Explanatory Memorandum
(Circulated by authority of the Minister for Family and Community Services, Senator the Hon Amanda Vanstone)Schedule 6 - Working credit
Summary
From its introduction on 28 April 2003, the working credit will encourage workforce age income support customers to take up full-time, substantial part-time or irregular casual work by allowing them to keep more of their income support payments while working. The main feature of this initiative is to allow customers to build up working credits at times when they have little or no income, which they can use to reduce the amount of later earnings that are counted under the income test. The working credit supplements the existing income test rules that allow people to earn a certain amount of money before payments begin to reduce. There will be a consistent, simpler approach to measuring income from employment for all workforce age customers. It will also be easier for workforce age customers to resume their income support payments if they lose their job within 12 weeks after those payments stop.
Background
Ordinary income test and employment income
Most of the rate calculation rules in the Social Security Act include an income test. This involves reducing a person's rate of payment by a certain percentage of any ordinary income above a certain free area. For some payments, this is worked out on a yearly basis and for some on a fortnightly basis, but the result for all payments is that a daily rate of payment is set.
The function of the working credit is basically to allow a person's ordinary income to be reduced before it is put through this income testing process. This will allow the person to keep a higher rate of payment, or to keep some payment that would otherwise be lost altogether. This reduction of ordinary income will be allowed if some or all of the person's ordinary income for the instalment period is from employment and if the person has a working credit balance greater than nil. Thus, a person will be able to take up employment opportunities with less adverse effect on payments.
The working credit rules will be applied to a workforce age person, whose rate is worked out with regard to the income test, for each separate day within an instalment period. However, before the effect of the working credit, and therefore the effect of the income test, can be worked out, it needs to be established what the person's ordinary income from employment ("employment income") is for each day.
These amendments will establish the rule that any actual employment income earned, derived or received during the person's instalment period (usually a fortnight) will be spread evenly over the period and be subject to the working credit and income test rules for each day in the period, regardless of the actual days the person worked. This will provide a transparent, equitable rule for all workforce age income support customers.
Because of the new measurement of employment income rules, some workforce age pensioners and parenting payment recipients with variable or intermittent income will need to report their income more frequently than they currently do, to avoid being overpaid or underpaid. Those at the greatest risk of being overpaid or underpaid because of their earning pattern will have to report their income at the end of each instalment period. Many customers in this group already report fortnightly to avoid incorrect payments.
Those customers whose employment pattern presents a lower risk of incorrect payments will continue with their current reporting arrangements, and some will be asked to provide updated income information at the end of each 12 week period, to allow working credit balances to be maintained accurately.
Additional ways for people to report their employment income, such as via the Internet or automated telephone systems, are being explored. This will provide many customers with alternative and easier methods of providing employment income information. The use of these reporting methods, as well as the reporting arrangements themselves, will be at the Secretary's discretion, and existing methods of reporting will continue to be available.
Note that the working credit will not necessarily apply to all workforce age people whose rate is worked out with regard to the income test. Some will continue to be covered instead by the existing student income bank for student youth allowance and austudy payment recipients.
The working credit will accrue to a maximum of $1,000. Accrual (ie, an increase in the working credit balance) will occur for a particular day in an instalment period if the person has, for that day, ordinary income on a fortnightly basis of less than $48. In that case, one fourteenth of the amount by which $48 exceeds the ordinary income will accrue to the working credit for the day.
If the person has ordinary income of $48 or more, but no more than the applicable ordinary income free area, both on a fortnightly basis, then there is simply no accrual to the working credit, no reduction to payment rate under the ordinary income test and no depletion from the working credit.
The working credit will be depleted, to reduce ordinary income under the income test, for a particular day in an instalment period if:
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- the person has employment income for that day; and
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- the person's ordinary income for that day is more than the applicable ordinary income free area, both on a fortnightly basis.
In that case, the working credit will be depleted by an amount equal to the least of the following amounts for that day:
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- the employment income; or
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- one fourteenth of the amount by which the ordinary income exceeds the ordinary income free area, both on a fortnightly basis; or
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- the available working credit balance.
Thus, the person will get the benefit of the free area before having to deplete the working credit. The person's ordinary income under the income test for that day will be reduced simultaneously by the same amount by which the working credit is depleted, converted to a yearly or fortnightly basis as applicable to the person's payment.
It could be that all of the person's ordinary income above the free area is "forgiven" in this way so that there is no reduction to payment rate under the income test. However, when the working credit is eventually exhausted, any remaining ordinary income above the free area for the day on which the working credit balance is reduced to nil will be income tested in the usual way. As a result, the person's rate of payment will generally be reduced with effect from that day, or suspended/cancelled if the rate of remaining income were so high as to produce a nil rate.
If the rate is reduced on that day, it will often be the case that the rate for the subsequent day is further reduced, or the payment suspended/cancelled, because there will be no working credit balance left at all (the balance having been reduced to nil on the previous day). This further rate reduction, or suspension/cancellation, (due to the effect of the income test) will take effect from that subsequent day.
Changes to payment may take effect even later in some circumstances, consistent with the date of effect rules in the existing automatic cancellation and variation provisions.
In this way, people will generally be able to use up their working credit before losing payment. Even people who would usually cease to be qualified for their payments because of the employment that is causing them to use up their working credit will be allowed to stay on payment while any working credit is used up. That is, the person will be taken to satisfy (as appropriate): the usual unemployment requirement for newstart allowance; the incapacity for work or study requirement for sickness allowance; the continuing inability to work requirement for disability support pension; the 20 hour per week limit on paid employment for carer payment; or the youth allowance activity testing requirement.
However, a person who qualifies for an employment entry payment because of starting or increasing employment can still claim and be paid that payment straight away and not later when the working credit is used up.
A person who fails to meet his or her income reporting requirement within a reasonable period (thereby preventing or hindering the application of the above rules) will lose the payment or have the payment reduced, consistent with the existing rules for all income support customers who do not comply with a reporting requirement. However, there will be scope to resume or increase payment if the person provides the necessary information within an appropriate period.
Working credit balances will be transferable to the student income bank (and vice versa up to $1,000) should a person move between the two schemes.
If a person stops receiving a payment to which the working credit applies, any balance remaining at the time the payment stops will revive should the person resume one of those payments (or a payment to which the student income bank applies) within 12 months. Similarly, if a person stops receiving a payment to which the student income bank applies, any balance (up to $1,000) remaining at the time the payment stops will revive if the person is granted, within 12 months, a payment to which the working credit applies.
If a workforce age person's payment is lost because of ordinary income wholly or partly consisting of employment income, the person will enter into a special period of concessional treatment. This special period will last for 12 weeks from the end of the instalment period in which the payment stopped.
The concessional treatment will consist mainly of being able to have payment resumed without the need to re-claim if the payment again becomes payable (ie, generally, if the person loses the job). Because payment in this case will be resumed rather than granted, even one of the payments under the Social Security Act for which no new grants are permitted will be able to start up again in this way if appropriate. This resumption part of the measure is already allowed by existing provisions, so no amendments are included in the Bill for this particular purpose.
The concessional treatment will also consist of being able to keep for the special period certain additional benefits that are normally available only to people who are receiving social security payments. These benefits include (as applicable): concession cards; exemption from the income test for the person's family tax benefit and child care benefit; exemption from the youth allowance parental income test for the person's child; rent assistance and partner income test concessions; the approved program of work supplement; the new language, literacy and numeracy supplement; pensioner education supplement; and telephone allowance. Specific amendments in the Bill will allow these benefits to be kept.
Explanation of changes
Part 1 - Amendment of the A New Tax System (Family Assistance) Act 1999
Item 1 repeals the existing meaning of receiving a social security payment for the purposes of the family assistance legislation and substitutes a new definition. This is to allow the Social Security Act extended meaning of receiving a social security pension or social security benefit (see item 7) to flow through into three specified provisions in the family assistance legislation. The effect of this is to exempt a workforce age person from the income test for the person's family tax benefit and child care benefit. This will last for a period of 12 weeks from the end of the instalment period in which the person's social security pension or social security benefit stopped, and will apply only if the payment was lost because of ordinary income consisting wholly or partly of employment income. This is part of the easier to resume payment part of the measure.