Bills Digest no. 16 2014–15
PDF version [1.25MB]
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.
Carol Ey, Michael Klapdor, Matthew Thomas and Peter Yeend
Social Policy Section
21 August 2014
Contents
List of abbreviations
Purpose of the Bill
Structure of the Bill
Financial implications
Coalition’s election commitments on pensions
Review of Australia’s Welfare System
Policy position of non-government parties/independents
Position of major interest groups
Committee consideration
The Statement of Compatibility with Human Rights and the Parliamentary Joint Committee on Human Rights
Schedule 1—Indexation changes and reduction in deeming thresholds
Schedule 2—Disability Support Pension
Schedule 3—Young Carer Bursary Programme
Schedule 4—Seniors health card
Schedule 5—Relocation scholarships
Schedule 6—Pensioner Education Supplement
Schedule 7—Education Entry Payment
Schedule 8—Age requirements for various Commonwealth payments
Schedule 9—Exclusion periods
Schedule 10—Family tax benefit
Schedule 11—Pension age
Schedule 12—Date of effect for veterans’ disability pension
Date introduced: 18 June 2014
House: House of Representatives
Portfolio: Social Services
Commencement: Part 1 of Schedule 1; Schedules 2–9; and Schedule 12 on 1 January 2015. Schedule 10 on 1 July 2015. Part 2 of Schedule 1 on 1 July 2017. Part 3 of Schedule 1 on 20 September 2017. Schedule 11 and all other sections on 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 http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation
When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.
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Abbreviations
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Definition
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ACOSS
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Australian Council of Social Service
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ATI
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Adjusted taxable income
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ABS
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Australian Bureau of Statistics
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CSHC
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Commonwealth Seniors Health Card
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CPI
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Consumer Price Index
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DHS
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Department of Human Services
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DSS
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Department of Social Services
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DSP
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Disability Support Pension
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EdEP
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Education Entry Payment
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FAA
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A New Tax System (Family Assistance) Act 1999
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FTB
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Family Tax Benefit
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FTB-A
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Family Tax Benefit Part A
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FTB-A
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Family Tax Benefit Part B
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LFS
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Large Family Supplement
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MTAWE
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Male Total Average Weekly Earnings
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OECD
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Organisation for Economic Co-operation and Development
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PBLCI
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Pensioner and Beneficiary Living Cost Index
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PBS
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Pharmaceutical Benefits Scheme
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PES
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Pensioner Education Supplement
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PPS
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Parenting Payment Single
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PUP
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Palmer United Party
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SSA
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Social Security Act 1991
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SS Admin Act
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Social Security Administration Act 1999
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VEA
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Veterans’ Entitlements Act 1986
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The Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014 (the Bill) is an omnibus Bill and amends various social security, family assistance, veterans’ entitlements and income tax laws in order to implement a wide range of measures proposed in the 2014–15 Budget. The Bill is paired with the Social Services and Other Legislation Amendment (2014 Budget Measures No. 1) Bill 2014 (the related Bill).[1] Together these Bills implement almost all of the major social security measures proposed in the Budget. The Bill proposes amendments to implement the following measures:
- Schedule 1—pause indexation on a range of income and asset test thresholds, change the way pension rates are adjusted and reduce the deemed income thresholds:
– from 1 January 2015, pause indexation of the income free areas, assets value limits and income bank limits for student payments for three years
– from 1 July 2017, pause indexation of the income and assets test free areas for all pension payments and the deeming thresholds for all income support payments for three years
– from 20 September 2017, index pension payments to movements in the Consumer Price Index (CPI) only by no longer indexing to the higher of the CPI or the Pensioner and Beneficiary Living Cost Index (PBLCI) and benchmarking to a proportion of Male Total Average Weekly Earnings (MTAWE) and
– from 20 September 2017, reduce the deeming thresholds for social security and veterans’ payments to the level they were at when first set in 1996.
- Schedule 2—from 1 January 2015, limit the overseas portability period for Disability Support Pension (DSP) to 28 days in a 12-month period (with some exceptions for special circumstances)
- Schedule 3—from 1 January 2015, exclude payments made under the new Young Carer Bursary Programme from the social security and veteran’s entitlements income test
- Schedule 4—from 1 January 2015, include untaxed superannuation income in the income test for the Commonwealth Seniors Health Card (with products purchased before the commencement date exempt from the proposed measures) and extend the portability period for the card from six weeks to 18 weeks
- Schedule 5—from 1 January 2015, remove eligibility for relocation scholarships from students who need to relocate within or between major cities
- Schedule 6—from 1 January 2015, abolish the Pensioner Education Supplement
- Schedule 7—from 1 January 2015, abolish the Education Entry Payment
- Schedule 8—from 1 January 2015, change the age eligibility rules for Newstart Allowance and Youth Allowance (Other) so that those aged under 25 years can only receive Youth Allowance (Other)
- Schedule 9—from 1 January 2015, amend the participation requirements for those aged under 30 in receipt of Youth Allowance (Other) or Newstart Allowance; introduce six-month waiting periods for new applicants for these payments who are aged under 30; and only allow these payments to be paid for periods of six‑months at a time for recipients aged under 30
- Schedule 10—from 1 July 2015, pause indexation, reduce supplementary payments and tighten eligibility for Family Tax Benefit payments:
– limit the Family Tax Benefit Part A (FTB-A) large family supplement to families with four or more children
– remove the FTB-A ‘per-child add-on’, an amount added to the income test free area for families with two or more children
– reduce the FTB-A and Family Tax Benefit Part B (FTB-B) end-of-year supplement amounts to their original 2004 values
– limit FTB-B eligibility to families where the primary income earner has income of $100,000 or less (down from $150,000)
– limit FTB-B eligibility to families where the youngest child is aged under six years of age
– introduce a new allowance amount for single parents receiving the maximum rate of FTB-A but not receiving FTB-B for each child aged six to 12 years inclusive, to partially make-up for the loss of FTB-B.
- Schedule 11—increase the qualifying age for the age pension from 67 to 70, by gradually increasing the qualifying age by six months every two years from 1 July 2025 and
- Schedule 12—from 1 January 2015, remove the three month backdating from the date of claim for veterans’ Disability Pension.
Each Schedule proposes different kinds of measures affecting different categories of payment. This Digest will firstly address general issues relating to the financial implications of the Bill, the Coalition’s election commitments relating to pensions, the review of the welfare system currently in progress, and the positions of non-government parties in relation to the proposed measures. The Digest will then treat each Schedule of the Bill separately, providing brief background information, a summary of the issues and explanation of key provisions.
In total, the Bill outlines around $7.8 billion in savings measures. Some of the more significant measures, such as the changes to pension indexation and the pension qualifying age, will have the most impact in the years beyond the budget estimates period so this total savings figure should be considered only a preliminary amount, with the Bill having its real financial impact over the long term. The Explanatory Memorandum’s break down of the financial impact of the different measures is set out in Table 1.
Table 1: Financial implications
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Budget measure
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Financial impact over forward estimates period
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1. CPI only indexation for pensions from 20 September 2017
Pausing indexation of pension and student eligibility thresholds
Reduce the deeming rate thresholds
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Saving of $314.7 million
Saving of $191.6 million
Saving of $32.7 million
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2. Changed portability for DSP
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Saving of $12.3 million
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3. Young Carer Bursary Programme—income test exemption
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Cost of $3.0 million
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4. Commonwealth Seniors Health Card—include untaxed superannuation in income assessment and extend portability
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Saving of $20.9 million
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5. Remove relocation scholarship for certain students
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Saving of $290.1 million
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6. Abolish Pensioner Education Supplement
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Saving of $281.2 million over five years
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7. Abolish Education Entry Payment
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Saving of $65.4 million over five years
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8. Changed age eligibility rules for Youth Allowance (Other) and Newstart Allowance
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Saving of $508.4 million
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9. Changed participation requirements and new exclusion periods for Newstart and Youth Allowance for those aged under 30.
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Saving of $1,247.3 million
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10. Family Tax Benefit measures
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Saving of $4,777.3 million over five years
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11. Increase in the pension age from 67 to 70
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No impact over forward estimates
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12. No backdating of veterans’ Disability Pension
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Saving of $40.0 million
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Source: Correction to the Explanatory Memorandum, Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014, p. 2, accessed 1 July 2014.
Many of the measures in the Bill will affect pension payments, including recipients of the Age Pension, DSP, Carer Payment, and veterans’ pensions such as the Service Pension. The relevant measures include a change to the way pension payments are indexed; pauses on the indexation of income and asset test thresholds and a reduction in the deemed income thresholds; changes to the portability rules for DSP; the abolition of the Pensioner Education Supplement; and an increase in the age pension age. However, prior to the 2013 Election, the Coalition ruled out any changes to pension payments. For example, the then Opposition Leader, Tony Abbott, affirmed this commitment in an interview on 1 September 2013:
TONY ABBOTT: Look, there will be some further relatively modest savings announced later in the week but I don't think anyone is going to think at the end of this week "My God there is this massive fiscal squeeze coming.” If anything, what they will think is there has been a massive scare campaign, a massive campaign of exaggerations and even lies from the Labor Party.
BARRIE CASSIDY: Well put it this way, will the cuts impact on ordinary Australians?
TONY ABBOTT: Inevitably there will be some changes that people won't like, for instance…
BARRIE CASSIDY: Ordinary Australians will feel it?
TONY ABBOTT: …ending the so-called school kids bonus.
BARRIE CASSIDY: We know about that one.
TONY ABBOTT: I don't believe the additional savings to be announced later in this week, will impact on ordinary Australians. I want to give people this absolute assurance, no cuts to education, no cuts to health, no changes to pensions and no changes to the GST.[2]
And, at the National Press Club the following day:
In the last week of the campaign, Labor will say anything to sway your vote including the most bare-faced lies about the Coalition.
As Joe Hockey demonstrated last week, the Coalition can more than fund tax cuts without a carbon tax through the sensible savings that were announced months ago.
There are no cuts to health.
No cuts to education.
Pensions don’t change.
The GST doesn’t change.[3]
Since the pension changes were announced in the Budget, the Prime Minister has argued that this commitment has been kept because there are no changes to the pension in this term of Parliament:
PRESENTER: Mr Prime Minister, Jane Reilly here now. Look, in hindsight why did you promise all those things prior to the election - things like no cuts to education, health and no changes to the pensions?
PRIME MINISTER: Well, no changes to the pension - there are no changes to the pension in this term of Parliament so I think we’ve kept that commitment.[4]
The majority of the changes proposed by the Bill affecting pension payments will not commence until July and September 2017, after the next federal election. However, the changes to the portability rules for DSP, the abolition of the Pensioner Education Supplement (paid to disability, carers and widow pensioners who are undertaking approved study) and changes to the DSP contained in the related Bill are all due to commence in 2014 or 2015. The statements by the then Opposition Leader prior to the election did not make clear that the commitment to no pension changes only referred to the Age and Service pensions and only meant that any changes would not commence during the life of the next Parliament.
This Bill proposes a number of significant changes to Australia’s social security system. The Government is seeking to implement these changes in advance of the final report of the Review of Australia’s Welfare System, led by Patrick McClure.[5] The interim report of the review was released on 29 June 2014, the aim of which is to encourage public debate and discussion.[6] The closure date for submissions on the interim report is 8 August 2014. As such, neither stakeholder views nor the McClure review’s findings and recommendations on the future shape of Australia’s welfare system could be said to have influenced the changes contained in this Bill and the related Bill. Given that many of the proposed changes are substantial and have been introduced independent of the McClure review process, there is a risk they may compromise the Government’s objective of simplifying the current system.
The Opposition has stated that it opposes most of the measures proposed in the Bill and moved amendments in the House of Representatives to remove the relevant provisions from the Bill.[7] Specifically, the Opposition opposes:
- changing the indexation method for pensions
- lowering the deeming thresholds
- abolishing the Pensioner Education Supplement and Education Entry Payment
- changing the eligibility age requirements for Newstart Allowance and Youth Allowance (Other)
- introducing six-month waiting periods for new applicants for Newstart Allowance and Youth Allowance (Other) aged under 30
- reducing the Family Tax Benefit end-of-year supplements
- restricting eligibility for Family Tax Benefit Part B (FTB-B) to those whose youngest child is aged under six
- raising the Age Pension eligibility age to 70 and
- removing the three-month backdating provisions for the veterans’ Disability Pension.
Shadow Minister for Families and Payments, Jenny Macklin, stated: ‘Each and every one of these measures is a cruel attack on low and middle income Australians that they weren’t told about before the election. Labor will stand up for these people and against the Prime Minister’.[8]
The Opposition has stated that it will support the following measures contained in the Bill:
- pausing indexation of income and assets test thresholds (with the exception of the low income free areas)
- including untaxed superannuation income in the assessment of income for the CSHC
- reducing the FTB-B primary earner income limit from $150,000 to $100,000
- targeting the FTB Large Family Supplement to those with four or more children
- removing the FTB-A per child add-on
- limiting DSP portability and
- removing eligibility for the Relocation Scholarship for students relocating within and between major cities.[9]
The Opposition voted against the Bill in the House of Representatives.
The Australian Greens have been very critical of the welfare changes announced in the 2014–15 Budget but their position on each measure proposed in the Bill is not clear. Following the Budget, Senator Siewert stated:
… [it] represents a brutal and vicious attack on vulnerable people in our community, the young, people with disability, single parents and older Australians.
Tony Abbott is completely out of touch with people trying to live on payments like Newstart or Youth Allowance …
What does the Government think people will eat? Where does he think they will live? …
These cuts will fundamentally damage our society.[10]
Greens leader Christine Milne stated the party would ‘block these cruel budget cuts’ but it is unclear whether each of the specific measures will be opposed.[11] Greens MP Adam Bandt voted against the Bill in the House of Representatives.
The Palmer United Party’s (PUP) position on all the measures proposed in the Bill is not clear. Party leader, Clive Palmer, has stated that PUP will oppose the pension changes, particularly raising the pension age, and the proposed six month waiting period for young people to access Newstart Allowance or Youth Allowance (Other). Mr Palmer stated, ‘…we're not going to desert our pensioners, we're not going to desert our young people. We're going to stand here to protect our way of life’.[12] The PUP committed to increasing the Age Pension payment rate by 20 per cent at the 2013 Election.[13] In regards to the waiting period, Mr Palmer stated that his party would support a waiting period of ‘one minute but that’s about it’.[14]
Mr Palmer did not vote in the division on the Bill in the House of Representatives.
A number of crossbench Senators have expressed concern at the six-month waiting period for young people to access Newstart Allowance and Youth Allowance (Other). Family First Party senator Bob Day, Liberal Democratic Party senator David Leyonhjelm, Motoring Enthusiast Party senator Ricky Muir and Independent senator Nick Xenophon have all reportedly expressed concerns at the measure.[15] Senators Leyonhjelm and Day have reportedly threatened to block the measures and demanded changes to workplace relations laws.[16]
The Australian Council of Social Service (ACOSS) has developed a package of resources analysing the budget measures, including those contained in the Bill, and setting out its position on the various measures.[17] ACOSS has expressed serious concerns with the measures proposed in the Bill and expressed broad concerns at any restrictions on access to income support for young jobseekers, any measures that erode the value of income support for people at risk of poverty and any reductions in FTB payments for low and middle income earners.[18] ACOSS is opposed to the majority of the measures in the Bill but has expressed support for some measures and proposed amendments to others.[19]
COTA Australia has criticised the measures affecting pensioners, describing them as ‘an unprecedented attack on the quality of life of Australian pensioners’. Chief Executive of COTA Australia, Ian Yates, stated that the new indexation arrangements ‘will be a huge backward step and are likely to mean pensioners will again spiral into poverty’. Mr Yates said that there was widespread opposition to raising the pension age and that:
There needs to be a comprehensive review of the ageing population and retirement requirements which looks at pensions, superannuation and mature age employment in its entirety instead of making piecemeal decisions which at the moment seem to target those who can least afford it.[20]
The National Welfare Rights Network has also criticised many of the measures proposed by the Bill, particularly their impact on the unemployed, young people, single parents and people with disability. Director Maree O’Halloran stated the new exclusion periods for young jobseekers accessing income support ‘heralds the beginning of the Americanisation of Australia’s welfare system … This extreme proposal is a recipe for increased homelessness, poverty and social division’.[21] Ms O’Halloran stated that cuts to FTB will ‘send families to the poorhouse’ and that the abolition of the Pensioner Education Supplement was ‘counter-productive’.[22]
Affected interest groups, such as veterans groups, are likely to provide detailed comments on the Bill via the Senate committee inquiry (see next section).
The Bill and the related Bill have been referred to the Senate Community Affairs Legislation Committee for inquiry and report by 4 September 2014.[23]
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.[24] The Government considers that the Bill is compatible.
The Parliamentary Joint Committee on Human Rights’ Ninth Report of the 44th Parliament has, however, expressed concerns in regards to most of the measures proposed by the Bill.[25] The Committee, chaired by Government Senator Dean Smith, has sought further advice from the Minister for Social Services as to whether many of the measures are compatible with the right to social security and the right to an adequate standard of living. The Committee has also sought advice from the Minister as to whether a number of measures are compatible with the right to equality and non-discrimination. The Committee expressed concern that some of the measures involve differential treatment on the basis of disability and that some of the FTB changes may have a ‘disproportionate and therefore discriminatory effect on women’.[26]
Schedule 1 proposes amendments to the Social Security Act 1991 (the SSA), the Veterans’ Entitlements Act 1986 (the VEA) and the Income Tax Assessment Act 1997 to:[27]
- pause indexation on the income and asset test thresholds for student payments from 1 January 2015 and for all pension payments from 1 July 2017
- change the way pension rates are indexed, so that the Pensioner and Beneficiary Living Cost Index (PBLCI) is no longer included in the indexation process, and pension rates are no longer benchmarked to Male Total Average Weekly Earnings (MTAWE), from 20 September 2017 and
- reduce the deemed income thresholds for all social security and veterans’ payments.
The measures were announced in the 2014–15 Budget and are expected to realise savings of $539.0 million over four years.[28]
Within the social security system there are a range of payments intended to provide a basic income for those without adequate means of support. The two main categories of payment are pensions and allowances, with payments within each category having similar rates and means testing arrangements. Pensions are generally paid to those not expected or able to earn an income from work and include the Age Pension, Disability Support Pension, Carer Payment, Wife Pension, Widow B Pension and a range of payments for veterans and their dependents including Service Pension and War Widows Pension. Parenting Payment Single was previously referred to as a pension but since September 2009, its payment rates and indexation methods have differed and it now sits outside this category. Allowances are paid to those looking for work or undertaking study/training and include Newstart Allowance, Parenting Payment Partnered, Youth Allowance, Austudy and ABSTUDY. The three latter payments paid to those undertaking study or an apprenticeship are referred to as student payments.
In the social security system, indexation refers to the adjustment of a set amount, such as a payment rate, in line with movements in an economic measure, usually the Consumer Price Index (CPI).[29] The CPI is a measure of changes in the prices paid by households for a fixed basket of goods and services. Adjusting (or indexing) payment rates in line with movements in the CPI, maintains their ‘real’ value over time, in the sense that the payment should be able to purchase the same amount of goods and services over time. Adjusting income and asset test amounts in the same way ensures the relevant thresholds for reducing payments maintain the same real value over time.
Currently, many amounts are automatically indexed on a yearly or twice yearly basis, according to formulas set out in social security, family assistance or veterans’ entitlements law.[30] This has not always been the case and previously many amounts were only adjusted on an ad hoc basis, though typically in line with CPI movements.[31]
Part 1 of Schedule 1 proposes to pause, for three years, the indexation of the current income and asset test thresholds for student payments from 1 January 2015 and for pension payments from 1 July 2017.[32] The student income bank limit will also have its indexation paused. These measures match similar indexation pauses on the income and asset test thresholds for allowance payments, proposed by the related Bill. The pause affecting allowance payments was intended to commence on 1 July 2014.
Means testing and thresholds
Income support payments are means tested to ensure they are targeted at those without adequate means to support themselves. The amount of income or assets a person is able to draw on to support themselves is assessed to determine eligibility for payments and if this amount is over a relevant threshold, the person may receive a reduced payment or may not be considered eligible at all.
Income test thresholds
For student payments (Youth Allowance for students and apprentices, Austudy and ABSTUDY), an individual can earn $415 per fortnight in income before their payment begins to be reduced (by 50 cents for each dollar of income between $415 and $498 per fortnight and by 60 cents for each dollar of income above $498 per fortnight).[33] Students and apprentices who earn under the $415 threshold amount in a particular fortnight can save the difference as a credit in what is called the student ‘Income Bank’.[34] These credits can then be used to offset income that goes over the $415 threshold in a later fortnight, allowing the student to keep more of their income support payment. Up to $10,300 worth of credits can be accumulated in the Income Bank for students. Apprentices can only accumulate $1,000 worth of credits.
For pension payments, the income test thresholds vary depending on a whether a person is single or partnered. A single pensioner can earn $160 per fortnight and still receive a full pension while a couple’s combined income can be up to $284 per fortnight.[35] For each dollar of income over the threshold amount (or ‘free area’), a single pensioner loses 50 cents of their payment while a partnered pensioner loses 25 cents of their payment.
Student payment income test thresholds and the Income Bank limits are usually indexed on 1 January of each year by movement in the CPI. Pension income test thresholds are usually indexed to CPI on 1 July of each year.
Asset test thresholds
The main asset test thresholds for all allowances, student payments and pension payments are set out in Table 2.[36]
Table 2: Asset test thresholds, as at 1 July 2014
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Family situation
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For homeowners
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For non-homeowners
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Single
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$202,000
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$348,500
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Couple (combined)
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$286,500
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$433,000
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One partner eligible (combined assets)
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$286,500
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$433,000
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Illness separated pensioner couple (combined)
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$286,500
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$433,000
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Source: Department of Human Services (DHS), ‘Assets’, DHS website, accessed 2 July 2014.
Allowances, student payments and Parenting Payment are not payable where a person has assets that exceed these amounts. Pension payments are reduced by $1.50 per fortnight for every $1,000 of assets above these amounts (single and couple combined).[37]
These amounts are usually indexed on 1 July of each year according to movements in the CPI.
Impact of indexation pause
Pausing indexation (that is, not adjusting the threshold amounts) is a simple way of finding budget savings without directly cutting benefits or limiting eligibility. The threshold amounts will decline in real value over time and savings arise as payment rates are reduced as recipients’ income and assets gradually increase beyond the relevant thresholds.
Part 2 of Schedule 1 proposes to change the way pension payments are indexed from 20 September 2017, so that only the CPI is used and the PBCLI and MTAWE measures are removed from the adjustment formula.
The adjustment of pension rates is anomalous in the social security system in making use of both the CPI and a separate index, the PBLCI, as well as making use of a ‘benchmark’.[38] Currently, pensions (including the Age Pension, Veterans’ Service Pension, Disability Support Pension and Carer Payment) are indexed twice each year by the greater of the movement in the CPI or the PBLCI. They are then benchmarked against a percentage of MTAWE. The combined couple rate is benchmarked to 41.76 per cent of MTAWE; the single rate of pension is set at 66.33 per cent of the combined couple rate (which is equal to around 27.7 per cent of MTAWE).[39] ‘Benchmarked’ means that after it has been indexed, the combined couple rate is checked to see whether it is equal to or higher than 41.76 per cent of MTAWE. If the rate is lower than this percentage, the rates are increased to the appropriate benchmark level.
The PBLCI is another method for measuring changes in costs. It is different from the CPI in that, instead of measuring changing prices in a fixed basket of goods as experienced by the general population, it measures the effect of changes in prices of the out-of-pocket living expenses experienced by age pensioner and other households whose main source of income is a government payment. The PBLCI is designed to check whether the disposable income of these government payment recipients has kept pace with price changes.
The use of the MTAWE benchmark serves a different purpose from indexation generally, it is not intended to maintain the value of the pension relative to costs; rather, it is seen as ensuring pensioners maintain a certain standard of living, relative to the rest of the population.
Brief history of pension indexation
Prior to 1976, pensions were generally not automatically indexed to movements in prices. Instead, rates were adjusted on an ad hoc basis, typically reflecting upward movements in the CPI. In the early 1970s, the Labor Party under Whitlam announced a commitment to gradually lift the pension rate to 25 per cent of Average Weekly Earnings (AWE).[40] The Whitlam Government’s policy was that pensions should rise until they reached 25 per cent of AWE.
The Fraser Government, in October 1976, introduced automatic increases twice yearly, according to movements in the CPI (though this was briefly reduced to an annual increase in 1978–79).[41]
Gradually increasing single pension rates to 25 per cent of MTAWE and maintaining them at that level was a policy of the Hawke and Keating Governments.[42] A series of increases above the CPI factor saw the single pension rate increase from 24 per cent of MTAWE in 1982 to 25.8 per cent of MTAWE in 1996.[43]
Automatic benchmarking of the single rate of age pension to 25 per cent of MTAWE was legislated by the Howard Government and took effect from September 1997.[44] This was despite the 1996 National Commission of Audit stating its opposition to automatic benchmarking.[45]
Following the Harmer Review of Pensions in 2009, the Rudd Government introduced the current indexation method (whereby pensions are first indexed according to the CPI and the PBCLI and then benchmarked according to the MTAWE), and increased the single pension rate by $30 to improve its relativity to the couple rate.[46]
Impact of MTAWE benchmarking
Linking pension rates to MTAWE has had a marked impact with pension rates rising at a much higher rate than other social security payments which are only indexed to CPI. In September 1997, the maximum basic single pension rate was around $347.80 per fortnight while the maximum single rate of Newstart Allowance was around $321.50 (worth around 92 per cent of the pension rate). Currently, the maximum basic single pension rate is $766.00 per fortnight while the Newstart Allowance rate is $510.50 per fortnight (now worth only around 67 per cent of the pension rate). The main reason for this growing gap is the MTAWE benchmarking of pensions: over the period since the MTAWE benchmark was legislated for, wages have grown considerably more than prices (as measured by the CPI), as shown in Figure 1:
Figure 1: CPI movements compared to MTAWE June 1997–June 2013
Source: Parliamentary Library estimates based on data from ABS, Average weekly earnings, Australia, November 2013, cat. no. 6302.0, ABS, Canberra, February 2014 and ABS, Consumer price index, Australia, March 2014, cat. no. 6401.0, ABS, Canberra, April 2014, accessed 30 July 2014.
Note: the data for the ABS’ Average weekly earnings survey was previously collected quarterly, but moved to a biannual publication in 2012. The data in the chart only uses the biannual data (original, unadjusted). The MTAWE reference is for May and November each year. For the purposes of the chart above, the May observation has been shown as relating to June and the November observation as relating to December so as to align the series with CPI.
2009 changes to indexation
The Harmer Review of Pensions examined the issues relating to indexation and benchmarking in detail. It found that while there were considerable issues with indexing rates to prices (particularly using the CPI) and with benchmarking to a relative community standard (particularly using MTAWE), it recommended that a two-part approach continue. The report of the Review found that:
… each component acts as a stabiliser to the weaknesses of the other. Benchmarking can provide an effective link to changes in living standards, something a price index cannot do, while the use of a price index protects pensioners in the case of any surge in costs that might otherwise act to reduce their living standards. The dual mechanism also reduces the risk associated with the compounding of any small discrepancies in the price index over time.[47]
The Review found that the way the CPI is calculated meant that, at times, it did not accurately reflect the impact of particular price changes on the living costs of pensioners and other income support recipients. That is, because the CPI is a general measure of price inflation across households, it does not reflect the way actual price changes impact on particular households and this has implications for using the index to set income support payment rates.[48] The review recommended the development of the PBLCI to address some of the issues with applying the CPI to pension indexation and this recommendation was implemented by the Rudd Government.
The Review also found there were major limitations with using MTAWE as a measure of community living standards as this particular measure would be skewed by changes in the proportion of full and part-time employees and by income changes amongst high-income earners, and it would not reflect changes in the wellbeing of the community in general.[49] MTAWE is also limited by only depicting earnings rather than disposable (after-tax) income. The Review considered that a measure of the net income of an employee on median full-time earnings would be a more appropriate measure for the purposes of setting a benchmark.[50] However, the Rudd Government did not adopt this recommendation and maintained the MTAWE benchmark.
The other major part of the 2009 reforms was an increase in the single rate of pension, intended to improve its relativity to the couple rate. The Review had found that single pensioners living by themselves were finding it much more difficult to meet their living costs compared to couple pensioners.[51]
Which indexation factor drives rate increases?
As noted above, since it was legislated, the MTAWE benchmark has been the main driver of pension rate increases. The Harmer Review found that of the 23 pension indexation points preceding the 2009 report, 15 pension increases had been driven by the MTAWE benchmark and eight by CPI indexation. The introduction of the PBLCI has slightly dampened the influence of the MTAWE benchmark: the new index has driven three of the ten pension increases since it was introduced in 2009:
Table 3: Pension increases by indexation factor used, 2009–2014
|
Date
|
20 Sept. 2009
|
20 March 2010
|
20 Sept. 2010
|
20 March 2011
|
20 Sept. 2011
|
|
Combined couple rate of maximum basic pension ($ p/f)
|
$928.40
|
$971.20
|
$992.60
|
$1011.40
|
$1038.80
|
|
Single maximum basic rate of pension ($ p/f)
|
$615.80
|
$644.20
|
$658.40
|
$670.90
|
$689.00
|
|
Index/benchmark used
|
PBLCI (plus one-off increase in single rate)
|
MTAWE
|
PBLCI
|
MTAWE
|
PBLCI
|
|
|
|
Date
|
20 March 2012
|
20 Sept. 2012
|
20 March 2013
|
20 Sept. 2013
|
20 March 2014
|
|
Combined couple rate of maximum basic pension ($ p/f)
|
$1048.20
|
$1073.40
|
$1106.20
|
$1133.20
|
$1154.80
|
|
Single maximum basic rate of pension ($ p/f)
|
$695.30
|
$712.00
|
$733.70
|
$751.70
|
$766.00
|
|
Index/benchmark used
|
MTAWE
|
MTAWE
|
MTAWE
|
MTAWE
|
CPI
|
P/f: per fortnight.
Source: Ministerial media releases and DSS, ‘5.2.2.10 Maximum basic rates of pension – July 1909 to present date’, Guide to Social Security Law, DSS website, accessed 3 July 2014.
Sustainability of pensions
The Government has stated that the main purpose of its changes to pensions, including the changed indexation method, is to ‘make pensions sustainable and affordable for decades to come’.[52] In his budget speech, the Treasurer stated:
With these changes, pensions will always increase with the cost of living, and the value of the pension will continue to rise, but the system will be much better placed to meet the challenge of a significant increase in demand as our population ages.
We should celebrate the fact that Australians are living longer, but we must prepare for the adjustments in our society.[53]
The Age Pension is currently the second most expensive Commonwealth program (after grants to the states and territories) and is estimated to cost $42.1 billion in 2014–15, rising to an estimated $49.7 billion in 2017–18.[54] It represents around 10.1 per cent of the Commonwealth’s annual expenditure. DSP is considered the fifth most expensive program (after Medicare services and Family Tax Benefit) and is estimated to cost $16.9 billion in 2014–15, rising to $18.5 billion in 2017–18. The budget papers noted that the Age Pension was the principal driver of growth in spending on social security and welfare with expenditure on the payment expected to grow 4.2 per cent in real terms from 2013–14 to 2014–15 and by 9.6 per cent in real terms from 2014–15 to 2017–18 (primarily due to demographic changes). The budget measures are projected to have a significant impact, slowing growth in spending on the Age Pension to 2.2 per cent.[55]
The ageing population will place significant pressure on the Commonwealth’s budget, particularly if reliance on the Age Pension continues at current rates. The 2010 Intergenerational Report projected that expenditure on the Age Pension would rise from 2.7 per cent of Gross Domestic Product (GDP) in 2010 to 3.9 per cent of GDP in 2049–50.[56] Expenditure on other pensions such as DSP and Carer Payment were projected to rise by only modest amounts over the same period. While growth in superannuation assets will help reduce the reliance on the Age Pension over time, Treasury projections indicate that close to 80 per cent of those over Age Pension age will still receive some amount of Age Pension in 2049–50.[57]
Changing the indexation method for pensions, combined with the increase in the Age Pension age proposed by Schedule 11 of the Bill, will slow the rate of growth in expenditure. However, these measures were not the only options open to government for reducing spending on pensions over time—changes to superannuation, such as raising the superannuation eligibility age so that it is closer or the same as the Age Pension age, could help to reduce the number of people reliant on pensions in the long term.[58] Tightening means testing, particularly around assets testing and the treatment of the family home could also help to reduce outlays on the Age Pension through more effective targeting.[59]
National Commission of Audit recommendations
The National Commission of Audit was of the view that changes needed to be made to reduce expenditure on the Age Pension but did not recommend scrapping benchmarking or the use of the PBLCI. Instead, it recommended the benchmark make use of Average Weekly Earnings (AWE) rather than MTAWE (AWE measures average earnings of all workers and is lower than MTAWE) and the single rate of pension be set at 28 per cent of AWE.[60] The Commission noted that any changes to Age Pension arrangements needed to be phased in slowly:
Many Australians make significant decisions in the lead up to their retirement and it is essential that ample warning be provided to future retirees of any significant changes to Age Pension arrangements. The approach should be to phase in implementation of major changes to avoid significant impacts for those in retirement or those nearing retirement.[61]
With this in mind, the Commission recommended that its benchmarking recommendation be phased in over a 15 year period. [62]
The Government has taken much more drastic steps to slow the rate of pension increases than proposed by its Commission of Audit and has ignored concerns expressed by the Commission that any changes should be implemented slowly.
‘Fair indexation’ and consistency across payment types
The main argument, other than sustainability, used in support of the changes is that it makes indexation arrangements consistent across social security and veterans’ payments.[63] This is a good outcome from a pure policy perspective and will stop the gap between pensions and allowances from growing further.
However, inconsistencies in the Government’s use of different indexation methods will persist. The Government recently passed legislation applying the current pension indexation arrangements to some military superannuation benefits. The Coalition has, for a long time, described this as applying ‘fair indexation’ to these military superannuation benefits.[64] In 2013, the then Shadow Minister for Veterans’ Affairs, in committing to change the use of CPI only to index these military superannuation benefits, stated:
CPI has not been a measure of cost- of-living for at least 15 years ...
Aged pensioners don’t have their index assessed in this way so they [military superannuants] are falling further and further behind.
It’s basically unfair where they’re at and they deserve a fair go and we’re going to give it to them.[65]
The measures proposed in the Bill will reverse this ‘unfair’ situation so that the means tested Service and Age Pensions will only be indexed to CPI, while a relatively small number of military superannuants, belonging to schemes which are now being closed to new entrants, will benefit from CPI/PBLCI indexation and benchmarking to wages.
Comment
The proposed changes to indexation will mean the end of automatic real increases in pension rates but will maintain the real value of the payment rates over time. Massive savings are likely, although they have not been included in the forward estimates due to the delayed implementation of the measure until after the next election. Pensioners will see lower increases in their payments than would have been anticipated, and will gradually fall behind in relative measures of income and living standards. However, the pension’s relativity with other income support payments will be maintained.
In arguing for the measure, the Government has cited a need to reduce growth in expenditure on age pensions and for consistency across payments. In doing so, it has not addressed key questions relevant to indexation, including:
- should government payments keep pace with price changes and what is the best measure of price changes to use in adjusting income support payments?
- are income support payments adequate—what level of support should be offered to those reliant on government assistance?
- is there a minimum standard of living that income support recipients are entitled to—if so, how should it be measured and what is the best way of maintaining it over time?
These are the kinds of questions examined in detail in the Harmer Review of Pensions, but put aside by the Government in the drive for expenditure reductions.[66]
Part 3 of Schedule 1 proposes to reduce the deemed income thresholds used in the income tests for social security and veterans’ payments. Under social security and veterans’ entitlement arrangements there is means testing applied to recipients. Deemed income, or ‘deeming’, is the method used to assess income derived from financial assets such as bank accounts, term deposits and share portfolios.
The means test for income support payments treats financial investments as both assets (capital that can be drawn on if needed) and as sources of income (for example, interest on bank deposits or dividends on share investments). Only one of these tests applies in setting payment rates. For pension payments, assets and income over certain thresholds can reduce the rate of payment or preclude payment altogether—whichever test results in the lower rate (or nil rate) applies. For other types of payment, such as Newstart Allowance, assets over a certain value will preclude payment altogether while income over certain thresholds will reduce payment rates.
Rather than trying to account for actual income derived from different types of financial investments, the means test ‘deems’ that investments are earning a certain rate of income based on the value of the assets.
The rationale for deeming is that:
- it is simple
- it provides a similar assessment for investors who have the same amount of financial assets
- it reduces the extent to which income support payment rates fluctuate
- it increases incentives for self-provision because returns above the deemed rate are not counted as income and
- it encourages investors to choose investments based on their own merit, not on how it will impact on their pension payment.[67]
The deemed rate of income increases with the value of the assets. The rate is applied to the total value of all financial assets subject to deeming. Currently a deeming rate of two per cent applies to the first:
- $48,000 of a single person’s total financial investments
- $79,600 of a pensioner couple’s total financial investments and
- $39,800 of total financial investments for each member of a couple in receipt of an allowance payment (such as Newstart Allowance).[68]
A deeming rate of 3.5 per cent applies to financial investments above these amounts. The thresholds at which the higher deeming rate applies are indexed in line with movements in the CPI in July of each year (though amendments proposed in part 1 of Schedule 1 will pause the indexation of these amounts for three years from 1 July 2017).[69]
The Bill proposes to reduce the threshold amounts to:
- $30,000 for a single person’s total financial investments
- $50,000 for a pensioner couple’s total financial investments and
- $25,000 for the total financial investments for each member of a couple in receipt of an allowance payment.
The reduced thresholds will apply from 20 September 2017.
How are deeming rates set
Deeming rates are determined by the Minister for Social Services and they can be changed at any time by a ministerial determination. This usually occurs when there is a significant change in earnings rates that can be realised and it appears that this change is long-term. Deeming rates should reflect rates of return available from a range of financial investments including earnings rates from equities, markets and bond rates (not only cash rates).
Advantages and disadvantages of deeming
The use of deemed income as opposed to actual income in social security means testing is often criticised because delays in changes to the deeming rates can disadvantage some payment recipients whose assessed income is larger than their actual return from investments. However, deeming also advantages many payment recipients whose returns are much greater than the deeming rate. Delays in changing the deeming rate will mean that larger returns from their investments are not assessed by the income test.
Impact of the reduction in deeming thresholds
The Bill proposes to reduce the deeming thresholds to the same level as when deeming was first introduced in 1996. So, for example, the deeming threshold for single people will drop from $48,000 to $30,000. Amendments provided for in Part 1 of Schedule 1 of the Bill will also mean that the deeming thresholds will not be indexed for three years from 1 July 2017. The threshold reduction will commence on 20 September 2017, and the indexation pause means that the rates will remain the same until 1 July 2020.
The measure will affect any pensioner with financial investments subject to the deeming provisions as a higher amount of income will fall under the income test. For example, a single person with $100,000 in financial assets would have an additional $270 included in the income test under the reduced thresholds compared to the current levels (assuming the same deeming rates applied).
Part 1—Amendments commencing 1 January 2015
Item 1 inserts new subsections 1192(5AC), (5AD) and (5AE) to:
- pause indexation of the Youth Allowance and Austudy income free area, student income bank limit and assets value limit for three years from 1 January 2015 so that the next indexation of these amounts will occur on 1 January 2018 and
- pause indexation of the pension income free area, the pensioner assets value limits and the deeming threshold amounts for three years from 1 July 2017 so that the next indexation after this date will occur on 1 July 2020.
The provisions relating to the pension income free area make clear that this does not apply to the Parenting Payment (Single) income free area—which is usually the same as for pension payments. The related Bill proposes to pause indexation of the Parenting Payment (Single) income free area for three years from 1 July 2014.
Item 2 replaces subsections 59C(2A) and (3) with new subsection 59C(3) which provides for the veterans’ pension income free area, the assets value limits and deeming thresholds to not be indexed for three years from 1 July 2017. The next indexation of these amounts after this date will occur on 1 July 2020.
Part 2—Amendments commencing 1 July 2017
Items 4–6 remove references in Division 2 of Part 3.16 of the SSA to PBLCI indexation so that the pension indexation method refers to CPI indexation only.
Item 7 repeals section 1195 of the SSA which provides for the benchmarking of pension payments to a percentage of MTAWE.
Item 8 repeals Division 3 of Part 3.16 of the SSA which provides for the indexation of pension payments to PBLCI.
Items 9–13 make similar amendments to remove references to PBLCI indexation and MTAWE benchmarking and repeal the provisions setting out indexation to PBLCI and MTAWE adjustments in Division 18 of Part IIIB of the VEA.
Part 3—Amendments commencing 20 September 2017
Item 14 proposes to replace subsections 1081(1) and (2) with identical subsections. The application provision at item 17 states that the amendment made by item 14 is to apply for working out deemed income for days on or after 20 September 2017. The application provision ensures that the deeming thresholds used for the income test are reset to their original value.
Item 15 repeals a note at subsection 1081(3) referring to indexation on every 1 July and replaces it with a note referring to indexation of the amounts as set out in sections 1190 to 1192.
Item 16 inserts new subsections 1192(7A) and (7B) providing for the indexation of the deeming thresholds that occurs on 1 July 2020 to use the reset amounts. Indexation of the reset thresholds is paused for the years 2017, 2018 and 2019 as a result of amendments proposed by item 1.
Item 18–20 make similar amendments to the VEA as were made to the SSA by items 14–17.
Schedule 2 proposes to reduce the general portability period for the Disability Support Pension (DSP) from six weeks down to four weeks in a 12 month period. The measure was announced in the 2014–15 Budget and is to apply from 1 January 2015.[70] The measure is expected to realise savings of $12.3 million over five years.[71]
The term ‘portability’ refers to the continuation of income support payments during a recipient’s overseas absence. Portability has been a feature of the Australian social welfare landscape in one form or another since 1973.[72] For most payments, portability applies to a person who is overseas only during a temporary absence and payment is made for a short period—mostly up to six weeks at a time. There are a few payments that can be paid where a person leaves Australia permanently to reside overseas.[73] Where a person leaves Australia for an absence that is not temporary and their payment is not payable overseas, payment is stopped on departure. An example is Newstart Allowance which is not normally payable at all while the person is absent overseas.[74]
It is a requirement under the Social Security (Administration) Act 1999 that if a person intends to leave Australia they must notify Centrelink of their intention to do so.[75]
Section 1217 in the SSA allows DSP to be paid during a temporary absence of up to six weeks.[76] For this six week temporary absence there is no purpose requirement applied, that is, the absence can be for any reason. There are exceptions for severely disabled DSP recipients who are in the terminal phase of a terminal illness. They can have unlimited portability if they are departing permanently to their country of origin, or to be with, or near, a family member. Terminal phase of a terminal illness means a life expectancy of less than two years.[77]
Recent changes to the portability rules
The previous Government made substantive changes to the temporary portability rules arising out of the
2012–13 Budget.[78] These measures saw the reduction of the temporary portability periods for a significant number of working-age payments from 13 weeks to six weeks.
Proposed change to the portability of Disability Support Pension
This Schedule proposes to do two things to the DSP temporary portability provisions. Firstly, it proposes to reduce the temporary absence period from six weeks down to 28 days. It also proposes that only up to a cumulative 28 days can be taken over a 12 month period. Currently, the temporary absence period for DSP is six weeks, but more than one six week period can be taken in any 12 month period.
Separate provisions will allow for temporary absences of four weeks for particular purposes: to seek eligible medical treatment, to attend to an acute family crisis or for a humanitarian purpose. Allowable absences for these reasons will not be cumulative.
The Schedule makes no proposed changes to the permanent portability of DSP which only applies in special circumstances – see above.
The Statement of Compatibility with Human Rights states the policy objective behind this measure is:
… to strengthen the residence basis of Australia’s social security system by requiring most DSP recipients to be present in Australia for the great majority of the year and, where they have the capacity to do so, engage in activities that will assist them to participate socially and economically.[79]
Similarity of this proposal to proposed portability change for student payments
The reduced portability for DSP has a parallel with another 2014–15 Budget measure: amending the portability rules for the main income support payments for students and apprentices. These payments are Youth Allowance, Austudy and ABSTUDY. The measure will restrict payment during temporary absences for students and apprentices to a maximum six weeks for the purposes of seeking eligible medical treatment or to attend an acute family crisis.[80] Currently, recipients of these payments can be temporarily outside Australia for up to six weeks for any reason and continue to receive payment.
An exception to the rules allows for students to continue receiving payment for periods longer than the normal portability period while undertaking studies overseas. The studies must form part of a course of education undertaken at an approved education institution (this exception is not being amended by the proposed measure).[81]
Item 2 inserts a new note at subsection 1215(1) of the SSA specifying that the Secretary must cancel a DSP’s recipient’s payment if their period of absence extends beyond the person’s portability period. Subsection 1215(1) sets out that a payment is not payable to a person if any overseas absence occurs after the end of the allowable portability period and section 80 of the SS Admin Act allow the Secretary to cancel or suspend payments not considered payable. The proposed amendments, together with amendments to the SS Admin Act proposed by items 8 and 9, single out DSP as a payment that must be cancelled rather than suspended if a person exceeds their portability period. The amendments to the SS Admin Act prevent the Secretary from suspending a person’s DSP payment where it has been determined to be not payable because they have exceeded the allowable portability period—in effect, the Secretary is obliged to cancel the payment in such cases. The cancellation in such cases will take place immediately after the end of the portability period.
The amendments allow no discretion on the Secretary’s behalf to only suspend, rather than cancel, a payment. The Explanatory Memorandum and the Minister’s second reading speech give no explanation as to why DSP is being targeted specifically in this way. Other payments allow for a greater level of discretion on the Secretary’s part in terms of determining whether a payment should be suspended or cancelled. The measure may reflect concerns expressed by the Minister for Social Services, Kevin Andrews, regarding DSP recipients living overseas.[82] Cancellation of the payment will require a person to reapply for DSP upon return to Australia, serve any relevant waiting periods, and may mean they are subject to different eligibility requirements compared to when the person originally applied for the payment (there have been significant changes to DSP eligibility requirements over the last decade, such as the 2006 Welfare to Work changes and recent updates to the impairment tables).[83] It is unclear why an obligation to cancel these payments is being imposed without similar obligations applying to other payments with time-limited portability.
Item 3 replaces paragraph 1217(2)(b) of the SSA to specify that the four-week limited portability period is limited to four-weeks per 12 month period rather than per temporary absence. Currently, a person may have a number of temporary absences of less than the six-week limit that applies to DSP, but there are no cumulative limits. The amendment will apply a cumulative 28 day limit on allowable absences, based on any days of absence taken in the last 12 months. Again, it is unclear why only DSP is being subject to this cumulative portability period rule while other payments with time-limited portability will not be subject to this kind of condition.
Item 6 amends the table at section 1217 of the SSA which sets out the portability periods for social security payments. The item replaces table item 2 to set out that temporary absences for DSP recipients are generally limited to a period of 28 days, whether consecutive or not, for any purpose in the previous 12 months. The item also inserts a new table item 2AA to set out that temporary absences of four weeks are allowed for particular purposes: to seek eligible medical treatment, to attend to an acute family crisis or for a humanitarian purpose. This four week period is not cumulative.
Item 10 sets out application provisions and ensures that any temporary absences that occurred before the commencement of the measure will not count towards the cumulative 28 day limit. Furthermore, the measure will not apply to temporary absences if transportation contracts were made prior to 14 May 2014 (the day the measure was announced) that cover the person’s travel from Australia at the start of the absence period and their return prior to 1 January 2016. This provision will protect those who made travel bookings prior to the new portability periods being announced.
The expected savings are likely to arise from the cancellation of payments to those who take extended or multiple trips overseas. DSP recipients will need to be notified of the changed arrangements to ensure that people are not caught out inadvertently and that any planned holidays or temporary absences do not exceed the maximum limits.
Schedule 3 proposes amendments to the SSA and VEA to make payments under the new Young Carer Bursary Programme exempt under the income test for social security and veterans’ payments.
The establishment of a Young Carer Bursary Programme was a Coalition election commitment.[84] The Coalition’s policy stated that many young carers find it difficult to find time for their caring and work responsibilities as well as time for study.[85] Many forgo study in order to earn income from paid work. The program will provide bursaries of up to $10,000 per annum for young carers aged 25 years or under who are undertaking study. Up to 150 annual bursaries are proposed and the 2014–15 Budget allocated $3.0 million over four years to fund the program.[86] The program is to commence from 1 January 2015. Further details of the program are yet to be released.
Item 1 adds a payment of a bursary under the Young Carer Bursary Programme to the list of amounts excluded from the definition of income for the purposes of the SSA, at subsection 8(8).
A similar amendment is made to the VEA to exclude these bursaries from the definition of income at subsection 5H(8).
Schedule 4 proposes amendments to the SSA and the VEA to provide for untaxed superannuation income to be included in the assessment of income that determines eligibility for the Commonwealth Seniors’ Health Card (CSHC) (with products purchased before 1 January 2015 by existing cardholders to be made exempt from the measure). Schedule 4 will also operate to relax the rules on portability, extending the portability period for cardholders from six weeks to 19 weeks.
The CSHC assists certain seniors with the cost of prescription medicines and other health services. The card is targeted at self-funded retirees of age pension age who do not qualify for the Age Pension because of their level of income or assets. It currently provides access for card holders to the Seniors Supplement and Clean Energy Supplement payments; however, amendments in the related Bill will abolish the Seniors Supplement and pay only the Clean Energy Supplement component.[87] Age Pension recipients receive the Pensioner Concession Card which provides holders with different entitlements to those of CSHC holders. As at March 2014, there were 284,562 CSHC holders; a slight increase on June 2013 when there were a total of 283,591 CSHC holders.[88]
Eligibility
To be eligible for a CSHC an individual must:
- be permanently living in Australia and be an Australian citizen, a holder of a permanent visa or a holder of a special category visa (and not subject to a newly arrived resident’s waiting period—usually 104 weeks for new migrants)
- have reached age pension age (currently 65) but not qualify for Age Pension (or other income support payments or Veterans’ Affairs pensions)
- have an adjusted taxable income (ATI) of less than:
– $50,000 for singles
– $80,000 for couples (combined income) and
– $100,000 combined for couples separated by illness, respite care or prison.[89]
An amount of $639.60 per year is added to the allowable income amount for each dependent child. There is no assets test for the CSHC.[90]
ATI includes taxable income, foreign income, total net investment losses, employer provided benefits and reportable superannuation contributions (concessional or before-tax contributions).[91]
An individual must be in Australia to retain eligibility for the card, or temporarily absent for not more than six weeks.
The amendments in Schedule 4 affect these last two eligibility conditions—adding deemed income from untaxed superannuation assets to adjusted taxable income for the purposes of the income test on the one hand, and allowing for longer temporary absences during which card holders will retain eligibility.
Services/discounts
CSHC holders are able to access discounts on prescription medicines through the Pharmaceutical Benefits Scheme (PBS).
CSHC holders may also be able to access:
- bulk-billed GP appointments (at the discretion of the GP—doctors are provided with financial incentives to bulk-bill concession card holders)
- a reduction in out-of-hospital medical expenses above the concessional threshold of the Medicare Safety Net
- discounted rail travel on Great Southern Railway services: the Ghan, Overland and Indian Pacific[92] and
- additional health, transport, education and recreation concessions may be offered by state and territories, local governments and private providers to CSHC holders. The availability of additional concessions varies between states and territories and they are offered at the discretion of the provider.[93]
Payments
Holders of the CSHC are currently entitled to receive a Seniors Supplement of $876.20 a year for singles or $660.40 a year for a member of a couple. The payment is paid in quarterly instalments in December, March, June and September.[94]
From 20 March 2013, a Clean Energy Supplement has been added to CSHC holders’ Seniors Supplement payment. This supplement is worth $361.40 a year for singles and $273.00 a year for a member of a couple (paid in quarterly instalments with the Seniors Supplement).[95]
As noted above, the related Bill includes a measure to abolish the Seniors Supplement (no further payments) and to only pay the Clean Energy Supplement amounts to CSHC holders. The Clean Energy Supplement will also be renamed the ‘Energy Supplement’ and the amounts will no longer be indexed to CPI.
Issues around the treatment of different sources of income
Since July 2007, persons aged 60 or more with income from private taxed superannuation sources (lump sums or periodic payments) have had their superannuation income treated as being tax free. The CSHC income test uses ATI and therefore does not include non-taxed private superannuation as income.[96]
The reason taxable income is adjusted for the purposes of means testing—adding back in negatively geared property losses, foreign income and employer provided fringe benefits—is that it recognises that allowable tax deductions may not result in an appropriate indicator of real income or means.
There are advantages both to government and to claimants in using ATI as an income measure. Firstly, the most recent tax assessment can be used and this removes the need for a separate income measurement and assessment. This is cumbersome and administratively expensive for government to do. Secondly, claimants do not have to provide documents and evidence for a separate income test. The disadvantages to using this measure fall on the government in the form of less effective targeting of benefits and increased expenditure. The main alternative to using ATI as a measure of means is the assessment of income under the SSA. The SSA uses a much broader definition of income and does not exclude as many types of income as the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997.[97] However, the testing of income under the SSA is more administratively expensive.
With superannuation received from private taxed superannuation sources (that is, private, non-government superannuation), not being counted as taxable income for those aged 60 or more, it means there is the potential for individuals with substantial income from superannuation to qualify for the CSHC.
In the 2008–09 Budget, the Labor Government announced that it would make adjustments to the CSHC income test to include reportable superannuation contributions, including income that is salary sacrificed to superannuation, as well as gross tax-free superannuation income. The budget papers stated that:
… the measure will increase fairness by ensuring that, in applying the existing income test, all income received by seniors–whether from superannuation or another source such as a managed fund or interest from a bank account, is treated in the same way.[98]
There was considerable backlash towards this proposal to include tax-free income from superannuation sources in the income test for the CSHC, particularly from self-funded retirees.[99] In the 2009–10 Budget, the Labor Government announced that it would not go ahead with the measure to include gross tax-free superannuation income in the income test but would still include reportable contributions in income assessments from July 2009.[100]
National Commission of Audit
The National Commission of Audit took issue with the exclusion of tax-free superannuation from the income test:
This can result in inequities as retirees with very large superannuation balances can access government support, leading to differential treatment for people with the same means.
For example, a senior has $2 million in term deposits and as a result is not eligible for an Age Pension. They earn a return of 4 per cent each year, meaning their Adjusted Taxable Income is $80,000 and [they] are not eligible for a Commonwealth Seniors Health Card. Alternatively, a person earning the same return but with $2 million invested in superannuation and $1 million in term deposits would have an Adjusted Taxable Income of $40,000 and would therefore be eligible for a Commonwealth Seniors Health Card.[101]
The Commission recommended that CSHC be retained but that deemed income from tax-free superannuation be added to the definition of adjusted taxable income used for determining eligibility for the card.[102]
Following the Commission of Audit’s recommendation, the Bill proposes to include tax-free superannuation income in the income test for the CSHC from 1 January 2015 using the deemed income rules.[103] Deemed income assumes that financial investments of a certain value are achieving a set rate of return, regardless of the income actually derived from the asset. See the section on ‘Reducing the deeming thresholds’ in Schedule 1 (above) for a description of the deemed income rules.
The measure will apply to ‘long-term financial assets’ which refers to account-based superannuation income streams. An account-based superannuation income stream is a form of retirement investment that provides holders with a tax-free retirement income stream and flexible access to their capital. Holders have an investment account within a relevant superannuation or insurance fund. The account balance will increase when investment earnings are added to the account and will decrease as the holder draws down regular income payments. The most common account-based income streams are allocated pensions or allocated annuities in which the holder can choose the level of income they want to draw each year, above a minimum amount.[104] Holders are usually able to withdraw all or part of their investment at any time and income can be drawn until their balance is exhausted.
The changed treatment of superannuation income will include grandfathering provisions so that superannuation income streams currently held by retirees or purchased before the commencement date will be exempt, and only new applicants and those who change their superannuation arrangements after 1 January 2015, will be affected. Grandfathering the measures will minimise the backlash from the proposed measure. It also follows the model used to introduce deeming rules on account-based income streams for the purposes of the pension income test.[105] These changes to the pension income test will also commence on 1 January 2015 and will grandfather those superannuation income streams held by retirees prior to the commencement date.
The measure is at odds with pre-Budget reports that the Prime Minister had ruled out implementing the recommendations of the Commission of Audit to change eligibility for the CSHC.[106]
Indexation of income thresholds
The 2014–15 Budget also allocated funding for a separate measure, to annually index the income thresholds for the CSHC income test. This measure was a Coalition election commitment and the Bill implementing the measure is currently before the Parliament.[107] The indexation of the income thresholds will increase the number of people eligible for the card. This makes it at odds with the Bill’s proposal, which will tighten eligibility for the card. It is also at odds with other measures in this Bill and the related Bill, pausing indexation of income thresholds for almost all government benefits.
Including tax-free superannuation in the income test for the CSHC will limit access to the card, reduce expenditure in terms of the PBS, and improve targeting to ensure benefits are being provided to those who need them most. Omitting one of the major sources of income for retirees from the means test for a benefit aimed at retirees makes little sense. There may be some retirees who will be severely disadvantaged by losing access to the card as a result of the change, particularly those with high pharmaceutical costs, but grandfathering provisions will ensure the immediate impact on recipients and Budget expenditure is minimal. The income test limits could be adjusted at a later point if found to be excluding those in need of the benefits connected to the CSHC. Allowing the very wealthy to access the CSHC is a major anomaly in the Australian social security system.
The other measure contained in Schedule 4 of the Bill will extend the time CSHC holders can spend overseas without losing eligibility for the card. Currently, holders do not have their CSHC eligibility cancelled if they travel overseas for less than six weeks at any one time. Prior to 1 January 2013, holders could have temporary absences of up to 13 weeks without losing eligibility.[108] The Bill proposes to extend the period allowed for temporary absences from six weeks to 19 weeks (from 1 January 2015). However, the Energy Supplement, which is to be paid to CSHC holders following the repeal of the Seniors Supplement, will not have its portability extended and will only be payable to those with temporary absences of up to six weeks.
This measure was not announced in the Budget and it is unclear whether it will result in increased expenditure or savings resulting from lower administrative costs. The Minister stated the measure ‘will see less of an administrative burden for Centrelink, and less red tape for our seniors’.[109]
This measure is at odds with other measures announced in the Budget which will see portability limited for DSP and student payment recipients. The 19-week portability period is anomalous and it is unclear why the Energy Supplement could not continue to be paid so long as the card holder remained eligible.
Item 1 adds new steps 1A and 1B to the method statement for the CSHC income test at point 1071–1 of the SSA. The current method statement only sets out how to assess adjusted taxable income against the applicable income limits. The new steps will add in deemed income from long-term financial assets belonging to the person or their partner. Assessed income will be the sum of adjusted taxable income and any deemed income from long-term financial assets.
The deemed income is to be calculated by new points 1071–11A and 1071–11B inserted by item 3. Point 10171–11A will be used to work out the deemed income for singles while point 1071–11B will be used to work out the deemed income for members of a couple, where the partner is aged 60 or over (the age at which superannuation income is not considered taxable income). The new points set out that the total value of a person’s (and, if applicable, their partner’s) long-term financial assets should be calculated and the relevant deeming rules at section 1076 (for singles) or section 1077 (for partnered persons) should be applied to work out the deemed income from these assets.
Long-term financial assets are those to be defined at paragraphs 9(1)(i) and (j) of the SSA inserted from 1 January 2015 as a result of amendments made by the Social Services and Other Legislation Amendment Act 2014.[110] Item 4 inserts a reference to these paragraphs for the purposes of defining long-term financial asset for the CSHC income test. The relevant assets are:
- asset-tested income streams (long term) that are account-based pensions within the meaning of the Superannuation Industry (Supervision) Regulations 1994 and
- asset-tested income streams (long-term) that are annuities (within the meaning of the Superannuation Industry (Supervision) Act 1993) provided under a contract that meets the requirements determined in an instrument under subsection 9(1EA) of the SSA.[111]
As described above, the assets that fit under this definition are primarily account-based income streams such as allocated pensions or allocated annuities.
A note added by item 4 and application provisions set out in item 5 ensure that ‘long-term financial assets’ providing an income stream to a CSHC holder prior to 1 January 2015 will not be subject to the new income test rules. This means that existing CSHC holders with relevant income streams, or those that purchase such an income stream prior to 1 January 2015, will be protected from the new income test calculations and will not have their untaxed superannuation income taken into account in determining their ongoing eligibility for the CSHC. If a grandfathered cardholder ceases to be a cardholder at any time (for example, if their income goes over the relevant limit or they are overseas for a long period) then the new rules will apply to them if they reapply.
Changes to the portability period for the CSHC are provided for in items 30–33. The items extend the period of overseas absence allowed in order to retain the CSHC from six weeks to 19 weeks, from 1 January 2015. Absences of less than 19 weeks which end immediately before 1 January 2015 will also be covered by the new portability rules.
Items 6–10 make similar amendments to the VEA as were made to the SSA to allow for deemed income from certain long-term financial assets to be included in the income assessment in determining eligibility for the CSHC.
Schedule 5 proposes amendments to the SSA that remove access to relocation scholarships for students who must relocate within, or between, major cities to study.
Relocation scholarships are designed to assist with the additional costs involved for those students who need to leave the family home in order to undertake higher education studies. Relocation scholarships were first available from 1 April 2010, and resulted from recommendations from the Review of Australian Higher Education (the Bradley Review).[112] Previously, support for low-income students who needed to leave home to attend university was provided through Commonwealth Accommodation Scholarships. These scholarships were funded by the Government, but allocated by universities according to their own criteria. There were insufficient scholarships for all eligible students, and there was also a mismatch between the number of scholarships awarded to each university and the number of eligible students. In addition, the student was generally only advised whether they received the scholarship after they had enrolled.
Bradley Review
The Bradley Review recommended these scholarships should be centrally administered by Centrelink and available to all eligible applicants. The creation of relocation scholarships was hence included in the Social Security and Other Legislation Amendment (Income Support for Students) Bill 2009.[113] The scholarships provided $4,000 in the first year of study and $1,000 in each subsequent year (both indexed) to all dependent full-time higher education students in receipt of Youth Allowance or Abstudy who were required to move away from home to study. In addition, those who were independent because they are disadvantaged by personal circumstances and cannot live in the family home were also eligible.[114] Students who receive certain other Commonwealth accommodation scholarships are not able to receive a relocation scholarship.
Dow Review
Following the implementation of changes to Youth Allowance flowing from the Bradley Review, concerns were raised about the access to income support for students from rural and regional areas. As a result, the Gillard Government commissioned a review of these reforms to be conducted by Professor Kwong Lee Dow (the Dow Review).[115] The Dow Review recommended increasing the value of the relocation scholarships to $2,000 for the second and third years of study.[116] It also urged caution ‘against creating further lines of demarcation between regional and metropolitan students’.[117] The Review considered ‘[T]he focus should move to considering the additional costs for all students who need to relocate—both country and city students.’[118]
Despite these cautions, the Government only increased the scholarship amounts for students from regional and remote areas.
Current levels of assistance
Currently the scholarships provide a payment of $4,145 in the first year the student is required to live away from home, and then an additional $1,036 per year for each subsequent year. Students from regional areas receive a higher rate of payment ($2,073) in each of the second and third years.[119]
Item 1 inserts new subsections 592K(6), (7), (8) and (9) into the SSA to set new conditions for eligibility for relocation scholarships.
New subsection 592K(6) removes access to relocations scholarships for dependent students where both parents reside in a major city location, and who are studying in a major city, even though they are required to live away from home. The requirement to live away from home is where the time to travel by public transport between their family home and their place of study is deemed excessive (generally 90 minutes including walking and waiting time).[120]
Proposed subsection 592K(7) removes access to these scholarships for students who are independent because they cannot live at home due to their family circumstances or are deemed by the Secretary to be specially disadvantaged, who resided in a major city location six months before commencing study and are studying in a major city location.
A major city location is defined on the basis of the Australian Bureau of Statistics (ABS) Remoteness Structure.[121] This includes all the mainland state capitals, Canberra/Queanbeyan, Newcastle, Wollongong, Geelong and the Gold Coast.
The Explanatory Memorandum justifies the changes on the following basis:
This measure will continue to recognise the reduced level of course and institution choice in regional and remote areas and the higher proportion of regional or remote students who need to relocate to study, compared to students from major cities.
Students from major cities are more likely than students from regional or remote areas to have a suitable education institution near to their parental home.[122]
While it is true that students from city areas are more likely to have a higher education institution located close to their family home than those from regional and remote areas it is not always the case. Students in outer metropolitan areas may have less access to higher education than those living in cities such as Hobart, Darwin, Ballarat or Townsville, all of which are classified as ‘regional’ in the ABS schema.
In addition, this rational does not justify why those residing in inner city locations and having multiple institutions within a reasonable travelling distance from their family home should receive a relocation scholarship if they choose to study in a regional location. Furthermore the difficulties faced by students who are disadvantaged by personal circumstances and cannot live in the family home would appear to comparable to those moving from regional areas.
The use of geographic boundaries designed for a different purpose also leads to inequities. For example, someone living in the Blue Mountains close to a major railway station may have less travel time to a central Sydney university than someone in the western suburbs, but under the remoteness classification, the Blue Mountains area is classified as ‘inner regional’ while western Sydney is a ‘major city location’.
If the intent of the legislation is to remove relocation payments from those who choose to leave the family home when they are able to access higher education without doing so, a more reasonable test would be whether the student could attend any higher education institution within a reasonable travel time from their family home. If such a test was considered too harsh for those who could only access one institution that may have a limited range of courses, the requirement to be undertaking a course that is not available at a local institution could be added.
New paragraph 592K(6)(c) provides that the student is not eligible for the scholarship if both of their parents live in a major city. Presumably this means that if either parent resides outside a major city, the student is still eligible for a scholarship even if they do not live with that parent. Under the SSA, a parent for this purpose is defined as a natural, relationship or adoptive parent.[123] Therefore, a student whose parents have divorced and one is living outside a major city would still receive a relocation scholarship even if they moved from living with the other parent in a major city to study in another major city location.
Comment
Overall, the proposed changes to the availability of relocation scholarships once again ignore the recommendations of the Dow Review to consider the costs of all students who need to relocate to study, regardless of location.
Schedule 6 proposes to cease payment of the Pensioner Education Supplement (PES) from 1 January 2015. The measure was announced in the 2014–15 Budget and is expected to realise savings of $281.2 million over five years.[124]
The PES was introduced on 1 January 1987, conjointly with the introduction of the then new AUSTUDY Scheme for students.[125] With the introduction of the AUSTUDY Scheme, other changes were made to rationalise income assistance for students. A feature of these changes was restricting the capacity for students to be paid either a social security pension or allowance and also be paid a range of student income supplement payments (for example, the Tertiary Education Assistance Scheme) at the same time. The PES was introduced largely as a make-up for those students who also received a pension who would have had their overall payments reduced.[126] It has continued as a supplementary payment for pensioners undertaking approved study.
Eligibility, rate and study requirements
Currently PES is payable to a person who is at least 16 years of age and receiving:
- Carer Payment
- DSP
- Parenting Payment Single
- Widow B Pension
- Widow Allowance
- Wife Pension (if partner receives DSP)
- Newstart Allowance and Youth Allowance (Other) where the recipient has transferred from Parenting Payment Single or DSP (in certain circumstances)
- Newstart Allowance or Special Benefit, where the person is a single principal carer of a dependent child
- Parenting Payment Partnered with a partial capacity to work (in special circumstances) or
- an eligible veterans’ payment under the VEA.[127]
The person must also be studying an approved course at an approved educational institution.[128]
The rate of PES payable can be the full rate of $62.40 per fortnight or the part-rate of $31.20 per fortnight. The PES rate paid depends on a combination of which income support payment the student is receiving and also the amount of study being undertaken; from full-time to part-time and the proportion of a full-time course involved. Generally, however, those with a study load of at least 50 per cent receive the full rate and those with a study load of at least 25 per cent receive the part rate.[129]
On 27 December 2013, there were 41,130 recipients of PES. Table 4 sets out the number of recipients of the PES by qualifying payment:
Table 4: Pensioner Education Supplement (PES) recipients by other payment received, December 2013
|
Main payment
|
Number of PES recipients
|
|
Carer Payment
|
3,284
|
|
Disability Support Pension
|
18,742
|
|
Parenting Payment Single
|
17,435
|
|
Newstart Allowance
|
1,558
|
|
Widow Allowance
|
73
|
|
Other payments
|
Each had less than 20 recipients, respectively.
|
Source: Senate Community Affairs Committee, Answers to Questions on Notice, Social Services Portfolio, Additional Estimates 2013–14, 26–27 February 2014, Question 655, accessed 10 July 2014.
The origins of the PES is as a make-up payment arising from the rationalisation of income support payments provided under the SSA and study supplement payments provided under the Student Assistance Act 1973, that was made in 1987. Over time, access to the PES was expanded to a broader range of income support recipients and it has been seen as a financial supplement to help with the extra costs of study and also to encourage participation in study and education. Study has been regarded as a desirable activity for income support recipients, particularly for those who have been disengaged from the workforce, such as people with disability and single parents. Involvement in education is considered to enhance a person’s capacity to self-support. Clearly the cancellation of the PES will save money, but it may also see some income support recipients ceasing their study or choosing not to undertake study.
The items presented in Schedule 6 remove the provisions providing for the PES as a payment in the SSA with the cessation to take effect from 1 January 2015. The items will also make consequential amendments to remove references to the PES in the SSA, SS Admin Act, the A New Tax System (Family Assistance) Act 1999, the Farm Household Support Act 2014 and the Income Tax Assessment Act 1997.
Schedule 7 proposes to cease payment of the Education Entry Payment (EdEP) from 1 January 2015. The measure was announced in the 2014–15 Budget and is expected to realise savings of $65.4 million over five years.[130]
The EdEP is paid to eligible income support recipients to assist with the up-front costs of study. The EdEP was introduced for recipients of the Sole Parent Pension from 1 January 1992.[131] Access to the EdEP was progressively expanded to other payments: to Widow B Pension in 1993, to Newstart Allowance in 1994, and to Carer Payment and Widow Allowance in 1995, with a view to encouraging participation in education and study for income support recipients.
Currently a person may be eligible for an EdEP if they:
- are receiving Newstart Allowance, Parenting Payment Partnered, Partner Allowance or Widow Allowance, and have received payment continuously for at least 12 months
- have started or will start an approved education course and
- have not received an EdEP in the last 12 months.[132]
A person may also be eligible if they are receiving Carer Payment, DSP, Parenting Payment Single, Special Benefit (in some cases), Widow B Pension or Wife Pension and they:
- are eligible to receive PES and
- have not already received an EdEP in the current calendar year.[133]
The person must also be studying an approved course in Australia.
The current rate of EdEP is $208.00, paid once annually. The payment was worth $200 when first introduced and was not indexed. It was increased to $208.00 in 2000 as part of the compensation measures accompanying the introduction of the GST.[134]
Since its introduction, the EdEP has been aimed at aiding people on income support to meet the one-off costs of commencing an education course such as entry fees, transport costs and books. The removal of the EdEP will make it financially harder for recipients of an income support payment to commence study. Study has been regarded as a desirable activity for income support recipients as it is considered to enhance their capacity to self-support. The cancellation of the EdEP will save money, but, as with the cessation of the PES, it may also see some income support recipients ceasing their study or choosing not to undertake study.
The items presented in Schedule 7 remove the provisions providing for the payment of the EdEP in the SSA. The items will also make consequential amendments to remove references to the PES in the SSA, SS Admin Act, the VEA, the Farm Household Support Act 2014, the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997 and the Taxation Administration Act 1953.[135]
Schedule 8 proposes to raise the qualifying age for accessing Newstart Allowance or Sickness Allowance from 22 years to 25 years from 1 January 2015. As a result, the age requirements for Youth Allowance will be adjusted up from the current ceiling age of 21 years to 24 years. The measure was announced in the 2014–15 Budget and is expected to realise savings of $508.1 million over five years.[136]
Youth Allowance
Youth Allowance is an income support payment paid to different categories of young people, particularly students and job-seekers. Youth Allowance may be payable to a young person who fits one of the following categories:
- aged 16 to 21 years old and looking for full-time work or undertaking approved activities
- aged 18 to 24 years old and studying full-time
- aged 16 and 17 years old and have completed year 12 or equivalent, need to live away from home in order to study, or considered independent for Youth Allowance or
- aged 16 to 24 years old and undertaking a full-time Australian Apprenticeship.[137]
Payment to the first category is referred to as Youth Allowance (Other) to distinguish it from Youth Allowance paid to students and apprentices. Different kinds of means tests apply to the student and job-seeker categories of Youth Allowance, but both are subject to a parental means test unless the recipient is considered independent.[138]
Newstart Allowance and Sickness Allowance
Newstart Allowance is the main income support payment paid to people of working age who are looking for paid work. It is paid to those aged between 22 years and 65 years (the Age Pension age). Sickness Allowance is paid to people in the same age category as Newstart Allowance but is paid to those who temporarily cannot work or study due to an injury or illness. Both are paid at the same rate, slightly higher than Youth Allowance, and have similar means testing arrangements.[139]
Newstart Allowance and Youth Allowance compared
Set out below is a table comparing the main features of Youth Allowance and Newstart Allowance. A further explanation of parental means testing is provided below.
Table 5: Main features of Newstart and Youth Allowance, amounts as at July 2014
|
|
Newstart Allowance
|
Youth Allowance
|
|
Description
|
Payment for unemployed people looking for work
|
Payment for unemployed young people looking for work and full-time students and apprentices
|
|
Age eligibility
|
22 years or older, under Age Pension age
|
For jobseekers: 16–21 years old
Full-time tertiary students: 18–24
Full-time apprentices: 16–24
Some young people attending school may qualify in special circumstances.
|
|
Other eligibility
|
Looking for paid work
Prepared to enter into an 'Employment Pathway Plan' and meet certain activity test requirements
Not involved in industrial action
|
Jobseekers: same as Newstart Allowance.
Jobseekers without a year 12 qualification – education focused requirements (training/vocational education)
Students and apprentices: must be full-time in approved courses/recognised apprenticeships
|
|
Means test
|
Personal income and assets test. Income over $100 pf reduces payment. Income between $100 and $250 reduces fortnightly payment by 50 cents in the dollar. Any income over $250 reduces fortnightly payment by 60 cents in the dollar until the payment is nil.
Personal assets test precludes payment for single homeowners with assets worth $202,000 or more; for non-homeowners with assets worth $348,500 or more. For couple homeowners, combined assets must be less than $286,500; couple non-homeowners assets must be less than $433,000.
|
Personal income and assets test and, if not considered independent, parental/family income/assets test or family actual means test.
For jobseekers, personal income over $143 and up to $250 pf reduces payment by 50 cents in the dollar. Income over $250 pf reduces payment by 60 cents in the dollar.
Students and apprentices: income between $415 and $498 pf reduces payment by 50 cents in the dollar. Income over $498 by 60 cents in the dollar.
Parental income test, payment reduced by 20 cents for every dollar of parental taxable income over $48,837 (annual).
Personal assets test the same as Newstart Allowance.
Family assets test precludes payment where assets exceed $642,000 (excluding family home and 75% discount on the value of business and farm assets).
|
|
Payment rates (examples, not including supplementary amounts)
|
Single, no children: $510.50 pf
Single, with a dependent child or children: $552.40 pf
Partnered (each): $460.90 pf
|
Single, with no children, under 18 years, and living at parental home: $226.80 pf
Single, with no children, under 18 years, and required to live away from parental home to study undertake training or look for work: $414.40 pf
Single, with no children, 18 years or more, and living at parental home: $272.80 pf
Single, with no children, 18 years or more, and required to live away from parental home: $414.40 pf
Single, with children: $542.90 pf
Member of a couple, with no children: $414.40 pf
Member of a couple, with children: $455.00 pf
|
Pf: per fortnight. Source: DHS, ‘Newstart Allowance’ and ‘Youth Allowance’, DHS website, accessed 11 July 2014.
Parental means testing for dependent Youth Allowance recipients
For Youth Allowance claimants deemed ‘dependent’, parental means testing can apply.[140] Parental means testing has three components:
- a parental income test
- a family assets test and
- a family actual means test.[141]
Under the parental income test a recipient can have their payment reduced if their parents’ income exceeds the threshold amount of $48,837 per annum. The payment rate reduces at 20 cents for every dollar earned by parents over that threshold. Under the family assets test, no payment can be made if family assets exceed $642,000. The family actual means test is used to assess families whose taxable income (assessed under the parental income test) may not be a good indication of their actual means. This test assesses a family's financial resources in terms of their spending and savings and is usually applied where parents have interests in trusts or private companies, are partners in a company, or are self-employed.[142] The threshold limit under the family actual means test, beyond which payment is reduced, is the same as that for the parental income test.
Youth Allowance has lower payment rates and tighter eligibility rules
As can be seen in the above comparison table, the rates of payment for Youth Allowance are less than those for Newstart Allowance. Also, parental means testing only applies to ‘dependent’ young people in receipt of Youth Allowance.[143] Most of the projected savings for the proposed measures will arise from the fact that young people aged 22 to 24 who need income support will only be able to claim Youth Allowance. Lower maximum rates will mean lower outlays for the Government.
Recent changes to age eligibility
The eligibility age for Youth Allowance has been changed in recent years, with the most recent being to lift the maximum for Youth Allowance (Other) from 20 to 21 years in 2012.[144] There have also been changes to the eligibility age for Family Tax Benefit payments, to remove significant overlaps with Youth Allowance.[145] One of the most significant recent changes was the lowering of the age of independence (the age at which a young person is automatically considered independent from their parents) from 25 years to 22 years.[146]
Lifting the age at which Youth Allowance can be paid to 24 years will be controversial, especially for young people no longer able to access the higher rate Newstart Allowance. The Explanatory Memorandum suggests that, because of the higher rate of Newstart Allowance, unemployed young people aged 22–24 ‘may perceive an advantage by remaining in receipt of Newstart Allowance and a disincentive to pursue full-time study or employment’.[147] No evidence has been presented to show that young people actually view their income support in this way and given the relatively low rates for allowances, it would be illogical for someone on either payment to see a financial incentive in not finding paid employment. Both payments are activity-tested and require recipients to actively look for work and therefore do not provide an option to not pursue employment. The Explanatory Memorandum recognises broad financial incentives for young people to pursue further education in lieu of working, so it is unclear why it cites disincentives to study as a reason for raising the eligibility age for Newstart Allowance.[148] The measure appears to be primarily aimed at achieving Budget savings and is linked to the amendments proposed by Schedule 9.
Provisions
Item 2 amends the maximum age for Youth Allowance at subsection 543B(1) of the SSA from age 22 to age 25. Items 3 and 4 alter the minimum qualifying age for Newstart Allowance at subparagraphs 593(1)(g)(i), 593(1B)(b)(i) and 593(1D)(b)(i) from 22 to 25. Item 5 raises the minimum age to access Sickness Allowance at paragraph 666(1) to age 25. Items 7, 8, 9 and 10 amend the partner income free area provisions to align the age with the proposed minimum age of 25 for NSA.
Item 13 contains application provisions clarifying how the commencement of the measure will apply to certain groups. In short, persons who are aged 22, 23 or 24 on 31 December 2014 and who are also receiving Newstart Allowance will not be subject to the new eligibility age rules. The proposed new minimum age for NSA will then only apply to new applicants on or after 1 January 2015. Those also saved from the new rules will be those where the Secretary has made a Newstart Allowance grant decision prior to 1 January 2015 and the start date is after 1 January 2015. These ‘saved persons’ can continue to qualify for Newstart Allowance so long as payment is not cancelled. Once their payment is cancelled and they reapply, the proposed new age rules will apply.
Item 14 sets out more transitional provisions detailing who is saved from the proposed raising of the minimum Newstart Allowance age from 22 to 25. These are persons:
- serving a suspension of their NSA on 1 January 2015
- serving a liquid assets test waiting period on 1 January 2015
- who claimed before 1 January 2015 but whose grant determination was not made until on or after 1 January 2015
- who claimed before 1 January 2015, but whose start date was after 1 January 2015 or
- still serving an income maintenance period on 1 January 2015 that commenced before 1 January 2015.
Such cases are saved and the new minimum age of 25 will not apply unless their payment is cancelled. Any subsequent claim after such a cancellation would then see the new age rules apply.
Item 15 provides the same savings provisions as set out for NSA in item 14 but as they apply to Sickness Allowance.
Items 17–25 propose amendments to the Farm Household Support Act 2014 to align the Farm Household Allowance payment rules with the proposed amendments to the SSA.
Schedule 9 proposes the introduction of a six month waiting period for all new claimants of Newstart Allowance and Youth Allowance (Other) under the age of 30 from 1 January 2015. During this period, claimants would be required to satisfy work search activity test requirements in order to qualify for income support at the end of the waiting period.
It should be noted that some of the specifics of the proposal are to be provided for in legislative instruments and, as such, have not been spelled out in the Bill. These details have been outlined more or less clearly in various Budget materials and the following description is based largely on the Government’s stated intentions in relation to the measure contained in these materials.
The six month waiting period can be reduced for those claimants who have previously worked, with each year of equivalent work resulting in one month off the six month waiting period, up to a maximum five months’ discount.[149] Claimants with a history of part-time or casual work can also have their waiting period reduced on a pro-rata basis.[150] Under new subsection 1157AC(3) of the Bill the Minister may by legislative instrument determine reductions in a person’s waiting period for previous periods of gainful work.
Some claimants are exempt from the waiting period. These include: people in full-time education; people who have a partial work capacity (less than 30 hours per week); a single parent receiving Family Tax Benefit (FTB) for a child; a part-time apprentice; a principal carer parent; a Stream 3 or Stream 4 job seeker (or Remote Jobs and Communities Program equivalent) under the current employment services arrangements; and people who are eligible for Disability Employment Services.[151] While some categories of person to be exempt from the waiting period are listed at new subsection 1157AF, the Minister may also under new subsection 1157AF(2) determine other exemptions by legislative instrument.
Following the initial six month waiting period, claimants will be paid Newstart Allowance or Youth Allowance only if they participate in a Work for the Dole program for 25 hours a week for up to six months.[152] In the next six months, claimants no longer have access to income support. Instead, they may be paid the equivalent of Newstart Allowance or Youth Allowance via a wage subsidy paid to an employer if they are working.[153] During this period, claimants have access to employment services. In the next six month period, claimants are once again obliged to participate in Work for the Dole for 25 hours a week in order to receive income support.[154] This cycle continues so that claimants without exemptions will only have access to income support for six months per year until they gain employment, undertake full-time study or turn 30 years of age.
From 1 July 2015, the above arrangements are to be applied to existing recipients of Newstart Allowance and Youth Allowance, as well as new claimants.
The measure is anticipated to realise savings of $1.2 billion over the four years from 1 January 2015.[155] These savings will be partially offset by the funding allocated to provide Work for the Dole programs and other employment assistance connected to the measure.
The Government has argued that this measure will give young people stronger incentives to earn or learn. As such, it has been presented as an extension of the previous Government’s ‘earn or learn’ policy.
The Rudd Government introduced ‘earn or learn’ requirements in 2009, in response to the global economic downturn.[156] The earn or learn rules required young Australians to either be employed or enrolled in a course of study, with a guaranteed training place for unemployed people under 25 years. Anyone under the age of 20 years who had not finished year 12 or equivalent qualifications was required to be studying or training in order to qualify for Youth Allowance, or for their parents to receive Family Tax Benefit Part A. The study or training had to be oriented to either the completion of year 12 or equivalent, or part of an Employment Pathway Plan that included full-time study or both study and other activities. In the 2011–12 Budget the ‘earn or learn’ requirements were extended, with the age of eligibility for Newstart Allowance raised to 22.[157]
The proposed measure may also be seen as forming a part of the Government’s general attempt to increase employment participation among young people, for whom the rate of unemployment is significantly higher than that of the general population.
Youth unemployment needs to be understood in the context of the overall education and labour market status of youth. The level of labour force participation is likely to be influenced by the strength of the labour market, as well as by the availability of education and training opportunities.
Youth earning and learning activities can therefore include participation in full-time education or full-time work, or part-time education or part-time work. While the latter two activities can be considered to be more marginal activities, if they are combined they can in some respects be considered the equivalent of full-time engagement with earning and learning activities.
Those not engaged in any of these activities would either be unemployed or not in the labour force. The OECD uses a measure for those not in education, employment or training (the so called NEET rate) which is considered to be a more comprehensive measure than the unemployment rate.
Youth unemployment rates are more sensitive to business-cycle conditions than the adult unemployment rate. The relative sensitivity of youth employment rates to the cycle is less clear-cut, probably reflecting a difference in the way labour market conditions affect the decision to stay in education or enter the labour market.
In 2013, 74.7 per cent of 15–19 year olds were participating in full-time education and 11.7 per cent were in
full-time employment. For 20–24 year olds, the rate of participation in full-time education was 29.2 per cent, and in full-time employment, 44.6 per cent.[158]
Figures 2 and 3 show the proportions of young Australians in full-time education and full-time work for the period 2002 to 2013. The first shows participation among 15–19 year olds, and the second, 20–24 year olds.
Figure 2: Proportion of 15–19 year olds in full-time education and full-time work, 2002–2013
Source: ABS, Labour force, Australia, detailed – electronic delivery, June 2014, cat. no. 6291.0.55.001, ABS, Canberra, July 2014, Data cube LM3, accessed 15 July 2014.
Figure 3: Proportion of 20–24 year olds in full-time education and full-time work, 2002–2013
Source: ABS, Labour force, Australia, detailed – electronic delivery, June 2014, cat. no. 6291.0.55.001, ABS, Canberra, July 2014, Data cube LM3, accessed 15 July 2014.
As can be seen from the above graphs, for some time the proportion of young people studying full-time has been increasing and the proportion of young people working full-time has been decreasing. While these trends are associated, the Foundation for Young Australians notes that it is difficult to identify the extent to which they are causally related. The Foundation does observe that young people are less likely to be in full-time employment and are more likely to start full-time work at a later age for the following reasons: some young people are choosing not to take on full-time work, often because they are studying; and, others are experiencing greater difficulties obtaining full-time work, partly because a larger proportion of jobs are part-time or casual.[159]
Youth unemployment rates in Australia are higher than those for the general population. In 2013 the annual average unemployment rate for 15–19 year olds was 16.4 per cent.[160] For 20–24 year olds the rate was 9.6 per cent and for 25–29 year olds, 6.1 per cent.[161] The average unemployment rate for Australians aged 15 years and over during 2013 was 5.7 per cent.[162]
As Penny Vandenbroek notes, some researchers have criticised the youth unemployment rate as being too simplistic to capture the complex work/study situations which characterise young people’s experience.[163] This is because the rate as currently measured does not account for the high proportion of young people currently in education or training, who are excluded from the labour force. Because it deals only with those young people in the labour force, some have argued that the rate is likely to overestimate the problem of youth unemployment.
The youth to unemployment ratio has been suggested as an alternative, or additional, measure. This ratio is the number of young unemployed people expressed as a proportion of the civilian population (in the same age group). As such, it accounts for the entire population of young people, and not just those in the labour force. In 2013, the youth to unemployment ratio for 15–19 year olds was 18.8 per cent, 18.0 per cent for 20–24 year olds and 12.6 per cent for 25–29 year olds.[164] While this measure helps to provide what is arguably a more accurate picture of young peoples’ unemployment experiences, it has been suggested that it may underestimate the problem of youth unemployment.[165]
However it is measured, unemployment among young Australians is significantly higher than that for the population as a whole, and has been rising since 2008 and the global financial crisis.
Who is subject to the new waiting period
Item 1 of Schedule 9 inserts a new Part 3.12B into the Social Security Act 1991. New section 1157AA of this part specifies the income support payments to which the waiting period is to apply. These are Newstart Allowance, Youth Allowance (Other) (refers to Youth Allowance paid to job seekers, not Youth Allowance paid to students and apprentices) and Special Benefit, where the recipient is an Australian resident or holds a visa that falls in a class determined by the Minister.
New section 1157AB specifies the conditions under which a person is subject to a waiting period. The person must be under 30 years of age and not fall within one of the exemption categories specified at new section 1157AF. People are exempt from the waiting period where they:
- are the principal carer of a child
- are the parent of an FTB child and qualified to be paid FTB for that child
- have a partial capacity to work (that is, they have an impairment that prevents them from working at least 30 hours per week at the relevant minimum wage or above, independently of a programme of support)
- are currently registered as a part-time apprentice, trainee or trainee apprentice
- are assessed as requiring employment services or disability employment services determined by the Minister or
- fall within another exemption category determined by the Minister by legislative instrument.[166]
The waiting period also does not apply to a person who transfers to Newstart Allowance from Youth Allowance (Other) or from Special Benefit to Youth Allowance or Newstart Allowance. It also does not apply to other transferees that may be determined by the Minister, by legislative instrument, under new subsection 1157AB(3). This is to ensure that people who are already on an income support payment and who may already have served waiting periods in the past do not have to serve another waiting period just because they are transferred to NSA or YA (other). For example, when a Youth Allowance (Other) recipient hits 22 years of age (or 25 years, under the proposed new rules), they are automatically transferred to NSA with no waiting period.
Waiting period commencement and duration
New subsection 1157AC(1) specifies when a person’s waiting period is to begin, and 1157AC(2), when it is to end.
The waiting period commences on the day following a person’s claim on which they qualify for payment. However, if a person is already serving a waiting period or periods (such as a liquid assets test or newly arrived resident’s waiting period), then their start date commences after their other waiting period or periods have ended. New applicants for Newstart Allowance and Sickness Allowance are automatically subject to a one-week waiting period.[167] Under a measure proposed in the related Bill, all new applicants for working-age income support payments will serve a one-week waiting period. Hence, the initial payment waiting period for payments affected by the Bill will be 27 weeks.
The waiting period ends after 26 weeks (or 27 weeks if it is a new claim) or the day before the person turns 30 years of age, unless:
- the waiting period is reduced as a result of a prior work discount (provided that the work is gainful work—that is, work for financial gain or reward (see discussion below)—and that the Minister does not determine (under new subsection 1157AC(3)) that this prior work should not count towards a reduced waiting period
- the person has already served part of a waiting period as a result of a claim made for another form of payment. In this case, the person would serve the waiting period for the new payment to which they are being transferred, less the amount of time they have already waited or
- the person becomes subject to an exemption under new subsection 1157AF. In this case, the waiting period stops immediately.
New subsection 1157AD(1) specifies the criteria under which a person becomes subject to a waiting period. New subsection 1157AD(2) specifies that affected persons will be subject to a further 26 week waiting period once 26 weeks have elapsed since the end of their previous waiting period. The waiting period may commence later if the person has a reduced waiting period due to a deduction being made for periods of gainful work (new subparagraph 1157AD(2)(b)(i)) or is serving a penalty period (new subparagraph 1157AD(2)(b)(ii)).
New subsection 1157AD(4) specifies that the duration of a waiting period is 26 weeks unless it is ended earlier as a result of exemptions applying to the person or their turning 30 years of age.
New section 1157AE enables the Minister to extend a person’s waiting period where they fail to meet participation requirements, and also allows the Minister to determine by legislative instrument the time the waiting period is to be extended. This is limited to four weeks for each failure.
New section 1157AG provides for the Minister to determine in a legislative instrument the conditions under which a person may be temporarily exempted from a waiting period, and to specify a method for working out the commencement day and period of the exemption.
People serving waiting periods considered to be income support recipients
Under the SSA a person must be in receipt of an income support payment in order to qualify for the automatic issue of a health care card. New section 1157AH provides for a person serving a waiting period to be considered to be receiving an income support payment for the purposes of their being issued with a health care card.
New subsection 1157AH(4) provides for people who are serving a waiting period to be treated as though they were receiving their income support payment. As such, these people are subject to all of the activity test and participation requirements that are a condition of receipt of these payments under the SSA and SS Admin Act. This also means that if a person fails to comply with their activity test and/or participation requirements during the waiting period, then their qualification is no longer met and their claim/waiting period is cancelled. They would then have to reclaim. This could mean that the waiting period would need to be served again, even if the reclaim is within 26 weeks of the person having previously served a 26 week waiting period.
The prior work discount is to apply only where the prior work was considered to be gainful work. New subsection 1157AC(4) defines gainful work for the purposes of determining the waiting period duration as ‘work for financial gain or reward (whether as an employee, a self-employed person or otherwise)’. Under new paragraph 1157AC(3)(b), the Minister may determine in a legislative instrument that particular kinds of gainful work do not reduce the waiting period. The Explanatory Memorandum gives examples of the kinds of gainful work that might not count towards the prior work discount, including work that:
- does not involve a substantial degree of consistent personal exertion
- consists of domestic or gardening tasks in relation to the place of residence of the person or a member of their family
- consists of the management of financial investments in which the person or a member of their family has an interest
- involves nudity or is in the sex industry
- contravenes Commonwealth, state or territory legislation or
- is for the purpose of achieving election of the person to public office.[168]
A similar definition of gainful work was inserted into the SSA by the Social Security Legislation Amendment (Increased Employment Participation) Act 2014 in relation to determining eligibility for the Job Commitment Bonus.[169] A determination setting out circumstances in which a Job Commitment Bonus is not payable excluded very similar kinds of work as the examples listed above (with some further additions and clarifications), including work that involves nudity and is undertaken in the sex industry, including retail and hospitality positions.[170]
The Bills Digest for the Social Security Legislation Amendment (Increased Employment Participation) Bill 2014 questioned the introduction of a moral element to the definition of gainful work and why all work involving nudity or the sex industry would be excluded, even retail, production or management roles that could potentially provide skills and training transferable to other industries.[171]
Concern was raised by the National Welfare Rights Network at the Explanatory Memorandum’s suggestion that such work might also not count towards the prior work discount. Welfare Rights’ submission to the Senate committee inquiry on the Bill stated: ‘it is objectionable to allow moral judgments to enter the Social Security Act and determine something as important as length of waiting period. If the work is lawful and gainful, then it should reduce the waiting period’.[172] In response to these concerns, the Minister for Social Services reportedly backed away from the Explanatory Memorandum’s suggestions and stated that those lawfully employed in any industry would qualify for the prior work discount.[173] This will create some inconsistency in social security law, with a moral component forming part of the definition of gainful work for the purposes of the Job Commitment Bonus and a much broader definition used for the purposes of establishing waiting period durations.
Policy experiment
The imposition of an extended up-front waiting period for income support is a novel measure in international terms.[174] To some extent this is to be expected, as welfare arrangements differ substantially across nation states and Australia’s arrangements are quite unique. If there could be said to be a ‘usual practice’ where it comes to withholding access to income support, then this is to place time limits on income support benefit receipt. In the US, for example, time limits have been in place at the state level since the 1990s and, in 1996, a 60 month time limit was imposed on federally funded assistance for most families under the Personal Responsibility and Work Opportunity Reconciliation Act.[175]
Do young people lack the will to work?
The waiting period measure appears to be premised on the notion that many young people are either choosing or likely to choose to rely on government provided income support, rather than entering training or finding work. According to this argument, it is necessary to provide a disincentive to stop young people from becoming disengaged and reliant on government-provided support. The Government has chosen to create such a disincentive by withholding unemployment benefits and thereby forcing young people to undertake training or increase their efforts to find work.
There are a number of issues associated with this rationale and with the measure more generally.
There is no substantive evidence to suggest that young Australians lack the will to work. A number of surveys of young people show that a majority want to work or to work more hours, but face a number of barriers to their doing so. These include: a lack of available jobs, particularly entry-level positions and full-time work opportunities; not having the relevant experience, skills or qualifications required or the opportunity to acquire experience or training; and, employers who are unwilling to hire younger people.[176] Moreover, where young people are in receipt of income support, they must comply with the general requirements under the activity test, as well as other participation requirements, if they are to remain eligible for their payment.[177] In terms of job search requirements and monitoring, Australia’s eligibility criteria for unemployment benefits are some of the strictest in the OECD.[178]
The low rate at which NSA and YA are paid is likely to prove sufficient incentive for many young people to find and accept work. This is the intention of these payments, whose low rates and strict eligibility criteria are calculated to provide a clear financial incentive for people to work or engage in training to boost their employability.
Risks
The measure could prove counterproductive in two different ways.
Firstly, withdrawing access to income support could detract from some young people’s ability to find and gain employment. Some have argued that the low level at which NSA is paid restricts these people’s capacity to find paid work.[179] Withdrawing access to income support altogether is likely to further compromise many young people’s ability to do so. As Lucas Walsh observes, ‘finding jobs costs money’ and ‘those young people without family support could lack the basic means to find jobs’.[180] Job Services Australia employment services providers are able to draw on Employment Pathway Fund monies to purchase employment-related assistance for job seekers. However, where it comes to basic living requirements, those young people who cannot call upon the support of family will be reliant on charities if they are to have any real prospects of gaining employment.
The Government has given some indication that it is aware that the measure will force many young people to call upon the assistance of charities and welfare organisations. In response to a question put by Senator Rachel Siewert in Senate Estimates hearings, Senator Mitch Fifield stated that the Government had committed an additional $229 million over four years towards emergency assistance for job seekers who required help as a result of the measure.[181] A number of welfare organisations have expressed fears that withdrawing access to income support could not only make it tougher for some young people to gain employment, but also drive them into poverty and homelessness.[182]
Secondly, the measure could prove detrimental in terms of its main policy objective if it forces young people into education or training that does not actually benefit them—either in terms of providing them with relevant skills or leading to positive employment outcomes. The Centre for Independent Studies has observed:
While it is good that the government is taking notice of the corrosive nature of youth welfare reliance, there is no guarantee that education and training will produce positive outcomes, especially if they are entered into only in order to access payments. Evidence suggests that the benefits of training are not universal, especially for disengaged young people.[183]
It is generally agreed that raising young people’s education and skills levels is essential to ensure that they do not enter a cycle of unemployment and low paid casual jobs. However, the Australian Council of Social Service (ACOSS) argues that it is not enough to simply provide training places for young people; it is also necessary to ensure that they are able to choose the right course and see it through.[184] Training needs to be relevant to the needs of young people and employers, and this could mean that it needs to be either undertaken in a work setting or with the promise of a job if young people successfully complete their training. This last point raises the question, alluded to earlier, of whether or not there are sufficient jobs for young people.
While there has been a slight increase in job vacancies over the last 12 months or so (with total job vacancies at 146,100 in May 2014), Greg Jericho argues that this is a reduction of 18 per cent on the figure for May 2012.[185] In addition, given that the population has increased during this time, the number of unemployed people vying for each job vacancy has grown.
As at May 2014, there were around 4.9 unemployed people for each job vacancy in Australia. However, as Jericho points out, using this average assumes that every unemployed person is equally qualified for each job. In reality, a substantial proportion (39.7 per cent) of all vacancies were for highly skilled occupations (professionals and managers) and thus unlikely to go to young people. When many young people’s inexperience is taken into account, the labour market is, Jericho argues, ‘quite narrow’.[186]
Conclusion
The imposition of income support waiting periods on young people is both untested and premised on some questionable assumptions.[187] The first of these is that young people need additional incentives to study or look for paid work and, the second, that there are sufficient employment opportunities available to them.
While young people can gain access to government-provided income support by undertaking training, if this training is inappropriate or ineffective, failing to lead to meaningful employment outcomes, then both young people’s time and training resources will be wasted.
There is also a very real risk that the measure could force some young people into poverty and homelessness, and compromise their ability to gain paid employment over the longer term. Hence, while the measure might realise savings in the short-term, ultimately these savings could prove to be illusory.
Schedule 10 proposes a range of changes to the Family Tax Benefit (FTB) program announced in the 2014–15 Budget.[188] The Parliamentary Library has written a background item on these proposed FTB changes.[189] The measures include:
- limiting the Family Tax Benefit Part A (FTB-A) Large Family Supplement to families with four or more children, whereas currently it is provided to families with three or more children
- lowering the Family Tax Benefit Part B (FTB-B) income cut-off point for sole-parents and primary earners in a couple from $150,000 down to $100,000
- introducing a new FTB allowance for single parents on maximum rate of FTB-A who have a child aged six to twelve years, worth $751.90 per child, to partially makeup for the loss of access to FTB-B
- limiting eligibility for FTB-B to families with a child under age six years
- removing the FTB-A ‘per child add–on’. Currently under the FTB-A income test the second taper of 30 cents in the dollar commences at $94,316 for one child, but is increased by $3,796 for each additional child. This will mean for all families, regardless of the number of children, the second step in the FTB-A income test taper will start at $94,316 and
- reducing the FTB end-of-year supplements to $602.25 for an FTB-A child and $302.95 for an FTB-B family, close to their original 2004 values. They are currently $726.35 per FTB-A child and $354.05 per family for FTB‑B.
The Government estimates that all the proposed changes to the FTB program will realise savings of $4.8 billion over five years commencing from 1 July 2015.[190]
The Schedule proposes to change the targeting of the Large Family Supplement (LFS) (paid in addition to FTB-A) from families with a minimum of three children to families with a minimum of four children. The LFS is currently $313.90 per child per annum or $12.32 per fortnight per child and is currently paid for the third and each subsequent child.[191] The measure is expected to realise savings of $377.7 million over four years. [192]
LFS was first introduced as a supplement to family payments in 1996 and was then payable to families with four or more children at a rate of $7.20 per fortnight for the fourth and subsequent children. When the preceding Basic Family Payment and Additional Family Payment were replaced with the FTB arrangements following the GST reforms of 1 July 2000, the LFS was retained as a supplement to FTB-A.[193] The LFS was adjusted from 1 July 2006, expanding access to include families with three or more children.[194]
Who will be affected by the change?
At Budget Estimates hearings in June 2014, officials from the Department of Social Services stated that there were around 78,600 single parent families receiving FTB-A with three children but not four or more children. Therefore, if those numbers remained the same, that would be about the number of single parent families who would lose entitlement to the LFS from 1 July 2015. Likewise, a further 36,300 single parent families would continue to receive LFS as they have four or more children (but not in respect of their third child).[195] Information on the number of couple families affected was not provided.
Provisions
Item 13 amends clause 34 of Schedule 1 of the FAA to alter access to the LFS from families with three or more children to families with four or more children.
The measure to remove the FTB-A ‘child add-on amount’ for the FTB-A income test from 1 July 2015 is expected to realise savings of $211.2 million over four years.[196]
The Family Tax Benefit Part A income test and per child add-on
The income test for FTB assesses adjusted taxable income (ATI).[197] ATI is the sum of taxable income, any adjusted fringe benefits, foreign income, net investment losses, tax free pension or benefit, and reportable superannuation contributions minus any deductible child maintenance expenditure.[198] Families whose ATI for the financial year is $50,151 or less are not affected by the income test.
For every dollar of ATI above $50,151, families lose 20 cents of their FTB-A payment, until their rate reaches what is known as the ‘base rate’.
Every dollar of income over $94,316 (plus $3,796 for FTB child after the first) reduces a family’s FTB-A payment by 30 cents.[199]
This $3,796 amount is called the additional child add-on amount. It is this add-on amount that the Bill proposes to abolish. This would leave all families, regardless of the number of children, seeing the second step in the income test taper commencing when annual ATI reaches $94,316. That is how the savings would be realised.
A family with one qualifying FTB-A child whose annual ATI exceeds $94,316 will not be affected by the change proposed in this Schedule. However, families with more than one qualifying FTB-A child will be disadvantaged.
The proposal to reduce FTB-A and FTB-B end-of-year supplement amounts back down to their values when first introduced is expected to realise savings of $1.2 billion over four years from 1 July 2015.[200]
Family Tax Benefit end-of-year supplement payments
When the FTB program was introduced in July 2000 it did not have end-of-year supplement amounts; they were introduced later, mainly in response to the large number of FTB recipients who ended up with small debts after their end-of-year reconciliation.[201] Debts arose as the vast majority of FTB recipients choose to be paid by way of fortnightly instalments during the year, rather than claiming a lump-sum at the end of the year when they lodge their tax return. For the 2010–11 year, 93 per cent of FTB-A claimants were paid by instalment.[202] When a FTB recipient is paid by instalment, they are required to estimate their ATI for the year of payment and the rate of FTB paid is based on their estimate. Once the year is complete and they then lodge their tax return, their actual ATI (as assessed) is reconciled against the FTB paid to them for the year. As it is often difficult to estimate ATI over the year ahead, many families end up either underpaid (and then paid their arrears) or overpaid (creating recoverable debt).
Most FTB debts are for small amounts and the end-of-year supplement was aimed at mitigating the adverse impacts of FTB families incurring a debt. For the 2002–03 year, there were 560,633 families with an end-of-year FTB debt and the average debt was $860.80.[203] The end-of-year supplement payments of $600 for each FTB-A qualifying child commenced for the 2003–04 year and served to eliminate the vast majority of small debts arising from families understating their ATI for the year.[204]
The end-of-year supplement for FTB-B ($300) was introduced for the 2004–05 year.[205] The introduction of the FTB-B end-of-year supplement was done for basically the same reasons as was previously done for FTB-A, that is, to ameliorate the impact of FTB recipients having small debts after FTB reconciliation. The legislation also provided for annual indexation of these amounts to the CPI to ensure the amounts did not fall behind the primary payment rate of FTB payments (also indexed annually to the CPI).[206]
Current rate of Family Tax Benefit end-of-year supplement payments
The current rate of the FTB end-of-year supplement amount is $726.35 for each FTB-A eligible child and $354.05 for each FTB-B family. The original FTB supplement amounts when introduced were $600 for FTB-A and $300 for FTB-B.
Comment
The reductions in end-of-year supplement amounts are essentially a cut in the level of FTB assistance provided to families but the supplements will still serve to alleviate small end of the year FTB debts.[207]
Provisions
Items 11 and 15 change the end-of-year supplement amounts to $602.25 for FTB-A (at subclauses 38A(3) and (4) of Schedule 1 of the FAA) and $302.95 for FTB-B (at subclauses 31A(2) and (3) of Schedule 1 of the FAA). Items 17 and 19 will provide amendments to ensure these amounts are no longer indexed to the CPI.
The proposed change to the FTB-B primary earner income limit to $100,000 is estimated to provide savings of $1.2 billion over four years from 1 July 2015.[208]
Current primary earner income limit for Family Tax Benefit Part B
The current primary earner income limit for FTB-B is $150,000. Families where the primary earner in a couple family or single parent has an ATI of $150,000 or over are not eligible for FTB-B. This limit was introduced from 1 July 2008.[209] The Government estimates about 18,000 single parent families and 119,000 couple families will lose entitlement to FTB-B with the introduction of a lower income limit in 2015–16. In 2016–17 an estimated total of 150,000 families will have their payments cancelled; and in 2017–18, 149,000 families.[210]
Comment
When FTB-B was introduced in July 2000 there were no income limits, so in some cases there were families accessing FTB-B with very high income. The fact that some high income families were accessing FTB-B was the main impetus for the introduction of the $150,000 income limit for the primary income earner.[211] The National Commission of Audit recommended that FTB-B be abolished entirely because it was poorly targeted.[212] One of the reasons FTB-B does not apply a tapering income test to a family’s total income is that FTB-B is intended to address the higher tax rates faced by single income families compared to couple income families at the same income level (two-income families benefit from two tax-free thresholds). The lower limit will improve the targeting of FTB but will mean more families face a sudden-death cut-off for this benefit, raising effective marginal tax rates at the $100,000 level and creating a disincentive for primary earners just below this income level to work and earn more.
Provisions
Item 8 will amend subclause 28B(1) of Schedule 1 of the FAA to lower the primary income earner limit from $150,000 to $100,000.
Limiting eligibility for FTB-B to only those families with a youngest child aged less than six years is expected to realise savings of $1.9 billion over five years from 1 July 2015.[213]
The Government expects 34,200 families will lose eligibility for FTB-B as a result of this measure in 2015–16. In 2016–17 around 93,000 families will have their payment cancelled and in 2017–18 an estimated 573,000 families will lose eligibility for FTB-B.[214]
Comment
The Bill’s Statement of Compatibility with Human Rights states that this measure ‘acknowledges that care requirements for children are higher when children are very young’ and ‘[t]his change encourages parents to participate in the workforce’.[215] The Government’s reasoning here is that the support offered by FTB-B is needed most in the years before school and, once their youngest children are of school age, parents will be able to replace the lost benefit through earnings. The new supplement for single parents (see next section) will go some way to alleviating the impact of the measure on these parents. However, single-income couple families will have to absorb a significant reduction in their overall income if they are unable, or unwilling, to increase their earnings from paid work.
Provisions
Items 9 and 10 propose changes to the child age limit for FTB-B at subclause 29(3) of Schedule 1 and clause 30 (table item 2) of Schedule 1 of the FAA, respectively. Children aged six or over will no longer qualify their parent/carer for FTB-B. Transitional arrangements are proposed to apply and these are contained in subitems 23(2) to (4). These savings provisions mean that those who are entitled to FTB-B with a youngest child aged six or more as at 30 June 2015 can continue to be qualified to receive FTB-B up until 30 June 2017. This group is in effect ‘saved’. However, this ‘saved’ group will lose their ‘saved’ status if there is any other reason they cease to qualify for FTB-B for that youngest child in the two year period from 1 July 2015 to 30 June 2017. The reasons may be due to income or the ‘saved’ qualifying child leaving their care, or for any other qualification cancellation reason. They will also cease to be saved if the equivalent rate of the new single parent supplement (see next section) becomes equal to, or more than, their FTB-B rate. Savings provisions would not apply for any new claimant for FTB-B who claims on or after 1 July 2015.
To partly make-up for the loss of FTB-B after their youngest child turns six, a new supplement will be paid to single parent families on the maximum rate of FTB-A from 1 July 2015.[216] The Government estimates that the extra cost of providing this new supplement would be $155.0 million over four years.[217]
The proposed new supplement is for single parent families on the maximum rate of FTB-A with a youngest child aged six to 12 years and will be $750.00 over a year. Not all single parent families losing FTB-B due to the lowering of the youngest child age down to age five will get access to the new FTB-A supplement. The new supplement refers to a child aged six years up to age 12. Families who have been able to access FTB-B up until 1 July 2015 with a youngest child aged 13 to 16 years will not gain access to the proposed new supplement. Also, the FTB-A income test is very different from the FTB-B income test: FTB-B is currently paid at the maximum rate to single parents with income under $150,000 (to be reduced to $100,000) while the maximum rates of FTB-A is only paid to those with income of $48,837 or less. The proposed new supplement is $750.00 for a year, whereas the current rate of FTB-B for a child aged five to 15 years is $3,018.55 (including the FTB-B end-of-year supplement). This represents a significant reduction.
Comment
While the new supplement is intended to provide single parents with assistance to make up for the loss of FTB-B when their youngest turns six, it does not come close to replacing the lost income. The Department of Social Services provided the Senate Community Affairs Committee with a copy of some modelling of the impact of the FTB changes on a single parent family with two children, aged six and nine where the parent has an income of $45,000 per annum.[218] The modelling looked at the combined effect of rate pauses (proposed by the related Bill), reductions in the FTB end-of-year supplements, the loss of FTB-B in 2017–18, the loss of the Schoolkids Bonus in 2015–16 and the payment of the new Single Parent Supplement.[219] It showed that the family’s total FTB related payments would be reduced from $14,496.55 in 2013–14 to $13,369.80 in 2015–16 and to $12,317.97 in 2017–18.[220] The family will be $2,178.58 worse off in 2017–18 if all the proposed measures go ahead. The Single Parent Supplement for this family will make up less than half the amount they will lose from no longer receiving FTB-B in 2017–18.[221]
Provisions
Item 16 presents the new provisions for the proposed single parent FTB-A supplement, contained in new part 6 of Schedule 1 of the FAA. The new supplement to commence from 1 July 2015 is to be $751.90 for each qualifying child for the year. The supplement is to be added to an eligible person’s regular FTB-A payment but will not be paid if the person is not entitled to the maximum rate of FTB-A (it is not reduced under the income test). The supplement rate is to be indexed to the CPI once a year (1 July) and the first indexation is to take place on 1 July 2016. The supplement is not paid to those saved from the reduction in age eligibility for FTB-B measure over the period 1 July 2015 to 1 July 2017 (as they are still entitled to FTB-B). However, under the application provisions proposed by item 23, if a saved person’s Single Parent Supplement entitlement would be worth the same, or more, than the person’s FTB-B entitlement during this transitional period, then the person will have their FTB-B entitlement cancelled and receive the Single Parent Supplement instead.
Schedule 11 proposes to raise the Age Pension qualifying age and the non-veteran pension age from 67 to 70 years by six month increments every two years, commencing on 1 July 2025. The current qualifying age is 65 years. Changes by the Labor Government will see the current qualifying age increase by six months ever two years from 1 July 2017, reaching 67 by 1 July 2023. If the measures proposed by this Schedule are passed, the qualifying age for the Age Pension will be 70 from 1 July 2035.
Brief history of the qualifying age
The Old-Age Pension became payable from April 1909 to men and women aged 65 years and over, or those aged 60 years and over who were permanently incapacitated for work.[222] The provision for incapacitated persons over the age of 60 allowed for this group to receive a pension prior to the Invalid Pension commencing in December 1910 (payable to those over 16 years of age who were permanently incapacitated for work).[223]
In 1910, a section of the original Invalid and Old-age Pensions Act 1908 took effect, providing for Old-Age Pension eligibility at 60 years of age for women.
From July 1995, the qualifying age for women was progressively raised by six months every two years until 1 July 2013, when it reached 65.[224]
In 2009, as part of broader pension reforms, the Rudd Government passed amendments to gradually increase the qualifying age to 67; by six months every two years from 1 July 2017 (reaching 67 by 1 July 2023). This followed a finding in the Harmer Review.[225]
Impact of the increase in women’s pension qualifying age
From 1995, the pension age for women began to gradually increase from 60 to 65. University of Sydney researchers examined the impact of this change on retirement choices and the take-up of other payments.[226] The study found that an increase in the pension eligibility age by one year induces a decline in retirement probability of 10 per cent for women.[227] The change also had a significant impact on the take-up of other income support payments, particularly DSP. The paper found an increase of 12–30 percentage points in the take-up of other government payments at ages impacted by these pension reforms.[228]
A separate study which examined growth in the number of DSP recipients over 30 years found that the increase in the age pension age for women accounted for 30 per cent of the increase in the number of women receiving DSP over the period 1982–2011, and 70 per cent of the increase in the period 2002–2011.[229] This paper suggested that the legislated increase in the pension age was likely to result in similar increases in DSP recipient numbers in the affected age cohorts.
Productivity Commission report on ageing
In November 2013, the Productivity Commission released the report An Ageing Australia: Preparing for the Future.[230] The report examined the impact an ageing population would have, particularly the fiscal impact, as well as reform measures that might help alleviate some of the pressures arising from these demographic changes. The report concluded that raising the pension age in line with increases in life expectancy would yield significant benefits. As an illustration, the report modelled the impact of increasing the pension age from 67 to 70 between 2023 and 2035 (as proposed by the Bill) estimating that fiscal savings would amount to around 0.15 per cent of GDP in the later 2030s, but would fall to around 0.1 per cent in the long run:
This represents around $4.5 billion in 2035-36 in constant 2011–12 prices or around $150 per capita in that year. Over the full period from 2025–26 to 2059–60, the accumulated (undiscounted) savings are around $150 billion in constant 2011-12 prices. This estimate accounts for the offsetting fiscal impacts of the movement of some people to the DSP. [231]
The report notes that this is an estimate of the direct fiscal benefits of increasing the pension age and does not consider other economic and social benefits such as the active involvement of older people in the labour market and increased tax revenue.[232]
The report underlined the links between the Age Pension and other aspects of the retirement income system and noted that changes in the age pension age should be jointly considered with changes to the age at which retirees can access their superannuation (the preservation age). The Productivity Commission’s report acknowledged that similar arguments could be used to increase either qualifying age with similar benefits resulting in terms of reduced outlays for government and an increased labour supply.[233]
National Commission of Audit
The National Commission of Audit recommended increasing the qualifying age for the age pension, and from 2033 proposed linking the qualifying age to 77 per cent of life expectancy at age 65.[234] The Commission of Audit’s projections found that the eligibility age would increase to around 70 by 2053.[235] The 77 per cent of life expectancy figure was arrived at on the basis that it would increase the pension age by around six months every five years, and it would not impact on those born before 1965 (to allow for adequate time to plan for change).[236]
The Commission of Audit argued that it was appropriate to increase the Age Pension age as people were experiencing longer and healthier retirements, and the changes would help put pension expenditure on a more sustainable path.[237]
Prime Minister’s previous statements
The Prime Minister discussed raising the pension age to 70 in his 2009 book, Battlelines:
Today, life expectancy at birth is over eighty. In 1908, male life expectancy at sixty-five was 11.3 years. Today, it’s 18.1 years. A comparable pension age today would be at least seventy, especially as people in their sixties enjoy better health than their forebears a century ago.
…
Over the next forty years, male life expectancy at sixty is forecast to rise another three years. Why should Australians continue to expect to retire on the old-age pension at sixty-five or even sixty-seven, especially when the pool of younger workers to pay for them is shrinking as a percentage of the population? Without a significant increase in the birth rate, a big increase in the productivity of the workforce or, perish the thought, a decline in life expectancy, raising the age at which people retire is the only way to overcome the demographic destiny that the Intergenerational Report has highlighted.[238]
Speaking on the Rudd Government’s increase in the pension age as Shadow Minister for Families, Mr Abbott stated qualified support for the reforms:
Finally, and most controversially, this legislation raises the pension eligibility age to 67, starting in 2017 and concluding in 2023. I have to say that this final measure embodies two characteristics which have come to mark the Rudd government. Firstly, the government did not take the public into its confidence before this decision was made. I think there is a secretiveness about the new government, which is regrettable. I think important policy innovations should be discussed publicly before they are presented to the people as a done deal. Secondly, as with all the allegedly tough decisions of the current government, the pain is deferred.
…
Nevertheless, having made those observations, and having made the point as strongly as I can that this measure should have been discussed first and should not simply have been sprung on the Australian people on budget night, I do think that a strong case can be made for raising the pension age.[239]
Rationale for raising the pension age
In the lead up to the 2014–15 Budget, there was a large amount of speculation as to whether the pension age would be raised, with the Treasurer making various public statements suggesting it was under serious consideration.[240] The Treasurer, Joe Hockey, confirmed the speculation towards the end of April 2014, stating that ‘there is inevitability that at some point, we have to increase the aged pension age, but it is well into the future’.[241]
Prior to the Budget, the Treasurer explained that the pension age should reflect increases in life expectancy and that expenditure needed to be reined in to meet increases in other costs associated with the ageing population:
QUESTION: Treasurer, you’ve talked so much about the Budget emergency, you’ve talked about the pension issue in particular in recent weeks. I’m interested in why you have decided to wait until 2035 to lift the pension age to 70 and why you haven’t decided to do it earlier?
TREASURER: Well, because you need to have a trajectory that is linked to retirements. Now it was the early 20th century when the Government first introduced a pension for people aged 65 - men, they didn’t worry about women, they just did it for men aged 65. Life expectancy was 55. So you didn’t have a lot of takers. That Budget methodology hasn’t lasted too well over such a long period of time. The previous Government said, look, we recognise people are living longer. Some actuaries will tell you that life expectancy now, in Australia, is well into the 90s. But we have got to allow people to have certainty that allows them to start saving and planning for retirement and if you start dealing with issues now, that affect people’s lives 2035-2050, then they can start to save and plan for that framework. That’s what we’re focused on. The Age Pension needs to be a safety net by 2035, not a cargo net. It needs to be something that is going to ensure that no one is left behind and of course it will be ongoing increases in costs associated with aged care and health care and we have got to have the money to meet those challenges.[242]
Pension age will be the highest in the world
As has been noted in many reports, the proposal to change the pension age to 70 will mean that Australia has the highest legislated pension age in the world.[243] Almost all countries in the Organisation for Economic Co‑operation and Development (OECD) have a pension age of at least 65 and most have plans to raise it to 67 in the future (it is already 67 in Norway and Iceland).[244] The United Kingdom plans to increase the pension age to 68 between 2044 and 2046. Denmark, Greece, Hungary, Italy, Korea and Turkey have all opted to link future increases in the pension age to life expectancy (using different formulas and some countries would require parliamentary approval for increases in the pension age) while the Czech Republic has determined that there will be an annual two month increase in the retirement age from 2044.[245] While other countries are likely to reach a pension age of 70 (and perhaps higher), based on current settings, this will not occur until well after 2035.
Dependency ratio
One of the main concerns raised about the ageing population is that it will become increasingly difficult for governments to finance support for the aged as the proportion of the population working and paying taxes will be much lower. The dependency ratio, a measure of the number of working age people compared to those over the pension age (also known as the support ratio), is expected to fall over the coming decades. According to Treasury’s latest Intergenerational Report, in 2010 there were five people of working age for every person of pension age; by 2050 it estimates there will only be 2.7 people of working age for every person over the age of 65.[246]
Increasing work participation of older people will help limit the fiscal impact of population ageing—as longer work periods increase retirement savings, increase tax revenue for government and delay any access of government income support. Raising the pension age will boost the participation rates of older people and may limit the fall in the dependency ratio. Concern at falling dependency ratios has driven many countries across the OECD to introduce pension reforms, including raising the pension age, and in this respect, the Bill’s proposal is following an international trend.[247]
Some commentators have rejected the dire projections of a falling dependency ratio as simplistic, arguing they do not account for a corresponding reduction in the number of children dependent on those of working age. Sociologist Katharine Betts has argued that while total labour force participation will fall over time, the proportion of the population engaged in work will likely be higher in 2061 than it was in the 1960s.[248] Betts holds that anxieties over the ageing population and the pressure it will place on government finances are not justified, and that economic opportunities will present themselves from Australia’s changing demographics.[249]
Life expectancy and working life expectancy
A commonly cited issue with increasing the pension age is that workers in physically demanding jobs may not be able to work until they reach the pension age.[250] Disability is strongly correlated with age: prevalence rates of disability are around ten per cent of the population up to the age of forty-five years, increasing to more than 40 per cent by the age of 70.[251] Those unable to work are likely to seek other income support payments such as DSP. The Productivity Commission estimated that 19 per cent of those in the 65–70 age group would receive DSP if they were unable to access the Age Pension with similar effects on other government payments such as Newstart Allowance.[252] It is difficult to predict how many 65–70 year olds will be able to keep working in the years ahead, as much will depend on the availability of jobs, the type of work, the supports available to those with disability, the availability of other sources of retirement income such as superannuation and the level of age discrimination in the workforce.
The issue of equity has also been raised in relation to the proposed measure, with some commentators pointing out that disadvantaged groups tend to have lower life expectancies and will be adversely affected by the changes more than other groups.[253] In particular, the life expectancies of Indigenous people is much lower than for non-Indigenous: for example, Aboriginal and Torres-Strait Islander men born in 2010–2012 have an estimated life expectancy 10.6 years lower than that for non-Indigenous men (69.1 years compared with 79.7).[254] Social policy researcher Peter Whiteford observed that, on average:
Indigenous men couldn’t expect to reach a new pension age of seventy and Indigenous women would receive the age pension for less than a quarter of the time that non-Indigenous women would. (A good deal of the difference in life expectancies is due to the fact that Indigenous men and women aged sixty-five or less have much higher mortality rates, so that even now a significant number don’t live long enough to claim an age pension.)[255]
There are also significant differences in the life expectancies of lower income groups and higher income groups. Though the means tested pension system excludes many of the very wealthy from accessing the age pension, the impact of a change in pension age will be felt more by those most reliant on it for support: ‘An increase in the pension age reduces the pension wealth of lower-income groups proportionately more than it reduces the pension wealth of higher-income groups’.[256]
Superannuation preservation age
While the Bill proposes to delay access to the Age Pension for many workers, there are no current proposals by the Government to also delay access to superannuation. The current preservation age is 55 but this is scheduled to rise to 60 by 2024. This will mean a gap between access to superannuation and access to the Age Pension of seven years. A large gap creates the risk that individuals will spend large amounts of the superannuation savings (either through need or choice) and therefore be more reliant on the Age Pension when they are able to access it. It also reduces the work participation incentive of an increased pension age.
The Henry Tax Review, Productivity Commission and the National Commission of Audit all recommended that an increase in the preservation age accompany any change to the pension age.[257] The Henry Review, Productivity Commission and think-tanks such as the Grattan Institute have all recommended the preservation age align with the pension age.[258] However, the Commission of Audit was concerned with placing limitations on people’s access to their own savings and recommended maintaining the current five year gap over time. Figure 4 illustrates the Commission of Audit’s recommendations:
Figure 4: Current and National Commission of Audit’s recommended preservation age schedules
Source: National Commission of Audit (NCOA), ‘9.1 The Age Pension’, Towards responsible government: the report of the National Commission of Audit: appendix to the report of the National Commission of Audit—volume 1, NCOA, Canberra, 2014, accessed 8 July 2014.
Comments from Government members indicate that changes to the preservation age are being considered.[259]
Comment
While increasing life expectancies and concerns over the sustainability of the current pension system underlie the rationale for the proposed increase in the pension age, a question remains over whether the measure is justified, or coherent, without broader reforms to the retirement income system. As noted above in regards to Schedule 1, there is an array of policy options available to government if it is seeking to address the growth in pension expenditure. Tighter targeting, raising the preservation age and further reforms of superannuation to encourage higher levels of self-reliance in retirement should all be considered alongside the Bill’s proposals. The Bill proposes long-term reforms affecting millions of Australians’ retirement but they appear piecemeal and raise serious concerns as to whether the measures are equitable and whether they will be effective.
Items 1 and 2 amend the tables in the SSA setting out the relevant pension ages for men (subsection 23(5A)) and women (subsection 23(5D)) to gradually raise the pension age to 70 from 2025. The pension age will rise from 67 years for those born between 1 January 1957 and 30 June 1958 to 70 years for those born on or after 1 January 1966. The pension age will increase by six months for every two birth years between 1 July 1958 and 1 January 1966.
Items 3 and 4 add identical table items to the tables at subsections 5QB(2) and 5QB(5) of the VEA which set out the pension ages for non-veteran men and women. Eligibility for Service Pension for veterans remains 60 years of age and is not affected by these amendments.
Schedule 12 proposes to amend the date of grant rules for new applicants of the veterans’ Disability Pension and also for applicants for a higher rate of Disability Pension.[260] The Government estimates that the tightening of the date of grant rules for claims for the Disability Pension would realise savings of $38.8 million over four years from 1 January 2015.[261]
The veterans’ Disability Pension is provided to compensate veterans for injuries or diseases caused or aggravated by war service or certain defence service rendered on behalf of Australia. There are four categories of Disability Pension payable under the Veterans’ Entitlements Act 1986 (VEA):
- General Rate, payable in multiples of ten per cent up to 100 per cent
- Extreme Disablement Adjustment (for over 65 years of age only)
- Intermediate Rate and
- Special Rate.[262]
The General Rate is paid solely on the basis of the degree of incapacity suffered as a result of an accepted condition/s. The Intermediate and Special Rates take into account the level of incapacity from war or defence caused disabilities and the effects that this incapacity has had on the applicant’s working life. The Special Rate is intended to assist severely disabled veterans who are unable to have a normal working life due to their accepted disabilities, and is accordingly the highest level of disability pension available under the VEA. The Intermediate Rate, as the name suggests, offers a level of compensation between General Rate and Special Rate. Retired veterans who are 65 or over with very severe disabilities and who do not qualify for a Special Rate pension may be entitled to an Extreme Disablement Adjustment.[263]
As set out in the Explanatory Memorandum, under the current Disability Pension provisions in the VEA there is a capacity to back pay up to three months prior to the date of claim and this has become standard accepted practice.[264] The proposed amendments presented in Schedule 12 are to make the date of commencement the date of claim for Disability Pension. This setting of the date of commencement from the date of claim is standard practice for the main income support payments provided under the VEA, being the Service Pension, the Invalidity Service Pension, the Income Support Supplement and the Defence Force Income Support Supplement. Likewise, it is the practice under the SSA where income support payments are paid from date of claim.
The move to paying from date of claim will not affect the date of commencement for access to treatment, which will continue to be able to be back dated three months prior to the date of claim.
Backdating rules in the VEA also apply to claims for the War Widows/ers Pension (WWP) and Orphan’s Pension and allow for backdating between three to six months prior to the date of claim (depending on the type of claim and when it is made).[265] The proposed amendments in Schedule 12 are to apply only to the Disability Pension but not these other payments, so the practice of backdating will continue to apply for WWP and Orphan’s Pension claims and grants. This inconsistency is not explained in the Explanatory Memorandum or the Minister’s second reading speech. If the intention is to set consistent commencement rules then all veterans’ payments should be subject to similar conditions.
Provisions
Item 1 proposes replacement provisions for the current subsections 20(1) and 20(2) in the VEA. These replacement subsections would provide for discrete and separate date of commencement of payment provisions for the Disability Pension so that payment commences from date of claim for Disability Pension.
Item 3 proposes replacement provisions for subsection 85(3) in the VEA. This is to ensure that notwithstanding that the date of grant of DP cannot be backdated three months, the date of access to treatment can be three months prior to the date of claim.
[32]. Student payments refers to Youth Allowance for students and apprentices, Austudy and ABSTUDY. Pension payments refers to Age Pension, Disability Support Pension, Carer Payment, Wife Pension, Widow B Pension and a range of payments for veterans and their dependents including Service Pension and War Widows Pension. Parenting Payment Single was previously classified as a pension but since September 2009, its payment rates and indexation methods have differed and it now sits outside this category.
[36]. Different thresholds apply to people receiving ‘transitional rate’ pensions and DSP recipients aged under-21 with no children.
[40]. EG Whitlam (Leader of the Opposition), Pre-election speech, Forrest Place, Perth, speech, 17 November 1972.
[46]. Pension Review Taskforce, Pension review report, (Harmer Review), Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA), Canberra, 27 February 2009, accessed 2 July 2014; L Buckmaster, D Daniels and P Yeend, Social Security and Other Legislation Amendment (Pension Reform and Other 2009 Budget Measures) Bill 2009, Bills digest, 179, 2008–09, Parliamentary Library, Canberra, 2009, accessed 2 July 2014.
[47]. Harmer Review, op. cit., p. 72.
[58]. C McGannon, ‘Age Pension reform needed for a fair, sustainable welfare system’, The Conversation, 29 January 2014, accessed 3 July 2014; C Ey, ‘The sustainability of retirement incomes policies’, Parliamentary Library briefing book for the 44th Parliament, Parliamentary Library, Canberra, 2013, p. 58, accessed 3 June 2014.
[59]. National Commission of Audit (NCOA), ‘7.1 Age Pension’, Towards responsible government: the report of the National Commission of Audit—phase one, NCOA, Canberra, 2014, accessed 3 July 2014.
[73]. The only payments payable while a person is permanently resident overseas are the Age Pension, Wife Pension, Widow B Pension and the Disability Support Pension (in special circumstances).
[74]. Newstart Allowance is payable for temporary absences under special circumstances, such as acute family crises, for a humanitarian purpose or in order to seek eligible medical treatment. See DSS, ‘7.1.2.10 General rules of portability’, Guide to Social Security Law, DSS website, accessed 10 July 2014.
[77]. DSS, ‘7.1.2.10 General rules of portability’, op. cit.
[79]. Statement of Compatibility with Human Rights, Explanatory Memorandum, op. cit., p. 3.
[80]. Australian Government, ‘Part 2: expense measures’, Budget measures: budget paper no. 2: 2014–15, op. cit., p. 204. This measure is contained in the related Bill.
[83]. D Daniels and P Yeend, Employment and Workplace Relations Legislation Amendment (Welfare to Work and Other Measures) Bill 2005, Bills digest, 70, 2005–06, Parliamentary Library, Canberra, 2005; D Daniels, L Buckmaster and M Thomas, Social Security and Other Legislation Amendment Bill 2011, Bills digest, 37, 2011–12, Parliamentary Library, Canberra, 2011, accessed 10 July 2014.
[87]. To be renamed the ‘Energy Supplement’.
[88]. Senate Community Affairs Committee, Answers to Questions on Notice, Social Services Portfolio, Budget Estimates 2014–15, 4–5 June 2014, Question 662, accessed 19 August 2014; Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA), Annual report 2012–13, FaHCSIA, Canberra, 2013, p. 65, accessed 7 July 2014.
[93]. DHS, ‘Commonwealth Seniors’ Health Card’, op. cit.
[100]. Australian Government, ‘Part 2: expense measures’, Budget measures: budget paper no. 2: 2009–10, p. 226, accessed 7 July 2014. See also: D Daniels, L Buckmaster and P Yeend, Social Security and Other Legislation Amendment (Pension Reform and Other 2009 Budget Measures) Bill 2009, Bills digest, 179, 2008–09, op. cit.
[101]. National Commission of Audit (T Shepherd, chair), ‘7.1 The Age Pension’, Towards responsible government: the report of the National Commission of Audit—phase one, February 2014, Commonwealth of Australia, accessed 7 July 2014.
[102]. Ibid., recommendation 15.
[108]. DSS, ‘3.9.4.20 Non-cancellation of concession cards for temporary overseas absences’, Guide to Social Security Law, DSS website, accessed 7 July 2014; P Yeend, Social Security and Other Legislation Amendment (2012 Budget and Other Measures) Bill 2012, Bills digest, 154, 2011–12, Parliamentary Library, Canberra, 2012, accessed 7 July 2014.
[111]. Explanatory Memorandum, op. cit., p. 13.
[121]. For more information, see: ABS, Australian Statistical Geography Standard (ASGS): volume 5 – remoteness structure, July 2011, cat. no. 1270.0.55.005, ABS, Canberra, January 2013, accessed 7 July 2014 and Australian Population and Migration Research Centre (APMRC), ‘ARIA (Accessibility/Remoteness Index of Australia)’, APMRC website, accessed 7 July 2014.
[122]. Explanatory Memorandum, op. cit., p. 18, accessed 7 July 2014.
[147]. Explanatory Memorandum, op. cit., p. 28.
[156]. P Yeend, Social Security Amendment (Training Incentives) Bill 2009, Bills digest, 164, 2008–09, Parliamentary Library, Canberra, 2009, accessed 15 July 2014; P Yeend, Family Assistance Legislation Amendment (Participation Requirement) Bill 2009, Bills digest, 44, 2009–10, Parliamentary Library, Canberra, 2009, accessed 15 July 2014.
[158]. ABS, Labour force, Australia, detailed – electronic delivery, June 2014, cat. no. 6291.0.55.001, ABS, Canberra, July 2014, Data cube LM3, accessed 15 July 2014. For a more detailed analysis of young people’s earning or learning activities, see G Jericho, ‘Hang on, youths already earn and learn’, The Drum, 2 July 2014 and Foundation for Young Australians, How young people are faring 2013: the national report on the learning and earning of young Australians, Foundation for Young Australians, Melbourne, 2013, accessed 15 July 2014.
[159]. Foundation for Young Australians, op. cit.
[160]. ABS, Labour force, Australia, detailed – electronic delivery, June 2014, op. cit. Unemployed people are those actively seeking and available to work within a defined period.
[164]. ABS, Labour force, Australia, detailed – electronic delivery, June 2014, op. cit., Data cube LM2.
[165]. P Vandenbroek, op. cit.
[166]. A legislative instrument can be subject to disallowance if either a Senator or Member of the House of Representatives moves a motion of disallowance within 15 sitting days of the day that the legislative instrument is tabled. The motion to disallow must be resolved or withdrawn within a further 15 sitting days of the day that the notice of motion is given. However, it should be noted that if there is no notice of motion to disallow a legislative instrument, then there is no debate about its contents.
[168]. Explanatory Memorandum, op. cit., p. 38.
[174]. There are some indications that a similar policy is being considered in the UK. It has been reported that should he become Prime Minister next year, Labour leader, Ed Miliband plans to withhold unemployment benefits from 18 to 21 year olds if they refuse to undertake vocational training. UK Prime Minister, David Cameron has also suggested that unemployment benefits to people under the age of 25 could be cut as a means to reduce long-term unemployment. ‘Ed Miliband: young jobless must train or lose benefits’, BBC News, 19 June 2014, accessed 30 July 2014.
[176]. P Cameron and R Denniss, Hard to get a break? Hours, leave and barriers to re-entering the Australian workforce, Institute paper, 13, The Australia Institute, November 2013, accessed 16 July 2014; Mission Australia, Youth survey 2013, Mission Australia, Sydney, 2013; N Herault et al, ‘The effects of macroeconomic conditions on the education and employment outcomes of youth’, Australian Journal of Labour Economics, 15(1), 2012, pp. 17–36, accessed 16 July 2014; S Burrows, ‘Youth unemployment in the Illawarra region’, Journal of Australian Political Economy, 65, 2010, accessed 12 March 2014.
[177]. Under the SSA, all recipients of Newstart Allowance or Youth Allowance (other) must comply with the activity test and other participation requirements. This means that a person must be actively seeking and willing to undertake paid work that is suitable for that person. The general job search activity test applies at all times unless other specific activities are required or the person is exempt from the activity test (if they are sick, injured or unable to meet their activity test requirements because of a personal crisis). A person may meet the activity test in the following ways: meet the general requirement to seek and undertake suitable work; undertake specific job search requirements; enter into an Activity Agreement, or undertake mutual obligation requirements or other activities such as Work for the Dole.
[185]. G Jericho, op. cit.
[186]. Ibid. Social researcher, Eva Cox has similarly argued that there is a mismatch between supply and demand. And, in such an environment, employers are most likely to choose ‘able-bodied people without kids with recent employment experience and who are not depressed by too many failures’. E Cox, ‘An 800,00-plus jobs gap between “welfare to work” and reality’, The Conversation, 23 January 2014, accessed 16 July 2014. Given their frequent lack of employment experience, among other things, many young people are likely to struggle for selection.
[187]. The Brotherhood of St Laurence has an ongoing campaign on the issue of youth unemployment. Based on its latest research findings, the Brotherhood has developed a range of recommendations for the Australian Government that, it argues, would have a positive impact on the employment prospects of young Australians. See Brotherhood of St Laurence, Investing in our future: opportunities for the Australian Government to boost youth employment, Brotherhood of St Laurence, Melbourne, 2014, accessed 24 July 2014. Mission Australia and ACOSS have also proposed a number of reforms for tackling youth unemployment and boosting young people’s employability. See Mission Australia, Workforce participation and young people, 2013 and Australian Council of Social Service, Times are still tough for young unemployed people, August 2010, accessed 24 July 2014.
[189]. For a summary of the measures, see: P Yeend and M Klapdor, ‘Family payments’, Budget review 2014–15, Research paper series, 2013–14, Parliamentary Library, Canberra, 30 May 2014, p. 141, accessed 2 July 2014.
[190].Correction to the Explanatory Memorandum, op. cit., p. 2.
[193]. L Lang, D Daniels, P Yeend, A New tax System (Family Assistance ) Bill 1999, Bills digest, 175, 1998–99, Parliamentary Library, Canberra, 1999, accessed 2 July 2014.
[194]. P Yeend, F Childs, Families, Community Services and Indigenous Affairs and Other Legislation (2006 Budget and Other Measures) Bill 2006, Bills digest, 151, 2005–06, Parliamentary Library, Canberra, 2006, accessed 2 July 2014.
[199]. In some limited cases, only the first 20 cent income taper will apply to the FTB-A payment—this is only in cases where it would produce a higher rate of payment for the family compared to using the two-threshold/base rate method.
[202]. Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA), Annual report: 2012–13, FaHCSIA, Canberra, p. 37, accessed 3 July 2014.
[209]. P Yeend, Families, Housing, Community Services and Indigenous Affairs and Other Legislation Amendment (2008 Budget and Other Measures) Bill 2008, Bills digest, 150, 2007–08, Parliamentary Library, Canberra, 2008, accessed 3 July 2014.
[215]. Statement of Compatibility with Human Rights, Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014, op. cit., p. 23.
[223]. The provision for Old-Age Pension to be paid to those aged 60 years and over who were permanently incapacitated for work, though seldom used, remained in force until 1943. TH Kewley, Social security in Australia: 1900–1972, Sydney University Press, Sydney, 1973, p. 92.
[232]. Nor the savings accumulated from reduced access to the Pensioner Concession Card, which would decrease costs to the Pharmaceutical Benefits Scheme. Ibid.
[234]. NCOA, ‘7.1 Age Pension’, op. cit.
[236]. NCOA, ‘9.1 The Age Pension’, Towards responsible government: the report of the National Commission of Audit: appendix to the report of the National Commission of Audit—volume 1, NCOA, Canberra, 2014, accessed 8 July 2014.
[238]. T Abbott, Battlelines, Melbourne University Press, Melbourne, 2009, pp. 106–107.
[247]. See OECD, Pensions at a glance 2013: OECD and G20 indicators, op. cit., pp. 182–183.
[251]. ABS, Disability, ageing and carers, Australia: summary of findings, 2012, cat. no. 4430.0, ABS, Canberra, 2013, quoted in P Whiteford, ‘Work till you drop’, Inside Story, 28 April 2014, accessed 9 July 2014.
[253]. Whiteford, op. cit.
[254]. Australian Institute of Health and Welfare (AIHW), ‘Life expectancy’, AIHW website, accessed 9 July 2014.
[255]. Whiteford, op. cit.
[257]. Australia’s Future Tax System Review, Australia’s future tax system: the retirement income system: report on strategic issues, (Henry Tax Review), Commonwealth of Australia, May 2009, p. 16, accessed 9 July 2014; PC, An ageing Australia: preparing for the future, op. cit., p. 201; NCOA, ‘9.1 The Age Pension’, Towards responsible government: the report of the National Commission of Audit: appendix to the report of the National Commission of Audit—volume 1, op. cit.
[258]. Australia’s Future Tax System Review, op. cit. p. 16; PC, An ageing Australia: preparing for the future, op. cit., p. 201; J Daley, C McGannon and L Ginnivan, Game-changers: economic reform priorities for Australia, Grattan Institute, Melbourne, 2012, pp. 53–54, accessed 9 July 2014.
[264]. Explanatory Memorandum, op. cit., p. 58.
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