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Bills Digest No. 198 1997-98
Veteran's Entitlements Amendment (Male Total Average Weekly Earnings Benchmark) Bill 1998

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Passage History

Date Introduced: 2 April 1998

House:House of Representatives

Portfolio: Veterans' Affairs

Commencement: 19 March 1998, but see Main Provisions

On 26 March 1998, the Government announced the linking of the war widows' pension (WWP) to the benchmark of 25% of MTAWE. This resulted in a fortnightly rate rise of $6.80 to $378.60, with the first payment at the increased rate made on 9 April 1998.

This Bill proposes amendments to the Veterans' Entitlements Act 1986 to ensure the rate of WWP is maintained at no less than 25% of MTAWE.

This will align the WWP with the 25% of MTAWE rate benchmark arrangements that have been put in place for social security pensions paid under the Social Security Act 1991 and for the service pension and income support supplement paid under the Veterans' Entitlements Act 1986. These arrangements were provided for by the Social Security and Veterans' Affairs Legislation Amendment (Male Total Average Weekly Earnings Benchmark) Act 1997.(1)

It is not entirely clear why this 1997 25% MTAWE Act did not also include arrangements for the WWP. Perhaps it was not fully realised at the time that there would be problems with parity and equity between pension rates if all like pension payments were not included.

Pre-1996 Election commitment

Prior to the March 1996 election, the Liberal and National Parties gave a joint public commitment to maintain the pension benchmark of at least 25% of Average Weekly Earnings.(2) The Social Security and Veterans' Affairs Legislation Amendment (Male Total Average Weekly Earnings Benchmark) Act 1997, was the initial legislation that provided for this commitment.

Rate of pensions to be maintained at least 25% MTAWE - Coverage of 1997 Act

The social security pensions that are covered by the 25% of MTAWE Act 1997 are:

• Age pension;
• Wife pension (ie. paid to female partner of an age or disability support pensioner);
• Disability support pension;
• Widow's pension;
• Parenting payment (sole parent);
• Carer payment; and
• Mature age allowance and mature age partner allowance granted before 1 July 1996.

The veterans' affairs payments that are covered by the 25% of MTAWE Act 1997 are:

• Service pension;
• Partner service pension; and
• Income support supplement.

War Widow's and Widower's Pension (WWP) eligibility

There are two main situations where a WWP may be payable:

1. Where a veteran dies as a result of a war or defence caused disease or injury, then a WWP made be payable to the surviving partner (married or defacto).

OR

2. Where a veteran was severely incapacitated as a result of a war or defence caused disease, then the widow/er of the veteran (married or defacto) may qualify for a WWP.

WWP is paid at the same rate as the single rate of age and service pensions but is not means tested, ie. no income or assets test, and WWP is not taxable.

Number of WWP recipients

As at 14 September 1997 there were a total of 97 995 WWP recipients made up of 124 males and 97 871 females.

Income Support Supplement (ISS)

ISS is also payable in addition to WWP, but as ISS has an income and an assets test it is targeted at those WWP recipients who have limited means.

ISS was introduced on 30 March 1995 to replace the 'ceiling' (frozen) rate of age, carer, wife and disability support pensions paid to war widow/ers by The Department of Social Security (DSS) in addition to the WWP. The main impetus for the introduction of the ISS was so that war widow/ers, who also qualify for ISS, can receive both of their pensions from The Department of Veterans' Affairs (DVA).

The maximum rate of ISS is currently frozen at $120.10 per fortnight.

Cost

The Government has stated that the 25% of MTAWE benchmarking of WWP will cost an additional $168 million over four years.(3)

Parity and differentials between pension and allowance rates

As highlighted in the Explanatory Memorandum,(4) the rate of WWP has been paid at the same rate as the single rate of age or service pension for nearly 35 years and this parity has been maintained by identical indexation adjustment arrangements. Without the application of this proposed Bill, the rate of WWP may fall behind those other pensions that receive the benefit of the 25% of MTAWE Act 1997.

Historically, it was the Whitlam Government that announced in 1972 a commitment to maintain the rate of pension at 25% of average weekly earnings (AWE).

Prior to this the rate of pensions were increased largely on an ad-hoc basis, as Governments perceived a need to adjust payments.

Twice yearly adjustments of pensions against the CPI commenced in 1976.

Payments do not always increase. On occasions in the past, where the CPI has not increased or has even reduced, there may be no increase in payment rates. This last occurred for pensions in September 1997. Payments are not reduced where the CPI change is a nil or negative figure. Separate to the indexation to the CPI in September 1997, pension rates were not increased as rates were at least 25% of MTAWE.

During the 1980s and early 1990s, the economic dynamics featured comparatively higher levels of inflation, interest rates and investment earnings rates. During much of this period, both national wage cases and successive Accords produced largely uniform movements in wage rates.

In later Accords less than full CPI adjustments were complimented by other trade-offs like tax rate adjustments and tax transfers (eg. family payments). Accordingly, movements in the CPI were commonly higher than movements in average wage rates and in this environment, benchmarking income support rates to the CPI meant these payments readily kept pace with wage rate benchmarks. There have been two ad-hoc increases, in 1990 and in 1993, to ensure pension rates maintained parity with 25% of AWE.

More recently these dynamics have changed with lower inflation and lower interest and investment rates. Currently, the annual underlying inflation rate is about 1.5%(5) but average ordinary full-time earnings wages are increasing at about 3.9%.(6)

Through the entire period of the 1980s and 1990s, there has been parity between the married rate of pension and the married rate of allowance. Married rate refers to the rate paid each to a member of a couple (married or de-facto). Payment of the same rate for pensioner and allowance couples achieves the benefits of equity of assistance between payments for like situations.

In the March 1998 rate adjustments, the married rate of allowance was not changed, there being no increase in the CPI during the measurement period. The maximum married rate payable (each partner aged 21 or more) before and after March remained at $290.10 per fortnight (pf) each. The maximum married rate of pension was increased to $295.80 pf each and there being no increase in the CPI, this increase was solely due to the impact of the 25% of MTAWE Act 1997.

If the current feature of low or negative movements in the CPI continues to be accompanied by relatively higher movements in average wage rates, the differentials between pension and allowance rates could well continue.

Mechanism

This Bill has one Schedule to amend the Veterans' Entitlements Act 1986.

The intention of the Bill is to mirror the application 25% of MTAWE Act 1997 to the service pension provisions in the Veterans' Entitlements Act 1986. Therefore, the provisions in this Bill largely mirror those contained in the 25% of MTAWE Act 1997.

Clause 2 of the Bill specifies that the amending Act is to commence from 19 March 1998. The Veterans' Entitlements Act 1986 currently provides for Consumer Price Index (CPI) adjustments to pension rates to take effect from 20 March and 20 September of each year. Any adjustment arising from the CPI then takes effect from the next fortnightly Thursday payday following these two dates. For payments under the Veterans' Entitlements Act 1986, the next payday after 20 March 1998 was Thursday 26 March 1998.

The 20 March and 20 September dates of effect also apply to CPI adjustments to pension payments provided for under the Social Security Act 1991, with social security pension paydays being the alternate fortnightly Thursday to the veterans' paydays. For the social security pension payments the next payday after 20 March 1998 was 2 April 1998.

The Social Security and Veterans' Affairs Legislation Amendment (Male Total Average Weekly Earnings Benchmark) Act 1997, provided for the benchmarking against 25% of Male Total Average Weekly Earnings (MTAWE) of social security pensions and veterans' service pension to commence from 20 September 1997. For the September 1997 pensions rate adjustment, there was no increase in the rate of pensions and there were two reasons for this.

There was no increase in the CPI in the measured period. There are legislative formulas in both the Social Security Act 1991 and in the Veterans' Entitlements Act 1986 to prescribe the periods over which any CPI movement is measured. The second reason was due to the pre-September 1997 pension rates already being at least 25% of MTAWE.

There is no obvious reason as to why this Bill proposes to commence from 19 March 1998 and not 20 March 1998.

Perhaps, given that the 19 March 1998 date is now a retrospective implementation date, the Bill drafters wish to err on the side of caution and doubly ensure the start date commences no later than 20 March 1998.

The announcement of this initiative was made on of 26 March 1998 and stated the first instalment at the increased rate would be made on 9 April 1998.

As the next available veterans' pension payday after the start date for the legislation (ie. 20 March 1998) was 26 March 1998, the payment made on 9 April 1998 included arrears for the 26 March 1998 payday.

Schedule 1 - Amendment of the Veterans' Entitlements Act 1986

Items 1 and 3 prescribe the quarters in each year during which the MTAWE figure is to be measured for each March and September rate adjustment. The measurement period is not over the whole year but a quarter of a year.

This is the same methodology contained in the 25% of MTAWE Act 1997, a methodology that was a matter of some debate in the Senate during that Act's passage through the Parliament. The issue of concern was whether there is any advantage or disadvantage in measuring the AWE figure over a quarter as opposed to over a whole year. Measuring over a quarter is consistent with the long-standing methodology prescribed in the legislation for measure movements in the CPI. The answer depends on how any one quarter compares to the whole year. Where the quarter is comparatively lower than the whole year, a lower MTAWE figure will result and vice versa.

Item 5 provides for the increase in the rate where the rate that has been measured against the CPI is still less that 25% of MTAWE. Where the CPI measurement arrives at a rate that is still at least 25% of AWE, there is no further adjustment. Therefore, it is possible for the CPI adjustment to result in a rate that exceeds 25% of MTAWE.

Sub-part (8) of Part 5 of the Bill contains legislative arrangements to cater for the retrospective aspect of the start date for this initiative.

Payments have already been made to WWP recipients at the increased rate from 26 March 1998 payday under Ex-gratia payment arrangements. This part of the Bill ensures there is no double entitlement to payments once the Bill receives Royal Assent.

Prior to the March 1996 election, the Opposition parties gave a joint public commitment to maintain the pension benchmark of at least 25% of Average Weekly Earnings. The Social Security and Veterans' Affairs Legislation Amendment (Male Total Average Weekly Earnings Benchmark) Act 1997, was the initial legislation that provided for this commitment.

On 26 March 1998, the Government announced the linking of the WWP to the benchmark of 25% of MTAWE.

This Bill proposes amendments to the Veterans' Entitlements Act 1986 to ensure the rate of WWP is maintained at no less than 25% of MTAWE thereby retaining its parity with the single rate of age and service pensions. Without the application of this proposed Bill, the rate of WWP will fall behind those other pensions that receive the benefit of the 25% of MTAWE Act of 1997.

1. Social Security and Veterans' Affairs Legislation Amendment (Male Total Average Weekly Earnings Benchmark) Act 1997.
2. Liberal and National Parties' Social Security Policy Statement 'A Social Security Safety Net', 22 February 1996, 2 - Retirees, para 1.
3. Prime Minister, Press Release, 26 March 1998, 'War Widows' Pension up by $6.80 a fortnight'.
4. Explanatory Memorandum, 3.
5. Australian Bureau of Statistics Catalogue No 6401.0 - March 1998.
6. Australian Bureau of Statistics Catalogue No 6301.0 - February 1998.

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ISSN 1328-8091
© Commonwealth of Australia 1998

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