Senate

Revised Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)

General outline and financial impact

Financial impact

The measures in this Bill have the following estimated impact on the underlying cash balance over the forward estimates ($m):

Minimum repayment income for HELP debts

Schedule 1 to this Bill establishes a new minimum repayment threshold for HELP debts of 2 per cent when a person's income reaches $51,957 in the 2018-19 income year.

Human rights implications : See Statement of Compatibility with Human Rights at the end of Chapter 3.

Indexation of higher education support amounts

Schedule 2 to this Bill changes the index for amounts that are indexed annually under the Higher Education Support Act 2003 , from the Higher Education Grants Index (HEGI) to the Consumer Price Index (CPI), with effect from 1 January 2018.

Human rights implications : See Statement of Compatibility with Human Rights at the end of Chapter 3.

Removal of HECS-HELP benefit

Schedule 3 to this Bill will discontinue the HECS-HELP benefit from 1 July 2017.

Human rights implications : See Statement of Compatibility with Human Rights at the end of Chapter 3.

Job commitment bonus

Schedule 4 to this Bill would give effect to the 'cessation of the job commitment bonus' measure announced in the 2016-17 Budget.

Currently, a person aged 18 to 30 who has been receiving particular income support payments for at least 12 months can qualify for a tax-free bonus of $2,500 if they complete 12 months of continuous gainful work and do not receive an income support payment during that period. In addition, such persons can qualify for a second tax-free bonus of $4,000 if they complete a further period of 12 months of gainful work and do not receive an income support payment during that further period.

The job commitment bonus was intended to encourage young long-term unemployed job seekers to find and keep a job. However, analysis of the program awareness and impact identified that the program has not had a significant impact on young job seekers either obtaining or remaining in employment.

This Schedule would repeal provisions of the social security law that provide for the job commitment bonus. It also includes transitional provisions that would ensure that people who have qualified for a job commitment bonus before the commencement date would be able to claim the bonus (tax-free) within a particular timeframe.

Human rights implications : See Statement of Compatibility with Human Rights at the end of Chapter 4.

Australian Renewable Energy Agency's finances

The Australian Renewable Energy Agency (ARENA), as established by the Australian Renewable Energy Agency Act 2011 (ARENA Act), has the dual objectives of improving the affordability of renewable energy and increasing supply of renewable energy in Australia. Its legislated functions, as provided in section 8 of the ARENA Act, are primarily to provide financial assistance for research into, and development and deployment of, renewable energy technologies, and to engage in knowledge sharing in relation to the same.

The Government previously expressed a policy intention to abolish ARENA. To this end, an abolition bill was introduced into the House of Representatives on 19 June 2014, and savings from the abolition of ARENA were factored into the 2014-15 Federal Budget. While the abolition bill passed the House on 1 September 2014, and was introduced into the Senate on the following day, the Government was unable to gain support in the Senate for the abolition bill. Consequently, the bill remained in second reading debate in the Senate between 2 September 2014 and 17 April 2016 (when it lapsed with the prorogation of the 44th Parliament).

In March 2016 the Government decided to retain ARENA and announced it would work with the Clean Energy Finance Corporation (CEFC) on a proposed new Clean Energy Innovation Fund ^[1] - the funding for which would be made available from within the CEFC's existing appropriation. ARENA was provided funding through the 2016-17 Budget to operate and manage its active commitments to projects, including $100 million for large-scale solar deployment projects.

The Government has now decided to reduce the amount of funds available to ARENA over the five years to 2021-22 by a lesser amount.

Date of effect : The amendments commence upon the day after the Bill receives the Royal Assent.

Human rights implications : See Statement of Compatibility with Human Rights at the end of Chapter 5.

Date of effect : The amendments commence upon the day after the Bill receives the Royal Assent.

Human rights implications : See Statement of Compatibility with Human Rights at the end of Chapter 5.

Regulation Impact Statement

The Office of Best Practice Regulation (OBPR) agreed that the refocusing of ARENA's role and reduced legislated funding had a nil regulatory impact, as set out in a Cabinet-in-Confidence short-form Regulation Impact Statement (RIS). The OBPR reference number for this matter is 1988.

Indexation of private health insurance thresholds

The purpose of Schedule 6 to this Bill is to pause the income thresholds that determine the tiers for the Medicare Levy Surcharge (MLS) and the Australian Government Rebate (the Rebate) on private health insurance at the 2014-15 rates until 2020-21.

This Schedule amends the Private Health Insurance Act 2007 (the PHI Act) to set income thresholds at the 2014-15 rates in the financial years 2018-19, 2019-20 and 2020-21.

Human rights implications : See Statement of Compatibility with Human Rights at the end of Chapter 6.

Abolishing the National Health Performance Authority

Schedule 7 to this Bill repeals Chapter 3 of the National Health Reform Act 2011 , with the purpose of abolishing the National Health Performance Authority established under the Act.

The Schedule will enable health system performance analysis and reporting functions previously spread across two Health Portfolio Agencies to be streamlined, focussed and better coordinated.

The responsibilities of the National Health Performance Authority (NHPA) overlap with those of the Australian Institute of Health and Welfare (AIHW) in terms of the collection and dissemination of accurate, relevant and useful information on the performance of Australia's health system and health services. The overlap resulted in the duplication of functions and an uncoordinated approach to reporting. The closure of the NHPA and the rationalisation of functions across the two agencies will strengthen AIHW's national leadership role in the collection and publication of health information and statistics.

In abolishing the National Health Performance Authority, the functions of the Chief Executive Officer, Authority staff and the Authority's Committees cease. The Schedule includes transitional provisions covering the transfer of assets and liabilities to the AIHW.

Human rights implications : See Statement of Compatibility with Human Rights at the end of Chapter 7.

Aged care

Schedule 8 to this Bill deals with proposed amendments to the Aged Care Act 1997 (the Aged Care Act) relating to the creation of civil penalties for approved providers of aged care who engage in certain behaviours and other matters.

The subsidy the Commonwealth Government pays to approved providers is substantially affected by appraisals (and classifications that are based on appraisals) of care recipients' care needs. This Schedule introduces a civil penalty of up to 60 penalty units if approved providers on more than one occasion in a two year period give false, misleading or inaccurate information in connection with an appraisal or reappraisal.

This Schedule makes it easier for the Secretary to require an approved provider to re-appraise its care recipients or suspend it from making further appraisals if the provider gives false, misleading or inaccurate information in connection with an appraisal or reappraisal.

In addition, if the Secretary suspects on reasonable grounds that a care recipient's care needs have decreased significantly, this Schedule gives the Secretary the power to require the approved provider to re-appraise the care recipient.

The Schedule also changes the date that a change in classification following a review by the Department is taken to have effect. These amendments will allow the Secretary to recover overpayments of subsidy from the date the care recipient was originally classified. Currently, the Secretary can only recover overpayments for a maximum of six months prior to a change in classification.

The Schedule also amends the Aged Care Act to allow for the charging of a fee if an approved provider seeks reconsideration by the Secretary of a classification downgrade.

This Schedule also amends the Aged Care Act to make it clear that in deciding on a classification level, the Secretary can take into account the manner in which care is provided to a care recipient, including but not limited to the qualifications of a person required to provide care or treatment.

This Schedule will abolish the adviser and administrator panel arrangements set out in the Aged Care Act 1997. Approved providers under sanction would be able to choose their own advisers and administrators. The measure also includes the removal of the requirement that the Secretary approve advisers that assist with Aged Care Funding Instrument assessments for approved providers who are to be suspended from this activity.

Approved providers would be required to have the adviser and/or administrator appointed and on site within a specified timeframe, to mitigate risks to care recipients. The Secretary and the Australian Aged Care Quality Agency will retain capacity to monitor the approved provider, including during the sanction period. Further, the Secretary will still have the ability revoke approved provider status and withdraw Commonwealth funding.

This measure will amend the obligations in the Aged Care Act for approved providers to notify the Secretary of certain changes to any of its key personnel in circumstances that do not materially affect the approved provider's suitability to be a provider of aged care

Date of effect : The table in this clause sets out when the Act's provisions will commence.

The table provides that Schedule 8 Part 1 will commence on a day or days to be fixed by proclamation. However, if any of the provisions do not commence within the period of 6 months beginning on the day this Act receives Royal Assent, they commence on the day after the end of that period.

The table provides that Schedule 8 Part 2 will commence the day after this Act receives Royal Assent.

The table provides that Schedule 8 Part 3 will commence on the 28th day after this Act receives Royal Assent.

Human rights implications : See Statement of Compatibility with Human Rights at the end of Chapter 8.

Newly arrived resident's waiting period

Schedule 10 to the Bill will remove the exemption from the 104 week newly arrived resident's waiting period for new migrants who are family members of Australian citizens or long-term permanent residents.

These exemptions are currently contained in section 3 of the Social Security Legislation Amendment (Newly Arrived Resident's Waiting Periods and Other Measures) Act 1997. This change will align the social security waiting period for working age payments for all newly arrived migrants to Australia, except for refugees, former refugees and their family members.

This Schedule will also move the remaining relevant exemptions found in section 3 of the Social Security Legislation Amendment (Newly Arrived Resident's Waiting Periods and Other Measures) Act 1997 into the Social Security Act 1991 and the Farm Household Support Act 2014 to remove the need to look at multiple Acts to work out whether a newly arrived resident's waiting period applies.

Finally, this Schedule will also remove the savings provisions that allow a person to serve the newly arrived resident's waiting period that applied when the person first entered Australia as a resident. This change means that from the commencement of Schedule 10 of the Bill, any person who applies for a social security payment, a concession card or farm household allowance and is subject to a newly arrived resident's waiting period will have to serve the current waiting period. In most cases this requires the person to be an Australian resident and in Australia for 104 weeks. The removal of the savings provisions is expected to affect very few people.

Human rights implications : This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 . See Statement of Compatibility with Human Rights at the end of Chapter 10.

Student start-up scholarships

Schedule 11 to this Bill repeals the student start-up scholarship payment, from 1 July 2017, or the first 1 January or 1 July after Royal Assent after this date. The earliest this Schedule can commence is 1 July 2017

Human rights implications : This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 . See Statement of Compatibility with Human Rights at the end of Chapter 11.

Interest charge

Schedule 12 to the Bill introduces the legislative amendments required for the 2015-16 Mid-Year Economic and Fiscal Outlook measure, Applying a general interest charge to the debts of ex-recipients of Social Security and Family Assistance Payments .

The Schedule will provide for the application of a new interest charge to outstanding debts owed by former recipients of social welfare payments who have failed to enter into, or have not complied with, an acceptable repayment arrangement.

The interest charge will apply to social security, family assistance (including child care), paid parental leave and student assistance debts.

The rate of the proposed interest charge (approximately nine per cent) will be based on the 90-day Bank Accepted Bill rate (approximately two per cent), plus an additional seven per cent, as is already applied by the Australian Taxation Office under the Taxation Administration Act 1953 .

Date of effect : The measure is intended to be implemented from 1 January 2017.

Human rights implications : This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 . See Statement of Compatibility with Human Rights at the end of Chapter 12.

Debt recovery

Schedule 13 to the Bill introduces the legislative amendments required for the 2015-16 Mid-Year Economic and Fiscal Outlook measure, Enhanced Welfare payment Integrity - expand debt recovery .

The Schedule will protect the integrity of outlays through welfare payments, and encourage welfare debtors to repay their debts, by using departure prohibition orders (similar to the arrangements applying in the child support legislation) to prevent targeted debtors from leaving the country. Departure prohibition orders will be used for debtors who persistently fail to enter into acceptable repayment arrangements.

The Schedule will also remove the six-year limitation on recovery of welfare debts. This will align social welfare debt recovery with the arrangements applied by other government agencies involved in the recovery of Commonwealth debts, where there is no such limitation.

Date of effect : The amendments made by this Schedule commence on the later of 1 January 2017 and the day after Royal Assent.

Human rights implications : This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 . See Statement of Compatibility with Human Rights at the end of Chapter 13.

Parental leave payments

Schedule 14 to the Bill introduces the 2015-16 Mid-Year Economic and Fiscal Outlook measure, Commonwealth Parental Leave Payments consistent treatment for income support assessment.

This measure will amend the social security and veterans' entitlements legislation to ensure Commonwealth parental leave payments and dad and partner pay payments under the Paid Parental Leave Act 2010 are included in the income test for Commonwealth income support payments.

Date of effect : The amendments made by this Schedule commence on the first 1 January, 1 April, 1 July or 1 October that occurs after the day the Act receives Royal Assent.

Human rights implications : This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 . See Statement of Compatibility with Human Rights at the end of Chapter 14.

Fringe Benefits

Schedule 15 to this Bill changes the way in which fringe benefits are treated under the income tests for family assistance and youth income support payments and for other related purposes. The changes are also relevant for a number of income tax provisions. The meaning of 'adjusted fringe benefits total' is modified so that the gross rather than adjusted net value of reportable fringe benefits is used, except in relation to fringe benefits received by individuals working for public benevolent institutions, health promotion charities and some hospitals and public ambulance services.

Human rights implications : This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 . See Statement of Compatibility with Human Rights at the end of Chapter 15.

Carer allowance

Schedule 16 aligns carer allowance and carer payment start day provisions, by removing provisions that apply to backdate a person's start day in relation to payment of carer allowance in certain circumstances. The general start day rules under Part 2 of Schedule 2 to the Social Security Administration Act will apply to determine the date of effect of a decision to grant carer allowance.

Date of effect : The measure will commence on the later of 1 January 2017 and the day after this Act receives the Royal Assent.

Human rights implications : This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 . See Statement of Compatibility with Human Rights at the end of Chapter 16.

Indexation of family tax benefit and parental leave thresholds

Schedule 17 makes amendments to the family assistance indexation provisions to maintain the higher income free area for family tax benefit (FTB) Part A and the primary earner income limit for FTB Part B for a further three years. Under the current law, indexation of these amounts is paused until and including 1 July 2016. These amendments ensure that indexation does not occur on 1 July of 2017, 2018 and 2019.

Similarly, amendments are made to ensure that the paid parental leave income limit is not indexed for a further three years, until 1 July 2020.

Date of effect : These measures commence on Royal Assent.

Human rights implications : This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 . See Statement of Compatibility with Human Rights at the end of Chapter 8.

Pension means testing for aged care residents

Schedule 18 introduces the 2015-16 Mid-Year Economic and Fiscal Outlook measure, Age Pension - aligning the pension means testing arrangements with residential aged care arrangements.

This Schedule will amend the social security and veterans' entitlements legislation to remove the pension income and assets test exemptions that are currently available to pensioners in aged care who rent out their former home and pay their aged care accommodation costs by periodic payments.

The removal of the income test exemption will ensure that net rental income earned on the former principal residence of new entrants into residential aged care is treated the same way under the pension income test as it is under the aged care means test, regardless of how the resident chooses to pay their aged care accommodation costs.

The current indefinite assets test exemption of the former principal residence from the pension assets test, where the property is rented and aged care accommodation costs are paid on a periodic basis, will also be removed. A person who enters a residential or flexible aged care service after the commencement of this Schedule can still benefit from provisions in the Social Security Act and Veterans' Entitlements Act that treat a person's former residence as their principal home for a period of up to two years from the day on which the person enters care (unless the home is occupied by their partner, in which case it will continue to be exempt).

The changes will only apply to pensioners who enter aged care on or after the commencement of this schedule. Existing aged care residents, and those who enter aged care before the commencement date, will be protected and will not be affected by the changes

Date of effect : The amendments made by this Schedule commence the first 1 January or 1 July to occur after the day this Act receives the Royal Assent.

Human rights implications : This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 . See Statement of Compatibility with Human Rights at the end of Chapter 18.

Employment income

Schedule 19 removes the exemption from the income test for family tax benefit Part A recipients and the exemption from the parental income test for dependent young people receiving youth allowance and ABSTUDY living allowance if the parent is receiving either a social security pension or social security benefit, and the fortnightly rate of pension or benefit is reduced to nil because of employment income (either wholly or partly). This measure improves fairness and targeting of payments and facilitates equity between families with similar incomes.

Date of effect : The measure will commence on 1 July 2018.

Human rights implications : This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 . See Statement of Compatibility with Human Rights at the end of Chapter 19.

Closing carbon tax compensation to new welfare recipients

Parts 1 to 6 of Schedule 21 implement the 2016-17 Budget measure National Disability Insurance Scheme Savings Fund - abolish the Energy Supplement for all new recipients as revised, by amending the Family Assistance Act, Social Security Act, Social Security Administration Act and Veterans' Entitlements Act.

The amendments made by Parts 1 to 6 of this Schedule to these Acts prevent new recipients of family tax benefit or seniors health cards from being paid the energy supplement from 20 March 2017. The amendments made in this Schedule also ensure that welfare recipients who are paid the energy supplement with their family tax benefit or seniors health card prior to 20 September 2016 who satisfy the requirements set out in this Schedule will continue to receive the energy supplement with their family tax benefit or seniors health card from 20 March 2017 onwards.

For family tax benefit recipients and seniors health card holders who first receive the energy supplement on or after 20 September 2016, the energy supplement can only be paid to them until 19 March 2017 and this is subject to the person satisfying the current legislative criteria for receiving the supplement. From 20 March 2017 onwards they can no longer receive the energy supplement.

Part 7 of Schedule 21 implements the 2016-17 Budget measure National Disability Insurance Scheme Savings Fund - Single Income Family Supplement cessation for new customers by amending the Family Assistance Act to ensure that from 1 July 2017, the single income family supplement will not be paid to new recipients. Existing recipients may continue to receive the supplement if they remain eligible in accordance with new section 57GDA contained in Part 7 of this Schedule.

The amendments made by Parts 1 to 6 of this Schedule commence on 20 March 2017.

Date of effect : The amendments made by Part 7 of this Schedule commence on 1 July 2017.

Human rights implications : This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 . See Statement of Compatibility with Human Rights at the end of Chapter 21.

Income limit for FTB Part A supplement

Schedule 21A to this Bill provides an income limit of $80,000 on payment of the family tax benefit (FTB) Part A supplement. If an individual's adjusted taxable income (which includes the adjusted taxable income of their partner if any) is more than $80,000 for the relevant income year, then the individual's FTB Part A supplement in relation to that year will be nil.

Human rights implications : See Statement of Compatibility with Human Rights at the end of Chapter 21A.

Rates of R & D tax offset

Schedule 22 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to reduce the rates of the tax offset available under the research and development tax incentive for the first $100 million of eligible expenditure by 1.5 percentage points. The higher (refundable) rate of the tax offset will be reduced from 45 per cent to 43.5 per cent and the lower (non-refundable) rates of the tax offset will be reduced from 40 per cent to 38.5 per cent.

Date of effect : This measure applies to income years starting on or after 1 July 2016.

Proposal announced : This measure was announced in the 2014-15 Budget on 13 May 2014.

The estimated financial impact differs from previously published estimates. It reflects the revised application date of 1 July 2016 and updates due to the passage of time since the initial announcement in the 2014-15 Budget.

Human rights implications : This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights at the end of Chapter 22.

Compliance cost impact : This measure does not affect compliance costs.

Single touch payroll reporting

Schedule 23 to this Bill creates a new reporting framework, known as Single Touch Payroll (STP), for substantial employers to automatically provide payroll and superannuation information to the Commissioner of Taxation (Commissioner) at the time it is created. Entities that report under STP will not have to comply with a number of existing reporting obligations under the taxation laws.

This Schedule also contains a number of related amendments to streamline an employer's payroll and superannuation choice processes by allowing the Australian Taxation Office (ATO) to pre-fill and validate employee information.

Date of effect : These amendments commence from the first quarter beginning on or after the day this Bill receives Royal Assent.

In general, STP reporting will commence on 1 July 2018 for substantial employers and the related amendments will apply more broadly from 1 January 2017. In some cases, the Commissioner may defer these start dates by legislative instrument.

Proposal announced : On 21 December 2015, the then Minister for Small Business and Assistant Treasurer announced the Government's intention to implement STP reporting and the introduction of streamlined processes for individuals commencing employment.

Human rights implications : This Schedule raises human rights issues. See Statement of Compatibility with Human Rights at the end of Chapter 23.

Compliance cost impact : This measure is expected to result in a reduction in average annual regulatory compliance costs of $55 million.

Summary of regulation impact statement

Regulation impact on business

Impact : The regulatory impact on businesses has been assessed as low.

Main points :

•

STP will create a reporting regime that aligns with business processes (such as payroll cycles) for employers to report Pay as you go (PAYG) withholding and superannuation contributions to the ATO through Standard Business Reporting (SBR) enabled software.

•

Entities with less than 20 employees will be unaffected by this measure, with their reporting obligations and compliance costs remaining the same, unless they choose to voluntarily commence STP reporting.

•

Entities with 20 or more employees may have a transitional cost in complying with STP reporting through the purchase of SBR-enabled software but otherwise are expected to have future compliance cost savings from streamlined reporting processes.

Single appeal path under the Military Rehabilitation and Compensation Act

Schedule 24 to this Bill will give effect to a Veterans' Affairs 2015 Budget measure that will create a single appeal path for the review of original determinations made under the Military Rehabilitation and Compensation Act 2004 (Military Rehabilitation and Compensation Act).

Human rights implications : See Statement of Compatibility with Human Rights at the end of Chapter 24.