THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA HOUSE OF REPRESENTATIVES BUDGET SAVINGS (OMNIBUS) BILL 2016 EXPLANATORY MEMORANDUM

Transcription

1 2016 THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA HOUSE OF REPRESENTATIVES BUDGET SAVINGS (OMNIBUS) BILL 2016 EXPLANATORY MEMORANDUM (Circulated by authority of the Treasurer, the Hon Scott Morrison MP)

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3 Table of contents General outline and financial impact... 5 Chapter 1 Minimum repayment income for HELP debts...23 Chapter 2 Indexation of higher education support amounts...27 Chapter 3 Removal of HECS-HELP benefit...29 Chapter 4 Job commitment bonus...35 Chapter 5 Chapter 6 Chapter 7 Australian Renewable Energy Agency s finances...45 Indexation of private health insurance thresholds...47 Abolishing the National Health Performance Authority...51 Chapter 8 Aged care...57 Chapter 9 Dental services...73 Chapter 10 Newly arrived resident s waiting period...91 Chapter 11 Student start-up scholarships Chapter 12 Interest charge Chapter 13 Debt recovery Chapter 14 Parental leave payments Chapter 15 Fringe benefits

4 Budget Savings (Omnibus) Bill 2016 Chapter 16 Carer allowance Chapter 17 Indexation of family tax benefit and parental leave thresholds Chapter 18 Pension means testing for aged care residents Chapter 19 Employment income Chapter 20 Psychiatric confinement Chapter 21 Closing carbon tax compensation to new welfare recipients Chapter 22 Rates of R&D tax offset Chapter 23 Single touch payroll reporting Chapter 24 Single appeal path under the Military Rehabilitation and Compensation Act

5 General outline and financial impact Financial impact The measures in this Bill have the following estimated impact on the underlying cash balance over the forward estimates ($m): No Measure Title Minimum repayment income for HELP debts Indexation of higher education support amounts Removal of HECS-HELP benefit Job commitment bonus Australian Renewable Energy Agency s finances Indexation of private health insurance thresholds Abolishing the National Health Performance Authority Total , Aged care Dental services Newly arrived resident s waiting period Student start-up scholarships Interest charge

6 Budget Savings (Omnibus) Bill 2016 No. Measure Title Total 13 Debt recovery Parental leave payments Fringe benefits Carer allowance Indexation of family tax benefit and parental leave thresholds Pension means testing for aged care residents Employment income Psychiatric confinement Closing carbon tax compensation to new welfare recipients Rates of R&D tax offset Single touch payroll reporting Single appeal path under the Military Rehabilitation and Compensation Act , Total , , , ,104.1 Minimum repayment income for HELP debts Schedule 1 to this Bill establishes a new minimum repayment threshold for HELP debts of 2 per cent when a person s income reaches $51,957 in the income year. 6

7 General outline and financial impact Human rights implications: See Statement of Compatibility with Human Rights at the end of Chapter 3. Indexation of higher education support amounts Schedule 2 to this Bill changes the index for amounts that are indexed annually under the Higher Education Support Act 2003, from the Higher Education Grants Index (HEGI) to the Consumer Price Index (CPI), with effect from 1 January Human rights implications: See Statement of Compatibility with Human Rights at the end of Chapter 3. Removal of HECS-HELP benefit Schedule 3 to this Bill will discontinue the HECS-HELP benefit from 1 July Human rights implications: See Statement of Compatibility with Human Rights at the end of Chapter 3. Job commitment bonus Schedule 4 to this Bill would give effect to the cessation of the job commitment bonus measure announced in the Budget. Currently, a person aged 18 to 30 who has been receiving particular income support payments for at least 12 months can qualify for a tax-free bonus of $2,500 if they complete 12 months of continuous gainful work and do not receive an income support payment during that period. In addition, such persons can qualify for a second tax-free bonus of $4,000 if they complete a further period of 12 months of gainful work and do not receive an income support payment during that further period. The job commitment bonus was intended to encourage young long-term unemployed job seekers to find and keep a job. However, analysis of the program awareness and impact identified that the program has not had a significant impact on young job seekers either obtaining or remaining in employment. This Schedule would repeal provisions of the social security law that provide for the job commitment bonus. It also includes transitional 7

8 Budget Savings (Omnibus) Bill 2016 provisions that would ensure that people who have qualified for a job commitment bonus before the commencement date would be able to claim the bonus (tax-free) within a particular timeframe. Human rights implications: See Statement of Compatibility with Human Rights at the end of Chapter 4. Australian Renewable Energy Agency s finances The Australian Renewable Energy Agency (ARENA), as established by the Australian Renewable Energy Agency Act 2011 (ARENA Act), has the dual objectives of improving the affordability of renewable energy and increasing supply of renewable energy in Australia. Its legislated functions, as provided in section 8 of the ARENA Act, are primarily to provide financial assistance for research into, and development and deployment of, renewable energy technologies, and to engage in knowledge sharing in relation to the same. The Government previously expressed a policy intention to abolish ARENA. To this end, an abolition bill was introduced into the House of Representatives on 19 June 2014, and savings from the abolition of ARENA were factored into the Federal Budget. While the abolition bill passed the House on 1 September 2014, and was introduced into the Senate on the following day, the Government was unable to gain support in the Senate for the abolition bill. Consequently, the bill remained in second reading debate in the Senate between 2 September 2014 and 17 April 2016 (when it lapsed with the prorogation of the 44th Parliament). In March 2016 the Government decided to retain ARENA and announced it would work with the Clean Energy Finance Corporation (CEFC) on a proposed new Clean Energy Innovation Fund 1 the funding for which will be made available from within the CEFC s existing appropriation. ARENA has also been given ongoing resources through the Budget to manage its active commitments to almost 200 projects (worth around $1 billion), and is making available up to $100 million in new funding for large-scale solar deployment projects. It remains the Government s intention to realise the savings from ARENA incorporated in the Budget. The Schedule seeks to realise these savings. 1 Enabling regulations to facilitate this have since been made: see Australian Renewable Energy Agency Regulation

9 General outline and financial impact Realisation of financial savings from ARENA has been consistent Government policy since it was announced in the Budget. Date of effect: The amendments commence upon the day after the Bill receives the Royal Assent. Human rights implications: See Statement of Compatibility with Human Rights at the end of Chapter 5. Regulation Impact Statement The Office of Best Practice Regulation (OBPR) agreed that the refocusing of ARENA s role and reduced legislated funding had a nil regulatory impact, as set out in a Cabinet-in-Confidence short-form Regulation Impact Statement (RIS). The OBPR reference number for this matter is Indexation of private health insurance thresholds The purpose of Schedule 6 to this Bill is to pause the income thresholds that determine the tiers for the Medicare Levy Surcharge (MLS) and the Australian Government Rebate (the Rebate) on private health insurance at the rates until This Schedule amends the Private Health Insurance Act 2007 (the PHI Act) to set income thresholds at the rates in the financial years , and Human rights implications: See Statement of Compatibility with Human Rights at the end of Chapter 6. Abolishing the National Health Performance Authority Schedule 7 to this Bill repeals Chapter 3 of the National Health Reform Act 2011, with the purpose of abolishing the National Health Performance Authority established under the Act. The Schedule will enable health system performance analysis and reporting functions previously spread across two Health Portfolio Agencies to be streamlined, focussed and better coordinated. The responsibilities of the National Health Performance Authority (NHPA) overlap with those of the Australian Institute of Health and 9

10 Budget Savings (Omnibus) Bill 2016 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 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. In abolishing the National Health Performance Authority, the functions of the Chief Executive Officer, Authority staff and the Authority s Committees cease. The Schedule includes transitional provisions covering the transfer of assets and liabilities to the AIHW. Human rights implications: See Statement of Compatibility with Human Rights at the end of Chapter 7. Aged care Schedule 8 to this Bill deals with proposed amendments to the Aged Care Act 1997 (the Aged Care Act) relating to the creation of civil penalties for approved providers of aged care who engage in certain behaviours and other matters. The subsidy the Commonwealth Government pays to approved providers is substantially affected by appraisals (and classifications that are based on appraisals) of care recipients care needs. This Schedule introduces a civil penalty of up to 60 penalty units if approved providers on more than one occasion in a two year period give false, misleading or inaccurate information in connection with an appraisal or reappraisal. This Schedule makes it easier for the Secretary to require an approved provider to re-appraise its care recipients or suspend it from making further appraisals if the provider gives false, misleading or inaccurate information in connection with an appraisal or reappraisal. In addition, if the Secretary suspects on reasonable grounds that a care recipient s care needs have decreased significantly, this Schedule gives the Secretary the power to require the approved provider to re-appraise the care recipient. The Schedule also changes the date that a change in classification following a review by the Department is taken to have effect. These amendments will allow the Secretary to recover overpayments of subsidy from the date the care recipient was originally classified. Currently, the 10

11 General outline and financial impact Secretary can only recover overpayments for a maximum of six months prior to a change in classification. The Schedule also amends the Aged Care Act to allow for the charging of a fee if an approved provider seeks reconsideration by the Secretary of a classification downgrade. This Schedule also amends the Aged Care Act to make it clear that in deciding on a classification level, the Secretary can take into account the manner in which care is provided to a care recipient, including but not limited to the qualifications of a person required to provide care or treatment. This Schedule will abolish the adviser and administrator panel arrangements set out in the Aged Care Act Approved providers under sanction would be able to choose their own advisers and administrators. The measure also includes the removal of the requirement that the Secretary approve advisers that assist with Aged Care Funding Instrument assessments for approved providers who are to be suspended from this activity. Approved providers would be required to have the adviser and/or administrator appointed and on site within a specified timeframe, to mitigate risks to care recipients. The Secretary and the Australian Aged Care Quality Agency will retain capacity to monitor the approved provider, including during the sanction period. Further, the Secretary will still have the ability revoke approved provider status and withdraw Commonwealth funding. This measure will amend the obligations in the Aged Care Act for approved providers to notify the Secretary of certain changes to any of its key personnel in circumstances that do not materially affect the approved provider s suitability to be a provider of aged care Date of effect: The table in this clause sets out when the Act s provisions will commence. The table provides that Schedule 8 Part 1 will commence on a day or days to be fixed by proclamation. However, if any of the provisions do not commence within the period of 6 months beginning on the day this Act receives Royal Assent, they commence on the day after the end of that period. The table provides that Schedule 8 Part 2 will commence the day after this Act receives Royal Assent. 11

12 Budget Savings (Omnibus) Bill 2016 The table provides that Schedule 8 Part 3 will commence on the 28th day after this Act receives Royal Assent. Human rights implications: See Statement of Compatibility with Human Rights at the end of Chapter 8. Dental services Schedule 9 to this Bill amends the Dental Benefits Act 2008 to close the Child Dental Benefits Schedule (CDBS) from 31 December 2016, and establish a framework for agreements between the Commonwealth and the states and territories (the states) to underpin a Child and Adult Public Dental Scheme. The Child and Adult Public Dental Scheme will deliver better dental care to public patients. Both adults on concession cards and all children will be eligible to receive public dental services under the Scheme. Under the Scheme the Commonwealth will provide funding to the states from an ongoing capped special appropriation under the Dental Benefits Act 2008 to improve access to public dental services. Funding will be made available to the states under a National Partnership Agreement (NPA) to operate from 1 January 2017 for an initial five year period. After the fourth year, the program will be reviewed and the outcome of the review will inform the policy parameters of the next Agreement. It is anticipated that this long term certainty of Commonwealth funding will enable the states to invest in infrastructure and improve dental service provision. The states will retain the ability to contract with private providers to deliver public dental services where required. The Commonwealth contribution under the program will be set at 40 per cent of the efficient price of provision of dental services. The states will meet the balance of the costs of service provision. They will continue to manage their waiting lists through controls such as copayment arrangements; will determine state-specific eligibility criteria (subject to the Commonwealth s policy intent that all children will be eligible for public dental services); and will continue to provide services based on clinical need. With the additional funding available, more services will be provided which should reduce waiting times. It is expected that the Commonwealth funding provided through the Child and Adult Public Dental Scheme will enable the states to treat an additional 600,000 patients annually. 12

13 General outline and financial impact The CDBS will be closed from 31 December 2016 (although benefits will still be paid for eligible services provided on or before that date). The CDBS has been poorly utilised, with only around a third of eligible children accessing services since it began in Public dental patients are more likely to suffer from decay, tooth loss and gum disease than the general population. Financially disadvantaged Australians eligible for public dental services, namely pensioners and concession card holders, have a substantially reduced ability to access affordable and timely oral health care. The Child and Adult Public Dental Scheme will focus on improving dental services for all public dental patients, including an increasing focus on preventative dental care. Human rights implications: See Statement of Compatibility with Human Rights at the end of Chapter 9. Newly arrived resident s waiting period Schedule 10 to the Bill will remove the exemption from the 104 week newly arrived resident s waiting period for new migrants who are family members of Australian citizens or long-term permanent residents. These exemptions are currently contained in section 3 of the Social Security Legislation Amendment (Newly Arrived Resident s Waiting Periods and Other Measures) Act This change will align the social security waiting period for working age payments for all newly arrived migrants to Australia, except for refugees, former refugees and their family members. This Schedule will also move the remaining relevant exemptions found in section 3 of the Social Security Legislation Amendment (Newly Arrived Resident s Waiting Periods and Other Measures) Act 1997 into the Social Security Act 1991 and the Farm Household Support Act 2014 to remove the need to look at multiple Acts to work out whether a newly arrived resident s waiting period applies. Finally, this Schedule will also remove the savings provisions that allow a person to serve the newly arrived resident s waiting period that applied when the person first entered Australia as a resident. This change means that from the commencement of Schedule 10 of the Bill, any person who applies for a social security payment, a concession card or farm household allowance and is subject to a newly arrived resident s waiting period will have to serve the current waiting period. In most cases this requires the 13

14 Budget Savings (Omnibus) Bill 2016 person to be an Australian resident and in Australia for 104 weeks. The removal of the savings provisions is expected to affect very few people. Human rights implications: This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act See Statement of Compatibility with Human Rights at the end of Chapter 10. Student start-up scholarships Schedule 11 to this Bill repeals the student start-up scholarship payment, from 1 July 2017, or the first 1 January or 1 July after Royal Assent after this date. The earliest this Schedule can commence is 1 July 2017 Human rights implications: This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act See Statement of Compatibility with Human Rights at the end of Chapter 11. Interest charge Schedule 12 to the Bill introduces the legislative amendments required for the Mid-Year Economic and Fiscal Outlook measure, Applying a general interest charge to the debts of ex-recipients of Social Security and Family Assistance Payments. The Schedule will provide for the application of a new interest charge to outstanding debts owed by former recipients of social welfare payments who have failed to enter into, or have not complied with, an acceptable repayment arrangement. The interest charge will apply to social security, family assistance (including child care), paid parental leave and student assistance debts. The rate of the proposed interest charge (approximately nine per cent) will be based on the 90-day Bank Accepted Bill rate (approximately two per cent), plus an additional seven per cent, as is already applied by the Australian Taxation Office under the Taxation Administration Act Date of effect: The measure is intended to be implemented from 1 January

15 General outline and financial impact Human rights implications: This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act See Statement of Compatibility with Human Rights at the end of Chapter 12. Debt recovery Schedule 13 to the Bill introduces the legislative amendments required for the Mid-Year Economic and Fiscal Outlook measure, Enhanced Welfare payment Integrity expand debt recovery. The Schedule will protect the integrity of outlays through welfare payments, and encourage welfare debtors to repay their debts, by using departure prohibition orders (similar to the arrangements applying in the child support legislation) to prevent targeted debtors from leaving the country. Departure prohibition orders will be used for debtors who persistently fail to enter into acceptable repayment arrangements. The Schedule will also remove the six-year limitation on recovery of welfare debts. This will align social welfare debt recovery with the arrangements applied by other government agencies involved in the recovery of Commonwealth debts, where there is no such limitation. Date of effect: The amendments made by this Schedule commence on the later of 1 January 2017 and the day after Royal Assent. Human rights implications: This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act See Statement of Compatibility with Human Rights at the end of Chapter 13. Parental leave payments Schedule 14 to the Bill introduces the Mid-Year Economic and Fiscal Outlook measure, Commonwealth Parental Leave Payments consistent treatment for income support assessment. This measure will amend the social security and veterans entitlements legislation to ensure Commonwealth parental leave payments and dad and partner pay payments under the Paid Parental Leave Act 2010 are included in the income test for Commonwealth income support payments. 15

16 Budget Savings (Omnibus) Bill 2016 Date of effect: The amendments made by this Schedule commence on the first 1 January, 1 April, 1 July or 1 October that occurs after the day the Act receives Royal Assent. Human rights implications: This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act See Statement of Compatibility with Human Rights at the end of Chapter 14. Fringe Benefits Schedule 15 to this Bill changes the way in which fringe benefits are treated under the income tests for family assistance and youth income support payments and for other related purposes. The changes are also relevant for a number of income tax provisions. The meaning of adjusted fringe benefits total is modified so that the gross rather than adjusted net value of reportable fringe benefits is used, except in relation to fringe benefits received by individuals working for public benevolent institutions, health promotion charities and some hospitals and public ambulance services. Human rights implications: This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act See Statement of Compatibility with Human Rights at the end of Chapter 15. Carer allowance Schedule 16 aligns carer allowance and carer payment start day provisions, by removing provisions that apply to backdate a person s start day in relation to payment of carer allowance in certain circumstances. The general start day rules under Part 2 of Schedule 2 to the Social Security Administration Act will apply to determine the date of effect of a decision to grant carer allowance. Date of effect: The measure will commence on the later of 1 January 2017 and the day after this Act receives the Royal Assent. Human rights implications: This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the 16

17 General outline and financial impact Human Rights (Parliamentary Scrutiny) Act See Statement of Compatibility with Human Rights at the end of Chapter 16. Indexation of family tax benefit and parental leave thresholds Schedule 17 makes amendments to the family assistance indexation provisions to maintain the higher income free area for family tax benefit (FTB) Part A and the primary earner income limit for FTB Part B for a further three years. Under the current law, indexation of these amounts is paused until and including 1 July These amendments ensure that indexation does not occur on 1 July of 2017, 2018 and Similarly, amendments are made to ensure that the paid parental leave income limit is not indexed for a further three years, until 1 July Date of effect: These measures commence on Royal Assent. Human rights implications: This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act See Statement of Compatibility with Human Rights at the end of Chapter 8. Pension means testing for aged care residents Schedule 18 introduces the Mid-Year Economic and Fiscal Outlook measure, Age Pension aligning the pension means testing arrangements with residential aged care arrangements. This Schedule will amend the social security and veterans entitlements legislation to remove the pension income and assets test exemptions that are currently available to pensioners in aged care who rent out their former home and pay their aged care accommodation costs by periodic payments. The removal of the income test exemption will ensure that net rental income earned on the former principal residence of new entrants into residential aged care is treated the same way under the pension income test as it is under the aged care means test, regardless of how the resident chooses to pay their aged care accommodation costs. The current indefinite assets test exemption of the former principal residence from the pension assets test, where the property is rented and aged care accommodation costs are paid on a periodic basis, will also be 17

18 Budget Savings (Omnibus) Bill 2016 removed. A person who enters a residential or flexible aged care service after the commencement of this Schedule can still benefit from provisions in the Social Security Act and Veterans Entitlements Act that treat a person s former residence as their principal home for a period of up to two years from the day on which the person enters care (unless the home is occupied by their partner, in which case it will continue to be exempt). The changes will only apply to pensioners who enter aged care on or after the commencement of this schedule. Existing aged care residents, and those who enter aged care before the commencement date, will be protected and will not be affected by the changes Date of effect: The amendments made by this Schedule commence the first 1 January or 1 July to occur after the day this Act receives the Royal Assent. Human rights implications: This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act See Statement of Compatibility with Human Rights at the end of Chapter 18. Employment income Schedule 19 removes the exemption from the income test for family tax benefit Part A recipients and the exemption from the parental income test for dependent young people receiving youth allowance and ABSTUDY living allowance if the parent is receiving either a social security pension or social security benefit, and the fortnightly rate of pension or benefit is reduced to nil because of employment income (either wholly or partly). This measure improves fairness and targeting of payments and facilitates equity between families with similar incomes. Date of effect: The measure will commence on 1 July Human rights implications: This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act See Statement of Compatibility with Human Rights at the end of Chapter

19 General outline and financial impact Psychiatric confinement Schedule 20 provides that a person who is undergoing psychiatric confinement because they have been charged with a serious offence will be taken to be in psychiatric confinement for the purpose of the social security law, irrespective of whether the person is undertaking a course of rehabilitation. One of the effects of this is that relevant social security payments will not be payable to the person while the person is undergoing that psychiatric confinement. Date of effect: The measure will commence on 1 July Human rights implications: This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act See Statement of Compatibility with Human Rights at the end of Chapter 20. Closing carbon tax compensation to new welfare recipients Parts 1 to 6 of Schedule 21 implement the Budget measure National Disability Insurance Scheme Savings Fund abolish the Energy Supplement for all new recipients by amending the Family Assistance Act, Social Security Act, Social Security Administration Act, Farm Household Support Act, Veterans Entitlements Act and Military Rehabilitation and Compensation Act. The amendments made by Parts 1 to 6 of this Schedule to these Acts prevent new recipients of welfare payments or concession cards from being paid the energy supplement from 20 March The amendments made in this Schedule also ensure that welfare recipients who are paid the energy supplement with their payment or concession card prior to 20 September 2016 who satisfy the requirements set out in this Schedule will continue to receive the energy supplement with their payment or concession card from 20 March 2017 onwards. For payment recipients and concession card holders who first receive the energy supplement on or after 20 September 2016, the energy supplement can only be paid to them until 19 March 2017 and this is subject to the person satisfying the current legislative criteria for receiving the supplement. From 20 March 2017 onwards they can no longer receive the energy supplement. Part 7 of Schedule 21 implements the Budget measure National Disability Insurance Scheme Savings Fund Single Income Family 19

20 Budget Savings (Omnibus) Bill 2016 Supplement cessation for new customers by amending the Family Assistance Act to ensure that from 1 July 2017, the single income family supplement will not be paid to new recipients. Existing recipients may continue to receive the supplement if they remain eligible in accordance with new section 57GDA contained in Part 7 of this Schedule. The amendments made by Parts 1 to 6 of this Schedule commence on 20 March Date of effect: The amendments made by Part 7 of this Schedule commence on 1 July Human rights implications: This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act See Statement of Compatibility with Human Rights at the end of Chapter 21. Rates of R&D tax offset Schedule 22 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to reduce the rates of the tax offset available under the research and development tax incentive for the first $100 million of eligible expenditure by 1.5 percentage points. The higher (refundable) rate of the tax offset will be reduced from 45 per cent to 43.5 per cent and the lower (non-refundable) rates of the tax offset will be reduced from 40 per cent to 38.5 per cent. Date of effect: This measure applies to income years starting on or after 1 July Proposal announced: This measure was announced in the Budget on 13 May The estimated financial impact differs from previously published estimates. It reflects the revised application date of 1 July 2016 and updates due to the passage of time since the initial announcement in the Budget. Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights at the end of Chapter 22. Compliance cost impact: This measure does not affect compliance costs. 20

21 General outline and financial impact Single touch payroll reporting Schedule 23 to this Bill creates a new reporting framework, known as Single Touch Payroll (STP), for substantial employers to automatically provide payroll and superannuation information to the Commissioner of Taxation (Commissioner) at the time it is created. Entities that report under STP will not have to comply with a number of existing reporting obligations under the taxation laws. This Schedule also contains a number of related amendments to streamline an employer s payroll and superannuation choice processes by allowing the Australian Taxation Office (ATO) to pre-fill and validate employee information. Date of effect: These amendments commence from the first quarter beginning on or after the day this Bill receives Royal Assent. In general, STP reporting will commence on 1 July 2018 for substantial employers and the related amendments will apply more broadly from 1 January In some cases, the Commissioner may defer these start dates by legislative instrument. Proposal announced: On 21 December 2015, the then Minister for Small Business and Assistant Treasurer announced the Government s intention to implement STP reporting and the introduction of streamlined processes for individuals commencing employment. Human rights implications: This Schedule raises human rights issues. See Statement of Compatibility with Human Rights at the end of Chapter 23. Compliance cost impact: This measure is expected to result in a reduction in average annual regulatory compliance costs of $55 million. Summary of regulation impact statement Regulation impact on business Impact: The regulatory impact on businesses has been assessed as low. Main points: STP will create a reporting regime that aligns with business processes (such as payroll cycles) for employers to report Pay as you go (PAYG) withholding and superannuation 21

22 Budget Savings (Omnibus) Bill 2016 contributions to the ATO through Standard Business Reporting (SBR) enabled software. Entities with less than 20 employees will be unaffected by this measure, with their reporting obligations and compliance costs remaining the same, unless they choose to voluntarily commence STP reporting. Entities with 20 or more employees may have a transitional cost in complying with STP reporting through the purchase of SBR-enabled software but otherwise are expected to have future compliance cost savings from streamlined reporting processes. Single appeal path under the Military Rehabilitation and Compensation Act Schedule 24 to this Bill will give effect to a Veterans Affairs 2015 Budget measure that will create a single appeal path for the review of original determinations made under the Military Rehabilitation and Compensation Act 2004 (Military Rehabilitation and Compensation Act). Human rights implications: See Statement of Compatibility with Human Rights at the end of Chapter

23 Chapter 1 Minimum repayment income for HELP debts Summary Under HESA, a person with a HELP debt is only required to start repaying that debt when their repayment income exceeds a certain amount, called the minimum repayment income. ( Repayment income is defined in section of HESA). As a person s income increases, the rate at which they repay their HELP debt also increases. For the income year, the minimum repayment income is $54,868, and a person whose income exceeds that amount but is less than $61,120 is liable to repay an amount of their HELP debt equal to 4 per cent of their income. From the start of the income year, the amendments to HESA made by Schedule 1 will establish a new minimum repayment income ($51,956), as well as setting a repayment rate of 2 per cent for people whose incomes exceed that amount but are less than $57,730. These amendments will have flow-through effects for other loans schemes, including the Trade Support, Student Start-Up, and Student Financial Supplement Scheme loan schemes. Detailed explanation Higher Education Support Act 2003 Item 1 Section of HESA provides for the minimum repayment income for an income year, that is, the amount that a person s repayment income must be above before they will be obliged to start repaying their accumulated HELP debts. Paragraph (a) currently provides that the minimum repayment income for the income year was $36,184. This amount has since been indexed every year, and for the income year is $54,

24 Budget Savings (Omnibus) Bill 2016 Item 1 of Schedule 1 will repeal and substitute paragraph (a) and set a new minimum repayment income for the income year of $51,956. This amount is indexed under section of HESA for later income years. Item 2 Section of HESA contains a table which lists repayment income thresholds and the applicable percentage rates for the compulsory repayment of HELP debts. Item 2 will repeal and substitute the table in section For the income year a person would not make a repayment if their income was $51,956 or less. The applicable repayment incomes and repayment percentages would be as follows (for later income years, the income amounts would be indexed under section ): Items 3, 4 and 5 from $51,957 but less than $57,730 2% from $57,730 but less than $64,307 4% from $64,307 but less than $70, % from $70,882 but less than $74,608 5% from $74,608 but less than $80, % from $80,198 but less than $86,856 6% from $86,856 but less than $91, % from $91,426 but less than $100,614 7% from $100,614 but less than $107, % from $107,214 and above 8%. Item 3 repeals and substitutes subsection (1) of HESA, simply to update the income year referred to in that subsection (changed from to and from to ) and the number of items in the table in (changed from 1 to 8 to 1 to 9 ), as a consequence of the amendments made by items 1 and 2. 24

25 Minimum repayment income for HELP debts Items 4 and 5 make similar textual changes to section that are also consequent on the amendments made by items 1 and 2. Item 6 Item 6 provides that the amendments to HESA made by Schedule 1 apply in relation to income years commencing on and after the day Schedule 2 commences, that is, to the income year and later income years. 25

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27 Chapter 2 Indexation of higher education support amounts Summary Many amounts set out in HESA are indexed on 1 January each year under Part 5-6 of HESA (these are set out in the table in section 198-5). Currently, the indexation factor for these amounts is the Higher Education Grants Index (HEGI). In the Budget it was announced that the indexation rate for all grants under HESA would be set by reference to 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), which is known as the HEGI. The change to HEGI was staged over a period of four years, with all HESA grants being indexed by this rate in the Budget. From 1 January 2018, Schedule 2 of the Bill will amend HESA to replace HEGI with the CPI. The CPI will be used each year to index all grants and regulated student contribution amounts for current students under HESA. Detailed explanation Higher Education Support Act 2003 Item 1 Subsection (1) provides that an amount is indexed on 1 January 2012 and on each subsequent 1 January by multiplying it by the indexation factor for the year in question. This item repeals and substitutes subsection (1) so that it provides that an amount is indexed on 1 January each year by multiplying it by the indexation factor for the year. 27

28 Budget Savings (Omnibus) Bill 2016 Item 2 Section contains a formula which explains how the indexation factor for a year is calculated. This item repeals and substitutes the formula in section The new formula is the index number for the December reference quarter divided by the index number for the December base quarter. The December base quarter means the quarter ending on the 31st of December two years and a day before the relevant 1 January. The December reference quarter means the quarter ending on the 31st of December that is a year and a day before the relevant 1 January. Item 3 Section provides the meaning of the index number for the purpose of working out the indexation factor under section Item 3 repeals and substitutes section to provide for a new meaning for the index number. New subsection (1) provides that the index number for a quarter is the All Groups CPI as published by the Australian Statistician. New subsection (2) provides that, subject to subsection (3), if before or after the commencement of new subsection (2) the Australian Statistician subsequently publishes a substitute index number for a quarter, that subsequent index number is to be disregarded for the purposes of section New subsection (3) provides that, if before or after the commencement of new subsection (3), the Australian Statistician changes the index reference period for the CPI prior to the commencement of subsection (3), then in order to apply section after the change happens, regard is only to be given to the published index numbers for the new reference period. Item 4 This item repeals the definition of indexation period in the Dictionary at Schedule 1. 28

29 Chapter 3 Removal of HECS-HELP benefit Summary The amendments to HESA made by Schedule 3 will discontinue the HECS-HELP benefit. The HECS-HELP benefit operates as a deduction from a person s HELP debt, and is available to graduates in certain fields of study who are employed in certain occupations. The HECS-HELP benefit was introduced as part of the Budget. It was designed to reduce HECS-HELP repayments by around $1,800 a year for early childhood education graduates and $1,700 a year for other occupations. Since 2008 the program has been expanded to other areas of identified need, including mathematics, science related occupations, teaching and nursing. The HECS-HELP benefit has had lower than expected take up and has been ineffective in achieving its policy aims of influencing course of study choice selection and increasing demand for particular occupations. Schedule 3 will commence from 1 July Detailed explanation Higher Education Support Act 2003 Items 1 to 15 Item 12 repeals Division 157 of HESA, which provides for the HECS-HELP benefit. Items 1 to 11 and 13 to 15 remove redundant references to the HECS-HELP benefit from HESA. 29

30 Budget Savings (Omnibus) Bill 2016 Income Tax Assessment Act 1997 Items 16, 17 and 18 As a consequence of the cessation of the HECS-HELP benefit, items 16, 17 and 18 amend provisions of the Income Tax Assessment Act 1997 (ITAA 1997) that refer to the HECS-HELP benefit. Section of the ITAA 1997 identifies those types of ordinary or statutory income that are exempt income for the purposes of the Income Tax Assessment Act. Item 16 removes the HECS-HELP benefit from section Section of the ITAA 1997 contains a table which identifies recipients of certain types of education and training amounts who are exempt from paying income tax with respect to those amounts. Item 17 removes item 2.9 from that table recipients of HECS-HELP benefits. Item 18 removes the definition of HECS-HELP benefit from subsection 995 1(1) of the ITAA Item 19 Item 19 is a savings provision, that has the effect of ensuring that the cessation of HECS-HELP benefit only operates prospectively from the commencement of Schedule 4 (i.e. 1 July 2017). A person can still be eligible, and obtain the benefit of, HECS-HELP benefit in relation to income years before , and all the laws and processes that operated in relation to HECS-HELP benefit continue to apply to HECS-HELP benefit for those earlier income years. Thus, for example, subitem 19(3) makes it clear that a person may, after commencement of Schedule 3, make an application in respect of an earlier income year in accordance with Subdivision 157-A of Division 157 of HESA as in force immediately before commencement; and the Commissioner must make a determination on any application for an earlier year in accordance with Subdivision 157-C of Division 157 of HESA as in force immediately before commencement; and 30

31 Removal of HECS-HELP benefit section of HESA, as in force immediately before commencement, continues to apply after this time for the purpose of working out a person s former accumulated HELP debt in respect of a determination of HECS-HELP benefit for an earlier income year; and section of HESA, as in force immediately before commencement, continues to apply after this time for the purpose of working out the amount a person in relation to whom a HECS-HELP benefit has been determined for an earlier income year has to pay under section of HESA; and a person may, after commencement, make an application for review of a decision referred to in item 4A of the table in section of HESA (i.e. a determination of the Commissioner under section of HESA) as that item was in force immediately before commencement; and such a decision is able to be reviewed and given effect to in accordance with HESA as in force immediately before commencement; and provisions of the taxation law (within the meaning of the ITAA 1997) have effect as necessary in order to give effect to item 19. Subitem 19(4) provides that the HECS-HELP Benefit Guidelines in force immediately before commencement continue to apply for the purpose of HECS-HELP benefit under HESA for earlier income years. The continued HECS-HELP Benefit Guidelines may be amended or repealed as if they were Guidelines made under section of HESA. 31

32 Budget Savings (Omnibus) Bill 2016 STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Minimum repayment income for HELP debts Indexation of higher education support amounts Removal of HECS HELP benefit Overview of the measures The Higher Education Support Act 2003 (HESA) is the main piece of legislation providing funding for higher education in Australia. This Bill makes amendments to HESA that will improve the sustainability of higher education funding, being: the introduction of a lower income threshold at which recipients of loans under HESA must start repaying those loans (Schedule 1); a change to the index for amounts that are indexed annually under HESA, from the Higher Education Grants Index (HEGI) to the Consumer Price Index (CPI) (Schedule 2); and cessation of HECS-HELP benefit (Schedule 3). Summary of analysis The measures contained within this package are limited and justifiable. While there is minor potential for some changes to lead to increased costs for some students under the Higher Education Loan Program (HELP), these measures are necessary to support the provision of high quality higher education and to continue to provide equitable access for students. Analysis of human rights implications International Covenant on Economic, Social and Cultural Rights (ICESCR) Article 11: right to an adequate standard of living These measures engage with Article 11(1) of the International Covenant on Economic, Social and Cultural Rights (ICESCR) which recognises 32

33 Removal of HECS-HELP benefit the right of everyone to an adequate standard of living including adequate food, clothing and housing, and to the continuous improvement of living conditions. There are elements within the legislation that may be perceived as relevant to article 11, particularly as they may result in increased costs for HELP recipients once they begin earning a sufficient wage. None of these changes will necessitate increased costs for students while they study (unless they are earning income above the threshold while studying), as they will continue to be able to defer all tuition fees though the HELP scheme. Schedule 1 of the Bill establishes a new minimum repayment threshold for HELP loans. The proposed minimum repayment threshold is still substantially above the national minimum wage and will be adjusted annually to account for growth in average earnings. Additionally, above this new minimum repayment threshold students will pay only two per cent of their annual taxable income. As such the measure is reasonable and proportionate to meet the policy goal of ensuring the long term viability of the HELP scheme. Schedule 3 of the Bill removes the HECS-HELP benefit. The HECS- HELP benefit was designed to provide an extra financial incentive for graduates of particular courses to take up related occupations or work in specified locations by reducing their compulsory HELP repayments. Its removal may result in increased costs for these graduates. However, in order to receive the HECS-HELP benefit, graduates must be working and earning above the minimum repayment threshold which is substantially above the minimum liveable wage. Furthermore, continued access to education, as ensured by a sustainable and efficient HELP scheme, will provide a basis for increased earnings and therefore assure a higher standard of living for many graduates. Article 12: Right to education These measures engage with Article 13(2)(c) of the ICESCR which states that higher education shall be made equally accessible to all, on the basis of capacity, by every appropriate means, and in particular by the progressive introduction of free education. The sustainability of HELP is crucial to ensure continued access to higher education. HELP ensures that students do not face upfront costs for their higher education and are able to further their study on the basis of capacity to learn rather than capacity to pay. 33

34 Budget Savings (Omnibus) Bill 2016 Schedule 1 will change the minimum repayment threshold for HELP debts to 90 per cent of the current minimum income threshold. In the income year, taxpayers are not required to start paying back their HELP loans until their annual incomes reach $54,869. In the income year, the new threshold at which people will start repaying debts will be $51,956. From 1 July 2018, a lower repayment rate of two per cent will apply for those with incomes above the new threshold up to the current minimum threshold. The lower two per cent repayment rate for those above the new threshold will ensure that those HELP debtors who earn above the new minimum threshold but less than the existing minimum threshold will not experience a large reduction in their disposable income, while supporting the sustainability of the HELP scheme. Schedule 3 discontinues the HECS-HELP benefit. The abolition of the benefit will cease funding an ineffective program without adversely affecting higher education access. The benefit was designed to provide an extra incentive for graduates of particular courses, such as education, nursing, mathematics or science, to take up related occupations or work in specified locations by reducing their compulsory HELP repayments. However, uptake of this program has been lower than expected. Removal of this measure will have no impact on access to higher education for students as it is only available once their higher education course has been successfully completed. Additionally, this program provides a financial benefit to work in specific areas or occupations rather than a reduction in costs for these students. Currently, grants and student contribution amounts under HESA are indexed each year under the Higher Education Grants Index (HEGI). Schedule 2 replaces the current HEGI indexation with indexation by the CPI. This is part of a Government-wide initiative to streamline and simplify indexation rates for Government programs. Moving to CPI reduces the rate of spending growth in order to ensure the long-term sustainability of higher education programs such as the Commonwealth Grant Scheme, research grants and Australian Postgraduate Awards. Conclusion These Schedules are compatible with human rights. 34

35 Chapter 4 Job commitment bonus Summary Currently, a person aged 18 to 30 who has been receiving newstart allowance or, in some cases, youth allowance for at least 12 months can qualify for a job commitment bonus if they subsequently: complete a period of 12 months of continuous gainful work and do not receive an income support payment during that period (they qualify for the first bonus at this stage), and complete a further period of 12 months of continuous gainful work and do not receive an income support payment during that further period (they qualify for the second bonus at this stage). The first bonus is $2,500 and the second bonus is $4,000. The job commitment bonus commenced in 2014 following the enactment of the Social Security Legislation Amendment (Increased Employment Participation) Act The bonus was intended to encourage young long-term unemployed job seekers to find and keep a job. However, analysis of program awareness and impact identified that the job commitment bonus has not had a significant impact on young job seekers either obtaining or remaining in employment. The job commitment bonus has had low take-up since its introduction, with less than 30 per cent of expected claims for the financial year being achieved. Further, 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 show 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. 35

36 Budget Savings (Omnibus) Bill 2016 Part 1 of this Schedule would repeal provisions of the Social Security Act 1991 (the SS Act) and the Social Security (Administration) Act 1999 (the Administration Act) that refer to the job commitment bonus. Part 2 would make consequential amendments to the Farm Household Support Act 2014 and the Income Tax Assessment Act 1997 (ITAA 1997). Part 3 contains transitional provisions that would ensure that people who have qualified for a job commitment bonus before the commencement date would be able to claim the bonus within a particular timeframe, and would also ensure that the bonus will continue to be exempt from income tax (regardless of whether a person receives it before or after the commencement date). Detailed explanation Part 1 Main Amendments Social Security Act 1991 Item 1 subsection 23(1) (definition of job commitment bonus) This item would repeal the definition of job commitment bonus from subsection 23(1). This definition will no longer be required. Item 2 Part 2.16A This item would repeal Part 2.16A. Part 2.16A currently provides for the job commitment bonus. It establishes, amongst other things, when a person is qualified for a job commitment bonus under subsection 861(1) (the first bonus ) and under subsection 861(3) (the second bonus ). It also sets out the amount of the first and second bonus. These provisions need to be repealed to give effect to the cessation of the job commitment bonus. Social Security (Administration Act) 1999 Item 3 subsection 13(6) This item would repeal subsection 13(6). Section 13 deems certain types of contact with the Department by or on behalf of a person to constitute a claim for a social security payment. Subsection 13(6) currently makes clear that a person cannot be deemed to 36

37 Job commitment bonus make a claim for the job commitment bonus under section 13. This provision will no longer be required. Item 4 Subdivision FD of Division 1 of Part 3 This item would repeal Subdivision FD of Division 1 of Part 3. Subdivision FD currently contains time limits for making claims for job commitment bonus. The time limit is generally 90 days after a person is qualified for the bonus (unless special circumstances exist, or the person is claiming the first bonus and the second bonus together). This Subdivision will no longer be required. Item 5 Subsection 37(6A) This item would repeal subsection 37(6A). Subsection 37(6A) currently provides that the Secretary must determine that a claim for job commitment bonus is to be granted if the Secretary is satisfied that the claimant is qualified for the bonus. This provision will no longer be required. Item 6 Paragraph 47(1)(hsa) This item would repeal paragraph 47(1)(hsa). Section 47(1) defines the term lump sum benefit. Paragraph 47(1)(hsa) specifically lists the job commitment bonus as a lump sum benefit. This provision will no longer be required. Item 7 Section 47BA This item would repeal section 47BA. Section 47BA currently provides that if a person is qualified for a job commitment bonus, the bonus must be paid as a single lump sum on the earliest day the Secretary considers it reasonably practicable for the bonus to paid, in such manner as the Secretary considers appropriate. This provision will no longer be required. 37

38 Budget Savings (Omnibus) Bill 2016 Part 2 Consequential Amendments Farm Household Support Act 2014 Item 8 section 95 (table item 1A) This item would repeal table item 1A from the table contained in section 95. The table contained in section 95 modifies particular provisions of the SS Act for the purposes of the Farm Household Support Act Table item 1A refers to paragraph 861(1)(a) of the SS Act (which relates to when a person is qualified for job commitment bonus). This table item will no longer be required. Income Tax Assessment Act 1997 Item 9 section (table item headed social security or like payments ) This item would repeal the reference to the job commitment bonus in section Section contains a list setting out the types of ordinary or statutory income that are exempt from income tax. This list will no longer need to refer to the job commitment bonus. Items 10 and 11 - Paragraph 52-10(1)(wb) and subsection 52-10(1EB) These items would repeal paragraph 52-10(1)(wb) and subsection 52-10(1EB). Section deals with the income tax treatment of social security payments. Subsection 52-10(1EB) specifies that the job commitment bonus is exempt from income tax. This provision is no longer required. The amendment to paragraph 52-10(1)(wb) is consequential to the repeal of subsection 52-10(1EB). Item 12 Section (table item 14) This item repeals item 14 of the table in section Section contains a table listing provisions of the SS Act under which social security payments are made that are wholly or partly exempt from income tax under Subdivision 52-A of the ITAA

39 Job commitment bonus Section will no longer need to refer to provisions under which the job commitment bonus is paid. Part 3 Savings and transitional provisions Item 13 Saving and transitional provisions This item contains saving and transitional provisions relating to the job commitment bonus. Subitem 13(1) This subitem would make clear that a person cannot become qualified for a job commitment bonus on or after the commencement date. Subitem 13(2) This subitem would ensure that Chapter 5 of the SS Act, as in force immediately before the commencement date, continued to apply in relation to a payment of a job commitment bonus, regardless of whether the payment was made before, on or after commencement. Chapter 5 of the SS Act relates to overpayments and debt recovery. This subitem would enable the Commonwealth to recover any overpayments or debts arising in relation to a payment of a job commitment bonus, regardless of whether it was paid before, on or after commencement. Subitem 13(3) This subitem would enable a person to claim a job commitment bonus on or after the commencement date if they qualified for the bonus before the commencement date and were permitted to make a claim under section 27D of the Administration Act, as in force immediately before the commencement date. Consistently with section 27D, a person would ordinarily have to claim a bonus within 90 days of becoming qualified for it (unless special circumstances exist, or the person is claiming the first and the second bonus together). A person who was qualified for both the first and second bonuses before the commencement date could claim both bonuses at the same time (subsection 27D(3)). They would need to claim both bonuses within the time limit specified in subsection 27D(1) (or, if special circumstances exist, the further time limit specified in subsection 27D(2)), as in force immediately before the commencement date. 39

40 Budget Savings (Omnibus) Bill 2016 Subitem 13(4) This subitem would ensure that Part 3 of the Administration Act, as in force immediately before the commencement date, continued to apply in relation to the job commitment bonus. Part 3 of Administration Act relevantly provides for deciding claims for, determinations in relation to, and making payments of, job commitment bonus. Part 3 would continue to apply to deciding claims for the job commitment bonus and determinations relating to the job commitment bonus, regardless of whether the relevant claim or determination was made before, on or after commencement. Part 3 would also continue to apply to making payments of the job commitment bonus on or after commencement. Subitem 13(5) This subitem would ensure that Parts 4 and 4A of the Administration Act, as in force immediately before the commencement date, continued to apply to decisions made under the social security law in relation to the job commitment bonus. Parts 4 and 4A of the Administration Act provide for the internal and external review of decisions made under the social security law. This subitem would ensure that these review processes would continue to be available in relation to decisions about the job commitment bonus, regardless of whether those decisions were made before, on or after commencement. Subitem 13(6) This subitem would ensure that subsection 52-10(1EB) of the ITAA 1997, as in force immediately before the commencement date, continued to apply in relation to a payment of the job commitment bonus, regardless of whether the payment was made before, on or after commencement. This subitem would ensure that payments of the job commitment bonus remain exempt from income tax, regardless of whether they are made before, on or after commencement. 40

41 Job commitment bonus STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Job commitment bonus This Schedule is compatible with human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act Overview of the Schedule The Schedule would amend the Social Security Act 1991 and the Social Security (Administration) Act 1999 to give effect to the cessation of the job commitment bonus measure, as announced in the Budget. It would make consequential amendments to the Income Tax Assessment Act 1997 and the Farm Household Support Act 2014 relating to the cessation of the job commitment bonus. The Schedule also includes transitional provisions that would ensure that people who have qualified for a job commitment bonus before the commencement date would be able to claim the bonus (tax-free) within a particular timeframe. Human rights engaged by the Schedule The Schedule engages 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). 41

42 Budget Savings (Omnibus) Bill 2016 Human rights implications of the Schedule Currently, a person aged 18 to 30 who has been receiving particular income support payments for at least 12 months can qualify for a tax-free bonus of $2,500 if they complete 12 months of continuous gainful work and do not receive an income support payment during that period. In addition, such persons can qualify for a second tax-free bonus of $4,000 if they complete a further period of 12 months of gainful work and do not receive an income support payment during that further period. The job commitment bonus was intended to encourage young long-term unemployed job seekers to find and keep a job. However, analysis of program awareness and impact identified that the job commitment bonus has not had a significant impact on young job seekers either obtaining or remaining in employment. In particular, the bonus has had low take-up since its introduction (with less than 30 per cent of expected claims for the financial year being achieved). Further, the 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 show 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. Right to social security and right to an adequate standard of living Article 9 of the ICESCR recognises the right of everyone to social security. The right to social security requires States to establish a social security system and, to the maximum of its available resources 2, ensure access to a social security scheme that provides a minimum essential level of benefits to all individuals and families that will enable them to acquire at least essential health care, basic shelter and housing, water and sanitation, foodstuffs, and the most basic forms of education 3. Further, Article 11(1) of the ICESCR recognises the right of everyone to an adequate standard of living including adequate food, water and housing, and to the continuous improvement of living conditions. Cessation of the job commitment bonus could be seen as adversely affecting an individual s rights to social security and an adequate standard of living. However, it is significant that an individual only qualifies to 2 Article 2 of the ICESCR. 3 Committee on Economic, Social and Cultural Rights, General Comment 19, para 59 42

43 Job commitment bonus receive a job commitment bonus if they engage in continuous gainful employment for at least 12 months and do not receive an income support payment during that period. The bonus was not itself intended to constitute income support for recipients to meet their living expenses. The people it is paid to already receive remuneration in return for gainful work and, therefore, typically enjoy a higher standard of living than income support recipients. Further, cessation of the job commitment bonus will not affect individuals ability to make a claim for income support payments under the social security system if they cease to be engaged in gainful employment. In addition, people who have qualified for a job commitment bonus before the commencement date would not be disadvantaged because they would be able to claim the bonus (tax-free) within a particular timeframe. Consistently with this, to the extent that the cessation of the job commitment bonus has any impact on individuals rights to social security and an adequate standard of living, that impact would not be unreasonable. The cessation of the bonus is a necessary, reasonable and proportionate response by the Commonwealth to a measure that has not achieved its intended policy objectives. Right to work Article 6(1) of the ICESCR recognises the right to work, which includes the right to the opportunity to gain a living by work which the job seeker freely chooses or accepts. Article 6(2) specifically refers to States obligations to realise this right by implementing technical and vocational guidance and training programmes, policies and techniques to achieve steady economic, social and cultural development and full and productive employment. The job commitment bonus was intended to promote the right to work by providing an incentive to young long-term unemployed job seekers to find and keep a job. However, as discussed above, the bonus has not had a significant impact on young job seekers either obtaining or remaining in employment. The cessation of the bonus is a necessary, reasonable and proportionate response by the Commonwealth to a measure that has not achieved its intended policy objectives. Right to equality and non-discrimination Article 2(2) of the ICESCR and article 26 of the ICCPR recognise the right to equality and non-discrimination on a range of grounds including of race, sex, colour, language, national origin or other status. Age is considered to fall within other status for the purpose of these articles. However, a measure can differentiate between particular groups of people on the basis of age where this treatment is aimed at achieving a legitimate 43

44 Budget Savings (Omnibus) Bill 2016 objective, is based on reasonable and objective criteria and is proportionate to the objective to be achieved. The job commitment bonus differentiates between people on the basis of age because it is only available to individuals aged between 18 and 30. Similarly, cessation of the job commitment bonus will only affect people who currently fall within, or who may in future fall within, this age group. However, for the reasons discussed above, this is a necessary, reasonable and proportionate response by the Commonwealth to a measure that has not achieved its intended policy objectives. Conclusion The Schedule is compatible with human rights because to the extent that it may limit human rights, those limitations are reasonable, necessary and proportionate. 44

45 Chapter 5 Australian Renewable Energy Agency s finances Outline of chapter Sub-section 64(1) of the ARENA Act specifies the amounts made available to ARENA for each of the years to ARENA accesses these amounts by making requests for payment to the Commonwealth under section 65. Payments are appropriated from the Consolidated Revenue Fund under section 66. Any unrequested amounts carry over to future financial years under sub-section 64(2). Schedule 5 to the Bill amends the table in sub-section 64(1) of the ARENA Act so that amounts available to ARENA for the years from onwards match the funding available in the Budget. It does so by replacing each of the amounts specified in table items 5 to 9 of sub-section 64(1) of the ARENA Act with the amounts specified in the Budget. The amendments made by Schedule 5 do not affect the amounts that were available to ARENA for any of the years to Note that the Budget papers provide for an appropriation for ARENA in that differs from the amount set out for that year in the table in sub-section 64(1). This difference is explained by some unspent amounts carried over from previous years under sub-section 64(2) being reprofiled in the Budget to match ARENA s updated profile of payment commitments. Therefore the figure in the Budget papers for the year does not represent any additional appropriation to ARENA. 45

46 Budget Savings (Omnibus) Bill 2016 STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Australian Renewable Energy Agency s finances This Schedule is compatible with the human rights and freedoms recognised or declared in the international instrument listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act Overview This Schedule seeks to realise the savings incorporated in the Budget in relation to ARENA. The ARENA Act sets out the legislative framework for the establishment of ARENA and its objectives, which are to improve the competitiveness of renewable energy and related technologies and to increase the supply of renewable energy. The ARENA Act also details ARENA s governance arrangements and the funding available for ARENA, to provide financial assistance for renewable energy projects, research and development activities, and activities to capture and share knowledge. This Schedule amends the table in sub-section 64(1) of the ARENA Act so that ARENA s overall available appropriation is reduced by the amount specified in the Budget. It is a simple revenue-raising measure. Human Rights Implications This Schedule includes a revenue-raising measure that is minor in nature, and as such, does not engage any of the applicable human rights or freedoms. Conclusion This Schedule is compatible with human rights as it does not raise any human rights issues. 46

47 Chapter 6 Indexation of private health insurance thresholds Background As part of the Budget, the Government announced that it would pause income thresholds for the MLS and Rebate at the rates for three years from As part of the Budget, the Government announced that it would continue to pause income thresholds for the MLS and Rebate at the rates for an additional three years from The income thresholds for the MLS are set out in the Medicare Levy Act 1986 and the A New Tax System (Medicare Levy Surcharge Fringe Benefits) Act These Acts rely on the thresholds set out in the PHI Act. Subsequently no amendments to these Acts are required in order to pause the MLS income thresholds. Continuation of the pause in income thresholds at levels could result in individuals with incomes below each threshold moving into a higher income tier as their incomes increase. As a result: individuals who do not have private health insurance and do not currently pay the MLS may become liable to pay the MLS, thus encouraging them to purchase private health insurance; and an individual s level of MLS may increase, thus encouraging the person to purchase private health insurance. Amendments Private Health Insurance Act 2007 Item 1 - Subsection 22-45(3A) Section of the Act provides for the annual indexation of the singles tier 1, tier 2 and tier 3 thresholds. Indexation of the singles thresholds flows through to the corresponding private health insurance family thresholds (see section of the Act). 47

48 Budget Savings (Omnibus) Bill 2016 The level of indexation is currently determined in accordance with a statutory indexation factor set out in section Item 1 of the Schedule amends subsection 22-45(3A) to provide that the amounts mentioned in section (the private health insurance singles thresholds) are not to be indexed for the , or financial years. Existing subsection 22-45(3B) of the Act provides that where an amount of threshold is not indexed for a financial year because of subsection 22-45(3A), the amount of the threshold for the year is the amount for the most recent financial year for which the amount was indexed, in this case the amounts for the year. STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Indexation of private health insurance thresholds This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act Overview of the Schedule As part of the Budget, the Government announced that the income thresholds used in the calculation of the MLS and the Rebate would be paused at the levels for a further three years from Pausing the income tiers at the rates for a further three years will result in individuals with incomes marginally below each threshold moving into a higher threshold due to wages growth. As a result, some individuals who do not currently have private health insurance may be liable to pay the MLS if they do not purchase private health insurance. Human rights implications The right to health The right to health the right to the enjoyment of the highest attainable standard of physical and mental health is contained in article 12(1) of 48

49 Indexation of private health insurance thresholds the International Covenant on Economic, Social and Cultural Rights. The United Nations Committee on Economic, Social and Cultural Rights (the Committee) has stated that health is a fundamental human right indispensable for the exercise of other human rights, and that the right to health is not to be understood as a right to be healthy, but rather entails a right to a system of health protection which provides equality of opportunity for people to enjoy the highest attainable level of health. Private health insurance regulation assists with the advancement of these human rights by improving the governing framework for private health insurance in the interests of consumers. Private health insurance regulation aims to encourage insurers and providers of private health goods and services to provide better value for money to consumers, to improve information provided to consumers of private health services to allow consumers to make more informed choices when purchasing services and requires insurers not to differentiate the premiums they charge according to individual health characteristics such as poor health. Discussion of the Bill The Committee states that the notion of the highest attainable standard of health takes into account both the condition of the individual and the country s available resources. The right may be understood as a right of access to a variety of public health and health care facilities, goods, services, programmes and conditions necessary for the realisation of the highest attainable standard of health. There is no incompatibility with the right to health. Conclusion This Schedule is compatible with human rights because it advances the protection of human rights. 49

50

51 Chapter 7 Abolishing the National Health Performance Authority Amendments Part 1 Amendments The Schedule repeals Chapter 3 of the National Health Reform Act 2011 (the Act) to abolish the National Health Performance Authority (NHPA), and repeals other sections of the Act that refer to the NHPA. Item 1 Paragraph 3(b) Repeal of this paragraph removes the reference to the NHPA from the statement of the object of the Act, which is to establish a number of government bodies. Item 2 Section 4 The amendments remove references to the NHPA from the Simplified Outline of the Act. Item 3 Section 4 The amendments remove references to the NHPA s functions from the Simplified Outline of the Act. Item 4 Section 5 This item repeals the first appearing definition of local hospital network given in Section 5 Definitions, which is the definition that applies throughout Chapter 3 of the Act that governs the functions and operations of the NHPA. Item 5 Section 5 This amendment to the second appearing definition of local hospital network removes the reference to the use of the term in Part 5.2 of the Act, which is no longer needed following the repeal of the first appearing definition and of Chapter 3. 51

52 Budget Savings (Omnibus) Bill 2016 Item 6 Section 5 This item repeals a number of terms defined in Section 5 Definitions which are used in Chapter 3. These either refer to the Performance Authority or are used in descriptions of the functions or operations of the NHPA. Item 7 Section 5 (paragraph (b) of the definition of vacancy This item repeals the reference to a member of the Performance Authority from the definition. Item 8 Subsection 6(2) This item repeals the reference to the Chair, Deputy Chair and members of the Performance Authority from Section 6 Vacancies. Item 9 Paragraph 54H(1)(a) This item repeals the reference to the Performance Authority from the list of agencies, bodies and persons given in paragraph 54H(1) which relates to the disclosure of protected Commission information by the Australian Commission for Safety and Quality in Health Care to the listed entities. Item 10 Chapter 3 This item repeals the whole of Chapter 3, abolishing the NHPA and ceasing the functions of the Chief Executive Officer, NHPA staff and the NHPA s Committees. Item 11 Paragraph 220(1)(a) This item repeals the reference to the Performance Authority from the list of agencies, bodies and persons given in paragraph 220(1) which relates to the disclosure of protected Pricing Authority information by the Independent Hospital Pricing Authority to the listed entities. Item 12 Paragraph 275(1)(b) This item repeals the reference to the Performance Authority from the list of agencies, bodies and persons given in paragraph 275(1) which relates to the disclosure of protected Funding Body information by the Administrator of the Funding Pool to the listed entities. 52

53 Abolishing the National Health Performance Authority Item 13 Paragraph 279(1)(b) This item repeals the reference to the Performance Authority from the list of bodies established under the Act given in paragraph 279(1) which relates to the disclosure by any of the bodies listed of information that is likely to enable the identification of a particular patient. Part 2 Application and transitional provisions The Schedule enables transitional arrangements to be implemented that deal with matters that accompany the cessation of the NHPA and the transfer of assets and liabilities to the AIHW. Division 1 Interpretation Item 14 Interpretation This item sets out definitions of terms relating to the transfer of agency assets and liabilities that are relied on in a number of provisions in Division 2 of Part 2 of the Schedule, including, for example, assets official and land registration official. Division 2 Transfer of assets and liabilities Item 15 Vesting of assets and Item 16 Vesting of liabilities These items set out that the assets and liabilities of the NHPA become assets and liabilities of the AIHW at the transition time, which is defined in Item 14. Item 17 Transfers of land may be registered and Item 18 Certificates relating to vesting of assets other than land These items set out that if land or an asset other than land vests in the AIHW, and the Health Minister has signed a certificate that identifies the land or the asset and states that it has become vested with the AIHW under Division 2, then a land registration official or assets official, as defined in Item 14, may deal with the matter to give effect to the certificate. These items are included to assist readers, as the certificate in not a legislative instrument within the meaning of subsection 8(1) of the Legislation Act

54 Budget Savings (Omnibus) Bill 2016 Division 3 Transfer of other matters items 19, 20, 21, 22, 23 and 24 The provisions in Division 3 address the treatment of a range of matters that applied to the NHPA before the transition time, which is defined in Item 14. The general principle applied is that after the transition time, the matter in question is to be treated as if it applied to the AIHW. The matters include things done by the NHPA or the NHPA CEO (Item 19), references in certain instruments to the NHPA or the NHPA CEO (Item 20), the transfer of appropriated money (Item 21), and legal proceedings of the NHPA (Item 22), In addition, Division 3 addresses the transfer of NHPA s records and documents to the AIHW (Item 23), and the application of the Safety, Rehabilitation and Compensation Act 1988 to persons who were staff of the NHPA at any time before the transition time (Item 24). Item 25 No transfer of appointment, engagement or employment of staff This item states that none of the application and transfer provisions set out in Part 2 have the effect of extending the engagement of members of the Performance Authority or of staff who were employed by the NHPA immediately before the transition time to the AIHW. Division 4 Annual reporting obligation Item 26 Final annual report for the NHPA The provisions in this item set out that the report on the activities of the NHPA required under the Public Governance, Performance and Accountability Act 2013 for the final reporting period will be prepared by the Health Secretary and given to the Health Minister for presentation to the Parliament. Division 5 Disclosure and use of information items 27, 28 and 29 The provisions in Division 5 are intended to ensure that the provisions of the National Health Reform Act 2011 regarding secrecy and the protection of information, and patient confidentiality continue to apply after the transition time. The provisions cover protected Performance Authority information (Item 27), the use of personal information in reports (Item 28), and the protection of patient confidentiality (Item 29). Division 6 Miscellaneous items 30, 31, 32, 33 and 34 The provisions in Division 6 are intended to ensure the transparent, efficient and effective transfer of the matters covered in Part 2 to the 54

55 Abolishing the National Health Performance Authority AIHW. They cover matters such as stamp duty and other state or territory taxes in relation to vested assets (Item 30), certificates issued under Part 2 (Item 31) (noting that this provision is intended to assist readers, as the certificates are not instruments within the meaning of subsection 8(1) of the Legislation Act 2003), delegation by the Health Minister of powers and functions under Part 2 (Item 32), and compensation for the acquisition of property (Item 33). In addition, Division 6 enables the Health Minister to make rules on transitional matters relating to the amendments or repeals made by this Schedule (Item 34). This is intended to allow the Minister to respond to transitional matters not anticipated in the preparation of this Schedule that may otherwise prevent the orderly and timely transfer of assets and liabilities and other matters covered in Part 2. It is intended that any functions conferred on the AIHW by the Minister under Item 34(2)(a) can only be of a transitional nature. It is not intended that any permanent functions that would operate after transition would be conferred. STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Abolishing the National Health Performance Authority These amendments are compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act Overview This Schedule repeals Chapter 3 of the National Health Reform Act 2011 to abolish the National Health Performance Authority. Human rights implications In considering whether the repeal of Chapter 3 of the Act engages any applicable rights or freedoms, particular consideration has been given to the right to health contained in article 12 of the International Covenant on Economic, Social and Cultural Rights. 55

56 Budget Savings (Omnibus) Bill 2016 The main function of the National Health Performance Authority (NHPA) is to monitor and report on the performance of hospitals, primary health care organisations and other bodies or organisations that provide health services. In this respect, the bill may be seen as engaging the right to health. However, the Australian Institute of Health and Welfare (AIHW) will continue to publish the performance reports previously published by the NHPA. Previous administrative arrangements for the collection of data, the monitoring of performance and the publication of reports will not be affected by the abolition of the NHPA. The abolition of the NHPA will have no effect on the ability of hospitals and other services to provide health care to patients and will not impose any additional regulatory burden on health services. Therefore the repeal of Chapter 3 of the Act does not limit any applicable human rights. Conclusion This Schedule is compatible with human rights as it does not raise any human rights issues. 56

57 Chapter 8 Aged care Outline Part 1 increases the compliance powers of the Secretary in relation to the Department of Health s reviews (audits) of care recipient appraisals submitted by aged care providers to receive Commonwealth subsidy. These appraisals are conducted using the Aged Care Funding Instrument (ACFI). When an appraisal is received, the Secretary must classify the care recipient according to the level of care he or she needs, relative to the needs of other care recipients. In there was a $150 million overspend on ACFI subsidy, with one-in-eight of the 20,000 appraisals reviewed found to be incorrect or false. This Part introduces a civil penalty of up to 60 penalty units if approved providers on more than one occasion in a two year period give false, misleading or inaccurate information in connection with an appraisal or reappraisal. Before the introduction of this item, the Aged Care Act 1997 did not include civil penalty provisions. This Part makes it easier for the Secretary to require an approved provider to reappraise its care recipients or suspend it from making further appraisals if the provider gives false, misleading or inaccurate information in connection with an appraisal or re-appraisal. In addition, if the Secretary suspects on reasonable grounds that a care recipient s care needs have decreased significantly, this Part gives the Secretary the power to require the approved provider to re-appraise the care recipient. The Part also changes the date that a change in classification following a review by the Department is taken to have effect. These amendments will allow the Secretary to recover overpayments of subsidy from the date the care recipient was originally classified. Currently, the Secretary can only recover overpayments from a maximum of six months before a change in classification. The Part also amends the Aged Care Act to allow for the charging of a fee if approved providers seek reconsideration by the Secretary of a classification downgrade. 57

58 Budget Savings (Omnibus) Bill 2016 This Part also amends the Aged Care Act to make it clear that in deciding on a classification level, the Secretary can take into account the manner in which care is provided to a care recipient, including but not limited to the qualifications of a person required to provide care or treatment. Notes on Clauses Aged Care Act : After subsection 25-1(3) Item 5 amends section 25-1 of the Aged Care Act to allow the Secretary in deciding on a classification level for a care recipient to take into account the manner in which care is provided, including but not limited to the qualifications of a person required to provide care or treatment. 7: Validation of Classification Principles Item 7 provides that classification decisions before the commencement of these amendments that took into account the manner in which care was provided are valid. However this item does not affect the validity of any such decisions that have been the subject of proceedings heard and finally determined by a court. This amendment ensures that classification decisions which considered the manner in which care was provided, including the qualifications of the person providing the care, in determining the amount of Commonwealth subsidy payable to an approved provider will be valid, even if made before commencement of this item. 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. 10: Paragraph 25-4(1)(b) Item 10 omits the word and from paragraph 25-4(1)(b) of the Aged Care Act, which is required to give effect to the following item. 15: Paragraph 25-4(1)(c) Item 15 repeals paragraph 25-4(1)(c) of the Aged Care Act to give the Secretary the discretion to suspend an approved provider, from making appraisals if the approved provider gave false, misleading or inaccurate information in an appraisal or reappraisal connected with a classification that was reviewed, and changed under section 29-1 of the Aged Care Act. 58

59 Aged care Currently, the Secretary may only suspend an approved provider from making appraisals, after the Secretary changed a classification under 29-1, the approved provider then gives further false, misleading or inaccurate information in connection with another appraisal. 20: At the end of subsection 25-4(1) Item 20 adds a note to refer to section 27-3 (reappraisal required by the Secretary) and Division 29A (civil penalty for providing false, misleading or inaccurate information in connection with an appraisal or reappraisal) of the Aged Care Act. 25 Before subsection 27-3(1) Item 25 inserts the heading false, misleading or inaccurate information to improve the structure of this subsection. 30: Paragraph 27-3(1)(b) Item 30 omits the word and from paragraph 25-4(1)(b) of the Aged Care Act which is required to give effect to the following item. 35 Paragraph 27-3(1)(c) Item 35 repeals paragraph 27-3(1)(c) of the Aged Care Act to give the Secretary the discretion to require a reappraisal to be made of the level of care needed by one or more care recipients, if the approved provider gave false, misleading or inaccurate information in an appraisal connected with a classification that was reviewed, and changed under section 29-1 of the Aged Care Act. Currently, the Secretary may only require a reappraisal if, after the Secretary changed a classification under section 29-1, the approved provider then gives further false, misleading or inaccurate information in connection with another appraisal or reappraisal. 40 Application of amendments Item 40 provides that the amendments to subsection 25-4(1) and 27-3(1) of the Aged Care Act apply to a change of classification that occurs on or after this item commences. However the appraisal or reappraisal may have occurred before this date. 45 At the end of subsection 27-3(1) Item 45 adds a note to refer to section 25-4 (suspending approved providers from making appraisals and reappraisals) and Division 29A 59

60 Budget Savings (Omnibus) Bill 2016 (civil penalty for providing false, misleading or inaccurate information in connection with an appraisal or reappraisal) of the Aged Care Act. 50 After subsection 27-3(3) Item 50 inserts new subsection 27-3(3A) to give the Secretary discretion to issue a notice requiring an approved provider to reappraise the level of care needed by a care recipient, within the period specified in the notice, if the care recipient s care needs have decreased significantly. This item provides that the Classification Principles may specify the circumstances in which the care needs of a care recipient are taken to decrease significantly. 55 Subsection 27-3(4) Item 55 amends subsection 27-3(4) to provide that the Secretary may vary or revoke a notice requiring an approved provider to reappraise the care needs of a care recipient under subsection 27-3(3A) (significant decrease in care needs). 60 Before subsection 27-3(5) Item 60 inserts the heading Authorised reappraisers before subsection 27-3(5) to improve the structure of this subsection. 65 At the end of subsection 27-3(5) Item 65 amends subsection 27-3(5) to provide that the Secretary may authorise someone other than the approved provider to make the reappraisals required by subsection 27-3(3A) (significant decrease in care needs). 70 Section 29-2 Item 70 amends section 29-2 of the Aged Care Act to provide that a change of classification is taken to have had effect from the day on which the classification took effect. This amendment will allow the Secretary to recover overpayments of subsidy from the date the care recipient was originally classified. Currently, the Secretary can only recover overpayments from a maximum of six months before a change in classification. This change means that the Commonwealth can adjust payment of subsidy to approved providers where the original classification was based on an appraisal that was inaccurate or incorrect. Such an adjustment can result in 60

61 Aged care either a recovery of an overpaid amount or the commensurate additional amount being added to subsidy payable to the provider. 75 Application of amendments Item 75 provides that the amendments to section 29-2 of the Aged Care Act apply to a change of classification that occurs after this item commences. However, the appraisal or reappraisal may have occurred before that date. 80 At the end of Part 2.4 Item 80 introduces a civil penalty of up to 60 penalty units if approved providers give false, misleading or inaccurate information in connection with an appraisal on more than one occasion in a two year period. The conduct enabling the Secretary to apply for a civil penalty will arise if: the approved provider has received a written notice from the Secretary that it has provided false, misleading or inaccurate information in an appraisal or reappraisal connected with one or more classifications reviewed under subsection 29-1(3) of the Aged Care Act; and within two years of the first written notice, it again provides false, misleading or inaccurate information in another appraisal or reappraisal. The Secretary will be able to apply for a civil penalty in relation to each classification change based on false, misleading or inaccurate information. Therefore, if an approved provider gives false, misleading or inaccurate information in more than one appraisal that leads to a classification change, the Secretary will be able to apply for a civil penalty in relation to each classification change. Approved providers will continue to be able to seek reconsideration by the Secretary of any change of classification under subsection 29-1(1) of the Aged Care Act. If dissatisfied with the reconsideration decision, providers will continue to be able to seek review by the Administrative Appeals Tribunal. 82 Before subsection 85-5(1) Item 82 inserts the heading Request for reconsideration of reviewable decision before subsection 85-5(1) to improve the structure of this subsection. 61

62 Budget Savings (Omnibus) Bill After subsection 85-5(4) Item 83 introduces the requirement to comply with section 85-6, which deals with application fees, if the reviewable decision was made under subsection 29-1(1) (a decision to change the classification of a care recipient). 85 After section 85-5 Item 85 introduces an application fee for reconsideration of a decision under subsection 29-1(1) to change the classification of a care recipient. The amount of the fee and any method of working out the fee may be specified in the Classification Principles. The Classification Principles may also deal with the waiver or refund of an application fee, or circumstances in which an approved provider is exempt from paying the fee. The introduction of an application fee is intended to allow providers with material new information to apply for reconsideration of section 29-1 classification changes without charge, but to discourage providers without material new evidence and with little prospect of success from seeking reconsideration. This will reduce the current demand on Commonwealth resources arising from such processes. 95 Before Division 96 Item 95 inserts a new section 95C-1 into the Aged Care Act to trigger provisions of the Regulatory Powers (Standard Provisions) Act 2014 in relation to the imposition of the new civil penalties established by item 80. The Secretary is an authorised applicant who may apply to a relevant court for a civil penalty order under the Aged Care Act. For the purposes of the new section 95C-1 of the Aged Care Act, a relevant court is the Federal Court of Australia, the Federal Circuit Court of Australia or a court of a state or territory which has the necessary jurisdiction. 100 Section 96-1 (at the end of the cell at table item 9, column headed Part or provision ) Item 100 amends the table in section 96-1 of the Aged Care Act, to provide that the Minister may make Classification Principles necessary or convenient to give effect to section 85-6 (an application fee for reconsideration). 62

63 Aged care 105 Clause 1 of Schedule 1 Item 105 inserts the terms civil penalty provision and Regulatory Powers Act in Schedule 1-Dictionary to the Aged Care Act. It provides that these terms have the same meaning as in the Regulatory Powers (Standard Provisions Act Part 2-Adviser and administrator panels Outline Part 2 will remove the requirement for approval by the Secretary of advisers that assist with conducting care recipient appraisals under the Aged Care Act. In place, the proposed amendments provide for restrictions on who can be an adviser to be set out in the Classifications Principles. The measure will also remove the adviser and administrator panels currently used when approved providers are given a sanction. Rather than a pre-approved panel of providers, the proposed amendments provide for restrictions on who can be an adviser or administrator to be set out in the Sanctions Principles Providing the capacity for restrictions to be set out in the Classifications Principles and Sanctions Principles allows for the efficient and timely management of risks to care recipients and approved providers. Classes of persons will be restricted if they are likely to pose a risk if they take up that role, for example, those who are insolvent under administration may be excluded from being administrators. There are two circumstances where advisers or administrators are used under the Aged Care Act. Assisting with appraisals To receive care an aged care recipient must be appraised and classified based on their care needs. Approved providers can conduct the necessary appraisals for the care recipients to which they provide care in certain circumstances. They then provide this information to the Department. The Secretary can suspend approved providers from making appraisals if false, misleading or inaccurate information is provided for the purposes of classification. 63

64 Budget Savings (Omnibus) Bill 2016 When given the option by the Secretary, an approved provider can retain its ability to make appraisals if it agrees to appoint an adviser to assist it in conducting its appraisals. Currently, the adviser must be approved by the Secretary, but does not have to be drawn from the adviser panel. The amendments will remove the need for the Secretary to approve the adviser, but provide for restrictions on who can be an adviser to be set out in the Classification Principles. Assistance to avoid the revocation of approved provider status When an approved provider of aged care services has been non-compliant with one of its responsibilities it can have its approval under Part 2.1 of the Aged Care Act revoked. Rather than having its approved provider status revoked, the Secretary can offer the approved provider the option of agreeing to appoint an administrator and/or adviser to assist its return to compliance. Under current arrangements, approved providers must select an administrator/adviser from panels that the Secretary manages. The Secretary also approves the administrator and/or adviser chosen by the approved provider. The amendments in Part 2 of this Schedule will remove the panels and the need for the Secretary to approve the adviser or administrator. Under the amendments restrictions on who can be a relevant adviser or administrator can be set out in the Sanctions Principles. Notes on Clauses Aged Care Act 1997 Item 3: Paragraph 25-4A(1)(b) Item 3 removes the requirement that the adviser be approved by the Secretary. Item 4: Subsection 25-4A(2) Item 4 will remove the requirement for the approved provider to give information to the Secretary about a proposed adviser. This is consistent with there no longer being the requirement for approval of the adviser by the Secretary. 64

65 Aged care Item 5: Subsection 25-4A(3) Item 5 will amend the reference to the approval of the Secretary in determining the timeframe in which the adviser must be appointed. Following the amendment, the approved provider will need to appoint the adviser within the period specified in the agreement they enter to appoint an adviser. This is consistent with there no longer being the requirement for approval of the adviser by the Secretary. Item 6: At the end of section 25-4A Item 6 will add two additional subsections to section 25-4A of the Aged Care Act. Subsection (4) provides that the Classification Principles may exclude a class of persons from being appointed as an adviser. Subsection (5) provides that the Classification Principles may specify matters to be taken into account in specifying the timeframe within which an adviser must be appointed. Item 7: Paragraph 25-4B(1)(a) Item 7 will amend paragraph 24-4B(1)(a) in line with the repeal of subsection 25-4A(2). Item 8: Subparagraphs 66-2(1)(a)(iii) and (iv) Item 8 will remove the requirement that the adviser or administrator be approved by the Commonwealth. Item 9: Subsections 66-2(2) and (3) Item 9 will add to the current restriction preventing the Commonwealth from being appointed an adviser or administrator. The provision now also explicitly prevents Commonwealth officers or employees from being appointed. Item 10: Division 66A (heading) Item 10 will repeal the current heading and substitutes a new heading consistent with subsequent changes to the Division. Item 11: Section 66A-1, 66A-2 and 66A-3 Item 11 will repeal sections 66A-1, 66A-2 and 66A-3 and substitutes new sections 66A-2 and 66A-3. The repeal of section 66A-1 removes the requirement to establish a panel and removes consequent provisions. 65

66 Budget Savings (Omnibus) Bill 2016 Proposed sections 66A-2 and 66A-3 will no longer require notification to the Secretary of a proposed adviser or administrator. These sections will also no longer require approval by the Secretary of an appointment. The new provisions will provide new eligibility requirements for being appointed an adviser or administrator consistent with the removal of the adviser and administrator panel. The sections provide that the Sanctions Principles may exclude a class of persons from being appointed and that a person is not eligible to be appointed if they are within a class of persons listed. These new provisions will also provide that an approved provider must appoint the adviser or administrator within the time period specified in their agreement to appoint (section 66-2 of the Aged Care Act refers). This new provision provides that the Sanctions Principles may specify matters for the Secretary to take into account when setting the period in which an adviser or administrator must be appointed. Item 12: Application provisions Item 12 relates to application provisions that set out when the amendments to sections 25-4A, 25-4B and 66-2 apply to the Aged Care Act. Part 3-Approved provider obligations Outline Part 3 will amend approved provider obligations under the Aged Care Act for an approved provider of aged care to notify the Secretary of certain changes to any of its key personnel. The Aged Care Act currently requires approved providers to notify the Department, within 28 days, of any changes to key personnel. The proposed changes will reduce administrative burden by making this a requirement only when the change in personnel would materially affect the provider s suitability to be a provider of aged care. 66

67 Aged care Notes on Clauses Aged Care Act 1997 Item 13: Subsection 9-1(1) Item 14: Subsection 9-1(3) Item 15: Subsection 9-1(3A)(a) Item 16: Subsections 9-1(6), (7) and (8) Items 13 to 16 will amend or repeal sections of the Aged Care Act that impose a regulatory duty on approved providers of aged care to notify the Department of any changes in key personnel. Currently an approved aged care provider must notify the Department of any changes in key personnel within 28 days of the change occurring. Item 17: Application provision Item 17 is an application provision setting out when the amendments to section 9-1 apply to the Aged Care Act. STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Aged care This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act Overview This Schedule deals with proposed amendments to the Aged Care Act 1997 (the Aged Care Act) relating to the creation of civil penalties for approved providers of aged care who engage in certain behaviours and other matters. The subsidy the Commonwealth Government pays to approved providers is substantially affected by appraisals (and classifications that are based on 67

68 Budget Savings (Omnibus) Bill 2016 appraisals) of care recipients care needs. This Schedule introduces a civil penalty of up to 60 penalty units if approved providers on more than one occasion in a two year period give false, misleading or inaccurate information in connection with an appraisal or reappraisal. This Schedule makes it easier for the Secretary to require an approved provider to re-appraise its care recipients or suspend it from making further appraisals if the provider gives false, misleading or inaccurate information in connection with an appraisal or reappraisal. In addition, if the Secretary suspects on reasonable grounds that a care recipient s care needs have decreased significantly, this Schedule gives the Secretary the power to require the approved provider to re-appraise the care recipient. The Schedule also changes the date that a change in classification following a review by the Department is taken to have effect. These amendments will allow the Secretary to recover overpayments of subsidy from the date the care recipient was originally classified. Currently, the Secretary can only recover overpayments for a maximum of six months prior to a change in classification. The Schedule also amends the Aged Care Act to allow for the charging of a fee if an approved provider seeks reconsideration by the Secretary of a classification downgrade. This Schedule also amends the Aged Care Act to make it clear that in deciding on a classification level, the Secretary can take into account the manner in which care is provided to a care recipient, including but not limited to the qualifications of a person required to provide care or treatment. This Schedule will abolish the adviser and administrator panel arrangements set out in the Aged Care Act Approved providers under sanction would be able to choose their own advisers and administrators. The measure also includes the removal of the requirement that the Secretary approve advisers that assist with Aged Care Funding Instrument assessments for approved providers who are to be suspended from this activity. Approved providers would be required to have the adviser and/or administrator appointed and on site within a specified timeframe, to mitigate risks to care recipients. The Secretary and the Australian Aged Care Quality Agency will retain capacity to monitor the approved provider, including during the sanction period. Further, the Secretary will still have the ability revoke approved provider status and withdraw Commonwealth funding. 68

69 Aged care This measure will amend the obligations in the Aged Care Act for approved providers to notify the Secretary of certain changes to any of its key personnel in circumstances that do not materially affect the approved provider s suitability to be a provider of aged care. Human rights implications This Schedule engages the following rights: Right to health right to health (Article 12(1) of the International Covenant on Economic, Social and Cultural Rights); right to an effective remedy (Article 2 of the International Covenant on Economic, Social and Cultural Rights); right to a fair hearing and fair trial (Articles 14 and 15 of the International Covenant on Economic, Social and Cultural Rights) The Schedule promotes the human right to health contained in Article 12 of the International Covenant on Economic, Social and Cultural Rights. Under Article 12(2) the State Parties to the Convention agree to take steps to achieve the full realisation of this right. These steps include the creation of conditions which assures medical services and medical attention in the event of sickness. In order to ensure the sustainability of the aged care system so that all Australians get the care they need, regard must be had to the limited resources available for support services and programs under the Aged Care Act. The reduction of some regulatory burden on approved providers will ensure care services remain affordable and appropriate to the needs of the people who require it. Strengthened compliance powers take into account the need for providers to be accountable for funding provided. Right to effective remedy This Schedule engages the right to an effective remedy under Article 2(3) of the International Covenant on Civil and Political Rights (ICCPR). Article 2(3) of the ICCPR protects the right to effective remedy for violation of rights or freedoms recognised by the ICCPR, and provides for a person s right to be determined by competent judicial authorities, by administrative or legislative authorities, or by any other competent authority provided for by the legal system of the State. 69

70 Budget Savings (Omnibus) Bill 2016 The Schedule amends the Aged Care Act to allow for the charging of a fee if an approved provider seeks reconsideration by the Secretary of a classification downgrade. However, the existing right to internal review via reconsideration, then merits review by the Administrative Appeals Tribunal is retained The reconsideration process is resource intensive and the introduction of fees reflects the cost of providing this service. The Schedule provides that the amount of the fee is reasonably related to the expenses incurred by the Commonwealth. There is also capacity for exemption, waiver and refund of the fees. Accordingly, any limitation of the right to access to justice is within the allowable limitation provided in Article 2(3) of the ICCPR. Any limitation on the right to access to justice by the application fee is reasonable, necessary and proportionate. Right to a fair hearing and fair trial The civil penalty provisions in the Bill, which in turn rely on the standard civil penalty provisions in the Regulatory Powers (Standard Provisions) Act 2014, may potentially engage the criminal process rights under Article 14 of the ICCPR, if the civil penalty provisions are classified as criminal under human rights law. Even though the Bill labels the provisions as civil penalties, this is not determinative and the nature and severity of the provisions must be assessed. Under the civil penalty provisions, proceedings are instituted by a public authority with statutory powers of enforcement in a court. A finding of culpability precedes the imposition of a penalty. This might make the penalties appear criminal however this is not determinative. While the provisions are deterrent in nature, these penalties generally do not apply to the public at large. Only approved providers of aged care who receive Commonwealth subsidy for the provision of aged care will be impacted by these penalties. Further, the severity of the penalties is not too high, with the pecuniary penalty being 60 units. This penalty is justified as the payment of Commonwealth subsidy is based on information that approved providers use to appraise its care recipients. In there was a $150 million overspend on subsidy, with one-in-eight of the 20,000 appraisals reviewed found to be incorrect or false. There needs to be a civil penalty to deter approved providers from relying on false, misleading or incorrect information in appraisals. In light of this analysis, the nature and application of the civil penalty provisions suggest that they should not be classed as criminal under human rights law. 70

71 Aged care Only the Secretary may seek the imposition of civil penalties, and this must be done via an application to a court. Matters can be considered by the Federal Court of Australia, Federal Circuit Court of Australia or certain courts of states or territories that will have jurisdiction. These arrangements ensure that the most serious matters are dealt with independently of the Department of Health. Conclusion The Schedule is compatible with human rights because to the extent that it promotes certain rights, including the right to health, and that for the right it limits, the limitation is reasonable, necessary and proportionate. 71

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73 Chapter 9 Dental services Amendments Age Discrimination Act 2004 Item 1 This item amends the Age Discrimination Act 2004 to provide that it does not apply to the new Part 1A to be added to the Dental Benefits Act 2008 by Item 5 in this Schedule. The Age Discrimination Act already provides that it does not apply to section 5 and Part 4 of the Dental Benefits Act. This is because the Act has previously limited benefits to children. It is expected that agreements with the states to be entered into under the new Part 1A will provide for services for all children but only concession cardholder adults. Dental Benefits Act 2008 Item 2 This item amends the title of the Act to reflect that it will no longer provide a framework for dental benefits. Item 3 This item replaces the simplified outline of the Act with a new outline reflecting its main focus on providing financial assistance to states and territories in relation to dental services. Item 4 This item limits the application of the definition of dental service in section 4 so that the term will have its ordinary meaning in the first sentence in the outline of the Act in section 3 and in the new Part 1A of the Act. 73

74 Budget Savings (Omnibus) Bill 2016 Item 5 This item inserts a new Part 1A into the Act. The new Part sets out a framework for the provision of grants of financial assistance to the states and territories. New section 7B sets out a simplified outline of the Part, and section 7C defines various terms used in the Part. Section 7D empowers the Minister, by notifiable instrument, to determine amounts to be paid to a state by way of financial assistance in relation to dental services provided on or after 1 January The Minister must not make a determination unless an agreement is in place between the Commonwealth and the state as provided for in section 7E, and in making the determination the Minister must have regard to the agreement. Section 7E empowers the Commonwealth to enter into agreements with the states relating to financial assistance for the provision of dental services. The Government intends that agreements made under this section will be published on the COAG website, as are existing National Partnership Agreements. Section 7F provides that the terms and conditions applying to the grant are those set out in the agreement, and any other terms and conditions determined by the Minister by legislative instrument. The ability for the Minister to set additional terms and conditions is intended as a reserve power to cover unforeseen circumstances. As any such terms and conditions will be in a legislative instrument they will be subject to Parliamentary scrutiny and potential disallowance. Section 7G provides that financial assistance is subject to a cap. The cap for the first three years is set as: : $175,000, : $415,632, : $420,224,000 The funding cap for is based on a start date of 1 January This section also provides the Minister for Health with the ability to reduce the cap in if required by disallowable instrument. This power is necessary because the Government has decided that it wishes to spend a total of $415.6 million on dental services in under this part of the Act, the Child Dental Benefits Schedule and the National Partnership Agreement on Adult Public Dental Services. At this stage the amount that will be spent under the Child Dental Benefits Schedule for the 74

75 Dental services period July to December 2016 is unknown. The cap in of $175,000,000 has been included in the Act as the maximum amount that could be available for spending under this part of the Act. The Minister will make an instrument setting a lower amount if required once actual expenditure under the Child Dental Benefits Schedule for the period July to December 2016 is available. For and later years the cap will be calculated as the previous year s cap multiplied by an indexation factor and a population factor. The cap for a financial year applies to the amount payable in respect of services rendered in that financial year, but does not limit the amount to be paid during that financial year. If the terms of a section 7E agreement involve the calculation of payments based on activity during a financial year, and that activity is not reported until a later financial year, payments can still be made in that later financial year (as long as the cap for the first year has not been reached). Section 7H sets out the calculation of the indexation factor by reference to the ratio between the ABS CPI index number for the twelve months to December preceding the financial year, and the ABS CPI index number for the preceding twelve months. Section 7J sets out the population factor by reference to the growth in the estimated resident population in the twelve months to December preceding the financial year. This figure is published by the Australian Bureau of Statistics in its quarterly publication Australian Demographic Statistics. Indexation under sections 7H and 7J by reference to a period ending before the financial year will allow the cap on financial assistance to be determined before the financial year begins, thus allowing certainty for state governments in planning the provision of public dental services. Section 7K creates a special appropriation for the purpose of making the grants under section 7D. Section 7L requires the Minister to commission an independent review of the operation of the Part to be conducted before the end of 2020, and sets out the composition of the panel to conduct the review. The report of the review must be tabled in the Parliament within 15 sitting days of its provision to the Minister. This provision mirrors the existing section 68 of the Act (to be repealed by Item 23), except that it is a once-off rather than a recurring triennial review. The government will continue to monitor the operation of the Act, and does not consider triennial statutory reviews to be necessary. 75

76 Budget Savings (Omnibus) Bill 2016 Items 6 and 7 These items amend the heading and simplified outline of Part 2 of the Act to make it clear that the Part establishes an entitlement to dental benefits only for services rendered before 1 January Item 8 This item amends subsection 9(1) to provide that dental benefits are only payable in respect of services rendered before 1 January Items 9 and 10 These items amend the heading and simplified outline of Part 3 of the Act to make it clear that the Part deals with the payment of dental benefits only for services rendered before 1 January Item 11 This item amends subsection 11(1) to provide that dental benefits are only payable in respect of services rendered before 1 January Items 12 and 13 These items amend section 20B, dealing with directions by the Minister to practitioners who are wholly or partly disqualified from providing dental services to refrain from providing services. Item 12 amends subsection 20B(1) to provide that directions can only be provided before 1 January 2017, and Item 13 inserts a new subsection 20B(3A) to provide for the revocation of any directions at the end of 31 December Items 14 and 15 These items amend section 20D, dealing with directions by the Minister to practitioners who are wholly or partly disqualified from providing dental services to display notices of disqualification. Item 14 amends subsection 20D(1) to provide that directions can only be provided before 1 January 2017, and Item 15 inserts a new subsection 20D(4A) to provide for the revocation of any directions at the end of 31 December Items 16 to 18 These items amend the heading and simplified outline of Part 4 of the Act to make it clear that the Part does not require vouchers to be issued after 1 January 2017, and that any vouchers issued for 2016 cease to have effect at the end of 31 December

77 Dental services Item 19 This item inserts a new section 22A providing that a reference to a calendar year in Part 4 does not include a calendar year after Item 20 This item amends section 34, to provide that protected information does not include information obtained by a person performing duties or functions or exercising powers under new Part 1A of the Act. Under Part 1A information will only relate to the affairs of states, not individuals. Item 21 This item amends the simplified outline of Part 6 to make it clear that Division 4 of that Part does not deal with recovery of amounts paid under new Part 1A. Item 22 This item amends the heading of Division 4 of Part 6 to make it clear that the Division does not deal with recovery of amounts paid under new Part 1A. Item 23 This item repeals section 68, dealing with the review of the Act. Item 5 inserts a new section 7L requiring a review of the new Part 1A of the Act by the end of Human Services (Medicare) Act 1973 Item 24 This item amends the definition of dental service in subsection 3A(3) to align it with the definition in the Dental Benefits Act as amended by Item 4 in this schedule. Item 25 This item amends section 41G to provide that services, benefits, programs or facilities provided under new Part 1A of the Dental Benefits Act are not medicare programs. 77

78 Budget Savings (Omnibus) Bill 2016 REGULATION IMPACT STATEMENT Name of proposal: Child and Adult Public Dental Scheme Office of Best Practice Regulation (OBPR) ID number: Child and Adult Public Dental Scheme Regulation Impact Statement summary Problem Access to public dental services. Poor oral health leads to poorer overall health outcomes such as visits to the GP or emergency department, hospitalisations that could have been prevented, and complications for other illnesses. Good oral health involves ongoing maintenance for life, but dental care in Australia can be very expensive. Thirty per cent of adults avoid seeking dental treatment due to cost. Public dental services face great pressure in providing services to eligible people. The existing Commonwealth funded Child Dental Benefits Schedule is poorly targeted as children already had good visiting patterns prior to its commencement. Utilisation has also been low at around one third of eligible children. This proposal closes the Child Dental Benefits Schedule to partly fund the proposed new Scheme. As private dentists will not have direct access to the new Scheme there will be deregulation offsets achieved through the closure of the Child Dental Benefits Schedule. Recommended option Option 2 Child and Adult Public Dental Scheme This measure will provide funding to the states and territories to improve access to public dental services by establishing an ongoing capped special appropriation under the Dental Benefits Act Funding will be made available to the states under a National Partnership Agreement to operate from 1 January 2017 for an initial five year period. The Commonwealth contribution under the program will be set at 40 per cent of the efficient price of the dental service, with states contributing the remaining costs. With the additional Commonwealth funding available, more services will be provided which will have a positive impact on waiting lists. The intention is that both adults on concession cards and all children will be eligible to receive public dental services under the program. The Dental Benefits Act 2008 will be amended to close the Child Dental Benefits Schedule and to implement the Child and Adult Public Dental Scheme. The new scheme will commence on 1 January

79 Dental services Background The Government has proposed a new national Child and Adult Public Dental Scheme to be introduced from 1 January The Scheme is to be implemented through a new five year National Partnership Agreement (NPA) that will provide funding to the states and territories (the states) to assist them with the delivery of public dental services to children and concession card holder adults, supported by an ongoing special appropriation. Funding for the Scheme is offset by ceasing the existing Child Dental Benefits Schedule (CDBS) and from not continuing with the current NPA on Adult Public Dental Services. The Commonwealth would pay 40 per cent of the national efficient price of dental services provided or purchased by the states. The high level principles underlying the Scheme will be set out in a NPA. The closure of the CDBS and the establishment of the new scheme will require amendment of the Dental Benefits Act 2008 before 1 January Problem Definition Although Australians oral health has improved over the past three decades, largely through the introduction of fluoridation in the 1960s, poor oral health among adult Australians is still widespread. Across the population as a whole, three out of 10 adults have untreated tooth decay. The rate is more than twice this among adults on low incomes and Aboriginal and Torres Strait Islander people. Rural and remote populations are also at greater risk of poor dental health. Poor oral health leads to poorer overall health outcomes such as visits to the GP or emergency department and complications for other illnesses. This also leads to greater costs to the health system. Good oral health involves ongoing maintenance for life. However, dental care in Australia can be very expensive. Thirty per cent of adults avoid seeking dental treatment due to cost. Public dental services face great pressure in providing services to eligible people. 79

80 Budget Savings (Omnibus) Bill 2016 The CDBS is significantly under utilised, with only around a third of eligible children having accessed the scheme. The CDBS is also a poorly targeted use of Commonwealth funding, in that it is substituting Commonwealth expenditure for other sources of funding. Before the introduction of the CDBS, around 80 per cent of children visited a dental practitioner in a 12 month period. Objective of Government Action The Scheme will better utilise existing Commonwealth dental funding. The Scheme will consolidate Commonwealth effort to target funding where it is most needed, to assist the states to provide more services to children and concession card holder adults, irrespective of where people reside. Policy Options Given the overall fiscal circumstances facing the Commonwealth, the only options considered were those that did not increase the Commonwealth s fiscal exposure. Option 1 (Status Quo) Option Overview The current Commonwealth funding arrangements for dental services are provided through the CDBS and the NPA on Adult Public Dental Services. Under the CDBS, eligible children can receive up to $1,000 worth of dental treatment, capped over two calendar years. Under the NPA, $155.0 million is being provided to the states and territories during for the treatment of 178,000 additional public dental patients. Impacted Parties state and territory governments; and private dentists. 80

81 Dental services Impact Analysis As these programs are already in place, there will be no change to the regulatory burden. Under the CDBS, dentists will continue to be required to obtain financial consent and to train staff in the processing of claims under the program. The states are responsible for the delivery of public dental services and would continue to deliver services to concession card holder adults and children. Option 2 Child and Adult Public Dental Scheme Option Overview This measure will provide funding to the states and territories to improve access to public dental services by establishing an ongoing capped special appropriation under the Dental Benefits Act Funding will be made available to the states under a NPA to operate from 1 January 2017 for an initial five year period. After the fourth year, the program will be reviewed and the outcome of the review will inform the policy parameters of the next Agreement. The Commonwealth contribution under the program will be set at 40 per cent of the efficient price of the dental service. With the additional funding available, more services will be provided which should reduce waiting times. Adults on concession cards and all children will be eligible to receive public dental services under the program. The CDBS will be closed from 31 December 2016 (although benefits will still be paid for eligible services provided on or before that date). Impacted Parties Impact Analysis state and territory governments and individuals seeking public dental care; and private dentists. There will be an impact on state and territory governments which are responsible for the provision of public dental services, as the amount of Commonwealth assistance will increase from an estimated $200 million in to over $400 million each year over the forward estimates. 81

82 Budget Savings (Omnibus) Bill 2016 Under this option, the additional Commonwealth funding will enhance the existing mechanisms in place to provide additional services with the increase in funding. The states will continue to manage their waiting lists through controls such as co-payment arrangements; will determine state-specific eligibility criteria (subject to the Commonwealth s policy intent that all children will be eligible for public dental services); and will continue to provide services based on clinical need. Low income adults (predominantly concession card holders) who can generally only afford to receive dental care from public dental services have poor oral health and poor dental visiting patterns. About half do not attend a dentist annually and, of those who do, about half attend only to address an urgent problem. Before the NPA on Treating More Public Dental Patients that began in national average waiting times for adults for general treatment were over two years. The Commonwealth investment under that NPA of $344 million over three years saw an additional 400,000 average complexity patients treated and national average waiting times for adults for general treatment reduced from 20 months to less than one year. The states achieved this through a range of measures including employing additional temporary staff, extending opening hours for clinics, and increasing the contracted use of private sector dentists to deliver services to public dental patients. Under the new Scheme, which will see a Commonwealth contribution of over $400 million a year, a sustained ongoing reduction in waiting times should be achievable. The Commonwealth estimates that services should be available to an additional 600,000 average complexity patients who could not afford services in the private sector. In the short term under the new Scheme it is expected that the states will continue the range of measures introduced under the NPA to increase service volumes and hence reduce waiting times. In the medium term the assured source of funding made available through the special appropriation under the new Scheme should allow them to expand infrastructure and workforce and reduce their reliance on contracting with the private sector. The final impact on the distribution of public service provision between the public and private sectors is uncertain. The closure of the CDBS is not expected to have a significant impact on private sector dentists. While the CDBS has been in operation for two and a half years, only one third of eligible children (around 1 million children annually) have made use of the scheme. 82

83 Dental services Before the introduction of the CDBS around 80 per cent of children or about 4.4 million children visited a dental practitioner annually. This proportion has been stable for many years. Of the children who visited a dentist annually before the CDBS began in 2014 some 3.7 million were treated in the private sector using private health insurance or families own resources. This strongly suggests that the CDBS simply substituted Commonwealth funding for other sources of funding for dental services for children. The Commonwealth expects that closure of the CDBS will see a return to the service and funding patterns that applied up until the end of Given the low utilisation of the CDBS, the direct financial impact on private sector dentists is expected to be minimal. The government will continue to subsidise the cost of private health insurance, which pays benefits for many private sector dental services, through the private health insurance premium rebate. There will, however, be a reduction in the regulatory burden on private sector dentists due to the closure of the CDBS, as set out in Appendix 1. In summary, the new Scheme will more effectively target Commonwealth assistance at low income adults with poor oral health and poor dental visiting patterns who attend public dental services. Consultation Consultations have taken place with jurisdictions, the Australian Dental Association (ADA), Consumers Health Forum (CHF), the Australian Healthcare and Hospitals Association (AHHA) and Private Healthcare Australia (PHA). While discussions focused on an alternative public sector model to the option agreed by Government, the discussions covered principles which were broadly consistent with the new Scheme. This included discussions on consolidating existing funding arrangements and developing a new legislatively based proposal to support states in the provision of public dental services. Nature of consultation Teleconferences and face to face meetings were held with the jurisdictions, ADA, CHF, AHHA and PHA. Impacted parties The ADA does not support the exclusion of the private sector from accessing direct Commonwealth funding. The ADA also seeks further Commonwealth expansion of items and increased schedule fees under the CDBS. 83

84 Budget Savings (Omnibus) Bill 2016 AHHA was concerned that increasing funding for states would not result in a universal scheme, and would entrench differences between the states in how services are provided. Other parties, including states and territories, were broadly supportive of the proposal. Preferred Option The Government s preferred option is option 2. It considers that providing increased support to the states for public dental services which provide treatment for low income adults and children is a more effective use of taxpayers funds than the CDBS, noting that only 30 per cent of eligible children utilised the CDBS and 80 per cent of children were already receiving dental treatment annually before the CDBS began. By focusing additional resources on improving access for concession card holders and children, the ongoing NPA will fill a key gap in the dental system. The ongoing nature of the measure will provide the states with long term funding certainty, which will allow for the development of innovative models of care and will stabilise and improve waiting times. Implementation The broader principles of the Scheme will be established under a NPA, which operates under the federal financial relations framework, with payments based in statute and paid via the Treasury through a specific purpose payment. The states will provide information on the services they provide to the Department of Health, which will calculate the amount of funding payable. The Department will then recommend that payment be made by the Treasury. The new Scheme will allow the states to maintain existing private sector arrangements and build on these where necessary. It is proposed that the CDBS will close on 31 December 2016 and that the Scheme will commence on 1 January The closure of the CDBS would be communicated in writing to eligible patients and dentists by the Department of Human Services. 84

85 Dental services Regulatory Burden and Cost Offset (RBCO) Estimate Table Average Annual Compliance Costs (from Business as usual) Change in Costs ($m) Total by Sector Business Community Organisations Individuals Total change in Cost -$5.254 $ -$ $8.925 Cost offset ($m) Business Community Organisations Individuals Agency $ $ $ $ Total by Source Are all new costs offset? Yes, costs are offset, please provide information below No, costs are not offset Deregulatory, no offsets required Total (Change in costs - Cost offset) ($million): -$8.925 million The RBM calculations focus on closure of the CDBS. They assume that closing the CDBS will lead to savings which are exactly equivalent to the regulatory costs associated with participating in the program. The costing only relates to private sector regulatory costs: public sector dental services were excluded. The regulatory costs of participating in the CDBS apply to dental practices and patients and there are no costs for community organisations. There is no up-to-date data on the number of private dental practices operating in Australia. The number of private dental practices involved in the CDBS was estimated using Australian Institute of Health and Welfare (AIHW) workforce data, advice from the Department of Health s dental advisers about the structure of the industry and the likely ratio of employed dentists to dental practices, and departmental data on the number of dentists participating in the program. As of 2012, there were 10,254 employed private dentists in Australia. The calculations assumed the number of private dental practices in operation is 60 per cent of this figure, i.e In 2015, 88 per cent of dental practitioners participated in CDBS. By applying the same percentage to the number of practices it 85

86 Budget Savings (Omnibus) Bill 2016 was calculated that there are 5414 private practices participating in the program. Public dental services were excluded. In 2015, 780,150 children utilised the CDBS as private patients which was used as the basis for calculating the regulatory costs to the individual. Public patients using the program were excluded. The key requirements for participating in the CDBS include checking eligibility and cap balance during dental visits, documenting informed financial consent between the dental provider and patient, and invoicing either by bulk billing or non-bulk billing methods. The average amount of time taken for dentists or their staff to perform these procedures was calculated based on advice from the Department of Health s dental advisers. Salary rates were sourced from Payscale.com and the standard non-wage labour on-costs multiplier was applied. As both dentists and patients take part in these processes, similar timings for patients were applied, less the time for administrative tasks that are only undertaken by dental practices such as record keeping. The cost of patient time was calculated using the recommended cost of leisure time. Additional time for patients who are not bulk billed and need to seek reimbursement from Medicare via the various claiming channels available was also estimated. There are no offsets required for the proposed Child and Adult Public Dental Scheme as government-to-government regulation falls outside the Regulatory Burden Measurement Framework. STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Dental services This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act Overview of the Schedule This Schedule amends the Dental Benefits Act 2008 (the Act) to close the Child Dental Benefits Schedule (CDBS) from 1 January 2017, and establish a framework for agreements between the Commonwealth and 86

87 Dental services the states and territories (the states) to underpin a Child and Adult Public Dental Scheme. The Child and Adult Public Dental Scheme is intended to provide financial assistance to the states to provide dental services to all children and concession cardholder adults. The Bill establishes a cap on the amount of financial assistance that will be provided by the Commonwealth. The terms and conditions for access to the financial assistance will be set out in agreements with the states. The government intends that these agreements will be published on the COAG website, as are existing National Partnership Agreements. Human rights implications This Schedule engages the following rights: Right to health right to health right to social security. Article 12(1) of the International Covenant on Economic, Social and Cultural Rights (ICESCR) defines the right to health as the right to the enjoyment of the highest attainable standard of physical and mental health. Whilst the UN Committee on Economic, Social and Cultural Rights (the Committee) has stated that the right to health is not to be understood as a right to be healthy, it does entail a right to a system of health protection which provides equality of opportunity for people to enjoy the highest attainable level of health. However, the Committee has stated that the notion of the highest attainable standard of health takes into account both the conditions of the individual and the country s available resources. The right may be understood as a right of access to a variety of public health and health care facilities, goods, services, programs and conditions necessary for the realisation of the highest attainable standard of health. While the CDBS targets benefits to children in low to medium income families, it does not provide benefits for adults. The Australian Institute of Health and Welfare (AIHW) report Oral health and dental care in Australia: key facts and figures 2015 found that adults have much worse oral health than children (measured by the number of decayed, missing or filled teeth). 87

88 Budget Savings (Omnibus) Bill 2016 A 2008 AIHW report Oral Health of Adults in the Public Dental Sector found that public dental patients were far more likely to suffer from decay, tooth loss and gum disease than the general population. This suggests that financially disadvantaged Australians eligible for public dental services, namely pensioners and concession card holders, have a substantially reduced ability to access affordable and timely oral health care. Accordingly, the CDBS is not seen by the Government as the best mechanism for providing Australians with equal opportunity of access to dental care. The Government intends instead to direct resources for dental services to children and low income patients who traditionally access public dental services through the states and territories. The ICESCR recognises that the right to health may be subject to limitations made for the purpose of promoting the general welfare of society as a whole. The ICESCR also recognises that the ability of a government to promote the right to health is affected by the country s available resources. In this context, governments must assess which measures are most suitable to address the health needs of population as a whole. Accordingly, a limitation on a section of the Australian population s access to a particular health service will be legitimate where the Government: (i) (ii) believes that the service is not well targeted to providing assistance to those Australians most in financial need; and has limited resources and intends to re-direct resources to more appropriate programs that are more equitably targeted to those financially disadvantaged Australians in greatest need. The amendments made by the Bill are for a legitimate objective and are reasonable, necessary and proportionate, and therefore are compatible with Australia s obligations with regards to the right to health. Right to social security Article 9 of the ICESCR contains the right to social security, including social insurance. The right requires that a country must, within its maximum available resources, ensure access to a social security scheme that provides a minimum essential level of benefits to all individuals and families that will enable them to acquire at least essential health care. Countries are obliged to demonstrate that every effort has been made to 88

89 Dental services use all resources that are at their disposal in an effort to satisfy, as a matter of priority, this minimum obligation. Further, the Committee has stated that there is a strong presumption that retrogressive measures taken in relation to the right to social security are prohibited under ICESCR. In this context, a retrogressive measure would be one taken without adequate justification that had the effect of reducing existing levels of social security benefits, or of denying benefits to persons or groups who were previously entitled to them. However, it is legitimate for a Government to re-direct its limited resources to programs which it believes are more effective at meeting the general health needs of society, particularly the needs of the more disadvantaged members of society. The closure of the CDBS will enable the Government to focus resources for dental services targeting not only children, but also adults with low incomes. It is also relevant that the CDBS has only operated since the beginning of 2014, that before it began some eighty per cent of children saw a dentist annually, and that only around a third of eligible children have utilised the scheme. This suggests that the CDBS has not been an important factor in supporting access to dental services to children, and that its removal will not be retrogressive. The state public dental services that will receive increased financial assistance under the amendments made by the Bill all provide services to children. This Schedule does not impact upon alternative means of support for services through Commonwealth funded rebates for private health insurance covering dental treatment. There is no incompatibility with the right engaged because it is for a legitimate objective and reasonable, necessary and proportionate in the circumstances. Conclusion This Schedule is compatible with human rights because it advances the protection of human rights by enabling limited resources to be spent more effectively and to the extent that it may limit human rights, those limitations are reasonable, necessary and proportionate. 89

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91 Chapter 10 Newly arrived resident s waiting period Outline of chapter Schedule 10 to the Bill will remove the exemption from the 104 week newly arrived resident s waiting period for new migrants who are family members of Australian citizens or long-term permanent residents. These exemptions are currently contained in section 3 of the Social Security Legislation Amendment (Newly Arrived Resident s Waiting Periods and Other Measures) Act 1997 (Newly Arrived Resident s Waiting Period Act). This change will align the social security waiting period for working age payments for all newly arrived migrants to Australia, except for refugees, former refugees and their family members. This Schedule will also move the remaining relevant exemptions found in section 3 of the Newly Arrived Resident s Waiting Period Act into the Social Security Act and the Farm Household Support Act to remove the need to look at multiple Acts to work out whether a newly arrived resident s waiting period applies. Finally, this Schedule will also remove the savings provisions that allow a person to serve the newly arrived resident s waiting period that applied when the person first entered Australia as a resident. This change means that from the commencement of this Schedule, any person who applies for a social security payment, a concession card or farm household allowance and is subject to a newly arrived resident s waiting period will have to serve the current waiting period. In most cases this requires the person to be an Australian resident and in Australia for 104 weeks. The removal of the savings provisions is expected to affect very few people. Background In broad terms, section 3, the application provision, of the Newly Arrived Resident s Waiting Period Act provides that newly arrived resident s waiting periods in the Social Security Act do not apply to certain persons including refugees, former refugees, family members of refugees or former refugees, Australian citizens, family members of Australian citizens, a person who has been an Australian resident for a continuous period of two years and the family member of a person who has been an Australian resident for a continuous period of two years. This provision 91

92 Budget Savings (Omnibus) Bill 2016 has had an ongoing effect and applies to all newly arrived resident s waiting periods in the Social Security Act. This Schedule will remove the exemption from the newly arrived resident s waiting period for family members of Australian citizens and family members of persons who have been Australian residents for a continuous period of two years. This change will align the Social Security waiting period for working age payments for all newly arrived migrants to Australia, apart from refugees, former refugees and their family members. This change would reinforce the Australian Government s position that all newly arrived migrants should be self-sufficient or seek support from family members and should not expect to be supported by the Australian taxpayer immediately on arrival in Australia. The newly arrived resident s waiting period aims to ensure that new migrants to Australia take steps prior to moving to Australia to provide for their own financial support during their initial settlement period in Australia. It is reasonable to expect that migrants, particularly those with family members living in Australia, should be financially secure or at least put arrangements in place to support themselves prior to moving to Australia. The continuing effect of section 3, the application provision, of the Newly Arrived Resident s Waiting Period Act has led to ongoing confusion and meant that a person would have to look across multiple Acts in order to establish whether a newly arrived resident s waiting period applies. In order to prevent this confusion and streamline these provisions, this Schedule will move the remaining relevant exemptions as found in section 3 of the Newly Arrived Resident s Waiting Period Act into the relevant provisions for the payments in the Social Security Act and the Farm Household Support Act. The streamlining of these provisions will also reduce red tape. The remaining relevant exemptions for Australian citizens, refugees, former refugees and family members of refugees and former refugees will be reproduced in the relevant payment provisions. This means a person would only need to look at the Social Security Act or the Farm Household Support Act to determine whether they are subject to a newly arrived resident s waiting period. The length of a newly arrived resident s waiting period has been increased and extended to a greater range of payments a number of times since its introduction in Currently, a person who arrives in Australia is subject to the newly arrived resident s waiting period that was in place when they first entered Australia as a resident. From the commencement date of this Schedule, all historical savings provisions in the Social Security Act and the Farm Household Support Act that allow for a reduced newly arrived resident s waiting period to be served will be removed. This means any person who applies for a social security payment, a concession card or farm household allowance would be required to serve the current newly arrived resident s waiting period, 92

93 Newly arrived resident s waiting period which in most cases requires the person to be an Australian resident and in Australia for a period of, or periods totalling, 104 weeks. People will still be able to use periods of past residence towards the current 104 week period but will not be able to use the period of past residence to access a reduced waiting period that may have been in place when they first arrived in Australia. The removal of the historic savings provisions is expected to affect very few people. This change will also simplify how newly arrived resident s waiting periods are to be applied as, in most cases, new migrants will be required to be an Australian resident and in Australia for a period of 104 weeks in order to serve the current newly arrived resident s waiting period. If this Act receives the Royal Assent before 1 January 2017, the amendments made by this Schedule commence on 1 January If this Act receives Royal Assent on or after 1 January 2017, the amendments made by this Schedule commence on the first 1 January, 1 April, 1 July or 1 October that occurs after the day this Act receives Royal Assent. Explanation of the changes Part 1 Social security amendments Amendments to the Social Security Act Item 1 repeals the definition of designated temporary entry permit at subsection 7(1). The removal of this definition is a consequential amendment based on the removal of historical saving provisions for previous versions of the newly arrived resident s waiting period that occurs in later items of this Schedule. As a result of the removal of these provisions, the term designated temporary entry permit is no longer referred to in the Social Security Act. Item 2 repeals the definition of permanent visa, special category visa, temporary visa and visa and substitutes a new definition of permanent visa, temporary visa and visa at subsection 7(1). In effect, this new definition does not reproduced the definition of temporary visa. The removal of the definition of temporary visa is a consequential amendment based on the removal of historical saving provisions for previous versions of the newly arrived resident s waiting period that occurs in later items of this Schedule. As a result of the removal of these provisions, the term temporary visa is no longer referred to in the Social Security Act. Item 3 repeals subsection 7(6) and substitutes a new subsection 7(6). 93

94 Budget Savings (Omnibus) Bill 2016 New subsection 7(6) effectively replicates current subsection 7(6) but excludes payments that have a newly arrived resident s waiting period from this qualifying residence exemption. Current subsection 7(6) provides that a person has a qualifying residence exemption in relation to the specific payments listed if they reside in Australia and are either a refugee or former refugee. These include payments that have a newly arrived resident s waiting period. Section 3 of the Newly Arrived Resident s Waiting Period Act provides that a newly arrived resident s waiting period does not apply to a person who arrives in Australia under the refugee or humanitarian program. This is substantially similar to current subsection 7(6) but does not contain the additional requirement of having to reside in Australia. Later items in this Schedule move the remaining relevant exemptions from the newly arrived resident s waiting period under section 3 of the Newly Arrived Resident s Waiting Period Act into the specific provisions relating to each payment in the Social Security Act. This includes an exemption for a person who is a refugee, or was a former refugee, at the time they make a claim for payment. This means that an exemption from the newly arrived resident s waiting period for refugees and former refugees will already exist in relation to each payment. Therefore, in order to prevent significant overlap, the payments which have a newly arrived resident s waiting period have been excluded from the qualifying residence exemption at new subsection 7(6). This does not alter the effect this subsection has on other payments which are not excluded such as age pension or disability support pension. Item 4 amends paragraph 7(6AA)(b) to exclude payments that have a newly arrived resident s waiting period as well as parenting payment from this qualifying residence exemption. Current paragraph 7(6AA)(b) provides that a person has a qualifying residence exemption in relation to the specified payments if they were a family member of a refugee or former refugee at the time the refugee or former refugee arrived in Australia. These include payments that have a newly arrived resident s waiting period as well as parenting payment. Section 3 of the Newly Arrived Resident s Waiting Period Act provides that a newly arrived resident s waiting period does not apply to a person who is a family member of a refugee or humanitarian migrant or a family member of a former refugee or humanitarian migrant at the time the former refugee or humanitarian migrant arrived in Australia. Later items in this Schedule will move the remaining exemptions from the newly arrived resident s waiting period under section 3 of the Newly Arrived Resident s Waiting Period into the specific provisions relating to each payment in the Social Security Act. This provision when moved will 94

95 Newly arrived resident s waiting period be further clarified to provide that a newly arrived resident s waiting period does not apply to a person who was family member of another person at the time the other person became a refugee and is still a family member of that other person at the time the person makes a claim for payment or if that other person has died, was a family member of that other person immediately before the other person died. This change will also be applied to parenting payment despite a newly arrived resident s waiting period not being attached to this payment in order to keep it consistent with other working age payments. Therefore, in order to prevent overlap and making the clarified exemption as moved from the previous application provision redundant, the payments which have a newly arrived resident s waiting period and parenting payment have been excluded from the qualifying residence exemption at paragraph 7(6AA)(b). This does not alter the effect this paragraph has on other payments which are not excluded. Item 5 amends paragraph 7(6AA)(f) to clarify that the qualifying residence exemption in this paragraph applies to all specified payments in this subsection. This is the only qualifying residence exemption that applies to payments which have a newly arrived resident s waiting period. There is no equivalent exemption in the application provision of the Newly Arrived Resident s Waiting Period Act that reflects this paragraph. Item 6 repeals the definition of designated temporary entry permit at subsection 23(1). The removal of this definition is a consequential amendment based on the removal of historical saving provisions for previous versions of the newly arrived resident s waiting period that occurs in later items of this Schedule. As a result of the removal of these provisions, the term designated temporary entry permit is no longer referred to in the Social Security Act. Items 7 and 9 repeal the references to widow allowance in the definitions of newly arrived resident s waiting period and waiting period to clarify that widow allowance is not to be considered as a payment to which the newly arrived resident s waiting period applies. Throughout the widow allowance provisions, there is no reference to a newly arrived resident s waiting period. In all other payments, newly arrived resident s waiting periods are attached to the payability of the payment. While there is a residence requirement for widow allowance that refers to a similar period of time to a newly arrived resident s waiting period, this is attached to qualification as opposed to payability. Removing the references to widow allowance from these definitions will clarify that widow allowance is not a payment which is subject to a newly arrived resident s waiting period. Item 8 repeals the definition of temporary visa at subsection 23(1). The removal of this definition is a consequential amendment based on the removal of historical saving provisions for previous versions of the newly 95

96 Budget Savings (Omnibus) Bill 2016 arrived resident s waiting period that occurs in later items of this Schedule. As a result of the removal of these provisions, the term temporary visa is no longer referred to in the Social Security Act. Item 10 repeals paragraph 201AA(1)(a) and substitutes a new paragraph 201AA(1)(a). Current paragraph 201AA(1)(a) provides that a person is subject to the current newly arrived resident s waiting period of being an Australian resident in Australia for a period of, or periods totalling 104 weeks if they entered Australia on or after 4 March The new paragraph 201AA(1)(a) essentially removes this historical saving provision and provides that a person is subject to the current newly arrived resident s waiting period from when they enter Australia. This change means any person who applies for carer payment on or after the commencement date will be subject to the current newly arrived resident s waiting period regardless of when they entered Australia. The person would still be able to use periods of past residence in Australia as an Australian resident towards the 104 week waiting period. This change is expected to affect very few people. Item 11 inserts a note after subsection 201AA(2) which directs the reader to paragraph 7(6AA)(f) for determining a qualifying residence exemption in relation to carer payment. This is the only qualifying residence exemption for carer payment. Item 12 repeals subsection 201AA(5) and substitutes new subsections 201AA(5), 201AA(5A) and 201AA(5B). Current paragraphs 201AA(5)(a)-(c) provide various saving provisions that provide the newly arrived resident s waiting period at subsection 201AA(1) do not apply to persons already subject to a newly arrived resident s waiting period, persons who have already served a newly arrived resident s waiting period and persons who have been Australian residents for a period of, or periods totalling, 104 weeks. Repealing these provisions ensures that any person who applies for carer payment on or after the commencement date will be subject to the current newly arrived resident s waiting period of being an Australian resident and in Australia for periods of, or periods totalling 104 weeks. New subsections 201AA(5) and (5B) essentially reflect current paragraph 201AA(5)(d). New subsection 201AA(5) provides that the newly arrived resident s waiting period at subsection 201AA(1) does not apply if, at the time the person makes a claim for carer payment, the person holds a visa that is in a class of visas as determined in an instrument under new subsection 201AA(5B). New subsection 201AA(5B) provides for the Minister to make a legislative instrument for the purpose of new subsection 201AA(5). A legislative instrument is necessary so the classes of visas that are exempt from the newly arrived resident s waiting period 96

97 Newly arrived resident s waiting period can be updated as necessary. Subsection 201AA(5B) also clarifies that the class of visa listed in the instrument must not be a class covered in the instrument under paragraph 7(6AA)(f) in order to prevent unnecessary overlap. New subsection 201AA(5A) reflects the transfer of the remaining relevant exemptions from the newly arrived resident s waiting period in section 3 of the Newly Arrived Resident s Waiting Period Act. New paragraph 201AA(5A)(a) provides that the newly arrived resident s waiting period at subsection 201AA(1) does not apply to a person if they are a refugee or former refugee at the time the person makes a claim for carer payment. New paragraph 201AA(5A)(b) provides that the newly arrived resident s waiting period does not apply to a person who is a family member of another person at the time the other person became a refugee and is also either still a family member of that other person at the time the person makes a claim for carer payment or if that other person has died, the person was a family member of that other person immediately before that other person died. Finally, new paragraph 201AA(5A)(c) provides the newly arrived resident s waiting period does not apply to a person who is an Australian citizen at the time the person makes a claim for carer payment. Item 13 inserts references to the definitions of family member, former refugee and refugee to subsection 201AA(6). These terms are referred to in new subsection 201AA(5A). Items 14 and 15 amend the widow allowance residence requirement provisions by repealing subparagraphs 408BA(2)(d)(i) and (ia) and omitting the words if the woman entered Australia on or after the commencement day from subparagraph 408BA(2)(d)(ib). The residence requirements for widow allowance should not be considered a newly arrived resident s waiting period. The term newly arrived resident s waiting period is not mentioned at all throughout the widow allowance provisions and this residence requirement is attached to qualification whereas all other newly arrived resident s waiting periods are attached to payability. However, this residence requirement is expressed in a similar manner, with similar historical savings provisions, to newly arrived resident s waiting periods. These items amend these residence requirements by removing the historical savings provisions to clarify that in relation to claims made on or after the commencement date of this Schedule, a woman will satisfy the residence requirement if she has been an Australian resident and in Australia for a period of, or periods totalling, 104 weeks before lodging a claim for widow allowance. These changes mean a woman will no longer be able to access the reduced timeframes in these saving provisions and 97

98 Budget Savings (Omnibus) Bill 2016 that the current timeframe will apply to all women regardless of when they first entered Australia. The woman would still be able to use periods of past residence in Australia as an Australian resident towards the 104 week waiting period. The removal of these historical savings provisions is not expected to affect many people. Item 16 repeals subsection 408BA(6) which removes the definition of commencement day. This is a consequential amendment to the amendments made in items 11 and 12 above. Following those amendments, the term commencement day is no longer used in this section and there is no longer any need for this definition. Items 17 to 19 add a stricter test for a residence exemption from parenting payment for family members of a refugees or former refugees than is currently contained in the qualifying residence exemption provision at subparagraph 7(6AA)(b). Parenting payment is not a payment to which the newly arrived resident s waiting period applies. However, there is a similar residential requirement in relation to the newly arrived resident s waiting period at subparagraph 500(1)(d)(ii). Parenting payment is a working age payment similar to many other payments that have newly arrived resident s waiting periods, such as new start allowance. These new amendments will apply the stricter test for family members of refugees and former refugees that is also applied to other payments with newly arrived resident s waiting periods in order to promote consistency. The other exemptions from the newly arrived resident s waiting period being moved over from section 3 of the Newly Arrived Resident s Waiting Period Act for refugees, former refugees and Australian citizens will not be replicated for parenting payment. These items insert new paragraph 500(1)(d)(iv) that provides that a person can be qualified for parenting payment if they satisfy subsection 500(3). New subsection 500(3) outlines the stricter family member test which requires a person to be a family member of another person at the time the person became a refugee is also either still be a family member of that other person at the time they make a claim for parenting payment or if that other person has died, haven been a family member of that other person immediately before that other person died. New subsection 500(4) provides references to the definitions of family member, former refugee and refugee. These terms are referred to in new subsection 500(3). Note 1 following subsection 500(1) is repealed and substituted with a new note that clarifies the only relevant provisions for qualifying residence exemption for parenting payment are subsection 7(6) and 98

99 Newly arrived resident s waiting period paragraph 7(6AA)(f). This clarifies that the qualifying residence exemption at paragraph 7(6AA)(b) for a person who is a family member of a refugee or former refugee at the time the refugee or former refugee arrived in Australia does not apply. Item 20 omits the words on or after 4 March 1997 at paragraph 549D(1)(a). Current paragraph 549D(1)(a) provides that a person is subject to the current newly arrived resident s waiting period of being an Australian resident in Australia for a period of, or periods totalling, 104 weeks if they entered Australia on or after 4 March By omitting these words, new paragraph 549D(1)(a) essentially removes this historical saving provision and provides that a person is subject to the current newly arrived resident s waiting period from when they enter Australia. This change means any person who applies for youth allowance on or after the commencement date will be subject to the current newly arrived resident s waiting period regardless of when they first entered Australia. The person would still be able to use periods of past residence in Australia as an Australian resident towards the 104 week waiting period. This change is expected to affect very few people. Item 21 repeals the note following subsection 549D(2) and substitutes a new note. This new note clarifies that paragraph 7(6AA)(f) is the only relevant qualifying residence exemption for youth allowance. Item 22 repeals subsections 549D(3), (4) and (5). This removes various savings provisions that provide the newly arrived resident s waiting period at subsection 549D(1) does not apply. This change ensures that the current newly arrived resident s waiting period of being an Australian resident in Australia for a period of, or periods totalling, 104 weeks applies to those who have yet to make a claim for youth allowance. Item 23 inserts new subsections 549D(7) and (8). New subsection 549D(7) reflects the transfer of the remaining relevant exemptions from the newly arrived resident s waiting period in section 3 of the Newly Arrived Resident s Waiting Period Act. New paragraph 549D(7)(a) provides that the newly arrived resident s waiting period at subsection 549D(1) does not apply to a person if they are a refugee or former refugee at the time the person makes a claim for youth allowance. New paragraph 549D(7)(b) provides that the newly arrived resident s waiting period does not apply to a person who is a family member of another person at the time the other person became a refugee and is also either still a family member of that other person at the time the person makes a claim for youth allowance or if that other person has died, the person was a family member of that other person immediately before that other person died. Finally, new paragraph 549D(7)(c) provides the newly arrived resident s waiting period does not apply to a person who is an 99

100 Budget Savings (Omnibus) Bill 2016 Australian citizen at the time the person makes a claim for youth allowance. New subsection 549D(8) provides references to the definitions of family member, former refugee and refugee. These terms are referred to in new subsection 549D(7). Item 24 omits the words on which the person first entered Australia on or after 4 March 1997 and substitutes the words the person first became an Australian resident at paragraph 549E(a). This clarifies that a person s newly arrived resident s waiting period for youth allowance begins on the day they first become an Australian resident. This also further clarifies the removal of the historical saving provision and means that the current newly arrived resident s waiting period applies to all people, regardless of when they first entered Australia. Item 25 omits the words on or after 4 March 1997 at paragraph 575D(1)(a). Current paragraph 575D(1)(a) provides that a person is subject to the current newly arrived resident s waiting period of being an Australian resident in Australia for a period of, or periods totalling, 104 weeks if they entered Australia on or after 4 March By omitting these words, new paragraph 575D(1)(a) essentially removes this historical saving provision and provides that a person is subject to the current newly arrived resident s waiting period from when they enter Australia. This change means any person who applies for austudy payment on or after the commencement date will be subject to the current newly arrived resident s waiting period regardless of when they first entered Australia. The person would still be able to use periods of past residence in Australia as an Australian resident towards the 104 week waiting period. This change is expected to affect very few people. Item 26 repeals the note following subsection 575D(2) and substitutes a new note. This new note clarifies that paragraph 7(6AA)(f) is the only relevant qualifying residence exemption for austudy payment. Item 27 repeals subsections 575D(3) and (4) and substitutes new subsections 575D(3) and (4). The repeal of current subsections 575D(3) and (4) will remove various savings provisions that provide the newly arrived resident s waiting period at subsection 575D(1) does not apply. This change ensures that the current newly arrived resident s waiting period of being an Australian resident in Australia for a period of, or periods totalling, 104 weeks applies to those who have yet to make a claim for austudy payment. New subsection 575D(3) reflects the transfer of the remaining relevant exemptions from the newly arrived resident s waiting period in section 3 100

101 Newly arrived resident s waiting period of the Newly Arrived Resident s Waiting Period Act. New paragraph 575D(3)(a) provides that the newly arrived resident s waiting period at subsection 575D(1) does not apply to a person if they are a refugee or former refugee at the time the person makes a claim for austudy payment. New paragraph 575D(3)(b) provides that the newly arrived resident s waiting period does not apply to a person who is a family member of another person at the time the other person became a refugee and is also wither still a family member of that other person at the time the person makes a claim for austudy payment or if that other person has died, the person was a family member of that other person immediately before that other person died. Finally, new paragraph 575D(3)(c) provides the newly arrived resident s waiting period does not apply to a person who is an Australian citizen at the time the person makes a claim for austudy payment. New subsection 575D(4) provides references to the definitions of family member, former refugee and refugee. These terms are referred to in new subsection 575D(3). Item 28 omits the words on which the person first entered Australia on or after 4 March 1997 and substitutes the words the person first became an Australian resident at paragraph 575E(a). This clarifies that a person s newly arrived resident s waiting period for austudy payment begins on the day they first become an Australian resident. This also further clarifies the removal of the historical saving provision and means that the current newly arrived resident s waiting period applies to all people, regardless of when they first entered Australia. Item 29 omits the words on or after 1 January 1993 at paragraph 623A(1)(a). Current paragraph 623A(1)(a) provides that a person is only subject to the current newly arrived resident s waiting period of being an Australian resident in Australia for a period of, or periods totalling, 104 weeks if they entered Australia on or after 1 January By omitting these words, new paragraph 623A(1)(a) essentially removes this historical saving provision and provides that a person is subject to the current newly arrived resident s waiting period from when they enter Australia. This change means any person who applies for newstart allowance on or after the commencement date will be subject to the current newly arrived resident s waiting period regardless of when they first entered Australia. The person would still be able to use periods of past residence in Australia as an Australian resident towards the 104 week waiting period. This change is expected to affect very few people. Item 30 repeals the note following subsection 623A(2) and substitutes a new note. This new note clarifies that paragraph 7(6AA)(f) is the only relevant qualifying residence exemption for newstart allowance. 101

102 Budget Savings (Omnibus) Bill 2016 Item 31 repeals subsections 623A(3), (5) and (6). This removes various savings provisions that provide the newly arrived resident s waiting period at subsection 623A(1) does not apply. This change ensures that the current newly arrived resident s waiting period of being an Australian resident in Australia for a period of, or periods totalling, 104 weeks applies to those who have yet to make a claim for newstart allowance. Item 32 inserts new subsections 623A(8) and (9) New subsection 623A(8) reflects the transfer of the remaining relevant exemptions from the newly arrived resident s waiting period in section 3 of the Newly Arrived Resident s Waiting Period Act. New paragraph 623A(8)(a) provides that the newly arrived resident s waiting period at subsection 623A(1) does not apply to a person if they are a refugee or former refugee at the time the person makes a claim for newstart allowance. New paragraph 623A(8)(b) provides that the newly arrived resident s waiting period does not apply to a person who is a family member of another person at the time the other person became a refugee and is also wither still a family member of that other person at the time the person makes a claim for newstart allowance or if that other person has died, the person was a family member of that other person immediately before that other person died. Finally, new paragraph 623A(8)(c) provides the newly arrived resident s waiting period does not apply to a person who is an Australian citizen at the time the person makes a claim newstart allowance. New subsection 623A(9) provides references to the definitions of family member, former refugee and refugee. These terms are referred to in new subsection 623A(8). Item 33 repeals subsection 623B(2). This removes a previous more beneficial version of the newly arrived resident s waiting period and ensures that the current waiting period of being an Australian resident and in Australia for a period of, or periods totalling, 104 weeks applies to all new claims of newstart allowance. Item 34 omits the words If subsection (2) does not apply, the and substitutes the word The. This is consequential amendment pursuant to subsection 623B(2) being repealed in item 33 above. Item 35 repeals the note that follows subsection 623B(2) that refers to a savings provision at Clause 121 of Schedule 1A to this Act that continues the application of previous rules regarding newly arrived resident s waiting periods. This provision is repealed in item 67 and is no longer applicable. For all new claims for newstart allowance on or after the commencement date, the current newly arrived resident s waiting period 102

103 Newly arrived resident s waiting period of being an Australian resident and in Australia for a period of, or periods totalling, 104 weeks will apply. Item 36 omits the words on or after 1 January 1993 at paragraph 696B(1)(a). Current paragraph 696B(1)(a) provides that a person is only subject to the current newly arrived resident s waiting period of being an Australian resident in Australia for a period of, or periods totalling, 104 weeks if they entered Australia on or after 1 January By omitting these words, new paragraph 696B(1)(a) essentially removes this historical saving provision and provides that a person is subject to the current newly arrived resident s waiting period from when they enter Australia. This change means any person who applies for sickness allowance on or after the commencement date will be subject to the current newly arrived resident s waiting period regardless of when they first enter Australia. The person would still be able to use periods of past residence in Australia as an Australian resident towards the 104 week waiting period. This change is expected to affect very few people. Item 37 repeals the note following subsection 696B(2) and substitutes a new note. This new note clarifies that paragraph 7(6AA)(f) is the only relevant qualifying residence exemption for sickness allowance. Item 38 repeals subsections 696B(3), (5) and (6) and substitutes new subsections 696B(3) and (4). The repeal of current subsections 696B(3), (5) and (6) remove various savings provisions that provide the newly arrived resident s waiting period at subsection 696B(1) does not apply. This change ensures that the current newly arrived resident s waiting period of being an Australian resident in Australia for a period of, or periods totalling, 104 weeks applies to those who have yet to make a claim for sickness allowance. New subsection 696B(3) reflects the transfer of the remaining relevant exemptions from the newly arrived resident s waiting period in section 3 of the Newly Arrived Resident s Waiting Period Act. New paragraph 696B(3)(a) provides that the newly arrived resident s waiting period at subsection 696B(1) does not apply to a person if they are a refugee or former refugee at the time the person makes a claim for sickness allowance. New paragraph 696B(3)(b) provides that the newly arrived resident s waiting period does not apply to a person who is a family member of another person at the time the other person became a refugee and is also either still a family member of that other person at the time the person makes a claim for sickness allowance or if that other person has died, the person was a family member of that other person immediately before that other person died. Finally, new paragraph 696B(3)(c) provides the newly arrived resident s waiting period does not apply to a person who is an Australian citizen at the time the person makes a claim sickness allowance. 103

104 Budget Savings (Omnibus) Bill 2016 New subsection 696B(4) provides references to the definitions of family member, former refugee and refugee. These terms are referred to in new subsection 696B(3). Item 39 repeals subsection 696C(2). This removes a previous more beneficial version of the newly arrived resident s waiting period and ensures that the current waiting period of being an Australian resident and in Australia for a period of, or periods totalling, 104 weeks applies to all new claims of sickness allowance. Item 40 omits the words If subsection (2) does not apply, the and substitutes the word The. This is consequential amendment pursuant to subsection 696C(2) being repealed in item 39 above. Item 41 repeals the note that follows subsection 696C(2) that refers to a savings provision at Clause 121 of Schedule 1A to this Act that continues the application of previous rules regarding newly arrived resident s waiting periods. This provision is repealed in item 67 and is no longer applicable. For all new claims for sickness allowance on or after commencement date, the current newly arrived resident s waiting period of being an Australian resident and in Australia for a period of, or periods totalling, 104 weeks will apply. Item 42 adds the words after the person first entered Australia at the end of subsection 739A(7). This clarifies that a person will not be subject to a newly arrived resident s waiting period under subsections 739A(1) or (2) if they suffer a substantial change of circumstances beyond their control after the person first arrived in Australia. This means that if a person suffers a substantial change of circumstances before they come to Australia, they will not be able to obtain the benefit of subsection 739A(7) and be exempt from a newly arrived resident s waiting period. Item 43 repeals subsection 739A(8) and substitutes new subsections 739A(8) and (9). Current subsection 739A(8) provides that the exemption for family members of Australian citizens and family members of long term permanent residents as found at paragraphs 3(1)(e) and (g) of the Newly Arrived Resident s Waiting Period Act do not apply in certain circumstances. As this entire section is being repealed at item 82, and these exemptions are being permanently removed, current subsection 739A(8) is no longer necessary. New subsection 739A(8) reflects the transfer of the remaining relevant exemptions from the newly arrived resident s waiting period in section 3 of the Newly Arrived Resident s Waiting Period Act. New paragraph 739A(8)(a) provides that the newly arrived resident s waiting period at 104

105 Newly arrived resident s waiting period subsection 739A(1) or (2) does not apply to a person if they are a refugee or former refugee at the time the person makes a claim for special benefit. New paragraph 739A(8)(b) provides that the newly arrived resident s waiting period does not apply to a person who is a family member of another person at the time the other person became a refugee and is also either still a family member of that other person at the time the person makes a claim for special benefit or if that other person has died, the person was a family member of that other person immediately before that other person died. Finally, new paragraph 739A(8)(c) provides the newly arrived resident s waiting period does not apply to a person who is an Australian citizen at the time the person makes a claim special benefit. New subsection 739A(9) provides references to the definitions of family member, former refugee and refugee. These terms are referred to in new subsection 739A(8). Item 44 omits the words on or after 1 January 1993 at paragraph 771HNA(1)(a). Current paragraph 771HNA(1)(a) provides that a person is only subject to the current newly arrived resident s waiting period of being an Australian resident in Australia for a period of, or periods totalling, 104 weeks if they entered Australia on or after 1 January By omitting these words, new paragraph 771HNA(1)(a) essentially removes this historical saving provision and provides that a person is subject to the current newly arrived resident s waiting period from when they enter Australia. This change means any person who applies for partner allowance on or after the commencement date will be subject to the current newly arrived resident s waiting period regardless of when they first entered Australia. The person would still be able to use periods of past residence in Australia as an Australian resident towards the 104 week waiting period. This change is expected to affect very few people. Item 45 repeals the note following subsection 771HNA(2) and substitutes a new note. This new note clarifies that paragraph 7(6AA)(f) is the only relevant qualifying residence exemption for partner allowance. Item 46 repeals subsections 771HNA(4) and (5) and substitutes a new subsection 771HNA (3) and (4). The repeal of current subsections 771HNA(4) and (5) remove various savings provisions that provide the newly arrived resident s waiting period at subsection 771HNA(1) does not apply. This change ensures that the current newly arrived resident s waiting period of being an Australian resident in Australia for a period of, or periods totalling, 104 weeks applies to those who have yet to make a claim for partner allowance. New subsection 771HNA(4) reflects the transfer of the remaining relevant exemptions from the newly arrived resident s waiting period in section 3 105

106 Budget Savings (Omnibus) Bill 2016 of the Newly Arrived Resident s Waiting Period Act. New paragraph 771HNA(4)(a) provides that the newly arrived resident s waiting period at subsection 771HNA (1) does not apply to a person if they are a refugee or former refugee at the time the person makes a claim for partner allowance. New paragraph 771HNA(4)(b) provides that the newly arrived resident s waiting period does not apply to a person who is a family member of another person at the time the other person became a refugee and is also either still a family member of that other person at the time the person makes a claim for partner allowance or if that other person has died, the person was a family member of that other person immediately before that other person died. Finally, new paragraph 771HNA(4)(c) provides the newly arrived resident s waiting period does not apply to a person who is an Australian citizen at the time the person makes a claim partner allowance. New subsection 771HNA(5) provides references to the definitions of family member, former refugee and refugee. These terms are referred to in new subsection 771HNA(4). Item 47 repeals the note that follows subsection 771HNA(3) that refers to a savings provision at Clause 121 of Schedule 1A to this Act that continues the application of previous rules regarding newly arrived resident s waiting periods. This provision is repealed in item 67 and is no longer applicable. For all new claims for partner allowance on or after commencement date, the current newly arrived resident s waiting period of being an Australian resident and in Australia for a period of, or periods totalling, 104 weeks will apply. Item 48 omits the words subsections (2), (3) and (4), a person who, on or after the commencement of this subsection and substitutes this section, a person who at subsection 1039AA(1). Current subsection 1039AA(1) provides that a person is only subject to the current newly arrived resident s waiting period of being an Australian resident in the commencement of this subsection. By omitting these words, new subsection 1039AA essentially removes this historical saving provision and provides that a person is subject to the current newly arrived resident s waiting period from when they enter Australia. This change means any person who applies for mobility allowance on or after the commencement date will be subject to the current newly arrived resident s waiting period regardless of when they first entered Australia. The person would still be able to use periods of past residence in Australia as an Australian resident towards the 104 week waiting period. This change is expected to affect very few people Item 49 repeals the note following subsection 1039AA(2) and substitutes a new note. This new note clarifies that paragraph 7(6AA)(f) is the only relevant qualifying residence exemption for mobility allowance. 106

107 Newly arrived resident s waiting period Item 50 repeals subsection 1039AA(3). This a saving provision that provides the current newly arrived resident s waiting period at subsection 1039AA(1) does not apply to a person who has already served a newly arrived resident s waiting period. Repealing this subsection ensures that the current newly arrived resident s waiting period of being an Australian resident in Australia for a period of, or periods totalling, 104 weeks applies to those who have yet to make a claim for mobility allowance. Item 51 repeals subsection 1039AA(5) and substitutes new subsections 1039AA(5) and (6). Current subsection 1039AA(5) provides that the current newly arrived resident s waiting period at subsection 1039AA(1) does not apply to a person if they are a New Zealand citizen and were an Australian resident on 1 February Repealing this subsection ensures that the current newly arrived resident s waiting period of being an Australian resident in Australia for a period of, or periods totalling, 104 weeks applies to those who have yet to make a claim for mobility allowance. New subsection 1039AA(5) reflects the transfer of the remaining relevant exemptions from the newly arrived resident s waiting period in section 3 of the Newly Arrived Resident s Waiting Period Act. New paragraph 1039AA(5)(a) provides that the newly arrived resident s waiting period at subsection 1039AA(1) does not apply to a person if they are a refugee or former refugee at the time the person makes a claim for mobility allowance. New paragraph 1039AA(5)(b) provides that the newly arrived resident s waiting period does not apply to a person who is a family member of another person at the time the other person became a refugee and is also either still a family member of that other person at the time the person makes a claim for mobility allowance or if that other person has died, the person was a family member of that other person immediately before that other person died. Finally, new paragraph 1039AA(5)(c) provides the newly arrived resident s waiting period does not apply to a person who is an Australian citizen at the time the person makes a claim mobility allowance. New subsection 1039AA(6) provides references to the definitions of family member, former refugee and refugee. These terms are referred to in new subsection 1039AA(5). Item 52 omits the words on or after 4 March 1997 at paragraph 1061PU(1)(a). Current paragraph 1061PU(1)(a) provides that a person is only subject to the current newly arrived resident s waiting period of being an Australian resident in Australia for a period of, or periods totalling, 104 weeks if they entered Australia on or after 4 March By omitting these words, new paragraph 1061PU(1)(a) essentially removes this historical saving provision and provides that a person is 107

108 Budget Savings (Omnibus) Bill 2016 subject to the current newly arrived resident s waiting period from when they enter Australia. This change means any person who applies for pensioner education supplement on or after the commencement date will be subject to the current newly arrived resident s waiting period regardless of when they first entered Australia. The person would still be able to use periods of past residence in Australia as an Australian resident towards the 104 week waiting period. This change is expected to affect very few people. Item 53 repeals the note following subsection 1061PU(2) and substitutes a new note. The newly arrived resident s waiting period in relation to pensioner education supplement at subsection 1061PU(1) does not apply to persons who have a qualifying residence exemption for austudy payment. This new note clarifies that paragraph 7(6AA)(f) is the only relevant qualifying residence exemption for austudy payment. Item 54 repeals subsections 1061PU(3) and (4) and substitutes new subsections 1061PU(3) and (4). The repeal of current subsections 1061PU(3) and (4) remove various savings provisions that provide the newly arrived resident s waiting period at subsection 1061PU(1) does not apply. This change ensures that the current newly arrived resident s waiting period of being an Australian resident in Australia for a period of, or periods totalling, 104 weeks applies to those who have yet to make a claim for pensioner education supplement. New subsection 1061PU(3) reflects the transfer of the remaining relevant exemptions from the newly arrived resident s waiting period in section 3 of the Newly Arrived Resident s Waiting Period Act. New paragraph 1061PU(3)(a) provides that the newly arrived resident s waiting period at subsection 1061PU(1) does not apply to a person if they are a refugee or former refugee at the time the person makes a claim for pensioner education supplement. New paragraph 1061PU(3)(b) provides that the newly arrived resident s waiting period does not apply to a person who is a family member of another person at the time the other person became a refugee and is also either still a family member of that person at the time the person makes a claim for pensioner education supplement or if that other person has died, the person was a family member of that other person immediately before that other person died. Finally, new paragraph 1061PU(3)(c) provides the newly arrived resident s waiting period does not apply to a person who is an Australian citizen at the time the person makes a claim pensioner education supplement. New subsection 1061PU(4) provides references to the definitions of family member, former refugee and refugee. These terms are referred to in new subsection 1061PU(3). 108

109 Newly arrived resident s waiting period Item 55 omits the words on which the person first enters Australia and substitutes the words the person first became an Australian resident in paragraph 1061PV(a). This clarifies that a person can only begin serving their newly arrived resident s waiting period on the day which they are an Australian resident in Australia as opposed to the day on which they first enter Australia. Item 56 omits the words subsections (2), (3) and (4) and substitutes this section at subsection 1061ZH(1). This ensures that the newly arrived resident s waiting period at subsection 1061ZH(1) is subject to the entire section as opposed to specific subsections. Item 57 omits the words on or after 1 February 2000 at paragraph 1061ZH(1)(a). Current paragraph 1061ZH(1)(a) provides that a person is only subject to the current newly arrived resident s waiting period of being an Australian resident or special category visa holder residing in Australia, and in Australia for a period of, or periods totalling 104 weeks if they entered Australia on or after 1 February By omitting these words, new paragraph 1061ZH(1)(a) essentially removes this historical saving provision and provides that a person is subject to the current newly arrived resident s waiting period from when they enter Australia. This change means any person who applies for a seniors health card on or after the commencement date will be subject to the current newly arrived resident s waiting period regardless of when they first entered Australia. The person would still be able to use periods of past residence in Australia as an Australian resident or a special category visa holder residing in Australia towards the 104 week waiting period. This change is expected to affect very few people. Item 58 adds a note following subsection 1061ZH(2). This note clarifies that paragraph 7(6AA)(f) is the only relevant qualifying residence exemption for seniors health cards. Item 59 repeals subsections 1061ZH(3), (4) and (5) and substitutes new subsections 1061ZH(3) and (4). The repeal of current subsections 1061ZH(3), (4) and (5) remove various savings provisions that provide the newly arrived resident s waiting period at subsection 1061ZH(1) does not apply. This change ensures that the current newly arrived resident s waiting period of being an Australian resident or a special category visa holder residing in Australia, and in Australia for a period of, or periods totalling, 104 weeks applies to those who have yet to make a claim for seniors health card. New subsection 1061ZH(3) reflects the transfer of the remaining relevant exemptions from the newly arrived resident s waiting period in section 3 of the Newly Arrived Resident s Waiting Period Act. New paragraph 109

110 Budget Savings (Omnibus) Bill ZH(3)(a) provides that the newly arrived resident s waiting period at subsection 1061ZH (1) does not apply to a person if they are a refugee or former refugee at the time the person makes a claim for a seniors health card. New paragraph 1061ZH(3)(b) provides that the newly arrived resident s waiting period does not apply to a person who is a family member of another person at the time the other person became a refugee and is also either still a family member of that other person at the time the person makes a claim for a seniors health card or if that other person has died, the person was a family member of that other person immediately before that other person died. Finally, new paragraph 1061ZH(3)(c) provides the newly arrived resident s waiting period does not apply to a person who is an Australian citizen at the time the person makes a claim for a seniors health card. New subsection 1061ZH(4) provides references to the definitions of family member, former refugee and refugee. These terms are referred to in new subsection 1061ZH(3). Item 60 omits the words subsection (2) and substitutes the words this section in subsection 1061ZQ(1). This merely provides that the newly arrived resident s waiting period at subsection 1061ZQ(1) is subject to the entire section as opposed to only subsection 1061ZQ(2). Item 61 omits the words on or after 1 February 2000 at subsection 1061ZQ(1). Current subsection 1061ZQ(1) provides that a person is only subject to the current newly arrived resident s waiting period of being an Australian resident or a special category visa holder residing in Australia, and in Australia for a period of, or periods totalling 104 weeks if they entered Australia on or after 1 February By omitting these words, new subsection 1061ZQ(1) essentially removes this historical saving provision and provides that a person is subject to the current newly arrived resident s waiting period from when they first become an Australian resident or special category visa holder residing in Australia. This change means any person who applies for a health care card on or after the commencement date will be subject to the current newly arrived resident s waiting period regardless of when they first entered Australia. The person would still be able to use periods of past residence in Australia as an Australian resident or special category visa holder residing in Australia towards the 104 week waiting period. This change is expected to affect very few people. Item 62 repeals paragraph 1061ZQ(2)(b). This is a saving provision that provides the current newly arrived resident s waiting period at subsection 1061ZQ(1) does not apply to a person who has already served a newly arrived resident s waiting period. Repealing this subsection ensures that the current newly arrived resident s waiting period of being an Australian resident or a special category visa holder residing in Australia and in 110

111 Newly arrived resident s waiting period Australia for a period of, or periods totalling, 104 weeks applies to those who have yet to make a claim for health care cards. Item 63 adds a note following subsection 1061ZQ(2). This note clarifies that paragraph 7(6AA)(f) the only relevant qualifying residence exemption for seniors health cards. Item 64 adds subsections 1061ZQ(3) and (4). New subsection 1061ZQ(3) reflects the transfer of the remaining relevant exemptions from the newly arrived resident s waiting period in section 3 of the Newly Arrived Resident s Waiting Period Act. New paragraph 1061ZQ(3)(a) provides that the newly arrived resident s waiting period at subsection 1061ZQ(1) does not apply to a person if they are a refugee or former refugee at the time the person makes a claim for a health care card. New paragraph 1061ZQ(3)(b) provides that the newly arrived resident s waiting period does not apply to a person who is a family member of another person at the time the other person became a refugee and is also either still a family member of that other person at the time the person makes a claim for a health care card or if that other person has died, the person was a family member of that other person immediately before that other person died. Finally, new paragraph 1061ZQ(3)(c) provides the newly arrived resident s waiting period does not apply to a person who is an Australian citizen at the time the person makes a claim for a health care card. New subsection 1061ZQ(4) provides references to the definitions of family member, former refugee and refugee. These terms are referred to in new subsection 1061ZQ(3). Item 65 omits the word if and substitutes the words (1) Subject to subsection (2), if at section 1061ZR. This change is a consequential amendment based on item 61 below and effectively makes this provision a new subsection 1061ZR(1). Item 66 inserts subsection 1061ZR(2) at the end of section 1061ZR. New subsection 1061ZR(2) essentially provides that a person can begin serving their newly arrived waiting period for a health care card on the day they apply for visa if the visa is in a class determined by the Minister for the purposes of paragraph 739A(3)(b). This means a person can start serving their 104 week newly arrived resident s waiting period before they are an Australian resident or special category visa holder residing in Australia as required by new subsection 1061ZR(1). Item 67 repeals clause 121 of Schedule 1A. This clause is a savings provision that provides that if a person was subject to newly arrived resident s waiting period immediately before the commencement of the 111

112 Budget Savings (Omnibus) Bill 2016 Further 1998 Budget Measures Legislation Amendment (Social Security) Act 1999, the Social Security Act continues to apply to the person in relation to the waiting period as if the amendments had not been made. Repealing this clause removes a historic savings provision. This change ensures that the current newly arrived resident s waiting period of being an Australian resident in Australia for a period of, or periods totalling, 104 weeks applies to those who have yet to make a claim. Application Provisions Item 68 is an application provision in relation to qualifying residence exemption. This provision provides that the changes made to section 7 of the Social Security Act in this Schedule apply to all claims made on or after commencement. Item 69 is an application provision in relation to carer payment. This provides that the changes made to paragraph 201AA(1)(a) apply to all entries to Australia regardless as to whether they occur before, on or after commencement of this Schedule. New subsections 201AA(5) and (5A) which includes the exemption for people specified in a class of visas by legislative instrument and the relevant exemptions as moved from the Newly Arrived Resident s Waiting Period Act apply to all carer payment claims made on or after the commencement of this Schedule. Current subsection 201AA(5) continues to apply to all claims for carer payment made before the commencement of this Schedule. A determination that is in forced under current paragraph 201AA(5)(d) immediately before the commencement of this Schedule continues to have effect after commencement as if it were a determination under new subsection 201AA(5B). Item 70 is an application provision in relation to widow allowance. This provides that the amendments to section 408BA made by this Schedule apply in relation to claims for widow allowance made on or after the commencement of this Schedule. Item 71 is an application provision in relation to parenting payment. This provides that the amendments to section 500 made by this Schedule apply in relation to claims for parenting payment made on or after the commencement of this Schedule. Item 72 is an application provision in relation to youth allowance. 112

113 Newly arrived resident s waiting period This provides that the changes made to paragraph 549D(1)(a) apply to all entries to Australia regardless as to whether they occur before, on or after commencement of this Schedule. Current subsections 549D(3), (4) and (5) continue to apply to all claims for youth allowance made before the commencement of this Schedule. New subsections 549D (7) and (8) which contain the remaining relevant exemptions as moved from the Newly Arrived Resident s Waiting Period Act apply to all youth allowance claims made on or after the commencement of this Schedule. The amendment to paragraph 549E(a) also applies in relation to all claims for youth allowance made on or after commencement of this Schedule. Item 73 is an application provision in relation to austudy payment. This provides that the changes made to paragraph 575D(1)(a) apply to all entries to Australia regardless as to whether they occur before, on or after commencement of this Schedule. Current subsections 575D(3) and (4) continue to apply to all claims for austudy payment made before the commencement of this Schedule New subsections 575D (3) and (4) which contain the remaining relevant exemptions as moved from the Newly Arrived Resident s Waiting Period Act apply to all austudy payments claims made on or after the commencement of this Schedule. The amendment to paragraph 575E(a) also applies in relation to all claims for austudy payment made on or after commencement of this Schedule. Item 74 is an application provision in relation to newstart allowance. This provides that the changes made to paragraph 623A(1)(a) apply to all entries to Australia regardless as to whether they occur before, on or after commencement of this Schedule. Current subsections 623A(3) and (6) and 623B(2) continue to apply to all claims for newstart allowance made before the commencement of this Schedule. New subsections 623A (8) and (9) which contain the remaining relevant exemptions as moved from the Newly Arrived Resident s Waiting Period Act apply to all newstart allowance claims made on or after the commencement of this Schedule. 113

114 Budget Savings (Omnibus) Bill 2016 Item 75 is an application provision in relation to sickness allowance. This provides that the changes made to paragraph 696B(1)(a) apply to all entries to Australia regardless as to whether they occur before, on or after commencement of this Schedule. New subsections 696B (3) and (4) which contain the remaining relevant exemptions as moved from the Newly Arrived Resident s Waiting Period Act apply to all sickness allowance claims made on or after the commencement of this Schedule. Current subsections 696B(3), (5) and (6) and 696C(2) continue to apply to all claims for sickness allowance made before the commencement of this Schedule. Item 76 is an application provision in relation to special benefit. All the amendments made in relation special benefit at section 739A apply in relation to claims for special benefit made on or after the commencement of this Schedule. Item 77 is an application provision in relation to partner allowance. This provides that the changes made to paragraph 771HNA(1)(a) apply to all entries to Australia regardless as to whether they occur before, on or after commencement of this Schedule. New subsections 771HNA (3) and (4) which contain the remaining relevant exemptions as moved from the Newly Arrived Resident s Waiting Period Act apply to all partner allowance claims made on or after the commencement of this Schedule. Current subsections 771HNA(4) and (5) continue to apply to all claims for partner allowance made before the commencement of this Schedule. Item 78 is an application provision in relation to mobility allowance. This provides that the changes made to subsection 1039AA(1) apply to all entries to Australia regardless as to whether they occur before, on or after commencement of this Schedule. Current subsections 1039AA(3) and (5) continue to apply to all claims for mobility allowance made before the commencement of this Schedule. New subsections 1039AA(5) and (6) which contain the remaining relevant exemptions as moved from the Newly Arrived Resident s Waiting Period Act apply to all mobility allowance claims made on or after the commencement of this Schedule. 114

115 Newly arrived resident s waiting period Item 79 is an application provision in relation to pensioner education supplement. This provides that the changes made to paragraph 1061PU(1)(a) apply to all entries to Australia regardless as to whether they occur before, on or after commencement of this Schedule. New subsections 1061PU(3) and (4) which contain the remaining relevant exemptions as moved from the Newly Arrived Resident s Waiting Period Act apply to all pensioner education supplement claims made on or after the commencement of this Schedule. Current subsections 1061PU (3) and (4) continue to apply to all claims for pensioner education supplement made before the commencement of this Schedule. The amendment to paragraph 1061PV(a) also applies in relation to all claims for pensioner education supplement made on or after commencement of this Schedule. Item 80 is an application provision in relation to seniors health cards. This provides that the changes made to subsection 1061ZH(1) apply to all entries to Australia regardless as to whether they occur before, on or after commencement of this Schedule. New subsections 1061ZH(3) and (4) which contain the remaining relevant exemptions as moved from the Newly Arrived Resident s Waiting Period Act apply to all claims for seniors health card made on or after the commencement of this Schedule. Current subsections 1061ZH(3), (4) and (5) continue to apply to all claims for seniors health cards made before the commencement of this Schedule. Item 81 is an application provision in relation to health care cards. This provides that the changes made to subsection 1061ZQ(1) apply to all entries to Australia regardless as to whether they occur before, on or after commencement of this Schedule. Current paragraph 1061ZQ(2)(b) continues to apply to all claims for health care cards made before the commencement of this Schedule. New subsections 1061ZQ(3) and (4) which contain the remaining relevant exemptions as moved from the Newly Arrived Resident s Waiting Period Act apply to all health care card claims made on or after the commencement of this Schedule. 115

116 Budget Savings (Omnibus) Bill 2016 The changes made to 1061ZR apply to all health care card claims made on or after the commencement of this Schedule. Amendments to the Newly Arrived Resident s Waiting Period Act Item 82 repeals section 3. This change will repeal all the exemptions from the newly arrived resident s waiting periods contained in this section with the relevant remaining exemptions to be reproduced in the Social Security Act. The ongoing effect of this section has led to ongoing confusion and meant that a person would have to look across multiple Acts in order to establish whether a newly arrived resident s waiting period applies. In order to prevent this confusion, the exemptions that remain from this section for refugees, former refugees, family members of refugees and former refugees and Australian citizens are reproduced in relation to the relevant payments that have newly arrived resident s waiting periods in the items above. These encompass paragraphs 3(1)(a), (b), (c) and (d) of the Newly Arrived Resident s Waiting Period Act. The exact requirements to satisfy these exemptions have been clarified in their reproduction to the Social Security Act. The exemption from the newly arrived resident s waiting period for family members of Australian citizens and for family members of persons who have been Australian residents for a continuous period of two years will be removed permanently and will not be reproduced in the Social Security Act. These exemptions are currently found at paragraphs 3(1)(e) and (g) of the Newly Arrived Resident s Waiting Period Act. This change will align the Social Security waiting period for working age payments for all newly arrived migrants to Australia, apart from refugees, former refugees and their family members. This change would reinforce the Australian Government s position that all newly arrived migrants should be self-sufficient or seek support from family members and not expect to be supported by the Australian taxpayer immediately on arrival in Australia. The newly arrived resident s waiting period aims to ensure that new migrants to Australia take steps prior to moving to Australia to provide for their own financial support during their initial settlement period in Australia. It is reasonable to expect that migrants, particularly those with family members living in Australia, should be financially secure or a least put arrangements in place to support themselves prior to moving to Australia. The exemption for a person who has been an Australian resident for a continuous period of two years as found at paragraph 3(1)(f) of the Newly Arrived Resident s Waiting Period Act will not be reproduced in the 116

117 Newly arrived resident s waiting period Social Security Act, as this exemption relates to a previous version of the newly arrived resident s waiting period. Instead the current newly arrived resident s waiting period will apply and mean the person must be an Australian resident and in Australia for a period of, or periods totalling, 104 weeks. Saving Provision Item 83 is a saving provision for the amendment made to the Newly Arrived Resident s Waiting Period Act. It provides that the Newly Arrived Resident s Waiting Period Act, as in effect immediately before the commencement of this Schedule, continues to apply on and after commencement for all claims for social security payments, seniors health care cards and health care cards that were made before that commencement. This means if a person makes a claim for a social security payment, seniors health care card or health care card before the commencement of this Schedule, section 3 of the Newly Arrived Resident s Waiting Period Act continues to apply and they can obtain the benefit of that section. Part 2 Farm household support amendments Amendments to the Farm Household Support Act Item 84 inserts the definitions of eligible family member, former refugee and refugee in subsection 5(1) of the Farm Household Support Act. These terms are referred to in new paragraphs 42(2)(i) and (j). Item 85 repeals paragraphs 42(a), (b), (d), (e), (f) and (g). This removes various savings provisions that provide for a person not to be subject to the newly arrived resident s waiting period at subsection 42(1). This change ensures that the current newly arrived resident s waiting period of being an Australian resident in Australia for a period of, or periods totalling, 104 weeks applies to those who have yet to make a claim for farm household allowance. Item 86 inserts new paragraphs 42(2)(i), (j) and (k). These paragraphs reflect the transfer of the remaining relevant exemptions from the newly arrived resident s waiting period in section 3 of the Newly Arrived Resident s Waiting Period Act. New paragraph 42(2)(i) provides that the newly arrived resident s waiting period at subsection 42(1) does not apply to a person if they are a refugee or former refugee at the time the person makes a claim for farm household allowance. New paragraph 42(2)(j) provides that the newly arrived resident s waiting period does not apply to a person who is a eligible family member of another person at the time the other person became or refugee and is also either, an eligible family member of that other person at the time they make a claim for farm 117

118 Budget Savings (Omnibus) Bill 2016 household allowance or if that other person has died, the person was an eligible family member of that other person immediately before that other person died. Finally, new paragraph 42(2)(k) provides that the newly arrived resident s waiting period does not apply to a person who is an Australian citizen at the time the person makes a claim for farm household allowance. Item 87 and 88 omit the word (1) at current subsection 43(1) and the words (subject to subsection (2)) at paragraph 43(1)(b). These are consequential amendments based on the repeal of current subsection 43(2) in item 89 below. Item 89 repeals subsection 43(2). This removes a previous more beneficial version of the newly arrived resident s waiting period and ensures that the current waiting period of being an Australian resident and in Australia for a period of, or periods totalling, 104 weeks applies to all new claims of farm household allowance. Item 90 is the application provision for the amendments made to the Farm Household Support Act. This provides that the amendments apply in relation to all claims for farm household assistance made on or after the commencement of this Schedule. This means that current sections 42 and 43 apply to all claims made for farm household allowance before commencement of this Schedule. STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Newly arrived resident s waiting period This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act Overview This Schedule will align the newly arrived residents waiting period that is applied to working-age social security payments (e.g. Newstart Allowance, Youth Allowance), concession cards and farm household allowance by removing the exemption provided to family members of Australian citizens or permanent resident visa holders. 118

119 Newly arrived resident s waiting period This measure ensures all newly arrived migrants will be required to serve the same 104-week newly arrived residents waiting period. Human rights implications This Schedule has considered the human rights implications particularly with reference to the right to social security contained within Article 9 of the International Covenant on Economic, Social and Cultural Rights (ICESCR). It is concluded that the Schedule does not place limitations on human rights. This measure aligns the 104-week newly arrived resident s waiting period for income support payments for all migrants (except for permanent humanitarian entrants) by removing an exemption which allows some people to qualify for income support payments earlier than others. Permanent Humanitarian entrants will continue to be exempt from all social security payment waiting periods. Right to Social Security: The measure engages the right to social security contained in Article 9 of the ICESCR. The right to social security requires that a system be established under domestic law, and that public authorities must take responsibility for the effective administration of the system. The social security scheme must provide a minimum essential level of benefits to all individuals and families that will enable them to cover essential living costs. Access to Special Benefit will still be available for a newly arrived resident in financial hardship who has suffered a substantial change in their circumstances, beyond their control, after arrival. There remains no waiting period for family assistance payments for families with children, such as Family Tax Benefit. Conclusion These amendments are compatible with human rights. To the extent that they may limit a person s access to social security, the limitation is reasonable and proportionate. 119

120

121 Chapter 11 Student start-up scholarships Outline of chapter Schedule 11 to the Bill repeals the student start-up scholarship payment, from 1 July 2017, or the first 1 January or 1 July after Royal Assent after this date. The earliest this Schedule can commence is 1 July Background On 1 January 2016, Schedule 11 to the Labor Budget Savings (Measures No. 2) Act 2015 (Budget Savings Measures No. 2 Act) amended the Social Security Act and Student Assistance Act to provide for the student start-up loan and ABSTUDY student start-up loan. These loans are income contingent and repayable under similar arrangements to the Higher Education Loan Programme. The qualification provisions for the student start-up loan and ABSTUDY student start-up loan are similar to the qualification provisions for the student start-up scholarship currently contained in Division 1 of Part 2.11B of the Social Security Act. The Budget Savings Measures No. 2 Act also amended the qualification provisions for the student start-up scholarship payment. As a result of those amendments, a person is qualified for a student start-up scholarship payment only if: the person received a student start-up scholarship payment, ABSTUDY student start-up scholarship payment or Commonwealth Education Costs Scholarship before 1 January 2016; and the person has been receiving youth allowance on the basis of undertaking full-time study, austudy payment or payments under the ABSTUDY Scheme known as Living Allowance for a continuous period since receiving the scholarship. The effect of these amendments is that the student start-up scholarship payment has been closed to new applicants since 1 January 2016 and replaced by the student start-up loan. This Schedule would close the student start-up scholarship for all existing recipients of the scholarship. The student start-up scholarship was introduced in 2010 to assist students with the upfront costs of study, including text books and course 121

122 Budget Savings (Omnibus) Bill 2016 equipment. Due to the nature of the current scholarship qualification provisions, it is expected that many current recipients would no longer be eligible for the scholarship at the commencement of this Schedule as they would have completed their study and no longer be receiving student payments. It is expected that approximately 80,000 existing student startup scholarship recipients will be affected by this measure as at 1 July The number of existing recipients affected is expected to decrease significantly over a short period of time, as students complete their courses and no longer require the support of student payments. Current recipients of the student start-up scholarship payment may be qualified for a student start-up loan or ABSTUDY start-up loan after the commencement of this Schedule. The amount of the loan is the same as the amount of the scholarship and it is paid at the same time as the scholarship. The measure is intended to be implemented from 1 July Explanation of the changes Amendments to the Social Security Act Items 1 and 2 repeal the definition of scholarship-entitled person. These items are consequential to the amendments made by items 5 and 6 of this Schedule. Following those amendments, there will no longer be a reference to scholarship-entitled person. Item 3 repeals Division 1 of Part 2.11B. This Division sets out the substantive provisions for student start-up scholarship payments and contains sections 592F, 592G and 592H. Current section 592F sets out qualification for student start-up scholarship payment. Among other things, a person is qualified for a student start-up scholarship payment only if: the person received a student start-up scholarship payment, ABSTUDY student start-up scholarship payment or Commonwealth Education Costs Scholarship before 1 January 2016; and the person has been receiving youth allowance on the basis of undertaking full-time study, austudy payment or payments under the ABSTUDY Scheme known as Living Allowance for a continuous period since receiving the scholarship. The effect of these provisions in section 592F is that the student start-up scholarship payment has been closed to new applicants since 1 January This item repeals section 592F, the effect of which is that 122

123 Student start-up scholarships current recipients of the student start-up scholarship payment will no longer be entitled to the scholarship after the commencement of this Schedule. Current recipients of the student start-up scholarship payment may be qualified for a student start-up loan after the commencement of this Schedule if, among other things, the person is receiving youth allowance as a full-time student or austudy payment or ABSTUDY Living Allowance and is undertaking an approved scholarship course. Current section 592G provides for circumstances in which a person is not qualified for a student start-up scholarship payment. In broad terms, a person is not qualified for a student start-up scholarship payment if the person has qualified for the scholarship or certain other scholarships in the previous six months. That is, a person can receive only two scholarships each year. Similar rules apply to the payment of student start-up loans. This item repeals section 592G. Current section 592H provides for the amount of a student start-up scholarship payment. The amount is currently $1,025 which is the same as the amount of the student start-up loan. This amount will be indexed on 1 January This item repeals section 592H. Item 4 is a technical amendment that is consequential to the amendments made by items 5 and 6. Items 5 and 6 amend section 1061ZVBC which sets out circumstances in which a person is not qualified for a student start-up loan for a qualification period. Subparagraph 1061ZVBC(1)(a)(iii) provides that a person is not qualified for a student start-up loan for a qualification period if immediately before the person s qualification test day, the person is a scholarship-entitled person. Subsection 1061ZVBC(2) provides that a person is a scholarshipentitled person if: the person received a student start-up scholarship payment, ABSTUDY student start-up scholarship payment or Commonwealth Education Costs Scholarship before 1 January 2016; and the person has been receiving youth allowance on the basis of undertaking full-time study, austudy payment or payments under the ABSTUDY Scheme known as Living Allowance for a continuous period since receiving the scholarship. Current subparagraph 1061ZVBC(1)(a)(iii) and subsection 1061ZVBC(2) were inserted on 1 January 2016 and they ensure that a person is not qualified for a student start-up loan if the person was receiving a student 123

124 Budget Savings (Omnibus) Bill 2016 start-up scholarship payment or certain other scholarships before 1 January 2016 where the person continued to receive a particular payment since the person received the scholarship. Such a person may be qualified for a student start-up scholarship payment in accordance with current section 592F. Section 592F is repealed by item 3 of this Schedule. As a result, a person to whom current subparagraph 1061ZVBC(1)(a)(iii) and subsection 1061ZVBC(2) apply would no longer be qualified for a student start-up scholarship payment. It is therefore appropriate to repeal subparagraph 1061ZVBC(1)(a)(iii) and subsection 1061ZVBC(2) so that such a person can qualify for a student start-up loan (where all the other qualification requirements are also met). Items 7, 8 and 9 repeal provisions that provide for the indexation of the student start-up scholarship payment. These provisions can be repealed as a result of item 3 of this Schedule closing the student start-up scholarship payment. However, the student start-up scholarship payment will be indexed on 1 January 2017 before the amendments made by this Schedule commence. Items 10, 11 and 12 are consequential to the amendments to repeal the student start-up scholarship payment. These items remove references to the student start-up scholarship payment in provisions relating to debts. These provisions will now apply only to relocation scholarship payment. Amendments to the Social Security Administration Act Items 13 to 19 are consequential to the amendments to repeal the student start-up scholarship payment. These items remove references to the student start-up scholarship payment in various provisions in the Social Security (Administration) Act Amendments to the Student Assistance Act Item 20 repeals the definition of scholarship-entitled person. This item is consequential to the amendments made by items 22 and 23 of this Schedule. Following those amendments, there will no longer be a reference to scholarship-entitled person. Item 21 is a technical amendment that is consequential to the amendments made by items 22 and 23. Items 22 and 23 amend section 7D which sets out circumstances in which a person is not qualified for an ABSTUDY student start-up loan for a qualification period. The amendments made by these items mirror the 124

125 Student start-up scholarships amendments made by items 5 and 6 of this Schedule but with respect of the ABSTUDY student start-up loan. Application and savings provisions Item 24 contains a number of application and savings provisions dealing with the repeal of student start-up scholarship provisions. Notably, in spite of the repeal of the qualification provisions for that payment, those provisions continue to apply in relation to qualification prior to repeal (which may be important to clarify during reviews about qualification occurring after repeal in relation to qualification prior to repeal). There are also rules to clarify that debts can still be raised and that claim rules and payment rules for the discontinued student start-up scholarship payment remain effective in relation to payments a person was qualified for before commencement. STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Student start-up scholarships This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act Overview This Schedule amends the Social Security Act 1991, Social Security (Administration) Act 1999 and the Student Assistance Act 1973 to close the student start-up scholarship from 1 July 2017 at the earliest, for recipients of student payments (youth allowance, austudy and ABSTUDY Living Allowance) who are undertaking higher education. The student start-up scholarship was introduced in 2010 to assist student payment recipients with the upfront costs of study, such as text books and course equipment. The scholarship is currently paid twice a year to eligible recipients ($1,025 each), generally at the beginning of each semester. As of 1 January 2016, the student start-up scholarship has only been available to student payment recipients who had received a scholarship or Commonwealth Education Costs Scholarship prior to this date and had 125

126 Budget Savings (Omnibus) Bill 2016 remained continuously in receipt of a student payment since that time. The scholarship is no longer available to new student payment recipients and as such, the number of scholarship recipients has been steadily decreasing since this time. Human rights implications Right to education This Schedule engages the right to education contained in article 13 of the International Covenant on Economic, Social and Cultural Rights (ICESCR). In particular, article 13(2)(b) states that secondary education, in all its different forms, including technical and vocational secondary education, shall be made generally available and accessible to all by every appropriate means and, in particular, by the progressive introduction of free education. This Schedule does not limit the right to education. While the student start-up scholarship will no longer be available to student payment recipients undertaking higher education from 1 July 2017 at the earliest, people who would otherwise be entitled to the scholarship will be eligible for the student start-up loan. The voluntary student start-up loan was introduced on 1 January 2016 and replaced the scholarship for new student payment recipients. It is an income contingent loan, repayable under similar arrangements to the Higher Education Loan Programme (HELP). The purpose of the scholarship and the loan is identical as both payments are designed to help students with the upfront costs of text books and equipment. Under the loans, students are eligible for the same payment amount as the scholarship ($1,025 twice per calendar year, to be indexed from 1 January 2017). In this way, students will still have access to funds to assist them with the upfront costs of study. Income-contingent loans do not place an onerous burden on debtors, as repayments are proportional to a person s income, meaning that those on lower incomes do not have to repay large amounts, unlike other types of loans (such as bank loans). The fact that the loans are repayable once the person reaches a particular income threshold will not limit a person s right to education. Furthermore, students who never reach the minimum threshold, because they do not obtain the financial benefits of their studies in higher education, will not be required to repay the loan. 126

127 Student start-up scholarships Various studies have concluded that income-contingent loans are not a deterrent to study. These studies have identified no significant effects on university enrolments, including from low socio-economic students, from either the introduction of, or changes to, HELP. Additionally, this Schedule does not affect a person s eligibility for their primary student payment. Right to social security This Schedule engages the right to social security contained in article 9 of the ICESCR. The right to social security requires that a system be established under domestic law, and that public authorities must take responsibility for the effective administration of the system. The social security system must provide a minimum essential level of benefits to all individuals and families that will enable them to cover essential living costs. The United Nations Committee on Economic, Cultural and Social Rights (the Committee) has stated that a social security scheme should be sustainable and that the conditions for benefits must be reasonable, proportionate and transparent (see General Comment No.19). Article 4 of ICESCR provides that countries may limit the rights such as to social security in a way determined by law only in so far as this may be compatible with the nature of the rights contained within the ICESCR and solely for the purpose of promoting the general welfare in a democratic society. Such a limitation must be proportionate to the objective to be achieved. To the extent that there is an impact on a person s right to social security by virtue of this Schedule, the impact is limited. In practice, a person will still be entitled to the same amount of financial assistance under the loans as they would have received from a student start-up scholarship, and will only be required to repay the loans once they reach the relevant threshold level of income. This threshold is set at a level of income at which a person would no longer require financial assistance to acquire essential health care, housing, water and sanitation, foodstuffs, and education. Additionally, the Government is committed to providing continuing support to students. The relocation scholarship, for dependent students who are required to move from or to a regional area to study and some independent students, will continue to be provided as a grant each year to all eligible students. Other student payments will also remain unaffected by the closure of the student start-up scholarship. 127

128 Budget Savings (Omnibus) Bill 2016 Taking into account the continued access to assistance with the costs of study, the amendments to the student start-up scholarship are consistent with a person s rights to social security and to an adequate standard of living. Conclusion This Schedule is compatible with human rights. To the extent that it may have limited adverse impact on a person s access to education or social security, the limitation is reasonable, proportionate to the policy objective and for legitimate reasons. 128

129 Chapter 12 Interest charge Outline of chapter Schedule 12 to the Bill introduces a new interest charge scheme, to former recipients of social welfare payments who have outstanding debts and have failed to enter into, or have not complied with, an acceptable repayment arrangement. The interest charge will apply to social security, family assistance (including child care), paid parental leave and student assistance debts. The rate of the proposed interest charge (approximately nine per cent) will be based on the 90-day Bank Accepted Bill rate (approximately two per cent) plus an additional seven per cent, as is already applied by the Australian Taxation Office under the Taxation Administration Act. Background The A New Tax System (Family Assistance) (Administration) Act 1999 (Family Assistance Administration Act), Paid Parental Leave Act 2010 and Social Security Act 1991 each currently provides for an interest charge scheme in relation to debts that arise under those Acts. A person may be liable to pay interest on a debt at the penalty interest rate if the person does not either pay the debt in full within a certain period specified in notices, or enter into a repayment arrangement. The current interest charge scheme in the Family Assistance Administration Act does not apply to a person who is receiving instalments of family tax benefit. Similarly, the interest charge scheme in the Social Security Act does not apply to a person who is receiving a social security payment, a pension or allowance under the Veterans Entitlements Act 1986, or compensation under the Military Rehabilitation and Compensation Act 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 129

130 Budget Savings (Omnibus) Bill 2016 administrative costs outweighed recovery of debts. The interest charge scheme has not been applied since This Schedule inserts a new, consistently applied, interest charge scheme for debts that arise under the Family Assistance Administration Act, Paid Parental Leave Act, Social Security Act and Student Assistance Act. An interest charge will be applied to a debt if, by the 28 th day after receiving a relevant notice, the debt has not been paid in full or the person has not entered into a repayment arrangement. There will be exemptions for debtors who are currently in receipt of relevant payments, including, among other payments, social security payments and payments of family tax benefit by instalment. The key purpose of the interest charge is to incentivise responsible self-management of debts and encourage debtors to repay their debts in a timely manner, where they have the financial capacity to do so. The rate of the proposed interest charge (approximately nine per cent) will be based on the 90-day Bank Accepted Bill rate (approximately two per cent) plus an additional seven per cent, as is already applied by the Australian Taxation Office under the Taxation Administration Act. The measure is intended to be implemented from 1 January Explanation of the changes Part 1 Amendments Amendments to the Family Assistance Administration Act Item 1 inserts a new paragraph 77(1)(ea). Subsection 77(1) currently provides that, if a debt by a person to the Commonwealth has not been wholly paid, the Secretary must give the person a notice specifying certain matters. New paragraph 77(1)(ea) provides that the notice must specify the effect of sections 78 and 78A. New sections 78 and 78A are inserted by this Schedule and they provide for an interest charge on a debt if: the person who owes the debt does not have a repayment arrangement in effect; or the person fails to comply with a repayment arrangement; or a repayment arrangement is terminated. 130

131 Interest charge Item 2 repeals subsections 77(3) and (4) and substitutes a new subsection 77(3). Current subsection 77(3) provides that the Secretary may give a person a further notice specifying certain matters if, following a notice given under subsection 77(1), the debt has not been wholly paid and: the person has failed to enter into an arrangement to pay the debt; or the person has entered into an arrangement but has failed to make a payment in accordance with the arrangement. The matters that the Secretary must specify in a further notice include the effect of the current interest charge provisions and how the interest is to be calculated. Current subsection 77(4) provides that an initial notice given under subsection 77(1) is taken to be a further notice given under subsection 77(3) if it specifies the effect of the current interest charge provisions and how the interest is to be calculated. Repealing subsection 77(3) means that a person who owes a debt to the Commonwealth may be liable to pay an interest charge in respect of a debt if, before the end of 28 days after a notice is given, the person has not paid the debt in full and has not entered into a repayment arrangement to pay the debt. That is, a further notice does not need to be given before the person becomes liable to pay the interest charge. The notification of the effect of the interest charge provisions must be included in the first notice under the amendments made by item 1 of this Schedule, removing the need for a further notice under current subsection 77(3). New subsection 77(3) makes it clear that the Secretary may give more than one notice under subsection 77(1) in relation to a person and a debt of the person. Item 3 repeals sections 78 to 79A and substitutes new provisions. Current sections 78 to 79A set out provisions in respect of interest charges. These sections are substituted to provide for a new interest charge scheme. Section 78 Interest charge no repayment arrangement in effect The purpose of new section 78 is to set out when an interest charge is payable by people who do not have a repayment arrangement in effect. New subsection 78(1) provides that, if a person has been given a notice under subsection 77(1) and has an unpaid amount on a relevant debt and, 131

132 Budget Savings (Omnibus) Bill 2016 by the end of the due day, has not entered into an arrangement for the repayment of the debt (under section 91), then the person is liable to pay, by way of penalty, an interest charge on the debt for each day in a period. New subsection 78(2) provides that the period for which the interest charge will be applied to the debt starts at the beginning of the day after the due day for the debt. It further provides that the period will end on the earlier of either the last day on which the unpaid amount (and any interest charge on the unpaid amount) remains unpaid, or the day before the first day on which the person makes a payment under an arrangement for repayment of the debt. Subsection 78(2) is intended to ensure that a person will be able to end the application of the interest charge by entering into, and making a payment under, an arrangement for repayment of the debt. This, in addition to entering into an arrangement before the due date, will mean that the person can entirely avoid the interest charge applying to their debt. New subsection 78(3) provides that the interest charge on any unpaid amount is worked out by multiplying the interest charge rate for that day by the sum of the remaining unpaid amount and the interest charge from previous days. This provision ensures that the interest is compounded on a daily basis. New section 78C prescribes the calculation of the interest charge rate for that day, and is explained below. Section 78A Interest charge failure to comply with or termination of repayment arrangement The purpose of new section 78A is to set out when an interest charge is payable by people who have failed to comply with a repayment arrangement or where a repayment arrangement has been terminated. New subsection 78A(1) provides that, if a person has entered into a repayment arrangement under section 91 in relation to a debt and the person fails to make a payment under the arrangement, then the person is liable to pay, by way of penalty, an interest charge for each day in a period. New subsection 78A(2) provides that the period for which the interest charge will be applied to the debt starts at the beginning of the day after the due day. It further provides that the period will end on the earliest of: the last day on which the outstanding amount (and any interest charge on any of the outstanding amount) remains unpaid; 132

133 Interest charge the day before the first day on which the person has paid all the payments that have so far become due and payable under the arrangement; the day before the day the arrangement is terminated. Subsection 78A(2) is intended to ensure that a person may end the application of the interest charge to their debt at the point where they catch up on any missed payments under the arrangement. To avoid doubt, while the interest charge will apply to the debt during the period, a person is only required to pay an amount equal to the missed payments (rather than an amount equal to the missed payments and the interest charge) to end the period of application of the interest charge. The interest charge will otherwise be payable as a debt due to the Commonwealth, as explained below. New subsection 78A(3) prescribes the calculation of an interest charge for a day. The interest charge is calculated in the same way as in new subsection 78(3), which is explained above. Repayment arrangement is terminated New subsection 78A(4) provides that, if the person has entered into a repayment arrangement under section 91 in relation to a debt, and the arrangement is terminated, then the outstanding debt, and any interest charge on the outstanding debt, is due and payable on the 14 th day after the termination. If, at the end of the 14 th day, any amount remains unpaid, the person is liable to pay, by way of penalty, an interest charge for each day in a period. New subsection 78A(5) provides that the period for which the interest charge will be applied to the debt starts at the beginning of the day after the 14 th day. It further provides that the period will end on the earlier of the last day on which the outstanding amount (and any interest charge on the outstanding amount) remains unpaid or the day before the first day after the 14 th day on which the person makes a payment under another arrangement for the repayment of the debt. Subsection 78A(5) is intended to ensure that a person may end the application of the interest charge at the point where they enter into another arrangement for repayment of the debt. New subsection 78A(6) prescribes the calculation of an interest charge for a day. The interest charge is calculated in the same way as in new subsection 78(3), which is explained above. 133

134 Budget Savings (Omnibus) Bill 2016 Section 78B Other rules for interest charge New subsection 78B(1) provides that the interest charge under new section 78 or 78A for a day is due and payable to the Commonwealth at the end of that day. New subsection 78B(2) provides that an interest charge under new section 78 or 78A for a day is a debt due to the Commonwealth by the person. New subsection 78B(3) clarifies that new subsection 77(1) does not apply to a debt which is also an interest charge (as provided for under new sections 78 and 78A). This means that a notice in respect of the interest charge debt is not required to be issued under new subsection 77(1). This avoids a situation where an interest charge is subject to further interest charges. Section 78C What is the interest charge rate? New section 78C provides for the calculation of the interest charge rate. New subsections 78C(1) and 78C(2) provide that the rate is based upon the 90-day Bank Accepted Bill rate, plus an additional seven per cent, as is currently applied by the Australian Taxation Office for tax debts under the Taxation Administration Act. This is an appropriate method for calculating the rate of the interest charge to apply to family assistance debts because the rate is high enough to encourage repayment without being punitive, it provides a return to the Commonwealth (commensurate with the time value of the monies overpaid), and it will help align tax and income support debt recovery policy. New subsection 78C(2) specifies what the base interest rate is, with reference to the monthly average yield of 90-day Bank Accepted Bills. The rate is currently published by the Reserve Bank of Australia in the Interest Rates and Yields Money Market - Monthly table on the Bank s website. This subsection also provides a table identifying the appropriate monthly average to be used for each quarter. Where the Reserve Bank of Australia has not published the specified rate by the start of a quarter, new subsection 78C(3) substitutes the last published monthly average. New subsection 78C(4) provides for the rounding of the base interest rate to the second decimal place. This new interest charge rate replaces the interest charge rate that currently applies under section 79. The current interest charge rate is three per cent per year, as specified in the Minister s Social Security (Penalty 134

135 Interest charge Interest) Determination 2001 as at 31 July A rate of three per cent per year has been determined in the A New Tax System (Family Assistance) (Administration) (Penalty Interest) Determination 2001 (FA Penalty Interest Determination). The initial rate of 20 per cent was 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 Section 78D Exemption from interest charge general New section 78D provides for general exemptions from an interest charge. A person is not liable to pay an interest charge under new section 78 or 78A if, on the day before the person would otherwise have been liable to pay that charge, the person is receiving: instalments of family tax benefit; or a social security payment; or a payment of pension or allowance under the Veterans Entitlements Act; or instalments under the ABSTUDY scheme that include an amount identified as living allowance; or instalments under the Assistance for Isolated Children Scheme. These exemptions mean that a person who is already subject to deductions from their payments in order to pay off their debts is not liable to pay an interest charge, and only people who have the financial capacity to pay an interest charge will be liable to pay that charge. A person who is receiving any one of a number of government payments who is paying off their debt through deductions, and who may have less financial capacity to pay the interest charge, will be exempt from that interest charge. A person who is receiving child care assistance and/or payments under the Paid Parental Leave Act (and no other payment listed above) or a person who is receiving a payment of compensation under the Military Rehabilitation and Compensation Act 2004, and who has the financial capacity to repay their debts, will not be exempt under this provision as they are not subject to deductions from these payments to pay back existing debts. 135

136 Budget Savings (Omnibus) Bill 2016 A person will also not be liable to pay an interest charge if the circumstances determined by the Minister in a legislative instrument apply in relation to the person. Providing for exemptions in circumstances determined by the Minister in a legislative instrument will provide the Minister with the flexibility to consider other circumstances which may be identified in the future where it would be appropriate for a person to have an exemption from the interest charge. Using an instrument will enable this to occur in a timely manner without having to amend the primary legislation. This power can only be used beneficially and any instrument made by the Minister would be subject to Parliamentary scrutiny and disallowance. As an example, the Minister may determine in a legislative instrument, that a person is not liable to pay the interest charge where the person is on a social security payment nil rate period or entitled to be paid family tax benefit by instalment but where the rate of family tax benefit is nil. The exemption from the interest charge in new paragraphs 78D(1)(a) and 78D(1)(b) may not apply to such a person, even when considered a current recipient, because the person is not in fact receiving a benefit amount. Section 78E Exemption from interest charge Secretary s determination New section 78E provides for when a person has an exemption from the interest charge on the basis of a determination made by the Secretary. New section 78E is in similar terms to current section 78A, which applies to the current interest charge scheme. New subsection 78E(1) provides for the Secretary to determine that interest charge is not payable, in respect of a particular period, by a person on the outstanding amount of a debt. Providing the Secretary with the discretion to determine that an interest charge is not payable will ensure there is capacity to exempt a particular person from the charge where exceptional circumstances apply to the person. Such exceptional circumstances may not have been foreseen before any legislative instrument is made for the purposes of new section 78D, as described above. 136

137 Interest charge New subsection 78E(2) provides guidance on when the Secretary may make a determination under new section 78E. The Secretary may make such a determination in circumstances that include, but are not limited to, the Secretary being satisfied that the person had a reasonable excuse for: failing to enter into a repayment arrangement under section 91 to pay the outstanding debt; or having entered into such an arrangement, failing to make a payment in accordance with the arrangement. New subsection 78E(3) clarifies that a determination made by the Secretary may relate to a period before, or to a period that includes a period before, the making of the determination. New subsection 78E(4) provides that a determination may be expressed to be subject to the person complying with one or more specified conditions. If the determination is expressed in this way and the person contravenes a condition or conditions without reasonable excuse, then new subsection 78E(6) provides that the determination ceases to have effect from the day on which the contravention occurs. As such, the person may be liable to pay an interest charge from that day. New subsection 78E(5) provides that the Secretary must give the person written notice of the determination if the determination to exempt them from the application of an interest charge is expressed to be subject to the person complying with one or more specified conditions. New section 78E is a beneficial provision. As such, there is no statutory requirement to provide a person with written notice of a determination that is not subject to such conditions. A determination will be made under new section 78E only after the Department of Human Services has had discussions with the person about the person s debt, including giving advice that an interest charge will not be payable on the person s debt. New subsection 78E(7) provides that the Secretary may cancel or vary the determination by written notice given to the person. Providing the Secretary with the flexibility to cancel a determination will ensure there is the capacity to end a person s exemption to the interest charge where their circumstances no longer warrant the exemption being applied. Section 78F Guidelines on interest charge provisions New section 78F provides that the Minister may determine guidelines in a legislative instrument relating to the operation of the provisions dealing with the interest charge. 137

138 Budget Savings (Omnibus) Bill 2016 Current section 79A requires the Secretary to determine guidelines, by legislative instrument, for the operation of the current provisions dealing with penalty interest. The FA Penalty Interest Determination has been made for the purposes of current section 79A. As explained above in relation to new section 78C, one of the matters determined in the FA Penalty Interest Determination is the penalty interest rate. Given that new section 78C outlines what the interest rate is under the new scheme (90-day Bank Accepted Bill rate plus seven per cent) and there is no capacity for the Minister to change it by legislative instrument, guidelines to be determined by a legislative instrument may not be needed. Therefore new section 78F provides the Minister with the discretion to determine guidelines but does not require the Minister to determine guidelines. The operation of the penalty interest charge scheme will be monitored and consideration will be given to whether guidelines are necessary. The Minister may choose to determine guidelines on, for example, the circumstances in which the Secretary may make a determination under new section 78E that a person is not liable to pay an interest charge. Item 4 amends the definition of debt in paragraph 82(3)(a) to include the interest charge. Section 82 provides for methods of recovery in relation to a debt, and this amendment will ensure that those methods of recovery are available to debts that are interest charges. Item 5 is to clarify that, if a person has entered into an arrangement for the payment of a debt, it is a statutory requirement for the person to make a payment under the arrangement before the end of the day that the arrangement requires such a payment. Amendments to the Paid Parental Leave Act Items 6, 8 and 9 repeal definitions in section 6, which are no longer necessary following the amendments made by this Schedule. Item 7 inserts a definition of interest charge rate into section 6, referring to the interest charge rate as set out in new section 177, which is inserted by this Schedule. Item 10 amends section 164, which provides a guide to Part 4-3 (Debt Recovery). The amendment removes the reference to an administrative charge of $50 being payable if interest is charged, because the new interest charge scheme inserted by this Schedule will not have an administrative charge. 138

139 Interest charge Item 11 amends a note after section 165 to refer to the correct provision that deals with interest. Following the amendments made by this Schedule, interest will be dealt with in new section 176, not section 177. Items 12 to 16 and item 18 remove references to an initial debt notice and a further debt notice in section 173. These amendments are consequential to the amendments made by this Schedule to create a new interest charge scheme, which, among other things, have the effect that there will no longer be a requirement for the Secretary to give a further notice in relation to a debt before an interest charge applies, because the first debt notice will specify the effect of the interest charge provisions, as discussed below. Item 17 inserts a new paragraph 173(1)(fa). Subsection 173(1) currently provides that, if a debt by a person to the Commonwealth has not been wholly paid, the Secretary must give the person a notice specifying certain matters. New paragraph 173(1)(fa) provides that the notice must specify the effect of sections 174 and 175. New sections 174 and 175, as amended by this Schedule, provide for an interest charge on a debt if: the person who owes the debt does not have a repayment arrangement in effect; or the person fails to comply with a repayment arrangement; or a repayment arrangement is terminated. Item 19 repeals subsection 173(3) and substitutes a new subsection. Current subsection 173(3) provides that, if a notice given under section 173 states the effect of paragraphs 174(2)(e) and (f), then the notice is taken to be a further debt notice under section 174. Currently, a person is liable to pay an interest charge only if the person is given a further debt notice under section 174. Following the amendments made by this Schedule, a person who owes a debt to the Commonwealth may be liable to pay an interest charge in respect of a debt if, before the end of 28 days after the initial notice is given, the person has not paid the debt in full and has not entered into a repayment arrangement to pay the debt. That is, a further notice does not need to be given before the person becomes liable to pay the interest charge. A person will be notified of the effect of the interest charge provisions following the amendments made by item 17 of this Schedule, removing the need for a further notice referred to in current section 174. It 139

140 Budget Savings (Omnibus) Bill 2016 follows that subsection 173(3) does not need to refer to the circumstances in which an initial debt notice can be a further debt notice. New subsection 173(3) makes it clear that the Secretary may give more than one notice under subsection 173(1) in relation to a person and a debt of the person. Item 20 repeals sections 174 to 180 and substitutes new sections. The new provisions introduce a new interest charge scheme and they mirror, with modifications to make the scheme relevant to the Paid Parental Leave Act, the operation of the interest charge scheme inserted into the Family Assistance Administration Act by item 3 of this Schedule and described above. Items 21, 23 and 24 amend notes in section 181, subsection 191(1) and subsection 194(1). The notes provide that debts recoverable by the Commonwealth under the Paid Parental Leave Act are provided for by particular provisions, including provisions dealing with interest charges. The notes are amended to refer to the new interest charge provisions, as inserted by this Schedule. Item 22 is to clarify that, if a person has entered into an arrangement for the payment of a debt, it is a statutory requirement for the person to make a payment under an arrangement before the end of the day that the arrangement requires such a payment. Amendments to the Social Security Act Item 25 amends item 16 of the table in subsection 1222(2). This table provides for the methods of recovery of debts. Current table item 16 provides for the methods of recovery for an interest charge, and this amendment refers to the new provision (section 1229C) under which the interest charge is calculated. Item 26 repeals item 17 of the table in subsection 1222(2). Table item 17 refers to the methods of recovery for an administrative charge that applies when a person first becomes liable to pay an interest charge. Following the amendments made by this Schedule, a person will not be liable to pay an administrative charge when the person becomes liable to pay the interest charge. Items 27 to 30 repeal a number of notes, which are no longer necessary as a result of the new interest charge scheme as inserted by this Schedule. Item 31 inserts new subsection 1228B(2A) to clarify that a 10 per cent penalty added to a debt for the understatement of income is part of the debt. For the purposes of imposing an interest charge, this will mean that a 140

141 Interest charge reference to debt will include the amount of the payment that a person has obtained to which they were not entitled, as well as any 10 per cent penalty added to the debt under section 1228B. Item 32 amends subsection 1228B(5) so that an additional 10 per cent penalty imposed for the understatement of income does not apply to a debt due to the Commonwealth under new section 1229C (as inserted by item 35 of this Schedule). The purpose of this amendment is to clarify that an additional 10 per cent penalty cannot apply to an interest charge under new section 1229C. This is because section 1228B only imposes an additional 10 per cent penalty where a person has refused or failed to provide information in relation to the person s income or has knowingly or recklessly provided false or misleading information in relation to the person s income. The interest charge debt due to the Commonwealth under new section 1229C is not dependent on an individual providing information on their income, so an additional 10 per cent penalty cannot apply to an interest charge debt under new section 1229C. Item 33 inserts a new paragraph 1229(1)(ea). Subsection 1229(1) currently provides that, if a debt by a person to the Commonwealth has not been wholly paid, the Secretary must give the person a notice specifying certain matters. New paragraph 1229(1)(ea) provides that the notice must specify the effect of new sections 1229A and 1229B. New sections 1229A and 1229B are inserted by this Schedule, and they provide for an interest charge on a debt if: the person who owes the debt does not have a repayment arrangement in effect; or the person fails to comply with a repayment arrangement; or a repayment arrangement is terminated. Item 34 repeals subsections 1229(3) and (4) and inserts a new subsection 1229(3). Current subsection 1229(3) provides that the Secretary may give a person a further notice specifying certain matters if, following a notice given under subsection 1229(1), the debt has not been wholly paid and: the person has failed to enter into an arrangement to pay the debt; or 141

142 Budget Savings (Omnibus) Bill 2016 the person has entered into an arrangement but has failed to make a payment in accordance with the arrangement. The matters the Secretary must specify in a further notice include the effect of the current interest charge provisions and how the interest is to be calculated. Current subsection 1229(4) provides that an initial notice given under subsection 1229(1) is taken to be a further notice given under subsection 1229(3) if it specifies the effect of the current interest charge provisions and how the interest is to be calculated. Repealing subsection 1229(3) means that a person who owes a debt to the Commonwealth may be liable to pay an interest charge if, before the end of 28 days after the initial notice is given, the person has not paid the debt in full and has not entered into a repayment arrangement to pay the debt. That is, a further notice does not need to be given before the person becomes liable to pay the interest charge. A person will be notified of the effect of the interest charge provisions following the amendments made by item 33 of this Schedule, removing the need for a further notice under current subsection 1229(3). New subsection 1229(3) makes it clear that the Secretary may give more than one notice under subsection 1229(1) in relation to a person and a debt of the person. Item 35 repeals sections 1229A to 1229C and substitutes new sections. The new provisions introduce a new interest charge scheme and they mirror, with modifications to make the scheme relevant to the Social Security Act, the operation of the interest charge scheme inserted into the Family Assistance Administration Act by item 3 of this Schedule and described above. Items 36 and 37 repeal notes, which are no longer necessary as a result of the new interest charge scheme inserted by this Schedule. Item 38 is to clarify that, if a person has entered into an arrangement for the payment of a debt, it is a statutory requirement for the person to make a payment under an arrangement before the end of the day that the arrangement requires such a payment. Amendments to the Student Assistance Act Item 39 repeals the definition of late payment charge in subsection 3(1). The amendments made by item 43 mean that this term will no longer be used in the Student Assistance Act. Item 40 is consequential to the amendments made by item

143 Interest charge Item 41 amends paragraph (c) of the definition of debt in section 38 to ensure that an interest charge, imposed under new section 41B (inserted by this Schedule), is an amount payable to the Commonwealth and is therefore a debt. Item 42 inserts a new definition of relevant debt into section 38. Section 38 provides definitions for the purposes of Part 6 of the Student Assistance Act Part 6 provides for overpayments arising under the Student Assistance Act and certain administrative schemes. The new definition of relevant debt is relevant to the new interest charge scheme inserted by item 43 of this Schedule. A person may be liable to pay an interest charge in relation to relevant debts. A relevant debt means: an amount paid under the ABSTUDY Scheme (also known as the Aboriginal Study Assistance Scheme) that should not have been paid; or an amount paid under the Assistance for Isolated Children Scheme that should not have been paid; or an ABSTUDY student start-up loan overpayment. Item 43 repeals sections 39A, 40 and 41 and substitutes new sections to introduce an interest charge scheme. The Student Assistance Act does not currently have an interest charge scheme that is analogous to the schemes currently in effect in the Family Assistance Administration Act, Paid Parental Leave Act and Social Security Act. Rather, current section 39A provides that the Secretary may allow a person to pay an amount of debt by one or more instalments. Current section 40 applies if a person has been paid an amount that is a special assistance scheme overpayment or a student assistance overpayment. If this amount is due to the Commonwealth, the Secretary may give the person a notice specifying that, among other things, if the amount is still due to the Commonwealth at the end of three months after the notice is given, the person is liable to pay interest at the rate ascertained by the regulations. The Student Assistance Regulations 2003 do not currently ascertain an interest rate. Current section 41 allows the Secretary to determine that interest that is otherwise payable under section 40 is not payable. The current provisions are replaced with new provisions to introduce an interest charge scheme. The new provisions mirror, with modifications to make the scheme relevant to the Student Assistance Act, the operation of the interest charge scheme inserted into the Family Assistance Administration Act by item 3 of this Schedule and described above. 143

144 Budget Savings (Omnibus) Bill 2016 Item 44 amends paragraph 51(1)(b) to ensure that a certificate by the Secretary (stating that, on a specified day, a notice, to a specified effect, in respect of a relevant debt, was given to a specified person by the Secretary) is clear evidence of the matters stated in the certificate. Amendments to the Veterans Entitlements Act Item 45 repeals section 205AAE and substitutes a new section. Section 205AAE currently provides the penalty interest rate for the purposes of the debt recovery provisions contained in the Veterans Entitlements Act. The rate applicable is that which applies under section 1229B of the Social Security Act. Section 1229B provides that the rate is either the maximum rate of 20 per cent or the lower rate in force from time to time as determined by a legislative instrument under that section. The Social Security (Penalty Interest) Determination 2001 that was made under section 1229B provides that the penalty interest rate is three per cent per year. The amendments made by item 35 of this Schedule mean that new section 1229B of the Social Security Act will no longer contain the penalty interest rate for the purposes of the interest charge scheme. Rather, the interest rate will be contained in new section 1229D of the Social Security Act. The new penalty interest rate in section 1229D will be based on the 90-day Bank Accepted Bill rate plus an additional seven per cent. The new interest charge scheme inserted into the Social Security Act by this Schedule is not intended to apply to the Veterans Entitlements Act. As such, section 205AAE of the Veterans Entitlements Act is amended so that the current penalty interest rate of three per cent per year for the purposes of the debt recovery provisions in that Act will be retained. New section 205AAE states that the interest rate is three per cent per year or the rate that the Minister may, by legislative instrument, determine as the penalty interest rate. As penalty interest is infrequently applied under the debt recovery provisions of the Veterans Entitlements Act, a maximum rate of penalty interest that may be determined in a legislative instrument has not been specified. Part 2 Application, saving and transitional provisions Item 46 provides application and transitional provisions for the amendments to the Family Assistance Administration Act. 144

145 Interest charge Subitem 46(1) provides that paragraph 78(1)(a) of the Family Assistance Administration Act, as amended by this Schedule, applies in relation to a notice given on or after the commencement of item 46, whether the debt arose before, on or after that commencement. This means that the new interest charge scheme can apply to debts that arose before the commencement of the scheme, provided that a relevant notice is given on or after commencement. Subitem 46(2) provides that, if, before the commencement of item 46, the Secretary gave a person a notice under subsection 77(1) of the Family Assistance Administration Act, the Secretary must give the person another notice under section 77(1) of that Act, as amended by this Schedule. This means that the person will be informed in the new notice of the effect of the application of the interest charge. Subitem 46(3) provides that paragraph 78A(1)(b) of the Family Assistance Administration Act, as amended by this Schedule, applies only in relation to a failure that occurs on or after the commencement of item 46, regardless of whether the arrangement was entered into before, on or after that commencement. This means that a person is not liable to pay an interest charge under section 78A if a failure to make a payment under a repayment arrangement occurs before the commencement of item 46. It also means that an arrangement that was entered into prior to the commencement of this Schedule will continue in effect after commencement. Subitem 46(4) provides that paragraph 78A(4)(b) of the Family Assistance Administration Act, as amended by this Schedule, applies only to a termination that occurs on or after the commencement of item 46, regardless of whether the arrangement was entered into before, on or after that commencement. This means that a person is not liable to pay an interest charge under section 78A if a repayment arrangement is terminated before the commencement of item 46. It also means that an arrangement that was entered into prior to the commencement of this Schedule will continue in effect after commencement. Subitem 46(5) clarifies that new subsection 91(1B) of the Family Assistance Administration Act (about making a payment before the end of a particular day under a repayment arrangement) applies in relation to existing arrangements, as at the commencement date. Items 47 and 48 provide application and transitional provisions for the amendments to the Paid Parental Leave Act and the amendments to the Social Security Act. These provisions mirror the application and transitional provisions for the amendments to the Family Assistance Administration Act in item 46, described above. 145

146 Budget Savings (Omnibus) Bill 2016 Item 49 provides the application, saving and transitional provisions for the amendments to the Student Assistance Act. Subitem 49(1) provides that the new interest charge scheme in sections 40 to 41G of the Student Assistance Act apply to a relevant debt that arises on or after the commencement of item 49, and to debts that arose before the commencement of that item, to the extent that the debt is outstanding immediately before that commencement. Subitem 49(2) makes it clear that the repeal of section 39A of the Student Assistance Act by this Schedule does not affect the validity of the decisions made under that section before the commencement of item 49. Subitem 49(3) makes it clear that the new interest charge scheme inserted into the Student Assistance Act by this Schedule can apply to a person and a debt even if a decision was made by the Secretary before the commencement of item 49 to allow a person to pay an amount of debt by one or more instalments. STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Interest charge This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act Overview The Schedule amends the penalty interest provisions in the Social Security Act 1991, A New Tax System (Family Assistance) (Administration) Act 1999 and Paid Parental Leave Act 2010 and inserts new penalty interest provisions in the Student Assistance Act The new annual interest charge scheme is proposed to apply from 1 January 2017 to former recipients of social welfare payments who have outstanding debts and have failed to enter into, or have not complied with, an acceptable repayment arrangement. The interest charge will apply to social security, family assistance (including child care), paid parental leave and student assistance debts. 146

147 Interest charge The rate of the proposed interest charge (approximately nine per cent) will be based on the 90-day Bank Accepted Bill rate (approximately two per cent) plus an additional seven per cent, as is already applied by the Australian Taxation Office (ATO) under the Taxation Administration Act This is considered an appropriate method for calculating the rate of the interest charge to apply to social welfare debt because the rate is high enough to encourage repayment without being punitive, and it provides a return to the Commonwealth, commensurate with the time value of the monies overpaid. The purpose of the interest charge is to incentivise responsible self-management of debts and encourage debtors to repay their debts in a timely manner, where they have the financial capacity to do so. It is important to note that a debt only arises where a person receives a payment to which they were not entitled. In most circumstances, current recipients of social welfare payments with outstanding debts have their payments reduced until their debts are repaid. By comparison, former recipients who are no longer dependent on the social security system, have no incentive to repay their debts and may actively avoid repayment. Debtors who are no longer eligible to receive financial support through social welfare payments are more likely to have the financial capacity to make repayments than those in receipt of social welfare payments. To ensure all debtors are treated consistently and fairly, the interest charge will also apply to those in receipt of only child care assistance and/or payments under the Paid Parental Leave Act 2010 (and no other social welfare payment) with outstanding debts. These debtors are not subject to deductions from their payment, and should be required to enter into an acceptable repayment arrangement to repay the debt as with other debtors. The interest charge can only be applied to the debt where the person has not entered into a repayment arrangement, has failed to comply with a repayment arrangement, or where a repayment arrangement has been terminated (without entering into an alternative repayment arrangement with the Department of Human Services (DHS)). The debtor will be issued a notice in respect of a debt, which will outline the reason why the debt was incurred, the outstanding amount of the debt, and the effect of the interest charge applying if they do not enter into an acceptable payment arrangement within 28 days. In the event that a repayment arrangement is terminated, the debtor will be provided with sufficient time (14 days) to pay the debt in full or enter into a new repayment arrangement and avoid the application of the interest charge. 147

148 Budget Savings (Omnibus) Bill 2016 In cases of severe financial hardship, a debtor can apply to DHS for a review of their capacity to pay and the debt may be waived or temporarily written off until the debtor s financial circumstances improve. No interest charge would be applied for that period of time. A reduced rate of recovery may also be applied under the repayment arrangement. Human rights implications This Schedule engages the following human rights: Rights of parents and children This Schedule engages the right of parents and children contained in article 3 of the Convention of the Rights of the Child (CRC) and article 24(1) of the International Covenant on Civil and Political Rights (ICCPR). Under the CRC, countries are required to apply the principle of best interests of the child. The principle applies to all actions concerning children and requires active measures to protect their rights and promote their survival, growth, and wellbeing, as well as measures to support and assist parents and others who have day-to-day responsibility for ensuring recognition of children's rights. Countries are also required under the CRC to ensure recognition of the principle that both parents have common responsibilities for the upbringing and development of the child and to provide appropriate assistance to parents and legal guardians in the performance of their child-rearing responsibilities, in particular to ensure that children of working parents have the right to benefit from child-care services and facilities for which they are eligible. Countries should ensure that parents and legal guardians are aware of their rights to access information on payments and services to which they are entitled to for the benefit of children. The Schedule does not limit the rights of parents and children. The interest charge will apply to former recipients of social welfare with outstanding debts, who are unwilling to enter into acceptable repayment arrangements. To ensure all debtors are treated consistently and fairly, the interest charge will also apply to those in receipt of only child care assistance and/or payment under the Paid Parental Leave Act 2010 (and no other social welfare payment) with outstanding debts. These debtors are not subject to deductions from their payment and should be required to enter into an acceptable repayment arrangement to repay the debt as with other debtors. 148

149 Interest charge A debt only arises where a person receives a payment to which they were not entitled. Given the interest charge is intended as an incentive for debtors to repay debts in a timely fashion and is only applied where the debtor has not entered into a repayment arrangement where they have the financial capacity to do so, the interest charge will not limit the rights of parents and children. Right to maternity leave This Schedule engages the right to maternity leave contained in article 10(2) of the International Covenant on Economic, Social and Cultural Rights (ICESCR) and article 11(2)(b) of the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW). The right to maternity leave includes an entitlement for working mothers to paid leave or social security benefits during a reasonable period before and after childbirth. It also requires countries, as a measure of prevention of discrimination against women, to provide maternity leave with pay or with comparable social benefits without loss of former employment or seniority. This Schedule does not limit the right to maternity leave. The interest charge will apply to former recipients of social welfare with outstanding debts, who are unwilling to enter into acceptable repayment arrangements. To ensure all debtors are treated consistently and fairly, the interest charge will also apply to those in receipt of only child care assistance and/or payments under the Paid Parental Leave Act 2010 (and no other social welfare payment) with outstanding debts. These debtors are not subject to deductions from their payment and should be required to enter into an acceptable repayment arrangement to repay the debt as with other debtors. A debt only arises where a person receives a payment to which they were not entitled. Given the interest charge is intended as an incentive for debtors to repay debts in a timely fashion and is only applied where the debtor has not entered into a repayment arrangement where they have the financial capacity to do so, the interest charge will not limit the right to maternity leave. Rights of people with disability This Schedule engages the rights of people with disability contained in the Convention on the Rights of Persons with Disabilities. In particular, to ensure that people with disability have the same right as others to live, take part and be included in the community, article 19 states that countries must take appropriate steps to ensure that people with disability have the opportunity to choose where they live and who they 149

150 Budget Savings (Omnibus) Bill 2016 live with, have access to in-home, residential and other community support services to help them be included in the community and prevent them from being isolated, and to ensure that they have equal access to community services and facilities that are available to the public. Article 26 (1) states that parties shall take effective and appropriate measures, including through peer support, to enable persons with disabilities to attain and maintain maximum independence, full physical, mental, social and vocational ability, and full inclusion and participation in all aspects of life. This Schedule does not limit the rights of people with disability. The interest charge will apply to former recipients of social welfare with outstanding debts, who are unwilling to enter into acceptable repayment arrangements (this includes carer payments and the Disability Support Pension). A debt only arises where a person receives a payment to which they were not entitled. Given the interest charge is intended as an incentive for debtors to repay debts in a timely fashion and is only applied where the debtor has not entered into a repayment arrangement where they have the financial capacity to do so, the interest charge will not limit the rights of people with disability. Right to work and rights in work This Schedule engages the right to work and rights in work contained in articles 6(1), 7 and 8(1)(a) of the ICESCR. In particular, article 6(1) recognises the right to work, which includes the right of everyone to the opportunity to gain his living by work which he freely chooses or accepts and states that countries must have specialised services to assist and support individuals in order to enable them to identify and access available employment. This Schedule does not limit the right to work and rights in work. The interest charge will apply to former recipients of social welfare with outstanding debts, who are unwilling to enter into acceptable repayment arrangements (this includes working age payments). A debt only arises where a person receives a payment to which they were not entitled. Given the interest charge is intended as an incentive for debtors to repay debts in a timely fashion and is only applied where the debtor has not entered into a repayment arrangement where they have the financial capacity to do so, the interest charge will not limit the debtor s right to work and rights in work. 150

151 Interest charge Right to education This Schedule engages the right to education contained in Article 13 of the ICESCR. In particular, article 13(2)(b) states that secondary education, in all its different forms, including technical and vocational secondary education, shall be made generally available and accessible to all by every appropriate means and, in particular, by the progressive introduction of free education. This Schedule does not limit the right to education. The interest charge will apply to former recipients of social welfare with outstanding debts, who are unwilling to enter into acceptable repayment arrangements (this includes student payments). A debt only arises where a person receives a payment to which they were not entitled. Given the interest charge is intended as an incentive for debtors to repay debts in a timely fashion and is only applied where the debtor has not entered into a repayment arrangement where they have the financial capacity to do so, the interest charge will not limit the debtor s ability to access education. Right to social security This Schedule engages the right to social security contained in article 9 of the ICESCR. The right to social security requires that a system be established under domestic law, and that public authorities must take responsibility for the effective administration of the system. The social security scheme must provide a minimum essential level of benefits to all individuals and families that will enable them to cover essential living costs. The United Nations Committee on Economic, Cultural and Social Rights (the Committee) has stated that a social security scheme should be sustainable and that the conditions for benefits must be reasonable, proportionate and transparent (see General Comment No.19). Article 4 of ICESCR provides that countries may limit the rights such as to social security in a way determined by law only in so far as this may be compatible with the nature of the rights contained within the ICESCR and solely for the purpose of promoting the general welfare in a democratic society. Such a limitation must be proportionate to the objective to be achieved. The interest charge does not limit the right of a person to receive social security. It will apply to former recipients of social security and family assistance payments with outstanding debts, who are unwilling to enter 151

152 Budget Savings (Omnibus) Bill 2016 into an acceptable payment arrangement. A debt only arises where a person receives a payment to which they were not entitled. Former recipients who are no longer eligible to receive financial support through social welfare payments are more likely to have the financial capacity to make repayments on any outstanding debt than those in receipt of social welfare. To ensure all debtors are treated consistently and fairly, the interest charge will also apply to those in receipt of only child care assistance and/or payments under the Paid Parental Leave Act 2010 (and no other social welfare payment) with outstanding debts. These debtors are not subject to deductions from their payment and should be required to enter into an acceptable repayment arrangement to repay the debt as with other debtors. A debtor s financial capacity will be taken into account before a repayment arrangement is agreed to. Given this, the impact of the interest charge will be limited and will have a very marginal effect on the ability of a person to cover essential living costs, thereby engaging a person s right to social security. The provisions in this Schedule are therefore unlikely to limit this right, given the appropriate safeguards put in place to protect it. It is intended that the provisions in this Schedule will allow the efficient recovery of social security payments, supporting effective and efficient administration of the social security system. This measure is proportionate in achieving this policy objective as all persons can avoid the interest charge by entering into a repayment arrangement, and these rights are safeguarded by the requirements of notice and periods of time in which a person will be able to pay back the debt or enter into an arrangement. Furthermore, the Secretary will have the discretion in appropriate circumstances, for example in cases of severe financial hardship, to waive a debt including any interest charge on the debt. By allowing the efficient recovery of social security payments, this Schedule ensures the financial sustainability of the social security system. The interest charge, as it applies to persons who received payments to which they were not entitled, is a reasonable condition on the benefits of the system as it encourages former recipients to repay those amounts and ensures that the Commonwealth is able to recover the real value of these amounts. The interest charge, as a condition, is also transparent as it is provided for in legislation, will be accurately communicated through the Department of Human Services website, and can only be applied after sufficient written notice is given. 152

153 Interest charge Therefore this Schedule is compatible with the right to social security as any potential limitation on this right is proportionate to the policy objective and intended to improve the administration of social security system. Right to an adequate standard of living, including food, water and housing This Schedule engages the right to an adequate standard of living, including food, water and housing, contained in article 11 of the ICESCR. The right to an adequate standard of living, including food, water and housing provides that everyone is entitled to adequate food, clothing and housing and to the continuous improvement of living conditions. To the extent that there is an impact on a person s right to an adequate standard of living, including food, water and housing, by virtue of this Schedule, the impact is limited. It is intended that the provisions will allow the efficient recovery of social security payments, which will ultimately improve the efficacy of the social security system. This measure is proportionate in achieving this policy objective as the interest charge will only apply to former recipients who are no longer eligible to receive financial support through social security or family assistance payments and debtors can avoid the interest charge by entering into a repayment arrangement. To ensure all debtors are treated consistently and fairly, the interest charge will also apply to those in receipt of only child care assistance and/or payments under the Paid Parental Leave Act 2010 (and no other social welfare payment) with outstanding debts. These debtors are not subject to deductions from their payment and should be required to enter into an acceptable repayment arrangement to repay the debt as with other debtors. A debtor s rights are safeguarded by the requirements of notice and periods of time in which a person will be able to repay the debt or enter into an arrangement. In addition a debtor s financial capacity will be taken into account before a repayment arrangement is agreed to. The Secretary will also have the discretion to waive a debt in appropriate circumstances, including any interest charged on the debt. Furthermore, by allowing the efficient recovery of social security payments, this Schedule ensures the financial sustainability of the social security system. The interest charge, as it applies to people who receive payments to which they are not entitled, is a reasonable condition on the benefits of the system as it encourages former recipients to repay those payments and ensures that the Commonwealth is able to recover the real value of these amounts. The interest charge is also transparent as it is 153

154 Budget Savings (Omnibus) Bill 2016 provided for in legislation, will be accurately communicated through the Department s website, and can only be applied after the recipient is given sufficient written notice. Therefore, this Schedule is compatible with the right to an adequate standard of living as the potential limitations on this right are proportionate to the policy objective and are intended to improve the administration of the social security system. Right to equality and non-discrimination To avoid doubt, this Schedule does not engage the right to equality and non-discrimination contained in articles 2 and 26 of the ICCPR either on the basis of race or other status. Article 2(1) of the ICCPR obligates each State party to respect and ensure to all persons within its territory and subject to its jurisdiction the rights recognised in the Covenant without distinction of any kind, such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status 4. Article 26 not only entitles all persons to equality before the law as well as equal protection of the law, but also prohibits any discrimination under the law and guarantees to all persons equal and effective protection against discrimination on any ground such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status 5. It is important to note, however, that not all differential treatment will be considered discriminatory. The Committee on Economic, Social and Cultural Rights has provided the following commentary on when differential treatment will be considered discriminatory: Differential treatment based on prohibited grounds will be viewed as discriminatory unless the justification for differentiation is reasonable and objective. This will include an assessment as to whether the aim and effects of the measures or omissions are legitimate, compatible with the nature of the Covenant rights and solely for the purpose of promoting the general welfare in a democratic society. In `addition, there must be a clear and reasonable relationship of proportionality between the aim sought to be realised and the measures or omissions and their effects. A failure to 4 CCPR General Comment No CCPR General Comment No

155 Interest charge remove differential treatment on the basis of a lack of available resources is not an objective and reasonable justification unless every effort has been made to use all resources that are at the State party s disposition in an effort to address and eliminate the discrimination, as a matter of priority 6. Discrimination on the basis of race This Schedule will apply an interest charge to all social security debts including ABSTUDY payments, which supports Indigenous Australians. However, there is no differential treatment on the basis of race as the interest charge will apply equally to all debtors. For these reasons, this Schedule will not engage the right of equality and non-discrimination. Discrimination on the basis of other status This Schedule applies an interest charge to former recipients of social welfare payments with outstanding debts, rather than all customers with outstanding debts. This will not limit the right to equality and non-discrimination as the differential treatment is for a reasonable and objective purpose. In most circumstances, current recipients of social welfare payments with debts have their payments reduced until their debts are repaid. By comparison, former recipients who are no longer dependent on the social security system, have no incentive to repay their debts and may actively avoid repayment. Debtors who are no longer eligible to receive financial support through social welfare payments are more likely to have the financial capacity to make repayments than those in receipt of income support or family assistance. The introduction of the interest charge will ensure that people who once received social welfare payments do not receive an unfair advantage by having received what is, in effect, an interest-free loan from the Government. To ensure all debtors are treated consistently and fairly, the interest charge will also apply to those in receipt of only child care assistance and/or 6 CESCR, General Comment No

156 Budget Savings (Omnibus) Bill 2016 payments under the Paid Parental Leave Act 2010 (and no other social welfare payment) with outstanding debts. These debtors are not subject to deductions from their payment and should be required to enter into an acceptable repayment arrangement to repay the debt as with other debtors. It is therefore reasonable and objective to apply an interest charge to debts with respect to former recipients of social welfare payments to ensure that people with a debt repay the outstanding amount in a timely fashion. Recipients of these payments will be able to avoid the interest charge altogether by either repaying their debt within 28 days of being notified of the debt or by entering into an acceptable repayment arrangement. For these reasons, this Schedule does not engage the right of equality and non-discrimination. Conclusion This Schedule is compatible with human rights. To the extent that it may have limited adverse impact on a person s access to education, social security, an adequate standard of living or the right to equality and nondiscrimination, the limitation is reasonable, proportionate to the policy objective and for legitimate reasons. 156

157 Chapter 13 Debt recovery Outline of chapter Schedule 13 of the Bill introduces departure prohibition orders so that, in certain cases where a person does not have a satisfactory arrangement in place to repay their social security, family assistance, paid parental leave or student assistance debt(s), they may be prevented from leaving Australia without either having wholly paid their debt(s) or making satisfactory arrangements to pay. This system will closely mirror the existing departure prohibition order system in place under the Child Support (Registration and Collection) Act 1988 (Child Support Registration and Collection Act). Targeted debtors will largely comprise ex-recipients of social welfare payments but may also apply to other social welfare payment recipients in limited circumstances. Background This Part amends the A New Tax System (Family Assistance) (Administration) Act 1999 (Family Assistance Administration Act), Paid Parental Leave Act 2010, Social Security Act 1991 and Student Assistance Act 1973 to introduce departure prohibition orders to prevent debtors under these Acts from leaving the country. Departure prohibition orders will not be made without consideration of all the circumstances and only where the Secretary believes on reasonable grounds that it is appropriate to do so. Where a departure prohibition order is in force, the Secretary can vary or revoke the order, or can issue a departure authorisation certificate allowing the person to depart the country for a specified period of time. Departure prohibition orders were introduced into the Child Support Registration and Collection Act in Currently, there are approximately 120,000 child support customers with child support debts. However, there are only some 2,000 departure prohibition orders in place that is, departure prohibition orders apply to less than two per cent of all debtors. Departure prohibition orders are only invoked when all reasonable administrative actions have been undertaken to recover the child support debt from the paying parent. While the number of social welfare payment debtors is significantly higher than the number of child support debtors, it is anticipated that the departure prohibition orders will only be issued in the most extreme social welfare payment debt cases. 157

158 Budget Savings (Omnibus) Bill 2016 Explanation of the changes Amendments to Family Assistance Administration Act Item 1 consequentially adds a note to the definition of Australia in subsection 3(1), alerting the reader that in new Division 5 of Part 4 of the Family Assistance Administration Act (about departure prohibition orders, inserted by item 3), Australia has an extended meaning. Similar notes are inserted regarding the definition of Australia into section 6 of the Paid Parental Leave Act at item 5, Subsection 23(1) of the Social Security Act at item 10 (and item 11 renumbers the existing note to this definition note 2 ), and subsection 3(1) of the Student Assistance Act at item 14. Item 2 inserts two new definitions into subsection 3(1) of the Act departure authorisation certificate and departure prohibition order. Similar definitions are also inserted into section 6 of the Paid Parental Leave Act at item 6, subsection 23(1) of the Social Security Act at item 12, and subsection 3(1) of the Student Assistance Act at item 15. Item 2 adds new Division 5 Departure prohibition orders to Part 4 of the Act. Similarly, item 8 adds to Part 4-3 to the Paid Parental Leave Act new Division 7A - Departure prohibition orders. Item 7 amends the relevant Guide within the Paid Parental Leave Act to mention departure prohibition orders. Item 13 adds to Chapter 5 of the Social Security Act new Part 5.5 Departure prohibition orders. Item 16 adds to Part 6 of the Student Assistance Act new Division 4 Departure prohibition orders. Subdivision A Secretary may make departure prohibition orders Section 102A Secretary may make departure prohibition orders New section 102A outlines when the Secretary can make a departure prohibition order prohibiting a person from departing from Australia for a foreign country. An order may only be made, in a form approved by the Secretary, in respect of a person if the following conditions are met: the person has one or more debts to the Commonwealth under Part 4 of the Act; and there are not arrangements satisfactory to the Secretary in place for the one or more debts to be wholly paid; and 158

159 Debt recovery the Secretary believes on reasonable grounds it is desirable to make the order to ensure the person does not leave Australia for a foreign country without having wholly paid the debt(s) or there being arrangements in place satisfactory to the Secretary for the debt(s) to be wholly paid. Before making an order, the Secretary must have regard to certain matters, including: the person s capacity to pay the debt(s); whether any debt recovery action has been taken and the outcome of the recovery action; the length of time the debt(s) have remained unpaid; and any other matters the Secretary considers appropriate. The provision will apply to debts arising from time to time. These provisions are mirrored in the Paid Parental Leave Act, Social Security Act and Student Assistance Act, albeit recognising the differences in the debts covered by each Act. In particular: New section 200A of the Paid Parental Leave Act provides that a departure prohibition order can be issued where the person has one or more debts to the Commonwealth under that Act. Debts under section 168 of that Act are to be disregarded for the purposes of making departure prohibition orders. New section 1240 of the Social Security Act provides that a departure prohibition order can be issued where the person has one or more debts to the Commonwealth under the social security law. New section 43G of the Student Assistance Act states that a departure prohibition order can be made if the person has one or more debts to the Commonwealth under Part 6 of that Act. Subdivision B Departure from Australia of debtors prohibited Section 102B Departure from Australia of debtors prohibited New section 102B is a criminal offence provision stating that a person must not depart from Australia for a foreign country if: 159

160 Budget Savings (Omnibus) Bill 2016 a departure prohibition order in respect of the person is in force, and the person knows that the order is in force (or is reckless as to whether the order is in force); and the person s departure is not authorised by a departure authorisation certificate, and the person knows that the departure is not authorised by such a certificate (or is reckless as to whether the departure is authorised by such a certificate). The penalty for breaching this provision is 12 months imprisonment. This offence provision is mirrored in new section 200B of the Paid Parental Leave Act, new section 1241 of the Social Security Act and new section 43H of the Student Assistance Act. Subdivision C Other rules for departure prohibition orders Section 102C Notification requirements for departure prohibition orders New section 102C outlines the notification requirements where the Secretary makes a departure prohibition order in respect of a person. Firstly, the Secretary must notify the person in respect of whom a departure prohibition order is made that the departure prohibition order has been made, and must do so in an approved form. In light of the consequences to a person of a departure prohibition order, the Secretary must notify the person that an order has been made as soon as practicable. Secondly, the Secretary must give the Secretary of the Department administering the Migration Act 1958 ( the Migration Secretary ) a copy of the order and information likely to assist in identifying the person, as soon as practicable. However, this does not apply if the person is an Australian citizen. This provision enables the Migration Secretary to establish whether a person in respect of whom the departure prohibition order has been made is the subject of a deportation order under the Migration Act A departure prohibition order and a deportation order cannot operate concurrently as the deportation order would prevail (under new subsection 102D(2)). The Migration Secretary needs to know about a departure prohibition order to ensure that there is no confusion among enforcement officers as to which order prevails. However, as an Australian citizen cannot be deported, the Migration Secretary does not need to know if a departure prohibition order is made in respect of a citizen. The Secretary must also give a copy of the order, and information likely to assist in identifying the person, to such other persons as the Secretary 160

161 Debt recovery considers appropriate in the circumstances, as soon as practicable. A legislative instrument will specify the persons to whom the Secretary must provide a copy of the order. Orders will be provided to the Comptroller- General of Customs, the Commissioner of the Australian Federal Police and the Secretary of the Department of Foreign Affairs and Trade. This provision is mirrored in new section 200C of the Paid Parental Leave Act, new section 1242 of the Social Security Act and new section 43J of the Student Assistance Act. Section 102D Operation of departure prohibition order Under new section 102D, a departure prohibition order is in force from the time it is made until it is revoked or set aside by a court. However, as mentioned above, a departure prohibition order is not in force during any period when a deportation order in respect of the person is in force. This operation of departure prohibition orders is also reflected in new section 200D of the Paid Parental Leave Act, new section 1243 of the Social Security Act and new section 43K of the Student Assistance Act. Section 102E Revocation and variation of departure prohibition orders New section 102E addresses the situations in which a departure prohibition order can be revoked or varied. An order must be revoked if: the person no longer has any debts to the Commonwealth under Part 4 of the Act; or there are arrangements, satisfactory to the Secretary, for the debt(s) to be wholly paid; or the Secretary is satisfied that the debt(s) are completely irrecoverable. A departure prohibition order may also be revoked or varied if the Secretary considers it desirable to do so. Revocation or variation may be on application by the person or on the Secretary s own initiative. A departure prohibition order may be varied if there was an error, such as a typographical mistake, in the original departure prohibition order. 161

162 Budget Savings (Omnibus) Bill 2016 These provisions are reflected in new section 200E of the Paid Parental Leave Act, new section 1244 of the Social Security Act and new section 43L of the Student Assistance Act, noting the differences in the debts the Acts cover, detailed above. In particular: For the purposes of the Paid Parental Leave Act, debts under section 168 of that Act are to be disregarded for the purposes of revoking or varying departure prohibition orders. Section 102F Notification requirements for revocations and variations New section 102F requires the Secretary to notify the person concerned as soon as practicable if the Secretary revokes or varies the departure prohibition order (whether on application or on the Secretary s initiative). If the person has applied for a revocation or variation, the Secretary must also notify the person if the Secretary refuses to revoke or vary the order. Each person originally given a copy of the departure prohibition order (as described above) must be notified if the order is revoked or varied. This provision is mirrored in new section 200F of the Paid Parental Leave Act, new section 1245 of the Social Security Act and new section 43M of the Student Assistance Act. Subdivision D Departure authorisation certificates Departure authorisation certificates allow a person to depart Australia for a foreign country for a specified period, despite a departure prohibition order being in force. Section 102G Application for departure authorisation certificate Under new section 102G, a person in respect of whom a departure prohibition order is in force may apply in the approved form for a departure authorisation certificate authorising them to depart Australia for a foreign country. This provision is mirrored in new section 200G of the Paid Parental Leave Act, new section 1246 of the Social Security Act and new section 43N of the Student Assistance Act. Section 102H When Secretary must issue departure authorisation certificate New section 102H addresses when the Secretary must issue a departure authorisation certificate on application by a person. A certificate must be issued if the Secretary is satisfied that: 162

163 Debt recovery it is likely that the person will depart and return to Australia within an appropriate period; and revocation of the departure prohibition order is likely within an appropriate period; and security for the person s return to Australia is not necessary. If the Secretary is not satisfied of these circumstances, a departure authorisation certificate must instead be issued if: the person has given security for their return to Australia under new section 102J; or if the person is unable to give security, the Secretary is satisfied either that the certificate should be issued on humanitarian grounds, or that refusing to issue the certificate would be detrimental to Australia s interests. The circumstances in which the Secretary must issue departure authorisation certificates are reflected in new section 200H of the Paid Parental Leave Act, new section 1247 of the Social Security Act, new section 43P of the Student Assistance Act. Section 102J Security for person s return to Australia New section 102J provides that a person may give such security as the Secretary considers appropriate for their return to Australia by an agreed date specified in the departure authorisation certificate. Security can be in the form of a bond, a deposit or by other means and will be forfeited to the Commonwealth if the person does not return to Australia by the agreed date. However, the Secretary may substitute a later day for the person s return to Australia on application by the person or on the Secretary s own initiative. In the case where a person has applied for the substitution of a later day, the Secretary may refuse to substitute a later day if the person refuses to increase the value of the security appropriately, or to give such further security as the Secretary considers appropriate, or the Secretary considers it would not be appropriate to substitute the later day. The provision is mirrored in new section 200J of the Paid Parental Leave Act, new section 1248 of the Social Security Act and new section 43Q of the Student Assistance Act. Section 102K What departure authorisation certificate must authorise New section 102K provides that a departure authorisation certificate is to authorise the person to leave Australia on or before the seventh day after a 163

164 Budget Savings (Omnibus) Bill 2016 day specified in the departure authorisation certificate. That day must be after, but no more than seven days after the departure authorisation certificate is issued. This is reflected in new section 200K of the Paid Parental Leave Act, new section 1249 of the Social Security Act and new section 43R of the Student Assistance Act. Section 102L Notification requirements for departure authorisation certificates Under new Section 102L, if the Secretary issues a departure authorisation certificate, a copy of the certificate must be given, as soon as practicable to the person and to each person to whom a copy of the departure prohibition order was given under subsection 102C(4) and (5). The Secretary is also required to notify a person, as soon as practicable, after refusing to issue a certificate. These notification requirements are reflected in new section 200L of the Paid Parental Leave Act, new section 1250 of the Social Security Act and new section 43S of the Student Assistance Act. Section 102M Notification requirements for substituted days Under new section 102M, if the Secretary substitutes a later day for the person s return to Australia, the person and each person to whom a copy of the departure prohibition order was given under subsection 102C(4) or (5) must be notified, as soon as practicable. Where a person applies to substitute a later day for the person s return to Australia which is refused by the Secretary, the Secretary must give notice of the refusal to the person, as soon as practicable. Notification requirements for substituted days are contained in new section 200M of the Paid Parental Leave Act, new section 1251 of the Social Security Act and new section 43T of the Student Assistance Act. Subdivision E Appeals and review in relation to departure prohibition orders and departure authorisation certificates Section 102N Appeals to courts against making of departure prohibition orders Under new section 102N, a person aggrieved by the making of a departure prohibition order may appeal to the Federal Court of Australia or the 164

165 Debt recovery Federal Circuit Court of Australia against the making of the order. This has effect subject to Chapter III of the Constitution. The Secretary s power to make a departure prohibition order is onerous and discretionary. The conditions required for the Secretary to be satisfied that a departure prohibition order should be made are prescribed in new section 102A. New section 102A provides a list of prescriptive matters that the Secretary must take into consideration. The Secretary s power to make a departure prohibition order is a last resort position following lengthy, unsuccessful efforts to engage with the debtor to enter into satisfactory arrangements for repayment of the debt. This policy intent will be set out in the Guide to Social Security Law to guide the Secretary s decision making process. The Federal Court of Australia or the Federal Circuit Court of Australia has greater capacity to conduct judicial reviews of the Secretary s discretionary legislative power to ensure that the decision was properly made at that point in time and met the required legislative threshold. This position is based on jurisprudence developed by the Federal Court in the context of taxation departure prohibition orders which indicates that a court has greater capacity, under similar review provisions, to inquire into the reasonableness of the grounds for the order and thus into factual matters, than a court undertaking a purely judicial review. Under new section 102R a person against whom a departure prohibition order has been made can seek merits review of a refusal by the Secretary to: revoke or vary a departure prohibition order; or issue a departure authorisation certificate to allow a temporary absence from Australia. This provision is reflected in new section 200N of the Paid Parental Leave Act, new section 1252 of the Social Security Act and new section 43U of the Student Assistance Act. Section 102P Jurisdiction of courts New section 102P clarifies that the jurisdiction of a court under section 102N must be exercised by a single Judge. This is mirrored in new section 200P of the Paid Parental Leave Act, new section 1253 of the Social Security Act and new section 43V of the Student Assistance Act. 165

166 Budget Savings (Omnibus) Bill 2016 Section 102Q Orders of court on appeal Under new section 102Q, a court hearing an appeal under section 102N against the making of a departure prohibition order may, in its discretion, either make an order setting aside the order or dismiss the appeal. This rule also appears in new section 200Q of the Paid Parental Leave Act, new section 1254 of the Social Security Act and new section 43W of the Student Assistance Act. Section 102R Review of decisions New subsection 102R(1) allows applications to be made to the Administrative Appeals Tribunal (AAT) for review of a decision of the Secretary under section 102E (Revocation and variation of departure prohibition orders), 102H (Where Secretary must issue departure authorisation certificate) or 102J (Security for a person s return to Australia). New subsection 102R(2) clarifies that, despite any provision in Part 5 (Review of decisions) of the Family Assistance Administration Act, that Part does not apply in relation to any decision of the Secretary under this Division. In other words, any decision of the Secretary regarding departure prohibition orders is not subject to the review provisions outlined in Part 5 of the Family Assistance Administration Act. These provisions are reflected in the Paid Parental Leave Act, Social Security Act and Student Assistance Act. In particular: New subsection 200R(2) of the Paid Parental Leave Act states that Chapter 5 (Review of decisions) does not apply in relation to any decision of the Secretary about departure prohibition orders. Similarly, new subsection 1255(2) of the Social Security Act states that Part 4 (Internal review of decisions) and Part 4A (Review by the AAT) of the Social Security (Administration) Act 1999 do not apply to any decision of the Secretary about departure prohibition orders. New subsection 43X(2) of the Student Assistance Act states that Part 9 (Review of decisions) does not apply in relation to any decision by the Secretary about departure prohibition orders. It is anticipated that due to the minimal number of departure prohibition orders expected to be issued, appeals to the AAT will be low in number. 166

167 Debt recovery Subdivision F Enforcement Section 102S Powers of officers of Customs and members of the Australian Federal Police New section 102S allows Australian Border Force officers or members of the Australian Federal Police to do specified things if they believe on reasonable grounds that a person is about to depart Australia where a departure prohibition order is in force but their departure is not authorised by a departure authorisation certificate. The officer or member may take steps as are reasonably necessary to prevent the person s departure, including, but not limited to, steps to prevent the person going on board, or to remove the person from, a vessel or aircraft in which the officer or member believes on reasonable grounds the departure will take place. In addition, the officer or member may also require the person to answer questions or produce documents to the officer or member for the purposes of working out whether a departure prohibition order in respect of the person is in force and, if an order in respect of a person is in force, whether the person s departure is authorised by a departure authorisation certificate. Refusal or failure to comply with a requirement to answer question or produce documents is an offence, attracting a penalty of 30 penalty units. However, no offence exists where the person answers the questions or produces documents to the extent they are capable of doing so. Subsection 102S(4) provides for an exception, preventing a person committing an offence of refusing or failing to comply with a requirement to answer questions or produce documents for the purposes of an officer working out whether a person is prohibited from leaving the country under a DPO. There is no offence committed if a person answers the question or produces the document to the extent that the person is capable (the exception). Subsection 13.3(3) of the Criminal Code provides that a defendant who wishes to rely on any exception, exemption, excuse, qualification or justification provided by the law creating an offence bears an evidential burden in relation to that matter. This is explicitly noted at subsection 102S(4). The powers of Australian Border Force officers and the Australian Federal Police are mirrored in new section 200S of the Paid Parental Leave Act, new section 1256 of the Social Security Act and new section 43Y of the Student Assistance Act. 167

168 Budget Savings (Omnibus) Bill 2016 Section 102T Privilege against self-incrimination New section 102T provides that an individual is not excused from the requirement to answer questions or produce documents on the basis that to do so might tend to incriminate them or expose them to a penalty, as this information is essential for ensuring the effectiveness of the scheme. It is crucial that an officer can obtain information from an individual, through answers to questions and production of documents such as a departure authorisation certificate, to determine whether a person should be prevented from leaving the country under a departure prohibition order. However, the answers given and documents produced and any information, document or thing obtained as an indirect consequence of answering the questions or producing the documents are not admissible in evidence against the individual in any criminal proceedings, aside from proceedings under section (False or misleading information) or section (False or misleading documents) of the Criminal Code Act These provisions are mirrored in new section 200T of the Paid Parental Leave Act, new section 1257 of the Social Security Act and new section 43Z of the Student Assistance Act. Section 102U Production of authority to depart Under new section 102U, an Australian Board Force officer or a member of the Australian Federal Police may request a person to provide a copy of a departure authorisation certificate if the person is about to leave Australia for a foreign country. If the person refuses or fails to comply with this request, an offence of strict liability is committed, attracting a penalty of five penalty units. Strict liability under the Criminal Code Act 1995 applies to this provision, rather than fault elements applying to all physical elements of the offence. This is because of: the difficulty the prosecution would have in proving fault (especially knowledge or intention) in this case; the fact that the offence is minor (only five penalty units); and the fact that the offence does not involve dishonesty or other serious imputation affecting the person s reputation. 168

169 Debt recovery This provision also appears in new section 200U of the Paid Parental Leave Act, new section 1258 of the Social Security Act and new section 43ZA of the Student Assistance Act. Subdivision G Interpretation Section 102V Interpretation departure from Australia for foreign country New section 102V provides the interpretative rule for when a person departs from Australia for a foreign country. This is to be interpreted as the person s departure from Australia for a foreign country, whether or not the person intends to return to Australia. This interpretative provision is mirrored in new section 200V of the Paid Parental Leave Act, new section 1259 of the Social Security Act and new section 43ZB of the Student Assistance Act. Section 102W Meaning of Australia New section 102W states that, for the purposes of Division 5, Australia, when used in a geographical sense, includes the external Territories. In relation to the other Acts: This provision is replicated in new section 200W of the Paid Parental Leave Act. The provision is also replicated in new section 43ZC of the Student Assistance Act. New section 1260 of the Social Security Act also replicates section 102W, but clarifies that the definition of external Territory in subsection 23(1) of the Social Security Act does not apply. Instead, the term external territory has the meaning given by section 2B of the Acts Interpretation Act 1901, which has a wider meaning. Item 4 inserts a note after the heading to Part 5 Review of decisions, clarifying that Part 5 does not apply in relation to any decision of the Secretary under Division 5 of Part 4 of the Family Assistance Administration Act about departure prohibition orders. Further amendments to the Paid Parental Leave Act Item 9 inserts a note after the heading to Chapter 5 Review of decisions, to the effect that this Chapter does not apply in relation to any decision of 169

170 Budget Savings (Omnibus) Bill 2016 the Secretary about departure prohibition orders under Division 7A of Part 4-3. Part 3 Application provisions Item 17 ensures that amendments made by Part 1 apply to debts that arise on or after the commencement of this item and debts that arose before commencement, but were outstanding immediately prior to commencement. Part 2 Removal of 6-year limit on debt recovery Summary This Part removes the six-year limit on debt recovery currently in place for social security, family assistance and paid parental leave debts. Removing this limitation will prevent debts from ageing out of recovery, and will improve the ability to recover old debts. Debt recovery will be able to commence at any time. Background This Part amends the Social Security Act, Family Assistance Administration Act and Paid Parental Leave Act to remove the current six-year limit on the commencement of debt recovery. The amendments will mean that relevant methods of debt recovery, including deductions from payment, legal proceedings and garnishee arrangements, can commence at any time. Explanation of the changes Amendments to the Family Assistance Administration Act Item 18 repeals section 86 to remove the time limits for debt recovery action through deductions from a debtor s family tax benefit, setting off family assistance against a debt owed, and setting off debts of an approved child care service against child care service payments. Item 19 repeals subsections 87(3) and (4) to remove the time limit for debt recovery action to commence through the application of an income tax refund payable to the person. Items 20 and 21 amend section 88 by repealing subsections 88(2) to (6), thus removing the six-year time limit on commencing legal proceedings to recover outstanding debts and making technical amendments. 170

171 Debt recovery Item 22 repeals section 90 to remove the time limits on debt recovery action through garnishee notice. Item 23 inserts new section 93B, which clarifies that, for the purposes of Part 4 of the Family Assistance Administration Act, legal proceedings, or any debt recovery action under the Part may be commenced or taken at any time. Item 24 repeals paragraph 95(3)(a) so that a debt will no longer be considered irrecoverable at law if the debt cannot be recovered by means of the outlined actions because the relevant time limit for recover action has elapsed, to reflect the removal of these time limits. Amendments to the Paid Parental Leave Act Items 25, 26 and 27 repeal notes to sections 183 and 184, which refer to time limits on debt recovery, consequential to item 11. Item 28 repeals section 189 to remove the time limits for debt recovery by legal proceedings and garnishee notices. Item 29 inserts new section 192A, which provides that, for the purposes of Part 4-3 of the Paid Parental Leave Act, legal proceedings, or any debt recovery action under the Part may be commenced or taken at any time. Item 30 amends paragraph 193(3)(a) by omitting reference to a debt becoming irrecoverable at law as a result of the time limit for debt recovery action lapsing. Amendments to the Social Security Act Items 31 and 32 amend section 1231 by repealing subsections (2A) to (2E). This removes the six-year limitation on the recovery of debts by deductions from any social security payments or any payment of arrears of social security payments or both, and makes consequential technical amendments. Items 33 and 34 amend section 1232 by repealing subsections (2) to (6) and making technical amendments. These amendments remove the sixyear limitation on debt recovery by legal proceedings. Item 35 amends section 1233 by repealing subsections (7A) to (7E). This removes the six-year limitation on debt recovery by garnishee notice. Item 36 inserts new section 1234B, which clarifies that, for the purposes of Chapter 5, legal proceedings, or any debt recovery action under a provision of the Chapter, may be commenced or taken at any time. 171

172 Budget Savings (Omnibus) Bill 2016 Item 37 amends section 1236 by repealing paragraphs (1B)(a) and (aa). This amends the circumstances in which a debt is taken to be irrecoverable at law, by removing reference to debts that cannot be recovered by means of deductions, legal proceedings or garnishee notice because the relevant six-year period has elapsed or the debt cannot be recovered by means of deductions or setting off because the six-year period has elapsed under section 86 of the Family Assistance Administration Act. Amendments to the Student Assistance Act Item 38 inserts new section 42B, which clarifies that any debt recovery action under a provision in Part 6 of the Student Assistance Act may be taken at any time. Part 2 Application provisions Items 40 to 42 clarify that the amendments made to the Family Assistance Administration Act, the Paid Parental Leave Act, the Social Security Act and the Student Assistance Act apply in relation to debts that arise on or after commencement of the items, and to debts that arose before commencement, to the extent that the debt was outstanding immediately before that commencement. STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Debt recovery This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act Overview The Schedule introduces provisions in the Social Security Act 1991, A New Tax System (Family Assistance) (Administration) Act 1999, Paid Parental Leave Act 2010 and the Student Assistance Act 1973, which give the Secretary power to issue departure prohibition orders (DPOs), from the later of 1 July 2016 or the day after Royal Assent, to targeted social welfare payment debtors who have outstanding debts and have failed to enter into a satisfactory repayment arrangement. 172

173 Debt recovery DPOs will be used to prevent targeted social welfare debtors from leaving the country to encourage payment their debt. DPOs will apply to social security, family assistance (including child care), paid parental leave and student assistance debts in the same way that DPOs have been applied against for people with child support debt. While a DPO may be in place, the Schedule includes procedures to allow for people subject to a departure prohibition to travel overseas in specified circumstances. Departure Authorisation Certificates (DACs) may also be granted on humanitarian grounds or where the person s travel may be in Australia s best interests. It is important to note that a debt only arises where a person receives a payment to which they were not entitled. In most circumstances, current recipients of social welfare payments with outstanding debts have their payments reduced until their debts are repaid. By comparison, ex-recipients who are no longer dependent on the social security system, have no incentive to repay their debts and may actively avoid repayment. Debtors who are no longer eligible to receive financial support through social welfare payments are more likely to have the financial capacity to make repayments than those in receipt of social welfare payments. The Schedule also amends the Social Security Act 1991, A New Tax System (Family Assistance) (Administration) Act 1999 and Paid Parental Leave Act 2010 to remove the current limitation on the recovery of debt where recovery action has not been undertaken in the preceding six years. This measure will commence from the later of 1 July 2016 or the day after Royal Assent. This will align social welfare debt recovery with other government agencies involved in the recovery of Commonwealth debt, where there is no such limitation. Debt recovery will be able to commence at any time. Human rights implications The Schedule engages the following human rights: Rights to freedom of movement The Schedule engages the right to freedom of movement in article 13 of the Universal Declaration of Human Rights (UDHR) and article 12(2) of the International Covenant on Civil and Political Rights (ICCPR). The UDHR provides a common standard of achievements for all peoples and all nations. It sets out fundamental human rights to be universally protected. 173

174 Budget Savings (Omnibus) Bill 2016 Article 13(2) of the UDHR states that everyone has the right to leave any country, including his own, and to return to his country. Article 12(2) of the International Covenant on Civil and Political Rights (ICCPR) provides that Everyone shall be free to leave any country, including his own. Article 13(3) goes on to state that The abovementioned rights shall not be subject to any restrictions except those which are provided by law, are necessary to protect national security, public order (ordre public), public health or morals or the rights and freedoms of others, and are consistent with the other rights recognized in the present Covenant. Where a person has received support in the way of social welfare payment, and that person receives an excess payment to which they were not entitled, the person has a legal and moral obligation to repay those monies to the issuing body, the Commonwealth of Australia. Currently, there are virtually no consequences if the person fails to enter into an arrangement to repay those excess funds (the debt). Where the person has the means to repay their debt, they should do so. It is considered that where a person with a debt, not in an acceptable repayment arrangement, has the means to travel overseas, their travel movements should be restricted to enable them to enter into suitable arrangements to repay of their debt. It is unreasonable that people with debts to the Commonwealth can travel feely to and from Australia without regard to repayment of the excess social welfare payments previously received, while the community is denied access to the funds being withheld by the debtor. This Schedule seeks to correct that imbalance, and will continue to allow debtors to travel overseas where they have wholly repaid the debt, or made a satisfactory arrangement to repay the debt. The Schedule contains provisions to allow for travel on humanitarian grounds or where the person s travel may be in Australia s best interests, through the issuance of a DAC, in spite of a DPO being in place. Debtors will also be able to travel through the issuance of DACs where it is likely the person will depart and return to Australia within an appropriate period or where the person has given an appropriate level of security. Therefore, the human right permitting a person to leave his country under the UDHR, and the ICCPR, is preserved and protected provided the person complies with the law (as provided under this Schedule) and makes the arrangements necessary to repay his social welfare payment debt to the country that provided him with the social support. Further, 174

175 Debt recovery those rights are enshrined in the capacity for person to travel under a DAC on humanitarian grounds. The removal of the limitations on the recovery of debt where recovery action has not been undertaken in the preceding six years will allow recovery of debt older that would have otherwise aged out of scope of the Commonwealth s capacity to recover the debt by involuntary means. This provision will align social welfare debt recovery with other government agencies involved in the recovery of Commonwealth debt where there is no such limitation. This provision does not impinge on the right to depart and enter Australia. Right to liberty and security of the person and freedom from arbitrary detention The Schedule does not impinge upon the article 9 of the International Covenant on Civil and Political Rights (ICCPR). DPOs do not provide for the power of arbitrary arrest or detention, and there is no suggestion of any criminality leading to a DPO being issued. However, attempting to depart Australia while a DPO is in force, in the absence of a DAC, is a criminal offence. A person subject to a DPO is typically taken aside by officers of the Australian Federal Police at an international port of departure, but not detained, and advised of the reasons for the DPO, and asked whether they have obtained a DAC to authorise departure notwithstanding the existence of the DPO. Further access to the point of departure will be denied if no DAC is presented, however the person is able to return to their home within Australia and undertake the necessary negotiations to revoke the DPO (by making a satisfactory repayment arrangement), offer up sufficient security or seek to satisfy conditions under which a DAC can be issued for example, on humanitarian grounds. The Schedule does not invoke a limit on the rights of persons to liberty within Australia, nor does it subject persons to arbitrary arrest or detention. The removal of the limitations on the recovery of debt where recovery action has not been undertaken in the preceding six years will allow recovery of debt older that would have otherwise aged out of scope of the Commonwealth s capacity to recover the debt by involuntary means. This provision will align social welfare debt recovery with other government agencies involved in the recovery of Commonwealth debt where there is no such limitation. This provision does not impinge on a person s right to liberty or security of a person. 175

176 Budget Savings (Omnibus) Bill 2016 Rights of parents and children The Schedule engages the right of parents and children contained in article 3 of the Convention of the Rights of the Child (CRC) and article 24(1) of the International Covenant on Civil and Political Rights (ICCPR). Under the CRC, countries are required to apply the principle of best interests of the child. The principle applies to all actions concerning children and requires active measures to protect their rights and promote their survival, growth, and wellbeing, as well as measures to support and assist parents and others who have day-to-day responsibility for ensuring recognition of children's rights. Countries are also required under the CRC to ensure recognition of the principle that both parents have common responsibilities for the upbringing and development of the child and to provide appropriate assistance to parents and legal guardians in the performance of their child-rearing responsibilities, in particular to ensure that children of working parents have the right to benefit from child-care services and facilities for which they are eligible. Countries should ensure that parents and legal guardians are aware of their rights to access information on payments and services to which they are entitled to for the benefit of children. The Schedule does not limit the rights of parents and children. DPOs will apply to targeted debtors of social welfare payments with outstanding debts, where there are not arrangements satisfactory to the Secretary in place to repay the debt. To ensure all debtors are treated consistently and fairly, DPOs will also apply to those in receipt of only child care assistance and/or payment under the Paid Parental Leave Act 2010 with outstanding debts. These debtors are not subject to deductions from their payment and should be required to enter into an acceptable repayment arrangement to repay the debt as with other debtors. A debt only arises where a person receives a payment to which they were not entitled. DPOs are intended as an incentive for debtors to repay debts in a timely fashion and is only applied where the debtor does not have an arrangement satisfactory to the Secretary in place to repay the debt. DPOs will not limit the rights of parents and children. The removal of the limitations on the recovery of debt where recovery action has not been undertaken in the preceding six years will allow recovery of debt older that would have otherwise aged out of scope of the Commonwealth s capacity to recover the debt by involuntary means. This provision will align social welfare debt recovery with other government agencies involved in the recovery of Commonwealth debt where there is 176

177 Debt recovery no such limitation. This provision does not impinge on the rights of parents or children. Right to maternity leave The Schedule engages the right to maternity leave contained in contained in article 10(2) of the International Covenant on Economic, Social and Cultural Rights (ICESCR) and article 11(2)(b) of the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW). The right to maternity leave includes an entitlement for working mothers to paid leave or social security benefits during a reasonable period before and after childbirth. It also requires countries, as a measure of prevention of discrimination against women, to provide maternity leave with pay or with comparable social benefits without loss of former employment or seniority. The Schedule does not limit the right to maternity leave. DPOs will apply to targeted debtors of social welfare payments with outstanding debts, where there is not an arrangement satisfactory to the Secretary in place to repay the debt. To ensure all debtors are treated consistently and fairly, DPOs will also apply to those in receipt of only child care assistance and/or payments under the Paid Parental Leave Act 2010 with outstanding debts. These debtors are not subject to deductions from their payment and should be required to enter into an acceptable repayment arrangement to repay the debt as with other debtors. A debt only arises where a person receives a payment to which they were not entitled. DPOs are intended as an incentive for debtors to repay debts in a timely fashion and is only applied where the debtor does not have an arrangement satisfactory to the Secretary in place to repay the debt. DPOs will not limit the right to maternity leave. The removal of the limitations on the recovery of debt where recovery action has not been undertaken in the preceding six years will allow recovery of debt older that would have otherwise aged out of scope of the Commonwealth s capacity to recover the debt by involuntary means. This provision will align social welfare debt recovery with other government agencies involved in the recovery of Commonwealth debt where there is no such limitation. This provision does not impinge on the right to maternity leave. Rights of people with disability The Schedule engages the rights of people with disability contained in the Convention on the Rights of Persons with Disabilities. 177

178 Budget Savings (Omnibus) Bill 2016 In particular, to ensure that people with disability have the same right as others to live, take part and be included in the community, article 19 states that countries take appropriate steps to ensure that people with disability have the opportunity to choose where they live and who they live with, have access to in-home, residential and other community support services to help them be included in the community and prevent them from being isolated, and to ensure that they have equal access to community services and facilities that are available to the public. Article 26 (1) states that parties shall take effective and appropriate measures, including through peer support, to enable persons with disabilities to attain and maintain maximum independence, full physical, mental, social and vocational ability, and full inclusion and participation in all aspects of life. The Schedule does not limit the rights of people with disability. DPOs will apply to targeted debtors of social welfare payments with outstanding debts, where there is no arrangement satisfactory to the Secretary in place to repay the debt (this includes carer payments and the Disability Support Pension). A debt only arises where a person receives a payment to which they were not entitled. DPOs are intended as an incentive for debtors to repay debts in a timely fashion and is only applied where the debtor does not have a satisfactory arrangement in place to repay the debt. DPOs will not limit the rights of people with disability. The removal of the limitations on the recovery of debt where recovery action has not been undertaken in the preceding six years will allow recovery of debt older that would have otherwise aged out of scope of the Commonwealth s capacity to recover the debt by involuntary means. This provision will align social welfare debt recovery with other government agencies involved in the recovery of Commonwealth debt where there is no such limitation. This provision does not impinge on the rights of people with disability including the same rights as others to live, take part and be included in the community. Right to work and rights in work The Schedule engages the right to work and rights in work contained in articles 6(1), 7 and 8(1)(a) of the ICESCR. In particular, article 6(1) recognises the right to work, which includes the right of everyone to the opportunity to gain his living by work which he freely chooses or accepts and states that countries must have specialised services to assist and support individuals in order to enable them to identify and access available employment. 178

179 Debt recovery The Schedule does not limit the right to seek or undertake work and work rights within Australia. DPOs will apply to targeted debtors of social welfare payments with outstanding debts, where there is no arrangement satisfactory to the Secretary in place to repay the debt (this includes working age payments). A debt only arises where a person receives a payment to which they were not entitled. DPOs are intended as an incentive for debtors to repay debts in a timely fashion and is only applied where the debtor has no arrangement satisfactory to the Secretary in place to repay the debt. DPOs will not limit the debtor s right to work and rights in work in Australia. DPOs may limit the debtor s right to depart the country to undertake work. In these cases, the debtor can enter into acceptable repayment arrangements where they have the financial capacity to do so on the basis of part of the income to be earned from that overseas employment can be sent to Australia to repay their debt, and departure can be facilitated through a DAC or revocation of the DPO to enable the person to depart Australia and undertake employment overseas. The removal of the limitations on the recovery of debt where recovery action has not been undertaken in the preceding six years will allow recovery of debt older that would have otherwise aged out of scope of the Commonwealth s capacity to recover the debt by involuntary means. This provision will align social welfare debt recovery with other government agencies involved in the recovery of Commonwealth debt where there is no such limitation. This provision does not impinge on the right of persons to seek or undertake work, or work rights, within Australia. Right to education The Schedule engages the right to education contained in Article 13 of the ICESCR. In particular, article 13(2)(b) states that secondary education, in all its different forms, including technical and vocational secondary education, shall be made generally available and accessible to all by every appropriate means and, in particular, by the progressive introduction of free education. The Schedule does not limit the right to education. DPOs will apply to targeted debtors of social welfare payments with outstanding debts, who are unwilling to enter into acceptable repayment arrangements (this includes student payments). A debt only arises where a person receives a payment to which they were not entitled. DPOs are intended as an incentive for debtors to repay debts in a timely fashion and are only applied where the debtor does not have arrangements satisfactory to the 179

180 Budget Savings (Omnibus) Bill 2016 Secretary in place to repay the debt. DPOs will not limit the debtor s ability to access education. A DPO may prevent a person departing Australia to undertake education where they have an outstanding social welfare payment debt and they have not entered into acceptable repayment arrangements where they have the financial capacity to do so. Careful examination of whether the person has capacity to enter into an arrangement for repayment, or where it is determined they have no capacity to repay the debt while a student but they will be returning to Australia within a set or known period, travel may be permitted and the debt pursued once the person returns to Australia. A DPO will not be issued by the Secretary for people with a Higher Education Loan Programme debt (that is, HECS-HELP, FEE-HELP, VET FEE-HELP) or Student Financial Supplement Scheme debt. Therefore, the Schedule will not impinge on the right of a person to an education within Australia, and may not necessarily prevent a person seeking an education outside of Australia. The removal of the limitations on the recovery of debt where recovery action has not been undertaken in the preceding six years will allow recovery of debt older that would have otherwise aged out of scope of the Commonwealth s capacity to recover the debt by involuntary means. This provision will align social welfare debt recovery with other government agencies involved in the recovery of Commonwealth debt where there is no such limitation. This provision does not impinge on the right of a person to an education within Australia. Right to social security The Schedule engages the right to social security contained in article 9 of the ICESCR. The right to social security requires that a system be established under domestic law, and that public authorities must take responsibility for the effective administration of the system. The social security scheme must provide a minimum essential level of benefits to all individuals and families that will enable them to cover essential living costs. The United Nations Committee on Economic, Cultural and Social Rights (the Committee) has stated that a social security scheme should be sustainable and that the conditions for benefits must be reasonable, proportionate and transparent (see General Comment No.19). 180

181 Debt recovery Article 4 of ICESCR provides that countries may limit the rights such as to social security in a way determined by law only in so far as this may be compatible with the nature of the rights contained within the ICESCR and solely for the purpose of promoting the general welfare in a democratic society. Such a limitation must be proportionate to the objective to be achieved. DPOs will apply to targeted debtors of social welfare payments with outstanding debts, where there is no arrangement satisfactory to the Secretary in place to repay the debt. A debt only arises where a person receives a payment to which they were not entitled. Targeted debtors who are no longer eligible to receive financial support through social security or family assistance are more likely to have the financial capacity to make repayments on any outstanding debt than those in receipt of social welfare payments. In addition a debtor s financial capacity will be taken into account before a repayment arrangement is agreed to. Given this, the impact of DPOs will be limited and will have a very marginal effect on the ability of a person to cover essential living costs, thereby engaging a person s right to social security. The provisions in the Schedule are therefore unlikely to limit this right, given the appropriate safeguards put in place to protect it. It is intended that the provisions in the Schedule will allow the efficient recovery of social welfare payments, supporting effective and efficient administration of the social security system. This measure is proportionate in achieving this policy objective as all people can avoid a DPO being issued by entering into a satisfactory repayment arrangement, and these rights are safeguarded by the requirements of notice and periods of time in which a person will be able to pay back the debt or enter into an arrangement. Furthermore, the Secretary will have the discretion in appropriate circumstances, for example in humanitarian cases, to issue a DAC to enable a person to travel in spite of having a DPO in force. By allowing the efficient recovery of social security payments, the Schedule ensures the financial sustainability of the social security system. DPOs, as they apply to people who receive social welfare payments to which they are not entitled, are a reasonable condition on the benefits of the system as it encourages recipients to repay those amounts and ensures that the Commonwealth is able to recover the value of these amounts. DPOs, as a condition, are also transparent as they are provided for in legislation, will be communicated through the Department of Human Service s website, and can only be applied after the recipient is given notice. This ensures that all stakeholders will be informed of how DPOs will operate before they are applied to debtors. 181

182 Budget Savings (Omnibus) Bill 2016 Therefore, the Schedule will be compatible with the right to social security as the potential limitation on this right is proportionate to the policy objective and intended to improve the administration of the social security system. The removal of the limitations on the recovery of debt where recovery action has not been undertaken in the preceding six years will allow recovery of debt older that would have otherwise aged out of scope of the Commonwealth s capacity to recover the debt by involuntary means. This provision will align social welfare debt recovery with other government agencies involved in the recovery of Commonwealth debt where there is no such limitation. This provision does not impinge on the right of persons to access social security to provide a minimum standard of living. Right to an adequate standard of living, including food, water and housing The Schedule engages the right to an adequate standard of living, including food, water and housing, contained in article 11 of the ICESCR. The right to an adequate standard of living, including food, water and housing provides that everyone is entitled to adequate food, clothing and housing and to the continuous improvement of living conditions. To the extent that there is an impact on a person s right to an adequate standard of living, including food, water and housing, by virtue of the Schedule, the impact is limited. It is intended that the provisions will allow the efficient recovery of social welfare payment debts, which will ultimately improve the efficacy of the social security system. This measure is proportionate in achieving this policy objective as DPOs will only targeted debtors who are no longer eligible to receive financial support through social security or family assistance payments and debtors can avoid DPOs being issued by entering into a satisfactory repayment arrangement. To ensure all debtors are treated consistently and fairly, DPOs will also apply to those in receipt of only child care assistance and/or payments under the Paid Parental Leave Act 2010 with outstanding debts. These debtors are not subject to deductions from their payment and should be required to enter into an acceptable repayment arrangement to repay the debt as with other debtors. A debtor s rights are safeguarded by the requirements of notice and periods of time in which a person will be able to repay the debt or enter into an arrangement. In addition, a debtor s financial capacity will be taken into account before a repayment arrangement is agreed to. The Secretary may also revoke a DPO if the person no longer has any 182

183 Debt recovery debts to the Commonwealth, or there are arrangements satisfactory to the Secretary for the one or more debts the person has to the Commonwealth to be wholly paid, or the Secretary is satisfied that the one or more debts the person has to the Commonwealth are completely irrecoverable. Furthermore, by allowing the efficient recovery of social security payments, the Schedule ensures the financial sustainability of the social security system. DPOs, as they apply to people who received social welfare payments to which they are not entitled, are a reasonable condition on the benefits of the system as they encourage recipients to repay those payments and ensure that the Commonwealth is able to recover the value of these amounts. DPOs are also transparent as they are provided for in legislation, will be communicated through the Department of Human Service s website, and can only be applied after the recipient is given written notice. This ensures that all stakeholders will be informed of how DPOs will operate before they are applied. Therefore, the Schedule will be compatible with the right an adequate standard of living as the potential limitations on this right are proportionate to the policy objective and are intended to improve the administration of the social security system. The removal of the limitations on the recovery of debt where recovery action has not been undertaken in the preceding six years will allow recovery of debt older that would have otherwise aged out of scope of the Commonwealth s capacity to recover the debt by involuntary means. This provision will align social welfare debt recovery with other government agencies involved in the recovery of Commonwealth debt where there is no such limitation. This provision does not impinge on the right of persons to an adequate standard of living, including food, water and housing. Right to equality and non-discrimination To avoid doubt, the Schedule does not engage the right to equality and non-discrimination contained in articles 2 and 26 of the ICCPR either on the basis of race or other status. Article 2(1) of the ICCPR obligates each State party to respect and ensure to all persons within its territory and subject to its jurisdiction the rights recognised in the Covenant without distinction of any kind, such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status 7. 7 CCPR General Comment No

184 Budget Savings (Omnibus) Bill 2016 Article 26 not only entitles all persons to equality before the law as well as equal protection of the law, but also prohibits any discrimination under the law and guarantees to all persons equal and effective protection against discrimination on any ground such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status 8. It is important to note, however, that not all differential treatment will be considered discriminatory. The Committee on Economic, Social and Cultural Rights has provided the following commentary on when differential treatment will be considered discriminatory: Differential treatment based on prohibited grounds will be viewed as discriminatory unless the justification for differentiation is reasonable and objective. This will include an assessment as to whether the aim and effects of the measures or omissions are legitimate, compatible with the nature of the Covenant rights and solely for the purpose of promoting the general welfare in a democratic society. In addition, there must be a clear and reasonable relationship of proportionality between the aim sought to be realised and the measures or omissions and their effects. A failure to remove differential treatment on the basis of a lack of available resources is not an objective and reasonable justification unless every effort has been made to use all resources that are at the State party s disposition in an effort to address and eliminate the discrimination, as a matter of priority 9. Discrimination on the basis of race The Schedule will apply DPOs to all social security debts including ABSTUDY payments, which supports Indigenous Australians. However, there is no differential treatment on the basis of race as DPOs will apply equally to all debtors. For these reasons, the Schedule will not engage the right of equality and non-discrimination. Discrimination on the basis of other status The Schedule applies DPOs to targeted debtors of social welfare payment recipients with outstanding debts, rather than all customers with outstanding debts. 8 CCPR General Comment No CESCR, General Comment No

185 Debt recovery This will not limit the right to equality and non-discrimination as the differential treatment is for a reasonable and objective purpose. In most circumstances, current recipients of social welfare payments with debts have their payments reduced until their debts are repaid. By comparison, targeted debtors who are no longer dependent on the social security system, have little incentive to repay their debts and may actively avoid repayment. Debtors who are no longer eligible to receive financial support through social welfare payments are more likely to have the financial capacity to make repayments than those in receipt of income support or family assistance. The introduction of DPOs will ensure that people who are targeted debtors of social welfare payments do not receive an unfair advantage over those current recipients of social welfare payments who are subject to compulsory withholdings from their ongoing payments. To ensure all debtors are treated consistently and fairly, DPOs will also apply to those in receipt of only child care assistance and/or payments under the Paid Parental Leave Act 2010 with outstanding debts. These debtors are not subject to deductions from their social welfare payment and should be required to enter into an acceptable repayment arrangement to repay the debt as with other debtors. It is therefore reasonable and objective to apply a DPO to debts with respect to targeted debtors of social welfare payments to ensure that people with a debt repay the outstanding amount in a timely fashion. The removal of the limitations on the recovery of debt where recovery action has not been undertaken in the preceding six years will allow recovery of debt older that would have otherwise aged out of scope of the Commonwealth s capacity to recover the debt by involuntary means. This provision will align social welfare debt recovery with other government agencies involved in the recovery of Commonwealth debt where there is no such limitation. This provision does not impinge on the right of persons to equality and non-discrimination. For these reasons, the Schedule will not engage the right of equality and non-discrimination. Conclusion This Schedule is compatible with human rights. To the extent that it may have limited adverse impact on a person s access to education, social security, an adequate standard of living or the right to equality and 185

186 Budget Savings (Omnibus) Bill 2016 non-discrimination, the limitation is reasonable, proportionate to the policy objective and for legitimate reasons. 186

187 Chapter 14 Parental leave payments Outline of chapter Schedule 14 to the Bill introduces the Mid-Year Economic and Fiscal Outlook measure, Commonwealth Parental Leave Payments consistent treatment for income support assessment. This measure will amend the social security and veterans entitlements legislation to ensure Commonwealth parental leave payments and dad and partner pay payments under the Paid Parental Leave Act 2010 are included in the income test for Commonwealth income support payments. Background The measure is consistent with the treatment of employer-provided parental leave payments as income for income support payments, and parental leave pay and dad and partner pay as income for family tax benefit and taxation purposes. This Schedule implements this announced change. It also makes consequential amendments to the Paid Parental Leave Act to allow the Secretary to make deductions from a person s instalments of parental leave pay where the payment of one or more instalments of parental leave pay would result in an overpayment of an income support payment. It also makes consequential amendments to the Paid Parental Leave Act to allow the Secretary to make deductions from a person s dad and partner pay where the payment of an amount of dad and partner pay could result in an overpayment of an income support payment. The amendments made by this Schedule commence on the first 1 January, 1 April, 1 July or 1 October that occurs after the day the Act receives Royal Assent. Explanation of the changes Part 1 Parental leave pay and dad and partner pay to count as income Item 1 adds paragraphs 8(1A)(h) and (i) to the end of subsection 8(1A) of the Social Security Act 1991, consequential to the main amendment at item 2. The effect of this is to clarify that instalments of parental leave pay 187

188 Budget Savings (Omnibus) Bill 2016 and dad and partner pay are not be treated as employment income for the purposes of the Social Security Act. Subsection 8(1A) currently excludes a range of income sources from the definition of employment income. As a result of the changes made by item 1 to subsection 8(8), which include instalments of parental leave pay and dad and partner pay in the definition of income, it is necessary to amend subsection 8(1A) to ensure that this change to subsection 8(8) won t result in these payments being treated as employment income for social security purposes. This amendment will ensure greater alignment between the definitions of employment income in the Social Security Act and Veterans Entitlements Act Item 2 repeals paragraphs 8(8)(d) and (da) of the Social Security Act. Section 8 of the Social Security Act provides a broad definition of income for social security means testing purposes. Subsection 8(8) excludes specified amounts from the definition of income. The effect of this repeal is that instalments of parental leave pay and dad and partner pay will be assessed as income for the purposes of section 8 of the Social Security Act and hence for the purposes of the income means testing arrangements under the Social Security Act. It should be noted that Part 5 of the Farm Household Support Act applies the means testing arrangements in section 8 of the Social Security Act to farm household allowance recipients and applicants. Item 3 repeals paragraphs 5H(8)(d) and (da) of the Veterans Entitlements Act. The effect of this repeal is to treat instalments of parental leave pay and dad and partner pay as income for the purposes of section 5H of the Veterans Entitlements Act and hence for the purposes of income means testing arrangements under the Veterans Entitlements Act. Item 4 is an application provision for the amendments in Part 1 of this Schedule. Item 4 provides that the amendments made by Part 1 apply in relation to an instalment of parental leave pay, or to dad and partner pay, that is paid on or after the commencement of this item in respect of a claim for a child: a) who is born on or after that commencement; or b) who becomes entrusted to the care of a person (as mentioned in subsection 275(2) of the Paid Parental Leave Act) on or after that commencement; 188

189 Parental leave payments whether the claim was made before, on or after that commencement. Part 2 Parental leave pay and dad and partner pay deductions to avoid overpayments Item 5 inserts a definition of income support payment into section 6 of the Paid Parental Leave Act. Income support payment is given the same meaning as in the Social Security Act, where the term is defined in section 23. It includes a social security benefit or pension, and a service pension under the Veterans Entitlements Act. Subsection 91(3) of the Farm Household Support Act applies to modify the reference to income support payment in section 23 of the Social Security Act to include a reference to farm household allowance. The amendments made by this Schedule would therefore apply in circumstances where a person has received farm household allowance and an instalment of parental leave pay for the same period. Item 6 makes a consequential amendment to subsection 66(2) of the Paid Parental Leave Act, which provides for the protection of instalments of parental leave pay, to include a reference to the new deduction provision in new section 69A of the Paid Parental Leave Act, inserted by item 7. Item 11 makes an identical amendment to section 115EG(2) for dad and partner pay. Item 7 inserts new section 69A into the Paid Parental Leave Act. Section 69A authorises the Secretary to deduct an amount or amounts from a person s instalments of parental leave pay where the Secretary is satisfied that the payment of the person s instalments, if taken into account for the relevant periods, would have resulted in a lesser rate of payment to the person of their income support payment. Section 69A applies if: a) a payability determination that parental leave pay is payable to a person is made; and b) an instalment for an instalment period becomes payable to the person on a particular day by the Secretary; and c) before that day, the person was paid an amount of income support payment in for a period that falls within, or overlap with, the instalment period; and 189

190 Budget Savings (Omnibus) Bill 2016 d) the Secretary is satisfied that the amount of income support payment so paid exceeds the amount of the income support payment that would have been payable to the person for the income support period under that law or Act had the instalment been taken into account when working out the amount of income support payment payable to the person for that period under that law or Act; If the Secretary is satisfied that these preconditions have all been met, the Secretary may deduct from the instalment of parental leave pay an amount equal to the excess. A note to the provision alerts the reader that a person s income is taken into account when working out the amount of income support payment that is payable to the person under the social security law or the Veterans Entitlements Act. An instalment is income so payment of an instalment may reduce the amount of income support payment that is payable to the person. Having been taken into account under the Paid Parental Leave Act, the instalment of parental leave pay would not then be taken into account again under the social security law or Veterans Entitlements Act for the relevant period. However, ongoing instalments of parental leave pay (or potentially payment of dad and partner pay) may result in the Secretary suspending payment of the person s (and/or their partner s) income support payment until the end of the PPL or DAPP period where the person s (and/or their partner s) rate of income support payment is reduced to nil. Item 12 inserts new section 115EI in the same terms for dad and partner pay. Item 8 makes a consequential amendment to subsection 70(1) of the Paid Parental Leave Act which limits deductions that may be made from instalments of parental leave pay, to include a reference to the deduction provision in new section 69A of the Paid Parental Leave Act, inserted by item 7. Item 13 makes a similar amendment to section 115EJ for dad and partner pay. Item 9 amends section 101 of the Paid Parental Leave Act to insert new subsection 101(3A). The effect of this new subsection is that the Secretary must not make an employer determination for a person and the person s employer if the person is receiving an income support payment. New subsection 101(3A) has been inserted to ensure that the Secretary can, where appropriate, apply section 69A of the Paid Parental Leave Act 190

191 Parental leave payments to make a deduction from one or more of a person s instalments of parental leave pay. Section 69A only applies in relation to payments of parental leave pay made by the Secretary and does not apply to payments made under an employer determination. Item 10 amends subsection 108(1) of the Paid Parental Leave Act to insert new item 2A into the table contained in this subsection. The effect of new item 2A is that the Secretary must revoke an employer determination made for a person and the person s employer if the person is receiving an income support payment. The employer determination may have been made at a time the person was not receiving an income support payment. The amendments to subsection 108(1) are intended to ensure that the Secretary can, where appropriate, apply section 69A of the Paid Parental Leave Act to make a deduction from a person s instalment of parental leave pay. Section 69A only applies in relation to payments of parental leave pay made by the Secretary and does not apply to payments made under an employer determination. Item 14 sets out application provisions for new section 69A, new subsection 101(3A), the amendments to subsection 108(1) and new section 115EI of the Paid Parental Leave Act. The application provision for new section 69A provides that: 1) Paragraph 69A(a) of the Paid Parental Leave Act applies in relation to a payability determination that is made on or after the commencement of this item. 2) Paragraph 69A(b) of the Paid Parental Leave Act applies in relation to an instalment of parental leave pay that is payable on or after the commencement of this item in respect of a claim for a child: a) who is born on or after that commencement; or b) who becomes entrusted to the care of a person (as mentioned in subsection 275(2) of the Paid Parental Leave Act) on or after that commencement; whether the claim was made before, on or after that commencement. The application provision for new subsection 101(3A) of the Paid Parental Leave Act provides that the new subsection applies in relation to claims made on or after the commencement of this item. 191

192 Budget Savings (Omnibus) Bill 2016 The application provision for the amendment of subsection 108(1) provides that the amendment applies in relation to an employer determination made before, on or after the commencement of this item, where the claim was for a child: a) who was born on or after that commencement; or b) who became entrusted to the care of a person (as mentioned in subsection 275(2) of the Paid Parental Leave Act) on or after that commencement; whether the claim was made before, on or after that commencement. The application provision for new section 115EI provides that: 1) Paragraph 115EI(a) of the Paid Parental Leave Act applies in relation to a payability determination that is made on or after the commencement of this item. 2) Paragraph 115EI(b) of the Paid Parental Leave Act applies in relation to an amount of dad and partner pay that is to be paid on or after the commencement of this item in respect of a claim for a child: a) who is born on or after that commencement; or b) who becomes entrusted to the care of a person (as mentioned in subsection 275(2) of the Paid Parental Leave Act) on or after that commencement; whether the claim was made before, on or after that commencement. STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Parental leave payments This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act

193 Parental leave payments Overview The Social Services Legislation Amendment (Consistent Treatment of Parental Leave Payments) Bill 2016 makes changes to income support legislation to include income from Parental Leave Pay (PLP) and Dad and Partner Pay (DAPP) in the assessments for income support payments. Currently, PLP and DAPP recipients can receive the full rate of an income support payment at the same time as PLP or DAPP. Under this measure, changes will be made to the social security and veterans entitlements legislation to ensure PLP and DAPP payments are included in the income test for income support payments, thereby treating income from PLP or DAPP consistently with the treatment of income from other sources. The Schedule also introduces a minor provision in the Paid Parental Leave (PPL) legislation to allow the Secretary to reduce a PLP instalment or an amount of DAPP to offset a potential overpayment of an income support payment. This provision would be used where an income support overpayment could arise as a result of a recipient receiving the full arrears payment of PLP or DAPP for a period when they received an income support payment. Another minor amendment removes the employer role where a PLP recipient is receiving an income support payment at the time their PLP is granted. The Department of Human Services will be the paymaster for a PLP recipient who is receiving income support payments. This change will ensure that PLP payments to income support recipients are paid promptly and not delayed because of the timing of the employer s payroll. Human rights implications The Schedule engages the following human rights: Right to social security Article 9 of the International Covenant on Economic, Social and Cultural Rights (ICESCR) recognises the right of everyone to social security. This right requires a social security system to be established and that States Parties must, within their maximum available resources, ensure access to a social security scheme that provides a minimum essential level of benefits to all individuals and families that will enable them to acquire at least essential health care, basic shelter and housing, water and sanitation, foodstuffs, and the most basic forms of education. 193

194 Budget Savings (Omnibus) Bill 2016 These changes to income support legislation will limit the right to social security for 11,000 income support recipients who receive PLP or DAPP. Of these customers, 5,000 will experience a partial loss of the income support payments, and 6,000 will experience a total loss of their income support payment, creating a saving to government of $105.1 million over the forward estimates. The changes will make it fairer for all working mothers to have access to a consistent level of government support. This measure levels the playing field amongst income support recipients by treating all types of income similarly, irrespective of the source of that income. The income test for pensions and allowances includes free areas which allow people to receive an amount of income before their payments are reduced. Where a person s income exceeds the free area, payments are reduced proportionally. This means pension and allowance recipients are always better off when receiving additional income such as PLP and DAPP. Income support payment recipients will continue to be able to access parenting payments such as Family Assistance and Child Care assistance if they meet the eligibility criteria. These changes will ensure that income support payments are fairer and better targeted, and will help ensure the income support system is sustainable into the future. Improving the long-term sustainability of the income support system is important to ensure the income support system will continue to provide an adequate level of support to those in need over the long term. The minor amendment to remove the employer role for PLP recipients receiving income support payments is intended to help customers receive PLP promptly without any delays, avoiding an income support customer being left without an income for the usual processing period of employer payments. Right to equality and non-discrimination Article 3 of the ICESCR seeks to ensure the right of both men and women to the enjoyment of all economic, social, and cultural rights set forth within the convention. As mentioned above, the changes to income support legislation will make it fairer for all working mothers to have access to a consistent level of government support. This measure levels the playing field amongst income support recipients by treating all types of income similarly, irrespective of the source of that income. The measure engages the right to equality and non-discrimination, but does not limit the right. 194

195 Parental leave payments Right to work and maternity leave Article 7 of the ICESCR recognises the right of everyone to the enjoyment of just and favourable conditions of work. This Article seeks to ensure fair and equal wages and remuneration, safe and healthy working conditions, equal opportunity for promotion in the workplace, and adequate access to rest, leisure, and periodic paid leave. Article 10(2) of the ICESCR states that, Special protection should be accorded to mothers during a reasonable period before and after childbirth. During such a period working mothers should be accorded paid leave or leave with adequate social security benefit. In addition, Article 11 (2)(b) of the Convention to Eliminate All Forms of Discrimination Against Women requires States Parties to introduce maternity leave with pay or with comparable social benefits without loss of former employment, seniority or social allowances. The changes detailed in this Schedule preserve the right to PLP for eligible primary carers, only changing how this payment is treated for assessing income support payments. The changes do not interfere with the existing rights under the Fair Work Act 2009 to access 12 months of unpaid parental leave without loss of employment or seniority within the workplace, leaving the key protection against discrimination in place. Conclusion This Schedule is compatible with human rights and, to the extent that it may limit certain human rights, those limitations are reasonable, necessary and proportionate. 195

196

197 Chapter 15 Fringe benefits Outline of chapter Schedule 15 to the Bill changes the way in which fringe benefits are treated under the income tests for family assistance and youth income support payments and for other related purposes. The changes are also relevant for a number of income tax provisions. The meaning of adjusted fringe benefits total is modified so that the gross rather than adjusted net value of reportable fringe benefits is used, except in relation to fringe benefits received by individuals working for public benevolent institutions, health promotion charities and some hospitals and public ambulance services. These changes commence on the first 1 January or 1 July 2017 after the day on which this Act receives the Royal Assent. Background Family Assistance Schedule 17 to the Family Assistance Act defines adjusted taxable income (ATI). ATI has relevance for family tax benefit, stillborn baby payment and child care benefit. Clause 2 of Schedule 17 lists the components of ATI, one of which is an individual s adjusted fringe benefits total. Clause 4 defines adjusted fringe benefits total by reference to a formula that draws on concepts in the Fringe Benefits Tax Act 1986 and the FBT Assessment Act. Under the formula: adjusted fringe benefits total = reportable fringe benefits total x (1-FBT rate). A reportable fringe benefit total is the grossed up value of the fringe benefit (as worked in accordance with Part X1B of the FBT Assessment Act). Under the current definition, the net value of fringe benefits used is 51% for (the FBT rate being 49% for the fringe benefit year ending 31 March 2017). 197

198 Budget Savings (Omnibus) Bill 2016 This Schedule modifies the calculation of adjusted fringe benefits total. There will be two methods for calculating the fringe benefits component of an individual s ATI, depending on the nature of the fringe benefit. The treatment of fringe benefits that are provided by an employer described in section 57A of the FBT Assessment Act (i.e., public benevolent institutions, health promotion charities and some hospitals and public ambulance services) will not change (although the language of the provision is changing to more closely align with relevant tax law). It is estimated that 65 per cent of individuals with reportable fringe benefits will have their benefits worked out under this method. Otherwise, the gross value of reportable fringe benefits would be used. The family assistance definition of ATI is adopted in the income test provisions for parental leave pay and dad and partner pay under the Paid Parental Leave Act 2010 (see sections 37, 38 and 115CG of that Act). It follows that any change to the family assistance calculation of ATI would flow through to the Paid Parental Leave Act Taxation The calculation of ATI in the Family Assistance Act is also relevant in working out whether an individual is entitled to a low income superannuation contribution payment, a net medical expenses offset, and the dependant (invalid and carer) tax offset. It may also affect the amount of offset for residents of isolated areas (Zone tax offset), members of defence forces serving overseas and certain persons serving with an armed force under the control of the United Nations serving overseas, with certain dependants. Subsection 6(1) of the Income Tax Assessment Act 1936 defines the term adjusted fringe benefits total which is consistent with the family assistance definition. This term is used in the definition of rebate income for the purposes of the rebate provided for low income aged persons and pensioners. This Schedule amends the definition of adjusted fringe benefits total in subsection 6(1) so that it remains consistent with the new family assistance definition. Social Security Point 1067G-F10 defines combined parental income for the purposes of the parental income test for youth allowance. This definition includes the parent s adjusted fringe benefit total for the relevant year. Subpoint 1067G-F11(2) then defines adjusted fringe benefits total, consistent with the family assistance definition. 198

199 Fringe benefits The Bill amends this definition of adjusted fringe benefits total so that it remains consistent with the new family assistance definition. ABSTUDY is an administrative scheme that adopts similar rules and concepts to those that apply in relation to youth allowance, including the parental income test. Any changes to the components of income which are relevant under the youth allowance parental income test will therefore also affect ABSTUDY. The intention is to change the ABSTUDY guidelines to maintain this consistency. The Assistance for Isolated children Scheme is also an administrative scheme that provides payments in respect of children who cannot go to a state school because of geographical location, disability or special health needs. The additional boarding allowance component of this payment is subject to a similar parental income test to youth allowance (and ABSTUDY). The proposed change to the treatment of fringe benefits will also be reflected in the guidelines for this scheme. Explanation of the changes A New Tax System (Family Assistance) Act 1999 Clause 4 of Schedule 3 to the Family Assistance Act defines adjusted fringe benefit total. Item 1 repeals this definition and replaces it with a new definition. New clause 4 provides that an individual s adjusted fringe benefits total is the sum of their section 57A employer fringe benefits total and other employer fringe benefits total. The meaning of other employer fringe benefits total and section 57A employer fringe benefits total are then defined. Other employer fringe benefits total is the sum of each of the individual s reportable fringe benefits amounts for the income year under section 135P and section 135Q (to the extent that section relates to the individual s employment by an employer described by section 58) of the FBT Assessment Act Section 57A employer fringe benefits total is the sum of each of the individual s quasi-fringe benefits amounts received by an employer under section 135Q of the Fringe Benefits Tax Assessment Act 1986 to the extent that section relates to an employer described under section 57A of that Act. Income Tax Assessment Act 1936 Item 2 repeals the definition of adjusted fringe benefits total in subsection 6(1) of the Income Tax Assessment Act 1936 and substitutes a new definition. The existing definition is aligned with the definition in the Family Assistance Act. To ensure ongoing consistency, the new definition 199

200 Budget Savings (Omnibus) Bill 2016 of adjusted fringe benefits total in subsection 6(1) has the meaning given by clause 4 of Schedule 3 to the Family Assistance Act. Item 3 makes a consequential change to repeal the definition of reportable fringe benefits total (which is not required for the new definition inserted by item 2). Social Security Act 1991 Subpoint 1067G-F11(2) of the Social Security Act defines adjusted fringe benefits total, consistent with the family assistance definition. Item 4 repeals this subpoint and substitutes a new definition, consistent with the new family assistance definition described above. Application provisions Item 5 provides for the application of the amendments made by Schedule 1 which redefined adjusted fringe benefit total. Subitem 5(1) provides that the amendments apply in working out an individual s rate of family tax benefit for days on or after commencement. Subitem 5(2) provides that the amendments apply in working out an individual s rate of child care benefit for days on or after the first Monday on or after commencement, to align with the child care benefit concept of week which commences on a Monday. Subitem 5(3) provides that the amendments apply in working out an individual s eligibility for stillborn baby payment for a child delivered on or after commencement. Subitem 5(4) provides that the amendments apply in relation to a claim for parental leave pay or dad and partner pay for a child who is born or entrusted to care on or after commencement irrespective of when the claim is made. Subitem 5(5) provides that the amendments apply in working out the rate of youth allowance for days on or after commencement. Subitem 5(6) provides that the amendments do not apply in working out a person s qualification for a low income supplement. The low income supplement is an annual payment that is repealed from 1 July Subitem 5(7) provides that the amendments do not apply in working out whether a low income superannuation contribution is payable for

201 Fringe benefits or earlier income years. The low income superannuation contribution is to be repealed from 1 July Subitem 5(8) provides that the amendments apply in working out whether a taxpayer is entitled to a rebate for medical expenses, and the amount of the rebate, in respect of the income year beginning on or after commencement. Subitem 5(9) provides that the amendments apply in working out whether a taxpayer is entitled to a rebate for low income aged persons and pensioners in respect of the income year beginning on or after commencement. Subitem 5(10) provides that the amendments apply in working out whether a trustee is entitled to a rebate for low income aged persons and pensioners in respect of the income year beginning on or after commencement. Subitem 5(11) provides that the amendments apply in working out whether an individual is entitled to a dependant (invalid and carer) tax offset, and the amount of the offset, for an income year beginning on or after commencement. Subitem 5(12) provides that the amendment apply in working out the amount of an individual s dependant (non-student child under 21 or student) notional tax offset for an income year beginning on or after commencement. This may have an impact on the amount of a taxpayer s entitlement to a zone tax offset and overseas forces tax offset where they have certain dependants. STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Fringe benefits Overview This Schedule amends the A New Tax System (Family Assistance) Act 1999, Social Security Act 1999 and Income Tax Assessment Act This Schedule will change how reportable fringe benefits are treated when calculating adjusted taxable income (ATI) for the purposes of income testing family assistance, youth income support payments and certain tax offsets. 201

202 Budget Savings (Omnibus) Bill 2016 Under current rules, the net value of reportable fringe benefits (or 51 per cent) is used to calculate an individual s ATI. From the first 1 January or 1 July after the bill receives the Royal Assent, the gross rather than adjusted net value of reportable fringe benefits will be used to calculate an individual s ATI, except in relation to fringe benefits which are received by individual s working for certain not-for-profit organisations. Fringe benefits received by an individual who is employed by a not for profit institution defined under section 57A of the Fringe Benefits Tax Assessment Act 1986 (public benevolent institutions, health promotion charities and some hospitals and public ambulance services) will continue to be assessed under current arrangements. Affected payments include Family Tax Benefit (FTB) Part A and Part B, Child Care Benefit (CCB), Parental Leave Pay, Dad and Partner Pay, Stillborn Baby Payment, Youth Allowance, and payments under the ABSTUDY scheme and Assistance for Isolated Children scheme. The new treatment of reportable fringe benefits will apply to certain tax offsets. These offsets include the Net Rebate for Medical Expenses, Rebate for Low Income Aged Persons and Pensioners, Dependant (Invalid and Carer) Tax Offset and Dependant (non-student child under 21 or student) Notional Tax Offset. The Low Income Supplement and Low Income Superannuation Contribution Supplement both use ATI to calculate entitlement; however, both will cease from 1 July 2017 and are not affected by these amendments. Human rights implications family assistance and youth income support Overview of family assistance and youth income support payments The Australian Government supports families with the direct and indirect costs of raising dependent children through a number of payments which are subject to parental income testing to determine entitlement. These payments include FTB Part A, FTB Part B, CCB, Youth Allowance, ABSTUDY and Assistance for Isolated Children Additional Boarding Allowance, Parental Leave Pay, Dad and Partner Pay and Stillborn Baby Payment. These payments have the primary objective to ensure all children have access to an acceptable standard of living and/or have a workforce participation focus for eligible families. Stillborn Baby Payment provides some financial assistance to families who have delivered a stillborn baby. 202

203 Fringe benefits The United Nations Committee on Economic, Cultural and Social Rights has stated that a social security scheme should be sustainable and that the conditions for benefits must be reasonable, proportionate and transparent. This measure will provide for more equitable treatment across the welfare / payment system of income from fringe benefits and achieve the objective of creating savings to ensure the ongoing sustainability of the significant package of assistance provided by the Australian Government to families with dependent children. The right to social security and the right to an adequate standard of living: Article 9 of the International Covenant on Economic, Social and Cultural Rights (ICESCR), recognises the right of everyone to benefit from social security. Article 26 of the Convention on the Rights of the Child (CRC) requires countries to recognise the right of the child to benefit from social security. Benefits should take into account the resources and the circumstances of the child and persons having responsibility for the maintenance of the child. Article 11 of ICESCR recognises the right of everyone to an adequate standard of living for an individual and their family, including adequate food, clothing and housing, and the continuous improvement of living conditions. Article 27 of the CRC recognises that children have the right to a standard of living that is good enough to meet their physical and mental needs. A family s ATI is calculated when income testing family payments and youth income support payments to ensure that individuals who receive a tax benefit or concession which lowers their taxable income do not receive a higher rate of payment than a family who has the same overall family income but who makes different investment decisions or receives a different type of income. This measure will improve the consistency in how income testing rules treat fringe benefits. A fringe benefit is an extra benefit (such as a car, car parking or entertainment) which supplements an employee s salary. An employer is responsible for paying the tax liability associated with fringe benefits, not the employee. Under current rules, where a family receives fringe benefits from an employer, the net value of the fringe benefit (51 per cent) is used to calculate their ATI. In practice this means that two families may have the same collective income but the family who receives more of their income in fringe benefits is treated beneficially and may receive a higher rate of government assistance than a family with the same level of income, but whose income is received more in salary. 203

204 Budget Savings (Omnibus) Bill 2016 For example, on 1 July 2016 a single income family with two children aged under 13 with taxable income of $55,000 and reportable fringe benefits of $5,000 would, under current rules, be eligible for $490 more of FTB Part A than a family with taxable income of $60,000. In addition to the higher rate of FTB Part A, the family with fringe benefits would pay $1,600 less in tax because they do not have a tax liability on their fringe benefits. The gross value of reportable fringe benefits is currently used in a number of income tests including: child support obligations, Medicare Levy Surcharge, Superannuation Co-Contributions and Higher Education Loan Program and Financial Supplement repayments. Individuals who work for not-for-profit institutions defined under section 57A of the Fringe Benefits Tax Assessment Act 1986 certain public benevolent institutions, health promotion charities and some hospital and ambulance services) will continue to have net fringe benefit amounts assessed. This will ensure the Bill does not impact on the ability of these organisations to attract and retain staff through fringe benefit concessions in lieu of higher salaries. It is estimated that around 65 per cent of affected individuals will continue to have net fringe benefits assessed. For those individuals who are not eligible to have net fringe benefits assessed, the grossing up of fringe benefits may not impact their entitlement to a payment. Individuals who are eligible for income support are not income tested for the purposes of determining entitlement to FTB Part A, CCB or youth income support payments. Where a low income individual is subject to income testing but their grossed up income continues to be below the respective payment s income free area (the lower income free area for FTB Part A is $51,903, youth payments is $51,027 and $44,457 for CCB), they will continue to be eligible for the maximum rate of payment. This measure will affect families where the gross fringe benefit amount increases their ATI and results in either a reduction in their entitlement (more income is subject to a taper), or they cease to be eligible for payment because their income exceeds the payment s income cut-out. Table 1 provides examples of the income cut outs for different payments and shows that where a recipient ceased to be eligible for a payment under the new income testing rules, they have, in general, a high income and sufficient personal means to maintain an adequate standard of living for their family. 204

205 Fringe benefits Table 1 payment income cut-outs as at 1 July 2016 Payment Income test Example of family FTB Part A FTB Part B Youth Allowance / ABSTUDY / Assistance for Isolated Children (AIC) Additional Boarding Allowance (ABA) Child Care Benefit Child Care Rebate Parental Leave Pay Dad and Partner Pay Reduced by 20 cents for every dollar earned above $51,903 Income limit Reduced by 20 cents for every dollar of secondary income above $5,475 Reduced by 20 cents for every dollar earned above $51,027. FTB children and young people eligible for Youth Allowance, ABSTUDY or AIC Additional Boarding Allowance) are counted in the family income testing pool and reduce the reductions applied to Youth Allowees, ABSTUDY, AIC ABA recipients Taper structure depends on family size and family income. Lower income free area is $44,457 No income test. Pays 50% out of pocket approved child care costs up to $7,500 per child per year. Income limit Income limit One child aged under 13. Nil impact between $68,365 and $94,316 when eligible for the base rate Two children aged under 13. Nil impact between $84,826 and $94,316 when eligible for base rate Primary earner income test (single and couple families Income cut-out $101,957 $109,598 $100,000 Youngest child aged under five $27,886 Youngest child aged five and over $21,663 Young person aged under 18 (no siblings) living at home Young person aged 18 and over (no siblings) living at home Young person living away from home Two young persons aged under 18 living at home $82,357 $88,701 $108,253 $113,687 Young person eligible for AIC ABA $58,692 One child under school age $154,697 An individual must have adjusted taxable income in the previous entitlement year less than the income cut-out An individual must have adjusted taxable income in the previous entitlement year less than the income cut-out Not applicable $150,000 $150,

206 Budget Savings (Omnibus) Bill 2016 Payment Income test Example of family Stillborn Baby Payment Income limit An individual must have estimated adjusted taxable income of $60,000 or less for the six month period after they deliver a stillborn baby. Income cut-out $60,000 (estimated) Right to maternity leave The right to maternity leave is contained within Article 11(2)(b) of the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW) and Article 10(2) of the ICESCR. Article 11(2)(b) of the CEDAW requires States Parties to introduce maternity leave with pay or with comparable social benefits without loss of former employment, seniority or social allowances. Article 10(2) of the ICESCR states that, Special protection should be accorded to mothers during a reasonable period before and after childbirth. During such a period working mothers should be accorded paid leave or leave with adequate social security benefits. This measure will not affect the ability for parents to claim a minimum entitlement to paid maternity leave, equivalent to 18 weeks of payment at the rate of the national minimum wage, to support them to take time off work after the birth or adoption of their child. Eligible fathers or partners will continue to be eligible to receive two weeks of Dad and Partner Pay at the rate of the national minimum wage in addition to any employerprovided paid paternity leave. However these amendments will ensure that where individuals receiving fringe benefits who currently receive concessional treatment in the calculation of their ATI, have their eligibility for Paid Parental Leave is assessed equitably compared with other individuals whose ATI is derived from other sources. Rights of parents and children Article 18 of the CRC mandates that State Parties shall use their best efforts to ensure recognition of the principle that both parents have common responsibilities for the upbringing and development of the child, and to provide appropriate assistance, in particular to ensure that children of working parents have the right to benefit from child care services and facilities for which they are eligible. Child Care Benefit and Child Care Rebate (CCR) are child care fee assistance payments provided by the Government to individuals with children enrolled in approved child care, to help meet the costs of child care and assist with maintaining an adequate standard of living for working families. This measure will not directly impact upon, nor limit 206

207 Fringe benefits the right of parents to child care fee assistance to help meet the costs of child care. As an individual s ATI is taken into account in determining the amount of entitlement to CCB, to that extent, this measure may affect the amount of CCB calculated for individuals who receive gross fringe benefits. This measure will not affect an individual s entitlement to CCR as this payment is not income tested. The payment of CCR may offset the impact of any reduction to an individual s rate of CCB as CCR pays 50 per cent of an individual s out of pocket costs for child care up to $7,500 per child per year). This measure will not affect individuals who are on income support as they are exempt from the CCB income test. Where an individual with low income is subject to income testing but their new ATI continues to be below the lower income threshold of $44,457, they will continue to be eligible for the maximum rate of CCB. The impact of this measure will be limited to individuals where the inclusion of gross fringe benefits increases their ATI and results in either a reduction in their CCB entitlement, or they cease to be eligible for payment because their income exceeds the CCB income cut-out. As indicated in Table 1 above, the income threshold at which a recipient with one child under school age ceases to be eligible for CCB is currently $154,697. Individuals who may be affected by this measure due to a higher ATI would generally be higher income earners with sufficient personal means to meet the out of pocket costs of child care for their children, of which 50 per cent is offset through automatic entitlement to CCR (up to $7,500 per child per year). Any reduction in assistance for individuals are reasonable and proportionate in that they are a consequence of the Government treating income from all sources consistently, and not treating fringe benefits beneficially (unless the fringe benefits is received by certain employers). The impacted population will continue to benefit from concessional tax treatment of their fringe benefits but will no longer be eligible for payment concessions related to this income. In addition, income testing does not apply to CCR so families will continue to be eligible for CCB and / or CCR to meet the costs of child care. This measure will encourage the long-term financial sustainability of the child care payments system. Conclusion To the extent that changing the treatment of fringe benefits received by a family limits the right to social security, the right to an adequate standard 207

208 Budget Savings (Omnibus) Bill 2016 of living, the right to maternity care and access to child care services and facilities, these limitations are reasonable and proportionate. Human rights implications tax offsets and Low Income Supplement Overview of relevant tax offsets and Low Income Supplement The Low Income Supplement and Low Income Superannuation Contribution Supplement will both cease on 1 July The application provisions within this Schedule ensure this measure does not apply in working out an individual s qualification for the Low Income Supplement payment or Low Income Superannuation Contribution between 1 January 2017 and 30 June The Dependent (Invalid and Carer) Tax Offset (DICTO) is a tax offset for an individual if they do not receive FTB Part B and contribute to the maintenance of their spouse, relative or spouse s relative, who is genuinely unable to work due to invalidity or carer obligations. The spouse or relative must receive a carer payment or carer allowance, or be wholly engaged in providing care to a relative who is eligible for a Disability Support Pension, Special Needs Disability Pension or an Invalidity Service Pension. This measure may affect an individual s entitlement for DICTO if the new treatment of fringe benefits increases their ATI above $100,000, or increases the dependent s ATI to above $286. The rate of DICTO is subject to an income test which reduces the offset of $2,471 by 25 cents for every dollar the dependent earns above $286. The income cut-out is $10,634. The Net Medical Expenses Tax Offset is available for individuals with out-of-pocket medical expenses relating to disability aids, attendant care or aged care expenses until 1 July This measure will affect individuals if the new treatment of fringe benefits increases their ATI to above $90,000 for singles or $180,000 for couples. Where ATI exceeds this income threshold, the individual will still be able to claim a reimbursement of ten per cent for eligible out of pocket expenses incurred in excess of $5,343. If their income stays below these thresholds, they will continue to be able to claim a reimbursement of 20 per cent for net medical expenses over $2,265. The Low Income Aged Persons and Pensioners (Senior Australian and Pensioner Tax Offset (SAPTO)) is a tax offset that is available for age and service age pensioners, and self-funded retirees of Age Pension age. This measure may impact an individual depending on if the new treatment of fringe benefits increases their income above a relevant threshold. For , single persons can receive the maximum rate offset of $2,230 if 208

209 Fringe benefits they have income less than $32,279 and will cease to be eligible if their income increases to above $50,119. For a partnered individual, the partner and their spouse may be eligible for the maximum rate of SAPTO ($1,602) if they each have income less than $28,974 and will cease to be eligible if they have income above $83,580 (or $41,790 each). The income thresholds and SAPTO rate for a couple increases slightly if they need to live apart due to illness or because a member of the couple lived in a nursing home. A Dependent (non-student child under 21 or student) Notional Tax Offset provides a notional tax offset for an income year if an individual contributes to the maintenance of a non-student child or a student dependent. A Dependent (non-student child under 21 or student) Notional Tax Offset of $376 for the oldest non-student child under 21 dependant or student dependant, and $286 for any other younger dependants can only be taken into account in calculating an individual s eligibility for a Zone tax offset under section 79A of the Income Tax Assessment Act 1936, for certain persons serving with an armed force under the control of the United Nations under section 23AB of the Income Tax Assessment Act 1936 and members of the Defence Force serving overseas under section 79B of the Income Tax Assessment Act The notional tax offset is reduced by 25 cents for every dollar the dependent earns above $286. The dependent income cut-out is $1,770 for the oldest dependent and $1,410 for a younger dependent. The right to social security and the right to an adequate standard of living: Tax offsets or rebates directly reduce the amount of tax payable on an individual s taxable income. The offsets can reduce an individual s tax payable to zero but on their own do not give a refund. This measure may affect individuals who will be eligible for a lower amount of offset or cease to be entitled to that offset. Tax offsets are not provided to secure an individual s right to social security or to support an adequate standard of living but are available after a financial year to lower the amount of tax an individual is liable to pay in recognition that the individual may have incurred specific costs related to their circumstances. This measure does not affect an individual s eligibility for (or rate of) the social security safety net of the Age Pension or Service Age Pension which are the primary payments made by the Government to ensure older people unable to fully support themselves can have an adequate standard of living. This measure does not affect an individual s eligibility for (or rate of) the social security safety net of Carer Payment, Carer Allowance or Disability 209

210 Budget Savings (Omnibus) Bill 2016 Support Pension or Invalidity Service Pension which are the primary payments made by the Government to ensure people unable to fully support themselves can have an adequate standard of living. Conclusion To the extent that these changes limit an individual s entitlement to certain tax offsets these limitations are reasonable and proportionate. 210

211 Chapter 16 Carer allowance Outline of chapter Schedule 16 to the Bill makes amendments to the Social Security Administration Act to align carer allowance and carer payment start day provisions, by removing provisions that apply to backdate a person s start day in relation to payment of carer allowance in certain circumstances. The general start day rules under Part 2 of Schedule 18 to the Social Security Administration Act will apply to determine the date of effect of a decision to grant carer allowance. Background Schedule 18 of the Social Security Administration Act deals with working out the start day for various social security payments and concessions. Part 3 of Schedule 18 deals with working out a backdated start day in relation to certain social security payments, including carer allowance. The backdated start day under Part 3 may be a day that is earlier than the day worked out under the general start day rules in Part 2 of Schedule 18. Under items 16 and 17 of Part 3 of Schedule 18 to the Social Security Administration Act, the start day for carer allowance for a disabled child, or for an adult where the disability affecting the adult is due to an acute onset, may be up to 12 weeks before the day on which the person made a claim. The start day cannot be earlier than the date of the disability for a child, or the date of acute onset of the disability for an adult, even if that date is less than 12 weeks before the date of claim. By contrast, the start day for carer payment cannot be earlier than the day worked out under Part 2 of Schedule 18. The amendments made by this Schedule will not affect whether a person is qualified for carer allowance, but mean a person s start day for carer allowance will be the day worked out under the general start day rules in Part 2 of Schedule 18. The amendments made by this Schedule commence on the later of 1 January 2017 and the day after this Act receives the Royal Assent. 211

212 Budget Savings (Omnibus) Bill 2016 Explanation of the changes Amendments to the Social Security Administration Act Item 1 repeals clauses 16 and 17 of Schedule 18 to the Social Security Administration Act, meaning a person s start day for carer allowance will not be backdated to a day before the start day worked out under the general start day rules in Part 2 of Schedule 18 to the Social Security Administration Act. Item 2 is an application provision which states that the amendment made by item 1 of this Schedule applies to claims for carer allowance made on or after the commencement of that item. STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Overview Carer allowance This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act This Schedule amends the Social Security Administration Act 1999 to change the earliest date of effect for a grant of carer allowance to the date the claim is lodged or the date of first contact with the Department of Human Services. New claims for carer allowance received after 1 January 2017 will no longer be able to be backdated up to 12 weeks before the person contacted the Department of Human Services about carer allowance. The start day for carer allowance for a person caring for a child under the age of 16 years can currently be backdated up to 12 weeks before the date of claim for a person caring for a child with disability. The start day for carer allowance (adult) can currently be backdated up to 12 weeks before the date of claim for a person caring for an adult with a disability, provided the disability is due to an acute onset. 212

213 Carer allowance Human Rights implications Right to Social Security This Schedule engages the right to social security as recognised in Article 9 of the International Covenant on Economic, Social and Cultural Rights (ICESCR). The right to social security requires that a system be established under domestic law, and that public authorities must take responsibility for the effective administration of the system. The social security scheme must provide a minimum level of benefits to all individuals and families that will enable them to cover essential living costs. Carer allowance itself is not an income support payment and may be paid in addition to an income support payment, such as carer payment. Carer allowance recipients, therefore, have access to additional personal income or social security income support to cover essential living costs. Other social security payments are not affected by this measure. The United Nations Committee on Economic, Cultural and Social Rights (the committee) has stated that a social security scheme should be sustainable and that the conditions for benefits must be reasonable, proportionate and transparent (see General Comment No. 19). This measure will ensure that the social security system remains sustainable and targeted to those recipients with the greatest need. The amendments will also align the date of effect for the grant of carer allowance with other social security payments made under the Social Security Act. Conclusion The amendments made by this Schedule are compatible with human rights because: they do not affect a person s entitlement to income support payments, such as carer payment; to the extent that the changes reduce the period from which carer allowance is payable, the reduction is reasonable, necessary and proportionate to achieving a legitimate aim; and they do not limit or preclude eligible persons from gaining or maintaining access to carer allowance under the Social Security Act,

214

215 Chapter 17 Indexation of family tax benefit and parental leave thresholds Outline of chapter Schedule 18 to the Bill makes amendments to the family assistance indexation provisions to maintain the higher income free area for family tax benefit (FTB) Part A and the primary earner income limit for FTB Part B for a further three years. Under the current law, indexation of these amounts is paused until and including 1 July These amendments ensure that indexation does not occur on 1 July of 2017, 2018 and Similarly, amendments are made to ensure that the paid parental leave income limit is not indexed for a further three years, until 1 July These measures commence on Royal Assent. Background Subclause 3(7) of the A New Tax System (Family Assistance) Act 1999 currently provides that the basic higher income free area for FTB Part A and the primary earner income limit for FTB Part B are not to be indexed on 1 July of 2009 and each 1 July until and including 1 July The basic higher income free area for FTB Part A is currently $94,316. If an individual s adjusted taxable income is above this amount, then their rate of FTB Part A is calculated using Method 2. The primary earner income limit for FTB Part B is currently $100,000. An individual cannot access FTB Part B if their adjusted taxable income is more than this amount (unless they or their partner are receiving an income support payment). The amendments made by this Schedule maintain these amounts for a further three years. To be eligible for parental leave pay or dad and partner pay, a person must satisfy, among other things, an income test. In general terms, to satisfy the income test, the person s income for a particular income year must not be more the PPL income limit. Under the current rules, this limit is $150,000 until 30 June 2017 and is then to be indexed. 215

216 Budget Savings (Omnibus) Bill 2016 The amendments made by this Schedule maintain the current PPL income limit until 30 June 2020 (with indexation occurring on 1 July 2020). Explanation of the changes Amendment of the A New Tax System (Family Assistance) Act 1999 Item 1 amends subclause 3(7) of Schedule 4 so that the provision also refers to 1 July of 2017, 2018 and The effect is that the basic higher income free area for FTB Part A and the primary earner income limit for FTB Part B will not be indexed on these dates. The next indexation of these amounts will be on 1 July Amendments to the Paid Parental Leave Act 2010 Section 41 sets out the PPL income limit. Currently, the limit is set at $150,000 until before 1 July 2017 (paragraph 41(a) refers). Item 3 amends this provision so that the PPL income limit will remain at $150,000 until before 1 July Indexation will then occur on 1 July Section 42 provides for the indexation of the PPL income limit. Under subsection 42(1), the PPL income limit is to be indexed on each 1 July starting on 1 July Item 4 amends this provision so that the PPL income limit is first indexed on 1 July Items 2 and 5 make consequential amendments to the Guide in section 30 (relating to eligibility for parental leave pay) and the Guide in section 115CA (relating to eligibility for dad and partner pay). STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Indexation of family tax benefit and parental leave thresholds This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act

217 Indexation of family tax benefit and parental leave thresholds Overview The schedule will have the effect of fixing the value of certain family payments thresholds for three years. From 1 July 2017, this measure will fix for three years: the higher income free area at $94,316 of the Family Tax Benefit Part A; the primary earner income limit at $100,000 of Family Tax Benefit Part B; and the Paid Parental Leave income limit at $150,000. Indexation will resume on 1 July Human rights implications The schedule engages the following human rights: Right to social security Article 9 of the International Covenant on Economic, Social and Cultural Rights (ICESCR) recognises the right of everyone to social security. Article 26 of the Convention on the Rights of the Child (CRC) requires countries to recognise the right of the child to benefit from social security. Benefits should take into account the resources and the circumstances of the child and persons having responsibility for the maintenance of the child. The United Nations Committee on Economic, Cultural and Social Rights recognises that a social security scheme should be sustainable, and that the conditions for benefits must be reasonable and proportionate. The changes to the value of the family payments thresholds assist in targeting payments according to need. Families will not have their payments reduced if their family income does not increase over the three years This reform will help ensure the sustainability of the family payments system. Conclusion These amendments are compatible with human rights because they advance the protection of human rights and, to the extent that these 217

218 Budget Savings (Omnibus) Bill 2016 changes limit access to family payments, these limitations are reasonable and proportionate. 218

219 Chapter 18 Pension means testing for aged care residents Outline of chapter Schedule 18 to the Bill introduces the Mid-Year Economic and Fiscal Outlook measure, Age Pension aligning the pension means testing arrangements with residential aged care arrangements. Background This Schedule amends the Social Security Act and Veterans Entitlements Act to remove an exemption from the income test in those Acts that allows aged care residents to rent their former residence and have the rental income excluded from their assessable income. The removal of this exemption will only apply to people who enter residential or flexible aged care services on or after the commencement of the Schedule. This Schedule also amends the Social Security Act and Veterans Entitlements Act to remove an exemption from the assets test in those Acts that provides an indefinite assets test exemption for the former principal residence from the pension assets test where the property is rented and aged care accommodation costs are paid on a periodic basis. A person who enters a residential or flexible aged care service after the commencement of this Schedule can still benefit from provisions in the Social Security Act and Veterans Entitlements Act that treat a person s former residence as their principal home for a period of up to two years from the day on which the person enters care (unless the home is occupied by their partner, in which case it will continue to be exempt). The amendments in this Schedule allow a person who enters a residential or flexible aged care service before the commencement of this Schedule to continue to be eligible for the income test and assets test exemptions if they leave aged care and re-enter residential or flexible aged care services within 28 days. This includes where they move to a new aged care facility. The amendments made by this Schedule commence the first 1 January or 1 July to occur after the day this Act receives the Royal Assent. 219

220 Budget Savings (Omnibus) Bill 2016 Explanation of the changes Item 1 adds a note at the end of paragraphs 8(8)(zn), (zna) and (znaa) of the Social Security Act that refers to new subsections 8(10A) and 8(10B) of the Social Security Act. Item 2 inserts new subsections 8(10A), (10B) and (10C) in the Social Security Act. These subsections make amendments to the income test in section 8 of the Social Security Act. New subsection 8(10A) provides that paragraphs 8(8)(zn), (zna) and (znaa) of the Social Security Act do not apply in relation to a person who first enters a residential care service or a flexible care service on or after the commencement of this subsection. Paragraphs 8(8)(zn), (zna) and (znaa) of the Social Security Act exclude from the definition of income any rent a person receives from their principal home that they, or their partner, earns, derives or receives from another person while liable to pay: an accommodation charge; all or some of an accommodation bond by periodic payments; or all or some of a daily accommodation payment or a daily accommodation contribution. New subsection 8(10A) applies so that if a person first enters a residential care service or a flexible care service on or after the commencement of the subsection, this rent will no longer be excluded from the person s income under section 8 of the Social Security Act. As a consequence of new subsection 8(10A), the rent will be treated as income for means testing purposes. New subsection 8(10B) provides that paragraphs 8(8)(zn), (zna) and (znaa) do not apply, and never again apply, in relation to a person if: (a) the person enters a residential care service or a flexible care service on or after the commencement of this subsection; and (b) that entry occurs more than 28 days after the day the person last ceased being provided with residential care or 220

221 Pension means testing for aged care residents flexible care through a residential care service or a flexible care service (other than because the person was on leave). This subsection ensures that people in residential care or flexible care prior to the commencement of this subsection who leave care for a period of up to 28 days (excluding periods of leave) can re-enter residential care or flexible care on or after the commencement of this subsection and have rent excluded from their income in accordance with paragraphs 8(8)(zn), (zna) and (znaa) of the Social Security Act. New subsection 8(10C) provides that where an expression is used in new subsections 8(10A) or 8(10B) and is also used in the Aged Care Act 1997 the expression will have the same meaning in that subsection as in that Act. Item 3 inserts new subsections 11A(8A), (8B) and (8C) in the Social Security Act. These new subsections make amendments to section 11A of the Social Security Act. Section 11A sets out the definition of principal home for the Social Security Act. New subsection 11A(8A) provides that subsection 11A(8) of the Social Security Act does not apply in relation to a person who first enters a residential care service or a flexible care service on or after the commencement of this subsection. Subsection 11A(8) of the Social Security Act allows a person to treat their former residence as their principal home where the Secretary is satisfied that they have left their former principal home to enter into a care situation. The person s former residence will continue to be treated as their principal home if the person, or the person s partner, is earning, deriving or receiving rent for the residence from another person and the person is liable to pay one of a range of aged care payments detailed in subsection 11A(8). By treating their former residence as a principal home a person can treat their former residence as an exempt asset for the purposes of the assets tests in the Social Security Act. The effect of new subsection 11A(8A) is that a person who first enters a residential care service or a flexible care service on or after the commencement of this subsection will not be able to rely upon subsection 11A(8) to treat their former residence as their principal home. The 221

222 Budget Savings (Omnibus) Bill 2016 person therefore cannot rely upon subsection 11A(8) to treat their former residence as an exempt asset under the Social Security Act. New subsection 11A(8B) provides that subsection 11A(8) does not apply, and never again applies, in relation to a person if: (a) the person enters a residential care service or a flexible care service on or after the commencement of this subsection; and (b) that entry occurs more than 28 days after the day the person last ceased being provided with residential care or flexible care through a residential care service or a flexible care service (other than because the person was on leave). This subsection ensures that people who are in residential care or flexible care prior to the commencement of this subsection and leave care for a period of up to 28 days (excluding periods of leave) can re-enter residential care or flexible care on or after the commencement of this subsection and treat their former residence as their principal home under subsection 11A(8) of the Social Security Act. New subsection 11A(8C) provides that where an expression is used in new subsections 11A(8A) or 11A(8B) and is also used in the Aged Care Act 1997 the expression will have the same meaning in that subsection as in that Act. Item 4 adds a new note (Note 4) at the end of paragraph 5H(8)(nc) of the Veterans Entitlements Act. This new note refers to new subsections 5H(11A) and (11B). Item 5 adds three new notes (Notes 1-3) at the end of paragraph 5H(8)(nd) of the Veterans Entitlements Act. This new note refers to subsections 5N(2), 5LA(8), 5LA (9) and new subsections 5H(11A) and (11B). Item 6 adds a new note at the end of paragraph 5H(8)(nf) of the Veterans Entitlements Act. This new note refers to new subsections 5H(11A) and (11B). Item 7 inserts new subsections 5H(11A), (11B) and (11C) in the Veterans Entitlements Act. These subsections make amendments to the income test in section 5H of the Veterans Entitlements Act. 222

223 Pension means testing for aged care residents New subsection 5H(11A) provides that paragraphs 5H(8)(nc), (nd) and (nf) of the Veterans Entitlements Act do not apply in relation to a person who first enters a residential care service or a flexible care service on or after the commencement of this subsection. Paragraphs 5H(8)(nc), (nd) and (nf) of the Veterans Entitlements Act exclude from the definition of income any rent a person receives from their principal home that they, or their partner, earns, derives or receives from another person while liable to pay: an accommodation charge; all or some of an accommodation bond by periodic payments; or all or some of a daily accommodation payment or a daily accommodation contribution. New subsection 5H(11A) applies so that if a person first enters a residential care service or a flexible care service on or after the commencement of this subsection, this rent will no longer be excluded from the person s income under section 5H of the Veterans Entitlements Act. As a consequence of new subsection 5H(11A), the rent will be treated as income for means testing purposes. New subsection 5H(11B) provides that paragraphs 5H(8)(nc), (nd) and (nf) of the Veterans Entitlements Act do not apply, and never again apply, in relation to a person if: (a) the person enters a residential care service or a flexible care service on or after the commencement of this subsection; and (b) that entry occurs more than 28 days after the day the person last ceased being provided with residential care or flexible care through a residential care service or a flexible care service (other than because the person was on leave). This subsection ensures that people in residential care or flexible care prior to the commencement of this subsection who leave care for a period of up to 28 days (excluding periods of leave) can re-enter residential care or flexible care on or after the commencement of this subsection and have rent excluded from their income in accordance with paragraphs 5H(8)(nc), (nd) and (nf) of the Veterans Entitlements Act. New subsection 5H(11C) provides that where an expression is used in new subsections 5H(11A) or 5H(11B) and is also used in the Aged Care 223

224 Budget Savings (Omnibus) Bill 2016 Act 1997 the expression will have the same meaning in that subsection as in that Act. Item 8 inserts new subsections 5LA(8A), (8B) and (8C) in the Veterans Entitlements Act. These new subsections make amendments to section 5LA of the Veterans Entitlements Act. Section 5LA sets out the definition of principal home for the Veterans Entitlements Act. New subsection 5LA(8A) provides that subsection 5LA(8) of the Veterans Entitlements Act does not apply in relation to a person who first enters a residential care service or a flexible care service on or after the commencement of this subsection. Subsection 5LA(8) of the Veterans Entitlements Act allows a person to treat their former residence as their principal home where the Commission is satisfied that they have left their former principal to enter into a care situation. The person s former residence will continue to be treated as their principal home if the person, or the person s partner, is earning, deriving or receiving rent for the residence from another person and the person is liable to pay one of a range of aged care payments detailed in subsection 5LA(8). By treating their former residence as a principal home a person can treat their former residence as an exempt asset for the purposes of the assets tests in the Veterans Entitlements Act. The effect of new subsection 5LA(8A) is that a person who first enters a residential care service or a flexible care service on or after the commencement of this subsection will not be able to rely upon subsection 5LA(8) to treat their former residence as their principal home. The person therefore cannot rely upon subsection 5LA(8) to treat their former residence as an exempt asset under the Veterans Entitlements Act. New subsection 5LA(8B) provides that subsection 5LA(8) does not apply, and never again applies, in relation to a person if: (a) the person enters a residential care service or a flexible care service on or after the commencement of this subsection; and (b) that entry occurs more than 28 days after the day the person last ceased being provided with residential care or 224

225 Pension means testing for aged care residents flexible care through a residential care service or a flexible care service (other than because the person was on leave). This subsection ensures that people in residential care or flexible care prior to the commencement of this subsection who leave care for a period of up to 28 days (excluding periods of leave) can re-enter residential care or flexible care on or after the commencement of this subsection and treat their former residence as their principal home under subsection 5LA(8) of the Veterans Entitlements Act. New subsection 5LA(8C) provides that where an expression is used in new subsections 5LA(8A) or 5LA(8B) and is also used in the Aged Care Act 1997 the expression will have the same meaning in that subsection as in that Act. STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Pension means testing for aged care residents This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act Overview of the Schedule This Schedule will improve the sustainability and equity of the income support system by removing the social security income and assets test exemptions that are available to aged care residents who are renting their former home and paying their aged care accommodation costs by periodic payments. New entrants to residential and flexible aged care from the commencement of this Schedule have: 1) the net rental income from their former home assessed under the social security income test; and 2) the value of their former home assessed under the social security assets test after two years, unless the home is occupied by a protected person, such as their partner, in which case it will continue to be exempt. 225

226 Budget Savings (Omnibus) Bill 2016 The changes will not impact income support recipients who enter residential and flexible aged care before commencement provided they remain in care or are only absent from care for a period not exceeding 28 days. They will continue to be eligible for these income and assets test exemptions. This Schedule commences on the first 1 January or 1 July to occur after the day this Act receives the Royal Assent Human rights implications This Schedule engages the following human rights: Right to social security Article 9 of the International Covenant on Economic, Social and Cultural Rights (ICESCR) recognises the right of everyone to social security. This right requires a social security system to be established and that States Parties must, within their maximum available resources, ensure access to a social security scheme that provides a minimum essential level of benefits to all individuals and families that will enable them to acquire at least essential health care, basic shelter and housing, water and sanitation, foodstuffs, and the most basic forms of education. This Schedule is consistent with supporting the right to social security. The social security system uses income and assets testing to ensure the social security system: is sustainable, by reducing pension outlays is targeted to those in need, by reducing pension support to those who have the financial capacity to be more self-reliant encourages self-provision, by progressively withdrawing pension payments as an individual s level of income and asset increases to ensure that people with additional private income and assets are better off than those relying solely on the pension; and is fair, by ensuring individuals with similar levels of income and assets receive similar levels of assistance through the pension. While the effect of this Schedule will be that pension payments for some recipients who enter aged care from the commencement of this Schedule will be lower than would have been the case if the income and assets test 226

227 Pension means testing for aged care residents exemptions had not been removed, those affected will hold substantial levels of private income and assets. They have the capacity to be more self-reliant and it is appropriate that they: use their income and assets to help support themselves; and do not get higher pension payments that other people in aged care who have similar levels of income and assets, but who are not eligible for the income or assets test concessions. Pensioners who are affected by the changes and who receive larger amounts of rental income will better off in terms of their overall income than if they did not receive income from rent. This is because of the design of the pension income test, which reduces pension by 50 cents for every $1 of private income over the pension income test free areas, meaning that pensioners are always better off in terms of their total income when they have private income. The pension income test only assesses net rent received, that is, the rent received less legitimate expenses, such as rates. Pensioners who are affected by the changes and receive modest amounts of rent will not have their pension reduced if their total private income is less than the pension income test free areas. Where the value of a pensioner s former home is assessed for social security purposes after two years, there are asset test free areas that will allow single non-homeowner pensioners to have assets of up to $450,000 before their pension is reduced and about $747,000 before their pension is cancelled as at 1 January These amounts are higher again for couples. If a pensioner s payment is reduced or cancelled because their assessable assets exceed those amounts, they have the option of continuing to rent the home, or selling the home and investing and/or drawing down the proceeds, to compensate for the reduction in pension. Affected pensioners may also have the option of obtaining additional income through the Pension Loans Scheme. The Pension Loans Scheme is available through Centrelink and the Department of Veterans Affairs to part-rate pensioners and some self-funded retirees who own real estate. Under this scheme, a person who is of Age Pension age, or the partner of someone who is, may be able to obtain a loan that will bring their fortnightly payment up to the maximum pension rate. Repayments can be made at any time or the debt can be left, including the accrued interest, to be recovered from the person s estate. The loan is secured against the value of any real estate they own. 227

228 Budget Savings (Omnibus) Bill 2016 The current income and assets test exemptions do not require that the amount of rent charged reflects commercial rates, nor is the amount of rent exempted limited to the amount of the aged care accommodation periodic payment. Aged care residents can qualify for the concessions by paying the bulk of their accommodation costs by a lump sum (which is assets test exempt under social security law) and leaving a small portion outstanding to be paid by small periodic payments. In these circumstances, the entire net rent amount is exempted from the pension income test, even though the periodic payment is much less than the rent received, and the indefinite assets test exemption under social security law for the home and the lump sum payment applies. The current exemption is also inequitable. Net rental income is fully assessed for pensioners in aged care who have a rental property which is not their former home. If a person leaves aged care and returns to live in their home, their pension income and assets test assessments would be adjusted to reflect that they are no longer renting the home and that the home would be an exempt asset, as it would be their principal home. Aged care fees and charges are partly based a person s total income, including pension payments with the minimum aged care fee being a percentage of the pension rate. A reduction in pension payments under this measure will reduce a person s total income assessable under the aged care means test, which could lead to a reduction in their aged care fees and charges. Improving the long-term sustainability of the income support system is important to ensure the income support system will continue to provide an adequate level of support to those in need over the long term. Conclusion The amendments in this Schedule are compatible with human rights because they do not limit access to social security. 228

229 Chapter 19 Employment income Outline of chapter Schedule 19 introduces the Mid-Year Economic and Fiscal Outlook measure, Remove the Exemptions for Parents in Employment Nil Rate Periods. This Schedule removes the exemption from the income test for family tax benefit Part A recipients and the exemption from the parental income test for dependent young people receiving youth allowance and ABSTUDY living allowance if the parent is receiving either a social security pension or social security benefit, and the fortnightly rate of pension or benefit is reduced to nil because of employment income (either wholly or partly). This measure improves fairness and targeting of payments and facilitates equity between families with similar incomes. Background Currently, families receiving family tax benefit Part A are subject to an income test, and dependent young people receiving youth allowance or ABSTUDY living allowance payments are subject to a parental income test, when determining their rate of payment, unless the family or parent is eligible for a social security pension or benefit. The income test exemption for income support recipients is extended to income support recipients who are in an employment income nil rate period. An employment income nil rate period allows an income support recipient to retain entitlement to their income support payment for up to 12 weeks if their income support payment is not payable due to employment income (either wholly or partly). This measure will remove the exemption from the income test for families receiving family tax benefit Part A and the exemption from the parental income test for dependent young people receiving youth support payments, where the family or parent is in an employment income nil rate period. This means that family income testing for family tax benefit Part A or youth support payments will apply in any fortnight a family is not entitled to receive a rate of income support. 229

230 Budget Savings (Omnibus) Bill 2016 Explanation of the changes Amendments to the Family Assistance Act Item 1 amends subparagraph 3(1)(b)(i) of the definition of receiving in the Family Assistance Act by excluding clause 38L of Schedule 1 of the Family Assistance Act from the operation of that subparagraph. The effect of this amendment means that the exemption from the family tax benefit Part A income test will no longer apply where the individual (and partner) are in an employment nil rate period. Clause 38L, however, will continue to apply if an individual and/or their partner are eligible to receive a rate of social security pension, social security benefit, service pension or income support supplement in that fortnight. Amendments to the Social Security Act Item 2 amends paragraph 23(4AA)(e) of the definition of receiving in the Social Security Act so that the exemption from the parental income test in point 1067G-F3 of the Social Security Act no longer applies for the purposes of the person being taken to receive a social security pension or social security benefit under subsection 23(4A) of the definition. The effect of this amendment means that the parents of recipients of youth allowance or ABSTUDY living allowance who are in an employment income nil rate period will no longer be taken to be receiving a social security pension or benefit in any fortnight in which they have a nil rate of income support. Parental income testing will apply when calculating the rate of youth support during these fortnights. Item 3 is a technical amendment due to the amendment in item 4. Item 4 repeals paragraph 1067G-F3(d) to eliminate the possibility of a child being exempt from the parental income test if the parent retains their health care card during the 12 week employment income nil rate period due to the amendment made in item 2. Application provisions Item 5 is an application provision for these amendments. Subitem 5(1) provides that the amendment made by item 1 applies in relation to working out the rate of family tax benefit for days on or after the commencement date of 1 July Subitem 5(2) provides that the amendment made by item 2 applies in relation to working out the rate of youth allowance or ABSTUDY living allowance for days on or after the commencement date of 1 July

231 Employment income STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Employment income This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act Overview This Schedule will, from 1 July 2018, remove existing income test exemptions for parents in employment nil rate periods under the: (i) family tax benefit Part A income test; and (ii) parental income test that applies to dependent young children receiving youth allowance and ABSTUDY living allowance. Human rights implications The Schedule engages the following human rights: Right to social security The Schedule is consistent with supporting the right to social security. The Schedule removes the exemption from the income test for family tax benefit Part A recipients and the exemption from the parental income test for dependent young people receiving youth allowance and ABSTUDY living allowance if the parent is receiving either a social security pension or social security benefit, the rate of which is reduced to nil, either wholly or in part, because of employment income. Removal of the exemptions recognises that they cause an inequity between families, where those families subject to the exemptions can receive greater financial assistance from family and youth payments than families not subject to the exemptions, even though they have the same income. Removal of the exemptions also recognises that a family with income, including employment income sufficient to reduce their social security payment to nil, has financial means greater than a family that is receiving 231

232 Budget Savings (Omnibus) Bill 2016 a social security payment. The measure will encourage greater selfsufficiency by reducing perverse incentives for families to maintain contact with the income support system rather than move to higher labour force attachment. Conclusion The amendments in the Schedule are compatible with human rights because they do not limit access to social security. 232

233 Chapter 20 Psychiatric confinement Outline of chapter Schedule 20 to the Bill provides that a person who is undergoing psychiatric confinement because they have been charged with a serious offence will be taken to be in psychiatric confinement for the purpose of the social security law, irrespective of whether the person is undertaking a course of rehabilitation. One of the effects of this is that relevant social security payments will not be payable to the person while the person is undergoing that psychiatric confinement. Background The Social Security Act 1991 (Social Security Act) currently provides that certain social security payments are not payable to a person who is undergoing psychiatric confinement because the person has been charged with an offence. However, the confinement of a person in a psychiatric institution during a period in which the person is taken to be undertaking a course of rehabilitation is not taken to be psychiatric confinement. In Franks v Secretary, Department of Family and Community Services [2002] FCAFC 436, the Full Federal Court held that a course of rehabilitation was to be interpreted broadly for the purpose of the definition of psychiatric confinement. The effect of the decision in Franks is that the vast majority of people who are in a psychiatric institution would be undertaking a course of rehabilitation and, as a consequence, a social security payment would continue to be payable to the person (provided all the other qualification and payability requirements are satisfied). This Schedule provides that a person who is undergoing psychiatric confinement because they have been charged with a serious offence will be taken to be in psychiatric confinement for the purpose of the social security law, irrespective of whether the person is undertaking a course of rehabilitation. One of the effects of this is that relevant social security payments will not be payable to the person while the person is undergoing that psychiatric confinement. 233

234 Budget Savings (Omnibus) Bill 2016 A serious offence will include the offences of murder or attempted murder, manslaughter, rape or attempted rape, as well as other violent offences that are punishable by imprisonment for life or for a period (or maximum period) of at least seven years. This Schedule will also provide for circumstances in which a person is not taken to be undergoing psychiatric confinement (meaning that a social security payment will be payable) during a period that is a period of integration back into the community for the person. This measure will commence on 1 July Explanation of the changes Amendments to the Social Security Act Items 1, 2, 4, 7, 8 and 9 are technical amendments that are consequential to the amendments made by item 6 to insert new subsections 23(9A), (9B), (9C), (9D), (9E) and (9F). These items amend subsections and notes that refer to subsections 23(8) and (9). Subsections 23(8) and (9) provide for when a person is in psychiatric confinement. New subsections 23(9A), (9B), (9C), (9D), (9E) and (9F) will also be relevant for determining whether a person is undergoing psychiatric confinement. Item 3 inserts a definition of serious offence into subsection 23(1) of the Social Security Act. A serious offence will have the meaning given by new subsections 23(9E) and (9F) (inserted by item 6 of this Schedule). Item 5 provides that current subsection 23(9) is subject to new subsection 23(9A) (inserted by item 6 of this Schedule). Currently, subsection 23(9) provides that the confinement of a person in a psychiatric institution during a period when the person is undertaking a course of rehabilitation is taken not to be psychiatric confinement. New subsection 23(9A) provides for circumstances in which subsection 23(9) does not apply. Item 6 inserts new subsections 23(9A), (9B), (9C), (9D), (9E) and (9F). New subsection 23(9A) New subsection 23(9A) provides that subsection 23(9) does not apply in relation to a person whose confinement in a psychiatric institution is because the person has been charged with a serious offence. New subsections 23(9E) and (9F) provide the meaning of a serious offence. 234

235 Psychiatric confinement The effect of new subsection 23(9A) is that a person who is in a psychiatric institution because they have been charged with a serious offence will be taken to be in psychiatric confinement, for the purpose of the social security law, irrespective of whether the person is undertaking a course of rehabilitation. Section 1158 of the Social Security Act relevantly provides that an instalment of a certain range of social security payments is not payable to a person in respect of a day on which the person is undergoing psychiatric confinement because the person has been charged with an offence. The social security payments mentioned in section 1158 are social security pensions, social security benefits, parenting payment, carer allowance, mobility allowance or pensioner education supplement. The effect of new subsection 23(9A), together with current section 1158, will be that a social security payment is not payable to a person who is undergoing psychiatric confinement because the person has been charged with a serious offence. This will be the case even if the person is taken to be undertaking a course of rehabilitation. A person may be undergoing psychiatric confinement because they have been charged with an offence if, for example, the person: is having their fitness to stand trial assessed; has been found unfit to stand trial because of the person s mental impairment; or has been found not guilty of the charge because of the person s mental impairment. There would need to be a connection between the charge and the psychiatric confinement before a person would be taken to be undergoing psychiatric confinement because the person has been charged with a serious offence. A social security payment will continue to be payable to a person who is undergoing psychiatric confinement for reasons unrelated to the commission of an offence. A person would also not be taken to be undergoing psychiatric confinement because the person has been charged with an offence if the person: was found not guilty of the offence on the basis that they did not commit the offence; and remains in psychiatric confinement following the not guilty finding. 235

236 Budget Savings (Omnibus) Bill 2016 It is likely that a person who is found guilty of an offence but who is remanded in a psychiatric institution following the guilty finding, would be taken to be in gaol for the purpose of the social security law. Subsection 23(5) of the Social Security Act currently provides that a person is in gaol for the purposes of the social security law if the person is being lawfully detained (in prison or elsewhere) while under sentence for conviction of an offence and not on release or licence. Relevant social security payments are not currently payable to people in gaol. This Schedule has no impact on people who are in gaol. New subsections 23(9B) and (9C) New subsection 23(9B) provides that the confinement of a person in a psychiatric institution because the person has been charged with a serious offence is taken not to be psychiatric confinement during a period that is a period of integration back into the community for the person. New subsection 23(9C) provides that whether a period is a period of integration back into the community is to be worked out in accordance with a legislative instrument made by the Minister. One of the effects of a person being taken not to be in psychiatric confinement during a period that is a period of integration back into the community is that section 1158 of the Social Security Act will not preclude the payment of a social security payment during that period. As people in psychiatric confinement move through their rehabilitation, it is usual for them to be granted various forms of leave from the psychiatric institution before they are unconditionally released. After a point in this period of integration, it will be necessary for a person to have access to funds to assist the person with costs of living and to provide the person with autonomy as they prepare for re-establishing themselves in the community. It 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, should this be appropriate. A legislative instrument made for the purpose of new subsection 23(9C) may provide, for example, that a period of integration back into the community for a person is where the person regularly spends a set number of nights in a fortnight outside of the psychiatric institution. The legislative instrument may also provide that a person s day of integration back into the community is the first day of the fortnight in which the person spends the set number of nights outside of the psychiatric institution. An effect of this would be that the person s social security payment is payable for the full fortnight, even if the person spends some days in that fortnight in the psychiatric institution. 236

237 Psychiatric confinement New subsection 23(9D) The effect of new subsection 23(9D) is that a person who has been charged with a serious offence, will be deemed to be undergoing psychiatric confinement (meaning that a social security payment will not be payable) on certain days, even if, on those days, the person is not in a psychiatric institution. A person who is undergoing psychiatric confinement because the person has been charged with a serious offence may have periods of leave away from the psychiatric institution. If any of those periods of leave is taken to be a period of integration back into the community, the effect of new subsections 23(9B) and (9C) will be that the person is taken not to be in psychiatric confinement (meaning that a social security payment will be payable) for that period. For any period of leave that is taken not to be a period of integration back into the community, the effect of new subsection 23(9D) is that the person will be taken to be undergoing psychiatric confinement (meaning that a social security payment will not be payable) for that period of leave. A social security payment will not be payable until such time as the period of leave is taken to be a period of integration back into the community for the person, or the person is unconditionally released for psychiatric confinement. It is appropriate to limit payment of social security payments in this way, as the nature of treatment in psychiatric confinement is such that activities can take place in a range of locations, including outside the institution, and leave can be granted for short periods of time. This can include, for example, being out of the institution for a few hours to attend an appointment, practise living skills or participate in a training course. At this stage, the person would still be, in effect, under the control of the State or Territory, not living independently, and could expect that the State or Territory would meet their requirements for support, treatment and activities designed to further their recovery. New subsections 23(9E) and (9F) New subsections 23(9E) and (9F) provide the meaning of a serious offence. New subsection 23(9E) provides that an offence is a serious offence if it is: murder or attempted murder; or manslaughter; or 237

238 Budget Savings (Omnibus) Bill 2016 rape or attempted rape. New subsection 23(9F) 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; or serious personal injury or serious risk of serious personal injury; or serious damage to property in circumstances endangering the safety of a person. It is intended that this broad description of offences will capture offences where the conduct constituting the offence involves serious harm, or serious risk of harm, to a person. As the description of offences in States and Territories are different and can change over time as new laws are introduced or existing laws are amended, it is not possible to set out in the social security law specific offences that involve serious harm, or serious risk of harm, to a person. Whether a person has been charged with a serious offence is relevant for the purpose of new subsection 23(9A). A social security payment will not be payable to a person who is undergoing psychiatric confinement because the person has been charged with a serious offence. 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. A social security payment will also continue to be payable if the person s psychiatric confinement is for reasons unrelated to the commission of an offence. Application provisions Item 10 provides the application provisions for the amendments. Subitem 10(1) provides that, for new subsections 23(9A) to (9C), the amendments apply on and after commencement in relation to a person s confinement in a psychiatric institution on or after that commencement, even if: the confinement began before that commencement; or 238

239 Psychiatric confinement the person was charged with a serious offence before, on or after that commencement. This item will ensure that the new provisions apply to any person who, on the date of commencement, is undergoing psychiatric confinement because the person has been charged with a serious offence. It is appropriate to provide that the amendments apply to a person who is undergoing psychiatric confinement on the date of commencement and not only to a person who is charged on or after the commencement day because it will ensure consistent treatment of people in the same circumstances. People affected will be having their needs for support, treatment and activities designed to further their recovery met by the State or Territory that is responsible for their confinement. Subitem 10(2) provides that, for subsection 23(9D), the amendments apply in relation to a period beginning on or after the commencement of item 10. The effect of new subsection 23(9D) is that a person who has been charged with a serious offence will be deemed to be undergoing psychiatric confinement (meaning that a social security payment will not be payable) on certain days, even if, on those days, the person spends part or all of the day at another location. The effect of subitem 10(2) is that this deeming of a person undergoing psychiatric confinement will occur only in relation to days on and after the commencement of item 10. STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Psychiatric confinement This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act Overview This Schedule provides that a person who is undergoing psychiatric confinement because they have been charged with a serious offence will be taken to be in psychiatric confinement for the purpose of the social security law, irrespective of whether the person is undertaking a course of rehabilitation. One of the effects of this is that relevant social security payments will not be payable to the person while the person is undergoing that psychiatric confinement. The Schedule will also provide for 239

240 Budget Savings (Omnibus) Bill 2016 circumstances in which a person is not taken to be undergoing psychiatric confinement (meaning that a social security payment will be payable) during a period that is a period of integration back into the community for the person. This policy is intended to ensure the integrity and sustainability of the income support system. The purpose of social security payments such as the Disability Support Pension is to provide a safety net for those most in need to help meet their daily living needs in the community. It is the responsibility of states and territories to provide for a person who is in prison or psychiatric confinement in accordance with a state or territory law. Part of this responsibility is to provide for a person's basic needs such as sustenance, health care and shelter. The Australian Government considers that a person who is undergoing psychiatric confinement because they have been charged with a serious offence will have their basic needs met by the state or territory, in the same way as a person who is on remand or convicted and held in prisons. It is therefore a legitimate objective to provide that a person is not eligible to receive a social security payment while they are undergoing that confinement. The amendments made by this Schedule will ensure the same social security treatment for people charged with a serious offence in the criminal justice system, whether they are confined in a psychiatric institution or prison. The amendments will support the original intent of section 1158 of the Social Security Act 1991 (the Act), that income support payments are not payable to a person who is in gaol or a person who is undergoing psychiatric confinement because the person has been charged with an offence. The Act currently provides that a person is not taken to be undergoing psychiatric confinement while the person is undertaking a course of rehabilitation. In Franks v Secretary, Department of Family & Community Services [2002] FCAFC 436, the Federal Court considered that 'a course of rehabilitation' should be interpreted broadly. The effect of this decision is that the vast majority of people who are undergoing psychiatric confinement will be taken to be undertaking a course of rehabilitation. This means that a social security payment will be payable to almost everyone who is undergoing psychiatric confinement because the person has been charged with an offence. This broad interpretation of when a person is undertaking a course of rehabilitation is not however consistent with 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. Providing that a social security payment is not payable to a person who is undergoing psychiatric confinement because the person has been charged with a serious offence, seeks to support the original policy intent and will assist albeit in a small way, in ensuring the sustainability of the social security system by ensuring that payments are appropriately targeted to those in need. 240

241 Psychiatric confinement This policy is proportionate and will not have an unreasonable impact on persons in psychiatric confinement because they are already receiving in kind benefits in the form of accommodation and other services in the relevant institution where they are confined. This policy does not have a punitive intent, rather it is a recognition that people in these circumstances, like those in gaols, have a reduced need for social security payments as their basic needs are met by the states and territories that confine them. This measure will not apply to a person who is undergoing psychiatric confinement because they have been charged with an offence that is not a serious offence, or for reasons unrelated to the commission of an offence. The Government recognises that people can be caught up in criminal proceedings, and then psychiatric confinement, by being charged with minor offences that in some cases would not result in them being confined if they did not have a disability Human rights implications Rights to social protection and social security and the right to an adequate standard of living Article 28(1) of the Convention of the Rights of Persons with Disabilities (the CRPD) provides for the right of persons with disabilities to an adequate standard of living for themselves and their families, including adequate food, clothing and housing, and to the continuous improvement of living conditions. Article 28(2) of the CRPD, and article 9 of the International Convention on Economic, Social and Cultural Rights (the ICESCR) recognise the rights of everyone to social protection and social security. There is no explicit obligation to provide social security benefits in the form of payments or cash. Rather, where social security systems are in place to provide for certain social risks or contingencies, article 28 of the CRPD requires that the benefits for the relevant persons, including benefits in kind, must suffice to ensure that people can realise their right to the adequate standard of living. People in psychiatric confinement are receiving benefits in kind in lieu of a social security payment, in the form of food, clothing and housing provided by the state or territory psychiatric institution, and therefore have their basic needs provided for. When such benefits are being provided, the need for social security in the form of payments is negated. 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 Schedule allows for a legislative instrument to be made to 241

242 Budget Savings (Omnibus) Bill 2016 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. This will ensure that the person s right to an adequate standard of living is provided for in the period that a person is re-establishing themselves in the community. Any period of leave from the psychiatric institution that is not a period of integration back into the community is likely to be a short period, and the person s basic needs will continue to be provided for by the psychiatric institution during that period. 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. Individuals affected (and their families) will have their rights to an adequate standard of living, and to adequate health, habilitative and rehabilitative care services fulfilled. This measure is justifiable, reasonable and proportionate and thus consistent with Australia s international human rights obligations. Rights of equality and non-discrimination Article 26 of the International Covenant on Civil and Political Rights and article 2(2) of the ICESCR recognise the rights of equality and nondiscrimination. One of the effects of the Schedule will be that a social security payment will not be payable to a person who is undergoing psychiatric confinement because they have been charged with a serious offence. A person may be undergoing psychiatric confinement on this basis because, for example, they are unfit to stand trial or because they are found not guilty on the grounds of mental impairment. These people will be treated in the same way as a person who is in gaol having been convicted of an offence, or who is remanded in custody while awaiting trial after being charged with an offence. While people who are undergoing psychiatric confinement may have a disability, any differential treatment of these persons is justifiable as those in psychiatric confinement are receiving benefits in kind (in the form of adequate food, clothing and housing) and are having their needs met. Impact on partners and children 242

243 Psychiatric confinement Articles 28(1) and 23(2) of the CRPD, article 11 of the ICESCR, and article 26 of the Convention on the Rights of the Child recognise the impact of social security payments on partners and children. The current social security law includes provisions for the partners of people in psychiatric confinement. While a social security payment recipient's partner is imprisoned or undergoing psychiatric confinement because the partner has been charged with an offence, the recipient can be paid a higher partnered rate of their social security payment which is equal to the single rate of the payment. Where a social security recipient was a carer for a child (or other person) prior to undergoing psychiatric confinement, and that caring responsibility has passed to another person, that other person is able to claim social security payments in respect of the child (or person), subject to all standard eligibility criteria. This may include Parenting Payment, Family Tax Benefit, Carer Payment and Carer Allowance. Conclusion The Schedule is compatible with human rights because people in psychiatric confinement receive benefits in kind in lieu of a social security payment. Their basic needs are provided for by the relevant State or Territory government through the hospital or psychiatric facility. The current arrangements for social security payments adequately provide for partners and children of people in psychiatric confinement. 243

244

245 Chapter 21 Closing carbon tax compensation to new welfare recipients Outline of chapter Schedule 21 to the Bill introduces the following Budget measures: 1. National Disability Insurance Scheme Savings Fund abolish the Energy Supplement for all new recipients. 2. Disability Insurance Scheme Savings Fund Single Income Family Supplement cessation for new customers. Background In the Budget the Government announced the National Disability Insurance Scheme Savings Fund abolish the Energy Supplement for all new recipients measure. Parts 1-6 of this Schedule implement this measure by amending the Family Assistance Act, Social Security Act, Social Security Administration Act, Farm Household Support Act, Veterans Entitlements Act and Military Rehabilitation and Compensation Act. The amendments made by Parts 1 to 6 of this Schedule to these Acts prevent new recipients of welfare payments or concession cards from being paid the energy supplement from 20 March The amendments made in this Schedule also ensure that welfare recipients who are paid the energy supplement with their payment or concession card prior to 20 September 2016 who satisfy the requirements set out in this Schedule will continue to receive the energy supplement with their payment or concession card from 20 March 2017 onwards. For payment recipients and concession card holders who first receive the energy supplement on or after 20 September 2016, the energy supplement can only be paid to them until 19 March 2017 and this is subject to the person satisfying the current legislative criteria for receiving the supplement. From 20 March 2017 onwards they can no longer receive the energy supplement. 245

246 Budget Savings (Omnibus) Bill 2016 Part 6 of this Schedule makes consequential amendments to provisions in the Social Security Act regarding qualification for telephone allowance and the rate of telephone allowance. These amendments are intended to prevent telephone allowance becoming payable to holders of a seniors health card as a result of the cessation of the energy supplement for new card holders. In the Budget the Government also announced the National Disability Insurance Scheme Savings Fund Single Income Family Supplement cessation for new customers measure. Part 7 of this Schedule implements this measure by amending the Family Assistance Act to ensure that from 1 July 2017, the single income family supplement will not be paid to new recipients. Existing recipients may continue to receive the supplement if they remain eligible in accordance with new section 57GDA contained in Part 7 of this Schedule. The amendments made by Parts 1 to 6 of this Schedule commence on 20 March The amendments made by Part 7 of this Schedule commence on 1 July Explanation of the changes Part 1 Energy supplement under the family assistance law Amendments to the Family Assistance Act Item 1 adds a note at the end of subsection 58(2) that explains that paragraph 58(2)(b) does not apply to certain approved care organisations as a result of new subsections 58(2C) and (2D). Item 2 inserts new subsections (2C) and (2D) into section 58. New subsection 58(2C) provides that paragraph 58(2)(b), which includes an amount of energy supplement in an approved care organisation's annual rate of family tax benefit, does not apply in relation to an approved care organisation on or after the commencement of this subsection unless the organisation was entitled to be paid family tax benefit in respect of 19 September However, new subsection 58(2D) then provides that if the organisation was entitled to be paid family tax benefit in respect of 19 September 2016 and then ceases to be entitled to be paid family tax benefit in respect of a day on or after 20 September 2016 then paragraph 58(2)(b) does not apply, and never again applies, to the organisation from: 246

247 Closing carbon tax compensation to new welfare recipients if the cessation occurred before the commencement of subsection 58(2D) the start of the day subsection 58(2D) commences; or if the cessation occurred on or after the commencement of subsection 58(2D) the start of the day of that cessation. Item 3 inserts new subsection 58A(1A) which provides that an individual cannot make an election to receive energy supplement quarterly under subsection 58A(1) on a day on or after the commencement of subsection 58A(1A) unless energy supplement is used to work out the rate of the individual s family tax benefit in respect of that day. Item 4 inserts new subsection 58A(3AA) which provides that an election ceases to be in force if disregarding the election, energy supplement would cease to be used to work out the rate of the individual s family tax benefit. Item 5 amends clause 3 of Schedule 1 to include a reference to new clause 6A of Schedule 1. Item 6 adds a note at the end of step 1 of the method statement in clause 3 of Schedule 1. This note explains that paragraph (cb) of step 1 of the method statement in clause 3 does not apply to certain individuals as a result of new clause 6A of Schedule 1. Item 7 adds new clause 6A at the end of Division 1 of Part 2 of Schedule 1. New subclause 6A(1) provides that paragraph (cb) of step 1 of the method statement in clause 3 of Schedule 1 does not apply to an individual, meaning energy supplement is not payable, on or after the commencement of clause 6A unless: a) the individual was entitled to be paid family tax benefit in respect of 19 September 2016; and b) the individual s Part A rate of family tax benefit in respect of 19 September 2016 was not worked out under Part 3A of Schedule 1. New subclause 6A(2) then applies to determine when a person ceases to be paid the energy supplement in their rate of family tax benefit. This subclause provides that energy supplement won t be added to the person s rate under paragraph (cb) of step 1 of the method statement in clause 3 of Schedule 1 if: 247

248 Budget Savings (Omnibus) Bill 2016 a) the individual ceases to be entitled to be paid family tax benefit in respect of a day (the applicable day) on or after 20 September 2016; or b) the individual s Part A rate of family tax benefit is worked out under Part 3A of Schedule in respect of a day (the applicable day) on or after 20 September New paragraphs 6A(2)(c) and (d) then provide that paragraph (cb) of step 1 of the method statement in clause 3 of Schedule 1 does not apply, and never again applies, to the individual from: a) if the applicable day is before the commencement of clause 6A the start of the day clause 6A commences; or b) if the applicable day is on or after the commencement of clause 6A the start of the applicable day. Item 8 makes a consequential amendment to clause 24HA of Schedule 1. Item 9 adds new subclause 24HA(2) at the end of clause 24HA of Schedule 1. The new subclause provides that an individual s above base energy supplement amount for the purposes of method 1 of the maintenance income ceiling test in Subdivision C of Division 5 of Part 2 of Schedule 1 is nil if the person s rate of family tax benefit energy supplement does not include an amount of energy supplement because of new clause 6A. Item 10 makes a consequential amendment to clause 24RA of Schedule 1. Item 11 adds new subclause 24RA(2) at the end of clause 24RA of Schedule 1. The new subclause provides that an individual s energy supplement amount for the purposes of method 2 of the maintenance income ceiling test in Subdivision D of Division 5 of Part 2 of Schedule 1 is nil if the person s rate of family tax benefit energy supplement does not include an amount of energy supplement because of new clause 25C. Item 12 amends clause 25 of Schedule 1 to include a reference to new clause 25C of Schedule 1. Item 13 adds a note at the end of step 1 of the method statement in clause 25 of Schedule 1. This note explains that paragraph (e) in step 1 of the method statement in clause 25 does not apply to certain individuals as a result of new clause 25C. Item 14 adds new clause 25C at the end of Division 1 of Part 3 of Schedule 1. New subclause 25C(1) provides that paragraph (e) of step 1 of 248

249 Closing carbon tax compensation to new welfare recipients the method statement in clause 25 of Schedule 1 does not apply to an individual, meaning energy supplement is not payable, on or after the commencement of clause 25C unless: a) the individual was entitled to be paid family tax benefit in respect of 19 September 2016; and b) the individual s Part A rate of family tax benefit in respect of 19 September 2016 was not worked out under Part 3A of Schedule 1. New subclause 25C(2) then applies to determine when a person ceases to be paid the energy supplement in their rate of family tax benefit. This subclause provides that energy supplement won t be added to the person s rate under paragraph (e) of step 1 of the method statement in clause 3 of Schedule 1 if: a) the individual ceases to be entitled to be paid family tax benefit in respect of a day (the applicable day) on or after 20 September 2016; or b) the individual s Part A rate of family tax benefit is worked out under Part 3A of Schedule 1 in respect of a day (the applicable day) on or after 20 September New paragraphs 25C(2)(c) and (d) then provide that paragraph (e) of step 1 of the method statement in clause 25 of Schedule 1 does not apply, and never again applies, to the individual from: a) if the applicable day is before the commencement of clause 25C the start of the day clause 25C commences; or b) if the applicable day is on or after the commencement of clause 25C the start of the applicable day. Item 15 amends subclause 29(1) of Schedule 1 to include a reference to new clause 29AA of Schedule 1. Item 16 adds a note at the end of subclause 29(1) of Schedule 1. This note explains that paragraph 29(1)(c) of Schedule 1 does not apply to certain individuals as a result of new clause 29AA of Schedule 1. Item 17 adds a note at the end of step 1 of the method statement in subclause 29(2) of Schedule 1. This note explains that paragraph (c) in step 1 of the method statement in subclause 29(2) does not apply to certain individuals as a result of new clause 29AA of Schedule

250 Budget Savings (Omnibus) Bill 2016 Item 18 adds new clause 29AA at the end of Subdivision A of Division 1 of Part 4 of Schedule 1. New subclause 29AA(1) provides that paragraph 29(1)(c) of Schedule 1, or paragraph (c) of step 1 of the method statement in subclause 29(2) of Schedule 1, does not apply to an individual, meaning energy supplement is not payable, on or after the commencement of clause 29AA unless: a) the individual was entitled to be paid family tax benefit in respect of 19 September 2016; and b) the individual s Part A rate of family tax benefit in respect of 19 September 2016 was not worked out under Part 3A of Schedule 1. New subclause 29AA(2) then applies to determine when a person ceases to be paid the energy supplement in their rate of family tax benefit. This subclause provides that energy supplement won t be added to the person s rate under paragraph 29(1)(c) of Schedule 1, or paragraph (c) of step 1 of the method statement in subclause 29(2) of Schedule 1 if: a) the individual ceases to be entitled to be paid family tax benefit in respect of a day (the applicable day) on or after 20 September 2016; or b) the individual s Part A rate of family tax benefit is worked out under Part 3A of Schedule 1 in respect of a day (the applicable day) on or after 20 September New paragraphs 29AA(2)(c) and (d) then provide that paragraph 29(1)(c) of Schedule 1, or paragraph (c) of step 1 of the method statement in subclause 29(2) of Schedule 1 does not apply, and never again applies, to the individual from: a) if the applicable day is before the commencement of clause 29AA the start of the day clause 29AA commences; or b) if the applicable day is on or after the commencement of clause 29AA the start of the applicable day. Item 19 amends subclause 29A(2) of Schedule 1 to include a reference to new clause 29D of Schedule 1. Item 20 adds a note at the end of subclause 29A(2) of Schedule 1. This note explains that paragraph 29A(2)(c) does not apply to certain individuals as a result of new clause 29D of Schedule

251 Closing carbon tax compensation to new welfare recipients Item 21 adds new clause 29D at the end of Subdivision B of Division 1 of Part 4 of Schedule 1. New subclause 29D(1) provides that paragraph 29A(2)(c) of Schedule 1 does not apply to an individual, meaning energy supplement is not payable, on or after the commencement of clause 29D unless: a) the individual was entitled to be paid family tax benefit in respect of 19 September 2016; and b) the individual s Part A rate of family tax benefit in respect of 19 September 2016 was not worked out under Part 3A of Schedule 1. New subclause 29D(2) then applies to determine when a person ceases to be paid the energy supplement in their rate of family tax benefit. This subclause provides that energy supplement won t be added to the person s rate under paragraph 29A(2)(c) of Schedule 1 if: a) the individual ceases to be entitled to be paid family tax benefit in respect of a day (the applicable day) on or after 20 September 2016; or b) the individual s Part A rate of family tax benefit is worked out under Part 3A of Schedule 1 in respect of a day (the applicable day) on or after 20 September New paragraphs 29D(2)(c) and (d) then provide that paragraph 29A(2)(c) of Schedule 1 does not apply, and never again applies, to the individual from: a) if the applicable day is before the commencement of clause 29D the start of the day clause 29D commences; or b) if the applicable day is on or after the commencement of clause 29D the start of the applicable day. Item 22 adds a note at the end of subclause 31B(1) of Schedule 1 which explains that for certain individuals, energy supplement (Part B) is not to be added in working out the person s Part B rate (see clauses 29AA and 29D in items 18 and 21 respectively). Item 23 adds a note at the end of subclause 38AA(1) of Schedule 1 which explains that for certain individuals, energy supplement (Part A) is not to be added in working out the person s Part A rate (see clause 6A in item 7). Item 24 adds a note at the end of subclause 38AF(1) of Schedule 1 which explains that for certain individuals, energy supplement (Part A) is not to 251

252 Budget Savings (Omnibus) Bill 2016 be added in working out the person s Part A rate (see clause 25C in item 14). Part 2 Energy supplement under the social security law Amendments to the Social Security Act Item 25 repeals the formula in subsection 17(8) and substitutes a new formula that does not contain an energy supplement component. The formula in subsection 17(8) is used to determine the income cut-out amount for the purposes of working out the number of weeks in a person s lump sum preclusion period under subsection 1170(4). Item 26 repeals the definition of energy supplement component from subsection 17(8). This definition is no longer required as result of the amendments made by item 25. Item 27 is an application provision that provides that the amendments made to subsection 17(8) by this Part only apply in relation to lump sum preclusion periods beginning on or after the commencement of this item. Item 28 inserts new section 22. Section 22 sets out when a person becomes a transitional energy supplement person. While a person remains a transitional energy supplement person they will continue to receive energy supplement after commencement of this Schedule. New subsection 22(1) provides that a person becomes a transitional energy supplement person on 19 September 2016 if on that day: a) the person was receiving an income support payment where energy supplement was used to work out the rate of that payment; or b) energy supplement was payable to the person under section 1061UA; or c) subsection 62B(2) of the Veterans Entitlements Act applied in relation to the person; or d) energy supplement was payable to the person under section 118PA of the Veterans Entitlements Act; or e) under the scheme referred to in section 117 of the Veterans Entitlements Act, the Commonwealth was liable to pay the person energy supplement for the person s clean energy underlying payment; or 252

253 Closing carbon tax compensation to new welfare recipients f) subsection 238A(1) of the Military Rehabilitation and Compensation Act applied in relation to the person; or g) under the scheme referred to in section 258 of the Military Rehabilitation and Compensation Act, the Commonwealth was liable to pay the person energy supplement for the person s clean energy underlying payment; or h) the person was receiving a payment under the ABSTUDY scheme (also known as the Aboriginal Study Assistance Scheme) that included an amount identified as living allowance and the person qualified for an energy supplement under that scheme. New paragraph 22(1)(a) applies to a person receiving farm household allowance under the Farm Household Support Act where energy supplement is used to work out the rate of that allowance. Subsection 91(3) of the Farm Household Support Act treats a reference in the Social Security Act to an income support payment as including a reference to farm household allowance under the Farm Household Support Act. Paragraph 22(1)(a) will also be applicable to certain persons in receipt of a Defence Force Income Support Allowance (DFISA). DFISA is payable to those persons in receipt of a social security or benefit that is reduced, including to nil, because of the inclusion of disability pension paid to the person under the Veterans Entitlements Act as income in the assessment of that pension or benefit. Those people in the circumstances where the social security or benefit is reduced to nil are commonly referred to as DFISA-only recipients. Under paragraph 23(1D)(f) they will be taken to be receiving the particular pension or benefit for which they qualify and they remain subject to the obligations associated with that pension or benefit. It should also be noted that income support payment, as defined in section 23 of the Social Security Act, includes a service pension under the Veterans Entitlements Act. New subsection 22(2) provides that a person ceases to be a transitional energy supplement person on a day on or after 20 September 2016 (and can never again become a transitional energy supplement person) if none of paragraphs 22(1)(a) to (h) apply to the person on that day. A note to subsection 22(2) alerts the reader that subsections 22(3) to (6) set out certain situations in which a person will be taken to be receiving a payment on a day and therefore subsection 22(2) will not apply to the person on that day. 253

254 Budget Savings (Omnibus) Bill 2016 New subsection 22(3) applies to treat a person as receiving an income support payment for new paragraph 22(1)(a) if, before 19 September 2016, the person receives a rate of a social security payment that is greater than nil (where energy supplement was used to work out that rate) and the person s rate of payment goes to nil on a day on or after 19 September 2016 (where energy supplement was used to work out that rate). The person must, on the day before the person s rate goes to nil, have been receiving a social security payment at a rate greater than nil and energy supplement must have been used to work out that rate. Further, the person must remain qualified for their social security payment while their rate of payment is nil and their payment is not cancelled. For subsection 22(3) to apply a person must remain on a nil rate of the same payment. Otherwise, subsection 22(3) will cease to apply and the person will no longer be receiving an income support payment for new paragraph 22(1)(a). New subsection 22(4) applies to treat a person as receiving an income support payment despite the person s payment being suspended on a day on or after 19 September The person must, before 19 September 2016, be receiving a social security payment at a rate greater than nil and energy supplement must have been used to work out that rate. The person must, on the day before the suspension took effect have been receiving a social security payment at a rate greater than nil and energy supplement must have been used to work out that rate. Further, the person must remain continuously qualified for their social security payment while suspended. When a person s suspension ends with the person being restored to a positive rate of payment, the person will again be able to have the energy supplement added to their rate of payment if all other requirements regarding the payment of the energy supplement have been met. New subsection 22(5) treats certain income support payment recipients as receiving an income support payment under paragraph 22(1)(a) despite an absence from Australia of greater than six weeks. If the person returns to Australia after an absence of greater than six weeks and their income support payment is payable to the person on the date of their return, they will continue to be treated as a transitional energy supplement person from the day of their return provided they meet the requirements in subsection 22(5). 254

255 Closing carbon tax compensation to new welfare recipients For subsection 22(5) to apply the person must be receiving an income support payment on 19 September 2016 at a rate greater than nil and energy supplement must have been used to work out the rate of the person s payment. Further to this, subsection 22(5) will only apply if either: a) the person is absent from Australia on 19 September 2016 and has been so for a continuous period not exceeding 6 weeks; or b) the person leaves Australia on a day on or after 20 September 2016 and, on the day before so leaving, the person was receiving the income support payment at a rate greater than nil and energy supplement was used to work out that rate. New subsection 22(6) applies to treat a person as receiving an income support payment under paragraph 22(1)(a) if the person makes a claim for a seniors health card under the Social Security Administration Act or the Veterans Entitlements Act on or after the commencement of section 22 and the claim is made: a) within the 6 week period mentioned in new subsection 1061U(4) or (8), in circumstances where new paragraphs 1061U(4)(a) to (d) or (8)(a) to (d) apply; or b) within the 6 week period mentioned in subsection 118P(1C) or (1G) of the Veterans Entitlements Act, in circumstances where paragraphs 118P(1C)(a) to (d) or (1G)(a) to (d) of that Act apply. New subsections 1061U(4) and (8) and subsections 118P(1C) and (1G) of the Veterans Entitlements Act are discussed in further detail in items 36 and 103. To summarise, these subsections give certain income support payment recipients a six week period from the date of the cancellation of their payment in which to claim a seniors health card. If the claim is made within the six week period the person can qualify for the energy supplement if a seniors health card is granted to the person. A person s claim for a seniors health card under the Social Security Act or Veterans Entitlements Act must be granted under one of these Acts for subsection 22(6) to apply. If a person meets the requirements in new subsection 22(6) they will be treated as receiving an income support payment for the period: 255

256 Budget Savings (Omnibus) Bill 2016 a) beginning on the cessation day mentioned in subsection 1061U(4)(c) or (8)(c) of the Social Security Act or paragraph 118P(1C)(c) or (1G)(c) of the Veterans Entitlements Act; and b) ending at the end of the day before the person becomes the holder of the seniors health card. Item 29 Inserts a definition of transitional energy supplement person into subsection 23(1) that refers to new section 22. Item 30 repeals section 915 and substitutes a new section 915. New subsection 915(1) provides that quarterly energy supplement is payable to a person for each day for which an election by the person under subsection 915A(1) is in force in relation to a social security payment the person is receiving. A note to this subsection alerts the reader that section 918 (multiple qualification exclusions) may affect the person s qualification for quarterly energy supplement. Subsection 915(2) then ensures that a social security payment recipient who continues to have energy supplement used to work out the rate of their payment will continue to have their energy supplement paid quarterly if the person has made or makes an election under subsection 1061VA(1) to have their minimum pension supplement amount paid quarterly. A note to this subsection alerts the reader that section 918 (multiple qualification exclusions) may affect the person s qualification for quarterly energy supplement. Item 31 amends paragraph 915A(1)(a) to insert the words (the main payment) after a social security payment. Item 32 amends the note in subsection 915A(1) to replace the word would with may. This is a consequence of the repeal and substitution of section 915 made by item 30. Item 33 repeals subsection 915A(3) and substitutes a new subsection 915A(3) which provides that an election ceases to be in force if, disregarding the election, energy supplement would cease to be used to work out the rate of a social security payment of the person. Item 34 is an application and savings provision for the repeal and substitution of section 915 made by item 30 and the repeal and substitution of subsection 915A(3) made by item

257 Closing carbon tax compensation to new welfare recipients Sub-item (1) provides that the repeal and substitution of section 915 applies in relation to working out whether quarterly energy supplement is payable to a person for a day on or after the commencement of this item. Sub-item (2) provides that the repeal and substitution of section 915 made by this Part does not affect the validity of an election made under subsection 915A(1) or 1061VA(1) before the commencement of this item. Sub-item (3) provides that subsection 915A(3), as substituted by this Part, applies in relation to elections made before, on or after the commencement of this item. Item 35 makes a minor consequential amendment to section 1061U. Item 36 adds new subsections 1061U(2), (3), (4), (5), (6), (7) and (8). New subsection 1061U(2) provides that (subject to new subsections 1061U(4), (6) and (8) discussed below), a person can qualify to receive the energy supplement with their seniors health card under subsection 1061U(1) on or after the commencement of subsection 1061U(2) only if on 19 September 2016: a) energy supplement with a seniors health card was payable to the person under section 1061UA; or b) energy supplement with a seniors health card was payable to the person under section 118PA of the Veterans Entitlements Act. New subsection 1061U(3) provides that (subject to new subsection 1061U(8) discussed below), if energy supplement was payable to a seniors health card holder under either section 1061UA or section 118PA of the Veterans Entitlements Act on 19 September 2016 and then ceases to be payable under either of those sections on or after 20 September 2016 then subsection 1061U(1) does not apply, and never again applies, to the person from: if the cessation occurred before the commencement of subsection 1061U(3) the start of the day subsection 1061U(3) commences; or if the cessation occurred on or after the commencement of subsection 1061U(3) the start of the day of that cessation. New subsection 1061U(4) provides that if: 257

258 Budget Savings (Omnibus) Bill 2016 a) a person was not qualified for energy supplement with a seniors health card under subsection 1061U(1) on 19 September 2016; and b) on 19 September 2016 the person was receiving an income support payment where energy supplement was used to work out the rate of that payment; and c) on a day (the cessation day) on or after the commencement of this subsection, the person ceases to be in receipt of any income support payment; and d) on the day before the cessation day, the person was receiving an income support payment where energy supplement was used to work out the rate of that payment; and e) the person is required to make a claim for a seniors health card in order for such a card to be granted to the person; a person can become qualified to be paid the energy supplement with their seniors health card under subsection 1061U(1) if the person makes a claim for a seniors health card within the period of 6 weeks beginning on the cessation day. New subsection 1061U(5) then provides that, subject to subsection 1061U(8) (discussed below), if: a) as a result of a claim mentioned in subsection 1061U(4), a seniors health card is issued to a person on a day; and b) energy supplement ceases to be payable to the person under section 1061UA on or after that day; then subsection 1061U(1) of this section does not apply, and never again applies, to the person from the start of the day of that cessation. New subsection 1061U(6) provides that if: a) a person was not qualified to be paid energy supplement with a seniors health card under subsection 1061U(1) on 31 December 2016; and b) on that day, the person was receiving a social security pension and an amount of energy supplement was added to the rate of that pension; and 258

259 Closing carbon tax compensation to new welfare recipients c) under subsection 1061ZJA(3) or (4), the Secretary must issue a seniors health card to the person; the person can become qualified to be paid energy supplement under subsection 1061U(1) of this section because of holding that card. New subsection 1061U(6) applies to a person who is automatically issued a seniors health card under subsections 1061ZJA(3) or (4) as a result of the amendments made by the Social Services Legislation Amendment (Fair and Sustainable Pensions) Act 2015, which commences on 1 January A person whose rate of pension becomes nil on 1 January 2017 as a result of the amendments made by that Act will be automatically issued a seniors health card. New subsection 1061(6) ensures that where a person is automatically issued a card and had an amount of energy supplement added to the rate of their pension on 31 December 2016 the person will qualify for the energy supplement with their seniors health card from 1 January New subsection 1061U(7) provides that, subject to new subsection 1061U(8) (discussed below), if a person is automatically issued a seniors health card as mentioned in new paragraph 1061U(6)(c) and energy supplement ceases to be payable to the person (under section 1061UA), the person ceases to be qualified to be paid the energy supplement with their seniors health card under subsection 1061U(1) and subsection 1061U(1) does not apply, and never again applies, to the person from: if the cessation occurred before the commencement of subsection 1061U(7) the start of the day on which subsection 1061U(7) commences; or if the cessation occurred on or after the commencement of subsection 1061U(7) the start of the day of that cessation. New subsection 1061U(8) provides that if: a) on a day on or after 20 September 2016, the person ceases to hold a seniors health card under the Social Security Administration Act or the Veterans Entitlements Act; and b) on that day, the person receives an income support payment where energy supplement is used to work out the rate of that payment; and 259

260 Budget Savings (Omnibus) Bill 2016 c) on a day (the cessation day), on or after the commencement of this subsection the person ceases to be in receipt of any income support payment; and d) on the day before the cessation day, the person was receiving an income support payment where energy supplement was used to work out the rate of that payment; and e) the person is required to make a claim for a seniors health card in order for such a card to be granted to the person; the person can become qualified for energy supplement under subsection 1061U(1) only if the person makes a claim for a seniors health card within the period of 6 weeks beginning on the cessation day. New subsection 1061U(8) allows a person who is paid the energy supplement with their seniors health card on or after 20 September 2016 to move between being the holder of a seniors health card and an income support payment recipient while retaining the energy supplement with the card or payment. A movement from a seniors health card to an income support payment must occur on the day the person ceases to be the holder the seniors health card. Where the person moves from an income support payment to a seniors health card the person can retain the energy supplement if they claim the seniors health card within the 6 week period beginning on the day the person ceases to be in receipt of any income support payment. Item 37 is a transitional provision that provides that if: a) before 19 September 2016 a person was receiving an income support payment where energy supplement was used to work out the rate of that payment; and b) on a day (the cessation day) in the period of 6 weeks ending at the end of 19 September 2016, the person ceased to receive that payment; and c) on the day before the cessation day, energy supplement was used to work out the rate of that payment; and d) the person makes a claim under the Social Security Administration Act for a seniors health card within the period of 6 weeks beginning on the cessation day; and 260

261 Closing carbon tax compensation to new welfare recipients e) the person s claim is granted and the person becomes the holder of a seniors health card; and f) the person holds that card immediately before the commencement of this item; then: g) the person can become qualified for energy supplement under subsection 1061U(1) of the Social Security Act (despite subsection 1061U(2) of that Act); and h) paragraph 1061U(5)(a) of the Social Security Act applies as if a reference to a claim mentioned in subsection 1061U(4) included a reference to a claim mentioned in this item; and i) for the purposes of new section 22 of the Social Security Act, paragraph 22(1)(a) is taken to apply to the person on each day that occurs in the period beginning on the cessation day and ending at the end of the day before the person becomes the holder of the seniors health card. Items 38 to 61, 63 to 66, 68 to 71, 73 to 79 and 81 to 82 amend the rate calculators for the following social security payments: section 1064 (Rate of age, disability support, wife pensions and carer payment (people who are not blind)); section 1065 (Rate of age and disability support pension (blind people)); section 1066 (Rate of bereavement allowance and widow B pension); section 1066A (Rate of disability support pension (people under 21 who are not blind)); section 1066B (Rate of disability support pension (people under 21 who are blind)) section 1067G (Rate of youth allowance); section 1067L (Rate of austudy payment); section 1068 (Rate of widow allowance, Newstart allowance (18 or over) sickness allowance (18 or over) partner allowance, and mature age allowance under Part 2.12B); 261

262 Budget Savings (Omnibus) Bill 2016 section 1068A (Rate of parenting payment--pension PP (single)); and section 1068B (Rate of parenting payment--pp (partnered)). The amendments made by these items apply so that the step in the method statement for the rate calculator that adds an amount of energy supplement to the rate of the person s social security payment does not apply in relation to a person on a day on or after the commencement of these items unless the person is a transitional energy supplement person on that day. If a person is a not a transitional energy supplement person in accordance with new section 22 (contained in item 28 of this Part) on a day on or after the commencement of these items, the person s rate of social security payment will not include an amount of energy supplement. Various notes in the rate calculators mentioned above have also been added or amended as a result of the changes made to limit the payment of the energy supplement to certain individuals. Items 62, 67, 72 and 80 amend the partner income free area provisions in the rate calculators for the following social security benefits: section 1067G (Rate of youth allowance) section 1067L (Rate of austudy payment) section 1068 (Rate of widow allowance, Newstart allowance (18 or over) sickness allowance (18 or over) partner allowance, and mature age allowance under Part 2.12B); and section 1068B (Rate of parenting payment--pp (partnered)). The partner income free area is the amount of income a recipient's partner can receive before the recipient's rate of benefit is reduced. The partner income free area for a person varies depending on their partner's age and whether their partner also receives a social security benefit. The effect of items 62, 67, 72 and 80 is to include an amount of energy supplement into the calculation of a person s partner income free area where the person continues to have an amount of energy supplement added to their rate of social security benefit. If the person does not have an amount of energy supplement added to their rate of payment then energy supplement won t be taken into account in determining the partner income free area if the person s partner is not a social security benefit recipient. 262

263 Closing carbon tax compensation to new welfare recipients If the person does not have an amount of energy supplement added to their rate of payment and the person s partner is a social security benefit recipient then the energy supplement will only be taken into account in determining the partner income free area where the person s partner has an amount of energy supplement added to their rate of payment. An example of how these items apply can be found in the amendments made to the youth allowance calculator in item 62. This item inserts new points 1067G-H26C and 1067G-H26D into the youth allowance rate calculator in section 1067G. Point 1067G-H26C provides that where a person does not have an amount of energy supplement added to their rate of youth allowance and the person's partner is not receiving a social security benefit, an amount of energy supplement will not be included when calculating the person s partner income free area. Point 1067G-H26D provides that where a person has an amount of energy supplement added to their rate of youth allowance, an amount energy supplement will be included when calculating the person s partner income free area. This applies regardless of whether the person s partner receives a social security benefit and regardless of whether the person s partner receives a social security benefit that includes an amount of energy supplement. Item 83 repeals point 1071A-2A of the Social Security Act and substitutes a new point 1071A-2A. The intended effect of this item is to disregard step 1B of the method statement in point 1068-A1 of the Social Security Act when calculating a person s allowable income for the purposes of the health care card income test in section 1071A of the Social Security Act. Step 1B would otherwise add an amount of energy supplement to the calculation when determining a person s allowable income. Item 84 is an application provision for the repeal and substitution of point 1071A-2A of the Social Security Act made by item 83 of this Part. The repeal and substitution of point 1071A-2A made by item 83 applies in relation to working out if a person is qualified for a health care card on a day on or after the commencement of this item (whether or not the person held such a card immediately before that commencement). 263

264 Budget Savings (Omnibus) Bill 2016 Part 3 Energy supplement under the Farm Household Support Act Amendments to the Farm Household Support Act Item 85 adds a note at the end of section 58 of the Farm Household Support Act that explains that energy supplement is not payable to certain persons due to point 1068-A2 of the Social Security Act, added by item 69 of this Schedule. Item 86 amends the note at the end of section 58 of the Farm Household Support Act by renumbering this note as Note 2. Item 87 adds a note at the end of section 62 of the Farm Household Support Act that explains that energy supplement is not payable to certain persons due to point 1067G-A2 of the Social Security Act, added by item 59 of this Schedule. Item 88 amends the note at the end of section 62 of the Farm Household Support Act by renumbering this note as Note 2. Part 4 Energy supplement under the Veterans Entitlements Act Item 89 repeals and replaces the formula in paragraph 59Q(7)(b) with a new formula that does not contain an energy supplement component. The formula in paragraph 59Q(7)(b) is used to determine the lump sum preclusion period for the purposes of section 59Q. Where a person has received lump sum compensation the person s pension will not be payable during the lump sum preclusion period. Item 90 repeals the definition of point SCH6-BB3 amount from paragraph 59Q(7)(b). This definition is no longer required as a result of the amendments made by Item 89. Item 91 is an application provision that provides that the amendments made to paragraph 59Q(7)(b) by this Part only apply in relation to lump sum preclusion periods beginning on or after the commencement of this item. Items 92 to 94 amend section 62A. Section 62A provides for the payment of energy supplement to the recipients of a disability pension under Parts II or IV of the Veterans Entitlements Act. Subsection 62A(1) provides the requirements to be met for a person to be eligible for energy supplement for a day: a) the person receives disability pension for the day; and 264

265 Closing carbon tax compensation to new welfare recipients b) the person s rate of disability pension for the day is greater than nil; and c) the person is residing in Australia; and d) either the person is in Australia or is temporarily absent for a period not exceeding 6 weeks. Item 92 is a technical amendment to the Note to subsection 62A(1) to renumber it as Note 1 as a consequence of the amendment made by Item 93 which inserts Note 2. Item 93 inserts Note 2 to subsection 62A(1). The Note refers the reader to the effect that the insertion of subsection 62A(4) (by Item 94) has in limiting the circumstances when subsection 62A(1) (eligibility for energy supplement) will continue to be applicable. Item 94 inserts new subsections 62A(4) to (6). New subsection 62A(4) provides that on or after the commencement of the amendment a person will only be eligible for energy supplement if the person is a transitional energy supplement person (as defined under new subsection 62A(5)) on that day. The Note to new subsection 62A(4) states that a person must also satisfy the requirements set out in paragraphs 62A(1)(a) to (d) to be eligible for energy supplement. New subsection 62A(5) defines for the purposes of section 62A that a person is a transitional energy supplement person on 19 September 2016 if: a) paragraphs 62A(1)(a) to (d) are applicable to the person; or b) energy supplement was payable under subsection 83A(1) of the Military Rehabilitation and Compensation Act because the person was eligible for compensation for permanent impairment under that Act; or c) energy supplement was payable under subsection 209A(1) of the Military Rehabilitation and Compensation Act because the person was in receipt of or would have been eligible for the receipt of Special Rate Disability Pension under that Act. The effect of new subsections 62A(4) and (5) is to prevent new recipients of disability pension, granted from after 19 September 2016, from being paid the energy supplement from 20 March The amendments also 265

266 Budget Savings (Omnibus) Bill 2016 ensure the grandfathering of existing disability pensioners who are paid the energy supplement with their disability pension on 19 September The amendments also provide for the grandfathering for the purposes of section 62A of those persons who received energy supplement because on 19 September 2016 they were either eligible for compensation for permanent impairment under section 83A or were receiving or eligible to receive the Special Rate Disability Pension under section 209A of the Military Rehabilitation and Compensation Act. New subsection 62A(6) provides for the circumstances in which a person will cease to be a transitional energy supplement person. On a day on or after 20 September 2016, if none of the paragraphs 62A(5)(a) to (c) apply to a person, the person will cease to be a transitional energy supplement person and can never again become a transitional energy supplement person. The effect of subsection 62A(6) is to make it clear that a person will lose eligibility for the energy supplement on or after 20 March 2017 if any of the circumstances referred to in paragraphs 62A(5)(a) to (c) are no longer applicable to the person. Subsection 62A(6) also makes it clear that there are no circumstances in which a person who ceases to be a transitional energy supplement person can regain the status of being a transitional energy supplement person. Items 95 to 97 amend section 62B. Section 62B provides for the payment of energy supplement for recipients of war widow/ war widower pension. Subsection 62B(1) provides the requirements to be met for a person to be eligible for energy supplement for a day: a) the person receives war widow or war widower pension for the day; and b) the person s rate of that pension for the day is greater than nil; and c) the person is residing in Australia; and d) either the person is in Australia or is temporarily absent for a period not exceeding 6 weeks. 266

267 Closing carbon tax compensation to new welfare recipients Item 95 is a technical amendment to the Note to subsection 62B(1) to renumber it as Note 1 as a consequence of the amendment made by Item 96 which inserts Note 2. Item 96 inserts Note 2 to subsection 62B(1). The Note refers the reader to the effect that the insertion of subsection 62B(4) (by Item 97) has in limiting the circumstances when subsection 62B(1) (eligibility for energy supplement) will continue to be applicable. Item 97 inserts new subsection 62B(4). New subsection 62B(4) provides that on or after the commencement of the amendment a person will only be eligible for energy supplement if the person is a transitional energy supplement person (within the meaning of section 22 of the Social Security Act) on that day. New section 22 of the Social Security Act is inserted by Item 28 of this Schedule. The Note to new subsection 62B(4) states that a person in receipt of a war widow/ widower pension must also satisfy the requirements set out in paragraphs 62B(1)(a) to (d) to be eligible for energy supplement. The effect of new subsection 62B(4) is to prevent new recipients of war widow/ war widower pension, granted from after 19 September 2016, from being paid the energy supplement from 20 March The amendments also ensure the grandfathering of existing war widow/ war widower pensioners who are paid the energy supplement with their pension on 19 September The amendments also provide for the grandfathering for the purposes of section 62B all those persons (including war widow/ war widower pensioners) who on 19 September 2016 were eligible to receive energy supplement because they satisfied one of the conditions referred to in section 22 of the Social Security Act (as inserted by Item 28 of this Schedule). Item 98 inserts a new Note 3 to subsection 62D(1). Section 62D provides a person receiving disability or war widow or war widower s pension with the option to receive their energy supplement on a quarterly basis. New Note 3 refers the reader to the limitations set out in subsections 62A(4) and 62B(4). 267

268 Budget Savings (Omnibus) Bill 2016 Item 99 amends subsection 62E(1) by inserting the words but only if energy supplement is used to work out the rate of that service pension on that day. Subsection 62E(1) provides that a quarterly energy supplement for service pension is payable to a person, as a separate payment, for as long as the person elects to receive quarterly pension supplement. The additional words will make it clear that energy supplement will continue to be payable as a quarterly payment only to those persons still eligible to receive the payment as a transitional energy supplement person. Items 100 and 101 amend subsection 62E(6). Subsection 62E(6) provides for an exception to a reduction of quarterly pension supplement under subclause 4(5) of Schedule 6 of the Veterans Entitlements Act. Clause 4 of Schedule 6 is applicable for income tax purposes and sets out the order in which deductions are made to a person s rate of service pension or income support supplement for the purposes of the income and assets tests and compensation recovery. Subclause 4(5) of Schedule 6 provides that where a person s rate of service pension is to be reduced as described in subclause 4(1) and the person has elected to receive quarterly pension supplement, a person s quarterly energy supplement is reduced to the same extent (if any) that the component of the main rate that would correspond to the person s energy supplement would be reduced under subclause (1) were the election not in force. Paragraph 62E(6)(a) is repealed and substituted by Item 100. Repealed paragraph 62E(6)(a) referred to an election by the person under subsection 60A(1) as being in force on a particular day. New paragraph 62E(6)(a) refers to quarterly pension supplement for service pension being payable to a person for a day. Item 101 is a minor amendment to paragraph 62E(6)(c) to identify a reference to paragraph 4(5)(a) as being located in Schedule 6 of the Veterans Entitlements Act. Item 102 is an application provision which provides that the amendments to section 62E made by Items 100 and 101 are to apply in working out whether quarterly energy supplement is payable to a person for a day on or after the commencement of the amendment. Items 103 and 104 amend section 118P. Section 118P sets out the eligibility criteria for the payment of the energy supplement under Part VIIAD of the 268

269 Closing carbon tax compensation to new welfare recipients Veterans Entitlements Act. Subsection 118P(1) provides that an individual is eligible for the energy supplement if: a) they are the holder of a seniors health card; and aa) either resident in Australia or temporarily absent for a period of less than 6 weeks; and b) the person is not receiving any of the following payments: service pension; income support supplement; social security pension or benefit; energy supplement under Part 2.25B of the Social Security Act. Item 103 inserts new subsections 118P(1A), (1B), (1C), (1D), (1E),(1F) and (1G). New subsection 118P(1A) provides that subject to new subsections (1C), (1E) and (1G) that subsection 118P(1) will continue to apply to a person on or after the commencement of the amendment if on 19 September 2016: energy supplement was payable to the person under section 118PA; or energy supplement was payable to the person under section 1061UA (the equivalent of section 118PA) of the Social Security Act. The Note to new subsection 118P(1A) states that the subsection will only continue to apply to a person who satisfies the requirements set out in paragraphs 118P(1)(a) to (b). The effect of new subsection 118P(1A) is (subject to new subsections 118P(1C), (1E) and (1G) - discussed below) to prevent new seniors health card holders from being paid the energy supplement after 20 March The amendments also ensure the grandfathering of existing seniors health card holders (under both the Veterans Entitlements Act and the 269

270 Budget Savings (Omnibus) Bill 2016 Social Security Act) who are paid the energy supplement on 20 September New subsection 118P(1B) provides that (subject to new subsection 118P(1G) - discussed below) if: energy supplement was payable to the person under section 118PA of the Veterans Entitlements Act or section 1061UA of the Social Security Act on 19 September 2016; and energy supplement ceases to be payable under either of those sections on or after 20 September 2016; then subsection 118P(1) will not apply, and never again apply to the person from: a) if the cessation occurred before the commencement of new subsection 118P(1B) the day the subsection commences; or b) if the cessation occurred on or after the commencement of new subsection 118P(1B) the day that the cessation occurred. The effect of subsection 118P(1B) (subject to subsection 118P(1G)) is to determine the date on which a person who has lost eligibility (under section 118PA of the Veterans Entitlements Act or section 1061UA of the Social Security Act) for the energy supplement on or after 20 September 2016 will cease to be eligible under subsection 118P(1) for the energy supplement. New subsection 118P(1C) provides that if: a) a person was not eligible for energy supplement under subsection 118P(1) on 19 September 2016; and b) on 19 September 2016 the person was receiving an income support payment (as defined by the Social Security Act) where energy supplement was used to work out the amount of that payment; and c) on a day (the cessation day) on or after the commencement of subsection 118P(1C), the person ceases to be in receipt of any income support payment (as defined by the Social Security Act); and d) on the day before the cessation day, the person was receiving an income support payment (as defined by the 270

271 Closing carbon tax compensation to new welfare recipients Social Security Act) where energy supplement was used to work out the amount of that payment; and e) the person is required to make a claim for a seniors health card for it to be issued to the person; the person can become eligible for energy supplement under subsection 118P(1) only if the claim for the seniors health card was made within a period of 6 weeks that begins on cessation day. New subsection 118P(1C) allows a person who is paid the energy supplement with their income support payment on or after the commencement of the subsection to move between being the holder of a seniors health card and an income support payment recipient while retaining the energy supplement with the card or payment. A movement from a seniors health card to an income support payment must occur on the day the person ceases to be the holder of the seniors health card. Where the person moves from an income support payment to a seniors health card the person can retain the energy supplement if they claim within the 6 week period beginning on the day the person ceases to be in receipt of any income support payment. New subsection 118P(1D) provides, subject to subsection 118P(1G) that if: a) a person becomes the holder of a seniors health card because of a claim made under new subsection 118P(1C); and b) energy supplement ceases to be payable under section 118PA on or after that day; then subsection 118P(1) will not apply, and never again apply to the person from the day that the cessation occurred. The effect of subsection 118P(1D) is to make it clear that a person will lose eligibility for the energy supplement which has been obtained under subsection 118P(1C) on a day on or after 20 September 2016 if the energy supplement is not payable under section 118PA on that day. New subsection 118P(1E) provides that if: a) a person was not eligible for energy supplement under subsection 118P(1) on 31 December 2016; and 271

272 Budget Savings (Omnibus) Bill 2016 b) on that day the person was receiving a service pension where energy supplement was used to work out the amount of that payment; and c) under subsection 118XA(3) the Commission must make a determination that under section 118ZG the person is entitled to a seniors health card (section 118XA of the Veterans Entitlement Act modifies the eligibility criteria for the seniors health card to create automatic eligibility for pensioners affected by changes to the assets test on 1 January 2017); the person may become eligible under subsection 118P(1) for energy supplement because they hold a seniors health card. New subsection 118P(1E) applies to a person who is automatically issued a seniors health card under section 118XA as a result of the amendments made by the Social Services Legislation Amendment (Fair and Sustainable Pensions) Act 2015, which commences on 1 January A person whose rate of service pension becomes nil on 1 January 2017 as a result of the amendments made by the above Act will be automatically issued a seniors health card. Subsection 118P(1E) ensures that where the person is automatically issued a card and had an amount of energy supplement added to the rate of their pension on 31 December 2016 the person will qualify for the energy supplement with their seniors health card from 1 January New subsection 118P(1F) is applicable to persons who are issued with a seniors health card under new subsection 118P(1E) and provides, subject to subsection 118P(1G) that if: a) as described in new paragraph 118P(1E)(c), a person becomes the holder of a seniors health card, on a day; and b) energy supplement ceases to be payable under section 118PA on or after that day; then subsection 118P(1) will not apply, and never again apply to the person from: a) if the cessation occurred before the commencement of subsection 118P(1F) the day the subsection commences; or b) if the cessation occurred on or after the commencement of subsection 118P(1F) the day that the cessation occurred. 272

273 Closing carbon tax compensation to new welfare recipients The effect of subsection 118P(1F) (subject to subsection 118P(1G)) is to determine the date on which a person who has lost eligibility under section 118PA for the energy supplement on or after 20 September 2016 will cease to be eligible under subsection 118P(1) for the energy supplement. New subsection 118P(1G) provides that if: a) on a day after on or after 20 September 2016, a person ceased to be the holder of a seniors health card under the Veterans Entitlements Act or the Social Security Act; and b) on that day the person was receiving an income support payment (as defined by the Social Security Act) where energy supplement was used to work out the amount of that payment; and c) on a day (the cessation day) on or after the commencement of subsection 118P(1G), the person ceases to be in receipt of any income support payment (as defined by the Social Security Act); and d) on the day before the cessation day, the person was receiving an income support payment (as defined by the Social Security Act) where energy supplement was used to work out the amount of that payment; and e) the person is required to make a claim for a seniors health card in order for it to be issued to the person; the person can become eligible for energy supplement under subsection 118P(1) only if the claim for the seniors health card was made within a period of 6 weeks that begins on cessation day (set out in paragraph 118(1G)(c)). New subsection 118P(1G) allows a person who is paid the energy supplement with their seniors health card on or after the commencement of the subsection to move between being the holder of a seniors health card and an income support payment recipient while retaining the energy supplement with the card or payment. A movement from a seniors health card to an income support payment must occur on the day the person ceases to be the holder the seniors health card. Where the person moves from an income support payment to a seniors health card the person can retain the energy supplement if they claim within the 6 week period beginning on the day the person ceases to be in receipt of any income support payment. 273

274 Budget Savings (Omnibus) Bill 2016 Item 104 inserts new subsections 118P(2A), (2B) and (2C). Subsection 118P(2) specifies that a person is eligible for the energy supplement if: a) the person is the holder of a gold card; and b) the person has reached qualifying age; and c) the person is in Australia, or is temporarily absent from Australia for a period not exceeding 6 weeks; and d) the person is not receiving any of the following payments: service pension; income support supplement; a social security pension or benefit; or energy supplement under Part 2.25B of the Social Security Act. New subsection 118P(2A) provides that subject to new subsection (2C), subsection 118P(2) will continue to apply to a person on or after the commencement of subsection 118P(2A) if on 19 September 2016 energy supplement was payable to the person under section 118PA. The Note to new subsection 118P(2A) states that subsection 118P(2) will only continue to apply to a person who satisfies the requirements set out in paragraphs 118P(2)(a) to (d). The effect of new subsection 118P(2A) is (subject to new subsection 118P(2C) - discussed below) to prevent new gold card holders, granted from after 19 September 2016, from being paid the energy supplement from 20 March The amendments also ensure the grandfathering of existing gold card holders who are paid the energy supplement on 19 September New subsection 118P(2B) provides subject to subsection (2C) that if: a) energy supplement was payable to the person under section 118PA of the Veterans Entitlements Act on 19 September 2016; and 274

275 Closing carbon tax compensation to new welfare recipients b) energy supplement ceases to be payable under that section on or after 20 September 2016; then subsection 118P(2) will not apply, and never again apply to the person from: a) if the cessation occurred before the commencement of subsection 118P(2B) the day the subsection commences; or b) if the cessation occurred on or after the commencement of subsection 118P(2B) the day that the cessation occurred. The effect of subsection 118P(2B) is to determine the date on which a person who has lost eligibility under section 118PA for the energy supplement on or after 20 September 2016 will cease to be eligible under subsection 118P(2) for the energy supplement. New subsection 118P(2C) provides that if: a) on 19 September 2016, a person was receiving an income support payment (within the meaning of the Social Security Act) where energy supplement was used to work out the amount of that payment; and b) on a day (the cessation day) on or after the commencement of subsection 118P(2C), the person ceases to be in receipt of any income support payment (as defined by the Social Security Act); and c) on the day before the cessation day, the person was receiving an income support payment (as defined by the Social Security Act) where energy supplement was used to work out the amount of that payment; and d) the person is the holder of a gold card on the cessation day; the person can become eligible for energy supplement under subsection 118P(2) because they hold a gold card. New subsection 118P(2C) allows a person who is paid the energy supplement with their income support payment on or after the commencement of the subsection to move to being eligible for energy supplement as the holder of a gold card on cessation of the income support payment. 275

276 Budget Savings (Omnibus) Bill 2016 Item 105 inserts new subsections 118P(4) and (5). New subsection 118P(4) ensures that certain persons will retain eligibility for energy supplement under section 118P despite an absence from Australia of greater than 6 weeks but not exceeding 19 weeks. If the person returns to Australia after an absence of greater than 6 weeks and they hold a seniors health card or a gold card on the day before the person returns to Australia, then the person will be eligible for energy supplement for the period beginning at the end of the 6 week period of absence if they meet the all of the requirements in subsection 118P(4). For subsection 118P(4) to apply energy supplement must be payable to the person under section 118PA on 19 September Further to this, subsection 118P(4) will only apply if either: a) the person is absent from Australia on 19 September 2016 and has been so for a continuous period not exceeding 6 weeks; or b) the person leaves Australia on a day on or after 20 September 2016 and, on the day before so leaving, the person was receiving energy supplement under section 118PA. New subsection 118P(5) provides that new subsection 118P(4) will not limit section 118PB which sets out the rates of energy supplement. The Note to subsection 118P(5) states that subsection 118PB(2) provides that there is no daily rate of energy supplement for a person whose period of absence exceeds 6 weeks. Item 106 inserts a transitional provision providing that if: a) before 19 September 2016 a person was in receipt of an income support payment (within the meaning of the Social Security Act) where energy supplement was included in the payment; and b) a person ceased to receive that payment on a day (the cessation day) in the period of 6 weeks ending at the end of 19 September 2016; and c) on the day before cessation day, energy supplement was used to work out the amount of that income support payment; and 276

277 Closing carbon tax compensation to new welfare recipients d) the person make a claim for a seniors health card under the Veterans Entitlements Act within a period of 6 weeks beginning on the cessation day; and e) the claim is granted and the person becomes the holder of a seniors health card; and f) the card is held by that person immediately before the commencement of this transitional provision; then: g) the person can become eligible for energy supplement under subsection 118P(1) if the person satisfies paragraphs 118P(1)(a) to (b) (despite new subsection 118P(1A)); and h) new paragraph 118P(1D)(a) is applicable on the basis that the reference to a claim mentioned in subsection 118P(1C) included the reference to claim subject to this application provision; and i) for the purposes of new section 22 of the Social Security Act (as inserted by Item 28 of this Schedule) paragraph 22(1)(a) of that Act is taken to apply to the person on each day that occurs in the period beginning on the cessation day and ending at the end of the day before the person becomes the holder of the seniors health card. Item 107 is a minor amendment to the Note to subclause 4(1) of Schedule 6 (Rate Calculator) of the Veterans Entitlements Act. Clause 4 of Schedule 6 is applicable for income tax purposes and sets out the order in which deductions are made to a person s rate of service pension or income support supplement for the purposes of the income and assets tests and compensation recovery. The amendment replaces the reference to a person having made an election under subsection 60A(1) to receive quarterly pension supplement with a reference to quarterly pension supplement being payable to the person. Item 108 repeals paragraph 4(5)(b) of Schedule 6 (Rate Calculator) of the Veterans Entitlements Act to insert a new paragraph stating that quarterly energy supplement for service pension is payable to the person. Subclause 4(5) of Schedule 6 provides that where a person s rate of service pension is to be reduced as described in subclause 4(1) and the 277

278 Budget Savings (Omnibus) Bill 2016 person has elected to receive quarterly pension supplement, a person s quarterly energy supplement is reduced to the same extent (if any) that the component of the main rate that would correspond to the person s energy supplement would be reduced under subclause (1) were the election not in force. Items 109 and 110 are minor amendments to subclause 4(5) of Schedule 6 (Rate Calculator) of the Veterans Entitlements Act to replace the reference to an election to receive quarterly energy supplement not being in force with a reference to were quarterly energy supplement for service pension not payable to the person and to repeal and substitute the Note. The replacement Note refers the reader to section 62E as setting out the circumstances when the reduction in the instalment of the person s quarterly energy supplement will not occur. Items 111 to 117 (excluding Item 115) make amendments to method statement 1 (service pension, not blind, not war widow/ war widower pensioner) and method statement 2 (service pension, blind, not war widow/ war widower pensioner) of Schedule 6 (Rate Calculator) of the Veterans Entitlements Act The amendment to insert new point SCH6-A10 made by Item 115 applies so that the step in the method statements 1 and 2 for the rate calculator that adds an amount of energy supplement to the rate of the person s service pension does not apply in relation to a person on a day on or after commencement of the Item unless the person is a transitional energy supplement person on that day. If a person is a not a transitional energy supplement person (within the meaning of new section 22 of the Social Security Act (inserted by Item 28 of this Schedule) on a day on or after commencement of these items, the rate of the person s service pension will not include an amount of energy supplement. Items 111, 112 and 114 are amendments to the notes in the method statements referred to above as a consequence of the changes made to limit the payment of the energy supplement to certain individuals. Items 116 and 117 amend the Note to point SCH6-BB1 of Schedule 6 (Rate Calculator) of the Veterans Entitlements Act and insert new Note 2. Note 2 refers the reader to new point SCH6-A10 (inserted by Item 115 of this Part). 278

279 Closing carbon tax compensation to new welfare recipients Part 5 Energy supplement under the Military Rehabilitation and Compensation Act Item 118 inserts into subsection 5(1) a definition of income support payment as having the same meaning as in the Social Security Act. Items 119 and 120 amend section 83A. Section 83A provides for the payment of energy supplement where the person is eligible for compensation for permanent impairment under the Military Rehabilitation and Compensation Act. The Note to subsection 83A(1) is amended by Item 119 to include a reference to new subsection 83A(4) as setting out the applicable circumstances where a limitation will be imposed on subsection 83A(1). New subsections 83A(4), (5) and (6) are inserted by Item 120. New subsection 83A(4) provides that on or after the commencement of the amendment a person will only be eligible for energy supplement under subsection 83A(1) if the person is a transitional energy supplement person (as defined in new subsection 83A(5) on that day. The Note to new subsection 83A(4) states that a person must also satisfy the requirements set out in paragraphs 83A(1)(a), (b) and (c) to be eligible for energy supplement. New subsection 83A(5) defines for the purposes of section 83A that a person becomes a transitional energy supplement person on 19 September 2016 if: a) paragraphs 83A(1)(a), (b) and (c) are applicable to the person; or b) energy supplement was payable under subsection 209A(1) of the Military Rehabilitation and Compensation Act because the person was in receipt of or would have been eligible for the receipt of Special Rate Disability Pension under that Act; or c) energy supplement was payable under subsection 62A(2) of the Veterans Entitlements Act because the person was in receipt of a disability pension under that Act The effect of new subsections 83A(4) and (5) is to prevent new recipients of compensation for permanent impairment pension, granted from after 19 September 2016, from being paid the energy supplement after 20 March The amendments also ensure the grandfathering of existing 279

280 Budget Savings (Omnibus) Bill 2016 recipients of compensation who are paid the energy supplement with their compensation on 19 September The amendments also provide for the grandfathering for the purposes of section 83A of those persons who received energy supplement because on 19 September 2016 they were either eligible to receive the Special Rate Disability Pension under section 209A of the Military Rehabilitation and Compensation Act or were receiving disability pension under the Veterans Entitlements Act New subsection 83A(6) provides for the circumstances in which a person will cease to be a transitional energy supplement person. On a day on or after 20 September 2016, if none of the paragraphs 83A(5)(a) to (c) apply to a person, the person will cease to be a transitional energy supplement person and can never again become a transitional energy supplement person. The effect of subsection 83A(6) is to make it clear that a person will lose eligibility for the energy supplement on or after 20 September 2016 if any of the circumstances referred to in paragraphs 83A(5)(a) to (c) are no longer applicable to the person. Subsection 83A(6) also makes it clear that there are no circumstances in which a person who ceases to be a transitional energy supplement person can regain the status of being a transitional energy supplement person. Items 121 and 122 amend section 209A. Section 209A provides for the payment of energy supplement where the person is eligible for a Special Rate Disability Pension under the Military Rehabilitation and Compensation Act. The Note to subsection 209A(1) is amended by Item 121 to include a reference to new subsection 209A(3) as setting out the applicable circumstances where a limitation will be imposed on subsection 209A(1). New subsections 209A(3), (4) and (5) are inserted by Item 122. New subsection 209A(3) provides that on or after the commencement of the amendment a person will only be eligible for energy supplement under subsection 209A(1) if the person is a transitional energy supplement person (as defined in new subsection 209A(4)) on that day. The Note to new subsection 209A(3) states that a will be a transitional energy supplement person if he or she satisfies the requirements set out in paragraphs 209A(1)(a), (b) and (c). 280

281 Closing carbon tax compensation to new welfare recipients New subsection 209A(4) defines for the purposes of section 209A that a person becomes a transitional energy supplement person on 19 September 2016 if: a) paragraphs 209A(1)(a), (b) and (c) are applicable to the person; or b) energy supplement was payable under subsection 83A(1) of the Military Rehabilitation and Compensation Act because the person was eligible for compensation for permanent impairment under that Act; or c) energy supplement was payable under subsection 62A(2) of the Veterans Entitlements Act because the person was in receipt of a disability pension under that Act The effect of new subsections 209A(3) and (4) is to prevent new recipients of Special Rate Disability Pension, granted from after 19 September 2016, from being paid the energy supplement from 20 March The amendments also ensure the grandfathering of existing recipients of Special Rate Disability pension who are paid the energy supplement with their pension on 19 September The amendments also provide for the grandfathering for the purposes of section 209A those persons who received energy supplement because on 19 September 2016 they were either eligible for compensation for permanent impairment under section 83A or were receiving disability pension under the Veterans Entitlements Act New subsection 209A(5) provides for the circumstances in which a person will cease to be a transitional energy supplement person. On a day on or after 20 September 2016, if none of the paragraphs 209A(4)(a) to (c) apply to a person, the person will cease to be a transitional energy supplement person and can never again become a transitional energy supplement person. The effect of subsection 209A(5) is to make it clear that a person will lose eligibility for the energy supplement on or after 20 September 2016 if any of the circumstances referred to in paragraphs 209A(4)(a) to (c) are no longer applicable to the person. Subsection 209A(5) also makes it clear that there are no circumstances in which a person who ceases to be a transitional energy supplement person can regain the status of being a transitional energy supplement person. Items 123 and 124 amend section 238A. Section 238A provides for the payment of energy supplement where the person is eligible for 281

282 Budget Savings (Omnibus) Bill 2016 compensation as a wholly dependent partner of a deceased member under the Military Rehabilitation and Compensation Act. The Note to subsection 238A(1) is amended by Item 123 to include a reference to new subsection 238A(4) as setting out the applicable circumstances where a limitation will be imposed on subsection 238A(1). New subsection 238A(4) is inserted by Item 124. New subsection 238A(4) provides that on or after the commencement of the amendment a person will only be eligible for energy supplement under subsection 238A(1) if the person is a transitional energy supplement person (within the meaning of section 22 of the Social Security Act) on that day. The Note to new subsection 238A(4) states that a will be a transitional energy supplement person if he or she satisfies the requirements set out in paragraphs 238A(1)(a), (b) and (c). The effect of new subsection 238AB(4) is to prevent new recipients of compensation for a wholly dependent partner, granted from after 19 September 2016, from being paid the energy supplement after 20 March The amendments also ensure the grandfathering of existing compensation recipients who are paid the energy supplement with their compensation on 19 September The amendments also provide for the grandfathering for the purposes of section 238A all those persons who on 19 September 2016 were eligible to receive energy supplement because they satisfied one of the conditions referred to in section 22 of the Social Security Act (as inserted by Item 28 of this Schedule) or were receiving war widow/ war widower pensions under the Veterans Entitlements Act. Part 6 Telephone allowance Amendments to the Social Security Act Item 125 amends subparagraph 17(1)(l)(ii) to omit the words other than a telephone allowance payable to the holder of a seniors health card from the definition of compensation affected payment in section 17. This amendment reflects the repeal of subsection 1061Q(4A). Item 126 repeals subsection 1061Q(4A), so that holding a seniors health card will not resulting in qualification for telephone allowance. This maintains existing arrangements despite the repeal of energy supplement because paragraph 1061R(d) currently prevents telephone allowance 282

283 Closing carbon tax compensation to new welfare recipients being payable to a person where the person receives the energy supplement. Item 127 amends subsection 1061S(1) by repealing the cell in item 5, column 2 of that subsection and substituting a new cell as a consequence of the repeal of subsection 1061Q(4A) in item 126. Items 128 and 129 amend subsection 1061SA(1) by repealing the cells in items 5 and 10, column 2 of that subsection and substituting new cells as a consequence of the repeal of subsection 1061Q(4A) in item 126. Item 130 repeals paragraphs 1061SB(2)(a) and (b). This amendment is made as a consequence of the repeal of subsection 1061Q(4A) in item 126. Amendments to the Social Security Administration Act Item 131 repeals the definition of telephone allowance payday in subsection 48(4) and substitutes a new definition that omits those parts of 48(4) that referred to subsection 1061Q(4A) of the Social Security Act consequential upon item 126. Item 132 repeals the definition of working day in subsection 48(4). This change is a consequence of the amendments made by item 131. Item 133 contains an application provision for the amendments made by this Part. Sub-item 133(1) provides that the repeal of subsection 1061Q(4A) of the Social Security Act made by this Part applies in relation to working out if a person is qualified for a telephone allowance on a telephone allowance payday occurring on or after the commencement of this item. Sub-item 133(1) provides that the amendments to sections 1061S, 1061SA and 1061SB of the Social Security Act made by this Part apply in relation to working out the rate of telephone allowance for a telephone allowance payday occurring on or after the commencement of this item. Part 7 Single income family supplement Amendments to the Family Assistance Act Item 134 adds a note at the end of subsection 57G(1) regarding new section 57GDA. Item 135 adds new section 57GDA at the end of Subdivision A of Division 6 of Part

284 Budget Savings (Omnibus) Bill 2016 New subsection 57GDA(1) provides that section 57G does not apply to an individual on or after the commencement of section 57GDA unless the individual was eligible for single income family supplement in respect of the day before that commencement. Section 57G sets out the circumstances in which a person is eligible for single income family supplement. New subsection 57GDA(2) provides that section 57G does not apply, and never again applies, to the individual from the start of the first day on or after the commencement of section 57GDA on which the individual ceases to be eligible for single income family supplement. The effect of new subsection 57GDA(2) is that even if a person is eligible for single income family supplement on the day before the commencement of section 57GDA, any subsequent loss of eligibility will mean the person can never again be eligible for single income family supplement. New subsection 57GDA(3) provides for ongoing eligibility for single income family supplement for a person who is required to make a past period claim. This subsection requires the person to be continuously eligible for single income family supplement but also requires that they continue to claim the supplement for the income year ending on the day before commencement and every subsequent income year in accordance with the timeframe in section 65KD of the Family Assistance Administration Act in order to remain eligible. Section 65KD of the Family Assistance Administration Act requires a person to claim single income family supplement by the end of the year following the income year to which the claim relates. If a person fails to claim the supplement within this timeframe and has not been granted an extension of time due to special circumstances under subparagraph 65KD(2)(b)(ii) of the Family Assistance Administration Act then the person will never again be able to claim single income family supplement. For example, a claim for the single income family supplement for the income year must be made by the end of the income year. If a person is eligible to be paid the supplement for the entire income year but fails to claim by the end of the income year (and a special circumstances extension has not been granted) the person can never be eligible for the supplement again under section 57G. If the person claims in time for the income year but then fails to claim in time for the income year because they fail to make a claim by the end of the income year, the person can never be 284

285 Closing carbon tax compensation to new welfare recipients eligible for the supplement again under section 57G and cannot claim the supplement for the income year. STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Closing carbon tax compensation to new welfare recipients This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act Overview This Schedule closes payment of the Energy Supplement (ES) to new welfare recipients from 20 March People who receive the ES on 19 September 2016 retain access to it for so long as they have continuous entitlement to their ES-attracting payment or card on and after that date. People who start, or who do not have continuous entitlement, to receive their Energy Supplement-attracting payment or card between 20 September 2016 and 19 March 2017 will have their payment increased by the amount of the ES but only for those days that both fall within that period and for which they are entitled to it. This Schedule also amends the A New Tax System (Family Assistance) Act 1999 to cease the Single Income Family Supplement (SIFS) to new entrants from 1 July 2017, while introducing grandfathering arrangements for all families eligible for SIFS as at 30 June 2017 who then continuously remain eligible and entitled to the payment. The SIFS is a non-indexed payment of up to $300 per year, paid to individuals with a qualifying dependent child, where primary earner income is between $68,000 and $150,000, and secondary income (if any) is less than $18,000. SIFS is paid after an entitlement year after an individual s family income is reconciled. The ES (which was originally called the Clean Energy Supplement) and SIFS were introduced on 20 March 2013 to compensate people for the introduction of the carbon tax. As the carbon tax was repealed from 1 July 2014, there is no longer a need to provide this compensation. 285

286 Budget Savings (Omnibus) Bill 2016 Human rights implications The Schedule engages the following human rights: The right of everyone to social security in Article 9, and the right of everyone to an adequate standard of living for an individual and their family, including adequate food, clothing and housing, and the continuous improvement of living conditions in Article 11of the International Covenant on Economic, Social and Cultural Rights; and The rights of the child in Article 26 of the Convention on the Rights of the Child. The right of everyone to social security and an adequate standard of living The legitimate objective of removing the ES and SIFS from eligible payments to new recipients is to contribute to the ongoing sustainability of social security, and in doing so, contribute funding the National Disability Insurance Scheme (NDIS). Funding the NDIS is essential to support a better life for hundreds of thousands of Australians with a significant and permanent disability and their families and carers. The pursuit of this objective promotes human rights by supporting the Convention on the Rights of Persons with Disabilities. The engagement of this Schedule with the right of everyone to social security is reasonable because the Household Assistance Package, which includes the ES and SIFS, was brought in to provide compensation for the carbon tax which no longer exists. Closing the ES does not affect the range of payments that previously attracted it in any other way, maintaining the general integrity of social security. Further, the grandfathering provisions in the schedule mean that no one on a payment or entitlement that attracts the ES continuously from 19 September 2016 will be in a worse position financially as they will retain the ES as part of their payment. Grandfathering arrangements will also be introduced for all families who, on 30 June 2017, are eligible and entitled to receive SIFS and then continuously remain eligible and entitled to receive the payment. This option to include these grandfathering provisions was the least restrictive alternative out of those originally proposed. 286

287 Closing carbon tax compensation to new welfare recipients SIFS is a small end of year payment paid to families with a main income earner who earns between $68,000 and $150,000. Consequently, the personal means of these families should ensure their standard of living will not be negatively impacted by ceasing to be entitled to apply for the payment. The rights of the child To the extent that ceasing the ES and SIFS limits the rights of the child to social security, this is reasonable and proportionate. This Schedule does not impact how the Australian Government supports low and middle income families with dependent children and young people through the payment of family tax benefit and youth support payments. Family tax benefit Part A and youth support payments are per-child payments that have the primary objective to ensure all children and young people have access to a basic acceptable standard of living. Family tax benefit Part B will continue to provide additional assistance to single parent families, non-parent carers and some couple families with one main income earner. Conclusion This Schedule is compatible with human rights because to the extent that it may limit human rights, those limitations are reasonable, necessary and proportionate and people are otherwise provided for. 287

288

289 Chapter 22 Rates of R&D tax offset Outline of chapter Schedule 22 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to reduce the rate of the tax offsets available under the research and development tax incentive for the first $100 million of eligible expenditure by 1.5 percentage points. The higher (refundable) rate of the tax offset for this expenditure will be reduced from 45 per cent to 43.5 per cent and the lower (non-refundable) rates of the tax offset will be reduced from 40 per cent to 38.5 per cent. Context of amendments Research and development tax incentive The research and development tax incentive is the primary mechanism by which the Commonwealth seeks to encourage companies to undertake research and development activities in Australia. Broadly, the incentive provides: a 45 per cent refundable tax offset for the first $100 million of eligible expenditure of eligible entities with a turnover of less than $20 million, and which are not controlled by income tax-exempt entities, for their expenditure on eligible research and development activities in Australia; a 40 per cent non-refundable tax offset for the first $100 million of all other eligible entities for their expenditure on eligible research and development activities in Australia; and a further tax offset at the company tax rate for the balance of all eligible entities expenditure. (see section of the ITAA 1997.) In determining what rate applies, an entity will be considered to be controlled by an exempt entity or entities if, broadly, the exempt entity or 289

290 Budget Savings (Omnibus) Bill 2016 exempt entities hold an interest in the entity of at least 50 per cent at any time in the income year (see section of the ITAA 1997). The tax offset rates of 40 per cent, 45 per cent or 30 per cent of the eligible research and development expenditure replace any income tax deduction or other offset that would otherwise be available in respect of the expenditure. As a result, the first $100 million of research and development expenditure generally results in a greater net benefit than an income tax deduction for research and development expenditure at the company tax rate. Eligible research and development activities include both core activities, being experimental activities undertaken for the purpose of acquiring new knowledge, and supporting activities, which are activities either directly related to core activities or are undertaken for the dominant purpose of supporting core activities (sections to of the ITAA 1997). Eligible entities are Australian resident corporations, Australian permanent establishments of foreign corporations and certain public trading trusts (section of the ITAA 1997) who have registered under Part III of the Industry Research and Development Act Provisions exist to claw back the additional tax benefit provided by the research and development tax incentive for eligible expenditure where an entity obtains a recoupment from government for the expenditure or where the expenditure relates to feedstock that has been or is sold (see Subdivisions 355-G and 355-H of the ITAA 1997). The savings that will result from the measure will assist in the repair of the budget. Following this change, the research and development tax incentive will continue to provide a significant incentive for research and development in Australia. Consultation Targeted confidential consultation was undertaken on exposure draft legislation with affected stakeholder bodies. No concerns were raised during consultation. Summary of new law Schedule 22 to this Bill amends the ITAA 1997 to reduce the refundable and non-refundable rates of the tax offset available under the research and development tax incentive for the first $100 million of eligible expenditure from 45 per cent to 43.5 per cent and from 40 per cent to 38.5 per cent (respectively). 290

291 Rates of R&D tax offset The changes do not affect the eligibility of entities to claim the research and development tax incentive or the administration of the research and development tax incentive more generally. Comparison of key features of new law and current law Eligible entities: New law with annual turnover of less than $20 million; and which are not controlled by an exempt entity or entities may obtain a refundable tax offset equal to 43.5 per cent of their first $100 million of eligible research and development expenditure in an income year and a further refundable tax offset equal to the amount by which their research and development expenditure exceeds $100 million multiplied by the company tax rate. All other eligible entities may obtain a non-refundable tax offset equal to 38.5 per cent of their eligible research and development expenditure and a further non-refundable tax offset equal to the amount by which their research and development expenditure exceeds $100 million multiplied by the company tax rate. Eligible entities: Current law with annual turnover of less than $20 million; and which are not controlled by an exempt entity or entities may obtain a refundable tax offset equal to 45 per cent of their first $100 million of eligible research and development expenditure in an income year and a further refundable tax offset equal to the amount by which their research and development expenditure exceeds $100 million multiplied by the company tax rate. All other eligible entities may obtain a non-refundable tax offset equal to 40 per cent of their eligible research and development expenditure and a further non-refundable tax offset equal to the amount by which their research and development expenditure exceeds $100 million multiplied by the company tax rate. Detailed explanation of new law Schedule 22 to this Bill amends the three rates of the tax offset available as part of the research and development tax incentive detailed in the table in section of the ITAA The first rate in the table in section applies to entities with a turnover of less than $20 million (and to which the second rate does not specifically apply). These entities previously received a tax offset equal to 45 per cent of their first $100 million of eligible research and development expenditure. They will now receive an offset equal to 43.5 per cent of their first $100 million of eligible expenditure. [Schedule 22, item 1, item 1 in the table in subsection (1) of the ITAA 1997] 291

292 Budget Savings (Omnibus) Bill 2016 The second rate in the table applies to entities which, at any time during the income year, are controlled by an entity that is exempt from income tax (an exempt entity ), including entities which would otherwise meet the criteria for the first rate to apply. These entities previously received a tax offset equal to 40 per cent of their first $100 million of eligible research and development expenditure. They will now receive an offset equal to 38.5 per cent of their first $100 million of eligible expenditure. [Schedule 22, item 2, item 2 in the table in subsection (1) of the ITAA 1997] The third rate in the table applies to all other eligible entities. These entities previously received a tax offset equal to 40 per cent of their first $100 million of eligible research and development expenditure. They will now receive an offset equal to 38.5 per cent of their first $100 million of eligible expenditure. [Schedule 22, item 3, item 3 in the table in subsection (1) of the ITAA 1997] There is also a note to the table which previously referred to the 45 per cent rate. The note now refers to the 43.5 per cent rate. [Schedule 22, item 4, note to subsection (1) of the ITAA 1997] For simplicity, no change has been made to the provisions providing for the adjustment of tax benefits in respect of eligible research and development expenditure where the entity obtains a recoupment for the expenditure or sells feedstock to which the expenditure relates. Application and transitional provisions These amendments apply in respect of assessment for income years commencing on or after 1 July [Schedule 22, item 5] STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Research and development tax incentive: reducing the tax offset rates This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act

293 Rates of R&D tax offset Overview The research and development tax incentive is the primary tax mechanism by which the Commonwealth seeks to encourage companies to undertake research and development activities in Australia. Broadly, under the research and development tax incentive, eligible entities (Australian resident corporations, Australian permanent establishments of foreign corporations and certain public trading trusts (section of the ITAA 1997) who have registered under Part III of the Industry Research and Development Act 1986) are entitled to receive a tax offset for a certain percentage of their eligible expenditure on research and development. As a result of the amendments, the refundable tax offset rate will be reduced from 45 per cent to 43.5 per cent for the first $100 million of eligible expenditure by taxpayers with annual turnover under $20 million that were not controlled by entities that are exempt from income tax at any point during the income year, and the non-refundable tax offset rate will be reduced from 40 per cent to 38.5 per cent for the first $100 million of eligible expenditure for all other taxpayers. The gain to revenue and savings from this measure will be directed to repairing the budget. Human rights implications This Schedule does not engage any of the applicable rights or freedoms. The change only affects the amount of tax offset that can be claimed by corporate taxpayers which engage in eligible research and development activities. Conclusion This Schedule is compatible with human rights as it does not raise any human rights issues. 293

294

295 Chapter 23 Single touch payroll reporting Outline of chapter This Schedule creates a new reporting framework, known as Single Touch Payroll (STP), for substantial employers to automatically provide payroll and superannuation information to the Commissioner of Taxation (Commissioner) at the time it is created. Entities that report under STP will not have to comply with a number of existing reporting obligations under the taxation laws. This Schedule also contains a number of related amendments to streamline an employer s payroll and superannuation choice processes by allowing the Australian Taxation Office (ATO) to pre-fill and validate employee information. All references to legislative provisions in this chapter are references to Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) unless otherwise stated. Context of amendments STP reporting is designed to reduce the compliance costs for employers meeting their Pay as you go (PAYG) withholding obligations by using Standard Business Reporting (SBR) enabled software to automatically report employee salary or wage information to the Commissioner at the time these amounts are paid. The current reporting arrangements for PAYG withholding are somewhat dislocated from natural business systems and are primarily designed to align with annual income tax obligations of employees. Instead, the use of SBR-enabled software presents an opportunity to automate and better align reporting to business processes, such as the payroll process. Currently, entities report and pay PAYG withholding obligations to the ATO up to three months after the payroll event, when the relevant payment is made. This delay in reporting requires businesses to put in place systems and processes to reconcile data created at the payroll event and collate these for later reporting to the ATO. For many small and medium businesses, this remains predominantly a manual process or is outsourced to bookkeepers or tax agents. 295

296 Budget Savings (Omnibus) Bill 2016 In addition, employers must create an annual payment summary for each employee to assist that employee in completing their annual income tax return and also provide this to the ATO. STP reporting presents an opportunity to reduce the need for employers to triple handle information in this way. STP reporting will also provide for employee-level superannuation contribution information to be given to the ATO in a more timely and visible manner. This will improve the ATO s ability to monitor the payment of employee entitlements and enable the ATO to implement early intervention processes if superannuation guarantee (SG) contributions are not being paid. This can reduce the risk of businesses getting behind on the payment of employee superannuation entitlements. This will also better position the ATO to take early compliance action to protect employee superannuation entitlements, particularly in relation to phoenix-type activities where businesses are deliberately wound up to avoid having to meet outstanding liabilities. Under the current law, the ATO typically receives information about SG amounts six to twelve months after the employee entitlements have been paid. However, SBR-enabled software will allow for this information to be automatically reported to the Commissioner at the time the contributions are paid. In addition, superannuation standard choice forms and tax file number (TFN) declarations are predominantly paper based and require the employer to key the information into their payroll system, sign the TFN declaration and provide the original form to the ATO as well as securely store a copy of the form. As part of the transition to STP reporting, these amendments will allow the ATO and employers to provide individuals with the option to complete these forms through the Commissioner s online service (currently called ATO Online, available on the whole of government service, mygov). This will reduce employer compliance costs and errors associated with re-keying information. Only employers with 20 or more employees will be required to comply with STP reporting from 1 July 2018 and there is no Government decision at this stage to extend the regime on a mandatory basis to smaller employers. That said, the ATO will be conducting a pilot in the first half of 2017 to demonstrate the deregulation benefits for businesses, with a focus on small businesses, to further inform the broader implementation of STP reporting. 296

297 Single touch payroll reporting Summary of new law Schedule 23 contains the following related, but discrete, Parts: Part 1: Reporting by employers Part 2: Choice of fund Part 3: TFN declarations Part 4: TFN validation Part 1 inserts new Division 389 into Schedule 1 to the TAA 1953, which requires entities with 20 or more employees (substantial employers) to give payroll and superannuation information to the Commissioner through STP. Entities that report under STP may reduce their reporting obligations under other provisions of the taxation law. This Part also establishes a legislative framework for other employers to voluntarily report under STP and, in turn, be relieved of existing obligations. Parts 2 and 3 amend the Superannuation Guarantee (Administration) Act 1992 (SGAA 1992), Schedule 1 to the TAA 1953, the Income Tax Assessment Act 1936 (ITAA 1936) and the Superannuation Industry (Supervision) Act 1993 (SISA 1993). These amendments allow the ATO and employers to implement streamlined procedures for completing superannuation standard choice forms and TFN declarations on the Commissioner s online service. Part 4 amends the ITAA 1936 to improve the Commissioner s capacity to validate TFN information. Comparison of key features of new law and current law New law Entities with 20 or more employees (substantial employers) are required to report the following information to the Commissioner: withholding amount and associated withholding payment on or before the day by which the amount is required to be withheld; Current law Under the existing PAYG withholding regime, employers are required to withhold amounts from an employee s salary at the time they pay the salary. At a later date, they are required to notify the Commissioner of the amount withheld, remit these amounts to the Commissioner, provide each employee with an annual payment summary and provide an annual report to the Commissioner. 297

298 Budget Savings (Omnibus) Bill 2016 New law salary or wages and ordinary time earnings information on or before the day on which the amount is paid; and superannuation contribution information on or before the day on which the contribution is paid. Employers that report these obligations (including those that voluntarily report) will not need to comply with a number of other reporting obligations under the existing law. For the first 12 months, reporting entities will not be subject to administrative penalties, unless first notified by the Commissioner. An employee may make a valid choice of superannuation fund by providing the relevant information to the Commissioner. In this situation, the Commissioner may disclose an employee s TFN and protected information to their employer. An employee may make an effective TFN declaration by providing the declaration to the Commissioner. In this situation, the Commissioner may make available to the employer the information in the employee s TFN declaration. Where the information has been provided by the employee to the Commissioner, the employer will not be required to send the declaration to the relevant Deputy Commissioner, nor will they be required to notify the Commissioner where no TFN declaration is provided to them by their employee. However, if an employee chooses not to provide their TFN, the obligation will remain on the employer to notify the Commissioner. Current law Employers have an obligation under Part 3B of the Superannuation Industry (Supervision) Act 1993 and associated regulations to report, consistently with certain data standards, superannuation contribution information to superannuation funds on the same day as the employer makes a contribution to the fund. Employers do not generally have an equivalent reporting obligation to provide employee-level superannuation contribution information to the Commissioner. However, employers must lodge SG statements to the Commissioner if they have a SG shortfall for a quarter or if required to do so by the Commissioner under the Superannuation Guarantee (Administration) Act In order to make a valid choice of superannuation fund, an employee must provide their employer with written notice of that choice. An employee may make a TFN declaration in the approved form to their employer and the employer must send that declaration to the Deputy Commissioner. If an employee chooses not to provide their TFN, then the employer is generally required to notify the Commissioner of this in the approved form. 298

299 Single touch payroll reporting New law The Commissioner may provide employers with confirmation that a recipient s information, including their TFN, matches or does not match the information held by the ATO about the recipient (positive and negative validation). Current law The Commissioner may only provide employers notice that a TFN quoted in a TFN declaration is cancelled, withdrawn or is otherwise wrong (negative validation). Detailed explanation of new law This Schedule contains a suite of legislative amendments to create a new modern reporting regime for providing payroll and superannuation information to the ATO. To complement this reporting regime, the Schedule also contains amendments allowing the ATO to enhance their digital service offering for employers in relation to processes associated with bringing new employees onto their payroll. This includes enhanced TFN validation services, which will provide employers with confidence that details they hold about their employees matches the information held by the ATO for that employee. Collectively, these amendments are designed to reduce the compliance costs for employers of meeting their PAYG withholding and superannuation obligations, whilst also improving the ATO s ability to monitor employer compliance with their SG obligations. Part 1 - Reporting by employers Design approach This Schedule establishes a new reporting regime, requiring substantial employers to report payroll and superannuation contribution information to the Commissioner through STP. As a matter of legislative design, these amendments empower the Commissioner to pragmatically manage a range of transitional issues that may arise for employers adapting to a new way of reporting. This legislative flexibility recognises that entities can have different payroll systems and processes, and standard specific legislative rules may not easily accommodate such systems. On the other hand, the legislation deliberately restricts the type of information to be reported to provide 299

300 Budget Savings (Omnibus) Bill 2016 entities with legislative certainty about how Parliament intends the Commissioner to administer the new regime. A key area where the legislation provides flexibility is the broad powers given to the Commissioner to exempt entities from reporting under STP and defer the start dates for classes of entities by legislative instrument. This ensures the Commissioner can administratively manage the concerns of a range of entities that may have difficulties in transitioning to STP reporting. The framework also utilises the approved form provisions (refer section ), in much the same way as they are used for existing PAYG withholding reporting obligations. The use of the approved form provisions provides the Commissioner with flexibility to defer due dates to better align reporting with an employer s payroll processes. However, the legislation also limits the flexibility provided by the approved form provisions to specific reportable content. Ordinarily, the approved form provisions would allow the Commissioner to specify the content of a report whereas these amendments limit the content that the Commissioner can require in relation to specific amounts. This is designed to provide reporting entities and payroll system designers a high level of certainty and stability about the amounts to be reported under STP. In addition, the framework restricts the Commissioner s administrative powers to impose penalties for failing to lodge reports on time and in the approved form, as well as penalties for making false or misleading statements. These restrictions recognise that employers will need time to adjust to a new reporting regime and that there may be circumstances where automated systems result in unintended errors that are not immediately identified. Reporting using SBR-enabled software Under STP reporting, substantial employers must report information that is produced as part of their payroll processes to the Commissioner in the approved form. In practice, currently the ATO anticipates that this will require substantial employers to report using SBR-enabled software. SBR-enabled software allows employers to automatically report information that is already produced by an employer as part of their payroll processes to the Commissioner at the time the relevant process is undertaken. In this case, the Commissioner would treat reports lodged in a different manner as a failure to lodge in the approved form. However, the flexibility of the approved form provisions will allow the Commissioner to update the way STP information is reported in the future, as the need arises. 300

301 Single touch payroll reporting Which entities need to report? Subject to specific exemptions, entities with 20 or more employees (substantial employers) on 1 April 2018 will be required to report under STP from 1 July Entities that become substantial employers on 1 April in a subsequent year will be required to report under STP from 1 July of that calendar year. [Schedule 23, item 1, subsections 389-5(6) and 389-5(1) and subitem 22(1)] For the purposes of determining whether an entity is a substantial employer, the number of employees is calculated using a headcount rather than a full-time equivalency. The term employee has its ordinary meaning which means that contractors will not be included in the relevant headcount. [Schedule 23, item 1, subsection 389-5(6)] Specific rules apply in relation to companies that are members of a wholly-owned group. In calculating the number of employees employed on the relevant date, the total number of employees employed by all member companies of the wholly-owned group must be included. [Schedule 23, item 1, paragraph 389-5(6)(b)]Example 1 Ivan Co is one of four companies that are all members of the Fashion Emporium Co wholly-owned group. Ivan Co employs 7 employees in its fashion eyewear business. The other members of the Fashion Emporium Co wholly owned group are Marion Co which employs 6 employees, Lydia Co with 10 employees and Kev Co with 4 employees. In calculating the number of employees for the purpose of determining whether Ivan Co is a substantial employer, Ivan Co must count all employees in the Fashion Emporium Co wholly-owned group. Ivan Co, Marion Co, Lydia Co and Kev Co are all substantial employers as the Fashion Emporium Co wholly-owned group employs 27 employees in total. Even though entities that are not substantial employers do not need to report under STP, such entities may choose to do so. [Schedule 23, item 1, subsections (1) and (2)] Such entities will be able to reduce their reporting obligations under other taxation laws. Exemptions The Commissioner may grant an exemption from STP reporting, both on a class of entity basis and an individual basis. An entity that is exempt from 301

302 Budget Savings (Omnibus) Bill 2016 reporting under STP will still be subject to their existing obligations to report in accordance with Subdivision 16-C. The Commissioner may, by legislative instrument, exempt a class of entities from reporting under STP for one or more income years. [Schedule 23, item 1, subsections (1) and 389-5(5)] Also, the Commissioner may, by notice in writing, exempt a particular entity from reporting under STP for one or more income years. The Commissioner may choose to exercise this power on his or her own initiative or on application by an entity. The Commissioner will endeavour to make a decision on all applications for exemptions within 60 days of receiving the application. However, where the Commissioner does not notify the entity of a decision within 60 days after an application is made, the Commissioner will be taken to have refused an application for an exemption. If an entity is dissatisfied with a decision made by the Commissioner either to refuse an exemption application (including a deemed refusal) or to limit the extent of an exemption, the entity may object to the decision under Part IVC of the TAA [Schedule 23, item 1, subsections (3), (5), (6) and (7) and subsection 389-5(5)] The Commissioner may choose to limit the extent of an exemption. For example, the Commissioner may exempt entities from reporting only in relation to specific items under Division 389 or in relation to part of an income year. [Schedule 23, item 1, subsections (2) and (4)] These exemption powers allow the Commissioner to flexibly manage the transition of substantial employers to STP reporting. The Commissioner may choose to take a variety of circumstances into account when determining whether to exempt an entity or class of entity, including specific circumstances that may impact on an entity s ability to report electronically in a particular year. It is expected that the Commissioner will provide further guidance around how he will apply this exemption power, but the following examples illustrate the scope of the power and circumstances where the Commissioner could choose to grant an exemption. Example 2 Assume that the Commissioner grants an exemption on a class basis for all substantial employers operating in remote locations where there is no or unreliable internet connection. Anne operates a grocery store where she employs 25 employees in a remote location covered by the Commissioner s exemption. Whilst Anne is a substantial employer, she would not have to report under STP. 302

303 Single touch payroll reporting Example 3 Example 4 Anne would not need to apply to the Commissioner for an exemption, as her business is covered by the class exemption. However, Anne would be subject to her existing obligations to report in accordance with Subdivsion 16-C. This means she will continue to report her PAYG withholding liability using her current process, give payment summaries to her employees and give a payment summary annual report to the Commissioner. Ruby is a substantial employer who runs a restaurant business that is affected by a natural disaster in June As a result, Ruby is unable to prepare her systems in time to begin reporting under STP on 1 July The Commissioner may decide to grant an exemption on a class basis to all businesses in the area affected by the natural disaster from reporting under STP for the first six months of the income year. In this case, Ruby would not have to commence STP reporting until 1 January As Ruby s first report would contain year-to-date information for each of her employees, Ruby will not have to provide payment summaries to those employees at the end of the 2018 income year, nor will she have to provide a payment summary annual report to the Commissioner for each of her employees. Fiona runs a fruit picking family farm business. For the majority of the income year, she employs three people on her farm. However, during the harvest season from late March to early April, she employs up to sixty additional staff to ensure the fruit is picked on time. As a result, Fiona employs more than 20 employees on 1 April 2018 and so will be a substantial employer. Fiona may apply to the Commissioner to exempt her business from reporting under STP. The Commissioner may decide to grant her an exemption, since she is only a substantial employer for a short part of the income year. Amounts to be reported at time employee is paid As a matter of process, certain payroll information is generated at the time an employer pays an employee. Employers will be able to leverage SBRenabled software to automatically report information to the Commissioner at the time they undertake this process. 303

304 Budget Savings (Omnibus) Bill 2016 In addition, to the following types of amounts to be reported, the Commissioner may require entities to report additional amounts by specifying these amounts by legislative instrument. This legislative limit is designed to provide legislative certainty about the types of amounts to be reported. [Schedule 23, item 1, subsections 389-5(2) and (3)] Ordinary time earnings and salary or wages to be reported A substantial employer that makes a payment which constitutes an employee s ordinary time earnings or salary or wages (within the meaning of the SGAA 1992 must report these amounts to the Commissioner in the approved form on or before the day the amount is paid. In this context, the term employee has the meaning provided by the expanded definition in section 12 of the SGAA 1992, disregarding subsection (3) of the definition which covers contractors. An employer is not required to report such information in relation to contractors. This recognises that contractors are generally not included in an employer s payroll system and so requiring entities to report in relation to these entities would impose a significant compliance burden. [Schedule 23, item 1, item 2 in the table in subsection 389-5(1)] Generally, both ordinary time earnings and salary or wages will need to be reported to the Commissioner. However, the flexibility of the approved form framework would allow the Commissioner to use other forms of information already contained in an employer s payroll software. For example, as an alternative to reporting a payment of salary or wages and an employee s ordinary time earnings, the Commissioner could choose to accept the amounts of contributions that an employer is liable to make for a specific period. The ATO is expected to issue guidance about the content of the STP report. Withholding amounts and payments to be reported Under the PAYG withholding regime in Part 2-5, an entity that makes a payment to a recipient is usually required to withhold an amount from the payment when making the payment (refer section 16-5). At a later date, they are required to notify the Commissioner of the amount withheld (refer section ) and remit these amounts to the Commissioner (refer subdivision 16-B). Employers usually satisfy these obligations to notify and remit by reporting on a business activity statement (BAS) and paying their BAS liability. An entity required to report under STP that has an obligation to withhold an amount from certain payments must report these payment amounts and the withheld amounts to the Commissioner on or before the day the amount is required to be withheld generally, when the employer makes the payment to their employee (refer section 16-5). An obligation to 304

305 Single touch payroll reporting withhold a nil amount is treated as an obligation to withhold an amount. [Schedule 23, item 1, subsection 389-5(4) and item 1 in the table in subsection 389-5(1)] An employer will be required to report if they have an obligation to withhold an amount from payments: under the Seasonal Labour Mobility Program (section A in Subdivision 12-FC); for work and services (Subdivision 12-B with the exception of sections and 12-60); for termination of employment (paragraph 12-85(b)); for unused leave (section 12-90); for parental leave pay (paragraph (1)(ca)); and for dad and partner pay (paragraph (1)(cb)). [Schedule 23, item 1, item 1 in the table in subsection 389-5(1)] These amendments change the timing and frequency for reporting these withholding amounts. Rather than first notify the Commissioner of these amounts at the time the employer remits the amount withheld to the Commissioner (generally on their BAS), employers will need to report these amounts at the time they are required to withhold the amount (when the employee is paid). As this information is to be reported in the approved form, the Commissioner may defer the date for lodgement (refer section ) without the need for a legislative instrument. This could arise in situations where the STP report would better align with an employer s payroll processes. [Schedule 23, item 1, subsection 389-5(2)] Whilst employers generally make payments to employees on a regular payment cycle, there may be some circumstances when employers make irregular or ad hoc payments, such as employment termination payments or casual salary or wages. As the date when such payments need to be reported to the Commissioner may not correspond with the employer s regular payment cycle due dates, a separate report would need to be sent to the Commissioner. However, in these circumstances, the Commissioner could defer the due date for reporting these ad hoc payment reports until the next regular reporting date. It is expected that the ATO will provide guidance clarifying the treatment of ad hoc payments under STP. 305

306 Budget Savings (Omnibus) Bill 2016 Modified application of penalties in relation to notifications under table items 1 and 2 Australia s taxation laws contain a range of administrative penalties for entities that do not comply with their reporting obligations. These amendments modify the application of these penalties in the following ways. First, these amendments limit the Commissioner s ability to impose penalties for failing to report on time or in the required manner for the first 12 months (transitional relief). Second, these amendments provide reporting entities with a grace period for correcting false or misleading statements in relation to certain reports without penalty (ongoing grace period). Transitional relief An entity that fails to provide a report on time, or in the approved form, may be liable an administrative penalty under subsection (1). However, for the first year that an entity is required to report under STP, that entity will not be subject to such an administrative penalty unless the Commissioner first issues that employer with a non-compliance notice advising the employer that future non-compliance with the relevant due dates for reporting may attract administrative penalties. [Schedule 23, subitem 22(2)] As a matter of practical administration, the Commissioner should make contact with the relevant entity transitioning to STP reporting to provide support and help before issuing such a notice. Nonetheless this transitional rule recognises that employers will need some time to adjust to a new way of reporting, whilst also recognising that incentives to comply will support the widespread uptake of STP reporting. Ongoing grace period for correcting errors These amendments allow the Commissioner to provide reporting entities with an ongoing grace period for correcting false or misleading statements in relation to these STP reports without penalty. The grace period covers a range of penalties for making false or misleading statements under the taxation laws. [Schedule 23, items 1, 5, 6, 7 and 19, section ] This grace period is designed to allow reporting entities to conduct an assurance process on the information reported to the Commissioner and correct the statement within specified timeframes. In particular, it is designed to provide a balance between reporting entities automatically reporting on time and reporting accurate information. After the grace period has expired, any uncorrected false or misleading statement may be subject to penalties. 306

307 Single touch payroll reporting Allowing corrections to be given in the approved form provides the Commissioner with the flexibility to allow, for example, these corrections to be given in a subsequent STP report. In addition, the approved form provisions provide the Commissioner with the flexibility to also defer the due date for making these corrections. [Schedule 23, items 5, 7 and 19] The Commissioner will have the power to determine, by legislative instrument, the timeframe for reporting entities to correct errors and specify that different timeframes may apply to different classes of entities. For example, the Commissioner may determine a different period depending on the size of the withholder and the size of the correction involved. [Schedule 23, item 1, subsection (5)] The Commissioner will also have the power to provide by notice a different period for an individual reporting entity. This allows, for example, the Commissioner to reduce an entity s grace period if it appears that the particular entity is misusing this grace period. The Commissioner s decision to provide a different period for individual employers is a reviewable decision. [Schedule 23, item 1, subsections (2), (3) and (4)] Regardless of any grace period specified by the Commissioner, reporting entities will need to make any corrections within 14 days after the end of the financial year to which the relevant report relates. This is because the grace period is only available for correcting statements related to the financial year in which the statement is made. [Schedule 23, items 5, 7 and 19] Effect on other reporting requirements A reporting entity that has met all of its STP reporting obligations for an income year will not need to comply with the following obligations under the taxation laws: section (Notification of withholding amounts); section (Annual payment summaries); section (Payment summaries for payments for termination of employment); section (Annual reports to the Commissioner); and section (Part-year payment summaries). [Schedule 23, item 1, subsection (1)] 307

308 Budget Savings (Omnibus) Bill 2016 A reporting entity must give a declaration to the Commissioner that it has given all the information that it would otherwise be required to give under sections , and for payments made in the financial year by 14 July to be exempt from the annual reporting obligations. [Schedule 23, item 1, subsection (2)] As this declaration is to be given in the approved form, the Commissioner could, for example, specify that the last STP report for the financial year could be one of the approved forms. [Schedule 23, item 1, paragraph (2)(b)] Notification of withheld amounts Reporting entities will no longer be required to comply with their obligation under section to notify PAYG withholding amounts covered under STP when remitting such withheld amounts to the Commissioner. Currently, most entities satisfy this obligation by including the relevant amounts on their BAS. It is expected that the ATO will pre-fill this information on the BAS for reporting entities based on the information reported under STP. Annual payment summaries One of the benefits of STP reporting is that the Commissioner will be able to make the information currently recorded on an annual payment summary progressively available throughout the income year to employees on the Commissioner s online service. This will allow relevant employees to view information about income payments made to them by reporting entities. As a result, relevant employees can keep track of cumulative employment-related income and be better informed about any potential tax liabilities or refunds as well as any potential underpayment or overpayment of welfare entitlements. Making this information available may also allow the employee to complete their personal tax return earlier using the Commissioner s online service. Reporting entities will no longer need to comply with their obligations under sections and to provide payment summaries to their employees in relation to amounts reported through STP (although entities will continue to be required to provide payment summaries in relation to amounts that are not reported through STP). Employers may still choose to provide an annual payment summary if requested to do so by an employee. Under paragraphs (1)(c) and (d), reportable employer superannuation contribution (RESC) and reportable fringe benefit (RFB) amounts are required to be reported on an annual payment summary. Whilst it is not mandatory for reporting entities to report RESC and RFB 308

309 Single touch payroll reporting amounts through STP, an entity may nonetheless choose to report these amounts to the Commissioner through STP by 14 July and, if so, that entity would no longer need to provide an annual payment summary covering these amounts. [Schedule 23, item 1, paragraph (1)(c) and subsection (3)] Annual reports to the Commissioner (section ) Reporting entities will no longer be required to provide an annual report to the Commissioner under section , in relation to amounts reported under STP. This includes RESC and RFB amounts voluntarily reported to the Commissioner in the approved form by 14 July after the end of a financial year (this is one month earlier than required under the existing law (refer paragraphs (2)(c) and (d))). [Schedule 23, item 1, subsections (3) and (4) and paragraph (1)(b)] Part-year payment summaries (section ) Reporting entities will not be required to comply with their obligation under section to provide a part-year payment summary to the extent that it would relate to an amount that the entity has notified under STP. These amendments also exempt all payers (not just entities reporting under STP) from their obligation to provide a part-year payment summary under section , where the payer has made a RESC, in respect of the recipient s employment, during the financial year. This aligns the treatment of RESC with the treatment of RFB amounts under section and reduces compliance costs for employers. [Schedule 23, items 14, 15 and 16] Information to be reported at time superannuation contributions are paid An important part of Australia s superannuation system is the provision of compulsory contributions by employers to complying superannuation funds in respect of their employees. Under the SGAA 1992, employers must make quarterly SG contributions for eligible employees to avoid having to pay a SG charge to the Commissioner. An employer can choose to make contributions, which will reduce their liability to SG charge for a particular quarter, at any time from the start of the quarter up until the 28th day after the end of that quarter (refer subsection 23(6) of the SGAA 1992). A reporting entity that makes a contribution to a complying superannuation fund (within the meaning of the SISA 1993) or a Retirement Savings Account (within the meaning of the Retirement 309

310 Budget Savings (Omnibus) Bill 2016 Savings Accounts Act 1997), in respect of an employee must report these amounts to the Commissioner in the approved form on or before the day the contribution is paid. In this context, employee has its expanded meaning, as provided under section 12 of the SGAA Contributions made on behalf of an employer by an approved clearing house as defined under regulation 7AE of the Superannuation Guarantee (Administration) Regulations 1993 must also be reported to the Commissioner. [Schedule 23, item 1, item 3 in the table in subsection 389-5(1) and subsection 389-5(2)] These amendments require reporting entities to report superannuation contributions that reduce their SG charge percentage that, in turn, will reduce their liability to SG charge for a particular quarter. As such, the Commissioner may also require the reporting of contributions that exceed the SG charge percentage. Including these contributions will allow the Commissioner to distinguish between an employer s SG contributions and salary sacrifice amounts (if any), and take account of the fact that employer SG contributions made for one quarter may reduce the charge percentage in an earlier or later quarter. In some cases, reporting entities may also face increased compliance costs separating different contributions. [Schedule 23, item 1, item 3 in the table in subsection 389-5(1) and subsections 389-5(2) and (3)] Employers are already subject to a similar obligation to provide contribution information to superannuation funds. Under Part 4A of the Retirement Savings Account Act 1997 and Part 3B of the Superannuation Industry (Supervision) Act 1993 ( the SuperStream regime ), employers are required to report superannuation contribution information to superannuation funds on the same day the employer makes the contribution to the fund. The information must be given in accordance with certain data and payment standards determined by the Commissioner. Employers may already use SuperStream-compliant software packages, clearing houses or intermediaries to produce contribution transaction reports. In order to align these STP reporting obligations with an employer s existing processes under the SuperStream regime, the Commissioner envisages that the information contained in contribution transaction reports would satisfy the employer s obligations under STP. Whilst, this may involve an employer providing the Commissioner with more information than is required, an employer may wish to report in this way to minimise their compliance costs. By requiring employers to report such information to the Commissioner on or before the day the contribution is made, the Commissioner will have more timely access to employee-level contribution information than under current arrangements. By matching this data with an employee s ordinary 310

311 Single touch payroll reporting time earnings information the Commissioner will be able to better monitor an employer s compliance with their SG obligations. Ordinary time earnings information enables the Commissioner to calculate an employer s quarterly SG contribution obligations for individual employees and determine if a SG shortfall exists under the SGAA If an employer does not make the correct amount of SG contributions on time and has an SG shortfall, the employer s individual SG shortfall, and therefore the SG charge, is worked out based on the employee s salary or wages. More timely information will allow the Commissioner to engage with employers earlier to address cases of non-compliance. This could potentially prevent more punitive outcomes for such employers which would apply under the SG charge regime where non-compliance is identified further down the track. Consequential amendments This Schedule includes consequential amendments to define substantial employer in section of the Income Tax Assessment Act 1997 and update the definition of BAS provisions in that Act to ensure the STP reporting provisions are covered by the definition. This ensures consistent treatment for entities reporting under STP and those reporting under the existing PAYG withholding regime in Part 2-5 (which are already BAS provisions). [Schedule 23, items 2 and 3] These amendments also include guidance material for Division 389 and notes to assist users of the legislation. [Schedule 23, items 1, 9, 10, 11, 12, 13, 17 and 20] A minor consequential amendment has been made to a provision in Division 269 (Penalties for directors of non-complying companies) to ensure that the provision will have the same effect regardless of whether a notification under STP is provided to the Commissioner or a notification under section [Schedule 23, item 18] Ensuring the Commissioner can retain a refund under STP An entity reporting under STP will not be required to report STP amounts on their BAS. Consequential amendments allow the Commissioner to retain a refund where an entity is required to notify, or voluntarily notifies, under STP. This is similar to how the Commissioner is currently able to retain a refund where an entity has an outstanding BAS notification under section 8AAZLG of the TAA Whilst intended to operate in circumstances analogous to those under section 8AAZLG of the TAA 311

312 Budget Savings (Omnibus) Bill , these amendments have also partially been modelled off section 8AAZLGA of the TAA 1953, which allows the Commissioner to retain a refund where the Commissioner is verifying the information in a BAS notification. Further information on sections 8AAZLG and 8AAZLGA of the TAA 1953 is available in the Explanatory Memoranda to the A New Tax System (Pay As You Go) Bill 1999 and Tax and Superannuation Laws Amendment (2012 Measures No. 1) Bill [Schedule 23, item 4, section 8AAZLGB of the TAA 1953] These amendments require the Commissioner to form a reasonable belief that a STP report is outstanding before a refund may be retained. This differs from the approach in subsection 8AAZLG(1) of the TAA 1953 reflecting that due dates for outstanding STP reports may be less certain than those for a BAS, as the obligation to report is triggered depending on certain payroll events occurring. It is envisaged that the Commissioner will be able to form a reasonable belief that an STP report has not been given based on the entity s previous pattern of STP lodgements. [Schedule 23, item 4, subsection 8AAZLGB(1) of the TAA 1953] Example 5 Casper Co (Casper) is a substantial employer that has been reporting under STP since 1 July Casper pays its employees fortnightly, and has been reporting these payments and associated amounts withheld on the day it makes its regular fortnightly payments. Based on this regular fortnightly payroll cycle, it would be reasonable for the Commissioner to expect that amounts would continue to be reported on a fortnightly basis, in the absence of any information to the contrary. Consistent with the current notification requirement under section 8AAZLGA of the TAA 1953, the Commissioner must inform the entity that a refund has been retained within 14 days after the day on which the relevant RBA surplus or relevant credit arose. [Schedule 23, item 4, subsection 8AAZLGB(2) of the TAA 1953] The Commissioner may retain a refund until any one of four specified circumstances occur, whichever circumstance (if any) occurs first: the entity gives the Commissioner an STP notification; the Commissioner is reasonably satisfied that the entity is not required to give a notification; the Commissioner is reasonably satisfied that the entity does not have a PAYG withholding liability; 312

313 Single touch payroll reporting the Commissioner otherwise ascertains the entity s total PAYG withholding liability. The amendments depart from the approach in section 8AAZLG of the TAA 1953 by providing for additional circumstances that will end the period of time a refund may be retained. [Schedule 23, item 4, subsection 8AAZLGB(3) of the TAA 1953] Example 6 Further to Example 5, on 31 March 2020 (an expected fortnightly payroll day) Casper stops sending the Commissioner STP reports. On 21 April, Casper lodges a BAS with a $100,000 GST credit, which gives rise to an RBA surplus of $100,000. The Commissioner is able to retain this amount until either Casper notifies the Commissioner of its PAYG withholding liability under STP, the Commissioner is reasonably satisfied that no notification is required, or the Commissioner otherwise ascertains Casper s PAYG withholding liability. This is because the Commissioner has a reasonable belief that Casper was required to notify the Commissioner under section of its PAYG withholding liability on 31 March, and this liability (if any) may affect the amount of the credit that would otherwise have to be refunded to Casper. Interest is payable under the Taxation (Interest on Overpayments and Early Payments) Act 1983 (T(IOEP)A 1983), if the Commissioner is late in refunding the amount. Interest will be payable by the Commissioner if the amount is not refunded 14 days after the entity gives the STP notification to the Commissioner. [Schedule 23, items 21 and 4, paragraph 12AF(b) of the T(IOEP)A 1983 and paragraph 8AAZLGB(3)(a) of the TAA 1953] If the period of time that a refund may be retained has ended due to the Commissioner becoming reasonably satisfied that either the entity is not required to give a notification or that the entity does not have a PAYG withholding liability, interest will be payable from 14 days after the day on which the RBA surplus arose (refer paragraph 12AF(a) of the T(IOEP)A 1983). If the period of time that the refund may be retained has ended because the Commissioner has otherwise ascertained the entity s liability, interest will be payable if the Commissioner does not refund the RBA surplus within 14 days from the day the Commissioner ascertains the correct amount to be refunded. Consistent with the current objection process available under section 8AAZLGA of the TAA 1953, the entity may object to the 313

314 Budget Savings (Omnibus) Bill 2016 Commissioner s decision to retain a refund in the manner set out in Part IVC of the TAA 1953, if the entity is dissatisfied with the decision. [Schedule 23, items 4 and 8, subsections 8AAZLGB(4), (5) and (6) of the TAA 1953] Application and transitional provisions These amendments will apply to entities that are required to report under STP and those entities that voluntarily report under STP in relation to amounts such entities are required to notify or voluntarily notify depending on when the trigger to notify arises. Unless the Commissioner determines an alternate application day by legislative instrument, the amendments made by this Part apply to: an entity that is a substantial employer immediately before 1 July 2018 in relation to an amount that an employer is required to notify or voluntarily notifies to the Commissioner if the trigger to notify arises on or after 1 July 2018; an entity that is not a substantial employer immediately before 1 July 2018 but voluntarily reports under STP in relation to an amount that the employer may notify to the Commissioner if the trigger to notify arises on or after 1 July 2018; and an entity that is not a substantial employer immediately before 1 July 2018 but subsequently becomes a substantial employer in relation to an amount that an employer is required to notify or voluntarily notifies to the Commissioner if the trigger to notify arises on or after the first 1 July after which the entity first becomes a substantial employer. [Schedule 23, subitem 22(1) and items 23 and 24] For example, if an employer pays salary or wages to an employee, this would provide a trigger for notifying the Commissioner because the employer is required to withhold an amount from the payment. If the employer is a substantial employer immediately before 1 July 2018, the employer must notify the Commissioner of the payment to an employee and the amount withheld from the payment on or after 1 July

315 Single touch payroll reporting Example 7 Blue Macaw Co has 23 employees and is required to report under STP. On 9 July 2018, Blue Macaw Co withholds $100 from a $1,000 payment of salary to Timothy, one its employees. Blue Macaw Co must report this payment to the Commissioner on 9 July These amendments modify the application of penalties pursuant to subsection (1) during the first 12 months that an entity is required to report under STP. [Schedule 23, subitem 22(2)] Part 2 Choice of fund These amendments allow the ATO to implement a streamlined procedure for completing superannuation standard choice forms on the Commissioner s online service. Employers use superannuation standard choice forms to offer employees a choice of fund and notify them of the name of the employer s default fund (the fund that the employer will contribute to if the employee does not make a choice) (refer section 32P of the SGAA 1992). These amendments do not affect the scope of employees entitled to superannuation choice under section 32C of the SGAA These amendments do not affect an employee s superannuation fund choice applying separately to each employer (refer section 32X of the SGAA 1992). For example, a superannuation fund chosen by an employee in a standard choice form given to an employer will continue to be that employee s chosen fund for that employer even if that employee later uses the Commissioner s online service to choose a superannuation fund for contributions from another employer. Also, these amendments do not change an employer s obligation to provide a standard choice form to employees within 28 days of the employee commencing employment (refer subsection 32N(2) of the SGAA 1992). Employers will still need to do this, as the standard choice form will continue to serve the purpose of providing an employee with information about the employer s default fund. An employer may inform an employee that the employee can choose a superannuation fund using the Commissioner s online service rather than completing and returning the standard choice form to them. An employee that uses the Commissioner s online service could take advantage of prefilled information and could choose one of their existing superannuation funds as their chosen fund. Employers would, in turn, receive this 315

316 Budget Savings (Omnibus) Bill 2016 validated information from the Commissioner directly into their business management software and so it would not need to be re-keyed. The use of this process would be voluntary and alternative procedures (not the subject of these amendments) would remain available to employers. Depending on their business practices, employers can choose which method to use, and advise their employees accordingly. For example, an employer could advise new employees to supply their superannuation fund choice information directly into the employer s business management software. These amendments allow an employee to make a valid choice of fund by providing the approved form to the Commissioner or using this process to state that their existing superannuation fund continues to be their chosen fund. Currently, an employee must provide written notice to their employer to make a valid choice of fund and this is generally done by the employee giving a completed standard choice form together with required information from their chosen fund to their employer. [Schedule 23, items 28 to 33, paragraphs 32F(3)(a) and 32H(1)(b), subsections 32F(1) and (2), 32FA(1) and 32H(1A) of the SGAA 1992] The amendments ensure that under the new streamlined process, an employer s contributions can meet the choice of fund requirements under the SGAA [Schedule 23, items 25 to 27, subparagraph 32C(2B)(c)(i) and paragraphs 32C(2B)(b) and (c) of the SGAA 1992] These amendments allow the Commissioner to disclose an employee s TFN and protected information to their employer for the purposes of informing the employer of their employee s choice of fund. [Schedule 23, items 34 and 35, section 32W of the SGAA 1992 and item 10 in the table in subsection (2)] The amendments also ensure that a fund cannot become a chosen fund of an employee until the Commissioner informs the employer of the employee s choice. As a matter of process, the employer needs to receive notice of the chosen fund in order to act upon it, and avoid breaching the choice of fund requirement under the SGAA Example 8 Ross is an employee of John Building Co and in May 2017 chooses Andrew Industry Super Fund as his superannuation fund for employer contributions via the Commissioner s online service. On 1 June 2017, the Commissioner gives John Building Co notice of Ross choice of fund information. Andrew Industry Super Fund becomes Ross chosen fund for contributions by John Building Co on 1 August 2017 or at an earlier time determined by John Building Co. 316

317 Single touch payroll reporting Application and transitional provisions The amendments in this Part apply in relation to disclosures of information on or after 1 January 2017 (regardless of when the information was acquired) and to notices given on or after 1 January This will allow the ATO to include the streamlined procedure for completing superannuation standard choice forms in the voluntary pilot, which will start on 1 January [Schedule 23, item 36] Part 3 TFN declarations These amendments enable the ATO to implement a streamlined procedure for completing TFN declarations using the Commissioner s online service. As with the streamlined procedure available for standard choice forms, this new streamlined procedure will be voluntary. Currently, when a new employee is engaged, they provide their employer with a TFN declaration that ensures the employer can withhold the correct amount from each pay. An employer that receives a TFN declaration from an employee, is required to sign and send the original to the ATO and keep a copy of it until the second 1 July after the day on which the declaration ceases to have effect (refer section 202CD of the ITAA 1936). Under the new procedure, an employer may inform their employee they are able to make a TFN declaration using the Commissioner s online service, rather than an employee providing the form directly to their employer. [Schedule 23, item 37, subsection 202C(2) of ITAA 1936] These amendments allow the Commissioner to make available to a payer (employer) the information in a recipient s (employee) TFN declaration, where the recipient has made a TFN declaration in relation to that payer to the Commissioner. [Schedule 23, item 39, section 202CG of the ITAA 1936] An employer that receives information from the Commissioner, rather than a TFN declaration from their employee, does not need to sign and send an original TFN declaration to the Commissioner. However, employers will need to continue to keep a record of the TFN declaration information made available to them by the Commissioner (refer subsection 262A(2A) of the ITAA 1936). An employer will not be required to notify the Commissioner that an employee has not provided a TFN declaration, if the Commissioner has made the employee s TFN declaration available to the employer. However, if the Commissioner has not made the employee s TFN declaration available to the employer within 14 days after the 317

318 Budget Savings (Omnibus) Bill 2016 commencement of the employment relationship, then the employer must give notice to the Commissioner in the approved form (refer section 202CF of the ITAA 1936). [Schedule 23, item 38, subsection 202CF(1A) of the ITAA 1936] Employers are still required to on-disclose an employee s TFN to a superannuation entity, where the employee quotes their TFN to the Commissioner and the Commissioner makes the TFN available to the employer. [Schedule 23, item 40, subsection 299C(4) of the SISA 1993] Application and transitional provisions These amendments apply in relation to declarations made on or after 1 January [Schedule 23, subitem 41(1)] Where applicable, the amendments apply in relation to relationships (of a kind referred to in subsection 202CF(1) of the ITAA 1936) commenced on or after 1 January Subsection 202CF(1) of the ITAA 1936 refers to relationships under which, or as a result of which, the payer will make (or will be likely to make) eligible PAYG payments to a person (the recipient), whether or not the recipient is a party to the relationship. [Schedule 23, subitem 41(2)] These amendments also apply in relation to disclosures of TFNs on or after 1 January 2017 (regardless of when the information was acquired). [Schedule 23, subitem 41(3)] These application dates will allow the ATO to include the streamlined procedure for completing a TFN declaration in the voluntary pilot, which will start on 1 January Part 4 TFN validation Enhancing the Commissioner s TFN validation powers These amendments allow the Commissioner to provide employers (payers) with both positive and negative validation of a person s personal details, including their TFN, where the Commissioner is satisfied that the person is an employee (recipient) of the payer and that the recipient has given a TFN declaration to the payer. [Schedule 23, item 42, section 202CEA] 318

319 Single touch payroll reporting Currently, the Commissioner can only negatively validate a PAYG recipient s TFN by providing a notice to the payer that the PAYG recipient incorrectly stated their TFN in a TFN declaration (refer section 202CE of the ITAA 1936). These amendments improve the Commissioner s capacity to validate TFN information, which will have increasing importance for the ATO s datamatching activities to support streamlined commencement procedures and STP reporting. Payers are not required to validate their recipients TFN information. However, using an enhanced TFN validation service would provide them with confidence that information they hold about their employees matches ATO records, enabling employers to obtain corrected information from their employees, if necessary. To give a payer a validation notice, the Commissioner will compare the TFN information provided with the information the Commissioner has recorded for that TFN and undertake a validation process. To validate the information provided by a payer, the Commissioner uses a complex matching algorithm that allocates a different weighting to each of the pieces of personal information to derive a score. If the combination of the information matches a single record to a high degree of confidence, then the Commissioner will advise the payer that the information has been validated. However, if the combination of the information does not match a single record to a high degree of confidence, then the Commissioner will advise the payer the information is not able to be validated. A negative validation notice is not a notice that the TFN quoted by the recipient is invalid. This is because a validation notice is not a notice under subsection 202CE(3) of the ITAA 1936 as that section relates exclusively to TFNs stated in a TFN declaration. [Schedule 23, item 42, subsection 202CEA(3)] If the Commissioner is unable to validate the information, then the payer can seek further information from the recipient to resolve any discrepancies. The Commissioner may provide an electronic interface to receive information and give a notice (refer section 202G of the ITAA 1936). 319

320 Budget Savings (Omnibus) Bill 2016 Application and transitional provisions These amendments apply to information given to the Commissioner on or after 1 January 2017 to provide the ATO with enhanced validation powers to support the voluntary pilot that will start on 1 January [Schedule 23, item 43] REGULATION IMPACT STATEMENT Introduction This Regulation Impact Statement (RIS) was prepared by the ATO at the original decision making stage and was assessed as adequate by the Office of Best Practice Regulation on 13 November It was publicly released on 10 February A RIS is a document prepared by Government departments and agencies, and, accordingly, this RIS reflects the ATO s assessment of the costs and benefits of each option at the decision making stage. As such, this RIS does not reflect changes arising from further consultation during the legislative development of these amendments. Background The Single Touch Payroll initiative was announced by the Minister for Small Business, the Hon Bruce Billson MP, and the Assistant Treasurer, the Hon Josh Frydenberg MP, on 28 December 2014, 10 supporting the Government s commitment to reduce red tape by $1 Billion per year. 11 The Single Touch Payroll proposal requires the use of compatible Business Management Software to report information in the required format for digital transmission to the ATO. This information would be created and reported concurrently with other payroll functions, e.g. generating a payslip and creating a file for transmission to financial institutions to pay employees. 10 The Hon Josh Frydenberg MP, Assistant Treasurer and The Hon Bruce Billson MP, Minister for Small Business, Joint Media Release, Cutting red tape for employers through Single Touch Payroll. 11 The Australian Government Annual Deregulation Report,

321 Single touch payroll reporting Single Touch Payroll is expected to reduce duplication and record keeping requirements. This proposal would see progressive implementation, through a staged transition approach, for real time reporting and voluntary real time payments for businesses reporting their PAYG withholding and superannuation contributions. In addition, Single Touch Payroll will streamline processes associated with bringing on new employees, by providing digital services for completion of tax file number (TFN) declarations and superannuation standard choice forms. Employers will automatically report from their compatible Business Management Software packages or through payroll providers, at the time they pay their employees thereby reducing the effort traditionally associated with meeting employer obligations. Single Touch Payroll will assist the ATO to take earlier action to protect honest businesses that do the right thing and to support those who may begin to struggle with meting their obligations. In particular, those businesses who do not fully comply with their PAYG withholding and superannuation obligations enjoy a significant competitive advantage over those that do fully comply and single touch payroll will allow us to identify and support those who are struggling to comply much earlier. There are flow on compliance effects for other agencies. Single Touch Payroll creates opportunities to provide additional efficiencies across government when sharing real-time information in the future. (e.g. individuals would not need to notify DHS of the change in their income as it is reported at the time of the payroll event). The recently announced Welfare Payments Infrastructure Transformation (WPIT) project has seen the benefits of the Single Touch Payroll proposal and identified it as a key link and dependency in delivering WPIT and the broader whole-of government digital and simplification agenda. 12 Phase 1 of Single Touch Payroll lays the foundation for this future expansion of benefits, and is a core component of the broader agenda to make it easier for individuals and businesses to transact with government. A proposal to leverage Single Touch Payroll for real time reporting of payroll data to other agencies is anticipated to be developed by the end of 2016 for federal agencies (Phase 2 of this project) and by the end of 2017 for states and territories (Phase 3 of this project). Under the ATO s Enabling Digital by Default initiative, there will be a fully integrated digital experience for all entities, allowing digital as the 12 Department of Human Services, Outcomes from Simplification Workshop, June

322 Budget Savings (Omnibus) Bill 2016 default manner of interacting with the ATO (exchange of information and payments). This will be phased in from July Problem At the highest level this proposal contributes to addressing three key problems: The high cost for business in complying with their tax and superannuation reporting obligations see 2.1 Cost of compliance for business Inefficiencies in government service delivery see 2.2 Inefficient government service delivery, and Weaknesses in the Federal Budget position due to nonpayment of tax and superannuation obligations and costly modes of service delivery see 2.3 Budget improvement. Cost of compliance for business Current employer reporting requirements require businesses to undertake a range of ongoing lodgements with the ATO and other government agencies and entities. These reporting requirements are often not aligned with each other, and there is a separation between the calculation, reporting and payment requirements, all of which give rise to duplication. Obligations relating to reporting and lodging tax withheld from employees represent a high overall regulatory burden for employers. 13 The costs of complying with the PAYG withholding system are estimated to be about $2.5 billion in The ATO data for the cost to employers of withholding employee income tax is supported by other studies. For example, a 2010 research paper presented to the 2012 Tax Administration Conference, The rise and rise of tax compliance costs for the small business sector in Australia 15, found the average compliance cost of smaller businesses in withholding tax from 13 The Treasury, Stocktake of Regulation: Final Report, ATO sourced data. 15 Lignier, Philip and Evans, Chris, The Rise and Rise of Tax Compliance Costs for the Small Business Sector in Australia, available at: 520rise%2520and%2520rise%2520of%2520tax%2520compliance_September2012.ashx&rct=j&frm=1&q=&esrc=s&sa=U&ved=0CBQQFj AAahUKEwiQyfv814HHAhWhxqYKHfkKBKU&usg=AFQjCNEKd_OQfi5ApmDOUM-2_l8mle06gQ 322

323 Single touch payroll reporting employee salaries to be around $3, per annum back in Multiplying this cost by the estimated 811,000 businesses in Australia today, indicates an annual compliance cost to smaller Australian business of around $2.5 billion (based on 2010 dollars).this figure is potentially much higher today. When taking on a new employee, employers must provide their ABN and default Superfund details to enable their employee to complete a Superannuation standard choice form and TFN Declaration form. When paying employees, the employer must: calculate the tax that applies to their income and report and pay it to the ATO at a later date (generally quarterly, but can be as often as weekly) calculate superannuation contributions and report and pay these to superannuation funds on behalf of the employees (minimum quarterly). In addition, employers are also required to: calculate, report and pay PAYG withholding to the ATO (generally monthly or quarterly) via an activity statement. prepare a report for the ATO summarising the year s salary and tax withheld for employees (annually). provide each employee with an individual summary of income and tax (annually). register for a PAYG withholding role with the ATO (new employers only). Currently PAYG withholding obligations are reported and paid to the ATO up to three months after payment of the employee wages and salaries upon which they are based (payroll events). Superannuation guarantee amounts must be paid to superannuation funds at a minimum 28 days after the end of a quarter. This delay requires businesses to put in place systems and processes to reconcile data created at the payroll event and collate these for reporting to the ATO for PAYG withholding obligations and to superfunds for superannuation contributions. 16 Represents mean value. 323

324 Budget Savings (Omnibus) Bill 2016 Whilst some commercially available payroll software packages can automate much of this process, for many small and medium businesses this remains predominately a manual process or is outsourced to bookkeepers or tax agents. Over time, the Government s Digital Transformation Agenda is expected to improve the regulatory burden for business. However, providing a digital option to fulfil obligations does not automatically reduce regulatory burden. The burden is reduced by streamlining the actions an employer needs to take (i.e. where obligations can be met by doing their normal business process). Without Government and ATO intervention to help develop and implement compatible processes and systems these improvements will not occur and consequent savings will not be realised. Inefficient government service delivery Inefficiencies in government service delivery have been widely acknowledged. Citizens often struggle to identify and use the various services offered by the Australian Government and its providers, and businesses have to cope with an ever increasing regulatory and reporting burden. The best public services in the world are integrating and simplifying the delivery of services, streamlining transactional services and making better use of online communication. 17 Technological advances have resulted in changing community expectations. Citizens already expect a certain level of service based on their existing digital interactions with private businesses, and they bring those expectations to their interactions with government. People want more personalised, accessible and reliable services from government agencies, 18 however it is clear that there is a gap between expectations and current government service delivery. In the process of moving to digital services, government needs to provide solutions that go above and beyond the boundaries of traditional systems. In the Digital Australia State of the Nation 2014 report government ranked as the worst business sector in terms of digital sector experiences. 19 Looking more specifically at the current experience of employers and individuals interacting with the tax and superannuation systems, it becomes clear that better use and adoption of technology would improve existing service delivery as well as reduce red tape. For example, in terms of reporting, employers currently: 17 Department of the Prime Minister and Cabinet, Ahead of the game: blueprint for the reform of Australian Government administration, 2010, p Australian Public Service Commission, Capability Review Australian Taxation Office, EY Sweeney, Digital Nation: State of the Nation 2014,

325 Single touch payroll reporting Send the ATO approximately 2.9 million TFN declarations every year Issue 1.9 million annual paper payment summaries to employees Complete approximately 1.6 million PAYG withholding only activity statements 20 There are approximately 16 million employees employed by approximately 811,000 businesses in Australia. Under the current system these employees: have very little visibility of their cumulative tax obligations and superannuation entitlements throughout the year have to wait several weeks after the end of the financial year for pre-fill data to be available often do not realise they have paid too little or too much tax until they complete their tax return may be unaware of their cumulative income position to determine correct entitlements to welfare payments. Every time an individual commences new employment they complete a paper TFN declaration and Superannuation standard choice form. This requires the employee to complete their personal information and find out the details of the superannuation fund they wish to use. In addition, employees often have to notify multiple government agencies in respect to their employment (i.e. to receive welfare benefits etc). The above is only a micro example of the existing inefficiencies in service delivery, relying largely on manual processes across government agencies to meet day to day employment obligations. These types of problems are experienced across all sectors of government, and opportunities exist to use technology to support increased agency connectedness and as a result a more seamless end to end experience for citizens interacting with Government. It should be noted that one of the barriers for enhancing government service delivery through the use of digital platforms is that without 20 ATO 2014 data. Based on 236, 640 clients lodging 1.6 million PAYGW only activity statements where an employer is on a monthly cycle for PAYGW but a quarterly cycle for other obligations. STP will eliminate these monthly PAYGW only activity statements but the quarterly activity statement obligations for GST will remain. 325

326 Budget Savings (Omnibus) Bill 2016 regulation there is less incentive for businesses to make the time to change current business practices. Competing demands means that people will often tend to keep doing things the same way unless there is a requirement or strong incentive to change. For example, to encourage uptake of digital service offerings many commercial companies now charge their clients who choose to receive information in paper format (i.e. paper statements) whilst providing services free to those who choose to receive them digitally. 21 In addition, initial consultation with software developers indicates they would not be supportive of investing in product development to make their software compatible with digital platforms offered by Government unless they are assured of a viable market. Budget improvement The Budget Papers note that while the budget deficit will narrow over the forward estimates period, more work is required to improve the budget position over the medium term. 22 Businesses that fail to meet their PAYG withholding and superannuation obligations contribute to a weaker budget position in several ways. Failing to pass on tax withheld from employees to the ATO undermines revenue collections while failing to make superannuation payments on behalf of employees potentially increases future budget outlays through higher pension payments, than might otherwise be the case. Inefficient administration results in administration costs that might otherwise be avoided. Under the existing PAYG withholding administration, long delays can arise between payroll event and the reporting and payment of PAYG withholdings, particularly for smaller employers who are only required to lodge and remit PAYG withholding amounts quarterly or in some cases, annually. Businesses experiencing cash flow management difficulties can fail to meet their obligations in a timely manner, or at all. Australia stands out internationally as having some of the longest lag times between employees being paid and taxes being remitted to the Government. This may be a contributing factor to the significant collectable debt owed by businesses. In addition, the ability for the ATO to identify that a business is in trouble and provide early assistance is compromised. In a January 2014 analysis of the collectable debt owed by micro and small/medium enterprises, 23 the following outstanding activity was identified: 21 Australian Communications and Media Authority, Bills for telecommunications customers. 22 The Australian Government, Budget Strategy and Outlook, Budget paper no. 1, CanPrint Communications Pty Ltd, Micro enterprises are those with annual turnover up to $2 million and small/medium enterprises with annual turnover between $2 million and $250 million. 326

327 Single touch payroll reporting Outstanding Lodgments 24 Total number of Micro and SMEs % of enterprises with collectable debt Total debt ($m) None 7,798,866 5% $5, ,374 20% $ ,342 28% $1, ,880 41% $1,024 Total micro and small/medium enterprises with an outstanding debt 8,379,462 7% $8,422 There is a strong correlation between the number of outstanding lodgements and the proportion of businesses in a debt situation. Under the current lodgement arrangements, The ATO has no visibility of outstanding debt until an Activity Statement lodgement occurs. 20% per cent of businesses that have missed one lodgement have a debt, compared with only five per cent of businesses who have lodged on time. Further, ATO analysis indicates that the likelihood of successful debt collection decreases as the time between the debt arising and action by the ATO increases. 25 Earlier detection of a non-lodgement could improve revenue collections. More timely reporting of these obligations could be expected to contribute to an increased business awareness of pending obligations. The Institute of Chartered Accountants in its May 2014 submission to the Board of Taxation, noted a number of benefits from closer alignment of business tax payment arrangements including: Reducing the timeframe in which funds which rightly belong to the Government (e.g. PAYG Withheld from employee pay packets) are held by a small business in a bank account which generates income for the business - a benefit not enjoyed by other businesses Reducing the risk that such funds may be used inappropriately by the small business (e.g. to meet private expenses) 24 Data represents only active micro and small/medium enterprises. 25 ATO debt collection statistics for indicate approximately 50% of debt is cleared where the age range of the debt is between 1 and 30 days old. 327

328 Budget Savings (Omnibus) Bill 2016 Enabling the ATO to obtain better real time data indicating whether a small business is experiencing difficulty in meeting its tax payment and lodgement obligations (i.e. warning signs) The impact of electronic remittance and lodgement procedures to streamline compliance To foster improved, efficient, business-like practices within the small business sector. 26 Any reduction in Commonwealth agency operating costs improves Australia s budget position. Why is government action needed? As noted above, employers are currently spending in excess of $2.5 billion annually in meeting their PAYG withholding obligations. Real time reporting of PAYG withholding and superannuation contributions to the ATO will significantly reduce red tape costs for the community. It will also improve government service delivery, improve integrity in PAYG withholding collections and superannuation obligations. Improved employee commencement procedures will also contribute to these outcomes. The option to pay PAYG withholding amounts at the payroll event will provide a further opportunity for employing businesses to reduce red tape, improve their cash flow management and potentially increase their visibility of the underlying financial status of their business. These outcomes will not be delivered without government investment due to a need to build the supporting infrastructure within government. The red tape reduction benefits to business will not be fully realised without suitable compatible Business Management Software or an affordable intermediation service. I In the absence of widespread take up, the cost of delivering this initiative is likely to outweigh the benefits expected from reduced compliance costs and improved service delivery. Prior experience in initiating change, indicates Single Touch Payroll needs a lever to drive change and the best lever is Regulation. Regulation will ensure widespread employer participation in the Single Touch Payroll initiative, without it, it will be very difficult to get buy-in. Australian experience with SBR and e-tax suggests an approach based on voluntary opt-in will not achieve sufficiently high take up rates in a timely manner to ensure commercial development of software. 26 Institute of Chartered Accountants Australia, submission to the Board of Taxation on tax impediments facing small business, 2014, p

329 Single touch payroll reporting In addition, without Regulation and full participation by all businesses in Single Touch Payroll, the long term benefits: sharing real time information with other Government agencies (Phase 2 of the project) sharing real time information with states and territories (Phase 3 of the project), and making it easier for individuals and businesses to transact with government cannot be realised. Business operators are time poor and many suffer change inertia preferring to persist with status quo unless things are not working. Standard Business Reporting (SBR) was introduced in 2010 to save businesses time by collecting the right information, for the right government report 27 directly from an employer s business software. Despite its potential benefits for business, since SBR was introduced, just 21,000 businesses have used SBR to interact with government. 28 One of the most commonly quoted reasons for the slow take up of SBR is the lack of comprehensive accounting software available on the market. 29 A similar case occurred when the ATO introduced the e-tax client and server software in 1999, providing an option for individual taxpayers to self-prepare their income tax returns and securely lodge them with the ATO over the internet. In the first year, only 27,000 lodgements were received through this digital channel. The uptake by self-preparers grew steadily over the following years, 30 to the point where it was the major digital product for self-preparers until the introduction of mytax in However, it took many years for this growth to take place. 27 Standard Business Reporting, Benefits for business. 28 UK Revenue & Customs, HMRC launches package of help for micro businesses, Taxanalysts article, available at: 29 Evans, Chris, Tran-Nam, Binh, Zakowska, Hanna, Standard Business Reporting: short term pain for long term gain?, ATO sourced data. 329

330 Budget Savings (Omnibus) Bill 2016 The SBR and e-tax experience is in contrast to an environment where the ATO has made it difficult for clients not to interact with them digitally. In 2013, the ATO announced electronic funds transfer as the digit default manner in which tax refunds would be provided to individuals. Three million people supplied their bank details and moved away from cheque refunds that year, with only three complaints received (0.0001%). 31 In 2014, the ATO announced mygov as the digit channel for individual taxpayers preparing electronic income tax returns using e-tax or mytax. As at 31 October 2014, over three million clients had created a mygov account and linked it to the ATO. This is the largest ever adoption of an enduring online credential in the shortest possible time in Australia s public sector history. The financial services industry s superannuation, wealth and investment management electronic commerce (swimec) program was developed jointly by the superannuation and managed funds industries, to assist employers paying superannuation contributions to multiple superannuation funds when Superannuation Choice was introduced in While swimec was a worthy initiative, the adoption of the standards was low across the industry because they were not mandatory. 32 As part of the Government s response to the Governance, Efficiency, Structure and Operations of Australia s Superannuation System (The Cooper Review), a Super Reform program of work included the introduction of SuperStream. SuperStream provides a consistent, reliable electronic method of transacting linked data and payments for superannuation. Consultation across the super industry confirmed that the 31 ATO sourced data. 32 Australian Government, Super System Review: Final Report Part Two: Recommendations Packages,