House of Representatives

Second Reading Speech

Senator IAN CAMPBELL (Parliamentary Secretary to the Minister for Communications, Information Technology and the Arts)

I table a revised explanatory memorandum relating to the bills and move:

That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows-

A NEW TAX SYSTEM (FAMILY ASSISTANCE) BILL 1999

This Government recognises the integral role the family plays in Australian society. This Government wants to improve the assistance that families can get through the tax and social security systems.

This bill, which forms part of the fundamental reform of the Australian tax system, introduces total reform and improvements to the assistance currently provided by Government to families. The reforms will significantly simplify 12 conflicting, overlapping different payments into three well designed, harmonised and generous benefits which will make a positive impact on the living standards of Australian households, particularly those with low incomes.

In the last Parliament, the Government legislated to introduce the family tax initiative, which gave the main income earners of families with children a higher tax-free threshold. This was promised before the 1996 election and it was delivered in full, on time, in our first budget.

Before the 1998 federal election the Government pledged, as part of the new tax system, to extend the family tax initiative-in fact, to double it. The Government now seeks to implement this measure in full, on time, and on budget.

The measures already before the Parliament in the A New Tax System (Personal Income Tax Cuts) Bill 1998 and in the A New Tax System (Compensation Measures Legislation Amendment) Bill 1998, both of which were introduced in December last year, provide the doubling of the family tax initiative from 1 July 2000. On the social security side they provide an increase in assistance of $140 a year for each dependent child and, in addition to this, an extra $350 a year for single income families with a child under five years of age.

This bill now takes those measures and incorporates them into the largest reform of family assistance yet done. It introduces higher levels of child-care assistance and puts all tax and social security measures for families into a greatly simplified structure of assistance. This bill is all about providing those higher levels of family assistance in a simpler and comprehensive structure. One of the main benefits of this is that no longer will a family be penalised if they make the wrong choice as to how to receive family assistance-either through the tax system or through the social security system. This bill provides that all families will receive the same level of maximum assistance. One set of rules will apply to all.

This simplified structure will be delivered through a new body. Families will deal with, and be helped by, the new Family Assistance Office.

Simplification of Structure of Family Assistance

There is an obvious need to address the complexity in the current assistance provided to families.

At present, there is an array of forms of assistance, yet many of those forms have virtually the same objectives. It is little wonder that families often require professional advisers to guide them through a maze of different and complex eligibility criteria, different income tests and definitions of income and different delivery mechanisms simply to obtain assistance.

The aim of the Government is to simplify the structure and delivery of assistance for families.

The new structure will reduce the types of assistance for families through the tax and social security systems from 12 to three. The three new payment types will be family tax benefit part A, family tax benefit part B and child-care benefit. Family tax benefit part A will provide assistance to families with dependent children. Family tax benefit part B will provide assistance to single income families-although the primary carer will be allowed to earn some income. Child-care benefit will provide assistance for the cost of child care.

Family Tax Benefit Part A

Turning to the first payment, family tax benefit part A will replace four existing payments. It will replace family allowance-both minimum rate family allowance and the more than minimum rate family allowance; family tax payment part A; and family tax assistance part A.

Family tax benefit part A will have the same minimum and maximum rates as the payments it replaces but with the increased levels of assistance provided for under the legislation introduced last year; that is, an extra $140 a year for each dependent child. Extra assistance for large families will be retained. The maximum rate of family tax benefit part A will have a relaxed income test threshold of $28,200 (compared with a threshold of $24,350 a year if the payments it replaces were to continue). The minimum rate of family tax benefit part A will have a relaxed income test threshold of $73,000 a year (plus $3,000 a year for each child after the first).

Family tax benefit part A, both the minimum and maximum rates, will have a reduced taper rate of 30 per cent (compared with a taper rate of 50 per cent which applies to the payments it will replace).

Family tax benefit part A will not be subject to an assets test and will be indexed each July in line with movements in the consumer price index. It will not be taxable.

Following the Government's announcement in the 1999 Budget, family tax benefit part A will be available in respect of young people aged 18 to under 21 years.

Family Tax Benefit Part B

The second payment, family tax benefit part B, will replace six existing payments which provide assistance to single income families. Family tax benefit part B will replace the dependent spouse rebate (with child rate), the sole parent rebate, family tax assistance part B, basic parenting payment, guardian allowance and family tax payment part B.

Family tax benefit part B will have a similar structure to the current system-where the level of assistance is higher with the youngest child being aged less than five years-but with the increased levels of assistance as provided for under the legislation introduced in December last year; that is, family tax benefit part B will provide an additional $350 a year for single income families, including lone parents, with a child under five years of age, and an additional $61 a year where the youngest child is aged over five years.

The income test on a non-working partner's income will provide for a free area of $1,616 a year and a 30 per cent taper rate. The cut-out point for assistance will rise from $6,090 a year to around $10,500 a year for a family with a child aged under five years. This will greatly improve incentives for primary carers to seek paid work or maintain contact with the work force, should they wish to do so. Furthermore, the income test that currently applies for family tax initiative part B on the working partner's, or lone parent's, income will be abolished.

Family tax benefit part B, like family tax benefit part A, will be indexed each July in line with movements in the consumer price index. It will not be taxable.

Child-care benefit

The third payment, child-care benefit, will replace the two forms of assistance currently available to help families with the costs of child care outside the home.

Child-care benefit will provide maximum assistance-for 50 hours of work related care per week-of at least $120 a week per child in formal care, with an additional $11 a week loading where there are two children in care and $32 a week loading for three or more children in care. Where part-time formal care of less than 33 hours a week is used, these rates will be 10 per cent higher. For informal work related care, the maximum level of assistance will be $20.10 a week per child in care (for 50 hours of care).

The taper rates will vary depending on the number of children and the level of family income. For families with one child in care, a taper rate of 10 per cent will apply. For families with two children in care, a taper rate of 15 per cent will apply for those with incomes up to $66,000 a year and a taper rate of 25 per cent will apply above that. For families with three or more children in care, a taper rate of 15 per cent will apply for those with incomes up to $66,000 a year, and a taper rate of 35 per cent will apply above that.

The income test will not apply for incomes above $81,000 a year for families with one child in care. This will, on average, maintain entitlements to assistance-equivalent to that currently available under the child-care cash rebate at the 20 per cent rate-for higher income families.

The new child-care benefit will provide an increase in the maximum level of assistance of $7.50 a week for people paying average fees for 50 hours of care in a long day care service. These reforms will be of particular benefit to 200,000 lower income families who receive the maximum level of assistance.

Family Assistance Office

The new, simplified system of family assistance arising out of this bill will be delivered by a new Family Assistance Office. The Family Assistance Office will utilise existing service delivery networks of the Commonwealth Services Delivery Agency, Centrelink, the Australian Taxation Office and the Health Insurance Commission and will specialise in delivering assistance to families. It will enable families to deal with just one agency and one set of rules.

Fringe Benefits Tax

Finally, this bill also ensures, as part of the Government's reforms of the fringe benefits tax provisions, that for the purposes of the income tests for family assistance, the non-grossed up value of a person's fringe benefits will be used in determining the amount of family assistance payable.

Further Legislation

In addition to this bill, and A New Tax System (Family Assistance) (Consequential and Related Measures) Bill (No. 1) 1999, further legislation dealing with the administration of family assistance and other consequential amendments will be introduced shortly.

I commend the bill to the Senate.

A NEW TAX SYSTEM (FAMILY ASSISTANCE) (CONSEQUENTIAL AND RELATED MEASURES) BILL (NO. 1) 1999

I have just introduced a bill, the A New Tax System (Family Assistance) Bill 1999, to provide for the simplification of the structure and administration of family assistance from 1 July 2000.

Twelve forms of assistance, currently available under the tax and social security systems, will be reduced to three.

A New Tax System (Family Assistance) (Consequential and Related Measures) Bill (No. 1) 1999 repeals the twelve current forms of family assistance. These are: Family Allowance (including minimum Family Allowance, more than minimum rate Family Allowance), Guardian Allowance, Family Tax Payment Parts A and B, Family Tax Assistance Parts A and B, Basic Parenting Payment, Dependent Spouse Rebate (with children), Sole Parent Rebate, Childcare Cash Rebate and Child Care Assistance.

The three new, simpler family payments-of Family Tax Benefit Part A, Family Tax Benefit Part B and Child Care Benefit-will be available to families under the A New Tax System (Family Assistance) Bill 1999.

As part of the restructuring of family payments, Maternity Allowance and Maternity Immunisation Allowance will be moved from the Social Security Act 1991 into the A New Tax System (Family Assistance) Bill 1999. In this way, all family related payments will be located in one Act. This Bill makes consequential amendments to repeal those provisions in the Social Security Act 1991 that provide for the payment of Maternity Allowance and Maternity Immunisation Allowance.

This Bill also provides for the introduction of revised income test tapering arrangements for Parenting Payment recipients who are members of a couple. Specifically, the range of income at which the taper rate of 50 per cent applies to Parenting Payment for a couple family with dependent children will be extended in July 2000 from $142 to $245 per fortnight, an increase of more than $100. This measure is consistent with improving work incentives for low and middle income families.

This income test is more generous than the one outlined in the Government's tax policy `A New Tax System'. The Government has decided to extend the income test to ensure that benefits delivered in this area are as great as those foreshadowed in the policy. If it had done so, some dual income families at the higher end of the income range-whilst benefiting from tax reform-would not have benefited to the extent foreshadowed. On the other hand, dual income families at the lower end of the income scale benefit much greater than foreshadowed.

By amending the income test, those at the higher end receive the benefits foreshadowed and those at the lower end will still receive additional benefits over and above those foreshadowed in `A New Tax System'. The cost of this measure is around $100 million per annum.

This Bill also ensures, as part of the Government's reforms of fringe benefits tax provisions, that for the purposes of the parental means test for youth allowance, the non-grossed up value of a person's fringe benefits will be used in determining whether youth allowance is payable.

I commend the Bill to the Senate.

Ordered that further consideration of the second reading of these bills be adjourned till the first day of sitting in the winter sittings 1999, in accordance with standing order 111.