Senate

Revised Explanatory Memorandum

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

Chapter 17 Indexation of family tax benefit and parental leave thresholds

Outline of chapter

Schedule 18 to the Bill 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.

These measures commence on Royal Assent.

Background

Subclause 3(7) of the A New Tax System (Family Assistance) Act 1999 currently provides that the basic higher income free area for FTB Part A and the primary earner income limit for FTB Part B are not to be indexed on 1 July of 2009 and each 1 July until and including 1 July 2016.

The basic higher income free area for FTB Part A is currently $94,316. If an individual's adjusted taxable income is above this amount, then their rate of FTB Part A is calculated using Method 2.

The primary earner income limit for FTB Part B is currently $100,000. An individual cannot access FTB Part B if their adjusted taxable income is more than this amount (unless they or their partner are receiving an income support payment).

The amendments made by this Schedule maintain these amounts for a further three years.

To be eligible for parental leave pay or dad and partner pay, a person must satisfy, among other things, an income test. In general terms, to satisfy the income test, the person's income for a particular income year must not be more the PPL income limit. Under the current rules, this limit is $150,000 until 30 June 2017 and is then to be indexed.

The amendments made by this Schedule maintain the current PPL income limit until 30 June 2020 (with indexation occurring on 1 July 2020).

Explanation of the changes

Amendment of the A New Tax System (Family Assistance) Act 1999

Item 1 amends subclause 3(7) of Schedule 4 so that the provision also refers to 1 July of 2017, 2018 and 2019. The effect is that the basic higher income free area for FTB Part A and the primary earner income limit for FTB Part B will not be indexed on these dates. The next indexation of these amounts will be on 1 July 2020.

Amendments to the Paid Parental Leave Act 2010

Section 41 sets out the PPL income limit . Currently, the limit is set at $150,000 until before 1 July 2017 (paragraph 41(a) refers). Item 3 amends this provision so that the PPL income limit will remain at $150,000 until before 1 July 2020. Indexation will then occur on 1 July 2020.

Section 42 provides for the indexation of the PPL income limit. Under subsection 42(1), the PPL income limit is to be indexed on each 1 July starting on 1 July 2017. Item 4 amends this provision so that the PPL income limit is first indexed on 1 July 2020.

Items 2 and 5 make consequential amendments to the Guide in section 30 (relating to eligibility for parental leave pay) and the Guide in section 115CA (relating to eligibility for dad and partner pay).

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

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

Indexation of family tax benefit and parental leave thresholds

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 will have the effect of fixing the value of certain family payments thresholds for three years. From 1 July 2017, this measure will fix for three years:

•

the higher income free area at $94,316 of the Family Tax Benefit Part A;

•

the primary earner income limit at $100,000 of Family Tax Benefit Part B; and

•

the Paid Parental Leave income limit at $150,000.

Indexation will resume on 1 July 2020.

Human rights implications

The schedule engages the following human rights:

Right to social security

Article 9 of the International Covenant on Economic, Social and Cultural Rights (ICESCR) recognises the right of everyone to social security.

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

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

The changes to the value of the family payments thresholds assist in targeting payments according to need. Families will not have their payments reduced if their family income does not increase over the three years 2017 - 2019.

This reform will help ensure the sustainability of the family payments system.

Conclusion

These amendments are compatible with human rights because they advance the protection of human rights and, to the extent that these changes limit access to family payments, these limitations are reasonable and proportionate.