Explanatory Memorandum
(Circulated by authority of the Minister for Family and Community Services, Senator the Hon Amanda Vanstone)Outline and financial impact
This Bill gives effect to the "Australians Working Together" package of measures announced as part of the 2001 Budget. The Bill also gives effect to other Budget measures as set out below.
Australians Working Together package
Language, literacy and numeracy supplement
From 20 September 2002, people on specified income support payments who are undertaking approved language, literacy and numeracy training programs will be paid a fortnightly supplement of $20.80 to help with the incidental costs associated with the training. The specified income support payments are newstart allowance, youth allowance, parenting payment, mature age allowance, widow allowance, partner allowance and disability support pension.
From 28 April 2003, the working credit will improve employment incentives for workforce age income support customers. The main feature is to allow customers to build up credits at times when they have little or no income, which they can use to reduce later earnings under the income test. There will be a simpler and more consistent 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.
Participation requirements for parents
From 1 July 2003, people receiving parenting payment whose youngest child is aged 13 to 15 years will be subject to a participation requirement to help them prepare for a return to work and to help them access services to acquire or improve their work skills. The requirement will be to undertake one or more activities such as job search, education, training or community work for up to 150 hours in a 6 month period.
The new participation requirement will not apply to parents caring for a child with a serious disability.
The Personal Support Programme (PSP) replaces and expands the Community Support Program from 1 July 2002.
The PSP will assist people who have multiple non-vocational barriers such as homelessness, drug and alcohol problems, mental illness or domestic violence. These people are generally not able to participate in employment-related activities nor can they benefit from employment assistance because of their barriers. The PSP will encourage social as well as economic participation by establishing outcomes that match participant's individual abilities, capacity and circumstances.
The PSP will be an activity available under the activity test for newstart allowance and youth allowance and will be an activity that can be included in a person's activity agreement. PSP will also be an activity that can be included in a person's parenting payment participation agreement from 1 July 2003.
Closing off mature age allowance and partner allowance
From 1 July 2003, there will be no new entrants to mature age allowance or partner allowance. Instead, newstart allowance will be available to working aged people who would have qualified for those payments, along with full access to support services and programs to help them increase their economic and social engagement.
Customers who are receiving mature age allowance or partner allowance at the implementation of this measure will be 'saved' on those payments while their payment remains current.
Under this measure, mature age allowance will be completely phased out by 2008 and partner allowance by 2020.
Flexible participation requirements for mature age newstart allowance recipients
This measure introduces more flexible arrangements for newstart allowance claimants and recipients who are aged at least 50. The measure involves a more flexible approach to the application of the activity test and provides access to an expanded range of services and programs to help maximise economic and social participation.
A participation agreement will be negotiated with new claimants and current recipients who are aged at least 50 which will set out those activities that the person agrees to undertake, or participate in, during the life of the agreement. While the proposed new participation framework maintains the current focus on economic participation for those with the capacity to undertake paid work, it also provides the flexibility to accommodate those with limited prospects of employment in the short-term.
In effect, this new approach will mean that activities that would not previously have been considered appropriate for newstart allowance purposes might now be accepted activities.
If, without a reasonable excuse, a person fails to comply with the terms of the agreement, then an appropriate penalty will be applied. Significantly, where a person 'rectifies' that failure, it will be possible for any residual amount of the penalty to be waived.
The measure also provides for people aged at least 50 who are complying with agreement (which does not require the person to undertake job search) to be able to travel overseas for a period not exceeding 26 weeks.
The measure also maintains and clarifies the intended operation of the provisions dealing with the liquid assets test waiting period.
Financial impact
| Element | 2001-02 | 2002-03 | 2003-04 | 2004-05 | 4 year |
|---|---|---|---|---|---|
| Language Literacy and Numeracy | 0.8 | 5.8 | 6.8 | 7 | 20.4 |
| Working Credit | 10.5 | 60.5 | 171.9 | 189.7 | 432.6 |
| Participation Requirements for Parents | 18.1 | 58.5 | 82.6 | 92.1 | 251.3 |
| Personal Support Programme | 2.7 | 7.7 | 17.7 | 33.8 | 61.9 |
| Mature Aged (Close MAA/PA and Participation) | 2.6 | 21.9 | 56.2 | 65.7 | 146.4 |
| Total | 34.7 | 154.4 | 335.2 | 388.3 | 912.6 |
Research into homelessness indicates that, for many families who become homeless, there is a lead-up period in which they frequently move house and experience financial crisis.
Through the new Family Homelessness Prevention and Early Intervention Pilot, families at risk of homelessness will be identified using Centrelink data, with the aim of preventing homelessness, unmanageable debt and other forms of crisis.
Amendments are made to enable Centrelink customer data to be used for this purpose. The amendments become operative on 1 July 2002.
Total funding for the Family Homelessness Prevention and Early Intervention Pilot is estimated to be $5.0 million over 3 years.
Notes on clauses
Clause 1 sets out how the Act is to be cited, that is, the Family and Community Services Legislation Amendment (Australians Working Together and other 2001 Budget Measures) Act 2002.
Clause 2 provides a table that sets out the commencement dates of the various sections in and Schedules to the Act.
Clause 3 provides that each Act that is specified in a Schedule is amended or repealed as set out in that Schedule.
For ease of description, this explanatory memorandum uses the following abbreviations:
"Social Security Act" means the Social Security Act 1991; and
"Administration Act" means the Social Security (Administration) Act 1999.
Schedule 2 - Language, literacy and numeracy supplement
Summary
From 20 September 2002, people on specified income support payments who are undertaking approved language, literacy and numeracy training programs will be paid a fortnightly supplement of $20.80 to help with the incidental costs associated with the training.
The specified income support payments are newstart allowance, youth allowance, parenting payment, mature age allowance, widow allowance, partner allowance and disability support pension.
Background
This measure assists with the additional costs associated with undertaking language, literacy and numeracy training.
Poor language, literacy or numeracy skills make it more difficult to get a job. This training is necessary to help people with these difficulties to re-enter the workforce and gain valuable day-to-day living skills.
People on income support are likely to need extra financial assistance to help with the incidental costs of attending language, literacy and numeracy training. This measure will encourage and support people whilst they undertake that training.
Explanation of the changes
Part 3 - Amendment of the Income Tax Assessment Act 1997
The new language, literacy and numeracy supplement will be tax exempt. In broad terms, this is achieved by including the supplement within the definition of "supplementary amount" in section 52-15 of the Income Tax Assessment Act 1997 (the ITAA). Supplementary amounts are then exempted from income tax by operation of section 52-10 of the ITAA.
To this end, item 5 repeals the table in section 52-15 of the ITAA and reinserts a new table. The language, literacy and numeracy supplement is included as a "supplementary amount" (along with existing supplementary amounts) for all social security designated payments.
The opportunity has also been taken to make some minor technical changes to the table so that it accurately reflects the supplementary amounts that are available in respect of the different social security payments. For example, incentive allowance is not available to special beneficiaries. This is reflected in the new table.
Section 52-40 of the ITAA lists social security payments that are wholly or partly exempt from tax and corresponding provisions in the Social Security Act. Item 22A in the Table in section 52-40 refers to pensioner education supplement under Part 2.27 of the Social Security Act. This Part reference is incorrect - pensioner education supplement is paid under Part 2.24A. Item 6 makes this correction.
Item 7 makes it clear that these amendments to the taxation legislation apply in relation to assessments for the first tax year ending after commencement of the new supplement and for all following tax years.
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:
- •
- the person has employment income for that day; and
- •
- 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:
- •
- the employment income; or
- •
- one fourteenth of the amount by which the ordinary income exceeds the ordinary income free area, both on a fortnightly basis; or
- •
- 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.
Schedule 7 - Miscellaneous amendments
Summary
Schedule 7 amends the confidentiality provisions in the social security and family assistance laws. The amendments enable customer information held in the records of Centrelink to be used for the purposes of the Family Homelessness Prevention and Early Intervention Pilot (the Pilot).
The amendments made by Schedule 7 are effective from 1 July 2002.
Background
Research into homelessness indicates that, for many families who become homeless, there is a lead-up period in which they frequently move house and experience financial crisis.
The aim of the Pilot is to identify families at risk of homelessness and intervene to prevent homelessness, unmanageable debt and other forms of crisis.
Families at risk would be identified using relevant Centrelink data including: changes of address, debt patterns, multiple breaches for parents on newstart allowance and youth allowance, and families frequently calling on emergency relief for advance payments. These families would then be assisted to regain stability in their housing and financial circumstances, and to access community services, labour market programs and employment.
Explanation of changes
Part 2 - Amendment of the A New Tax System (Family Assistance) (Administration) Act 1999
Section 162 of the A New Tax System (Family Assistance) (Administration) Act 1999 is cast in the same terms as section 202 of the Administration Act. It is the family assistance equivalent of section 202.
The amendments made by items 4, 5 and 6 mirror those made by items 1, 2 and 3.