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Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020



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ISSN 1328-8091

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BILLS DIGEST NO. 85, 2019-20 24 FEBRUARY 2020

Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020 Michael Klapdor Social Policy Section

Contents

The Bills Digest at a glance .............................................. 3

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

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

Social security income test .......................................... 4

Income test for allowance payments ........................ 4

Working credit ........................................................... 5

Pension income test .................................................. 5

Work Bonus ............................................................... 6

How employment income is assessed ........................ 6

Rationale for the current assessment process .......... 7 Issues with the assessment process .......................... 7

Proposed changes ..................................................... 8

Exchange of information ............................................. 8

Existing information sharing arrangements .............. 9 Use of Single Touch Payroll data ............................. 10

Proposed changes ................................................... 11

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

Senate Community Affairs Legislation Committee ... 12 Senate Standing Committee for the Scrutiny of Bills ............................................................................ 13

Policy position of non-government parties/independents.................................................... 13

Position of major interest groups................................... 13

National Social Security Rights Network ................... 13 Australian Council of Social Service .......................... 14

Australian Unemployed Workers Union ................... 14 Victoria Legal Aid ....................................................... 14

Date introduced: 6 February 2020

House: House of Representatives

Portfolio: Social Services

Commencement: If Royal Assent occurs before 15 May 2020, the Act commences on 1 July 2020. If Royal Assent occurs on or after 15 May 2020, then the Act commences on the first day of the first calendar month that occurs two months after the day of Royal Assent.

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

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

All hyperlinks in this Bills Digest are correct as at February 2020.

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Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020 2

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

Statement of Compatibility with Human Rights.............. 15

Parliamentary Joint Committee on Human Rights ... 15 Key issues and provisions .............................................. 15

Schedule 1: Part 1—Simplifying income reporting ... 15 Who is affected ....................................................... 15

Table 1: Social security payment recipients by earnings from employment, September 2019 ........ 16 Will payment recipients be better or worse off? .... 16 Implementation ....................................................... 17

Definition of employment income .......................... 18

Income test changes ............................................... 18

Current assessment process ................................. 18

New assessment process....................................... 18

Table 2: Key terms used in the new assessment model....................................................................... 19

Issues with determining the employment period ... 20 Anti-avoidance provisions ....................................... 22

Key income test provisions ..................................... 22

Transition arrangements ......................................... 26

Pension Bonus Scheme ........................................... 26

Schedule 1: Part 2—Exchange of information relating to taxation information ............................... 27

Measure affects family assistance and child care payments ................................................................. 27

Exchange of taxation information ........................... 27

Computer-automated decisions ............................. 28

Schedule 1: Part 3—Other amendments .................. 29

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Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020 3

The Bills Digest at a glance The Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020 (the Bill) will amend the Social Security Act 1991, the Social Security (Administration) Act 1999, the Veterans’ Entitlements Act 1986, the A New Tax System (Family Assistance) (Administration) Act 1999 and the Student Assistance Act 1973 to:

• change the way employment income is assessed for the purposes of the social security income test so that rather than assessing income ‘earned, derived or received’ during the assessment period, the income test will assess employment income that is paid during the assessment period and

• allow for data collected by the Australian Tax Office, particularly employment income reported through the Single Touch Payroll (STP) system, to be shared with Services Australia for the purposes of administering social security, family assistance and student payments.

The changes were announced in the 2019-20 Budget and are expected to provide savings of $2.1 billion over five years from 2018-19. The savings will be derived from reduced overpayments arising from inaccurate income reporting. The Government intends for the measures to commence on 1 July 2020.

The new income reporting method is a very significant change to how income support payments are administered and to longstanding reporting requirements imposed on payment recipients. Around 550,000 people report income to Services Australia in any given fortnight. Key to the success of the measure will be the resources invested in implementation—particularly in communicating the changes to payment recipients and developing the systems used to report income. The proposed changes should make it much easier for many recipients to report their employment income using information available on their payslips.

It is intended that in 2020-21, some employment income information will be prefilled by linking to the Single Touch Payroll data. However, payment recipients will still be obligated to report their income and to verify any prefilled data. The use of Single Touch Payroll data to prefill income reporting fields for social security recipients has not been trialled.

Stakeholder groups are broadly supportive of the proposed change to income reporting but have concerns with how the system will be implemented. Many of the groups have recommended thorough testing of the new reporting systems prior to commencement.

Victoria Legal Aid raised concerns with provisions in the Bill relating to the ‘employment period’ income needs to be reported as arising from—the Bill and explanatory materials do not provide clear guidance as to how this period is to be defined.

There is also a lack of clarity over why family assistance payments (such as Family Tax Benefit and Child Care Subsidy) are included under the provisions relating to information sharing.

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Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020 4

Purpose of the Bill The purpose of the Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020 (the Bill) is to amend the Social Security Act 1991 (the SS Act), the Social Security (Administration) Act 1999 (the SS Admin Act), the Veterans’ Entitlements Act 1986, the A New Tax System (Family Assistance) (Administration) Act 1999 (the FA Admin Act) and the Student Assistance Act 1973 to:

• change the way employment income is assessed for the purposes of the social security income test so that rather than assessing income ‘earned, derived or received’ during the assessment period, the income test will assess employment income that is paid during the assessment period and

• allow for data collected by the Australian Tax Office, particularly employment income reported through the Single Touch Payroll (STP) system, to be shared with Services Australia for the purposes of administering social security, family assistance and student payments.

The changes were announced in the 2019-20 Budget and are expected to provide savings of $2.1 billion over five years from 2018-19.1

Background

Social security income test All social security income support payments—such as pensions and allowances—and some veterans’ payments are subject to both income and assets tests.2

The purpose of these means tests is to target income support to those without the means to support themselves. Under the income test, income over certain thresholds reduces payment rates, and income over a certain amount means that a person receives a zero rate or is ineligible for payment. Under the pension assets test, asset values over certain thresholds reduce payment rates and asset values over a certain amount mean that a person receives a zero rate or is ineligible for a pension. For pensions, rates under the income test and the asset test are calculated and the test resulting in the lowest rate (which may be a zero rate) applies. For other payments, such as allowances, asset values over a certain threshold mean that a person is ineligible for payment (there is no rate reduction—only a test for eligibility).

For both pensions and allowances, the personal income test assesses ordinary income—this is income that is not maintenance income (child support) or an exempt lump sum. This can include income from employment, real estate and businesses, deemed income from investments and boarders or lodgers.3 Gross income before any tax is assessed for social security payments. The SS Act does not assess taxable income.

Income test for allowance payments Newstart Allowance recipients can have income of $104 a fortnight before their payment rate is affected.4 Fortnightly rates of Newstart are reduced by 50 cents for every dollar of income between $104 and $254, and by 60 cents in the dollar for every dollar of income over $254 in a

1. Australian Government, Budget measures: budget paper no. 2: 2019-20, p. 158. 2. Veterans’ payments subject to income and asset testing include the Service Pension and the Income Support Supplement (payed to recipients of War Widow(er)’s Pension). 3. Department of Social Services (DSS), ‘1.1.O.30 Ordinary income’, Social security guide, DSS website, last reviewed

11 August 2014. 4. Services Australia (SA), ‘Income test for Newstart Allowance, Partner Allowance, Sickness Allowance and Widow Allowance’, SA website, 18 December 2019.

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fortnight. Single parents have a different income test—their fortnightly rates reduce by 40 cents for every dollar of income over $104.

Currently, single Newstart Allowance recipients with no children will not receive any payment if their fortnightly income is $1,075.34 or above. Single principal carers of dependent children will not receive any payment if their fortnightly income is $1,639.50 or above.5

Youth Allowance (Other) recipients can earn up to $143 per fortnight before their payment rate is affected.6 Fortnightly rates of Youth Allowance (Other) are reduced by 50 cents for every dollar of income between $143 and $250, and by 60 cents for every dollar of income over $250 per fortnight. A single Youth Allowance (Other) recipient living away from their family home will not receive any payment if their fortnightly income is over $943.34.7

If a person is a member of a couple, their partner’s income can also affect their payment rates. Generally, partner income that exceeds the cut-out point (the level of income at which payment rate would reach zero) reduces their partner’s fortnightly allowance by 60 cents in the dollar.8

Note that Newstart Allowance will be merged with Sickness Allowance and Bereavement Allowance into the JobSeeker Payment from 20 March 2020.9 The same income test arrangements will apply to the new payment.

Working credit The Working Credit scheme allows working age social security recipients (including Newstart Allowance, Youth Allowance (Other) and Disability Support Pension recipients) to build up credits during periods when little or no income is received. These credits can then be used to reduce the amounts that are assessed under the income test during fortnights in which they have employment income.10 Recipients typically accrue one credit for each dollar of difference between $48 and their income in each fortnight. For example, if an individual has no income in a fortnight they can accrue 48 credits; if they earn $40 they can accrue eight credits and if they earn $48 or more in income they cannot receive credits in that fortnight. Newstart Allowance recipients can accrue a maximum of 1,000 credits (so $1,000 of income can be excluded from the income test if they do take up work). Youth Allowance (Other) recipients can accrue 3,500 credits.

The Working Credit scheme is intended as an incentive for payment recipients to take up work, including short-term work such as seasonal work. It works to reduce the disincentive effect of the income test where the withdrawal of income support partly offsets any increased income from working.

Pension income test The pension income test currently allows a single person to have income of up to $174 per fortnight before their pension rate is affected.11 A couple, combined, can earn up to $308 per fortnight before their pension rate is affected. Each dollar of income over these amounts reduces a single person’s and a couple’s combined fortnightly pension rate by 50 cents.

5. Ibid.

6. SA, ‘Austudy: Personal income test’, SA website, 10 February 2020. 7. Ibid.

8. SA, ‘Income test for Newstart Allowance, Partner Allowance, Sickness Allowance and Widow Allowance’, op. cit. 9. SA, ‘JobSeeker Payment’, SA website, 2 December 2019. 10. SA, ‘Working Credit’, SA website, 11 December 2019. 11. SA, ‘Income test for pensions’, SA website, 16 December 2019.

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Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020 6

A single pensioner will not receive any payment if their income reaches $2,040.80 per fortnight. A couple, combined, will not receive any payment if their income reaches $3,122.00 per fortnight.12

Work Bonus Recipients of any Centrelink pension payment (with the exception of Parenting Payment Single) or Bereavement Allowance, who are over Age Pension qualifying age, are eligible for the Work Bonus. Most of those eligible are receiving the Age Pension but some are receiving other pension payments including Carer Payment or the Disability Support Pension.13 Those who receive a transitional rate of pension are not eligible—transitional rate pensioners were those who were grandfathered from 2009 pension reforms because they would have been worse-off under changes to the income test.14

The Work Bonus consists of a fortnightly income concession amount and an income concession bank. The income concession amount allows up to $300 of fortnightly income from employment income or ‘gainful work’ income to be deducted from the total income assessed under the income test. The income concession bank allows any unused portion of that $300 to be accrued to offset future amounts of gainful work income.15 Up to $7,800 may be accrued.

Employment income is income from remunerative work undertaken by an employee in an employer/employee relationship and includes salaries, wages and employment-related fringe benefits.16 Gainful work is which is any work involving the personal exertion of the individual but excluding specific activities such as domestic duties and managing personal financial investments or property.17

How employment income is assessed The changes proposed in the Bill affect how income is assessed for the purposes of the income test. Allowance payments rates are calculated on a fortnightly basis with fortnightly income assessed under the income test. One-off lump sum amounts are apportioned over a 12 month period in weekly amounts (which can then be assessed for the relevant fortnight).18 Pension payments are normally calculated as an annual rate and then converted into a fortnightly instalment. Where a pensioner has income from employment, that income is assessed over a fortnight and then converted to an annual rate for the pension rate calculation process (with the rate then converted to a fortnightly instalment).19

Income is normally assessed in regards to an ‘instalment period’. An instalment period is generally the fortnight in respect of which a person’s payment is calculated—it is also referred to as an ‘entitlement period’.20 Normally, a person’s payment delivery day—the day on which their social

12. Ibid. 13. DSS, ‘3.1.15.10 Work Bonus - Eligibility’, Social security guide, DSS website, last reviewed 6 May 2019. 14. DSS, ‘5.1.8.40 Pension Reform - Transitional Arrangements’, Social security guide, DSS website, last reviewed 6 May 2019. 15. DSS, ‘3.1.15.20 Work Bonus - Overview’, Social security guide, DSS website, last reviewed 6 May 2019; DSS, ‘3.1.15.30 Work

bonus - application’, Social security guide, DSS website, last reviewed 6 May 2019. 16. DSS, ‘3.1.15.20 Work Bonus - Overview’, op. cit. 17. Ibid. 18. DSS, ‘4.3.1.10 Determining the Rate of Income for Benefits’, Social security guide, DSS website, last reviewed 15 August 2016. 19. DSS, ‘4.3.1.25 Determining the Assessable Income for Pensioners Below Age Pension Age’, Social security guide, DSS website,

last reviewed 3 July 2017; DSS, ‘4.3.1.20 Determining the rate of income for pensioners of age pension age from 20/09/2009’, Social security guide, DSS website, last reviewed 6 May 2019. 20. DSS, ‘1.1.E.125 Entitlement period’, Social security guide, DSS website, last reviewed 16 May 2016.

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Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020 7

security payment is paid to them—is the day after, or two days after the end of their instalment fortnight.21 Payments can only be delivered on weekdays.

Currently, the rate calculators used in the SS Act to determine payment rates for social security payments assess employment income in the entitlement period in which it is first earned, derived or received. An individual usually ‘earns’ their employment income ahead of being paid at a later date (as opposed to being paid upfront before doing the work). As such, the income assessed for a particular payment fortnight is not what an individual has received in their bank account but what they estimate they have earned based on the number of hours/days worked during that fortnight. This means that recipients must calculate their earnings for that fortnight (determining wages including penalty rates and additional allowances) and report those earnings to Services Australia in order for their payment rate to be calculated.

Rationale for the current assessment process The rationale for the current arrangements is explained in the Department of Social Services’ Social Security Guide:

As a matter of policy, income test assessment is generally based on whichever event occurs first, which is usually when people earn the money. This is because assessing earnings only when received would create inequities, as it would enable some people to defer receiving their earnings until the income would have less impact on their income support entitlement. This would place people who can defer receipt of income in a better financial position than those paid on a regular basis.

22

Issues with the assessment process The Explanatory Memorandum to the Bill states that the current process results in errors being made by social security recipients:

In most cases, a person will not know exactly how much employment income they will be paid for an instalment period until they are paid at a later date. This frequently results in social security recipients over-estimating or under-estimating their total employment income for an instalment period, with the consequence that recipients are either underpaid or overpaid their social security entitlements.

23

The Minister for Population, Cities and Urban Infrastructure, Alan Tudge, stated in his second reading speech that in 2017 there were 15 million corrections to recently reported earnings.24

The difficulty presented to payment recipients in needing to estimate income earned ahead of being paid, particularly for those with fluctuating income, has been a longstanding issue of concern. In a case heard by the Administrative Appeals Tribunal in 2009, one payment recipient submitted that in estimating their income they had done the best they could and that any errors were the fault of Centrelink for not checking the reported income with the Australian Tax Office:

Mrs Michalak recognised that the Centrelink notification requirements forced her to make estimates of her income and she submitted that this was difficult to do with accuracy. This was because her hours of work varied from time to time and because her pay slips were received days after the end of the

21. DSS, ‘3.10.3.10 Timing of Payment Delivery’, Social security guide, DSS website, last reviewed 8 May 2017. 22. DSS, ‘4.3.3.05 Employment income - first earned, derived, received’, Social security guide, DSS website, last reviewed 6 May 2019. 23. Explanatory Memorandum, Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other

Measures) Bill 2020, p. 1. 24. A Tudge, ‘Second reading speech: Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020’, House of Representatives, Debates, [proof], 6 February 2020, p. 9.

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Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020 8

relevant reporting period. She submitted that she had done all that she could to satisfy the Centrelink requirements and had not done anything to falsely represent her income to Centrelink. She submitted that Centrelink was at fault for not checking her income against Australian Taxation Office records and that, if this had been done, the overpayment may have been noted earlier and the debt reduced. In that sense, she submitted that the debt arose solely because of error on the part of the Commonwealth.

25

In 2001, the Australian Council of Social Service raised a separate issue with the income reporting arrangements: that recipients’ income support rates are reduced despite them not actually being paid their employment income until a much later date:

The "failure to correctly declare income" is compounded by the long standing problem relating to the definition of income itself in the social security legislation. Defining income as "any money earned, derived or received" rather than simply as money "received", places enormous difficulties on thousands of social security recipients every week.

Constantly, people are placed in the untenable position of having to declare income when it is earned even though it will not be received for two, and up to six, weeks. Despite this, Centrelink will reduce fortnightly payments immediately, leaving people with insufficient funds to pay the rent, buy food and/or be able to satisfy the activity test the next fortnight.

26

Proposed changes The Bill’s amendments only affect how income from employment is to be assessed under the income test. The assessment of other forms of income, such as income from financial investments will be unchanged.

The changes affect how employment income is assessed for all social security payments as well as some means-tested veterans’ payments.

Under the proposed changes, the income assessed will be based on the income actually paid to the person in the instalment period. The calculations will be based on when the amount is paid by the employer, not when it is actually received.

In his second reading speech, the Minister stated that the information that needs to be reported to Services Australia will appear on an individual’s payslips or be available from their employers.27 Payment recipients will not need to calculate their entitlements or the relevant periods outlined above. They will only need to enter their gross employment income and the pay period it is for.

It is intended that in 2020-21, some employment income information will be prefilled by linking to Australian Tax Office (ATO) data (see next section). However, payment recipients will still be obligated to report their income and to verify any prefilled data.

Exchange of information The Government has proposed new information sharing between the ATO and Services Australia to ‘facilitate’ the new income assessment model.28 Data from the ATO’s new Single Touch Payroll system is to be shared in real time with Services Australia. The intent here is for Services Australia

25. Michalak and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs and Anor [2009] AATA 299. 26. Australian Council of Social Service (ACOSS), Ending the Hardship: Submission to the Independent Review of Breaches and Penalties in the Social Security System, 17 December 2001, [p. 7]. 27. Tudge, op. cit. 28. Explanatory Memorandum, op. cit., p. 1.

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Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020 9

to prefill the online employment income reporting fields for payment recipients based on what employers have reported to the ATO. Social security recipients will then only have to verify the prefilled information.

Existing information sharing arrangements There have been longstanding arrangements providing for information sharing between the ATO and Services Australia (and its predecessors) including computer-automated data matching procedures used since the 1990s.29

The SS Admin Act provides broad information gathering powers for the purposes of administering social security law, particularly for the purposes of verifying claims for social security payments and payment rates. Special provisions provide and set conditions for the obtaining and sharing of protected information about a person, and for the Commissioner of Taxation to provide information contained in Tax File Number declarations to Services Australia.30 Protected information, as defined in the SS Act, includes information obtained by an officer under social security law31, information held by Services Australia or the Department of Social Services and information obtained by an officer under family assistance law32 that is or was held in the records of the ATO.33

Previously, Services Australia and the ATO shared data under a formal data-matching program governed by the Data-matching Program (Assistance and Tax) Act 1990 to identify potential overpayments. The legislation specified review cycles and time limits, and required reports to Parliament on the costs and benefits of the program.34 Services Australia ceased using this data-matching program in 2015-16 (though it has continued to undertake data-matching under the Act on behalf of the Department of Veterans’ Affairs).35

Instead of a program governed by the Data-matching Program (Assistance and Tax) Act 1990, Services Australia has, in recent years, initiated other data-matching programs using its information gathering powers under the SS Admin Act. Current data-matching programs using ATO data include the Pay-As-You-Go (PAYG) Data Matching Program and the Non-Employment Income Data Matching Program. The PAYG Data Matching Program protocols describe the legal authority under which data from PAYG payment summaries is shared with Services Australia:

• section 195 of the SS Admin Act: power to obtain information about a class of persons

• section 192 of the SS Admin Act: general power to obtain information of relevance to the assessment of claims for payments that Services Australia administers

• section 196 of the SS Admin Act: requirement that Services Australia provide a written notice to the ATO of the information requirements requested under section 192 and 195 and

29. Services Australia, Submission to the Senate Community Affairs References Committee, Inquiry into Centrelink’s compliance program, 2019, [Submission no. 20], p. 14. 30. Part 5 of the Social Security (Administration) Act 1999. 31. Social security law is defined in subsections 23(17) and (18) of the Social Security Act 1991 as the Social Security Act 1991, the

Social Security (Administration) Act 1999 and any other Act or provision that is expressed to form part of the social security law. 32. Family assistance law is defined at section 3 of the A New Tax System (Family Assistance) (Administration) Act 1999 as the A New Tax System (Family Assistance) Act 1999, the A New Tax System (Family Assistance (Administration) Act 1999, any

instrument (including regulations) made under these Acts and Schedules 5 and 6 of the A New Tax System (Family Assistance and Related Measures) Act 2000. 33. Protected information is defined at section 23 of the Social Security Act 1991. 34. P Sutherland, ‘Social security overpayments and debt recovery: key developments’, AIAL Forum, 89, October 2017, p. 79. 35. Services Australia, Annual report 2019-20, SA, Canberra, p. 354.

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• Australian Privacy Principle 6 which provides that personal information can be used or disclosed by an agency where that disclosure is required or authorised by or under law.36

The protocol notes that the ATO is required to comply with formal notices under section 192 and 195 and that the Taxation Administration Act 1953 provides for the ATO to disclose information to the Department of Human Services (now Services Australia) where the disclosure is for the purpose of administering the social security law.37

The protocol for the Non-Employment Income Data Matching Program cites the same legal authority as the PAYG Data Marching Program.38

Use of Single Touch Payroll data At the December 2019 hearing of the Senate Community Affairs Committee inquiry into Centrelink’s Compliance Program, ATO Acting Second Commissioner, Client Engagement, Jeremy Hirschhorn explained the proposed use of Single Touch Payroll data:

Mr Hirschhorn : I would add, the ultimate aim of DHS [Department of Human Services, now known as Services Australia], as I understand it, is that this information would be pre-populated into people's estimates so that when people had to disclose their income each fortnight, it would already be there in their forms, which is obviously of much greater convenience if things are pre-filled rather than having to work them out yourself.

CHAIR: Is this where someone's earning regularly, you mean?

Mr Hirschhorn : So, when someone's earned income from an employer, as we have more and more complete take-up of single touch payroll across the employer community, more and more of that will be made available in the way it can be pre-populated and put in people's disclosures each fortnight.

Senator O'NEILL: Can I ask the averaging question at this point in time? Is it going to be averaged data that gets pre-populated or is it going to be specific data that relates to the lumpiness of people in insecure employment across this country?

Mr Hirschhorn : This is based on real time—when people are paid—and it's based on their actual income. My understanding is that in the past people have had to not estimate how much they've been paid but do the quite complicated task of estimating how much they've earned during a period—so work out how many hours they have not yet been paid for. My understanding is that the system is moving more towards how much they've been paid during a period, so this data is, by definition, linked to how much people were paid during a period.

39

At the same hearing, ATO officials advised that Single Touch Payroll currently covers around 11.5 million individual employees and around 800,000 employers.40

The Multi-agency Government submission to the Senate Community Affairs Committee inquiry to the Bill stated that the ATO commenced sharing Single Touch Payroll data with Services Australia

36. Department of Human Services (DHS), Program Protocol: 2017 PAYG data-matching, DHS, May 2017, p. 9. 37. Ibid. 38. DHS, Program protocol: data matching between Department of Human Services and the Australian Tax Office: ‘Non-Employment Income Data Matching - NEIDM’, August 2016, p. 9.

39. Senate Community Affairs References Committee, Official committee Hansard, 16 December 2019, pp. 7-8. 40. Ibid., p. 6.

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Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020 11

when the ATO has been notified that an employee is a customer of Services Australia.41 The data that is collected in Single Touch Payroll phase 1 includes an employee’s salaries and wages, tax, lump sum payments and allowances as reported in their corresponding PAYG payment summaries.

From 1 July 2020, the ATO intends to collect more granular data including the disaggregation of gross income to include commissions and bonuses as well as child support information—this will be Single Touch Payroll phase 2.42 Where employers report this information, it will be used to prefill employment income details for income support recipients. Reporting of this information will be mandatory for all employers from 1 July 2021 except those with four or fewer employees. Prefilling of employment income details for income support recipients will be fully-rolled out from this date.43

The Multi-agency Government submission states that 95 per cent of recipients are expected to be covered by the Single Touch Payroll system and have their details prefilled by 1 July 2021.44

Proposed changes The proposed amendments in the Bill are intended to allow for the taxation information held by the ATO and protected information held by Services Australia about individuals to be shared between Services Australia and the ATO in order to administer social security law, family assistance law and the Student Assistance Act 1973 (which provides for the ABSTUDY scheme). The amendments also specify that this information sharing may be automated using computer programs.

As discussed above, Services Australia and the ATO already share information, including taxation information. The Explanatory Memorandum states that the proposed amendments are to:

… remove any doubt that the administering Secretary and other officers who make decisions under the family assistance law, social security law and Student Assistance Act can participate in these information exchanges consistently with the confidentiality provisions of those Acts and the Privacy Act. The provisions of this Part that do this are enacted for the avoidance of doubt, but will also enhance transparency to how Single Touch Payroll data is used.

45

Family assistance law provides for payments such as Family Tax Benefit and Child Care Subsidy. These payments are not affected by the proposed changes to employment income assessments. However, taxation data can be used to reconcile entitlements to these payments. The Explanatory Memorandum does not provide a specific reason as to why the amendments to family assistance law are included in this Bill as these payments are not affected by the changes to employment income assessments.

41. Multi-agency Government [Department of Social Services, Services Australia and Australian Taxation Office], Submission to the Senate Community Affairs Legislation Committee, Inquiry into the Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020, [Submission no. 6], p. 10.

42. Ibid., pp. 10, 20. 43. Ibid., p. 20. 44. Ibid. 45. Explanatory Memorandum, op. cit. pp. 27-28.

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Committee consideration

Senate Community Affairs Legislation Committee On 6 February 2020, the Bill was referred to the Senate Community Affairs Legislation Committee for inquiry. The Committee tabled its report on 20 February 2020.46 Details of the inquiry are available from the inquiry homepage.47

The Committee made three recommendations:

• that there be further targeted consultation and user testing prior to the commencement of the new reporting system

• that the Government commit to initiate a review of the implementation of the new reporting system within 12 months of the commencement of the legislation and the review be tabled in the Parliament and

• that the Senate passes the Bill.48

These recommendations reflected the calls by many stakeholders for consultation and thorough testing of the new system, and for a review of the impact of the new system to be undertaken (see ‘Position of major interest groups’ section below).

Labor Senators made additional comments and, while supporting the recommendations of the majority report, made two additional recommendations:

• that the Government ‘take all reasonable steps’ during the transition period to the new system to detect, confirm and correct over-reporting of income and

• that the review of the implementation of the new system be conducted independently with consultation with experts and social security recipients.49

The Australian Greens also made additional comments and made eight additional recommendations:

• the Bill be amended to provide a clear definition of what is meant by ‘employment period’ in the Bill (see ‘Issues with determining the employment period’ in the ‘Key issues and provisions’ section below)

• the Government provide guidance on how the Secretary should use their discretion to determine an employment period where employment income is paid but not in respect of a particular timeframe

• the Government undertake comprehensive user testing on a large and diverse range of cohorts

• that the Government undertake user testing with experts and social security stakeholders

• the measures be delayed if this testing cannot be undertaken in time for the 1 July 2020 commencement

• the Government guarantee that people not be unduly penalised if they misreport income during the transition period

46. Senate Community Affairs Legislation Committee, Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020 [Provisions], The Senate, Canberra, 20 February 2020. 47. Senate Community Affairs Legislation Committee, ‘Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020’, Parliament of Australia website. 48. Senate Community Affairs Legislation Committee, Social Services and Other Legislation Amendment (Simplifying Income

Reporting and Other Measures) Bill 2020 [Provisions], op. cit., p. ix. 49. Labor Senators, Additional comments, Senate Community Affairs Legislation Committee, Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020 [Provisions], The Senate, Canberra, 2020, pp. 20-25.

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Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020 13

• the Government ensures appropriate support services are available to ensure income support recipients receive the correct entitlement, including tailored services for Indigenous people and people from culturally and linguistically diverse backgrounds

• the Bill be amended to include a requirement for a public, independent review one year after commencement of the operation of the Act, and ensure this review includes advice from a panel of income support recipients.50

Senate Standing Committee for the Scrutiny of Bills The Senate Standing Committee for the Scrutiny of Bills had no comment on the Bill.51

Policy position of non-government parties/independents The Shadow Minister for Families and Social Services, Linda Burney, stated that the Australian Labor Party (Labor) supported the Bill but was ‘seriously concerned about the government’s ability to implement these changes’.52 Labor Senators made two additional recommendations to the Senate Community Affairs Legislation Committee report on the Bill (see ‘Committee consideration’ section above).

The Australian Greens support the Bill but recommended a number of amendments and other measures in their Additional Comments to the Senate Community Affairs Legislation Committee report on the Bill (see ‘Committee consideration’ section above).

At the time of writing, other non-government parties and independents had not commented on the Bill.

Position of major interest groups

National Social Security Rights Network The National Social Security Rights Network (NSSRN) has stated it broadly supports the proposed change to income assessment.53 In its submission to the Senate Community Affairs Committee inquiry into the Bill, the NSSRN made a number of recommendations to achieve the aims of the Bill:

a) Further consultation be undertaken with people affected and the organisations representing them to identify gaps in the new reporting process and transitional arrangements;

b) Sufficient time and resources are invested to ensure effective communication of the new reporting process and transitional arrangements to those affected;

c) Sufficient support is provided to people who may have difficulty understanding the new reporting process and transitional arrangements; and

50. Australian Greens, Additional comments, Senate Community Affairs Legislation Committee, Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020 [Provisions], The Senate, Canberra, 2020, pp. 20-25.

51. Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 2, 2020, The Senate, 12 February 2020, p. 5. 52. L Burney, ‘Second reading speech: Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020’, House of Representatives, Debates, [proof], 12 February 2020, p. 12. 53. National Social Security Rights Network (NSSRN), Submission to the Senate Community Affairs Legislation Committee, Inquiry

into the Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020, [Submission no. 2], 14 February 2020, p. 2.

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Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020 14

d) Consideration be given to shifting the weight of information-gathering responsibilities onto government where it is better placed than income support recipients to obtain the correct income information, particularly given the complexity of the system and vulnerability of many recipients.

Australian Council of Social Service The Australian Council of Social Service recommends:

• the Bill be passed

• there be thorough testing of the proposed changes

• the government develop a means of detecting double-counting of income during the transition period

• privacy provisions be strengthened so that personal information cannot be released publicly without the person’s explicit informed consent

• the legislation be reviewed after 12 months to ensure it is operating in the best interests of income support recipients.54

Australian Unemployed Workers Union The Australian Unemployed Workers Union (AUWU), an organisation representing social security recipients, raised concerns that there was a lack of consultation regarding the details of the Bill and with potential issues that could arise in the implementation of the new income reporting system.55 The AUWU also called for rigorous testing of the new system prior to implementation.56

Victoria Legal Aid Victoria Legal Aid (VLA) also noted that there was a very short timeframe provided for consultation on the Bill (through the Senate Committee inquiry).57 VLA raised some issues with the drafting of certain sections of the Bill (see ‘Key issues and provisions’ section of this digest) and recommended that further information be provided on how the Single Touch Payroll system would be integrated with Centrelink’s income reporting system.58 VLA also recommended the Government provide clear guidance on how those outside the Single Touch Payroll system would be affected.59

Financial implications The change to the social security income assessment model is expected to provide $2.1 billion in savings over the forward estimates.60

54. Australian Council of Social Service (ACOSS), Submission to the Senate Community Affairs Legislation Committee, Inquiry into the Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020, [Submission no. 7], 14 February 2020, p. 2.

55. Australian Unemployed Workers Union (AUWU), Submission to the Senate Community Affairs Legislation Committee, Inquiry into the Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020, [Submission no. 8], 17 February 2020, p. 1.

56. Ibid., p. 2. 57. Victoria Legal Aid (VLA), Submission to the Senate Community Affairs Legislation Committee, Inquiry into the Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020, [Submission no. 5], 14 February 2020, p. 5.

58. Ibid., pp. 1-3. 59. Ibid., p. 5. 60. Australian Government, Budget measures: budget paper no. 2: 2019-20, p. 158.

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In their submission to the Senate Community Affairs Legislation Committee inquiry into the Bill, government agencies stated that the savings were estimated using data from the Department of Social Services’ Random Sample Survey:

The savings for this measure were determined by extrapolating the instances of over and under reporting of employment income across the income support system using the Department of Social Services’ Random Sample Survey … Within the Random Sample Survey, ‘payment accuracy’ refers to the proportion of social security outlays (in dollars) that have been paid to the right person, for the right payment, at the right rate, on the right date. The accuracy of reported employment income is consistently rated as one of the highest risks to payment accuracy in the Random Sample Survey.

61

The Random Sample Survey reviews a sample of all the major social security payment types to detect whether they are receiving an accurate payment rate in order to provide benchmark data on the level of inaccurate payments.62 In 2018-19 the sample surveyed 20,427 payment recipients with an overall accuracy level of 94.69 per cent. Accuracy differed markedly by payment type with the accuracy for Age Pension at 97.10 per cent but only 68.23 per cent for Sickness Allowance (with a confidence interval of +/- 5.09 per cent).63

The savings are to be derived from improved payment accuracy—through both the new income reporting rules and the prefilling of employment income data provided by the ATO. This means that the savings will derive from reducing the number of estimated overpayments that are made but which are not currently identified and recovered. That such significant savings are to be made underlines the fiscal cost of existing inaccuracies.

Statement of Compatibility with Human Rights As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.64

Parliamentary Joint Committee on Human Rights The Parliamentary Joint Committee on Human Rights had no comment on the Bill.65

Key issues and provisions

Schedule 1: Part 1—Simplifying income reporting Part 1 of Schedule 1 will amend the SS Act, the SS Admin Act and the Veterans’ Entitlements Act 1986 so that recipients of income support payments will report the employment income that is paid to them rather than the income earned from employment in a relevant period.

Who is affected All social security and veterans’ payment recipients with employment income will be affected by the proposed changes.

61. Multi-agency Government, Submission, op. cit., p. 9. 62. DSS, Annual report 2018-19, DSS, Canberra, 2019, p. 40. 63. Ibid. 64. Explanatory Memorandum, op. cit. p. 44-47. 65. Parliamentary Joint Committee on Human Rights, Human right scrutiny report, 2, 2020, 12 February 2020, p. 9.

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Minister Tudge stated in his second reading speech that ‘around 550,000 people report income to Centrelink in any given fortnight and 1.2 million people report income at least once a year’.66

Table 1 sets out the most recent data from the Department of Social Services (from September 2019) showing social security payment recipients who reported earnings from employment income in the previous fortnight.

Table 1: Social security payment recipients by earnings from employment, September 2019

Payment type

Earnings from employment in last fortnight Total

No earnings Had earnings

ABSTUDY (Living Allowance) 7,528 1,643 9,171

Age Pension 2,418,404 106,720 2,525,124

Austudy 24,365 12,443 36,808

Carer Payment 256,215 25,718 281,933

Disability Support Pension 689,522 58,240 747,762

Newstart Allowance 551,866 128,143 680,009

Parenting Payment Partnered 62,448 7,491 69,939

Parenting Payment Single 160,475 64,946 225,421

Partner Allowance 941 54 995

Sickness Allowance 4,501 465 4,966

Special Benefit 6,714 101 6,815

Widow Allowance 7,108 370 7,478

Wife Pension (Partner on Age Pension) 3,471 505 3,976

Wife Pension (Partner on Disability Support Pension)

3,036 822 3,858

Youth Allowance (other) 62,763 13,785 76,548

Youth Allowance (student and apprentice)

115,186 75,829 191,059

Total 4,374,543 497,275 4,871,818

Note: Data on Widow B Pension recipients with earnings not published in source and Widow B Pension recipients excluded from total figure above.

Source: Department of Social Services (DSS), ‘DSS Demographics: September 2019’, data.gov.au website.

Will payment recipients be better or worse off? The impact of the changes will depend on the circumstances of individual payment recipients: their employment type, their payment cycles, their instalment period, the regularity of their payment, and any Working Credit or Work Bonus balance they have accrued.

66. Tudge, op. cit., p. 9.

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The Parliamentary Library calculated entitlements for a single Newstart Allowance recipient in different scenarios under both the current and proposed income assessment system—this included scenarios where the individual had a Working Credit balance and where they did not. There were situations where the individual received a higher rate under both the current and under the proposed system (and vice versa)—the impact was entirely dependent on the specific circumstances of the individual and there was no clear way of estimating those who would be better or worse off under the proposed changes.

At a hearing for the Senate Community Affairs Legislation Committee inquiry into the Bill, officers from the Department of Social Services were asked whether there were any scenarios where people could be better off as a result of the changes. The officers proposed a situation where someone commences employment—under the current system they could receive a reduced payment rate before they received any income from the employment while under the proposed model they would continue to receive their normal payment rate until they received their first pay. The Department was unable to provide estimates as to how many would benefit:

Part of it will come back to how the actual pay that they receive lines up to their entitlement period, and for the period of time et cetera. I'm effectively providing a 'yes; someone could be, hypothetically, better off through the system than under the current received model'. But I couldn't articulate, in terms of statistics, how many people that would be or the level of the benefit.

67

That the measure will deliver savings indicates that overall, many payment recipients will be worse-off as they will receive lower payments than under the current system. That is, there will be fewer overpayments that will not be detected. The Department of Social Services provided some estimates of the numbers affected:

Without having a specific dollar figure, I can say, under the change, in any given fortnight of income support recipients who report employment income, we estimate approximately 2.4 per cent will have their income support payments reduced, and approximately 0.8 per cent of income support recipients will have an increase in their benefit.

68

Implementation The new income reporting method is a very significant change to how income support payments are administered and to longstanding reporting requirements imposed on payment recipients. Successful implementation of the changes will require resources to communicate the changes, deliver the information technology to make the new system easy to use, and allow for payment recipients to contact Services Australia quickly when issues arise or where further information is needed.

In their submission to the Senate Community Affairs Committee inquiry into the Bill, government agencies set out some of the resources that would be used as part of the implementation process:

• a bulk mail-out and targeted messaging (such as via social media and webpage updates) to payment recipients informing them of the changes in advance

• messages advising recipients of their changed requirements would be included in the reporting channels (such as the online portal and mobile applications) during the transition process

• translated fact-sheets and Indigenous radio announcements

67. Senate Community Affairs Legislation Committee, Official committee Hansard, [proof], 17 February 2020, p. 26. 68. Ibid., p. 27.

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• video-on-demand tutorials

• a ‘BOT assistant’ to provide step-by-step guidance through the digital income reporting channels

• a special calculator to help recipients work out what they should report during the transition period and

• face-to-face training for all Services Australia staff.69

Payment recipients will continue to report income via their Centrelink online account through myGov, the Express Plus Centrelink application, self-service reporting phone lines, staff-assisted phone lines or at service centres.70

The same channels will continue to be used for confirming income information provided through the Single Touch Payroll System.71

Definition of employment income A key amendment is a change in the definition of employment income so that it no longer refers to income ‘earned, derived or received’ but simply to income for remunerative work as an employee.

Item 1 amends the definition of employment income at paragraph 8(1A)(a) of the SS Act to remove reference to income ‘earned, derived or received, or that is taken to have been earned, derived or received, by the person for remunerative work undertaken by the person as an employee in an employer/employee relationship’. Employment income will be defined as the ordinary income of the person ‘that is for remunerative work of the person as an employee in an employer/employee relationship’.

Income test changes The main amendments affect the rate calculators for various income support payments with changes to make clear that employment income is to be assessed under the proposed new method and the method itself to be set out in Division 1AA of Part 3.10 of the SS Act.

Current assessment process As set out in the ‘Background’ section, the social security income test normally assesses income in regards to an ‘instalment period’. An instalment period is generally the fortnight in respect of which a person’s payment is calculated. Currently, the employment income assessed for a particular payment fortnight is not what an individual has received in their bank account but what they have earned based on the number of hours/days worked during that fortnight. Recipients must calculate their employment income for that fortnight and report that income to Services Australia in order for their payment rate to be calculated.

New assessment process The proposed new assessment process will be based on the employment income paid to a person during their instalment period. However, that employment income may be assessed over multiple instalment periods depending on the period of employment the income is paid for. The Bill

69. Multi-agency Government, Submission, op. cit., pp. 11, 14-15. 70. Ibid., p. 13. 71. Ibid.

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introduces new terms covering the period of time a person’s employment income is paid for (their employment period) and the period of time that income will be averaged over in order to be assessed under the income test (the assessment period).

The new process assesses employment income paid on a day in a social security instalment period. Whether or not the person has received the employment income on that day is not taken into account.

An employment period is a period of time which employment income is paid in respect of. An assessment period is equal to the number of days in an employment period but commences on the first day of the payment recipient’s instalment period in which the employment income is paid. An individual may be paid employment income in respect of different employment periods within the same instalment period. They may also have multiple assessment periods of different lengths, and they may have overlapping assessment periods.

The amount of employment income paid is averaged over the relevant assessment period (by dividing the relevant total by the number of days in the assessment period). Where an assessment period only overlaps with part of a person’s instalment period, then the daily amounts of those overlapping days are added together to form the attributed employment income. A payment recipient is considered to have earned on each day of the instalment period an amount equal to the attributed employment income divided by the number of days in the instalment period (usually 14 days). Daily attribution can be important in working out Working Credit depletions and accrual.

Table 2 sets out key terms in the assessment model and the examples used in the Bill.

Table 2: Key terms used in the new assessment model

Key term Definition Example

Instalment period The period of time over which

an income support recipient’s payment entitlement is calculated. Usually, a fortnight.

A person’s instalment fortnight begins on 1 June and ends on 14 June. The person needs to report any employment income paid during this period.

Employment period A period of time for which a person is paid employment income.

On 3 June a person is paid $756 in employment income for work the person performed in a period beginning on 9 May and ending 29 May.

The employment period is 21 days in duration.

Assessment period A period in which a person

receives employment income. The assessment period commences on the first day of a person’s social security payment instalment period. The duration of the assessment period is equal to the sum of the number of days

The person’s instalment period begins on 1 June and ends on 14 June.

The person’s assessment period is 21 days beginning on 1 June.

The person is taken to have

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Key term Definition Example

in each employment period. received $756 over the period beginning on 1 June and ending at the end of 21 June (21 days).

The person is taken to have received $36 on each of the days in the assessment period.

Attributed employment income Income taken to have been received over an assessment

period that makes up part, but not the whole, of an instalment period. This attributed employment income is apportioned to the number of days in the instalment period.

For the next instalment period beginning on 15 June and ending on 28 June the person is taken to have received employment income for that part of the period which overlaps with the assessment period: 15-21 June. The person is taken to have received $252 during this overlap period ($36 multiplied by seven days).

Under the attributed employment income provisions, the person is taken to have received $18 on each day in the instalment period beginning on 15 June ($252 divided by 14 days).

Sources: Proposed section 1073A inserted by item 37, Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020; ‘Payment by instalments’, Section 43, Social Security (Administration) Act 1999.

The Multi-agency submission to the Senate Community Affairs Legislation Committee inquiry into the Bill included a diagram comparing the current income reporting mode (the ‘Earned Assessment Model’) with the proposed new system (the ‘Paid Assessment Model). This is copied at Figure 1.

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Figure 1: Diagram of current income report model (Earned Assessment Model) and proposed new model (Paid Assessment Model)

Source: Multi-agency Government [Department of Social Services, Services Australia and Australian Taxation Office], Submission to the Senate Community Affairs Legislation Committee, Inquiry into the Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020, [Submission no. 6], p. 17.

Issues with determining the employment period In its submission to the Senate Community Affairs Committee inquiry into the Bill, Victoria Legal Aid (VLA) raised concerns that a method for determining employment periods was not clearly defined.72 In the Bill, an employment period is a ‘particular period’ for which employment income is paid in respect of. The Explanatory Memorandum states that this rule is to be used where ‘it is possible to identify the particular period or periods to which the employment income relates’.73 VLA states that ‘it is not clear what is meant by the “particular period to which the employment income relates”. It could be the pay cycle period, the number of days of work or the period during which the person worked’.74

The Minister’s second reading speech states that recipients will need to report the pay period dates which appear on their payslips.75 It would appear that these pay periods are what will generally be referred to with the term employment period. However, the use of the term in the Bill is ambiguous as to what is being referred to and it could be read to refer to the period of days actually worked or the period of a pay cycle in which the person’s work hours occurred. The interpretation of this term will need to be specified in policy guidelines.

72. VLA, op. cit., pp. 2-3. 73. Explanatory Memorandum, op. cit., pp. 10-11. 74. VLA, op. cit., p. 3. 75. Tudge, op. cit., p. 9.

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This ambiguity has a flow-on effect as separate provisions in the Bill (new section 1073BA) set out a method for the Secretary (that is, Services Australia) to attribute employment income over a certain period where it is considered to have not been paid in respect of a particular period. The lack of clarity over what should be considered the ‘particular period’ for which employment income is paid could mean that Services Australia will determine the period that income should be attributed to. There are no specific criteria guiding how that period of time should be determined, only that the period cannot be more than 52 weeks.

The current system assesses employment income earned in a clearly defined period: the person’s instalment period. It assesses remunerative work undertaken within that set period. The new assessment process is based on an ‘employment period’ which can vary based on the individual circumstances of the work and the payment arrangements. The Bill, as drafted, provides no guidance as to how to work out this critical variable in determining an income support recipient’s payment rate.

VLA recommended the Bill be amended to clarify what ‘in respect of a particular period’ means, how such a period is to be identified and by whom, and the circumstances in which it can be said that employment income is ‘not in respect of a particular period’.76 Victoria Legal Aid also noted similar provisions elsewhere in the Bill which provide for the Secretary to determine periods that should include some guidance as to how the periods should be determined.

Anti-avoidance provisions The Bill proposes a special provision (proposed section 1073BB) to cover situations where Services Australia considers that one or more persons is deferring the payment of employment income in order to qualify for a social security payment or receive a higher rate than would otherwise be payable. That is, where it is considered that a person or persons entered into a scheme with a main purpose of obtaining some advantage from the social security system. In such cases, the Secretary can determine the period that the payment claimant or recipient is taken to have received the employment income amount. As discussed in the previous section, no specific guidance is provided as to how such a period will be determined and there is no maximum period that may be determined.

As noted in the Background section of this Bills Digest, the rationale for the current system assessing income earned rather than when received is that it would create inequities: it would enable some people to defer receiving their earnings until the income would have less impact on their income support entitlement. The anti-avoidance provision is included to address this potential inequity.

It is unclear how those engaging in avoidance or income deferral will be detected or what evidence of such a scheme will be required for the anti-avoidance provisions to apply.

Key income test provisions Item 11 amends the Youth Allowance income test at Point 1067G-H23 which currently provides that, subject to certain conditions, ordinary income is to be taken into account in the fortnight in which it is first earned, derived or received. Item 11 inserts an exception to this rule for employment income. Item 12 adds a note at this point to see Division 1AA of Part 3.10 for the treatment of employment income.

76. VLA, op. cit., p. 3.

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Point 1067G-H24(a) of the Youth Allowance income test sets out a method for calculating regular payments received at intervals longer than one fortnight (for example, where a person receives their wages monthly). The method divides the amount received by the number of days in the period the income is paid for (the work period) and multiplies this daily rate by the number of days in the Youth Allowance payment fortnight that are also within the work period. Item 15 amends this point so that this method is applied to payments of ordinary income except employment income.

Similar amendments to items 11, 12 and 15 are made to the Austudy income test (items 16, 17 and 20) and the Benefit Rate Calculator used for Newstart Allowance, Sickness Allowance, Widow Allowance and Partner Allowance (items 21, 22 and 25).

Items 16-17 make similar amendments to the Austudy income test at Point 1067L-D19 as Items 11-12 make to the Youth Allowance income test.

Item 20 makes a similar amendment to the Austudy income test at Point 1067L-D23 as item 15 makes to the Youth Allowance income test.

Item 26 repeals the example at Point 1068-G8 which explains how income received from remunerative work undertaken over 25 days is spread over three payment fortnights for the purposes of the Benefit Rate Calculator. As the example relates to what would be considered employment income, it is not relevant to Point 1068-G8.

Item 27 amends the income test for Parenting Payment Partnered at Point 1068-D19 which currently allows the Secretary of the Department of Social Services to determine the period over which a person’s ordinary income is to be taken into account (up to a maximum of 52 weeks). Item 27 inserts an exception so that this provision does not apply to employment income. Point 1068-D20 provides that a person’s ordinary income for any particular period is to be reduced to a fortnightly rate. Item 30 inserts an exception so that this provision does not apply to employment income.

Item 34 amends paragraph 1073AA(4BA)(a) to specify that in working out work bonus income for an instalment period, a person’s employment income is that taken to have been received (as worked out by the proposed new sections in Division 1AA). Item 35 repeals subsection 1073AA(5) which currently provides for employment income to be interpreted, for the purposes of the work bonus, as including an ‘amount that is taken to have been earned, derived or received over that period’. This interpretation will be redundant.

Item 37 repeals sections 1073A and 1073B and inserts new sections 1073A, 1073B, 1073BA, 1073BB, 1073BC, and 1073BD which provide the main provisions for determining how employment income is to be assessed under the social security income test.

Currently, section 1073A provides that lump sum employment income (paid in respect of a period greater than a fortnight or not in respect of any particular period) received by a person who is receiving a pension payment (such as Disability Support Pension or the Age Pension), can be taken to be earned, derived or received over such period, not exceeding 52 weeks, as the Secretary of the Department of Social Services determines. The current policy, as set out in the Social Security Guide is to spread the income earned over the relevant period (that is, apportion the income

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Social Services and Other Legislation Amendment (Simplifying Income Reporting and Other Measures) Bill 2020 24

evenly over the period) or, if there is not a particular period, to spread the income over the 52 weeks from the date the pensioner became entitled to the amount.77

Section 1073B currently applies to those below Age Pension age. It provides that where a person earns, derives or receives (or is taken to earn, derive or receive as under section 1073A) employment income during a particular instalment period, the person is taken to have earned an amount on each day of the instalment period worked out by dividing the total amount of that employment income by the number of days in the instalment period. That is, the amount taken to have been earned, derived or received in that instalment period is averaged over the number of days in that instalment period. The number of days the person actually worked is disregarded.

New section 1073A is used to assess employment income paid in respect of a particular period or periods of work (an employment period) where one or more amounts of employment income have been paid in an instalment period. The section applies separately where there are separate employers. Pensioners receiving employment income on a monthly basis may have their income worked out under new section 1073B while employment income that is not paid in respect of a particular period is worked out under new section 1073BA.

A person is taken to receive employment income over a period known as the assessment period which starts on the first day of the instalment period and is equal to the number of days in the employment period. For each day in the assessment period, the person is taken to have received an amount of employment income worked out by dividing the total amount of employment income from that employer by the number of days in the assessment period. Where a person’s employment income is taken to have been paid during only part of a particular instalment period, the person is taken to receive on each day of that instalment period an amount worked out by dividing the portion of their employment income attributed to that instalment period divided by the number of days in the instalment period.

The section applies to employment income paid on a day in an instalment period. Whether or not the person has received the employment income on that day is not taken into account.

Where a person has multiple employment periods with the same employer, any overlapping days must be counted only once in working out the sum of the number of days in each employment period.

A person may have different assessment periods overlapping with their instalment periods. All of the amounts attributed to the days in that instalment period will be added together as the employment income component of ordinary income assessed under the income test.

New section 1073B applies to those receiving a social security pension where the person receives employment income in respect of a one month period once a month, and the Secretary of the Department of Social Services is satisfied that the same amount will continue to be paid on the corresponding day of the next calendar month (or last day of that month if there is no such day) for the foreseeable future. That is, the pensioner is expected to regularly receive the same employment income on a monthly basis, paid on the same day for the foreseeable future.

77. DSS, ‘4.3.1.20 Determining the rate of income for pensioners of age pension age from 20/09/2009’, Social security guide, DSS website, last reviewed 6 May 2019; DSS, ‘4.3.1.25 Determining the Assessable Income for Pensioners Below Age Pension Age’, Social security guide, DSS website, last reviewed 3 July 2017.

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For those to whom section 1073B applies, their employment income will, from the day they are first paid and each after that, be taken as the initial monthly amount multiplied by 12 and divided by 364. That is, it will be averaged out across an entire year.

Where a person ceases to satisfy the Secretary that they will continue to receive the same amount on a monthly basis, then the yearly averaging will cease to apply at the end of one month beginning on the last payment day.

Where a person is taken to have received employment income under this section for part but not the whole of an instalment period, then the amount of attributed employment income for that instalment period will be averaged over the number of days in the instalment period (see attributed employment income definition in Table 1).

New section 1073BA sets out how employment income that is not paid in respect of a particular period of time is to be attributed. The Explanatory Memorandum gives the example of a bonus paid by an employer that is not in relation to a specified period.78 Section 1073BA provides for the Secretary to determine the period of time over which the person is taken to have received this employment income, limited to a maximum period of 52 weeks. The amount of income is averaged over the number of days in the period determined by the Secretary. The period the income is taken to have been received must commence on the first day in the instalment period in which the employment income is paid. Where a person is taken to have received employment income under this section for part but not the whole of an instalment period, then the amount of attributed employment income for that instalment period will be averaged over the number of days in the instalment period (see attributed employment income definition in Table 1).

New section 1073BB is the anti-avoidance provision and provides for the Secretary to determine that a person will be taken to have received employment income during a particular period, in situations where one or more persons (which may include the payment recipient) has entered into, commenced or carried out a scheme to defer the payment of employment income for the sole or dominant purpose of obtaining a social security advantage.

A social security advantage is one which enables a person to obtain a social security pension or benefit, a Service Pension, an Income Support Supplement, a Veteran Payment or a payment under the ABSTUDY scheme; or receive a higher rate of one of these payments than would otherwise be payable. A scheme can include any agreement, understanding, promise or undertaking, where express or implied, whether or not enforceable or intended to be enforceable by legal proceedings. A scheme also includes any plan, proposal or action whether there are two or more parties or only one involved.

Periods determined by the Secretary must commence on the first day of the instalment period where the person earned or derived the employment income for which payment was deferred. The amount of employment income is averaged over the number of days in the period determined by the Secretary. Where a person is taken to have received employment income under this section for part but not the whole of an instalment period, then the amount of attributed employment income for that instalment period will be averaged over the number of days in the instalment period (see attributed employment income definition in Table 1).

78. Explanatory Memorandum, op. cit., p. 15.

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Determinations by the Secretary under this section are reviewable decisions and can be appealed to the Administrative Appeals Tribunal or the Federal Court.79

New section 1073BC provides that employment income attribution rules in the preceding sections do not apply to leave payments that fall under specific rules in the rate calculators for specific payments. These rate calculators include rules to attribute the leave payments over a particular period.

New section 1073BD is intended to cover situations where a person receives employment but the circumstances are not provided for in sections 1073A, 1073B, 1073BA or 1073BB. In such situations, the amount of employment income received during the instalment period is to be averaged over the number of days in the instalment period.

Item 39 repeals and substitutes step 1 of the method statement at section 1073F which is used for working out accruals and depletions of working credit for social security benefit recipients. Currently, step 1 refers to employment income earned, derived or received on the day. New step 1 refers to employment income taken, in accordance with Division 1AA, to have been received on that day. Item 40 makes a similar amendment to the method statement at section 1073H which is used for working out accruals and depletions of working credit for social security pension recipients.

In a similar way, items 41 and 42 replace references to employment income being earned, derived or received at subparagraphs 1073J(b)(i) and (ii), respectively, to references to employment income that is taken, under a provision the SS Act, as received. These subparagraphs are part of provisions covering situations where a person who starts receiving or increases employment income can continue to be treated as qualified as a social security recipient due to a working credit balance.

Transitional arrangements Transitional arrangements are set out in item 72 to cover the period where the new income assessment arrangements are implemented. Where a person has an instalment period that overlaps with the commencement of the new income assessment process, income received during that period will be assessed under the new assessment rules. However, if it was income earned or derived before the commencement of item 72 and had already been taken into account in calculating the person’s payment rate, it will be excluded from the calculation under the new income assessment process. The new assessment process also does not apply to lump sum amounts paid prior to the commencement of item 72 (as these will have been assessed under the existing rules).

Pension Bonus Scheme Item 5 inserts new subsection 93H(2A) which provides for the amendments in Part 1 of Schedule 1 of the Bill to not apply when working out a person’s annual pension rate for the purposes of the Pension Bonus Scheme. Under the scheme, which has been closed to registration since 1 July 2014, participants earn bonus payments if they have deferred receipt of the Age Pension and continued to work past age pension age.80 The new subsection will ensure that employment

79. Ibid., pp. 17-18. 80. D Daniels, L Buckmaster and P Yeend, Social Security and Other Legislation Amendment (Pension Reform and Other 2009 Budget Measures) Bill 2009, Bills digest, 179, 2008-09, Parliamentary Library, Canberra, 2009, pp. 15-16.

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income paid after a person has ceased working will not affect the calculation of their pension bonus amount.

Schedule 1: Part 2—Exchange of information relating to taxation information The amendments in Part 2 of Schedule 1 will allow for taxation information held by the ATO and protected information held by Services Australia about individuals to be shared between Services Australia and the ATO in order to administer social security law, family assistance law and the Student Assistance Act 1973 (which provides for the ABSTUDY scheme). The amendments also specify that this information sharing may be automated using computer programs.

Measure affects family assistance and child care payments As noted in the Background section of this Bills Digest, it is unclear why amendments are being made to family assistance law given that Family Tax Benefit and Child Care Subsidy will not be affected by the new income assessment method. The income tests for these payments consider estimates of adjusted taxable income and entitlements are reconciled on an annual basis when individuals submit their tax returns. There are existing provisions in family assistance law which provide for this reconciliation process using data from the ATO.81

The Government has not announced any new measure using tax data for the purposes of Family Tax Benefit or Child Care Subsidy payments and no explanation has been provided in the explanatory material for the Bill to suggest why the new information sharing and computer-automated decision making amendments need to be made to family assistance law. The Explanatory Memorandum states only that ‘The Australian Government will use taxation information (primarily data from the Single Touch Payroll system) to administer the family assistance law’.82

Exchange of taxation information Item 74 inserts new section 161A to the FA Admin Act to add two definitions:

• taxation information is information held by a taxation officer, including protected information as defined under subsection 355-30(1) in Schedule 1 of the Taxation Administration Act 1953 but excludes tax file numbers. This includes information disclosed or obtained for the purposes of taxation law and which identifies, or can be used to identify, an entity

• a taxation officer is defined under subsection 355-30(2) in Schedule 1 of the Taxation Administration Act 1953 or an entity covered by section 355-15 in the same Schedule. A taxation officer is the Commissioner or Second Commissioner of the ATO and public servants appointed or engaged by the ATO. Other entities covered include those providing services to the ATO (and their employees) or other individuals working for the Commonwealth who are performing functions or exercising powers under the taxation law.

Item 78 inserts new section 162A into the FA Admin Act which provides for the obtaining, recording, disclosure and use of protected information relating to taxation information. The section allows for the disclosure of protected information (under family assistance law) to a taxation officer where it is for the purposes of matching that information against taxation information in order to administer family assistance law. New subsection 162A(3) authorises the collection of personal information for the purposes of the Privacy Act 1988 where it is taxation information collected from a taxation officer for the purposes of family assistance law.

81. For example, sections 154, 157 and 162, A New Tax System (Family Assistance) (Administration) Act 1999. 82. Explanatory Memorandum, op. cit., p. 28.

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Existing offence provisions in the FA Admin Act will cover the unauthorised access to or use of protected family assistance information.

Computer-automated decisions Items 81 and 82 amend section 223 of the FA Admin Act which provides for computer programs to make decisions. Currently, section 223 provides for the Secretary (of the Department of Social Services) to arrange for the use of computer programs for any purpose for which the Secretary may make decisions under family assistance law and that such decisions are taken to be a decision made by the Secretary.

Item 81 amends this section so that the Secretary may arrange for the use of computer programs for any purposes for which the Secretary or any other officer may make decisions. A decision is defined at subsection 3(1) of the FA Admin Act as having the same meaning as in the Administrative Appeals Tribunal Act 1975, where it is defined to include the doing of any act or thing.83 The amendments will allow for computer programs authorised by the Secretary to be used for any purpose for which officers administering family assistance law may make decisions.

The Explanatory Memorandum states that this amendment is to address a possible argument that the existing provision limits the use of computer programs to decisions that are specifically vested in the Secretary.84 The current information sharing provisions at section 162 of the FA Admin Act provide for a person to make certain decisions relating to protected information (not the Secretary specifically). The amendments will provide for the use of computer programs in obtaining, recording, disclosing and using protected information (and for any other decisions made by officers administering family assistance law).

The Explanatory Memorandum states that ‘the amendments made by these items are only intended to clarify that decisions under section 162 of the Family Assistance Administration Act to access or use protected information are decisions under section 223’.85 However, the amendments are not limited to decisions under section 162 and provide for any decisions made by officers under family assistance law to be automated using computer programs. Item 82 inserts a note that decisions under section 162 are examples of the kinds of decisions under section 223, but this note by no means limits the operation of section 223 as amended.

The amendments made by item 81 (and the similar amendment made by item 83 to the SS Admin Act) have broader implications than the description offered in the Explanatory Memorandum suggests.

Item 100 adds new section 351B to the Student Assistance Act 1973 to allow for the use of computer programs for any purposes for which an officer may make a decision under subsections 351(1) and (2) of that Act. This provision specifically limits the use of computer programs to decisions relating to the access and use of protected student assistance information. The Explanatory Memorandum states that this provision has a narrower operation than the equivalent provisions in the FA Admin Act and SS Admin Act (as amended by items 81-84).86 If the intent of the amendments by items 81 and 83 to the FA Admin Act and SS Admin Act is ‘only to clarify’ that decisions to access or use protected information are decisions that can be made with the use of

83. Subsection 3(3) of the Administrative Appeals Tribunal Act 1975. 84. Explanatory Memorandum, op. cit., p. 31. 85. Ibid., p. 32. 86. Ibid., p. 40.

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computer programs, then the amendments could have been drafted in a similar way to the amendments to the Student Assistance Act 1973.

Similar amendments to items 74 and 78, relating to the sharing of taxation information and protected information, are made to the SS Admin Act and the Student Assistance Act 1973.87

Schedule 1: Part 3—Other amendments Part 3 of Schedule 1 primarily makes consequential amendments with the exception of item 116 which inserts new section 1072A to the SS Act to provide for the treatment of lump sum arrears of periodic payments under the social security income test.

Section 1073 of the SS Act provides for lump sum amounts that are not income in the form of periodic payments, or ordinary income from remunerative work undertaken by a person or an exempt lump sum, to be apportioned equally over the 52 weeks commencing on the day the person becomes entitled to that amount.

New section 1072A will cover payments of arrears of periodic payments which are not related to remunerative work, are not exempt lump sums and are not compensation payments. The Explanatory Memorandum provides examples of such payments including arrears of periodic payments under an income protection insurance policy or defined benefit income stream arrears (where the income stream was suspended for a period and then later resumed).88 Lump sums which fall into this category will be taken to be received over a period determined by the Secretary beginning on the day the person receives the lump sum and not exceeding a period of 52 weeks. The payment will be apportioned equally to the number of days in the period.

87. See items 86 and 93 of Schedule 1 to the Bill. 88. Explanatory Memorandum, op. cit., p. 42.

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