House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Minister for Families, Housing, Community Services and Indigenous Affairs, the Hon Jenny Macklin MP

Schedule 2 - Indexation

Summary

This Schedule makes amendments to some indexation arrangements for family assistance and paid parental leave.

Indexation will be paused until 1 July 2014 for the higher income free area for family tax benefit Part A (FTB Part A) (both the basic amount and the additional amount for each FTB child after the first), the family tax benefit Part B income limit and the baby bonus income limit. As paid parental leave is a new entitlement, indexation of the paid parental leave income limit will not commence until 1 July 2014.

This Schedule also pauses indexation of FTB Part A and Part B supplements for three years from 1 July 2011.

Background

Family assistance income thresholds

Schedule 2 to the Social Security and Family Assistance Legislation Amendment (2009 Budget Measures) Act 2009 amended clause 3 of Schedule 4 to the Family Assistance Act to include a new subclause (7) that provides that there is to be no indexation of the higher income free area for FTB Part A (both the basic amount and the additional amount for each FTB child after the first), the income limit for FTB Part B and the baby bonus income limit for 1 July 2009, 1 July 2010 and 1 July 2011. This was a 2009-2010 Budget measure.

This Schedule will extend the indexation pauses for these income threshold amounts to include the indexation that would otherwise happen on 1 July 2012 and 1 July 2013. This is a 2011-2012 Budget measure.

FTB Part A and Part B supplements

Clause 1 of Schedule 1 to the Family Assistance Act sets out the overall rate calculation process for family tax benefit (FTB). Supplements are included in the calculation for FTB Part A in clauses 3 and 25 of Schedule 1 and for FTB Part B in clause 29 of Schedule 1.

The amounts of the supplements are indexed annually, on 1 July each year, in accordance with movements in the Consumer Price Index (CPI). The supplement amounts are currently $726.35 for FTB Part A and $354.05 for FTB Part B. The relevant indexation provisions are items 8A and 9A in the table in clause 2 of Schedule 4 to the Family Assistance Act, and items 8A and 9A in the table in subclause 3(1) of Schedule 4, which provide for CPI indexation of these amounts.

The indexation arrangements for the amounts that comprise the FTB Part A and Part B supplements will be amended so that these amounts are not indexed on 1 July 2011, 1 July 2012 and 1 July 2013. As a consequence, indexation will not recommence for the supplements until 1 July 2014.

Paid parental leave income limit

The Paid Parental Leave Act 2010 ( the Paid Parental Leave Act) provides that a person can only be eligible for parental leave pay if they meet the requirements in section 31, which includes satisfying the income test. Division 4 of Part 2-3 of the Paid Parental Leave Act sets out the income test. Section 37 provides that a person satisfies the income test if their adjusted taxable income for the reference income year is not more than the relevant 'PPL income limit'. The PPL income limit is defined in section 6 with reference to section 41. Section 41 provides that the PPL income limit before 1 July 2012 is $150,000 and is then subject to indexation.

Subdivision B of Division 4 of Part 2-3 sets out the rules for indexing the PPL income limit. Under the Paid Parental Leave Act, indexation for the PPL income limit should occur on 1 July each year starting on 1 July 2012.

This measure will extend the commencement date for indexation of the PPL income limit to 1 July 2014. This will assist in maintaining consistency with the pausing of indexation for the baby bonus income limit under the Family Assistance Act.

These changes all commence on 30 June 2011.

Explanation of changes

Amendments to the Family Assistance Act

Item 1 amends subclause 3(7) of Schedule 4 to the Family Assistance Act to include references to 1 July 2012 and 1 July 2013.

The note at the end of this item provides that the change to this provision will also be reflected by changes to the heading to subclause 3(7).

Item 2 inserts a new subclause 3(8) into Schedule 4 to the Family Assistance Act. This new provision provides that indexation of the FTB gross supplement amount (A) and FTB gross supplement amount (B) will not occur on 1 July 2011, 1 July 2012 and 1 July 2013.

Amendments to the Paid Parental Leave Act

Item 3 amends the guide to Part 2-3 in section 30 of the Paid Parental Leave Act to reflect the change in date from 30 June 2012 to 30 June 2014.

Items 4 and 5 amend the references to 1 July 2012 in sections 41 and 42 to 1 July 2014. This will mean that indexation will not occur for the PPL income limit until 1 July 2014.