuals if they were entitled to Family Tax Benefit on 19 September 2016 but cease to be entitled on or after 20 September 2016, from 20 March 2017 or the date their entitlement to Family Tax Benefit ceases (if after 20 March 2017).

Item-10 inserts proposed subclause 24HA(2) into Schedule 1 of the FA Act so that the Energy Supplement is not to be included in parts of the maintenance income test calculations where the Energy Supplement would not be paid to that individual as a result of new clause 6A (inserted by item 8).

Item 15 adds proposed clause 25C at the end of Division 1 of Part 3 of Schedule 1 (the Family Tax Benefit Method 2 rate calculator) to prevent the Energy Supplement being included in the Family Tax Benefit rate calculation for individuals from 20 March 2017 unless they were entitled to Family Tax Benefit on 19 September 2016 and they received a Family Tax Benefit Part A per child rate. The Energy Supplement will also no longer be included in the rate of Family Tax Benefit for individuals if they were entitled to Family Tax Benefit on 19 September 2016 but cease to be entitled on or after 20 September 2016, from 20 March 2017 or the date their entitlement to Family Tax Benefit ceases (if after 20 March 2017).

Item 16-25 of Part 1 in Schedule 21 to the Bill makes similar amendments to those above to prevent the Energy Supplement being included in the Family Tax Benefit Part B rate calculation for those who become entitled to Family Tax Benefit Part B on or after 20 September 2016, or those who were entitled prior to this date but cease being entitled on or after 20 September 2016.

Part 2—Social Security Act 1991 Item 29 of Part 2 to Schedule 21 of the Bill inserts proposed section 22 into Part 1.2—Definitions of the SS Act. New section 22 defines when a person is considered to be a transitional energy supplement person. A person is a transitional energy supplement person if on 19 September 2016:

• they are receiving an income support payment where the Energy Supplement was used to work out the rate

• Energy Supplement is payable to the person (under section 1061UA)

• they are eligible to receive the Energy Supplement as a result of receiving a War Widow/War Widower pension (under section 62B of the VE Act)

• they are eligible to receive the Energy Supplement as holders of a Commonwealth Seniors Health Card or Gold Care under the VE Act (section 118PA)

• they are eligible to receive the Energy Supplement as a result of receiving a payment under the Veterans’ Children Education Scheme or the Military Rehabilitation and Compensation Act Education and Training Scheme

• the person receives an Energy Supplement as a result of receiving a compensation payment for the death of their partner under section 238A of the MRC Act or

• the person is receiving an ABSTUDY living allowance.

A person ceases to be a transitional energy supplement person, and may never again be one, if none of the above criteria apply to a person on a day on or after 20 September 2016.

While War Widows/War Widowers pension recipients and veterans’ service pensioners are included in the definition of transitional energy supplement person (as a service pension is defined as an income support payment), veterans’ Disability Pension recipients and the recipients of certain payments under the MRC Act have been left out of this definition. Instead, separate definitions of transitional energy supplement person covering veterans’ Disability Pension recipients and certain MRC Act payments will be inserted into the VE Act and the MRCA Act by amendments in Parts 4 and 5 of Schedule 21, respectively.

Proposed subsections 22(3) to (6) of the SS Act provide for certain individuals to continue to be considered as transitional energy supplement persons, including those who have their payment rate reduced to nil on or after 19 September 2016; those who have their payment suspended on or after 19 September 2016; those who have an absence from Australia longer than six weeks; those who move between being a Commonwealth Seniors

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Health Card holder and being an income support payment recipient; and those who make a claim or are provided with a Commonwealth Seniors Health Card within a certain period of time after certain income support payments are cancelled. Specific criteria apply in each situation for persons in these situations to remain eligible for the Energy Supplement.

Proposed subsection 22(6), together with proposed subsection 1061U(6) which is inserted by item 37 of Part 2 in Schedule 21 of the Bill will ensure that those who have their pension payment cancelled as a result of the new assets test provisions commencing on 1 January 2016, and who are therefore automatically issued with Commonwealth Seniors Health Card, will continue to be eligible for an Energy Supplement paid with the Commonwealth Seniors Health Card.450

Items 39-62, 64-67, 69-72, 74-80 and 82-83 amend various rate calculators for social security payment so the Energy Supplement is not added to the rate calculations for these payments from 20 March 2017 unless the person is a transitional energy supplement person on that day. The rate calculators apply to the following payments:

• Age Pension, Disability Support Pension, Wife Pensions and Carer Payment (people who are not blind) at section 1064

• Age Pension and Disability Support Pension (blind people) at section 1065

• Bereavement Allowance and Widow B Pension at section 1066

• Disability Support Pension (people under 21 who are not blind) at section 1066A

• Disability Support Pension (people under 21 who are blind) at section 1066B

• Youth Allowance at section 1067G

• Austudy Payment at section 1067L

• Widow Allowance, Newstart Allowance, Sickness Allowance, Partner Allowance and Mature Age Allowance at section 1068

• Parenting Payment Single at section 1068A and

• Parenting Payment Partnered at section 1068B.

Items 63, 68, 73 and 81 amend the partner income free area provisions for Youth Allowance, Austudy Payment, Widow Allowance, Newstart Allowance, Sickness Allowance, Partner Allowance, Mature Age Allowance and Parenting Payment Partnered so the Energy Supplement is not included where the person is not a transitional energy supplement person (unless their partner is a transitional energy supplement person). The partner income free area is the amount of income an income support recipient’s partner can have before the recipient’s payment rate is reduced—the income free area is based on the partner’s age, whether or not they receive a social security benefit, and the rate of benefit that would be payable if they were in receipt a benefit.

Items 83 and 84 amend point 1068B-DB1 and point 1071-2A respectively to remove the Energy Supplement from the formula used to calculate the allowable income limits for a Low Income Health Care Card.451 These amendments will lower the amount of allowable income a person can earn and still qualify for the Health Care Card and will apply irrespective of whether the person held a card prior to 20 March 2017 (the commencement date).

Part 3—Farm Household Support Act 2014 Items 86-89 in Part 3 of Schedule 21 to the Bill make minor amendments and insert notes into the Farm Household Support Act 2014 to explain that some Farm Household Support Allowance recipients will not receive the Energy Supplement (that is, those who are not transitional energy supplement persons). The rates of Farm Household Support Allowance are tied to the payment rates of Newstart Allowance and Youth Allowance in the SS Act and are therefore affected by the amendments in Part 2 of Schedule 21.

450. For information on the assets test changes and automatic-issue Commonwealth Seniors Health Cards, see: M Klapdor, Social Services Legislation Amendment (Fair and Sustainable Pensions) Bill 2015, Bills digest, 129, 2014-15, Parliamentary Library, Canberra, 2015. 451. DSS, ‘3.9.1.70 Low Income HCC - Assessment of Income’, Guide to social security law, version 1.224, released 15 August 2016, DSS website.

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Part 4—Veterans’ Entitlements Act 1986 Items 93-95 amend section 62A of the VE Act which currently provides for the payment of the Energy Supplement to recipients of the Disability Pension under the VE Act. Item 95 inserts proposed subsections 62A(4) to (6) to define a transitional energy supplement person as a person who on 19 September 2016 is in receipt of the Energy Supplement as a veterans’ Disability Pension recipient, or as a person eligible for permanent impairment payment under subsection 83A(1) of the MRC Act, or as a person eligible for the Special Rate Disability Pension under the MRC Act. Only those who meet the definition of transitional energy supplement person under the VE Act or the SS Act can receive the Energy Supplement after 20 March 2017. If a person ceases to meet the definition of transitional energy supplement person they cannot regain the status of being a transitional energy supplement person in accordance with proposed subsection 62A(6) of the VE Act.

Item 98 inserts proposed subsection 62B(4) so that a War Widow/War Widower pension recipient can be eligible for the Energy Supplement after 20 March 2017 if they meet the definition of transitional energy supplement person set out in section 22 of the SS Act (inserted by item 29 in Part 2 of Schedule 21 to the Bill).

Items 105 and 106 amend section 118P of the VE Act which sets out the eligibility for the Energy Supplement for holders of a Commonwealth Seniors Health Card or a DVA Health Card All Conditions (Gold) to prevent new cardholders after 20 March 2017 from receiving the Energy Supplement; and to set out conditions where a person who claims or receives a card after having another payment cancelled, or who moves from being a cardholder to receiving an income support payment, can continue to receive the Energy Supplement.

Items 112-118 (excluding item 116) in Part 4 of Schedule 21 to the Bill make amendments to the method statements for determining payment rates for the Service Pension. Item 116 provides for the Energy Supplement to not be included in the rate calculation process unless the person is a transitional energy supplement person as defined under the SS Act.

Part 5—Military Rehabilitation and Compensation Act 2004 The Explanatory Memorandum refers to item 118 inserting a definition of income support payment into the MRC Act (which would have the same meaning as in the SS Act), however, item 118 of this Schedule is an amendment to the VE Act (noted above) and there is no item in the Bill providing for such an amendment to the MRC Act.

Item 120 of Part 5 of Schedule 21 to the Bill inserts proposed subsections 83A(4), (5) and (6) into the MRC Act so that a person in receipt of a permanent impairment payment under the MRC Act will only be eligible for the Energy Supplement from 20 March 2017 if they are a transitional energy supplement person. A transitional energy supplement person for the purposes of this section of the MRC Act is defined in proposed subsection 83A(5) as a person who is eligible for the Energy Supplement on 19 September 2016 in respect of a permanent impairment payment under the MRC Act, a Special Rate of Disability Pension under the MRC Act or a Disability Pension payable under the VE Act. A person who ceases to meet the criteria to be a transitional energy supplement person after 19 September 2016 can never again become a transitional energy supplement person.

Item 122 inserts proposed subsections 209A(3), (4) and (5) into the MRC Act so that a person in receipt of a Special Rate Disability Pension under the MRC Act will only be eligible for the Energy Supplement from 20 March 2017 if they are a transitional energy supplement person. A transitional energy supplement person for the purposes of this section of the MRC Act is defined in proposed subsection 209A(4) as a person eligible for the Energy Supplement on 19 September 2016 in respect of a Special Rate Disability Pension, a permanent impairment payment under the MRC Act or a Disability Pension under the VE Act. A person who ceases to meet the criteria to be a transitional energy supplement person after 19 September 2016 can never again become a transitional energy supplement person.

Item 124 inserts proposed subsection 238A(4) into the MRC Act so that a person in receipt of a compensation payment as a wholly dependent partner under the MRC Act will only be eligible for the Energy Supplement from 20 March 2017 if they are a transitional energy supplement person as defined in section 22 of the SS Act (as inserted by item 29 in Part 2 of schedule 21 to the Bill).

Part 6—Social Security Act 1991 The items in Part 6 make minor amendments to the SS Act to prevent holders of the Commonwealth Seniors Health Card from accessing Telephone Allowance. Telephone Allowance is paid to some income support

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payment recipients to help with the costs of maintaining a telephone or internet connection.452 Currently, paragraph 1061R(d) of the SS Act prevents Telephone Allowance being payable to a person where they are in receipt of the Energy Supplement. These items ensure that these cardholders do not qualify for Telephone Allowance with the closing of the Energy Supplement to new cardholders from 20 March 2017, and therefore maintain the current arrangements for this allowance.

Part 7—A New Tax System (Family Assistance) Act 1999 Part 7 of the Schedule makes amendments to the FA Act to close the SIFS to new recipients from 1 July 2017.

Item 133 inserts proposed section 57GDA so that an individual who is not eligible for the SIFS on the day before 1 July 2017 will not be eligible for the payment on or after 1 July 2017.

Schedule 22—Rates of R&D tax offset History of the measure The provisions in Schedule 22 of the Bill are the third attempt to amend the rates of tax offset available under the research and development (R&D) tax incentive.

Prior to this Bill, the provisions were introduced as Schedule 2 of the Tax and Superannuation Laws Amendment (2015 Measures No. 3) Bill 2015 (TSLA Bill 2015).453 A Bills Digest was prepared for the TSLA Bill 2015.454 Much of the information in this discussion of Schedule 22 is sourced from that earlier Bills Digest. The TSLA Bill 2015 was introduced in the House of Representatives on 27 May 2015 and lapsed when the Parliament was prorogued on 15 April 2016.

The TSLA Bill 2015 was introduced after identical provisions were deleted from the Tax and Superannuation Laws Amendment (2014 Measures No. 5) Bill 2014 (2014 Bill) in amendments made by the Senate.455 The measures in the 2014 Bill were first announced in the 2014-15 Budget on 13 May 2014.456

Purpose of the measure Schedule 22 of the Bill amends the Income Tax Assessment Act 1997 (the ITAA 1997) to reduce the rates of tax offset available under the research and development (R&D) tax incentive for the first $100 million of eligible expenditure by 1.5 percentage points. The amendments in Schedule 22 will reduce the higher (refundable) rate of the tax offset from 45 per cent to 43.5 per cent, and the lower (non-refundable) rate from 40 per cent to 38.5 per cent.457

Commencement The amendments in Schedule 22 to the Bill commence on the first 1 January, 1 April, 1 July or 1 October to occur after Royal Assent.

Background The current R&D tax incentive came into effect on 1 July 2011. The R&D tax incentive assists businesses to offset some of the costs of doing R&D and aims to promote innovation. The program is administered jointly by AusIndustry (on behalf of Innovation Australia) and the Australian Taxation Office (ATO).458 The R&D tax incentive replaced the previous R&D tax concession.459

452. DHS, ‘Telephone Allowance’, DHS website, last updated 11 August 2016. 453. Parliament of Australia, ‘Tax and Superannuation Laws Amendment (2015 Measures No. 3) Bill 2015 homepage’, Australian Parliament website. 454. L Nielson, Tax and Superannuation Laws Amendment (2015 Measures No. 3) Bill 2015, Bills digest, 127, 2014-15, Parliamentary Library,

Canberra, 2015. 455. Parliament of Australia, ‘Tax and Superannuation Laws Amendment (2014 Measures No. 5) Bill 2014 homepage’, Australian Parliament website. 456. Australian Government, Budget measures: budget paper no. 2: 2014-15, p. 18. 457. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 20. 458. Australian Taxation Office (ATO), ‘Research and development tax incentive’, ATO website. 459. For a discussion of the process leading to the current arrangements, see J Murray, Tax Laws Amendment (Research and Development) Bill

2010, Bills digest, 165, 2009-10, Parliamentary Library, Canberra, 2010.

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The R&D tax incentive operates by enabling companies to receive a tax offset for eligible R&D expenditure, rather than claiming R&D expenditure as a normal expense. A tax offset reduces the amount of income tax payable, after calculating the basic income tax liability. If a company claims an item under the R&D tax incentive, it cannot also claim it as a normal business expense.

Because the rate of the offset (currently 40 or 45 per cent) is greater than the company tax rate (currently 30 per cent), companies have an additional incentive to engage in research and development.

If a tax offset exceeds the tax otherwise payable, the way that the excess is treated depends on whether the tax offset is refundable or non-refundable. A non-refundable offset that exceeds tax otherwise payable can be carried forward to future income tax years. A refundable tax offset that exceeds tax otherwise payable may be refunded to the entity (subject to certain rules).460

The amendments in Schedule 22 of the Bill reintroduce, with minor modification, the provisions in the TSLA Bill 2015 relating to the rate of tax offset available through the R&D tax incentive. The Schedule modifies the application date from 1 July 2014 to 1 July 2016, and presents revised estimates of the financial impact of the reduced tax offset. Of the 24 Schedules introduced as part of the Bill, Schedule 22 is amongst the three most significant in terms of estimated financial impact.461

The R&D tax incentive is the primary mechanism by which the Commonwealth seeks to promote innovation, which the Turnbull Government identified as a strategic priority in its National Innovation and Science Agenda (announced in December 2015). Innovation is seen as a strategic imperative for Australia as it seeks to transition away from a resources-based economy, and prepares for the challenges and opportunities of the 21st century.

Committee consideration

Senate Economics Legislation Committee The Bill has been referred to the Senate Economics Legislation Committee for inquiry and report by 13 September 2016. Details of the inquiry are at the inquiry webpage.

Senate Standing Committee for the Scrutiny of Bills The TSLA Bill 2015 was considered by the Senate Standing Committee for the Scrutiny of Bills but the Committee made no comment on the Bill.462

Policy position of non-government parties/independents As indicated earlier, the provisions of Schedule 22 to this Bill were initially introduced as Schedule 3 of the 2014 Bill. Both Labor and the Greens opposed the amendments to the R&D tax offset.463

According to the ALP policy document published before the elections this year, however, Labor has not explicitly ruled out changes to the R&D Tax incentive.464 Instead, it stated that it would have regard to the findings of a government review ‘to consider whether there are more appropriate options to amend the R&D Tax Incentive to achieve the same level of budget savings’.

Position of major interest groups The position of the major interest groups were summarised in the Digest for the TSLA Bill 2015 as follows:

RSM Bird Cameron wrote that while the reduction would reduce government support for R&D, the reduction was not significant. A KPMG summary noted that it was ‘disappointed’ with the cut in the 2015-16 financial year, and that while the reduction in company tax rate would match the reduction in the offset, that cut in company tax would be offset by the proposed paid parental leave levy for companies with taxable income over $5 million. One industry member commented that the reduction was ‘sending a clear message that innovation is not a priority’.

460. Australian Taxation Office (ATO), Research and development tax incentive - refundable and non-refundable tax offsets, fact sheet, ATO website, October 2011. 461. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, op. cit., pp. 5-6. 462. Senate Standing Committee for the Scrutiny of Bills, Alert digest, 6, 2015 p. 60. 463. See L Nielson, Tax and Superannuation Laws Amendment (2015 Measures No. 3) Bill 2015, op. cit., pp. 8-9. 464. Australian Labor Party, Labor’s budget repair strategy, Australian Labor Party policy document, Election 2016.

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In its submission to the inquiry on the previous Bill, PricewaterhouseCoopers (PwC) expressed concern that the proposed changes to the offset rates will give rise to undesirable and unintended consequences and therefore diminish the support for research and development that the R&D tax incentive currently provides.

Redarc Electronics stated that it was deeply concerned that the R&D measures in the Bill are ‘ill-conceived and will adversely impact on [the company’s] ability to utilise the benefits of the incentives in furthering [its] R&D and its commercialisation’. 465

There is nothing to suggest that these views have materially changed since the publication of the earlier Bills Digest.

Financial implications As indicated in the Explanatory Memorandum and the Minister’s second reading speech, financial considerations, including a desire to reduce the fiscal debt are the main reason for lowering the rates of the R&D tax incentive. The financial implications of Schedule 22 are shown in the table below:

Table 13: Financial implications of Schedule 22 Year 2015-16 2016-17 2017-18 2018-19 2019-20 Total

Rates of R&D Tax Offset 0.0 0.0 160.0 210.0 230.0 600.0

Source: Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 6.

As stated earlier, of the 24 Schedules introduced overall as part of the Bill, Schedule 22 is the third most significant in terms of estimated financial impact.

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 Schedule 22 is compatible.466

Key issues and provisions Items 1 -3 of Schedule 22 amend the Table in subsection 355-100(1) of the ITAA 1997 to reduce the R&D tax incentive rates. Item 1 of the Table provides that an R&D entity, to which item 2 of the Table does not apply, is entitled to an R&D tax offset of 45 per cent of the expenditure on eligible R&D activities, if its aggregated turnover for an income year is less than $20 million. Item 1 of Schedule 22 reduces this rate by 1.5 per cent to 43.5 per cent.

Item 2 of the Table in subsection 355-100(1) will apply to a company where two or more exempt entities, irrespective of their relationship, beneficially own interests in the company carrying more than 50 per cent of the voting rights or rights to a distribution of income or capital. Item 2 of Schedule 22 reduces the rate of R&D tax offset applying in these circumstances by 1.5 per cent to 38.5 per cent.

Item 3 of the Table provides that in any other case, not covered by items 1 and 2, the R&D entity is entitled to a R&D tax offset of 40 per cent of the expenditure on eligible R&D activities. Item 3 of Schedule 22 reduces this rate to 38.5 per cent.

There is also a note to the table which previously referred to the 45 per cent rate. Item 4 of Schedule 22 revises this to 43.5 per cent.

Item 5 of Schedule 22 applies these rates to assessments for income years commencing on or after 1 July 2016.

465. L Nielson, Tax and Superannuation Laws Amendment (2015 Measures No. 3) Bill 2015, op. cit., p. 10. 466. The Statement of Compatibility with Human Rights for Schedule 22 can be found at pages 292-3 of the Explanatory Memorandum to the Bill.

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Schedule 24—Single appeal path under the Military Rehabilitation and Compensation Act History of the amendments The amendments that are contained in Schedule 24 of the Bill have a lengthy history.

As part of the 2015-16 Budget the Government announced that it would achieve savings of $2.2 million over four years by ‘simplifying the appeal process’ under the Military Rehabilitation and Compensation Act 2004 (MRCA).467 In June 2015, the Government introduced the Veterans' Affairs Legislation Amendment (2015 Budget Measures) Bill 2015468 (the first Bill) which, along with other amendments, proposed to create a single review pathway for original determinations made under the MRCA by removing the option for internal consideration by the Military Rehabilitation and Compensation Commission (the Commission) and allowing only for review by the Veterans Review Board (VRB).469 Although much of the first Bill was enacted, those provisions relating to a single review pathway were not.

The second attempt to legislate the single appeals pathway was contained in the Veterans’ Affairs Legislation Amendment (Single Appeal Path) Bill 2016 (the second Bill).470 The second Bill was introduced into the House of Representatives on 11 February 2016. The second Bill lapsed on prorogation of the Parliament on 17 April 2016.

The amendments in Schedule 24 of this Bill are the third attempt to introduce a single review pathway. The provisions are in equivalent terms to those in the second Bill with the exception of a minor correction to the drafting of proposed paragraph 357(6B)(a). A Bills Digest was published in relation to the second Bill.471 The material in this Bills Digest is generally in the same terms as that Digest, with additional comments in relation to the paragraph mentioned above.

Commencement The provisions of Schedule 24 of the Bill commence on the later of 1 January 2017 and the day after the Act receives Royal Assent.

Purpose Schedule 24 of the Bill amends the MRCA to create a single appeal path with respect to the review of original determinations made under that Act. The provisions in Schedule 24 of the Bill will also extend the circumstances in which the Administrative Appeals Tribunal (AAT) may award costs to a claimant with respect to a review of a decision made by the Veterans’ Review Board (VRB).

Background

Current military compensation arrangements Since Australia’s involvement in the First World War, a high priority for successive Australian governments has been to ‘provide compensation and related support to veterans and their dependants’.472 Compensation for members of the Australian Defence Force who suffer injury or disease has been the subject of numerous changes since that time. This has resulted in members being covered under different compensation statutes. For instance, the provisions of the Safety, Rehabilitation and Compensation Act 1988 (SRCA) and the Veterans’ Entitlements Act 1986 (VEA) apply to service before 1 July 2004. Dependants of current or former ADF members who have died as a result of their defence service may also be eligible for compensation payments.

In the early 2000s, the Government undertook to introduce a more integrated approach to military compensation and consequently introduced the MRCA, which provides rehabilitation and compensation coverage for the following members of the ADF who served on or after 1 July 2004:

467. Australian Government, ‘Part 2: expense measures’, Budget measures: budget paper no. 2: 2015-16, p. 181. 468. Parliament of Australia, ‘Veterans’ Affairs Legislation Amendment (2015 Budget Measures) Bill 2015 homepage’, Australian Parliament website. 469. Ibid. 470. Parliament of Australia, ‘Veterans’ Affairs Legislation Amendment (Single Appeal Path) Bill 2016 homepage’, Australian Parliament website. 471. L Ferris, Veterans’ Affairs Legislation Amendment (Single Appeal Path) Bill 2016, Bills digest, 104, 2015-16, Parliamentary Library, Canberra,

2016.

472. Department of Veterans’ Affairs (DVA), Review of military compensation arrangements, vol. 1, DVA, February 2011, p. 11.

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• all members of the Permanent Forces

• all members of the Reserve Forces

• Cadets and Officers, including instructors of Cadets

• persons who hold an honorary rank or appointment in the ADF and who perform acts at the request or direction of the Defence Force

• persons who perform acts at the request or direction of the Defence Force as an accredited representative of a registered charity

• persons who are receiving assistance under the Career Transition Assistance Scheme (established under section 58B of the Defence Act 1903) and who perform acts in connection with the scheme and

• other people declared in writing by the Minister for Defence to be members of the ADF. 473

Military Rehabilitation and Compensation Commission The Military Rehabilitation and Compensation Commission (the Commission) was established under section 361 of the MRCA. The Commission’s main function is to make determinations with respect to rehabilitation, compensation and other benefits for current and former members of the ADF who suffered injury, disease, illness or death as a result of their service in the ADF.474 The Commission manages claims made under both the MRCA and the SRCA. Under section 345 of the MRCA, the Chief of the Defence Force also has the power to make original determinations in relation to rehabilitation.

Review of determinations of the Commission Original determinations made by the Commission or the Chief of the Defence Force involving claims arising under the MRCA are currently subject to complex review arrangements. Under Chapter 8 of the MRCA, an applicant wishing to appeal an original determination can either:

• seek internal reconsideration by the Commission475 or

• apply to have the decision reviewed by the VRB.476

If the applicant is dissatisfied with the reconsideration of the decision by the Commission or the review conducted by the VRB, they can appeal to the AAT for a final review.477 This complicated model arose out of inability amongst stakeholders to reach a ‘consensus on a single preferred model’ during the development of the MRCA.478

One of the major differences between the two appeal paths is the time in which the applicant must lodge their application. Applications for reconsideration by the Commission must be lodged within 30 days479 (with applications for subsequent review by the AAT lodged within 60 days480), while applicants have 12 months in which to lodge an application with the VRB481 (with applications for subsequent review by the AAT lodged within three months482). The appeal path chosen can also affect the level of legal aid funding an applicant can access and when they can recover costs for legal expenses:

The two pathways provide different review processes…the VRB path ‘can be seen as a lengthy and daunting process’ but the MRCC process does not offer legal aid at the AAT. The AAT can award costs to successful claimants

473. DVA, Military Rehabilitation and Compensation Act (MRCA), DVA website. 474. DVA, Military Rehabilitation and Compensation Commission—functions and powers, DVA website. 475. MRCA, subsection 349(1). 476. MRCA, subsection 352(1). 477. MRCA, subsection 354(1). 478. DVA, Review of military compensation arrangements, vol. 2, DVA, February 2011, paragraph 17.15, p. 224. 479. MRCA, subsection 349(5). 480. Administrative Appeals Tribunal Act 1975, paragraph 29(2)(b) as modified by the MRCA, section 355, table item 3. 481. MRCA, paragraph 352(3)(c). 482. Administrative Appeals Tribunal Act, paragraph 29(2)(a) as modified by the MRCA, section 355, table item 3.

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who have chosen the MRCC reconsideration pathway but not to claimants who pursued the VRB pathway (but claimants who sought review by the VRB can access legal aid where it relates to operational service). 483

Figure 2: Outline of current review arrangements

Source: DVA, Review of military compensation arrangements, vol. 2, DVA, February 2011, p. 226.484

Note: Shaded boxes show the same path as available under the VEA.

Review of Military Compensation Arrangements On 8 April 2009, the then Minister for Veterans’ Affairs announced a Review of Military Compensation Arrangements (the Review) to be conducted by a Steering Committee (the Committee) chaired by Mr Ian Campbell PSM.485 As part of its terms of reference, the Committee examined the current reconsideration and review processes with respect to claims made under the MRCA. Several submissions to the Review referred to the two appeal paths and were generally of the view that the Commission pathway should be removed, with appeals to be heard by the VRB.486 However, submitters also argued that internal reconsideration by the Commission should be retained and included in the single appeal pathway.487 The Committee agreed, recommending that ‘a single appeal path should be established that includes internal reconsideration, the VRB and then the AAT’.488 The Committee was of the view that such a pathway would ‘achieve more timely reviews at a lower cost’.489

483. M Klapdor, Veterans’ Affairs Legislation Amendment (2015 Budget Measures) Bill 2015, Bills digest, 11, 2015-16, Parliamentary Library, Canberra, 2015, pp. 8-9. 484. DVA, Review of military compensation arrangements, vol. 2, DVA, February 2011, p. 226. 485. A Griffin (Minister for Veterans’ Affairs), Government moves to review military compensation, media release, 8 February 2009. 486. DVA, Review of military compensation arrangements, vol. 2, DVA, February 2011, pp. 233-234. 487. Ibid. 488. Ibid., pp. 221, 245. 489. Ibid.

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Submitters also focused on the current legal aid/costs disparity.490 There was support for legal aid being available to all claimants appealing MRCA decisions at the AAT, regardless of whether the decision was appealed from the Commission or the VRB.491 Some submitters also raised concerns over the lack of costs orders available at the AAT with respect to appeals from the VRB.492

Rationale for the changes As stated above, the relevant amendments were introduced as part of the 2015-16 Budget.493 When the first Bill494 was introduced, the Bills Digest prepared at the time noted that the proposed amendments were inconsistent with what had been proposed by the Review:

The Explanatory Memorandum to the Bill claims that the amendments give effect to the Review of Military Compensation Arrangements recommendation for a single appeal process. However, while implementing Recommendation 17.1 of the Review for a single appeal path, the proposed amendments ignore Recommendation 17.2 for internal reconsideration by the MRCC to be the first step in this review process. Instead, the proposed amendments will remove internal reconsideration by the MRCC from the appeals process altogether so that review by the VRB becomes the first tier of the single appeal pathway.

495

Senate Foreign Affairs, Defence and Trade Legislation Committee The provisions of Schedule 2 of the first Bill (which contained the proposed amendments relating to the single appeal path) were referred to the Senate Foreign Affairs, Defence and Trade Legislation Committee (the Senate Committee) for inquiry and report.496

One issue raised by submitters to the Senate Committee was the removal of the option of internal consideration by the Commission.497 For example, Slater and Gordon Lawyers argued that it would be ‘fairer, quicker and work better for injured veterans’ if the Government kept the internal consideration process.498 In their response to the Review, both the Returned & Services League (RSL) and the Australian Peacekeeper and Peacemaker Veterans’ Association also supported retaining the internal reconsideration arrangement as part of the appeal path.499 As part of the Senate Committee’s inquiry process, the Department of Veterans’ Affairs (DVA) clarified that ‘under the proposed single pathway, [the Commission] will initiate an internal reconsideration under section 347 for all claimants who have submitted an original determination to be reviewed by the VRB’.500 The Senate Committee noted that the Explanatory Memorandum for the first Bill had ‘inadvertently given rise to confusion and misunderstanding by legal firms as to how the proposed single review pathway will operate in practice’.501

Other concerns raised by submitters included access to legal representation, access to costs for matters appealed from the VRB to the AAT and access to legal aid.502 The Senate Committee noted that since the Review had been published, the National Partnership Agreement on Legal Assistance Services under the Council of

490. Ibid., pp. 233-234. 491. Ibid. 492. Ibid. 493. Australian Government, ‘Part 2: expense measures’, Budget measures: budget paper no. 2: 2015-16, pp. 179-84. 494. Parliament of Australia, ‘Veterans’ Affairs Legislation Amendment (2015 Budget Measures) Bill 2015 homepage’, Australian Parliament

website.

495. M Klapdor, Veterans’ Affairs Legislation Amendment (2015 Budget Measures) Bill 2015, Bills digest, 11, 2015-16, Parliamentary Library, Canberra, 2015, p. 9. 496. Senate Standing Committee on Foreign Affairs, Defence and Trade, Inquiry into Veterans’ Affairs Legislation Amendment (2015 Budget Measures) Bill 2015—Schedule 2, The Senate, Canberra, 25 September 2015. 497. Ibid, pp. 9-10. 498. Slater and Gordon Lawyers, Submission to Foreign Affairs, Defence and Trade Legislation Committee, Inquiry into Veterans' Affairs Legislation

Amendment (2015 Budget Measures) Bill 2015—Schedule 2, 11 September 2015, p. 6. 499. M Klapdor, Veterans’ Affairs Legislation Amendment (2015 Budget Measures) Bill 2015, Bills digest, 11, 2015-16, Parliamentary Library, Canberra, 2015, p. 9. 500. Senate Standing Committee on Foreign Affairs, Defence and Trade, Inquiry into Veterans’ Affairs Legislation Amendment (2015 Budget

Measures) Bill 2015—Schedule 2, The Senate, Canberra, 25 September 2015,p. 9. 501. Ibid., p. 18. 502. Ibid., p. 12-17.

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Australian Governments had commenced (the NPA).503 Under the NPA, ‘legal aid is now available irrespective of the type of service rendered by the veteran’.504

Ultimately the Senate Committee recommended that the first Bill be re-referred to the Committee for future consideration as it had ‘not been able to finalise its position in relation to several of the contentious issues raised in evidence’.505

Committee consideration

Senate Standing Committee for the Selection of Bills The Senate Standing Committee for the Selection of Bills recommended that the second Bill not be referred to committee for inquiry and report.506 At the time of writing this Digest, the current Bill has not been considered by the Senate Selection of Bills Committee.

Senate Standing Committee for the Scrutiny of Bills The Senate Standing Committee for the Scrutiny of Bills had no comment on the second Bill in relation to the amendments which are contained in Schedule 24 of this Bill.507 At the time of writing this Digest, the current Bill has not been considered by the Scrutiny of Bills Committee.

Policy position of non-government parties/independents

Labor Party The Opposition announced that it would support the second Bill.508 It opposed the Government’s previous attempt, in the first Bill, to introduce a single appeal path due to concerns surrounding the removal of the internal reconsideration process and the awarding of costs.509 During the debate on the first Bill, Labor argued that these issues warranted further consideration and was successful in negotiating to have that Bill sent to committee for inquiry and report.510

In announcing Labor’s support for the second Bill the Shadow Minister for Veterans’ Affairs, David Feeney, remarked that the Committee inquiry into the first Bill had led to significant improvements in terms of the proposed measures:

… veterans will now be able to appeal determinations of the VRB to the AAT, confident that, if successful, they can recover their costs. As a consequence, the department has not engendered a system which shields itself from scrutiny or the review of its determinations. This means that an enormous disincentive to challenge the MRCC has been removed…

The introduction of a 28-day statutory reporting time frame for the MRCC to consider new evidence provided by a claimant is an important step in speeding up the time that it takes for a claimant to achieve justice under the appeals system…The revised pathway also allows for an internal review of an MRCC decision, as envisaged in the original 2011 military and compensation inquiry.

511

503. Ibid., p. 18. 504. Ibid., p. 16. 505. Ibid., p. 18. 506. Senate Standing Committee for the Selection of Bills, Report, 2, 2016, The Senate, 25 February 2016. 507. Senate Standing Committee for the Scrutiny of Bills, Alert digest, 2, 2016, The Senate, 24 February 2016, p. 88. 508. D Feeney, ‘Second reading speech: Veterans’ Affairs Legislation Amendment (Single Appeal Path) Bill 2016’, House of Representatives,

Debates, , 2 March 2016, p. 2868. 509. J McLucas, ‘Second reading speech: Veterans’ Affairs Legislation Amendment (2015 Budget Measures) Bill 2015’, Senate, Debates, 7 September 2015, p. 6015. 510. On 7 September 2015, following debate in the Senate, Schedule 2 of the Veterans’ Affairs Legislation Amendment (2015 Budget Measures)

Bill 2015 was referred to the Senate Foreign Affairs, Defence and Trade Legislation Committee (see above discussion). 511. D Feeney, ‘Second reading speech: Veterans’ Affairs Legislation Amendment (Single Appeal Path) Bill 2016’, House of Representatives, Debates, 2 March 2016p. 2870.

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Senator Lambie Senator Lambie strongly opposed the amendments contained in the first Bill.512 She argued that the first Bill ‘strips veterans of appeal rights and gives DVA more power to frustrate and deny claims without independent review of its decisions’.513 In her dissenting comments to the Senate Committee report on the first Bill she made the following points:

• the right to an internal review as the first step in the single appeal pathway should be set out in the legislation514

• whilst the single appeal pathway is intended to be more efficient, the Bill does not include any time frames for decision making by the VRB. In addition, the Bill operates to deny a veteran access to the quicker system of review which currently exists515 and

• the Bill should be amended to allow legal representatives to appear in the VRB and to allow the recovery of costs for further medical evidence and of legal costs incurred by a veteran in proceedings at the AAT for a review of a determination of the VRB.516

Senator Xenophon Senator Xenophon also refused to support the amendments contained in the first Bill.517 He noted that he shared similar concerns to the Opposition with regards to the removal of internal reconsideration by the Commission and inability of veterans to access costs with respect to appeals to the AAT.518

Position of major interest groups Overall submitters have long been supportive of introducing a single appeal path in order to remove some of the challenges that veterans face in the current system.519 While the measures contained in the first Bill attracted some criticism from stakeholders, especially with regards to the ability of veterans to claim costs,520 the changes made by the Government following on from the Senate Committee inquiry appear to have appeased most of these concerns. Both the National President of the RSL, Rear Admiral Ken Doolan, and the National Spokesperson for the Alliance of Defence Service Organisations, Colonel David Jamison advised the Government and the Opposition that they supported the second Bill.521

As the amendments in Schedule 24 of this Bill are in equivalent terms (with the exception of one paragraph) to the second Bill, this Schedule is likely to be supported by stakeholders.

Financial implications It is expected that the measures in Schedule 24 of this Bill will have the following impact on the underlying cash balance over the forward estimates ($m):

Table 14: Impact over the forward estimates

2015-16 2016-17 2017-18 2018-19 2019-20 Total

-0.9 0.4 1.3 1.4 1.4 3.6

Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, item 24 in table, page 6,

512. J Lambie, ‘Second reading speech: Veterans’ Affairs Legislation Amendment (2015 Budget Measures) Bill 2015’, Senate, Debates, 7 September 2015, p. 6025. 513. Ibid. 514. J Lambie, Dissenting report, Senate Foreign Affairs, Defence and Trade Legislation Committee, Inquiry into Veterans’ Affairs Legislation

Amendment (2015 Budget Measures) Bill 2015—Schedule 2, The Senate, Canberra, 2015, paragraph 1.12, p. 22. 515. Ibid., p. 22. 516. Ibid., p. 29. 517. N Xenophon, ‘Second reading speech: Veterans’ Affairs Legislation Amendment (2015 Budget Measures) Bill 2015’, Senate, Debates,

7 September 2015, p. 6030. 518. Ibid. 519. DVA, Review of military compensation arrangements, vol. 2, DVA, February 2011, pp. 233-234. 520. Senate Standing Committee on Foreign Affairs, Defence and Trade, Inquiry into Veterans’ Affairs Legislation Amendment (2015 Budget

Measures) Bill 2015—Schedule 2, The Senate, Canberra, 25 September 2015,p. 12-17. 521. D Feeney, ‘Second reading speech: Veterans’ Affairs Legislation Amendment (Single Appeal Path) Bill 2016’, House of Representatives, Debates, 2 March 2016, p. 90.

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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 compatibility of Schedule 24 of the Bill 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 Schedule is compatible.522

Parliamentary Joint Committee on Human Rights

At the time of writing this Bills Digest, the Parliamentary Joint Committee on Human Rights (Human Rights Committee) had not commented on the Bill. However, the Human Rights Committee considered that the second Bill, which is in equivalent terms to Schedule 24 of this Bill, did not raise any human rights concerns.523

Key issues and provisions Schedule 24 amends Chapter 8 of the MRCA, which deals with the reconsideration and review of original determinations.524

The proposed amendments contained in Schedule 24 will:

• create a single appeal path by removing the ability of a claimant to seek reconsideration of an original determination by the Commission. The Commission will reconsider original determinations on its own initiative525

• ensure that all reviews are carried out by the VRB and

• allow the AAT to award costs in certain circumstances in relation to matters which have been appealed from the VRB.

Single appeal path Items 1-6 of Schedule 24 make a number of consequential amendments to reflect the changes to the appeal arrangements.

Items 7 and 8 of Schedule 24 amend section 349 of the MRCA, which currently allows either the claimant or the Chief of the Defence Force to apply to have a decision of the Commission (or the Chief of the Defence Force where the claimant is making the application) reconsidered by the Commission. Item 7 amends the heading of section 349 to reflect that it will now only relate to applications initiated by the Chief of the Defence Force with respect to decisions made by the Commission. Item 8 will remove any reference to a claimant being able to have a decision made by the Commission reconsidered by the Commission.

Item 9 of Schedule 24 amends section 352 of the MRCA which sets out when a claimant can apply to have an original determination (made by either the Commission or the Chief of the Defence Force) reviewed by the VRB. Item 9 repeals subsection 352(2) of the MRCA which refers to the claimant being unable to have a decision reviewed by the VRB where they have applied to have the decision reconsidered by the Commission.

Recovery of costs Items 11 and 12 of Schedule 24 amend the MRCA to allow for a claimant to recover either all or part of the costs in relation to an AAT review of a determination by the VRB in certain circumstances. In order to recover costs, the AAT must have either varied a determination in favour of a claimant or set aside and substituted a decision in favour of a claimant.526

Further, the claimant will not be allowed to recover costs where:

522. The Statement of Compatibility with Human Rights for Schedule 24 of the Bill can be found at pages 399-402 of the Explanatory Memorandum to the Bill. 523. Parliamentary Joint Committee on Human Rights, Thirty-fourth report of the 44th Parliament, February 2016, pp. 1-2. 524. Subsection 345(1) of the MRCA defines the term original determination. Subsection 345(2) provides a list of determinations which are

excluded from that general definition. 525. MRCA, subsection 347(1). 526. MRCA, proposed subsections 357(6A) and (6B).

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• the claimant failed to provide a document to the VRB that the AAT is satisfied would, if provided, have resulted in them receiving a favourable outcome at that stage527

• the claimant was granted legal aid under a Commonwealth, state or territory legal aid scheme or service for their matter at either the VRB or the AAT.528 This provision has been the subject of a drafting correction to clarify that a person will not be able to recover costs if they have received a legal aid grant in relation to their case. However they will not be denied costs if they merely received other forms of legal aid where their costs were not covered—for example, if they received some advice from a legal aid commission or community legal centre, but did not actually receive any coverage of their legal costs through a legal aid grant

• the claimant failed to appear at their VRB review hearing and had no reasonable excuse529

• the claimant failed to comply with a direction under subsection 148(4B) of the Veterans’ Entitlements Act530 or

• the claimant failed to comply with a notice under section 330 of the MRCA before the Commission made its original determination.531

This change responds to the view of the Law Council of Australia, who submitted to the Committee inquiry into the first Bill that not allowing veterans access to costs would have ‘serious implications for access to justice’.532 The Government argues that these amendments ‘will ensure that claimants are not encouraged to withhold information or fail to fully participate in the processes of the Commission or the VRB’.533 It is worth noting that claimants will not be entitled to both costs and legal aid.534

Commencement Item 13 of Schedule 24 clarifies that the amendments to the MRCA set out in the Bill only apply to original determinations made on or after the commencement of the amendments.

527. MRCA, proposed subsection 357(6A). This only applies where the AAT is satisfied that the claimant could have provided the document to the VRB ‘without unreasonable expense or inconvenience’: proposed paragraph 357(6A)(b). 528. MRCA, proposed paragraph 357(6B)(a). 529. MRCA, proposed paragraph 357(6B)(b). 530. MRCA, proposed paragraph 357(6B)(c). Subsection 148(4B) of the Veterans’ Entitlements Act 1986 allows a registrar of the VRB to issue

directions to parties to a review, for example directing them to provide additional information to the VRB. 531. MRCA, proposed paragraph 357(6B)(d). Section 330 of the MRCA allows the Commission to ask a person who has made a claim to provide additional information or documents. 532. Law Council of Australia, Submission to Foreign Affairs, Defence and Trade Legislation Committee, Inquiry into Veterans’ Affairs Legislation

Amendment (2015 Budget Measures) Bill 2015—Schedule 2, 11 September 2015, p. 3. 533. Explanatory Memorandum, Budget Savings (Omnibus) Bill 2016, p. 396. 534. MRCA, proposed paragraph 357(6B)(a).

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