Senate

Revised Explanatory Memorandum

(Circulated by the authority of the Minister for Social Services, the Hon Christian Porter MP)

Schedule 15 - Targeted compliance framework

Summary

This Schedule will amend the Social Security Administration Act to introduce a new compliance framework for mutual obligation requirements in relation to participation payments. From the date of commencement, a two phase compliance framework will be introduced, which will use payment suspension to ensure re-engagement by the majority of job seekers who generally meet their requirements and apply strong penalties to persistently non-compliant job seekers. Job seekers who repeatedly fail to comply with their employment pathway plan (EPP) requirements, with no underlying cause, will face stronger penalties, with graduated loss of income support payments culminating in payment cancellation for 4 weeks for the most non-compliant job seekers.

The new compliance framework will also provide more support for vulnerable job seekers, some of whom find the current compliance system too complex and challenging to navigate. Job seekers' capability and requirements will be assessed at least twice before they face any financial penalty - once by the employment services provider and once by the Department of Human Services.

This Schedule will apply to income support recipients who are currently subject to participation requirements (i.e. in receipt of participation payments), except for participants in certain employment services programmes specified in a legislative instrument. The new compliance framework in this Schedule is to apply to participants in jobactive, ParentsNext and Disability Employment Services. It is intended that income support recipients with participation requirements who are in the Community Development Programme should continue to be subject to existing compliance arrangements under Division 3A of Part 3 of the Social Security Administration Act.

Background

Payment suspension for non-compliance

Under the new compliance framework, for every failure to meet a requirement, job seekers will have their income support payment suspended. Payment suspension has proved to be effective in ensuring re-engagement in most cases without the need to actually deduct payments.

Income support payment suspensions will apply for failures to attend appointments, activities or job interviews, failing to enter into or comply with an EPP, failing to follow up on a job referral or for refusing or failing to commence in a suitable job. Misconduct, such that the job seeker's behaviour is unreasonable and prevents the purpose of the appointment, activity or interview from being achieved, will also result in payment suspension.

The requirement a job seeker must meet to end a payment suspension will depend on the nature of the failure they committed. Job seekers who have failed to attend or committed misconduct at an appointment, activity or job interview will be able to end their payment suspensions, and be fully back paid, once they re-engage with their employment service provider by attending an appointment. Job seekers who have had their payment suspended due to their failure to enter into an EPP or failure to undertake adequate job search will need to enter the plan or complete the job search in order to end their suspension and receive back payment.

Financial penalties for refusing work and voluntary unemployment

Job seekers who have failed to accept or commence suitable work will have their payment suspended until they re-engage with their employment services provider to discuss their reason for non-compliance. To reinforce the seriousness of refusing or failing to accept or commence work that they have been found to be capable of doing, job seekers may be subject to payment cancellation and a 4 week non-payment period if they are found to have refused or failed to commence the work without a reasonable excuse.

Job seekers who leave suitable work voluntarily (without a valid reason) or are dismissed from suitable work due to misconduct will (in addition to having their payment cancelled if they are receiving payment) be subject to a 4 week non-payment period (or 6 weeks where the person received relocation assistance to move to take up the work), replacing the previous eight (or twelve) week unemployment non-payment period. This will apply whether the person is currently qualified for payment or is claiming payment. As is currently the case, no penalty will be applied if the job seeker leaves the job in circumstances where it was reasonable to do so, or the loss of their job was not due to misconduct.

These changes reinforce the principle that income support payments for the unemployed should only be available to those who are genuine in their efforts to move into paid work.

Financial penalties for persistent non-compliance

The new framework will introduce stronger penalties for the minority of recalcitrant job seekers who are not genuine in their efforts to find work and persistently fail to meet their requirements or who refuse suitable work without a valid reason or any underlying reasons for their non-compliance.

Job seekers who have demonstrated persistent non-compliance (that is, have committed persistent mutual obligation failures), by repeatedly incurring payment suspensions for the failures outlined above, will be subject to escalating reductions in their income support payments for further non-compliance with their requirements. It is intended that this will send a strong message that consistently failing to meet requirements is not acceptable. In practice, administrative arrangements will ensure that job seekers will need to have committed multiple failures without a reasonable excuse before they can be determined to be persistently non-compliant, and their provider and the Department of Human Services (DHS) will conduct checks to ensure the job seeker does not have any undisclosed issues that are affecting their ability to comply, and that their employment pathway plan is suitable for their circumstances. The factors that the Secretary must consider as constituting persistent non-compliance will be included in a legislative instrument.

To provide sufficient deterrence for wilfully non-compliant job seekers, the amount of the financial penalties will escalate with each additional failure and ultimately result in cancellation of payment. For the job seeker's first failure after demonstrating persistent non-compliance, the rate of participation payment and any add-on payments or supplements for the instalment period in which the failure is committed or determined will be halved. For a second failure, the job seeker will lose their entire participation payment and any add-on payments or supplements for that instalment period. For a third failure, the job seeker's payment will be cancelled from the start of the instalment period and a 4 week non-payment period, starting from the date of cancellation, will apply if the job seeker reapplies for payment.

As is currently the case, before any penalty is applied the job seeker will be notified and be given the opportunity to contact DHS to explain their circumstances. If the job seeker has a reasonable excuse for the failure, they will not have their payment reduced or cancelled.

Job seekers will also continue to be able to seek a review of any decision to apply a financial penalty or to cancel their payment. However they will not receive payment pending the outcome of the review, but will have their payment reinstated and back paid if the review is decided in their favour.

To provide a strong incentive to change their behaviour and start to fully comply, administrative arrangements will ensure that job seekers who do not incur any failures for a specified period will no longer be considered to be persistently non-compliant. These arrangements will also be included in a disallowable instrument.

There will be no waivers for non-payment or preclusion periods under the new compliance framework. The current widespread availability of waivers, where over 88 per cent of penalties for serious failures are waived, has undermined the effectiveness of these penalties to the extent that they no longer provide a deterrent to job seekers who persistently fail to meet their requirements.

The amendments made by this Schedule commence on the later of 1 July 2018 and the day after Royal Assent.

Explanation of the changes

Part 1 - Main amendments

Social Security Administration Act

Item 1 inserts new Division 3AA into Part 3 of the Social Security Administration Act, 'Division 3AA - Compliance with participation payment obligations: persons other than declared program participants'.

Currently, all persons in receipt of participation payments are subject to the compliance framework set out in Division 3A of Part 3 of the Social Security Administration Act. New Division 3AA will provide for a new compliance framework to apply to persons receiving participation payments who are not declared program participants.

Participation payments are newstart allowance, parenting payment (for those subject to participation requirements), youth allowance (for those who are not full-time students or new apprentices) and special benefit (for nominated visa holders).

Declared program participants receiving participation payments will continue to be subject to the compliance framework set out in Division 3A.

In summary, the new targeted compliance framework will:

•

Consolidate failures into mutual obligation failures (including: failure to enter into an EPP, attend or behave appropriately at an appointment or an activity); work refusal failures (refusal or failure to accept a suitable job offer); and unemployment failures (unemployment resulting from a voluntary act that was not reasonable, or misconduct).

•

Suspend participation payments (that is, determine that they are not payable) if a person commits a mutual obligation failure or a work refusal failure. Payment suspension will ensure quick re-engagement by the majority of job seekers (i.e. those who generally meet their requirements) because they will be back-paid their participation payment once they re-engage.

•

If a person is persistently non-compliant and has no reasonable excuse for having committed a mutual obligation failure, the person will also be subject to stronger penalties, with graduated loss of their participation payments culminating in payment cancellation and a 4 week non-payment period.

•

If a person commits a work refusal failure, as well as being suspended, their payment will be cancelled if the person does not have a reasonable excuse for the work refusal failure. If their participation payment is cancelled, a 4 week non-payment period will apply (which could impact the start day of their payments if they make a new claim for a participation payment).

•

If a person commits an unemployment failure, their participation payment will be cancelled and, if they reclaim income support, it will not be payable for a period of 4 weeks (6 weeks if the person is receiving relocation assistance in specified circumstances). If they are receiving a payment at the time of the unemployment failure, their payment will also be cancelled and income support will not be payable for 4 weeks.

Section 42AA - Simplified outline

The new section 42AA sets out a simplified outline of the operation of new Division 3AA.

Section 42AB - Division not to apply to declared program participants

The new section 42AB provides that new Division 3AA only applies to a person who is not a declared program participant.

Declared program participants receiving participation payments will continue to be subject to the compliance framework set out in Division 3A. A 'declared program participant' will be defined in subsection 23(1) of the Social Security Act. New section 28C will provide that the Secretary may, by legislative instrument, make a determination for the purposes of the definition of declared program participant in subsection 23(1) of the Social Security Act (see items 1 and 2 in Schedule 13) regarding the definition of 'declared program participant' and new section 28C). It is intended that the Secretary will initially determine Community Development Programme participants to be 'declared program participants'.

Section 42AC - Mutual Obligation Failures

New section 42AC is in 'Subdivision B - Failures for which compliance action must be taken'. It sets out the circumstances when a person in receipt of a participation payment commits a mutual obligation failure. These are:

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The person fails to comply with a requirement that was notified to the person under subsection 63(2) or (4). Section 63 of the Social Security Administration Act provides the Secretary with the power to require certain persons to do certain things, such as attend appointments or provide information (paragraph 42AC(1)(a)). (Subparagraphs 42AC(1)(a)(i) and (ii) created exceptions to this failure where the requirement relates to new paragraph 63(4)(c), in relation to new testing requirements for drug test trial pool members - see Schedule 12 of this Bill)).

-

The person fails to comply with a requirement, under section 501 (parenting payment), 544A (youth allowance), 605 (newstart allowance) or 731L (special benefit) of the Social Security Act, to enter into an EPP (paragraph 42AC(1)(b)). (An EPP sets out a participation payment recipient's mutual obligation requirements. A person must enter into and comply with an EPP in order to continue to qualify for a participation payment).

-

The person fails to attend, or be punctual for, an appointment that the person was required to attend by a notice under subsection 63(2) (except where the notice is of a kind described in subparagraph 42AC(1)(a)(i)), or by an EPP that is in force in relation to the person (paragraph 42AC(1)(c)). (Subsection 42AC(4) ensures that this paragraph does not limit paragraph 42AC(1)(a)).

-

The person fails to attend, to be punctual for, or to participate in, an activity that the person is required to undertake by an employment pathway plan that is in force for the person (paragraph 42AC(1)(d)).

-

An EPP is in force for the person and the person fails to satisfy the Secretary that the person has undertaken adequate job search efforts in relation to a period worked out in accordance with the plan (paragraph 42AC(1)(e)). The question whether a person has undertaken adequate job search efforts is to be worked out in accordance with a determination that the Secretary must, by legislative instrument, make (see new subsections 42AC(2) and (3)).

-

An EPP is in force for the person and the person fails to comply with any other requirement of the plan that applies for the person (paragraph 42AC(1)(f)).

-

The Secretary is satisfied that the person acted in an inappropriate manner during an appointment mentioned in 42AC(1)(c) that the person attended; or while participating in an activity referred to in paragraph 42AC(1)(d) (paragraph 42AC(1)(g)).

-

The person intentionally acts in a manner and it is reasonably foreseeable that acting in that manner could result in an offer of employment not being made to the person (paragraph 42AC(1)(h)).

-

The person fails to attend a job interview or act on a job opportunity when requested to do so by an employment service provider (paragraph 42AC(1)(i)). Subsection 42AC(4) ensures that this paragraph does not limit paragraph 42AC(1)(h).

A note after subsection 42AC(1) provides that in certain circumstances a person is taken to be receiving a participation payment even if it is not payable to the person (in this regard, see new section 42AQ).

An additional note notes that paragraph 63(4)(c) (mentioned in paragraph 42AC(1)(a)) relates to requirements for drug test trial pool members.

Section 42AD - Work refusal failures

New section 42AD is in 'Subdivision B - Failures for which compliance action must be taken'. It sets out the circumstances when a person commits a work refusal failure. Relevantly, it provides that a person commits a work refusal failure if they are receiving a participation payment and they refuse or fail to accept an offer of suitable employment.

This section maintains the existing ground in subsection 42N(1) of Division 3A. It ensures that decision makers assess the suitability of the employment being offered (not the suitability of the offer itself).

Currently, decision makers are guided in this assessment by the kind of factors the Social Security Act recognises as being relevant to what is not suitable employment for the purposes of the activity test, which requires that someone actively seek and be willing to undertake paid work, other than paid work that is unsuitable (see for example subsection 601(2A) of the Social Security Act). Again by way of example, subsection 601(2A) sets out nine factors relevant to deciding whether particular paid work is unsuitable. These include the terms and conditions of work and the skills, experience, and family and other personal circumstances of a person. Whilst this criterion is not directly incorporated into new section 42AG (rather, that provision refers to refusing an offer of suitable work), the unsuitability of the employment the person refused is relevant to the question of whether the person had a reasonable excuse for refusing or failing to accept the offer (see new section 42AG).

A note after section 42AD provides that in certain circumstances a person is taken to be receiving a participation payment even if it is not payable to the person (in this regard, see new section 42AQ).

Section 42AE - Unemployment Failures

New section 42AE is in 'Subdivision B - Failures for which compliance action must be taken'. It sets out the circumstances when a person commits an unemployment failure. Subsection 42AE(1) provides that a person commits an unemployment failure if the person is receiving a participation payment and either the person becomes unemployed as a result (whether direct or indirect) of a voluntary act of the person, or the person becomes unemployed as a result of the person's misconduct as an employee.

Subsection 42AE(2) provides that a person commits an unemployment failure if a person is not receiving, but has made a claim for, a participation payment and, whether before or after making the claim, becomes unemployed as a result (whether direct or indirect) of a voluntary act of the person or as a result of the person's misconduct as an employee.

However, a person does not commit an unemployment failure because of subparagraph 42AE(1)(b)(i) or subparagraph 42AE(2)(b)(i) if the person satisfies the Secretary that the voluntary act was reasonable (subsection 42AE(3)).

This section maintains the existing ground in subsection 42S(1) of Division 3A. However, instead of an eight week non-payment period applying (or a 12 week period applying if relocation assistance is relevant), a 4 week non-payment period (or a 6 week period if relocation assistance is relevant) applies (see new section 42AO and new subsection 42AP(5)). In addition, if the person is receiving a payment at the time, the payment must be cancelled (see new subsection 42AH(1)).

Subsection 42AE(3) retains the exception that a 4 week non-payment period will not apply to a voluntary act that is reasonable.

Section 42AF - Compliance action for mutual obligation failures

New section 42AF is in 'Subdivision C - Compliance action that must be taken for particular failures'. It sets out the relevant compliance action that must be taken if a person has committed a mutual obligation failure.

Subsection 42AF(1) sets out the default position. That is, if a person commits a mutual obligation failure, the Secretary must determine that the person's participation payment is not payable for a period (the effect of the determination is set out in new section 42AL), and take action under subsection 42AF(2) if it applies.

Subsections 42AF(2) and (3) apply if the person has persistently committed mutual obligation failures and does not have a reasonable excuse for the mutual obligation failure. In such circumstances, the Secretary must also, in accordance with the determination made by the Minister under new section 42AR, determine whether an instalment of a person's payment should be reduced by a certain amount, or whether the person's payment should be cancelled. Subsection 42AF(3) makes it clear that the Secretary may cancel the payment even if it has already been suspended under subsection 42AF(1).

Under new subsection 42AR, the Minister's determination will set out, among other things, the circumstances in which the Secretary must, or must not, be satisfied the person has persistently committed mutual obligation failures.

(Reasonable excuse is generally dealt with in new section 42AI).

Section 42AF ensures that every time a person commits a mutual obligation failure their payment will, as a minimum, be suspended (that is, determined to not be payable) until the person meets a reconnection requirement - see new section 42AL, at which time they will be back paid). If a person is found to have been persistently non-compliant (that is, to have persistently committed mutual obligation failures) and the person does not have a reasonable excuse for the failure, stronger penalties must apply. In those cases, the relevant instalment of the person's participation payment will be reduced by a certain amount (see section 42AN), or the person's payment will be cancelled. Whether a reduction should be applied, and if so by what proportion, or whether the participation payment should be cancelled, must be worked out in accordance with a determination made by the Minister for this purpose (see new section 42AR).

Subsection 42AF(4) ensures that if a person has already been penalised and the instalment of their payment reduced by the whole amount of the instalment, and the person commits an additional mutual obligation failure during that instalment period, no compliance action will be taken in relation to that failure.

Section 42AG - Compliance action for work refusal failures

New section 42AG is in 'Subdivision C - Compliance action that must be taken for particular failures'. It sets out the relevant compliance action that must be taken if a person commits a work refusal failure.

Subsection 42AG(1) sets out the default position. That is, the Secretary must determine that the person's participation payment is not payable for a period (the effect of this determination is set out in new section 42AL), unless subsection 42AG(4) applies.

Subsection 42AG(2) applies if the person does not have a reasonable excuse for the work refusal failure. In such circumstances, the Secretary must cancel the person's participation payment. (The effect of the cancellation is set out in new section 42AP).

(Reasonable excuse is generally dealt with in new section 42AI).

Subsection 42AG(3) provides that a determination to cancel a person's payment under subsection 42AG(2) has effect despite any determination made under subsection 42AG(1) for the failure. This makes it clear that regardless of whether the Secretary has determined that the payment is not payable, the Secretary must cancel the payment once it is clear that the person has no reasonable excuse for the work refusal failure.

Subsection 42AG(4) deals with the circumstance where a person has already been penalised for committing a mutual obligation failure and, as a result, the instalment of their income support is reduced by the whole amount for an instalment period. In those circumstances, if the person commits a work refusal failure during that instalment period, no compliance action will be taken in relation to the work refusal failure.

This section ensures that every time a person commits a work refusal failure their payment will, as a minimum, be suspended. If a person is found to not have a reasonable excuse for the failure a stronger penalty will apply - the person's payment will be cancelled.

Section 42AH - Compliance action for unemployment failures

New section 42AH is in 'Subdivision C - Compliance action that must be taken for particular failures'. It sets out the relevant compliance action that must be taken if a person commits an unemployment failure.

Under subsection 42AH(1), if a person receiving a participation payment commits an unemployment failure, the Secretary must cancel the payment. (A note under subsection 42AH(1) notes that participation payments will not be payable to the person for the person's post-cancellation non-payment period).

Under subsection 42AH(2), if a person who has made a claim for (but is not receiving) a participation payment commits an unemployment failure, the Secretary must determine that participation payments are not payable to the person for a period (that period, the unemployment preclusion period, is specified in section 42AO). These provisions ensure that the person will not begin to receive their payments until after the unemployment preclusion period has expired.

Section 42AI - Reasonable excuses - matters that must or must not be taken into account

Subsection 42AI(1) provides that the Secretary must, by legislative instrument, determine the matters a decision maker must take into account in deciding whether a person has a reasonable excuse for committing a mutual obligation failure or a work refusal failure.

Subsection 42AI(2) clarifies that subsection (1) does not limit the matters the Secretary may take into account in deciding whether the person has a reasonable excuse.

Subsection 42AI(3) provides that the Secretary may, by legislative instrument, determine matters a decision maker must not take into account in deciding whether a person has a reasonable excuse for committing a mutual obligation failure or a work refusal failure.

The stronger penalties (that is, payment reduction or payment cancellation) will be imposed on a person who has persistently committed mutual obligation failures, or has committed a work refusal failure, where the person does not satisfy the decision maker that they have a reasonable excuse (see new subsections 42AF(2) and 42AG(2)).

This section ensures that decision makers are obliged to consider the Secretary's determination outlining the matters that must and (if relevant) must not be taken into account in determining whether the person had a reasonable excuse for committing the mutual obligation or work refusal failure.

Section 42AJ - Reasonable excuses for mutual obligation failures - prior notification required for certain failures

Subsection 42AJ(1) provides that for certain mutual obligation failures an excuse will not be reasonable unless:

(a)

the person notifies the excuse in the particular way specified in subsection 42AJ(3) for the particular mutual obligation failure; or

(b)

the Secretary is satisfied that there were circumstances in which it was not reasonable to expect the person to give such a notification.

Subsection 42AJ(2) lists 4 mutual obligation failures that will generally require prior notification of a reasonable excuse. In general, they are failures relating to attendance or participation at appointments or activities, or to make contact with DHS.

Subsection 42AJ(3) sets out the way the person must notify the excuse and to whom the person must notify the excuse for the particular mutual obligation failure that applies.

The purpose of this section is to motivate persons to give prior notice of any excuse they may have for not being able to comply with certain mutual obligation requirements.

Section 42AK - Relationship between provisions of this Subdivision

New section 42AK ensures that sections 42AF (compliance action to be taken in relation to mutual obligation failures), 42AG (compliance action to be taken in relation to work refusal failures) and 42AH (compliance action to be taken in relation to unemployment failures) do not limit each other.

Section 42AL - Payment suspension periods for mutual obligation failures and work refusal failures

New section 42AL in 'Subdivision D - Effect of taking particular compliance action' sets out how to work out the payment suspension period for mutual obligation failures and work refusal failures.

Subsection 42AL(1) provides that if the Secretary determines under section 42AF or section 42AG that a participation payment is not payable to a person for the period, the participation payment is not payable for the period (the payment suspension period) worked out under this section.

Subsections 42AL(2) and 42AL(3) set out the rules for working out the payment suspension period for mutual obligation failures and work refusal failures.

The payment suspension period will begin at the start of the instalment period in which the person commits the mutual obligation failure or the work refusal failure (paragraph 42AL(2)(a)) or, if the Secretary determines that a later instalment period is more appropriate, that later instalment period (paragraph 42AL(2)(b)). This ensures that, as a general rule, payment will be suspended from the start of the instalment period in which the person commits the mutual obligation failure. However, in circumstances where a person has already been paid for that instalment period, the Secretary is able to impose the payment suspension in relation to a later instalment period. It avoids having to recover the payment for the instalment period in which the mutual obligation failure was committed from the person, whilst still ensuring the person suffers the consequences of having committed the failure.

The payment suspension period will typically end immediately before the day the person complies with the reconnection requirement imposed under new subsection 42AM(1) (which deals with reconnection requirements for mutual obligation failures and work refusal failures) (paragraph 42AL(3)(a)). However, if the Secretary determines that an earlier day is more appropriate, the payment suspension period ends immediately before that earlier day (paragraph 42AL(3)(b)).

Subsection 42AL(4) ensures that once the suspension period ends in accordance with subsection 42AL(3), the person will become entitled to be back-paid for the period during which their payment was suspended (subject to meeting the usual requirements under the social security law to be entitled to payment for that period). (However, the back pay may be reduced, including to nil, if the instalment period for which an instalment is to be reduced under section 42AN overlaps with the payment suspension period).

Section 42AM - Reconnection requirements for mutual obligation failures and work refusal failures

Subsection 42AM(1) provides that the Secretary must impose a reconnection requirement on a person if a determination has been made under section 42AF or section 42AG that their payment is not payable because of a mutual obligation failure or a work refusal failure.

Subsection 42AM(2) obliges the Secretary to notify the person, in any way the Secretary considers appropriate, of the reconnection requirement and the effect not complying with the reconnection requirement will have. This subsection allows a person to be put on notice about the possibility of their payment being cancelled if they fail to reconnect.

It is important that decision makers impose the reconnection requirement and notify the person of that requirement (and the consequences of failing to reconnect), because complying with their reconnection requirement serves to end a person's suspension period (see paragraph 42AL(3)(a)).

Subsection 42AM(3) requires the Secretary to cancel a person's participation payment if the person does not comply with their reconnection requirement within 4 weeks after they are notified under subsection 42AM(2). This subsection will not apply if the Secretary has ended the suspension period on an earlier day in accordance with paragraph 42AL(3)(b). This subsection provides a way of cancelling a person's payment to avoid the unlikely situation of a person's participation payment remaining suspended indefinitely simply because they fail to re-engage with the employment services provider or the Department of Human Services.

Subsection 42AM(4) provides that if the Secretary determines that a person's participation payment is cancelled under subsection 42AM(3), the cancellation takes effect 4 weeks after the person was notified of the reconnection requirement.

Section 42AN - Reducing instalments of participation payments for mutual obligation failures

New section 42AN in 'Subdivision D - Effect of taking particular compliance action' sets out how to work out the amount by which an instalment of a participation payment is to be reduced, and the period for which it is to be reduced (the reduction period), for a person who has committed a mutual obligation failure and in respect of whom the Secretary has determined under paragraph 42AF(2)(c) that their instalment should be reduced (that is, has made a reduction determination).

Subsection 42AN(2) provides that the reduction period must be the instalment period in which the person commits the mutual obligation failure. However, if the Secretary determines that a later instalment period is more appropriate, the payment reduction period will be that later instalment period. This ensures that, as a general rule, payment will be reduced from the instalment period in which the person commits the mutual obligation failure (paragraph 42AN(2)(a)). However, in circumstances where a person has already been paid for that instalment period, the Secretary is able to reduce the person's participation payment for a later instalment period (paragraph 42AN(2)(b)). This ensures that if a person has already been paid for the instalment period in which the mutual obligation failure occurred, the person still suffers the consequences of having committed the failure, without the need to recover payments for the instalment period in which the failure occurred.

Subsection 42AN(3) ensures that the amount of an instalment of a payment must be reduced by an amount equal to half or the whole of the person's participation payment for the reduction period. Subsection 42AN(4) requires the Secretary to make this determination in accordance with a determination made under section 42AR (which provides that the Minister must, by legislative instrument, determine the circumstances in which the amount of the reduction of a payment should be half or the whole of the amount).

The intention is for the legislative instrument to provide that, for the first mutual obligation failure committed once a person has demonstrated persistent non-compliance, the person's payment will be reduced by half, and for the second mutual obligation failure, the person's payment will be reduced by the whole amount.

Subsection 42AN(5) clarifies that it is open to the Secretary to reduce the amount of a person's participation payment by the whole amount even in circumstances where a person's participation payment has already been reduced by half for the same period. This is intended to cover the situation where a persistently non-compliant person commits two different mutual obligation failures in the same instalment period.

Subsection 42AN(6) is a deeming provision enabling a person's participation payment to remain payable even if they are not actually receiving any payment (i.e. it is reduced to nil) because of the reduction of an instalment of their payment for a mutual obligation failure. This provision ensures that provisions in the Social Security Act (for example section 608) that would render the payment non-payable if reduced to nil are not activated. The result is that the person is still eligible for concession cards and any other benefits that depend on the payment being payable to the person.

Section 42AO - Unemployment preclusion periods for unemployment failures by persons claiming participation payments

For persons who are not receiving a participation payment when they become unemployed, and if the Secretary has made a determination under subsection 42AH(2) that participation payments are not payable to them, subsection 42AO(1) provides for an unemployment preclusion period - that is, a period during which no participation payment is payable.

Subsection 42AO(1) provides that that period is for 4 weeks beginning on the day the person becomes unemployed, or 6 weeks if the person has been paid relocation assistance for the employment the person left within the preceding 6 months.

A note under subsection 42AO(1) notes that the unemployment preclusion period may affect the person's start day for a claim in accordance with clauses 5 and 5A of Schedule 2 to the Social Security Administration Act. A further note notes that it is irrelevant for the purposes of subsection 42AO(1) which participation payment the person claimed.

This rule has a beneficial intention of allowing new claimants for a participation payment to 'self-serve' part or all of their unemployment preclusion period prior to making a new claim.

Subsection 42AO(2) defines relocation assistance.

Section 42AP - Cancelling participation payments

New section 42AP in 'Subdivision D - Effect of taking particular compliance action' sets out what the consequences are of the Secretary having determined under Subdivision C (Compliance action that must be taken for particular failures) to cancel a participation payment because a person committed a mutual obligation failure, a work refusal failure, or an unemployment failure.

Subsection 42AP(2) sets out the rules around when the cancellation occurs (the cancellation day) for mutual obligation failures and work refusal failures. The cancellation day is the first day of the instalment period in which the person commits the failure. However, if the Secretary determines that a later instalment period is more appropriate, the cancellation day is the first day of that later instalment period. This ensures that, as a general rule, payment will be cancelled on the first day of the instalment period in which the person commits the mutual obligation failure (paragraph 42AP(2)(a)).

However, in circumstances where a person has already been paid for that instalment period, paragraph 42AP(2)(b) enables the Secretary to cancel the person's participation payment on the first day of a later instalment period. This ensures that if a person has already been paid for the instalment period in which the failure occurred, the person still suffers the consequences of having committed the failure, without the need to recover payments for the instalment period in which the failure occurred.

Subsection 42AP(3) provides for the cancellation day for an unemployment failure committed by a person who was receiving the participation payment when he or she became unemployed. The cancellation day is generally the day that the person becomes unemployed as a result of their voluntary act or misconduct (paragraph 42AP(3)(a)). However, the cancellation day could be the first day of the instalment period following the day on which the Secretary cancels the payment, where appropriate (paragraph 42AP(3)(b)). This alternative may be more appropriate where the person might be disadvantaged if the cancellation day was the day they became unemployed.

Subsection 42AP(4) provides that for the purposes of paragraph 42AP(3)(b), the day the Secretary makes the determination is the day the Secretary originally makes the determination, even if another decision in relation to the determination is later made on review. This provision mirrors current section 42Y. Its purpose is beneficial in that it will ensure that if an original decision to cancel the payment is affirmed on review, the review decision will take effect on the date of the original decision rather than on the date of the review decision.

Subsection 42AP(5) provides that a participation payment is not payable to the person during the period (the post-cancellation non-payment period) of 4 weeks beginning on the cancellation day, or 6 weeks if the cancellation is for an unemployment failure and the person was paid relocation assistance for the relevant employment within the last 6 months. As the first note under subsection 42AP(5) provides, this post-cancellation non-payment period has the effect of being an exclusion period for new claimants of a participation payment, because of clauses 5 and 5A of Schedule 2 to the Social Security Administration Act.

Subsection 42AP(6) provides that despite subsections (2) and (3), the participation payment is taken not to be cancelled, for the purposes of certain legislative provisions, until the end of the post-cancellation non-payment period.

The provisions for which the payment is taken not to be cancelled are:

(a)

a provision of the social security law or the Family Assistance Act that refers to a post-cancellation non-payment period or a compliance penalty period (other than a provision that is determined by the Minister under subsection 42AR(2) for the purposes of paragraph 42AP(6)(a));

(b)

section 106B of the Social Security Administration Act, which provides for automatic cancellation of certain concession cards; and

(c)

a provision of the social security law that is determined by the Minister under subsection 42AR(2) for the purposes of paragraph 42AP(6)(c).

The purpose of subsection 42AP(6) is to ensure that people who are in a post-cancellation non-payment period do not lose certain ancillary benefits such as concession cards and access to any benefit to which a person may be entitled under the Family Assistance Act as a result of receiving social security payments, due to being in a post-cancellation non-payment period. If subsection 42AP(6) was not included, then the provisions in the social security law and Family Assistance Act which require the person's payment to be payable (or require them to be receiving payment) in order to qualify for the ancillary benefit, would mean they may lose that benefit, or not be qualified for it, because the payment is not payable.

If section 106B was not included in this provision, then subsection 106B(1) would automatically cancel the card, due to the underlying payment having been cancelled.

Subsection 42AR(2) (referred to in paragraph 42AP(6)(a)) permits the Minister to determine further provisions of the social security law for the purposes of paragraph 42AP(6)(c). This is to enable additional ancillary benefits to be prescribed if it emerges that there are any that are not covered by paragraphs 42AP(6)(a) and (b).

Section 42AQ - Persons for whom participation payments not payable taken to still be receiving payment for certain purposes

New section 42AQ, in Subdivision E - Miscellaneous, provides that if, under new Division 3AA, a participation payment is not payable for a period, then for the purposes of the following provisions, the person is taken to be receiving that participation payment for that period:

(a)

Subdivision B (except if the participation payment is not payable because of subsections 42AH(2) and 42AO(1) - unemployment preclusion periods);

(b)

sections 63 and 64; and

(c)

any other provision of the social security law, or the Family Assistance Act, that is determined by the Minister under subsection 42AR(2).

This section ensures that even though a person's participation payment may be not be payable for a period under Division 3AA (that is, not payable because they have committed a mutual obligation failure or a work refusal failure), the person is taken to be receiving that participation payment for the above purposes. This means that they can still be found to have committed a relevant mutual obligation failure under Subdivision B (for example, failing to comply with a requirement issued to them under subsection 63(2)). The exception is where a person is in an unemployment preclusion period. It would not be appropriate or necessary to deem these people to have been receiving payment at the relevant time, because any requirements the Secretary may wish to impose on them with regard to providing information (for example) would be prerequisites for claiming payment.

This section would also ensure that sections 63 and 64, which allow the Secretary to send certain notices requiring persons receiving payments to do certain things, remain effective during this period. This is to ensure that a job seeker continues to meet any relevant requirements that might apply under sections 63 or 64 during a period of non-payability.

The Minister may determine that a person is taken to be receiving payment during this period for the purposes of other provisions of the social security law, so that any appropriate additional provisions can be specified for these purposes over time.

Section 42AR - Minister to make determinations for the purposes of this Division

New subsection 42AR(1) obliges the Minister to make a legislative instrument determining the following:

•

for the purposes of paragraph 42AF(2)(a), circumstances in which the Secretary must, or must not, be satisfied that a person has persistently committed mutual obligation failures;

•

for the purposes of subsection 42AF(2), circumstances in which the Secretary must make a determination under paragraphs 42AF(2)(c) or (d) (whether to determine that an instalment of a participation payment is to be reduced, or the payment is cancelled);

•

for the purposes of subsection 42AN(4), the circumstances in which the amount of the reduction of a participation payment for an instalment period is to be equal to half, or the whole, of the amount of the payment for the period, in accordance with paragraphs 42AN(3)(a) and (b) respectively.

This section ensures that the Secretary is bound by the determination made by the Minister when making determinations that result in stronger compliance action (such as instalment reductions or cancellation of a participation payment) applying to a person for having persistently committed mutual obligation failures.

The intention is for the legislative instrument to provide, among other things, safeguards (such as the person having committed a number of failures without a reasonable excuse, the existence of checks having been undertaken by the employment service provider and the Department of Human Services ensuring that the person did not have any undisclosed issues that are affecting their ability to comply with their mutual obligations and/or the suitability of the person's employment pathway plan) to be taken into account by the Secretary before a determination that a person has persistently committed mutual obligation failures can be made.

The legislative instrument will also provide guidance in relation to when the Secretary should impose a financial penalty and when the Secretary is to cancel a participation payment. That is, the legislative instrument will provide guidance such as, for the first and second mutual obligation failure committed once a jobseeker has demonstrated they have persistently committed mutual obligation failures, the Secretary is to impose payment reduction; and for the third mutual obligation failure in this phase, the Secretary is to cancel the participation payment.

In relation to the circumstances in which the amount of the reduction of a participation payment will be equal to half, or the whole, of the amount of the payment, the legislative instrument will provide that for the first mutual obligation failure committed once a jobseeker has persistently committed mutual obligation failures, the person's payment will be reduced by half, and for the second mutual obligation failure committed in this phase, the person's payment will be reduced by the whole amount.

Subsection 42AR(2) enables the Minister to, by legislative instrument, determine provisions of the social security law or the Family Assistance Act for the purposes of paragraphs 42AP(6)(a) or (c) or 42AQ(c).

Section 42AS - Relationship with section 80

New section 42AS is required to ensure the Secretary can still cancel or suspend a participation payment in certain circumstances.

Section 80 of the Social Security Administration Act provides a general power for the Secretary to cancel or suspend a person's social security payment (including participation payments) if the person is not qualified for the payment or the payment is not payable. There are circumstances in which a failure to comply with the terms of an employment pathway plan or the activity test may result in a person losing qualification for a participation payment. The consequence of a loss of qualification is suspension or cancellation under section 80. This section therefore, preserves the operation of section 80 to deal with those circumstances.

However, the note makes it clear that the Secretary cannot cancel or suspend a participation payment under section 80 on the basis that the participation payment is not, or was not, payable because of the operation of Division 3AA (see amendments to be made to paragraph 80(1)(b)).

Part 2 - Consequential amendments

Farm Household Support Act

Item 2 adds a reference to new Division 3AA in paragraph 98(c) of the Farm Household Support Act.

Section 98 provides that certain provisions in the Social Security Administration Act do not apply to the Farm Household Support Act. Paragraph 98(c) lists Division 3A of Part 3 of the Social Security Administration Act as one of those provisions that do not apply. Division 3A is not required for the administration of the Farm Household Support Act because the compliance provisions set out in the Farm Household Support Act already apply to failures by recipients of the farm household allowance to meet their obligations.

The addition of Division 3AA in paragraph 98(c) ensures that Division 3AA does not have unintended consequences for the operation of the Farm Household Support Act. Excluding Division 3AA ensures the new targeted compliance framework also does not apply to failures by recipients of the farm household allowance to meet their obligations.

Social Security Act

Item 3 inserts into the definition of 'compliance penalty period' in subsection 23(1) references to various periods during which a participation payment is not payable to a person (other than a declared program participant). These are: a suspension period (see new subsection 42AL(1)); an unemployment preclusion period (see new subsection 42AO(1)); and a post-cancellation non-payment period (see new subsection 42AP(5)).

Compliance penalty periods are referred to at various points in the social security law and other legislation. Amongst other things, if a person's participation payment is not payable only because of a compliance penalty period, the person:

•

retains qualification for a pensioner concession card (section 1061ZEC of the Social Security Act); and

•

retains qualification for a health care card (section 1061ZNA of the Social Security Act).

A consequential amendment to the definition of a compliance penalty period that inserts periods of non-payability that arise under new Division 3AA into the definition ensures that a person remains qualified for, amongst other things, concession cards.

The definition will not encompass penalty amounts for mutual obligation failures because new subsection 42AN(6) deems participation payments to be payable even if a payment is reduced to nil due to the deduction of a penalty amount.

Items 4 and 5 make minor consequential amendments to the definition of a compliance penalty period in subsection 23(1) to make clear that paragraph (a) of the definition applies to declared program participants and paragraphs (b) and (c) of the definition may apply 'in any case'. Paragraph (b) applies to persons in receipt of youth allowance who are undertaking full-time study and paragraph (c) applies to persons in receipt of austudy payments.

Item 6 inserts into the note in section 549G a reference to Division 3AA. Section 549G provides that, in relation to youth allowance, Subdivision D of Division 2 (situations where allowance is not payable because of youth allowance participation failures) applies to a person only if the person is undertaking full-time study. The note provides that if a person is not undertaking full-time study, Division 3A of Part 3 of the Social Security Administration Act might apply. A reference to Division 3AA in the note is necessary to also clarify that if a person is not undertaking full-time study and is not a declared program participant, Division 3AA might apply.

Item 7 inserts into the note in section 550E a reference to Division 3AA. Section 550E provides that, in relation to youth allowance, Subdivision E Division 2 (situations where allowance not payable because of repeated failure), applies to a person only if the person is undertaking full-time study. The note provides that if a person is not undertaking full-time study, Division 3A of Part 3 of the Social Security Administration Act might apply. A reference to Division 3AA in the note is necessary to also clarify that if a person is not undertaking full-time study and is not a declared program participant, Division 3AA might apply.

Items 8 - 10 amend the special benefit qualification provisions (section 729 of the Social Security Act), to ensure that a special benefit is not granted to a person (who is not declared program participant) whose participation payment is not payable because of the new payment suspension period, the new unemployment preclusion period or the new post-cancellation non-payment period applying to the person.

Items 11 and 12 insert into subparagraphs 1046(2)(b)(i), 1046(2)(b)(ii), 1046(2B)(b)(i), 1046(2B)(b)(ii) and 1046(2B)(b)(iia) references to the new subsections 42AL(1) (payment suspension period), 42AO(1) (unemployment preclusion period), and 42AP(5) (post-cancellation non-payment period). These amendments ensure a person continues to qualify for mobility allowance despite the application of the new payment suspension period, unemployment preclusion period or post-cancellation non-payment period.

Social Security Administration Act

Items 13 and 14 amend the heading of Division 3A of Part 3 of the Social Security Administration Act and Subdivision A in Division 3A. These amendments clarify that the compliance framework set out in Division 3A applies only to declared program participants.

Item 15 repeals subsection 42S(3B). Subsection 42S(3B) sets out the definition of 'relocation assistance' for the purposes of that section. However, the term 'relocation assistance' is now defined in new subsection 42AO(2), which provides that the definition of relocation assistance applies for the purposes of the Social Security Administration Act (not just a particular section). As the definition of relocation assistance set out in subsection 42AO(2) will also apply for the purposes of section 42S, subsection 42S(3B) is redundant. The definition of 'relocation assistance' by reference to new subsection 42AO(2) has been included in the dictionary in Schedule 1 to the Social Security Administration Act (see the consequential amendment at item 31 in this regard).

Item 16 inserts a reference to section 42AF (compliance action for mutual obligation failures) in paragraph 64(1A)(c). Currently, subsection 64(1A) prevents a payment from becoming not payable under both subsection 64(1) and subsection 42SA(1). Subsection 64(1A) provides that subsection 64(1) does not apply if: the person is receiving a participation payment; and the person fails to attend an appointment that the person is required to attend by a notice under subsection 63(2); and the Secretary makes a determination under subsection 42SA(1) in relation to the person and the failure. This consequential amendment also prevents a participation payment from becoming not payable under subsection 64(1) if the Secretary makes a determination under new section 42AF in relation to the person and the failure.

Items 17 and 18 amend subsection 80(1) to ensure that the Secretary cannot determine that a participation payment is to be cancelled or suspended under section 80 if the payment is not, or was not payable because of the operation of new Division 3AA. A note is added at the end of subsection 80(1) to explain that Division 3AA is about compliance with participation payment obligations for persons who are not declared program participants. These amendments ensure that if the reason a person's participation payment is not payable, or was not payable, is because of compliance action having been taken under Division 3AA, then section 80 is not to apply to enable suspension or cancellation of the payment.

Item 19 amends subsection 80(3A) to ensure that the operation of subsection 80(3A) is preserved for declared program participants (that is, for those who are subject to the compliance framework set out in Division 3A of Part 3 of the Social Security Administration Act) and to clarify that it does not apply to those subject to the new targeted compliance framework set out in Division 3AA.

Items 20 and 21 amend section 110A (date of effect of favourable determinations resuming payment after suspensions relating to non-compliance) and section 118 (general rules for date of effect of adverse determinations) to clarify that these provisions apply only to declared program participants (that is, those to whom Division 3A applies) and not to persons to whom new Division 3AA applies.

Item 22 inserts references to subsection 42AM(4) (cancellation if a person fails to reconnect within 4 weeks) or section 42AP (cancellation of participation payments) into paragraph 123(1)(ba). This consequential amendment ensures that a determination that a claim for payment is granted or payable to a person continues in effect until that payment is cancelled under new subsection 42AM(4) or under new section 42AP.

Item 23 inserts new paragraph 123(1)(bb) into subsection 123(1). This consequential amendment ensures that a determination that a claim for payment is granted or payable to a person continues in effect until immediately before the start of a payment suspension period for the person under new section 42AL (which deals with payment suspension periods for mutual obligation failures and work refusal failures).

Item 24 makes a minor technical amendment to subsection 131(1) by omitting the reference to subsection 131(2) because there is no subsection 131(2) in section 131.

Items 25 and 27 amend the payment pending review provisions (sections 131 and 145) to ensure that if an adverse decision in relation to a participation payment is made and that adverse decision is made under new Division 3AA, the Secretary will be unable to declare that the payment is to continue pending the outcome of the review as if the adverse decision had not been made.

Item 26 inserts a new paragraph 144(faa) so that decisions under subsection 42AM(1) are not reviewable by the Administrative Appeals Tribunal. Subsection 42AM(1) relates to the imposition of a reconnection requirement on the person if the Secretary determines under sections 42AF (which applies to mutual obligation failures) and 42AG (which applies to work refusal failures) that a participation payment is not payable to the person. If a person fails to reconnect, the determination to cancel the participation payment because of the person's failure to reconnect (see new subsection 42AM(3)) would be reviewable and the Tribunal could overturn the decision if it found that the job seeker could not reasonably be expected to meet the reconnection requirement.

The rationale for excluding the decision under subsection 42AM(1) to impose a reconnection requirement from merits review is that it is a preliminary or procedural decision and, therefore, unsuitable for merits review. It would not be appropriate for the Tribunal to make decisions about the particular reconnection requirements a person should undertake, given that such decisions depend almost entirely on practical concerns only apparent to the decision maker at the time the decision is actually made (eg. the availability of particular appointments and activities that may constitute a reconnection requirement for the particular person). Further, the imposition of a reconnection requirement on a person leads to the making of a substantive decision (that is, it results in the lifting of the suspension if they comply with the reconnection requirement or, alternatively, the cancellation of their payment if they fail to comply with the requirement). Both the decision to impose the suspension (the decision which leads to a decision maker having to impose the reconnection requirement) and the decision to cancel because of the person's failure to reconnect within 4 weeks, will both be reviewable decisions.

Item 28 amends section 192 to ensure the Secretary has the power to require the production of any information or document relevant to the operation of the new Division 3AA. This amendment is intended to ensure decision makers can make decisions under Division 3AA with powers available to them to obtain relevant material.

Items 29, 30 and 31 add new definitions in Schedule 1 (the dictionary to the Social Security Administration Act) for particular terms that will be introduced to the Social Security Administration Act by new Division 3AA. Relevantly, the new terms are mutual obligation failure, payment suspension period, post-cancellation non-payment period, relocation assistance, unemployment failure, unemployment preclusion period, and work refusal failure. In addition, an amendment is made to the definition of the term reconnection requirement.

Item 32 amends the start day rule in clause 5 of Schedule 2. The intention of subclause 5(1B) is to ensure that if a person is subject to certain non-payment periods (currently a serious failure period and an unemployment non-payment period), the person's start day for any social security payment that is not a participation payment is not affected by those specified non-payment periods. This amendment would ensure that the new payment suspension period, unemployment preclusion period and the post-cancellation non-payment period are also included in subclause 5(1B). In other words, if a person claims a social security payment that is not a participation payment and one of the listed non-payment periods (that is, the new payment suspension period, unemployment preclusion period and the new post-cancellation non-payment period) applies to them, their start day for that payment could be before those non-payment periods end.

Items 33 - 37 effectively amend the start day rules for parenting payment in clause 5A of Schedule 2. The intention is to preclude members of a couple from transferring from a participation payment to a parenting payment (without participation requirements) in order to avoid the compliance action taken against them under new Subdivision C of Division 3AA (whether that compliance action is that the participation payment is not payable or that the participation payment is cancelled).

Item 38 amends the backdated start day rules in clause 15 of Schedule 2 to ensure that clause 15 does not apply to payments cancelled in accordance with Division 3AA. The rationale is that for persons who lodge a claim for an austudy payment, newstart allowance or special benefit within 14 days of their participation payment having been cancelled under Division 3AA, their start day should not be the day after the cancellation day. The intention is that if a person's participation payment is cancelled under Division 3AA, the person's start day should be the day after their post-cancellation non-payment period ends (in accordance with the start day rules set out in clause 5 of Schedule 2 due to a post-cancellation non-payment period being included in the definition of compliance penalty period).

Part 3 - Application and transitional provisions

Item 39 sets out the rules relating to the application of Division 3AA of Part 3 of the Social Security Administration Act.

Item 39 provides that new Division 3AA will apply in relation to mutual obligation failures, work refusal failures or unemployment failures that are committed on or after the commencement of this item (that is, on or after 1 July 2018 unless the day the Act receives Royal Assent is later, in which case it will be on or after that later day) by a person who is not a declared program participant.

Item 40 sets out the rules relating to the application of Division 3A of Part 3 of the Social Security Administration Act.

Subitem 40(1) provides that the amendments made by this Schedule do not limit the continued effect, on or after the commencement of this item, of anything done before that commencement under the old compliance rules in relation to a person who is a declared program participant.

The effect of subitem 40(1) is to preserve the operation of Division 3A (and its continued effect) on or after 1 July 2018 (unless the day the Act receives Royal Assent is later, in which case it will be on or after that later day) for persons who are declared program participants.

Subitem 40(2) provides that subject to subitem 40(4), the old compliance rules will cease to apply, at the commencement of this item, in relation to a person who is not a declared program participant, even if a determination has been made under those rules for the person before that commencement.

Subitem 40(3) provides that without limiting subitem 40(2), if the Secretary made a determination under the old compliance rules, before the commencement of item 40, that results in a participation payment not being payable for period for a person who is not a declared program participant and the period has not ended as at that commencement, then the period ends, by force of subitem 40(3), immediately before that commencement, despite anything else in the compliance rules.

The effect of subitems 40(2) and (3) is to ensure that persons who are not declared program participants are not subject to both Division 3AA and Division 3A on 1 July 2018 (or on the later day if the Act receives Royal Assent on a day later than 1 July 2018). This means that if a determination that results in a person who is not a declared program participant not being payable under Division 3A and this is still in effect on the relevant day (1 July 2018 or the later day), that non-payability period will end by force of subitem 40(3) immediately before that relevant day.

Subitem 40(4) provides that despite subitem 40(2), if the Secretary made a determination under the old compliance rules, before the commencement of item 40 and the determination would, apart from subitem 40(2) and the amendments made by Schedule 15, have resulted in a penalty amount being deducted from a person's instalment of a participation payment for one of more instalment periods ending after that commencement, then the penalty amount must continue to be deducted after that commencement in accordance with the old compliance rules.

Subitem 40(5) provides that if a penalty amount is deducted from an instalment in accordance with subitem 40(4), and the effect of the deduction is that the instalment is reduced to nil for an instalment period, the Secretary must not take action under new section 42AF (compliance action for mutual obligation failures) or 42AG (compliance action for work refusal failures)

The effect of subitems 40(4) and 40(5) is to preserve the operation of Division 3A in relation to penalty amounts being deducted from the payment of a person who is not a declared program participant, where the instalment period in respect of which it is deducted commenced before, but extends past, the commencement date of item 40. Also, if after commencement their payment is reduced to nil, a person cannot be penalised under new sections 42AF and 42AG until a later instalment period (this ensures the new subsections 42AF(4) and 42AG(4) apply to a person whose payment has been reduced to nil by operation of Division 3A).

Subitem 40(6) clarifies that a reference to 'old compliance rules' in item 40 means Division 3A of Part 3 of the Social Security Administration Act as in force immediately before the commencement of item 40 (that is, immediately before 1 July 2018 unless the day the Act receives Royal Assent is later, in which case it will be immediately before that later day).

Item 41 sets out the transitional rules applying to instruments specifying payments for the definition of relocation assistance.

Item 41 provides that an instrument made under paragraph 42S(3B)(b) of the Social Security Administration Act that was in force immediately before the commencement of item 36 continues in force (and may be dealt with) as if it had been made under subsection 42AO(3) of that Act (as amended by Schedule 15).

The effect of item 41 is to preserve the instrument made under paragraph 42S(3B)(b) for the purposes of the definition of relocation assistance.