Bills Digest no. 179 2006–07
Families, Community Services and Indigenous Affairs Legislation
Amendment (Child Care and Other 2007
Budget Measures) Bill 2007
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.
CONTENTS
Passage History
Purpose
Background
Financial implications
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Families,
Community Services and Indigenous Affairs Legislation Amendment (Child
Care and Other 2007
Budget Measures) Bill 2007
Date
introduced: 31 May 2007
House:
House of Representatives
Portfolio:
Families, Community Services and Indigenous Affairs
Commencement:
Sections 1 to 3 of the Act commence on Royal Assent. The amendments relating
to the child care benefit and the child care tax rebate (Schedule 1) commence
on 1 July 2007
whilst those relating to health care cards commence on 1 October 2007.
To amend laws relating to family assistance
and social security to implement child care measures announced in the
2007 Budget. In essence, these changes
provide for an increase of more than 13% in the rate of child care benefit
(CCB) commencing on 1 July 2007
and more rapid access by families to the Child Care Tax Rebate (CCTR)
by delivering rebates via the Family Assistance Office
and not the taxation system as is currently the case.
The Bill will also extend the benefits of the health
care card to a number of young students with disabilities or severe medical
conditions.
The CCB was introduced in July
2000 and replaced Childcare Assistance and the Childcare Cash Rebate.
Under the current rules, families can claim up to 50 hours per week of
CCB for approved childcare if they satisfy the ‘work/study test’- that
is, they are either working, are looking for work, are involved with volunteer
work, are studying or training - or are otherwise exempt, such as if they
have a disability or if they are caring for a child that has a disability.
Families are able to claim up to 24 hours per week of CCB without having
to pass the work/study test. Details available here: http://www.familyassist.gov.au/Internet/FAO/fao1.nsf/content/-work_study_test.htm
There are currently about 730,000 Australian
families eligible to receive the CCB.
Families who earn less than $34,310 a year
(or families on income support) are eligible for the maximum rate of CCB
which is $148 per week for one child. This amount rises for families that
have additional children in care. Part rates of CCB are paid for families
with incomes higher than $34,310 per year and there is a minimum rate
of CCB ($24.85 per child per week) for families who have incomes in excess
of $98,348 (with one child). Higher income rates apply for families with
more than one child. CCB rates are indexed each July in line with rises
in the Consumer Price Index (CPI). The Bill proposes a one-off 10% increase
in the CCB from 1 July 2007
– this combined with the normal yearly indexation will mean a net increase
of a little over 13% from the current rate. For families on the maximum
rate of CCB, and claiming for 50 hours care, this equates to an extra
$20.50 per week per child. For more details on CCB rates see the Centrelink
information page at http://www.centrelink.gov.au/internet/internet.nsf/payments/childcare_benefit.htm.
In recent years the increase in child care
fees has far exceeded increases in the CPI and as a consequence some families
have found it increasingly difficult to afford child care. One study reported
in February 2007 found that child care
costs had risen by 64% over the last five years, while inflation had only
risen by 14% over the same period.(1) No doubt the one-off
10% increase in the rate of CCB will help improve affordability, but if
child care fees continue to increase at the rate they have in recent years,
then much of the increase may be eaten up by increased costs of care.
The CCTR allows families with children in
approved care to claim, through the tax system, 30% of out-of-pocket child
care expenses. This refers to the amount that families themselves have
to pay after their CCB entitlement is taken into account. Families currently
receive the 30% rebate when they finalise their taxation returns, that
is, from July onwards each year. Claims can be made back to July 2004.
Families began to receive the 30% rebate for
their 2004-05 child care expenses when they finalised their 2005-06
tax returns, that is, from July 2006
onwards. This delayed payment is caused by the need to reconcile CCB entitlement
for the financial year before an accurate assessment of out-of-pocket
expenses can be made. That happens too late for a claim to be possible
in the tax return at the end of the year in which the child care was used.
So CCTR can only be claimed at the end of the following financial year.
That means that the payment might be made up to two years after the out-of-pocket
expense was incurred. The changes in this Bill mean that, from 1 July
this year, the rebate will be paid directly to families at the end of
the financial year in which they incurred their child care expenses and
it will be paid to all families regardless of their tax liabilities.
The original decision
to deliver assistance through the tax system imposed rigidities that have
prevented timely delivery of the benefit of the CCTR. For this reason
the CCTR has been criticised for delivering assistance much too long after
child care costs are incurred, therefore providing little immediate assistance
to working families coping with high child care costs. Delivering it as
a payment via the Family Assistance Office and bringing it forward by
twelve months is therefore a logical improvement to the program, since
it goes some way to address the problem of timeliness.
Another criticism that has been made about
CCTR is that it is not income tested and that it provides greater benefits
to higher income families. This is on account of their higher out-of-pocket
expenses because they have lower entitlements to CCB which is income tested.
However, it is misleading to look at CCTR in isolation. Viewed with CCB,
the whole package of child care assistance has directed most assistance
to lower income families.
This situation will continue with the Budget’s
changes. However, the change to providing CCTR as a direct payment will
also allow low-income families to access their full rebate. The amount
of the CCTR entitlement will no longer be limited by the extent of the
tax liability of the eligible individual. That change together with the
increase in the rate of CCB is in fact likely to improve the progressiveness
of the child care assistance system by tipping the balance somewhat more
in favour of lower and middle income families.
For further details on the history of the
CCTR and it how operates, see the Parliamentary Library Research Note,
‘The new Child Care Tax Rebate’.(2) The Research Note includes
a table showing how the CCB and the CCTR interact.
The third measure in the Bill, which is due
to commence on 1 October 2007, allows
eligible full time students (aged 16 to 25) who are ex-carer allowance
(child) care receivers ongoing access to the health care card.
Carer allowance (child) is paid to people
who care for a child (under 16 years) with a disability or severe medical
condition in their own home. The benefit can be either a fortnightly payment
plus the health care card or just the health care card. The benefit received
depends upon the severity of the child’s disability.
At present, once the child reaches 16 years
of age, continuing access to a concession card only occurs if the child
is eligible for a low income health care card (which is not available
to students aged 16 to 18 years) or another payment such as the disability
support pension that includes a pension concession card.
The measure in this Bill will allow all full
time students who were formerly eligible for the carer allowance (child)
to continue to have access to a health care card until they are 26. The
health care card allows the holders to get PBS prescriptions and certain
Medicare items at cheaper rates. The Second Reading Speech indicates that
approximately 26,000 students aged between 16 and 25 may benefit from
this measure.
The Explanatory Memorandum provides estimates for the
costs of the various measures over four years from 2006-2007
(the current financial year) to 2009-2010 inclusive. These are:
CCB - $412.6 million over four years. In 2006-07
the estimated cost is minimal, at $0.6 million.
CCTR - $1,234.2 million over four years. In 2006-07
the estimated cost is $451 million.
Health care card - $19.3 million over four years. This
includes a figure of $4.5 million for 2006-07.
However, as the measures will only commence on 1 October 2007, it is not
clear why there should be significant costs for the 2006-2007
year. Certainly the Explanatory Memorandum does not shed light on whether
the relevant transitional provisions of the Bill (item 2 of Schedule 2)
are responsible for the estimated costs for 2006-2007.
Item 5 inserts a proposed Division 5 into
existing Part 3, entitled ‘Eligibility for child care tax rebate’.
The Explanatory Memorandum states that the eligibility criteria for the
CCTR ‘are substantially the same as the current child care tax offset
criteria’.(3) However, it is not clear what the change (or
changes) is, as the criteria cross-reference other sections of the A
New Tax System (Family Assistance) Act 1999 and other Acts. It would
useful if the Government clarified that no persons are likely to be significantly
disadvantaged by the new criteria.
Item 6 inserts a proposed Division 4A
into existing Part 4 entitled ‘Child care tax rebate’. This sets
out the rules about how the amount of CCTR is calculated for eligible
persons.
The amount cannot exceed the upper limit set out in proposed
section 84F. For the current financial year (ending 30
June 2007), the limit is $4211
per child and for the 2008 financial year it is $4354. Due to items
9 and 11, the limit will be indexed for subsequent years. For reference,
the current limit is $4000.
Essentially, the amount claimable - subject to the upper
limit mentioned above - remains at 30% of the claimant’s out of pocket
expenses. Such expenses are calculated after deducting any payments through
the CCB and the Jobs, Education and Training (JET) Child Care Fee Assistance.
These amendments deal with the administrative mechanics
of the CCTR. Notably, item 13 covers situations where the CCTR
was paid to a person who was not entitled to it or where there was an
overpayment. In such cases, a debt is owned to the Commonwealth and thus
recoverable in the same way other family assistance debts are recoverable
under existing subsection 82(1) of the A New Tax System (Family Assistance)
(Administration) Act 1999.
Again these are administrative amendments reflecting
the change from the current child care tax offset system to the proposed
CCTR from the 2007 financial year.
The standard amount that can be claimed per hour of approved
care when this Act was first passed was set at $2.40 and that amount still
appears in the relevant part of the table in clause 4 of Schedule 2. However,
as the amount has been indexed yearly through the operation of Schedule
4, the actual amount payable is currently a little under $3 per hour (for
historical rates see http://www.familyassist.gov.au/internet/fao/fao1.nsf/content/historical_rates-ccb-approved_care.htm.)
Item 7 inserts a new standard hourly amount of $3.37, which will
apply from 1 July 2007.
As mentioned earlier in this Digest, this figure is an increase of 10
per cent plus the usual CPI indexation. The system of yearly indexation
will continue.
Schedule 2 amends
the Social Security Act 1991 to insert eligibility requirements
for a health care card for certain Australian residents living in Australia,
who are studying full-time and are aged 16 to 25 years inclusive. The
detail of the measure is discussed in the background to this Digest. Note
that any dependants of the student cannot be listed on the card and thus
are not eligible for benefits under it: item 4.
The measures contained in this Bill are likely to be
non controversial and supported by the wider community. Some groups and
individuals may argue that more needs to be done to help families get
and pay for childcare and that more needs to be done to help students
with disabilities. However, as stand-alone measures, the three main changes
introduced in this Bill are likely to receive general support.
- J. Hildebrand, ‘Child
HQs for Suburbs’, Daily Telegraph, 5 February 2007 p. 1.
- Greg McIntosh, ‘The
new Child Care Tax Rebate’ Research Note no. 3 2005–06, http://www.aph.gov.au/library/pubs/rn/2005-06/06rn03.htm
- Explanatory Memorandum, p. 4.
Greg McIntosh
Social Policy Section
Angus Martyn
Law and Bills Digest Section
12 June 2007
Parliamentary Library
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