Senate

Revised Explanatory Memorandum

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

Chapter 19 Employment income

Outline of chapter

Schedule 19 introduces the 2015-16 Mid-Year Economic and Fiscal Outlook measure, Remove the Exemptions for Parents in Employment Nil Rate Periods .

This Schedule 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.

Background

Currently, families receiving family tax benefit Part A are subject to an income test, and dependent young people receiving youth allowance or ABSTUDY living allowance payments are subject to a parental income test, when determining their rate of payment, unless the family or parent is eligible for a social security pension or benefit. The income test exemption for income support recipients is extended to income support recipients who are in an employment income nil rate period. An employment income nil rate period allows an income support recipient to retain entitlement to their income support payment for up to 12 weeks if their income support payment is not payable due to employment income (either wholly or partly).

This measure will remove the exemption from the income test for families receiving family tax benefit Part A and the exemption from the parental income test for dependent young people receiving youth support payments, where the family or parent is in an employment income nil rate period. This means that family income testing for family tax benefit Part A or youth support payments will apply in any fortnight a family is not entitled to receive a rate of income support.

Explanation of the changes

Amendments to the Family Assistance Act

Item 1 amends subparagraph 3(1)(b)(i) of the definition of receiving in the Family Assistance Act by excluding clause 38L of Schedule 1 of the Family Assistance Act from the operation of that subparagraph.

The effect of this amendment means that the exemption from the family tax benefit Part A income test will no longer apply where the individual (and partner) are in an employment nil rate period. Clause 38L, however, will continue to apply if an individual and/or their partner are eligible to receive a rate of social security pension, social security benefit, service pension or income support supplement in that fortnight.

Amendments to the Social Security Act

Item 2 amends paragraph 23(4AA)(e) of the definition of receiving in the Social Security Act so that the exemption from the parental income test in point 1067G-F3 of the Social Security Act no longer applies for the purposes of the person being taken to receive a social security pension or social security benefit under subsection 23(4A) of the definition.

The effect of this amendment means that the parents of recipients of youth allowance or ABSTUDY living allowance who are in an employment income nil rate period will no longer be taken to be receiving a social security pension or benefit in any fortnight in which they have a nil rate of income support. Parental income testing will apply when calculating the rate of youth support during these fortnights.

Item 3 is a technical amendment due to the amendment in item 4 .

Item 4 repeals paragraph 1067G-F3(d) to eliminate the possibility of a child being exempt from the parental income test if the parent retains their health care card during the 12 week employment income nil rate period due to the amendment made in item 2 .

Application provisions

Item 5 is an application provision for these amendments. Subitem 5(1) provides that the amendment made by item 1 applies in relation to working out the rate of family tax benefit for days on or after the commencement date of 1 July 2018.

Subitem 5(2) provides that the amendment made by item 2 applies in relation to working out the rate of youth allowance or ABSTUDY living allowance for days on or after the commencement date of 1 July 2018.

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

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

Employment income

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

This Schedule will, from 1 July 2018, remove existing income test exemptions for parents in employment nil rate periods under the:

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(i) family tax benefit Part A income test; and

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(ii) parental income test that applies to dependent young children receiving youth allowance and ABSTUDY living allowance.

Human rights implications

The Schedule engages the following human rights:

Right to social security

The Schedule is consistent with supporting the right to social security.

The Schedule 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, the rate of which is reduced to nil, either wholly or in part, because of employment income.

Removal of the exemptions recognises that they cause an inequity between families, where those families subject to the exemptions can receive greater financial assistance from family and youth payments than families not subject to the exemptions, even though they have the same income.

Removal of the exemptions also recognises that a family with income, including employment income sufficient to reduce their social security payment to nil, has financial means greater than a family that is receiving a social security payment. The measure will encourage greater self-sufficiency by reducing perverse incentives for families to maintain contact with the income support system rather than move to higher labour force attachment.

Conclusion

The amendments in the Schedule are compatible with human rights because they do not limit access to social security.