House of Representatives

Explanatory Memorandum

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

Outline

This Bill will introduce the 2015 Budget measures set out below.

Portability of family tax benefit

From 1 January 2016, the Bill will reduce to six weeks the length of time for which family tax benefit Part A, and additional payments that rely on family tax benefit eligibility, will be paid to recipients who are outside Australia (known as portability). Portability extension, and exemption provisions that allow longer portability under special circumstances, will continue to apply.

This measure will align the portability rules for family tax benefit Part A with those for family tax benefit Part B and most income support payments. Reducing portability to six weeks is consistent with the purpose of family assistance payments, which is to assist Australian families with the costs of raising children in Australia. Strengthening family tax benefit residence requirements will better ensure family assistance payments are targeted to those families who have a stronger residence connection to Australia.

Cease the large family supplement

The large family supplement will be ceased from 1 July 2016. The supplement is a component of family tax benefit Part A, and is currently paid at a rate of $324.85 per year (or $12.46 per fortnight) for the fourth and each subsequent FTB child in the family.

This measure will simplify payments by removing a non-essential component of family tax benefit. Cessation of the supplement is consistent with reports by the National Centre for Social and Economic Modelling in 2002, 2007 and 2013, finding that larger families do not face higher per-child costs compared to other families, and with recommendations of both the Henry Tax Review in 2010 and the Commission of Audit in 2014 to abolish the supplement. Families will continue to receive adequate assistance through the per-child rate of family tax benefit Part A for each eligible child.

Financial impact statement

Statements of Compatibility with Human Rights

The statements of compatibility with human rights appear at the end of this explanatory memorandum.

Notes on Clauses

Abbreviations used in this explanatory memorandum

•

Family Assistance Act means the A New Tax System (Family Assistance) Act 1999

•

Family Assistance Administration Act means the A New Tax System (Family Assistance) (Administration) Act 1999

Clause 1 sets out how the new Act is to be cited - that is, as the Social Services Legislation Amendment (Family Measures) Act 2015.

Clause 2 provides a table setting out the commencement dates of the various sections in, and Schedules to, the new Act.

Clause 3 provides that legislation that is specified in a Schedule is amended or repealed as set out in that Schedule.

Schedule 1 - Portability of family tax benefit

Summary

From 1 January 2016, the period during which family tax benefit can be paid to an individual, or in respect of a child, who is outside Australia will be reduced from 56 to six weeks.

Background

Under the current rules, an individual cannot be eligible for family tax benefit for longer than 56 weeks while temporarily absent from Australia. A child who has been absent from Australia for longer than 56 weeks cannot be an FTB child or a regular care child (these terms are defined in subsection 3(1) of the Family Assistance Act).

The 56-week portability period is not reset if an individual, an FTB child or a regular care child returns to Australia for a period of less than six weeks and then leaves again. There is also capacity to extend the 56-week portability in prescribed circumstances (for example, where an individual cannot return to Australia because they have been hospitalised or in the case of an individual who is deployed overseas as a member of the Defence Force). These rules are in section 24 of the Family Assistance Act.

An individual's rate of family tax benefit may also be affected if the individual or their FTB child or regular care child has been absent from Australia for longer than six weeks. As with section 24, there are return rules and a capacity to extend this six-week period. The relevant rules are in sections 62 to 63A of the Family Assistance Act.

The amendments made by this Schedule reduce from 56 to six weeks the period during which family tax benefit can be paid to an individual who is outside Australia or in respect of a child who is outside Australia. The short return rules will continue to apply such that the portability period will not be reset if an individual, an FTB child or a regular care child returns to Australia after the end of their portability period, remains in Australia for less than six weeks and then leaves again. The capacity to extend the portability period will remain (modified, as necessary, to take account of the reduced portability period).

If an individual stops being eligible for family tax benefit because of an absence of longer than six weeks (or extended portability period) and returns to Australia within 13 weeks of the end of the portability period, then their family tax benefit will be restarted where appropriate without the need for a new claim.

The rules that modify an individual's rate of family tax benefit after six weeks' absence from Australia will become redundant and are therefore repealed.

Due to family tax benefit's links to other payments, this amendment will have flow-on effects to other payments that rely on family tax benefit eligibility, including child care benefit and child care rebate.

Regarding child care benefit and child care rebate, it is noted that subsections 24(4) and 24(6) of the Family Assistance Act operate to limit the eligibility of an individual for child care benefit, given the definition of FTB child for the purposes of child care benefit in subsection 3(1) of the Family Assistance Act. Specifically, in the relevant circumstances in subsections 24(4) and 24(6) of the Family Assistance Act, sections 42, 44 and 45 of the Family Assistance Act are effectively amended by these subsections. This will now mean the individual is not conditionally eligible (for the purposes of section 42) or eligible (for the purposes of sections 44 and 45) for child care benefit.

Accordingly, an individual's conditional eligibility or eligibility for child care benefit may be affected by the amendments made by this Schedule.

Explanation of the changes

Amendments to the Family Assistance Act

Section 24 of the Family Assistance Act outlines the effect of certain absences from Australia on family tax benefit. Under the current rules, the period for which family tax benefit can be paid to an individual, or in respect of a child, who is outside Australia is 56 weeks. That period can be extended in specified circumstances to a maximum period of three years.

Items 3, 4 and 6 make amendments to subsections 24(1) and (4) to reduce the 56-week portability period to six weeks.

Items 5 and 7 repeal subsections 24(2) and (5) respectively. These return rules are no longer required. The return rules in subsections 24(3) and (6) will remain.

Items 8 to 19 amend other provisions in section 24 to reflect the changed portability period and repeal of subsections 24(2) and (5).

Sections 62 to 63A currently modify the way in which an individual's rate of family tax benefit is calculated where an individual, an FTB child or a regular care child has been absent from Australia for longer than six weeks (or extended period if relevant). These provisions use the terms absent overseas FTB child, absent overseas recipient and absent overseas regular care child, which are then defined in subsection 3(1) of the Family Assistance Act.

With the reduction in the portability period, sections 62 to 63A become redundant and are repealed by item 25. During the portability period, an individual will continue to receive their full rate of family tax benefit (subject to all relevant eligibility conditions continuing to be satisfied), as is currently the case.

Item 24 makes a consequential amendment to subsection 58(1) to reflect the repeal of sections 62 to 63A.

Item 1 repeals from subsection 3(1) of the Family Assistance Act the definitions of absent overseas FTB child, absent overseas recipient and absent overseas regular care child, which are redundant because of the amendment made by item 25. Items 2, 20, 21, 22, 23 and 26 then omit references to these terms in provisions in the Family Assistance Act and make other related consequential amendments as follows.

For single income family supplement, item 23 inserts new subsections 57G(4) and (5) into the Family Assistance Act. New subsection 57G(4) provides a new definition of absent overseas recipient to ensure that an individual who has been absent from Australia for longer than six weeks cannot be eligible for single income family supplement. Subsection 57G(5) ensures that the six-week portability period is not reset if a person who has been absent from Australia for longer six weeks returns to Australia and then leaves again less than six weeks after returning. These rules are similar to the rules currently in subsections 62(2) and (3). In relation to the definition of qualifying child in subsection 57G(3), the concept of absent overseas FTB child is redundant and removed, but the current references to section 63A are replaced with references to the equivalent subsections 24(7) and (9). For the purposes of determining whether an individual has a qualifying child, any extension to an FTB child's portability period will continue to be disregarded.

Amendments to the Family Assistance Administration Act

Sections 30A and 30B provide for variation of an individual's instalment entitlement determination for failure to notify a departure from Australia. These provisions currently refer to 56 weeks. Consequential amendments are made by items 27 and 28 to change these references to six weeks.

Item 29 amends section 31 of the Family Assistance Administration Act to insert new subsections 31(1C), (1D) and (1E).

Subsection 31(1) currently provides for the variation of an instalment entitlement determination where an event occurs that affects an individual's eligibility for, or rate of, family tax benefit. An individual's entitlement determination would be varied with the effect that they are not entitled to family tax benefit where the individual ceases to be eligible for family tax benefit because the individual, or, in some cases, their FTB child or regular care child, has been overseas for longer than the portability period. The amendments made by this Schedule would not change this.

However, if the individual or child returns to Australia within 13 weeks after the end of their six-week portability period (or extended period if relevant) and the Secretary is satisfied that the individual is eligible for family tax benefit, then the individual's entitlement determination would again be varied to restart payment of family tax benefit from the date of the return to Australia. New subsections 31(1C) and (1D) have this effect. A note at the end of each of these provisions informs the reader that a new claim would not be required in the circumstances covered by the provision.

New subsection 31(1E) makes it clear that these new provisions do not limit any later application of subsection 31(1) in relation to the entitlement determination. An example of how this new provision works is also provided.

Item 30 inserts new subsections 65(3), (4) and (5) into the variation rules which apply in relation to child care benefit.

Under new subsection 65(3), if an individual's determination is varied because the child in respect of whom the determination has been made has been absent from Australia, the child returns to Australia within 13 weeks after the end of their six-week portability period (or extended period if relevant) and the Secretary is satisfied that the individual is conditionally eligible for child care benefit by fee relief when the child returns, then the individual's determination would again be varied to enable them to receive the benefit of fee reductions from the date of the child's return to Australia. A note at the end of this provision informs the reader that a new claim would not be required in the circumstances covered by the provision.

Under new subsection 65(4), if an individual's determination is varied because they have been absent from Australia, the individual returns to Australia within 13 weeks after the end of their six-week portability period (or extended period if relevant) and the Secretary is satisfied that the individual is conditionally eligible for child care benefit by fee relief, then the individual's determination would again be varied to enable them to receive the benefit of fee reductions from the date of their return to Australia. A note at the end of this provision informs the reader that a new claim would not be required in the circumstances covered by the provision.

New subsection 65(5) makes it clear that new subsections 65(3) and (4) do not limit any later application of subsection 65(1) if the child or the individual, respectively, is again absent from Australia for longer than six weeks. An example of how this new provision works is also provided.

Item 31 contains relevant application and saving provision.

As a general rule, subitem 31(1) provides that the amendments made by this Schedule apply in relation to absences from Australia starting on or after commencement (1 January 2016).

However, this general rule is subject to subitems 31(2) and (3), which are described below.

If a child's 56-week portability period commenced before 1 January 2016, the child returns to Australia on or after 1 January 2016 and then leaves again less than six weeks later (such that current subsections 24(2) or (3) would have applied), then the current rules continue to apply in relation to the child's subsequent absence.

Similarly, if an individual's 56-week portability period commenced before 1 January 2016, the individual returns to Australia on or after 1 January 2016 and then leaves again less than six weeks later (such that current subsection 24(5) or (6) would have applied), then the current rules continue to apply in relation to the individual's subsequent absence.

Schedule 2 - Large family supplement

Summary

From 1 July 2016, the large family supplement will cease.

Background

Large family supplement is a component of family tax benefit Part A, and is currently paid at a rate of $324.85 per year ($12.46 per fortnight) for the fourth and each subsequent FTB child in the family.

The measure to cease large family supplement from 1 July 2016 will simplify payments by removing a non-essential component of family tax benefit. It is consistent with research indicating that larger families do not face higher per-child costs compared to other families. Families will continue to receive adequate assistance through the per-child rate of family tax benefit Part A for each eligible child.

Explanation of the changes

Amendments to the Family Assistance Act

The eligibility and rate rules for large family supplement are in clauses 34 and 35 of Schedule 1 to the Family Assistance Act (Division 1 of Part 5 of Schedule 1). Under clause 34, an amount of large family supplement is added in working out an individual's Part A rate if the individual has four or more children. Clause 35 provides a formula for calculating the amount of large family supplement. Item 5 repeals these provisions.

Large family supplement is included in the rate calculation process set out in the method statements in clauses 3 and 25 of Schedule 1 to the Family Assistance Act. Items 1 and 4 repeal the steps in these method statements that relate to large family supplement.

Large family supplement is also relevant in working out an individual's income maintenance ceiling in certain circumstances for the purposes of the maintenance income test. Items 2 and 3 make consequential amendments to remove large family supplement from the maintenance income test.

Schedule 4 to the Family Assistance Act provides for indexation of specified rates and amounts. Large family supplement is currently subject to indexation within the terms of Schedule 4. Items 6 and 7 repeal relevant indexation provisions that reference large family supplement.

Item 8 provides that the amendments to cease large family supplement apply in working out the rate of family tax benefit for days on and after commencement (being 1 July 2016).

Statements of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Schedule 1 - Portability of family tax benefit

This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Schedule

The Schedule will reduce the portability of family tax benefit Part A from 56 weeks to six weeks, from 1 January 2016. Recipients of family tax benefit Part A who are already overseas on 1 January 2016 will keep the 56-week period until they return to Australia. However, all future overseas travel after 1 January 2016 will be affected by the new six-week rule.

The Secretary will retain the discretion to extend the six-week period under section 24 of the A New Tax System (Family Assistance) Act 1999 for individuals who are members of the Australian Defence Force or Australian Federal Police and who are deployed overseas, assisted by the Medical Treatment Overseas Program, or unable to return to Australia for a specified reason (such as a serious accident, or natural disaster).

Due to family tax benefit's links to other payments, this amendment will have flow-on effects to other payments that rely on family tax benefit eligibility including child care benefit and child care rebate.

Human rights implications

These amendments are likely to engage the following human right:

Right to social security

The amendment to reduce the temporary period of absence to six weeks continues to allow families to access family payments for a reasonable period of time while overseas.

The amendments also continue to allow for a reasonable period of access while overseas as families can become eligible for these payments again if they return to Australia for six weeks or more. The six-week time period will generally align with the maximum six-week portability period allowed for most other working age income support payments for a person who is overseas.

Current extension provisions to the six-week rule will allow certain individuals who are temporarily absent from Australia to remain eligible for family payments for up to three years. Extensions may apply to individuals who are members of the Australian Defence Force or Australian Federal Police who are on an overseas deployment. Extensions for family assistance may also apply to individuals accessing Government-funded medical treatment under the Medical Treatment Overseas Program, and individuals who are unable to return to Australia due to circumstances out of their control.

Conclusion

These amendments are compatible with human rights because they do not limit or preclude people from gaining or maintaining access to social security in Australia and, to the extent that these changes limit access to family payments, these limitations are reasonable and proportionate.

Schedule 2 - Large family supplement

This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Schedule

This Schedule amends the A New Tax System (Family Assistance) Act 1999 to cease payment of the large family supplement - a component of family tax benefit Part A - from 1 July 2016.

Human rights implications

These amendments engage the following human rights:

Right to social security

Article 9 of the International Covenant on Economic, Social and Cultural Rights recognises the right of everyone to benefit from social security, while article 11 recognises the right of everyone to an adequate standard of living for an individual and their family, including adequate food, clothing and housing, and the continuous improvement of living conditions.

Rights of the child

Article 26 of the Convention on the Rights of the Child requires countries to recognise the right of the child to benefit from social security. Benefits should take into account the resources and the circumstances of the child and persons having responsibility for the maintenance of the child.

The United Nations Committee on Economic, Cultural and Social Rights has stated that a social security scheme should be sustainable and that the conditions for benefits must be reasonable, proportionate and transparent.

To the extent that ceasing the large family supplement limits the right to social security, this is reasonable and proportionate as the majority of these families would continue to receive adequate assistance through the standard payment rates of family tax benefit Part A to meet everyday costs. The large family supplement is only a small component of family tax benefit Part A, which is currently paid at a rate of $324.85 per year (or $12.46 per fortnight) for the fourth and each subsequent FTB child in a family. Those families who will no longer receive family tax benefit Part A as a result of this change would have been entitled to a small amount of payment which is less than the value of the large family supplement.

The cessation of large family supplement is consistent with research evidence indicating that larger families do not require additional assistance compared with other families. Reports by the National Centre for Social and Economic Modelling in 2002, 2007 and 2013 consistently found that additional children cost less than a first child. The reason for this is that families experience 'economies of scale' in which fixed costs are spread among more children. After a first child, many items have already been purchased and can be reused by subsequent children.

Ceasing large family supplement also aligns with recommendations put forward following the 2014 National Commission of Audit and the 2010 Henry Tax Review, which both highlighted the lack of policy rationale for large family supplement. This change therefore achieves a legitimate objective of better targeting family payments.

Despite the reduced costs associated with successive children, families would still continue to receive family tax benefit Part A - a per-child payment - to account for the costs of each FTB child. Family tax benefit Part A is currently paid at a maximum rate of $179.76 per fortnight for each FTB child up to 12 years of age, and $233.94 for each child aged 13 and over (until the end of the calendar year that a child turns 19 and is in secondary school). The base rate of family tax benefit Part A is currently $57.68 per fortnight.

Conclusion

This amendment is compatible with human rights because it advances the protection of human rights and, to the extent that this change limits access to family payments, these limitations are reasonable and proportionate and families are otherwise provided for.