Senate

Revised Explanatory Memorandum

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

Chapter 12 Interest charge

Outline of chapter

Schedule 12 to the Bill introduces a new interest charge scheme, to former recipients of social welfare payments who have outstanding debts and 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.

Background

The A New Tax System (Family Assistance) (Administration) Act 1999 (Family Assistance Administration Act) , Paid Parental Leave Act 2010 and Social Security Act 1991 each currently provides for an interest charge scheme in relation to debts that arise under those Acts. A person may be liable to pay interest on a debt at the penalty interest rate if the person does not either pay the debt in full within a certain period specified in notices, or enter into a repayment arrangement.

The current interest charge scheme in the Family Assistance Administration Act does not apply to a person who is receiving instalments of family tax benefit. Similarly, the interest charge scheme in the Social Security Act does not apply to a person who is receiving a social security payment, a pension or allowance under the Veterans' Entitlements Act 1986 , or compensation under the Military Rehabilitation and Compensation Act 2004 .

The interest rate is determined by the Minister in a legislative instrument. The most recent determination by the Minister set the interest rate at three per cent per year. The initial rate of 20 per cent was considered too high and resulted in a rapidly increasing debt base and financial hardship for debtors. The subsequent rate of three per cent was too low and did not provide an incentive for debtors to enter into payment arrangements, and administrative costs outweighed recovery of debts. The interest charge scheme has not been applied since 2005.

This Schedule inserts a new, consistently applied, interest charge scheme for debts that arise under the Family Assistance Administration Act, Paid Parental Leave Act, Social Security Act and Student Assistance Act. An interest charge will be applied to a debt if, by the 28th day after receiving a relevant notice, the debt has not been paid in full or the person has not entered into a repayment arrangement. There will be exemptions for debtors who are currently in receipt of relevant payments, including, among other payments, social security payments and payments of family tax benefit by instalment.

The key purpose of the interest charge is to incentivise responsible self-management of debts and encourage debtors to repay their debts in a timely manner, where they have the financial capacity to do so.

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.

The measure is intended to be implemented from 1 January 2017.

Explanation of the changes

Part 1 - Amendments

Amendments to the Family Assistance Administration Act

Item 1 inserts a new paragraph 77(1)(ea).

Subsection 77(1) currently provides that, if a debt by a person to the Commonwealth has not been wholly paid, the Secretary must give the person a notice specifying certain matters. New paragraph 77(1)(ea) provides that the notice must specify the effect of sections 78 and 78A. New sections 78 and 78A are inserted by this Schedule and they provide for an interest charge on a debt if:

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the person who owes the debt does not have a repayment arrangement in effect; or

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the person fails to comply with a repayment arrangement; or

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a repayment arrangement is terminated.

Item 2 repeals subsections 77(3) and (4) and substitutes a new subsection 77(3).

Current subsection 77(3) provides that the Secretary may give a person a further notice specifying certain matters if, following a notice given under subsection 77(1), the debt has not been wholly paid and:

•

the person has failed to enter into an arrangement to pay the debt; or

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the person has entered into an arrangement but has failed to make a payment in accordance with the arrangement.

The matters that the Secretary must specify in a further notice include the effect of the current interest charge provisions and how the interest is to be calculated. Current subsection 77(4) provides that an initial notice given under subsection 77(1) is taken to be a further notice given under subsection 77(3) if it specifies the effect of the current interest charge provisions and how the interest is to be calculated.

Repealing subsection 77(3) means that a person who owes a debt to the Commonwealth may be liable to pay an interest charge in respect of a debt if, before the end of 28 days after a notice is given, the person has not paid the debt in full and has not entered into a repayment arrangement to pay the debt. That is, a further notice does not need to be given before the person becomes liable to pay the interest charge. The notification of the effect of the interest charge provisions must be included in the first notice under the amendments made by item 1 of this Schedule, removing the need for a further notice under current subsection 77(3).

New subsection 77(3) makes it clear that the Secretary may give more than one notice under subsection 77(1) in relation to a person and a debt of the person.

Item 3 repeals sections 78 to 79A and substitutes new provisions.

Current sections 78 to 79A set out provisions in respect of interest charges. These sections are substituted to provide for a new interest charge scheme.

Section 78 - Interest charge - no repayment arrangement in effect

The purpose of new section 78 is to set out when an interest charge is payable by people who do not have a repayment arrangement in effect.

New subsection 78(1) provides that, if a person has been given a notice under subsection 77(1) and has an unpaid amount on a relevant debt and, by the end of the due day, has not entered into an arrangement for the repayment of the debt (under section 91), then the person is liable to pay, by way of penalty, an interest charge on the debt for each day in a period.

New subsection 78(2) provides that the period for which the interest charge will be applied to the debt starts at the beginning of the day after the due day for the debt. It further provides that the period will end on the earlier of either the last day on which the unpaid amount (and any interest charge on the unpaid amount) remains unpaid, or the day before the first day on which the person makes a payment under an arrangement for repayment of the debt.

Subsection 78(2) is intended to ensure that a person will be able to end the application of the interest charge by entering into, and making a payment under, an arrangement for repayment of the debt. This, in addition to entering into an arrangement before the due date, will mean that the person can entirely avoid the interest charge applying to their debt.

New subsection 78(3) provides that the interest charge on any unpaid amount is worked out by multiplying the interest charge rate for that day by the sum of the remaining unpaid amount and the interest charge from previous days. This provision ensures that the interest is compounded on a daily basis. New section 78C prescribes the calculation of the 'interest charge rate' for that day, and is explained below.

Section 78A - Interest charge - failure to comply with or termination of repayment arrangement

The purpose of new section 78A is to set out when an interest charge is payable by people who have failed to comply with a repayment arrangement or where a repayment arrangement has been terminated.

New subsection 78A(1) provides that, if a person has entered into a repayment arrangement under section 91 in relation to a debt and the person fails to make a payment under the arrangement, then the person is liable to pay, by way of penalty, an interest charge for each day in a period.

New subsection 78A(2) provides that the period for which the interest charge will be applied to the debt starts at the beginning of the day after the due day. It further provides that the period will end on the earliest of:

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the last day on which the outstanding amount (and any interest charge on any of the outstanding amount) remains unpaid;

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the day before the first day on which the person has paid all the payments that have so far become due and payable under the arrangement;

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the day before the day the arrangement is terminated.

Subsection 78A(2) is intended to ensure that a person may end the application of the interest charge to their debt at the point where they catch up on any missed payments under the arrangement. To avoid doubt, while the interest charge will apply to the debt during the period, a person is only required to pay an amount equal to the missed payments (rather than an amount equal to the missed payments and the interest charge) to end the period of application of the interest charge. The interest charge will otherwise be payable as a debt due to the Commonwealth, as explained below.

New subsection 78A(3) prescribes the calculation of an interest charge for a day. The interest charge is calculated in the same way as in new subsection 78(3), which is explained above.

Repayment arrangement is terminated

New subsection 78A(4) provides that, if the person has entered into a repayment arrangement under section 91 in relation to a debt, and the arrangement is terminated, then the outstanding debt, and any interest charge on the outstanding debt, is due and payable on the 14th day after the termination. If, at the end of the 14th day, any amount remains unpaid, the person is liable to pay, by way of penalty, an interest charge for each day in a period.

New subsection 78A(5) provides that the period for which the interest charge will be applied to the debt starts at the beginning of the day after the 14th day. It further provides that the period will end on the earlier of the last day on which the outstanding amount (and any interest charge on the outstanding amount) remains unpaid or the day before the first day after the 14th day on which the person makes a payment under another arrangement for the repayment of the debt.

Subsection 78A(5) is intended to ensure that a person may end the application of the interest charge at the point where they enter into another arrangement for repayment of the debt.

New subsection 78A(6) prescribes the calculation of an interest charge for a day. The interest charge is calculated in the same way as in new subsection 78(3), which is explained above.

Section 78B - Other rules for interest charge

New subsection 78B(1) provides that the interest charge under new section 78 or 78A for a day is due and payable to the Commonwealth at the end of that day.

New subsection 78B(2) provides that an interest charge under new section 78 or 78A for a day is a debt due to the Commonwealth by the person.

New subsection 78B(3) clarifies that new subsection 77(1) does not apply to a debt which is also an interest charge (as provided for under new sections 78 and 78A). This means that a notice in respect of the interest charge debt is not required to be issued under new subsection 77(1). This avoids a situation where an interest charge is subject to further interest charges.

Section 78C - What is the interest charge rate?

New section 78C provides for the calculation of the interest charge rate.

New subsections 78C(1) and 78C(2) provide that the rate is based upon the 90-day Bank Accepted Bill rate, plus an additional seven per cent, as is currently applied by the Australian Taxation Office for tax debts under the Taxation Administration Act. This is an appropriate method for calculating the rate of the interest charge to apply to family assistance debts because the rate is high enough to encourage repayment without being punitive, it provides a return to the Commonwealth (commensurate with the time value of the monies overpaid), and it will help align tax and income support debt recovery policy.

New subsection 78C(2) specifies what the base interest rate is, with reference to the monthly average yield of 90-day Bank Accepted Bills. The rate is currently published by the Reserve Bank of Australia in the 'Interest Rates and Yields - Money Market - Monthly' table on the Bank's website. This subsection also provides a table identifying the appropriate monthly average to be used for each quarter.

Where the Reserve Bank of Australia has not published the specified rate by the start of a quarter, new subsection 78C(3) substitutes the last published monthly average.

New subsection 78C(4) provides for the rounding of the base interest rate to the second decimal place.

This new interest charge rate replaces the interest charge rate that currently applies under section 79. The current interest charge rate is three per cent per year, as specified in the Minister's Social Security (Penalty Interest) Determination 2001 as at 31 July 2001. A rate of three per cent per year has been determined in the A New Tax System (Family Assistance) (Administration) (Penalty Interest) Determination 2001 (FA Penalty Interest Determination). The initial rate of 20 per cent was too high and resulted in a rapidly increasing debt base and financial hardship for debtors. The subsequent rate of three per cent was too low and did not provide an incentive for debtors to enter into payment arrangements, and administrative costs outweighed recovery of debts. The interest charge scheme has not been applied since 2005.

Section 78D - Exemption from interest charge - general

New section 78D provides for general exemptions from an interest charge. A person is not liable to pay an interest charge under new section 78 or 78A if, on the day before the person would otherwise have been liable to pay that charge, the person is receiving:

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instalments of family tax benefit; or

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a social security payment; or

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a payment of pension or allowance under the Veterans' Entitlements Act; or

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instalments under the ABSTUDY scheme that include an amount identified as living allowance; or

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instalments under the Assistance for Isolated Children Scheme.

These exemptions mean that a person who is already subject to deductions from their payments in order to pay off their debts is not liable to pay an interest charge, and only people who have the financial capacity to pay an interest charge will be liable to pay that charge. A person who is receiving any one of a number of government payments who is paying off their debt through deductions, and who may have less financial capacity to pay the interest charge, will be exempt from that interest charge.

A person who is receiving child care assistance and/or payments under the Paid Parental Leave Act (and no other payment listed above) or a person who is receiving a payment of compensation under the Military Rehabilitation and Compensation Act 2004 , and who has the financial capacity to repay their debts, will not be exempt under this provision as they are not subject to deductions from these payments to pay back existing debts.

A person will also not be liable to pay an interest charge if the circumstances determined by the Minister in a legislative instrument apply in relation to the person. Providing for exemptions in circumstances determined by the Minister in a legislative instrument will provide the Minister with the flexibility to consider other circumstances which may be identified in the future where it would be appropriate for a person to have an exemption from the interest charge. Using an instrument will enable this to occur in a timely manner without having to amend the primary legislation. This power can only be used beneficially and any instrument made by the Minister would be subject to Parliamentary scrutiny and disallowance.

As an example, the Minister may determine in a legislative instrument, that a person is not liable to pay the interest charge where the person is on a social security payment nil rate period or entitled to be paid family tax benefit by instalment but where the rate of family tax benefit is nil. The exemption from the interest charge in new paragraphs 78D(1)(a) and 78D(1)(b) may not apply to such a person, even when considered a current recipient, because the person is not in fact receiving a benefit amount.

Section 78E - Exemption from interest charge - Secretary's determination

New section 78E provides for when a person has an exemption from the interest charge on the basis of a determination made by the Secretary. New section 78E is in similar terms to current section 78A, which applies to the current interest charge scheme.

New subsection 78E(1) provides for the Secretary to determine that interest charge is not payable, in respect of a particular period, by a person on the outstanding amount of a debt. Providing the Secretary with the discretion to determine that an interest charge is not payable will ensure there is capacity to exempt a particular person from the charge where exceptional circumstances apply to the person. Such exceptional circumstances may not have been foreseen before any legislative instrument is made for the purposes of new section 78D, as described above.

New subsection 78E(2) provides guidance on when the Secretary may make a determination under new section 78E. The Secretary may make such a determination in circumstances that include, but are not limited to, the Secretary being satisfied that the person had a reasonable excuse for:

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failing to enter into a repayment arrangement under section 91 to pay the outstanding debt; or

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having entered into such an arrangement, failing to make a payment in accordance with the arrangement.

New subsection 78E(3) clarifies that a determination made by the Secretary may relate to a period before, or to a period that includes a period before, the making of the determination.

New subsection 78E(4) provides that a determination may be expressed to be subject to the person complying with one or more specified conditions. If the determination is expressed in this way and the person contravenes a condition or conditions without reasonable excuse, then new subsection 78E(6) provides that the determination ceases to have effect from the day on which the contravention occurs. As such, the person may be liable to pay an interest charge from that day.

New subsection 78E(5) provides that the Secretary must give the person written notice of the determination if the determination to exempt them from the application of an interest charge is expressed to be subject to the person complying with one or more specified conditions. New section 78E is a beneficial provision. As such, there is no statutory requirement to provide a person with written notice of a determination that is not subject to such conditions. A determination will be made under new section 78E only after the Department of Human Services has had discussions with the person about the person's debt, including giving advice that an interest charge will not be payable on the person's debt.

New subsection 78E(7) provides that the Secretary may cancel or vary the determination by written notice given to the person. Providing the Secretary with the flexibility to cancel a determination will ensure there is the capacity to end a person's exemption to the interest charge where their circumstances no longer warrant the exemption being applied.

Section 78F - Guidelines on interest charge provisions

New section 78F provides that the Minister may determine guidelines in a legislative instrument relating to the operation of the provisions dealing with the interest charge.

Current section 79A requires the Secretary to determine guidelines, by legislative instrument, for the operation of the current provisions dealing with penalty interest. The FA Penalty Interest Determination has been made for the purposes of current section 79A.

As explained above in relation to new section 78C, one of the matters determined in the FA Penalty Interest Determination is the penalty interest rate. Given that new section 78C outlines what the interest rate is under the new scheme (90-day Bank Accepted Bill rate plus seven per cent) and there is no capacity for the Minister to change it by legislative instrument, guidelines to be determined by a legislative instrument may not be needed. Therefore new section 78F provides the Minister with the discretion to determine guidelines but does not require the Minister to determine guidelines. The operation of the penalty interest charge scheme will be monitored and consideration will be given to whether guidelines are necessary. The Minister may choose to determine guidelines on, for example, the circumstances in which the Secretary may make a determination under new section 78E that a person is not liable to pay an interest charge.

Item 4 amends the definition of debt in paragraph 82(3)(a) to include the interest charge. Section 82 provides for methods of recovery in relation to a debt, and this amendment will ensure that those methods of recovery are available to debts that are interest charges.

Item 5 is to clarify that, if a person has entered into an arrangement for the payment of a debt, it is a statutory requirement for the person to make a payment under the arrangement before the end of the day that the arrangement requires such a payment.

Amendments to the Paid Parental Leave Act

Items 6, 8 and 9 repeal definitions in section 6, which are no longer necessary following the amendments made by this Schedule.

Item 7 inserts a definition of interest charge rate into section 6, referring to the interest charge rate as set out in new section 177, which is inserted by this Schedule.

Item 10 amends section 164, which provides a guide to Part 4-3 (Debt Recovery). The amendment removes the reference to an administrative charge of $50 being payable if interest is charged, because the new interest charge scheme inserted by this Schedule will not have an administrative charge.

Item 11 amends a note after section 165 to refer to the correct provision that deals with interest. Following the amendments made by this Schedule, interest will be dealt with in new section 176, not section 177.

Items 12 to 16 and item 18 remove references to an 'initial debt notice' and a 'further debt notice' in section 173. These amendments are consequential to the amendments made by this Schedule to create a new interest charge scheme, which, among other things, have the effect that there will no longer be a requirement for the Secretary to give a further notice in relation to a debt before an interest charge applies, because the first debt notice will specify the effect of the interest charge provisions, as discussed below.

Item 17 inserts a new paragraph 173(1)(fa).

Subsection 173(1) currently provides that, if a debt by a person to the Commonwealth has not been wholly paid, the Secretary must give the person a notice specifying certain matters. New paragraph 173(1)(fa) provides that the notice must specify the effect of sections 174 and 175. New sections 174 and 175, as amended by this Schedule, provide for an interest charge on a debt if:

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the person who owes the debt does not have a repayment arrangement in effect; or

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the person fails to comply with a repayment arrangement; or

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a repayment arrangement is terminated.

Item 19 repeals subsection 173(3) and substitutes a new subsection.

Current subsection 173(3) provides that, if a notice given under section 173 states the effect of paragraphs 174(2)(e) and (f), then the notice is taken to be a further debt notice under section 174. Currently, a person is liable to pay an interest charge only if the person is given a further debt notice under section 174.

Following the amendments made by this Schedule, a person who owes a debt to the Commonwealth may be liable to pay an interest charge in respect of a debt if, before the end of 28 days after the initial notice is given, the person has not paid the debt in full and has not entered into a repayment arrangement to pay the debt. That is, a further notice does not need to be given before the person becomes liable to pay the interest charge. A person will be notified of the effect of the interest charge provisions following the amendments made by item 17 of this Schedule, removing the need for a further notice referred to in current section 174. It follows that subsection 173(3) does not need to refer to the circumstances in which an initial debt notice can be a further debt notice.

New subsection 173(3) makes it clear that the Secretary may give more than one notice under subsection 173(1) in relation to a person and a debt of the person.

Item 20 repeals sections 174 to 180 and substitutes new sections. The new provisions introduce a new interest charge scheme and they mirror, with modifications to make the scheme relevant to the Paid Parental Leave Act, the operation of the interest charge scheme inserted into the Family Assistance Administration Act by item 3 of this Schedule and described above.

Items 21, 23 and 24 amend notes in section 181, subsection 191(1) and subsection 194(1). The notes provide that debts recoverable by the Commonwealth under the Paid Parental Leave Act are provided for by particular provisions, including provisions dealing with interest charges. The notes are amended to refer to the new interest charge provisions, as inserted by this Schedule.

Item 22 is to clarify that, if a person has entered into an arrangement for the payment of a debt, it is a statutory requirement for the person to make a payment under an arrangement before the end of the day that the arrangement requires such a payment.

Amendments to the Social Security Act

Item 25 amends item 16 of the table in subsection 1222(2). This table provides for the methods of recovery of debts. Current table item 16 provides for the methods of recovery for an interest charge, and this amendment refers to the new provision (section 1229C) under which the interest charge is calculated.

Item 26 repeals item 17 of the table in subsection 1222(2). Table item 17 refers to the methods of recovery for an administrative charge that applies when a person first becomes liable to pay an interest charge. Following the amendments made by this Schedule, a person will not be liable to pay an administrative charge when the person becomes liable to pay the interest charge.

Items 27 to 30 repeal a number of notes, which are no longer necessary as a result of the new interest charge scheme as inserted by this Schedule.

Item 31 inserts new subsection 1228B(2A) to clarify that a 10 per cent penalty added to a debt for the understatement of income is part of the debt. For the purposes of imposing an interest charge, this will mean that a reference to 'debt' will include the amount of the payment that a person has obtained to which they were not entitled, as well as any 10 per cent penalty added to the debt under section 1228B.

Item 32 amends subsection 1228B(5) so that an additional 10 per cent penalty imposed for the understatement of income does not apply to a debt due to the Commonwealth under new section 1229C (as inserted by item 35 of this Schedule).

The purpose of this amendment is to clarify that an additional 10 per cent penalty cannot apply to an interest charge under new section 1229C. This is because section 1228B only imposes an additional 10 per cent penalty where a person has refused or failed to provide information in relation to the person's income or has knowingly or recklessly provided false or misleading information in relation to the person's income. The interest charge debt due to the Commonwealth under new section 1229C is not dependent on an individual providing information on their income, so an additional 10 per cent penalty cannot apply to an interest charge debt under new section 1229C.

Item 33 inserts a new paragraph 1229(1)(ea).

Subsection 1229(1) currently provides that, if a debt by a person to the Commonwealth has not been wholly paid, the Secretary must give the person a notice specifying certain matters. New paragraph 1229(1)(ea) provides that the notice must specify the effect of new sections 1229A and 1229B. New sections 1229A and 1229B are inserted by this Schedule, and they provide for an interest charge on a debt if:

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the person who owes the debt does not have a repayment arrangement in effect; or

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the person fails to comply with a repayment arrangement; or

•

a repayment arrangement is terminated.

Item 34 repeals subsections 1229(3) and (4) and inserts a new subsection 1229(3).

Current subsection 1229(3) provides that the Secretary may give a person a further notice specifying certain matters if, following a notice given under subsection 1229(1), the debt has not been wholly paid and:

•

the person has failed to enter into an arrangement to pay the debt; or

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the person has entered into an arrangement but has failed to make a payment in accordance with the arrangement.

The matters the Secretary must specify in a further notice include the effect of the current interest charge provisions and how the interest is to be calculated. Current subsection 1229(4) provides that an initial notice given under subsection 1229(1) is taken to be a further notice given under subsection 1229(3) if it specifies the effect of the current interest charge provisions and how the interest is to be calculated.

Repealing subsection 1229(3) means that a person who owes a debt to the Commonwealth may be liable to pay an interest charge if, before the end of 28 days after the initial notice is given, the person has not paid the debt in full and has not entered into a repayment arrangement to pay the debt. That is, a further notice does not need to be given before the person becomes liable to pay the interest charge. A person will be notified of the effect of the interest charge provisions following the amendments made by item 33 of this Schedule, removing the need for a further notice under current subsection 1229(3).

New subsection 1229(3) makes it clear that the Secretary may give more than one notice under subsection 1229(1) in relation to a person and a debt of the person.

Item 35 repeals sections 1229A to 1229C and substitutes new sections. The new provisions introduce a new interest charge scheme and they mirror, with modifications to make the scheme relevant to the Social Security Act, the operation of the interest charge scheme inserted into the Family Assistance Administration Act by item 3 of this Schedule and described above.

Items 36 and 37 repeal notes, which are no longer necessary as a result of the new interest charge scheme inserted by this Schedule.

Item 38 is to clarify that, if a person has entered into an arrangement for the payment of a debt, it is a statutory requirement for the person to make a payment under an arrangement before the end of the day that the arrangement requires such a payment.

Amendments to the Student Assistance Act

Item 39 repeals the definition of late payment charge in subsection 3(1). The amendments made by item 43 mean that this term will no longer be used in the Student Assistance Act.

Item 40 is consequential to the amendments made by item 42.

Item 41 amends paragraph (c) of the definition of debt in section 38 to ensure that an interest charge, imposed under new section 41B (inserted by this Schedule), is an amount payable to the Commonwealth and is therefore a debt.

Item 42 inserts a new definition of relevant debt into section 38. Section 38 provides definitions for the purposes of Part 6 of the Student Assistance Act 1973 . Part 6 provides for overpayments arising under the Student Assistance Act and certain administrative schemes.

The new definition of relevant debt is relevant to the new interest charge scheme inserted by item 43 of this Schedule. A person may be liable to pay an interest charge in relation to relevant debts. A relevant debt means:

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an amount paid under the ABSTUDY Scheme (also known as the Aboriginal Study Assistance Scheme) that should not have been paid; or

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an amount paid under the Assistance for Isolated Children Scheme that should not have been paid; or

•

an ABSTUDY student start-up loan overpayment.

Item 43 repeals sections 39A, 40 and 41 and substitutes new sections to introduce an interest charge scheme.

The Student Assistance Act does not currently have an interest charge scheme that is analogous to the schemes currently in effect in the Family Assistance Administration Act, Paid Parental Leave Act and Social Security Act. Rather, current section 39A provides that the Secretary may allow a person to pay an amount of debt by one or more instalments. Current section 40 applies if a person has been paid an amount that is a special assistance scheme overpayment or a student assistance overpayment. If this amount is due to the Commonwealth, the Secretary may give the person a notice specifying that, among other things, if the amount is still due to the Commonwealth at the end of three months after the notice is given, the person is liable to pay interest at the rate ascertained by the regulations. The Student Assistance Regulations 2003 do not currently ascertain an interest rate. Current section 41 allows the Secretary to determine that interest that is otherwise payable under section 40 is not payable.

The current provisions are replaced with new provisions to introduce an interest charge scheme. The new provisions mirror, with modifications to make the scheme relevant to the Student Assistance Act, the operation of the interest charge scheme inserted into the Family Assistance Administration Act by item 3 of this Schedule and described above.

Item 44 amends paragraph 51(1)(b) to ensure that a certificate by the Secretary (stating that, on a specified day, a notice, to a specified effect, in respect of a relevant debt, was given to a specified person by the Secretary) is clear evidence of the matters stated in the certificate.

Amendments to the Veterans' Entitlements Act

Item 45 repeals section 205AAE and substitutes a new section.

Section 205AAE currently provides the penalty interest rate for the purposes of the debt recovery provisions contained in the Veterans' Entitlements Act. The rate applicable is that which applies under section 1229B of the Social Security Act.

Section 1229B provides that the rate is either the maximum rate of 20 per cent or the lower rate in force from time to time as determined by a legislative instrument under that section. The Social Security (Penalty Interest) Determination 2001 that was made under section 1229B provides that the penalty interest rate is three per cent per year.

The amendments made by item 35 of this Schedule mean that new section 1229B of the Social Security Act will no longer contain the penalty interest rate for the purposes of the interest charge scheme. Rather, the interest rate will be contained in new section 1229D of the Social Security Act. The new penalty interest rate in section 1229D will be based on the 90-day Bank Accepted Bill rate plus an additional seven per cent.

The new interest charge scheme inserted into the Social Security Act by this Schedule is not intended to apply to the Veterans' Entitlements Act. As such, section 205AAE of the Veterans' Entitlements Act is amended so that the current penalty interest rate of three per cent per year for the purposes of the debt recovery provisions in that Act will be retained.

New section 205AAE states that the interest rate is three per cent per year or the rate that the Minister may, by legislative instrument, determine as the penalty interest rate. As penalty interest is infrequently applied under the debt recovery provisions of the Veterans' Entitlements Act, a maximum rate of penalty interest that may be determined in a legislative instrument has not been specified.

Part 2 - Application, saving and transitional provisions

Item 46 provides application and transitional provisions for the amendments to the Family Assistance Administration Act.

Subitem 46(1) provides that paragraph 78(1)(a) of the Family Assistance Administration Act, as amended by this Schedule, applies in relation to a notice given on or after the commencement of item 46, whether the debt arose before, on or after that commencement. This means that the new interest charge scheme can apply to debts that arose before the commencement of the scheme, provided that a relevant notice is given on or after commencement.

Subitem 46(2) provides that, if, before the commencement of item 46, the Secretary gave a person a notice under subsection 77(1) of the Family Assistance Administration Act, the Secretary must give the person another notice under section 77(1) of that Act, as amended by this Schedule. This means that the person will be informed in the new notice of the effect of the application of the interest charge.

Subitem 46(3) provides that paragraph 78A(1)(b) of the Family Assistance Administration Act, as amended by this Schedule, applies only in relation to a failure that occurs on or after the commencement of item 46, regardless of whether the arrangement was entered into before, on or after that commencement. This means that a person is not liable to pay an interest charge under section 78A if a failure to make a payment under a repayment arrangement occurs before the commencement of item 46. It also means that an arrangement that was entered into prior to the commencement of this Schedule will continue in effect after commencement.

Subitem 46(4) provides that paragraph 78A(4)(b) of the Family Assistance Administration Act, as amended by this Schedule, applies only to a termination that occurs on or after the commencement of item 46, regardless of whether the arrangement was entered into before, on or after that commencement. This means that a person is not liable to pay an interest charge under section 78A if a repayment arrangement is terminated before the commencement of item 46. It also means that an arrangement that was entered into prior to the commencement of this Schedule will continue in effect after commencement.

Subitem 46(5) clarifies that new subsection 91(1B) of the Family Assistance Administration Act (about making a payment before the end of a particular day under a repayment arrangement) applies in relation to existing arrangements, as at the commencement date.

Items 47 and 48 provide application and transitional provisions for the amendments to the Paid Parental Leave Act and the amendments to the Social Security Act. These provisions mirror the application and transitional provisions for the amendments to the Family Assistance Administration Act in item 46, described above.

Item 49 provides the application, saving and transitional provisions for the amendments to the Student Assistance Act.

Subitem 49(1) provides that the new interest charge scheme in sections 40 to 41G of the Student Assistance Act apply to a relevant debt that arises on or after the commencement of item 49, and to debts that arose before the commencement of that item, to the extent that the debt is outstanding immediately before that commencement.

Subitem 49(2) makes it clear that the repeal of section 39A of the Student Assistance Act by this Schedule does not affect the validity of the decisions made under that section before the commencement of item 49.

Subitem 49(3) makes it clear that the new interest charge scheme inserted into the Student Assistance Act by this Schedule can apply to a person and a debt even if a decision was made by the Secretary before the commencement of item 49 to allow a person to pay an amount of debt by one or more instalments.

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

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

Interest charge

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

The Schedule amends the penalty interest provisions in the Social Security Act 1991, A New Tax System (Family Assistance) (Administration) Act 1999 and Paid Parental Leave Act 2010 and inserts new penalty interest provisions in the Student Assistance Act 1973 . The new annual interest charge scheme is proposed to apply from 1 January 2017 to former recipients of social welfare payments who have outstanding debts and 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 (ATO) under the Taxation Administration Act 1953 . This is considered an appropriate method for calculating the rate of the interest charge to apply to social welfare debt because the rate is high enough to encourage repayment without being punitive, and it provides a return to the Commonwealth, commensurate with the time value of the monies overpaid.

The purpose of the interest charge is to incentivise responsible self-management of debts and encourage debtors to repay their debts in a timely manner, where they have the financial capacity to do so.

It is important to note that a debt only arises where a person receives a payment to which they were not entitled. In most circumstances, current recipients of social welfare payments with outstanding debts have their payments reduced until their debts are repaid. By comparison, former recipients who are no longer dependent on the social security system, have no incentive to repay their debts and may actively avoid repayment.

Debtors who are no longer eligible to receive financial support through social welfare payments are more likely to have the financial capacity to make repayments than those in receipt of social welfare payments.

To ensure all debtors are treated consistently and fairly, the interest charge will also apply to those in receipt of only child care assistance and/or payments under the Paid Parental Leave Act 2010 (and no other social welfare payment) with outstanding debts. These debtors are not subject to deductions from their payment, and should be required to enter into an acceptable repayment arrangement to repay the debt as with other debtors.

The interest charge can only be applied to the debt where the person has not entered into a repayment arrangement, has failed to comply with a repayment arrangement, or where a repayment arrangement has been terminated (without entering into an alternative repayment arrangement with the Department of Human Services (DHS)).

The debtor will be issued a notice in respect of a debt, which will outline the reason why the debt was incurred, the outstanding amount of the debt, and the effect of the interest charge applying if they do not enter into an acceptable payment arrangement within 28 days.

In the event that a repayment arrangement is terminated, the debtor will be provided with sufficient time (14 days) to pay the debt in full or enter into a new repayment arrangement and avoid the application of the interest charge.

In cases of severe financial hardship, a debtor can apply to DHS for a review of their capacity to pay and the debt may be waived or temporarily written off until the debtor's financial circumstances improve. No interest charge would be applied for that period of time. A reduced rate of recovery may also be applied under the repayment arrangement.

Human rights implications

This Schedule engages the following human rights:

Rights of parents and children

This Schedule engages the right of parents and children contained in article 3 of the Convention of the Rights of the Child (CRC) and article 24(1) of the International Covenant on Civil and Political Rights (ICCPR).

Under the CRC, countries are required to apply the principle of best interests of the child. The principle applies to all actions concerning children and requires active measures to protect their rights and promote their survival, growth, and wellbeing, as well as measures to support and assist parents and others who have day - to - day responsibility for ensuring recognition of children's rights.

Countries are also required under the CRC to ensure recognition of the principle that both parents have common responsibilities for the upbringing and development of the child and to provide appropriate assistance to parents and legal guardians in the performance of their child-rearing responsibilities, in particular to ensure that children of working parents have the right to benefit from child-care services and facilities for which they are eligible. Countries should ensure that parents and legal guardians are aware of their rights to access information on payments and services to which they are entitled to for the benefit of children.

The Schedule does not limit the rights of parents and children. The interest charge will apply to former recipients of social welfare with outstanding debts, who are unwilling to enter into acceptable repayment arrangements. To ensure all debtors are treated consistently and fairly, the interest charge will also apply to those in receipt of only child care assistance and/or payment under the Paid Parental Leave Act 2010 (and no other social welfare payment) with outstanding debts. These debtors are not subject to deductions from their payment and should be required to enter into an acceptable repayment arrangement to repay the debt as with other debtors.

A debt only arises where a person receives a payment to which they were not entitled. Given the interest charge is intended as an incentive for debtors to repay debts in a timely fashion and is only applied where the debtor has not entered into a repayment arrangement where they have the financial capacity to do so, the interest charge will not limit the rights of parents and children.

Right to maternity leave

This Schedule engages the right to maternity leave contained in article 10(2) of the International Covenant on Economic, Social and Cultural Rights (ICESCR) and article 11(2)(b) of the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW).

The right to maternity leave includes an entitlement for working mothers to paid leave or social security benefits during a reasonable period before and after childbirth. It also requires countries, as a measure of prevention of discrimination against women, to provide maternity leave with pay or with comparable social benefits without loss of former employment or seniority.

This Schedule does not limit the right to maternity leave. The interest charge will apply to former recipients of social welfare with outstanding debts, who are unwilling to enter into acceptable repayment arrangements. To ensure all debtors are treated consistently and fairly, the interest charge will also apply to those in receipt of only child care assistance and/or payments under the Paid Parental Leave Act 2010 (and no other social welfare payment) with outstanding debts. These debtors are not subject to deductions from their payment and should be required to enter into an acceptable repayment arrangement to repay the debt as with other debtors.

A debt only arises where a person receives a payment to which they were not entitled. Given the interest charge is intended as an incentive for debtors to repay debts in a timely fashion and is only applied where the debtor has not entered into a repayment arrangement where they have the financial capacity to do so, the interest charge will not limit the right to maternity leave.

Rights of people with disability

This Schedule engages the rights of people with disability contained in the Convention on the Rights of Persons with Disabilities .

In particular, to ensure that people with disability have the same right as others to live, take part and be included in the community, article 19 states that countries must take appropriate steps to ensure that people with disability have the opportunity to choose where they live and who they live with, have access to in-home, residential and other community support services to help them be included in the community and prevent them from being isolated, and to ensure that they have equal access to community services and facilities that are available to the public.

Article 26 (1) states that parties shall take effective and appropriate measures, including through peer support, to enable persons with disabilities to attain and maintain maximum independence, full physical, mental, social and vocational ability, and full inclusion and participation in all aspects of life.

This Schedule does not limit the rights of people with disability. The interest charge will apply to former recipients of social welfare with outstanding debts, who are unwilling to enter into acceptable repayment arrangements (this includes carer payments and the Disability Support Pension). A debt only arises where a person receives a payment to which they were not entitled. Given the interest charge is intended as an incentive for debtors to repay debts in a timely fashion and is only applied where the debtor has not entered into a repayment arrangement where they have the financial capacity to do so, the interest charge will not limit the rights of people with disability.

Right to work and rights in work

This Schedule engages the right to work and rights in work contained in articles 6(1), 7 and 8(1)(a) of the ICESCR.

In particular, article 6(1) recognises the right to work, which includes the right of everyone to the opportunity to gain his living by work which he freely chooses or accepts and states that countries must have specialised services to assist and support individuals in order to enable them to identify and access available employment.

This Schedule does not limit the right to work and rights in work. The interest charge will apply to former recipients of social welfare with outstanding debts, who are unwilling to enter into acceptable repayment arrangements (this includes working age payments). A debt only arises where a person receives a payment to which they were not entitled. Given the interest charge is intended as an incentive for debtors to repay debts in a timely fashion and is only applied where the debtor has not entered into a repayment arrangement where they have the financial capacity to do so, the interest charge will not limit the debtor's right to work and rights in work.

Right to education

This Schedule engages the right to education contained in Article 13 of the ICESCR.

In particular, article 13(2)(b) states that secondary education, in all its different forms, including technical and vocational secondary education, shall be made generally available and accessible to all by every appropriate means and, in particular, by the progressive introduction of free education.

This Schedule does not limit the right to education. The interest charge will apply to former recipients of social welfare with outstanding debts, who are unwilling to enter into acceptable repayment arrangements (this includes student payments). A debt only arises where a person receives a payment to which they were not entitled. Given the interest charge is intended as an incentive for debtors to repay debts in a timely fashion and is only applied where the debtor has not entered into a repayment arrangement where they have the financial capacity to do so, the interest charge will not limit the debtor's ability to access education.

Right to social security

This Schedule engages the right to social security contained in article 9 of the ICESCR.

The right to social security requires that a system be established under domestic law, and that public authorities must take responsibility for the effective administration of the system. The social security scheme must provide a minimum essential level of benefits to all individuals and families that will enable them to cover essential living costs.

The United Nations Committee on Economic, Cultural and Social Rights (the Committee) has stated that a social security scheme should be sustainable and that the conditions for benefits must be reasonable, proportionate and transparent (see General Comment No.19).

Article 4 of ICESCR provides that countries may limit the rights such as to social security in a way determined by law only in so far as this may be compatible with the nature of the rights contained within the ICESCR and solely for the purpose of promoting the general welfare in a democratic society. Such a limitation must be proportionate to the objective to be achieved.

The interest charge does not limit the right of a person to receive social security. It will apply to former recipients of social security and family assistance payments with outstanding debts, who are unwilling to enter into an acceptable payment arrangement. A debt only arises where a person receives a payment to which they were not entitled.

Former recipients who are no longer eligible to receive financial support through social welfare payments are more likely to have the financial capacity to make repayments on any outstanding debt than those in receipt of social welfare.

To ensure all debtors are treated consistently and fairly, the interest charge will also apply to those in receipt of only child care assistance and/or payments under the Paid Parental Leave Act 2010 (and no other social welfare payment) with outstanding debts. These debtors are not subject to deductions from their payment and should be required to enter into an acceptable repayment arrangement to repay the debt as with other debtors.

A debtor's financial capacity will be taken into account before a repayment arrangement is agreed to. Given this, the impact of the interest charge will be limited and will have a very marginal effect on the ability of a person to cover essential living costs, thereby engaging a person's right to social security. The provisions in this Schedule are therefore unlikely to limit this right, given the appropriate safeguards put in place to protect it.

It is intended that the provisions in this Schedule will allow the efficient recovery of social security payments, supporting effective and efficient administration of the social security system. This measure is proportionate in achieving this policy objective as all persons can avoid the interest charge by entering into a repayment arrangement, and these rights are safeguarded by the requirements of notice and periods of time in which a person will be able to pay back the debt or enter into an arrangement. Furthermore, the Secretary will have the discretion in appropriate circumstances, for example in cases of severe financial hardship, to waive a debt including any interest charge on the debt.

By allowing the efficient recovery of social security payments, this Schedule ensures the financial sustainability of the social security system. The interest charge, as it applies to persons who received payments to which they were not entitled, is a reasonable condition on the benefits of the system as it encourages former recipients to repay those amounts and ensures that the Commonwealth is able to recover the real value of these amounts. The interest charge, as a condition, is also transparent as it is provided for in legislation, will be accurately communicated through the Department of Human Services' website, and can only be applied after sufficient written notice is given.

Therefore this Schedule is compatible with the right to social security as any potential limitation on this right is proportionate to the policy objective and intended to improve the administration of social security system.

Right to an adequate standard of living, including food, water and housing

This Schedule engages the right to an adequate standard of living, including food, water and housing, contained in article 11 of the ICESCR. The right to an adequate standard of living, including food, water and housing provides that everyone is entitled to adequate food, clothing and housing and to the continuous improvement of living conditions.

To the extent that there is an impact on a person's right to an adequate standard of living, including food, water and housing, by virtue of this Schedule, the impact is limited.

It is intended that the provisions will allow the efficient recovery of social security payments, which will ultimately improve the efficacy of the social security system. This measure is proportionate in achieving this policy objective as the interest charge will only apply to former recipients who are no longer eligible to receive financial support through social security or family assistance payments and debtors can avoid the interest charge by entering into a repayment arrangement.

To ensure all debtors are treated consistently and fairly, the interest charge will also apply to those in receipt of only child care assistance and/or payments under the Paid Parental Leave Act 2010 (and no other social welfare payment) with outstanding debts. These debtors are not subject to deductions from their payment and should be required to enter into an acceptable repayment arrangement to repay the debt as with other debtors.

A debtor's rights are safeguarded by the requirements of notice and periods of time in which a person will be able to repay the debt or enter into an arrangement. In addition a debtor's financial capacity will be taken into account before a repayment arrangement is agreed to. The Secretary will also have the discretion to waive a debt in appropriate circumstances, including any interest charged on the debt.

Furthermore, by allowing the efficient recovery of social security payments, this Schedule ensures the financial sustainability of the social security system. The interest charge, as it applies to people who receive payments to which they are not entitled, is a reasonable condition on the benefits of the system as it encourages former recipients to repay those payments and ensures that the Commonwealth is able to recover the real value of these amounts. The interest charge is also transparent as it is provided for in legislation, will be accurately communicated through the Department's website, and can only be applied after the recipient is given sufficient written notice.

Therefore, this Schedule is compatible with the right to an adequate standard of living as the potential limitations on this right are proportionate to the policy objective and are intended to improve the administration of the social security system.

Right to equality and non-discrimination

To avoid doubt, this Schedule does not engage the right to equality and non-discrimination contained in articles 2 and 26 of the ICCPR either on the basis of race or 'other' status.

Article 2(1) of the ICCPR obligates each State party to respect and ensure to all persons within its territory and subject to its jurisdiction the rights recognised in the Covenant without distinction of any kind, such as race , colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status ^[4] .

Article 26 not only entitles all persons to equality before the law as well as equal protection of the law, but also prohibits any discrimination under the law and guarantees to all persons equal and effective protection against discrimination on any ground such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status ^[5] .

It is important to note, however, that not all differential treatment will be considered discriminatory. The Committee on Economic, Social and Cultural Rights has provided the following commentary on when differential treatment will be considered discriminatory:

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Differential treatment based on prohibited grounds will be viewed as discriminatory unless the justification for differentiation is reasonable and objective. This will include an assessment as to whether the aim and effects of the measures or omissions are legitimate, compatible with the nature of the Covenant rights and solely for the purpose of promoting the general welfare in a democratic society. In `addition, there must be a clear and reasonable relationship of proportionality between the aim sought to be realised and the measures or omissions and their effects. A failure to remove differential treatment on the basis of a lack of available resources is not an objective and reasonable justification unless every effort has been made to use all resources that are at the State party's disposition in an effort to address and eliminate the discrimination, as a matter of priority ^[6] .

Discrimination on the basis of race

This Schedule will apply an interest charge to all social security debts including ABSTUDY payments, which supports Indigenous Australians. However, there is no differential treatment on the basis of race as the interest charge will apply equally to all debtors.

For these reasons, this Schedule will not engage the right of equality and non-discrimination.

Discrimination on the basis of 'other status'

This Schedule applies an interest charge to former recipients of social welfare payments with outstanding debts, rather than all customers with outstanding debts.

This will not limit the right to equality and non-discrimination as the differential treatment is for a reasonable and objective purpose.

In most circumstances, current recipients of social welfare payments with debts have their payments reduced until their debts are repaid. By comparison, former recipients who are no longer dependent on the social security system, have no incentive to repay their debts and may actively avoid repayment.

Debtors who are no longer eligible to receive financial support through social welfare payments are more likely to have the financial capacity to make repayments than those in receipt of income support or family assistance.

The introduction of the interest charge will ensure that people who once received social welfare payments do not receive an unfair advantage by having received what is, in effect, an interest-free loan from the Government.

To ensure all debtors are treated consistently and fairly, the interest charge will also apply to those in receipt of only child care assistance and/or payments under the Paid Parental Leave Act 2010 (and no other social welfare payment) with outstanding debts. These debtors are not subject to deductions from their payment and should be required to enter into an acceptable repayment arrangement to repay the debt as with other debtors.

It is therefore reasonable and objective to apply an interest charge to debts with respect to former recipients of social welfare payments to ensure that people with a debt repay the outstanding amount in a timely fashion. Recipients of these payments will be able to avoid the interest charge altogether by either repaying their debt within 28 days of being notified of the debt or by entering into an acceptable repayment arrangement.

For these reasons, this Schedule does not engage the right of equality and non-discrimination .

Conclusion

This Schedule is compatible with human rights. To the extent that it may have limited adverse impact on a person's access to education, social security, an adequate standard of living or the right to equality and non-discrimination, the limitation is reasonable, proportionate to the policy objective and for legitimate reasons.