APPENDIX 1
Comments by National Welfare Rights Network
12 June 2009
Committee Secretary
Senate Standing Committees on Community Affairs
Department of
Senate
PO Box 6100
Parliament House
Canberra ACT 2600
re: Family
Assistance Amendment (Further 2008 Budget Measures) Bill 2009
The National
Welfare Rights Network Inc (NWRN) welcomes the opportunity to provide comment
to the inquiry into the Family Assistance Amendment (Further 2008 Budget
Measures) Bill 2009. Having said this however, we wish to place on record our
disappointment at the very short time made available to prepare a submission on
this very technical and complex piece of legislation.
The limited time
available has not permitted NWRN to undertake an examination of the provisions
contained in Schedule 3 of the Bill. Given the short time frame for this
inquiry our comments are necessarily brief and are limited to Schedules 1 and 2
of the Bill.
Schedule 1:
Continuous adjustment of rate of family tax benefit by instalment
This Schedule proposes
to insert a new section 31E into Subdivision C of Division 1 of Part 3 of the
Family Assistance Administration Act to apply in the case of ongoing family tax
payment instalment payments. The effect of the provision is to make the current
voluntary option of continuous adjustment mandatory. The section will require
the Secretary upon the revision of an income or maintenance estimate to firstly
determine whether a Family Tax Benefit (FTB) recipient has a notional
overpayment for an earlier period of the income year because of the revised
estimate and if so, to then reduce the ongoing rate of FTB to cover the
notional overpayment. This will be worked out in accordance with the method
statement set out in the proposed subsection 31E (2). In the event of a notional
overpayment, the method statement will produce a daily overpayment rate by
which the Secretary must reduce the recipient’s daily rate of Family Tax
Benefit for the remainder of the income year, unless a new application of
section 31E occurs due to a subsequent revised estimate. As a consequence, the
application of the method statement can result in the daily rate of Family Tax
Benefit being reduced to nil but explicitly prevents the daily rate being
reduced below nil.
Whilst NWRN has
long championed for a greater focus on debt prevention in both the design of
policy and administration of the Social Security and Family Assistance systems,
we are concerned that the introduction of mandated continuous adjustment will
create an undesirable level of rigidity into the program making it less
responsive to the diverse needs of families that it is designed to assist. The
proposed change will reduce the choice and flexibility that families currently
have to manage income variations in the income year and make payment
arrangements which best suit their family circumstances through the ‘More
Choice for Families’ and voluntary continuous adjustment option. For this
reason, NWRN believes that consideration ought to be given to providing
Centrelink with a discretionary power not to apply the continuous adjustment
measure when satisfied that there is a more appropriate means available to
manage the notional overpayment.
NWRN accepts that
continuous adjustment is a sensible and practical debt prevention option. However
its current value lies in it being part of a suite of options that Centrelink
has in its toolbox to assist families to manage the implications flowing from
income variations throughout the income year. This was also recognised by the
Australian National Audit Office (ANAO) in its 2006/07 Audit Report on the
Management of Family Tax Benefit Overpayments. The Minister in her second
reading speech states that approximately three quarters of all families already
utilise the continuous adjustment option on a voluntary basis yet no analysis
is offered in relation to other families who elect not to use the option. The
Minister promotes the change on the basis that it ‘will assist in reducing the
risk of the clamant having an overpayment on reconciliation and limiting the
possibility of a debt’ without taking any account of the impact of reduced
fortnightly instalments which is a likely explanation of why some families
elect not to take up this option.
Whilst reducing
debts is a worthwhile objective it is not the primary objective of the Family
Tax Benefit system which is to help people on low to middle incomes to meet the
costs of raising dependent children. For this reason, it must be balanced
against the impact on families receiving less than their legislated rate for
the remainder of the income year. This is particularly important when the
continuous adjustment results in a significant reduction in the fortnightly
rate, reduces the fortnightly rate to below the base rate or produces a zero
entitlement for the remainder of the income year. The risk of a mandated
system of continuous adjustment is that its immediate impact may place families
under greater financial strain denying them any advantages that might be
associated with spreading the notional debt over a longer period of time
through being able to negotiate a lower debt withholding rate on reconciliation
or utilising the end of year supplement payment to offset the reconciliation
debt. For some families, receiving a higher fortnightly entitlement for the
remainder of the financial year in lieu of the lump sum end of year supplement
may be what is required to meet their family’s fortnightly expenditure during
the year. Also, continuous adjustment may not be the best option for families
whose remaining entitlement may be insufficient for the year to fully recover
the overpayment already accumulated because the increase in estimate annual
income was quite high or it occurred late in the income year. It might be
better managed, through, for example, the setting off of the debt against an
anticipated income tax refund.
Families should not
be placed in further financial hardship through curtailing the flexible options
available to manage the disadvantages inherent in the fundamental design of the
system which makes overpayments inevitable given that the rate of fortnightly
instalments can only be calculated on the basis of a forecast or estimate.
Given that it is not possible to envisage all the circumstances where a
mandatory continuous adjustment might not be in the best interests of the
family, we believe that a degree of flexibility should be retained through
conferring Centrelink with general discretion not to apply the provision when
the circumstances warrant it.
NWRN recommends
that the Bill be amended to give Centrelink a general discretion not to apply
the continuous adjustment measure when having regard to the recipient’s
individual family circumstances, there is a more appropriate means available to
manage the notional overpayment.
Schedule 2 – Non
payment of family tax benefit for non lodgment of tax returns
Whilst NWRN
recognises the need to provide some incentive for families to lodge their tax
returns within a reasonable period (so that the FTB reconciliation process can
be finalised), we are opposed to the current proposed legislative provisions on
the basis that it is a retrograde measure, is unfair by comparison with other
tax provisions and is unjustifiably punitive in nature. For example while a
person who lodges a tax return after the deadline may be subject to penalties,
any entitlement to a refund is not affected. Further the Australian Taxation
Office may grant a deferral beyond the period permitted by the Family
Assistance legislation.
The proposed change
carries an unacceptably high level of risk that innocent children will be
punished through the denial of fortnightly statutory entitlements because
families are unable to comply with the prescribed time frames due to reasons
beyond their control, lack of resources or incapacity. This has the very real
potential to undermine the statutory objectives behind the Family Assistance
legislation by increasing financial hardship and child poverty.
Under the proposed
legislative framework, a person subject to a variation under the current non
lodger debt provisions because they have not lodged an income tax return within
12 months of the end of the relevant tax year will be prohibited from receiving
fortnightly instalment payments following the grace period. The grace period
is generally defined as a period of 75 days but may be as little as 14 days in
the case of another prohibited period. The effect of these provisions is that a
person can be prohibited from receiving ongoing fortnightly FTB instalments
from as little as 15 months after the end of the relevant financial year even
in circumstances where a person is in the process of preparing or lodging ATO
returns or the failure is outside of the person’s control because of the
refusal of their partner to lodge their return.
Whilst the provision
does confer the Secretary with discretion to extend the grace period, the
special circumstances test is too tough especially when compared to the
taxation provisions.
The ATO Receivables
Policy – Chapter 51 Lodgment of Documents notes:
INTRODUCTION
2. Taxpayers are
required to lodge correct documents by the due date.
3. At times,
taxpayers may experience circumstances that prevent them from lodging by the
due date. Legislation allows the Commissioner to defer the time for lodgment of
an approved form and other prescribed forms.
4. Where
taxpayers fail to meet their lodgment obligations, the Tax Office will
differentiate its treatment of taxpayers according to their individual
circumstances and the reasons for their non compliance.
5. The policy
seeks to make it as simple as possible for taxpayers to meet their obligations
under the law, to lodge documents on time and to ensure the integrity of the
tax system.
The key policy is
contained at Chapter 55. At the very least, NWRN is of the view that the Bill
would need to ensure that it is consistent with deferral (for example under
38-55 of the Taxation Administration Act 1953) and suspension options to the
Commissioner under this policy.
The Deferrals
legislation is supported by a non-exhaustive list of factors at Chapter 55:
Exceptional and
unforeseen circumstances
25. A deferral will
usually be granted in exceptional or unforeseen circumstances where the
taxpayer can demonstrate that the inability to lodge by the due date can be
reasonably attributed to those circumstances. Such circumstances may include:
natural disasters
(flood, fire, drought, cyclones, earthquake and similar events) or other
disasters that may have, or have had, a significant impact on a taxpayer or
region or particular industry or grouping of taxpayers
the serious illness
of the taxpayer
impeded access to
records (for examples, records seized during a police search or retained as
evidence in a court matter), or
the advanced age or
the youth of a taxpayer, the serious illness of a family member or a problem
due to language difficulties.
26. Each request
will be considered on its merits and the deferred due date will be determined
having regard to the particular circumstances of the taxpayer and those that
led to the inability to lodge by the due date. The fact that a taxpayer may
have a poor lodgment compliance history should not prevent consideration of a
request for a deferral of time to lodge, where the inability to lodge was
caused by circumstances beyond their control.
28. Deferrals may
be granted to a class of taxpayers affected by a common event, for example,
bushfire or delayed legislation. Where the Tax Office can reasonably assume
that a common event has sufficiently impacted on all of a defined population, a
deferral may be granted without individual applications by the taxpayers. For
example, where industrial instruments prevent employees of schools and
associated bodies from working over the Christmas holiday shutdown period,
deferrals may be granted to all entities affected in this way.
We note that this
includes:
- Natural disasters
- Illness
- Access to records
- Age
- Language difficulties
Although opposed to
this measure, NWRN believes that it could be improved through broadening the
grounds on which the grace period can be extended to include the factors set
out above. In addition, the circumstances should be extended to provide not
only for the victims of domestic violence who are unable to comply because of
the unwillingness of a partner to lodge and their inability to resolve matters
for fear of retribution by way of further physical or psychological abuse but
also to where the inability to lodge was caused by circumstances beyond the
immediate control of the FTB recipient. The intention here would be to cover
situations where notwithstanding the best endeavours of the FTB recipient,
their current partner has simply refused to comply. Again, because it is not
possible to predict all the circumstances that might need the protection of
this provision, Centrelink should also be given the power to grant an extension
‘for any other special or compelling reason’.
Further given the
harsh financial consequences that will flow as a consequence of not lodging the
ATO returns within the stipulated time frames, NWRN is concerned that the Bill
does not provide adequate safeguards so that payment cancellation only occurs
once Centrelink has exhausted all reasonable strategies to facilitate
compliance and then only as a last resort. We would urge amendments to the Bill
which address the following flaws in the framework:
The absence of a
statutory requirement for a notice which clearly articulates the steps to be
taken, a timeframe for taking these steps and the consequences of non
compliance before the Schedule 2 provisions are activated.
The absence of
provisions whereby FTB recipients can be exempted from the Schedule 2 process
in the event that reasonable action is being taken to prepare and/or lodge the
tax returns, the tax returns can not be lodged due to circumstances beyond the
person’s control or where a person has been granted an ATO deferral.
The absence of a
provision to preserve a person’s entitlement to the Family Tax Benefits which
would have been received but for the cancellation in the event that the tax
returns are lodged after the 2 year limitation period.
NWRN recommends in
the event that Schedule 2 is allowed to stand, that it be amended to provide
adequate safeguards to address the identified flaws in the provisions and
further that the grounds for the extension of the grace period are broadened to
take account of the concerns that we have highlighted above.
Should you require
any further information regarding this submission, please do not hesitate to
contact Ms Genevieve Bolton, our National Liaison Officer on (02) 6257 2931.
Yours faithfully
Kate Beaumont
President
National Welfare
Rights Network Inc
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