Social Services Legislation Amendment (Student Reform) Bill 2018

Bills Digest No. 21, 2018–19

PDF version [718KB]

Michael Klapdor
Social Policy Section
10 September 2018

Contents

Purpose of the Bill
Background
Committee consideration
Policy position of non-government parties/independents
Position of major interest groups
Financial implications
Statement of Compatibility with Human Rights
Parliamentary Joint Committee on Human Rights
Key issues and provisions

Date introduced: 15 August 2018
House: House of Representatives
Portfolio: Social Services
Commencement: Items 1–5 of Schedule 1 on 1 January 2019 if Royal Assent before 1 January 2019 or, if Royal Assent occurs after this date, on the first 1 January or 1 July to occur after Royal Assent.
Items 8–9 of Schedule 1 on 1 January 2019 if Royal Assent before 1 January 2019 or, if Royal Assent occurs after this date, on the first 1 January, 1 April, 1 July or 1 October to occur after Royal Assent. Items 6 and 7 of Schedule 1 on the day after Royal Assent. Schedule 2 on the 28th day after Royal Assent.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at September 2018.

Purpose of the Bill

The purpose of the Social Services Legislation Amendment (Student Reform) Bill 2018 (the Bill) is to amend the Social Security Act 1991 (the SS Act), the Social Security (Administration) Act 1999 (the SS Admin Act) and the Student Assistance Act 1973 to:

increase the parental income limit for regional and remote students to access the workforce independence criteria for Youth Allowance from $150,000 to $160,000; and add $10,000 to the income limit for each additional child in the family
make minor technical amendments relating to the maintenance income test for Youth Allowance
clarify that the Minister for Social Services’ power to determine that a course or part of a course is a secondary or tertiary course for the purposes of student payments includes the power to allow for the grandfathering of some students whose courses cease to be considered eligible courses.

The changes to the parental income limit were announced in the 2018–19 Budget and are expected to cost $53.9 million over four years.[1] The new income limit will apply from 1 January 2019. The changes to the maintenance income test were also announced in the 2018–19 Budget as a component of the ‘50 Years of ABSTUDY’ measure and is not expected to have any financial impact.[2] The measure relating to the Minister’s powers to determine eligible courses was not previously announced and is not expected to have any financial impact.

Background

Youth Allowance independence

Youth Allowance is the main form of income support available to young people aged 16–24 years who are studying full-time or undertaking an Australian Apprenticeship. The payment is also available to 16–21 year olds who are looking for full-time work (the payment to job seekers is referred to as Youth Allowance (Other)).[3]

Youth Allowance is means tested with an income and assets test applying to claimants, and a parental income test applying to claimants who are not considered ‘independent’ from their parents or carers. A young person can be considered independent if they:

are or have been a member of a Youth Allowance couple (married, in a registered relationship or in a de facto relationship for a continuous period of 12 months)
have, or have had a dependent child
are aged 22 years or over
are an orphan or their parents cannot exercise their responsibilities because they are in prison, mentally incapacitated, living in a nursing home or missing
are a refugee
are in state care
are unable to live at the home of either or both their parents/carers because of extreme family breakdown or similar exceptional circumstances; their physical or mental well-being is at serious risk due to violence; or their parents lack stable accommodation
are aged 18 and over and have a work history but experience education or employment disadvantage
are assessed as having a partial capacity to work (Youth Allowance (Other) only) or
are or have been self-supporting through employment.[4]

If a person is not considered independent, their rate of Youth Allowance will be reduced if their parents’ combined annual adjusted taxable income is over $52,706. The reduction in the Youth Allowance recipient’s fortnightly rate is 20 cents for each dollar over the threshold but this reduction can be lower if there are other dependent children in the same family receiving payments or for whom the parents are receiving Family Tax Benefit.[5]

Self-supporting through employment independence criteria

There are two sets of criteria through which a young person can qualify as independent through employment; a general criterion and a less restrictive criterion that applies only to students from inner regional, outer regional, remote and very remote areas:[6]

general criterion—a student may be independent if they support themselves through full-time paid work for at least 18 months within any two year period
rural and remote specific criterion—since leaving secondary school:
- over a 14 month period, earned 75 per cent or more of Wage Level A of the National Training Wage Schedule included in a modern award (75 per cent of which is currently equivalent to $25,704), or
- for at least two years, worked at least 15 hours a week.[7]

However, the rural and remote specific route to independence is not open to young people whose parents have a combined annual income of $150,000 or more. This is the parental income limit the Bill proposes to increase to $160,000. It is separate from the parental income test that applies to dependent Youth Allowance claimants.

Changes to the self-supporting through employment independence criteria

The self-supporting through employment independence criteria have been in place since Youth Allowance was introduced in 1998.[8]

Prior to January 2011, all students were able to qualify as independent through earnings or part-time work (however, the earnings requirement was over an 18 month period rather than the current 14 month period).

In the 2009–10 Budget, the Rudd Government proposed to close off the independence route through earnings or part-time work.[9] The measure was based on a recommendation of the Bradley Review of Higher Education, which had found students from high income families were using the criteria to get around parental means testing and qualify as independent. According to the report of the Review:

A particularly contentious provision is that students in this group can be eligible for ‘independence’ by earning $18,850 in a recent 18-month period, or by working a given number of hours in paid work over a specified period of time. These criteria can be satisfied by students other than low socio-economic status students, for example by taking a gap year and working in casual employment for that period or even being ‘employed’ by their families. Then, subject to waiting a further six months after the end of the gap year, they can satisfy the independence criterion.[10]

The report argued that the existing ‘independent through work’ criteria resulted in a system that was poorly targeted and inequitable.[11]

The Parliamentary Library’s Budget Review 2009–10 noted that the proposed changes to the self-supporting independence criteria would have major implications for prospective students:

Although the measure is primarily aimed at reducing access to income support for those living in high income households, it will also affect many students from families on middle incomes and students who move away from home in order to study.

Students may delay tertiary study for at least 18 months in order to meet the full-time work criterion for independence. This could prove to be a difficult task in what is a highly competitive job-market for low-skilled workers. Others may be forced to remain at home in order to reduce costs for their families, and this could limit their study opportunities, especially in the case of young people in rural and regional areas. A large number of students currently taking a ‘gap’ year in order to meet the criteria for independence face an uncertain future and potentially difficult choices; they need to determine how they are going to support themselves whilst studying, whether or not to delay their studies and whether or not they wish to, or are able to, remain dependent on their families. These disincentives to pursue tertiary studies would appear to run counter to the stated aims of the Government in increasing participation in higher education.[12]

Nationals MPs objected strongly to the Rudd Government’s proposal to close the two criteria. For example, then Leader of the Nationals Warren Truss argued that the gap year played an important part in the transition from school to further study, particularly for regional students. He wrote:

The hopes and plans of a whole class of students have been shattered and I can barely remember a single issue creating such community uproar. The Nationals have been bombarded with emails, texts, phone calls and letters from concerned parents, students and educators, who feel they have been cheated.[13]

Then Minister for Education, Julia Gillard, accused the Liberals and Nationals of running a ‘shameless scare campaign’.[14]

The measures were part of the Social Security and Other Legislation Amendment (Income Support for Students) Bill 2009.[15] The Government was unable to secure support in the Senate and the Bill lapsed on 28 September 2010, at the end of the Parliament. A similar Bill was reintroduced later that year, the Social Security and Other Legislation Amendment (Income Support for Students) Bill 2010.[16] The Labor Government negotiated with the crossbench in the Senate and with the Opposition to try and secure the Bill’s passage and eventually reached an agreement with the Opposition to pass an amended Bill.[17] The amendments allowed students who lived in outer regional, remote or very remote areas to remain eligible for the independence through earnings or part-time work criteria, provided their parents earned less than $150,000 per annum.

The use of a combined parental income of $150,000 as a cut-off for independent status appears to have emerged during negotiations between the then Government, the Australian Greens and Senator Nick Xenophon. According to a December 2010 media release from Education Minister Gillard:

Earlier negotiations with the Greens and Senator Xenophon have led to substantial changes which would have meant that all students currently on a gap year would be eligible for the existing independence test, except those students who plan to live at home with parents earning over $150 000 a year.[18]

While supporting the 2010 changes, Coalition MPs indicated they wanted further changes that would extend the independence through earnings or part-time work criteria to students from inner regional areas.[19] Coalition campaigning on this issue culminated in the introduction of a Private Member’s Bill by Senator Fiona Nash.[20] The Bill passed the Senate but the House of Representatives declined to consider the Bill following the Government’s decision to bring forward a review of the 2010 student income support reforms.[21]

The Review of student income support, by Professor Kwong Lee Dow, recommended ‘a single new self-supporting criterion for independence for young people who have worked full-time for two out of three years, where a minimum of two years has elapsed since leaving school’.[22] The Government rejected this recommendation and adopted the measures in Senator Nash’s Bill to extend the earnings and part-time work independence routes to independence to students from inner regional areas.[23] This was legislated via the Social Security Amendment (Student Income Support Reforms) Act 2011.

In 2017, the Government passed legislation to amend the independence by earnings requirement so that the amount had to be earned in a 14-month period rather than 18 months.[24] This was intended to better reflect the period of a ‘gap-year’ between the end of secondary schooling and the commencement of tertiary studies (for example, the end of school in November 2017 and the start of a university course in February 2019). Prior to this, claimants would have to wait until the end of an 18-month period since they finished secondary schooling in order to be considered independent under the earnings criterion. The 14-month period commenced from 1 January 2018.[25]

Committee consideration

On 16 August 2018 the Senate Selection of Bills Committee recommended the Bill not be referred to a committee for inquiry.[26]

Senate Standing Committee for the Scrutiny of Bills

The Senate Scrutiny of Bills Committee had no comments on the Bill.[27]

Policy position of non-government parties/independents

The Australian Labor Party supports the Bill. Shadow Minister for Families and Social Services, Linda Burney, stated in her second reading speech:

This is really an issue of access and equity. At the moment it is well understood that young people in regional and rural Australia are participating in tertiary education much less than their city counterparts. That's a really important point to understand in relation to this bill. The Social Services Legislation Amendment (Student Reform) Bill 2018 will expand access to youth allowance to regional and remote students who move away from home to study.

...

We don't need a study to tell us that rural and remote students face extra and sizeable hurdles in undertaking post-secondary education. As I have outlined, some of that is geographic but it is often the capacity, particularly in difficult times like this, for families to afford for their young person to participate.[28]

At the time of writing, other non-government parties and independents had not commented on the Bill.

Position of major interest groups

The Regional Universities Network peak body welcomed the lifting of the parental income limit measure when it was announced in the 2018–19 Budget.[29]

Financial implications

According to the Explanatory Memorandum, the changes to the parental income limit will cost $53.9 million over the forward estimates.[30] The other measures proposed in the Bill are not expected to have any financial impact.

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[31]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights stated that the Bill did not raise any human rights concerns.[32]

Key issues and provisions

Rationale for the increase in the parental income limit

Review of Regional, Rural and Remote Education

In his second reading speech for the Bill, former Minister for Social Services Dan Tehan stated that the Bill directly addressed the following recommendations of the Halsey Review of Regional, Rural and Remote Education:[33]

improving the availability, affordability and accessibility of vocational education and training for regional, rural and remote students;
reducing the financial burden for regional, rural and remote students who move away from home for further study and training;
supporting regional, rural and remote students to make successful transitions from school to university, training and employment; and
reviewing income support that is available for regional, rural and remote students who must move away from home, to ensure they are able to commence tertiary study immediately following school completion.[34]

While the Bill will allow more young people from higher income families in regional and remote areas to access Youth Allowance (or increased rates of Youth Allowance), it does not address the issues discussed in the Review that prompted these recommendations.[35]

The Review did not raise the issue of the parental income limit as a particular concern, nor did it recommend increasing the limit. The Review heard concerns that reaching the earnings requirement over the gap year period was onerous:

This was especially the case for low income families and in locations where employment is in short supply and very seasonal. In most instances the requirement greatly adds to the burden of making successful transitions to a university or a recognised VET pathway.[36]

The Review also suggests that the parental income test rules in general should be reviewed ‘in terms of whether they accurately reflect the ability of parents to provide support to their children who have moved away to study’ (note that this referred to the general parental income testing regime, not the parental income limit for access to the self-support independence criteria).[37]

The Review’s recommendation relating to Youth Allowance and independence is to support students from regional and remote areas to make successful transitions from school to education, training and/or employment.[38] It suggests reviewing current government income support policies and arrangements for low income students from these areas who must move away from home to take up study or training to ensure they are able to commence immediately after school completion.[39] This suggests the focus should be on those from low-income families and that the gap year arrangements themselves need to be reconsidered, not that more young people from higher income families should be able to access the gap year independence criteria.

No change in the income limit since 2011

In explaining the rationale for the measure, the Minister also cited the fact that the income limit has not been changed since 2011 and is the same regardless of family size. He stated that ‘this doesn’t reflect increasing wages or the extra costs associated with raising a larger family’.[40] Increasing the limit and including an adjustment for additional children in the family will address these two issues.

If the $150,000 income limit had been indexed to movements in the Consumer Price Index, in a similar way to other Youth Allowance income and asset test thresholds, it would have been set at around $173,107 in January 2018.[41] While the Bill only increases the limit to $160,000, the $10,000 increase in the limit per additional dependent child will mean that those from families with more than one child will have a parental income limit of $170,000 or more.

Just as the 2011 limit was not CPI adjusted, the new parental income limit and additional amount will not be indexed. This means that the limit will remain static as wages and prices increase.

Numbers affected

The former Minister for Social Services stated that the change to the parental income limit is expected to see the number of students eligible for Youth Allowance under the self-supporting independence criteria increase by 75 per cent from 3,029 to 5,300.[42]

Key provisions

Schedule 1

Item 3 repeals paragraph 1067A(10E)(d) of the SS Act and substitutes new paragraphs 1067A(10E)(d) and (e). Current paragraph 1067A(10E)(d) states that for the self-supporting independence criteria to apply, the person’s combined parental income for the appropriate tax year (as defined at Submodule 3 of Module F of the Youth Allowance Rate Calculator in section 1067G) must be less than $150,000. The proposed amendments make two changes:

parental income will be assessed for the last tax year that ended before the start of the self-supporting period (either two-years or 14-months) or for the appropriate tax year and
parental income must be below the threshold amount to be set out in new subsection 1067A(10K) (inserted by item 4).

The appropriate tax year used to assess parental income currently is the financial year ending on 30 June before the calendar year in which payment is made (known as the base tax year), unless:

the claimant requests a change due to a reduction in parental income which is likely to continue for two years or
parental income for the tax year following the base tax year exceeds 125% of base tax year parental income and the claimant’s parental income free area (in which case, for payments made after 30 September in a year, the appropriate tax year is the tax year immediately following the base tax year).[43]

Providing for income in the last tax year that ended prior to the start of the self-supporting period to be assessed as well as income in the appropriate tax year allows for income in earlier years to be assessed. If the combined parental income in any of these tax years falls below the threshold amount, then the person will meet the parental income test for the self-supporting independence criteria.

Item 4 inserts new subsections 1067A(10K) and (10L). New subsection 1067A(10K) sets the threshold amount at $160,000 plus $10,000 for each person considered a related person of the claimant. A related person is defined in new subsection 1067A(10L) as a person aged under 22 who shares a parent with the claimant where none of the following applies:[44]

they are living away from the home of each parent shared with the claimant and are considered a member of a Youth Allowance couple
they are living away from the home of each parent shared with the claimant and have a child wholly dependent on them or their partner (if any)
they are receiving Youth Allowance or Disability Support Pension and are considered independent
they are in state care.

Neither the $160,000 nor the $10,000 figure will be indexed.

Item 6 makes a minor amendment to the parental income test for Youth Allowance at Point 1067G-E1 of the SS Act to align the calculation of the maintenance income test reducible amount with that used in the maintenance income test for Family Tax Benefit. The maintenance income test reducible amount is the maximum amount that a dependent Youth Allowance recipient can have their rate reduced by under the parental maintenance income test.[45] The test assesses child support amounts a parent receives for the purpose of maintaining the Youth Allowance recipient. The reducible amount is the difference between the base rate of Family Tax Benefit Part A and the maximum rate of Family Tax Benefit Part A, calculated on a fortnightly equivalent basis.[46] Under the amendments, rather than dividing the amount by 26 to get the fortnightly rate, the calculator will multiply the amount by 14 divided by 365.

Item 8 substitutes steps 3 to 5 of the method statement at subsection 123AB(1) of the SS Admin Act to amend the provisions relating to the recalculation of Youth Allowance entitlements where there are differences between the estimates of a parent’s annualised maintenance income (the amount they receive in child support for the Youth Allowance recipient) and their actual maintenance income. The current provisions allow for recalculations where the actual maintenance income is less than the annualised maintenance income free area. The maintenance income free area is the amount of maintenance income a parent can receive in relation to the Youth Allowance recipient before it affects their rate of Youth Allowance—it is calculated on the basis of how many children the parent receives maintenance income for and whether or not they receive Family Tax Benefit Part A in respect of these children.[47] Underestimates of maintenance income that are less than 125 per cent of the annualised maintenance income free area, or less than 125 per cent of actual maintenance income do not result in a rate recalculation. Under the amendments, any overestimates of maintenance income will result in the recalculation of a person’s Youth Allowance rate, not just those where the actual income is less than the free area.

Schedule 2

Item 1 inserts new subsection 5D(2A) to the Student Assistance Act 1973, to clarify that the Minister for Social Services’ power to determine that a course or part of a course is a secondary or tertiary course for the purposes of student payments includes the power to allow for the grandfathering of some students whose courses cease to be considered eligible courses.

This will allow students who commenced a course eligible for student payments to continue receiving these payments if the course later ceases to be an eligible course.

[1]. Australian Government, Budget measures: budget paper no. 2: 2018–19, pp. 94–95.

[2]. Ibid., p. 170; D Tehan, ‘Second reading speech: Social Services Legislation Amendment (Student Reform) Bill 2018’, House of Representatives, Debates, 6 September 2018, p. 6.

[3]. Department of Human Services (DHS), ‘Youth Allowance’, DHS website, last updated 22 June 2018.

[4]. Department of Social Services (DSS), ‘3.2.5.10 Qualification for YA & DSP as an Independent Young Person’, Social security guide, DSS website, last reviewed 9 February 2015.

[5]. DHS, ‘Youth Allowance for students and Australian Apprentices: Income and assets test’, DHS website, last updated 16 August 2018.

[6]. DSS, ‘3.2.5.80 YA & DSP - Self-supporting through Paid Employment’, Social security guide, DSS website, last reviewed 7 May 2018.

[7]. DSS, ‘1.1.N.12 National Training Wage schedule rate (YA, DSP)’, Social security guide, DSS website, last reviewed 13 August 2018.

[8]. Social Security Legislation Amendment (Youth Allowance) Act 1998.

[9]. Australian Government, ‘Part 2: Expense measures’, Budget measures: budget paper no. 2: 2009–10, p. 159.

[10]. Review of Australian Higher Education, Review of Australian higher education: final report, (Bradley Review), Department of Education, Employment and Workplace Relations, Canberra, December 2008, p. 53.

[11]. Ibid.

[12]. M Klapdor and M Thomas, ‘Student income support’, Budget Review 2009–10, Research paper, 33, 2008–09, Parliamentary Library, Canberra, May 2009, pp. 179–183.

[13]. W Truss ‘The gap widens when bush comes to shove’, Sun-Herald, 7 June 2009, p. 17.

[14]. J Gillard (Deputy Prime Minister; Minister for Education, Employment and Workplace Relations), Liberal/National shameless scare campaign on student support, media release, 19 May 2009.

[15]. Parliament of Australia, ‘Social Security and Other Legislation Amendment (Income Support for Students) Bill 2009 homepage’, Australian Parliament website.

[16]. Parliament of Australia, ‘Social Security and Other Legislation Amendment (Income Support for Students) Bill 2010 homepage’, Australian Parliament website.

[17]. J Gillard (Deputy Prime Minister; Minister for Education, Employment and Workplace Relations), Government delivers on Youth Allowance, media release, 16 March 2010.

[18]. J Gillard (Deputy Prime Minister; Minister for Education, Employment and Workplace Relations), Government offers extra $20 million to rural tertiary students, media release, 1 December 2009.

[19]. J Forrest MP, Coalition will re-visit Youth Allowance in Government, media release, 17 March 2010.

[20]. Parliament of Australia, ‘Social Security Amendment (Income Support for Regional Students) Bill 2010 homepage’, Australian Parliament website.

[21]. C Dow and L Buckmaster, Social Security Amendment (Student Income Support Reforms) Bill 2011, Bills digest, 62, 2011–12, Parliamentary Library, Canberra, 2011, p. 4.

[22]. KL Dow, Review of student income support reforms, Department of Education, Employment and Workplace Relations, Canberra, July 2011, p. xii.

[23]. Dow and Buckmaster, op. cit., p. 6.

[24]. Social Services Legislation Amendment (Simplifying Student Payments) Act 2017.

[25]. Separate legislation was passed in March 2018 in order to allow existing Youth Allowance recipients to qualify as independent under the 14-month period rule. Social Services Legislation Amendment (14-month Regional Independence Criteria) Act 2018.

[26]. Senate Selection of Bills Committee, Report, 8, 2018, The Senate, 16 August 2018.

[27]. Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 9, 2018, The Senate, 22 August 2018, p. 3.

[28]. L Burney, ‘Second reading speech: Social Services Legislation Amendment (Student Reform) Bill 2018’, House of Representatives, Debates, 22 August 2018, p. 98.

[29]. Regional Universities Network, Budget a step in the right direction for regional students and universities, media release, 8 May 2018.

[30]. Explanatory Memorandum, Social Services Legislation Amendment (Student Reform) Bill 2018, [p. 1].

[31]. Ibid., [pp. 11–13].

[32]. Parliamentary Joint Committee on Human Rights, Report, 8, 2018, The Senate, 21 August 2018, p. 36.

[33]. J Halsey, Independent review into regional, rural and remote education: final report, (Halsey Review), Department of Education and Training, Canberra, January 2018.

[34]. Tehan, op. cit.

[35]. Some of the recommendations cited by the Minister are actually presented in the report as actions to progress a recommendation.

[36]. Halsey, op. cit., p. 63.

[37]. Ibid.

[38]. Ibid., p. 64.

[39]. Ibid.

[40]. Tehan, op. cit.

[41]. Parliamentary Library estimates.

[42]. Tehan, op. cit.

[43]. DSS, ‘1.1.A.170 Appropriate tax year (YA)’, Guide to social security law, DSS website, last reviewed 12 August 2013.

[44]. Parent is defined at subsection 5(1) of the Social Security Act 1991 and has a broad meaning in relation to Youth Allowance to refer to natural, adoptive and relationship parents as well as people on whom the young person is wholly or substantially dependent.

[45]. DSS, ‘4.2.8.05 Dependent YA – Reduction for Parental Income’, Social security guide, DSS website, last reviewed 20 March 2018.

[46]. Ibid.

[47]. DSS, ‘4.2.8.20 Dependent YA – Maintenance Income Test’, Social security guide, DSS website’, last reviewed 3 July 2017.

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