House of Representatives

Second Reading Speech

Mr TUDGE (Aston - Minister for Population, Cities and Urban Infrastructure)

I move:

That this bill be now read a second time.

This bill will improve the process of reporting employment income to Centrelink. From 1 July 2020, social security recipients will report their income to Centrelink when it is paid by their employer, instead of when it is earned. Assessing employment income when paid will make it easier to report income correctly. This will better support people receiving the right amount of income support each time it is paid - no more and no less than they are eligible for - reducing the likelihood of overpayments. It will also pave the way for the future prefilling of employment income using Single Touch Payroll information, supporting easier reporting arrangements for recipients.

Around 550,000 people report income to Centrelink in any given fortnight, and around 1.2 million people report income at least once a year. Current arrangements can appear complex and confusing to recipients when reporting employment income. Social security recipients trying to get ahead through work must currently report the valueof the shifts they have worked during the past fortnight, not what they have actually been paid. In practice, keeping track of earnings requires individuals to keep a detailed record of the work they do.

At present, recipients work out how much to report based on the number of hours they worked and how much they earned each hour. This can involve multiple calculations for casual employees who may need to factor in penalty rates or shift loadings and for people who may work for more than one employer. For example, a recipient of youth allowance can work on a Friday night, Saturday morning and Sunday afternoon for the same employer with a different rate of pay for each shift. It can be difficult to report the correct amount of income if recipients have to factor in varying hours and duties, multiple employers, and changing award rates.

Over the course of 2017, there were over 15 million corrections to recently reported earnings, where people discovered when they got their pay that they had incorrectly reported their earned income for the previous fortnight. Through this bill, the government will deliver a simpler way for social security recipients to report employment income.

This government believes strongly in the dignity of work. Importantly, this bill will further support people in the transition from social security into work by ensuring they aren't financially disadvantaged in the short term by getting a job. Under the current system, individuals can have their support payment reduced when they start a new job but before they have been paid their first pay. This is because they have to report income they have earned but have not necessarily received. Assessing employment income when it is paid means that a person can start work and continue to get income support for the short time before they receive their first pay. This will also mean that any perceived barrier to employment as a result of a short time without any income will be removed.

Assessing employment income when paid will make it easier for individuals to understand the ways in which the social support system interacts with paid employment, delivering a simpler system that rewards work.

This new method of assessment will treat all types of employment income consistently. At present, different types of employment income must be reported to Centrelink at different times. An individual who is paid both wages and commissions must report their wages when earned and commissions when received. From 1 July 2020, employment income will only need to be reported when paid, and the two pieces of employment income information that recipients need to report will appear on their pay slips or be available from their employers - their gross income and pay period dates.

Income paid every two weeks will affect a single support payment because entitlements are calculated fortnightly. A recipient who is paid by their employer every 30 days will have their income assessed over the next 30 days. Under this bill, employment income that does not have a corresponding earning period will be assessed over an appropriate period, such as over a year for an annual bonus. Assessing employment income in this way will only change the timing of when employment income is assessed, not the amount of income support someone is entitled to.

Transitioning to the new model of assessment will require individuals with ongoing employment to undertake a one-time calculation to ensure that their income is not double counted - once when reported as earned and again when paid. The bill has been designed to make this transition as simple as possible.

In their social security entitlement fortnight within which 1 July 2020 falls, social security recipients will be asked to subtract income they have previously reported from the income they report when paid by their employer. For example, an individual who is paid $200 and already reported $50 of that amount the previous fortnight will report $150.

To assist with this process, recipients will be notified through a bulk mail-out and targeted messaging well in advance. A specially designed calculator will also help people work out what they should report. The transitions calculator will be available online along with examples of how to report, frequently asked questions and video messages. Messages advising of the changed requirements will also be included in the regular Services Australia income reporting tools during the transition, such as the online portal and the app. People will also be able to contact a staff member for help if needed.

In addition to the benefits I've already described, assessing employment income when paid will facilitate the use of Single Touch Payroll information to make reporting income even simpler.

As employers begin reporting additional information through Single Touch Payroll over the course of the 2020-21 financial year, recipients will start seeing their employment income prefilled in their reporting solutions in the same way that income from interest appears prefilled when completing a tax return. This will mean that for most people reporting income at the end of each fortnight will be a simple process of confirming that their prefilled income is correct.

It is important to note that tax information obtained through Single Touch Payroll will not be automatically applied and will not remove the obligation for recipients to report their income accurately. People will still have control of their information. Individuals will have the option to edit their prefilled income before they report - for example, to add amounts paid by an employer who does not use Single Touch Payroll. The ability to change prefilled amounts will mean that individuals will not have to immediately contact their employer in cases where their STP data does not match what they have been paid. In this way, Single Touch Payroll will be used to assist recipients to report accurately, but will not entirely automate the process or remove human oversight.

This bill recognises the legitimate privacy concerns involved in the sharing of tax information, and so only the tax data for individuals with a relationship with Centrelink will be shared.

The changes made by this bill, in combination with the use of tax data to assist recipients to report accurately, will deliver savings of $2.1 billion over four years to government. These savings are not achieved through changes to payment rates or eligibility criteria. They are delivered through improved payment accuracy because it will be easier for payment recipients to correctly report income.

Over 80 per cent of savings delivered through this reform will be from working-age recipients because these recipients are the most likely to incorrectly report employment income. Preventing overpayments in this way will contribute to the sustainability of the welfare system and mean that these individuals are paid what they are entitled to.

In combination with tax data provided through Single Touch Payroll, these changes will make it much harder to misreport as a result of genuine error. For most recipients the biggest change will be the time they save when reporting to Centrelink every fortnight, and the reduced likelihood of receiving an overpayment from reporting their income correctly.

Assessing employment income when paid will contribute to the simplification and delivery modernisation of Australia's social security system by allowing the use of technology to prevent overpayments before they happen, but without reducing the responsibility of the individual to ensure they report correctly.

This bill will also help to ensure Australia's welfare system remains sustainable into the future.

I commend the bill.

Debate adjourned.