Families, Housing, Community Services and Indigenous Affairs and Other Legislation Amendment (Election Commitments and Other Measures) Bill 2011 – Second Reading Speech

*** Check Against Delivery ***

This bill delivers on three significant government election commitments to support families and senior Australians.

Work bonus for pensioners

During the 2010 election campaign the government announced an expansion to the seniors work bonus to better support pensioners who choose to work.

The work bonus was introduced as part of the government’s secure and sustainable pension reforms in September 2009.

The work bonus allows pensioners over age pension age to keep more of their pension when they work part time. It disregards an amount of employment income from the pension income test.

Many pensioners choose to take on part-time work and occasional work and should be encouraged and rewarded for these valuable contributions to our community.

Under the changes to the work bonus proposed in this bill from 1 July 2011, the first $250 of employment income earned in a fortnight will be excluded from the income test regardless of the total amount earned by the person in that fortnight. This will be on a dollar-for-dollar basis up to $250 rather than a 50c-in-the-dollar reduction up to $500 under current rules. This provides improved rewards for pensioners who work.

Significantly, these reforms allow pensioners to bank their unused work bonus. This effectively ‘annualises’ the benefit.

If a pensioner earns less than $250 in a particular fortnight, they will accrue a credit to their new employment income concession bank up to the value of $250. This income bank can build up to a maximum of $6 1/2 thousand and can then be used to offset employment income earned in a later period.

The work bonus income bank will offset more earnings when they do work, meaning that a pensioner could then earn up to $6 1/2 thousand a year extra without it affecting their pension.

It could be regular work each fortnight or, for example, over a six-week period before Christmas.

Pensioners will be able to carry credits in their work bonus income bank forward across financial years.

These changes are expected to benefit up to 30,000 pensioners each year.

The new work bonus comes on top of the government’s historic reforms to the pension system and further reflects this government’s commitment to providing adequate support for pensioners while supporting those pensioners who want to work.

From September 2009 the government’s historic pension reforms have included a new and better system of pension indexation that better reflects the rising cost of living that pensioners face.

The reforms have also delivered a new, consolidated pension supplement to make the pension system simpler. Furthermore, better advanced payment arrangements are helping pensioners with one-off expenses like paying the car rego or fixing the fridge.

Since September 2009 the government’s secure and sustainable pension reforms have driven pension increases of $15 a fortnight for maximum-rate single pensioners and $97 a fortnight for maximum-rate pensioner couples combined.

This new, expanded seniors work bonus strengthens these important reforms by better supporting pensioners who want to work.

Supporting families with teenagers

This bill also delivers on the government’s key election commitment to increase family assistance by up to $4,200 a year for teenagers in secondary study. This significant increase will help families meet the higher costs of older children and encourage more teenagers to stay at school.

The government recognises that families with older teenage children can face higher costs. The cost of groceries, clothes and family activities can all increase as children grow.

But under the existing system, the maximum rate of family tax benefit part A drops from $214 a fortnight to $53 a fortnight when a child turns 16. Rent assistance also stops when a child turns 16, and families may lose eligibility for family tax benefit part B, the large family supplement and multiple birth allowance.

This sharp drop in family support can encourage teenagers to leave school early if their family is unable to support them in full-time study or training. The drop in family assistance when a child turns 16 is also one of the features of the family assistance scheme most frequently criticised by parents.

This election commitment will increase assistance for families with teenagers aged between 16 and 19 who are in full-time secondary study or a vocational education equivalent.

The maximum rate of family tax benefit part A will increase by around $160 a fortnight for teenagers aged 16 to 19 who are in secondary school or the vocational equivalent, or who are exempt from this requirement. This will align with the 13- to 15-year-old rate and ensure that government assistance for families does not fall when an older teenage children in full-time secondary study turns 16.

This measure costs $766 million over five years and starts on 1 January 2012, in time for the new school year.

Over the next five years the families of around 590,000 teenagers will benefit from higher family assistance while their children finish school.

In addition to the increase in family tax benefit part A, families will also be eligible for rent assistance. Rent assistance currently cuts out when a child turns 16. These reforms will provide rent assistance for families with 16- to 19-year-olds who receive more than the base rate of family tax benefit part A.

Single income families may also become eligible for family tax benefit part B as a result of these changes if their child moves from youth allowance onto family tax benefit part A. This will further increase the amount of total additional assistance they may receive.

Families with three or more family tax benefit part A children may also benefit from the large family supplement of $295 per annum.

This initiative supports the Gillard Labor government’s objective to improve year 12 or vocational equivalent completion rates and meet our target of achieving a 90 per cent year 12 attainment rate by 2015. By helping support families while their children finish secondary school, this initiative will mean that more students, particularly from lower socioeconomic backgrounds, can progress into further education or training.

Research shows that children from low-income families have lower levels of school completion. For example, in 2006, year 12 completion rates were at 59 per cent for low-income students compared with 78 per cent for higher income students.

These findings indicate that the costs of educating teenage children are an important barrier for families on low incomes to support their child’s education.

The increased family tax benefit part A payment for 16- to 19-year-olds in school or training will be $781 a year higher than the rate of youth allowance paid for 16- and 17-year-olds. This will encourage more 16-year-old children to stay in school to receive the higher payment.

These reforms also implement the recommendation of the independent Review into Australia’s Future Tax System that says:

… family payments should be the main form of assistance for families … up to the end of secondary school, or the school year in which they turn 18 (the earlier of the two).

As a result of these changes, family assistance will be the primary form of government support for children until they finish secondary education. Youth allowance will then provide ongoing support to young people as they finish school and progress into further education and training.

Youth allowance will continue to be available to teenagers aged under 18 who meet independence criteria, who need to live away from home in order to attend full-time secondary study, who are not in full-time secondary study, or who meet other eligibility criteria.

This bill includes changes to the youth allowance parental income test to protect the entitlement of youth allowance recipients with a sibling aged 16 to 19 who remains in or transfers to the family tax benefit system as a result of these new measures.

Baby bonus

This bill also delivers on another government election commitment to assist families with the upfront costs of having a new baby.

From 1 July 2011, parents of new babies who receive the baby bonus on or after that date will receive more of their payment upfront.

The baby bonus is paid in 13 fortnightly instalments. As a result of the changes made by this bill, the first payment of the baby bonus will be $500 more than the other 12 instalments.

This will help parents meet the upfront costs associated with the birth or adoption, including the purchase of high-cost items such as bassinettes or prams. The total amount of the baby bonus will remain the same, and the 12 subsequent payments will help parents meet ongoing costs during the baby’s first six months.

Other measures

The bill also introduces two non-budget measures, one relating to the treatment of annuities paid to people affected by the morning sickness drug thalidomide; and the other making some minor administrative amendments to the income management arrangements.

The bill makes changes to the income tax and social security law, to ensure that annuity payments made from the Thalidomide Australia Fixed Trust to or for a beneficiary of the trust, are not taken into account as income. The trust was set up in 2010 and administers annuities to people affected by the morning sickness drug thalidomide, which has been proven to be associated with a range of tragic birth defects. These annuity payments are not compensation payments and the measures in this bill ensure that these annuity payments are excluded from the income test for social security payments, and are exempt from income tax.

Lastly, the bill makes some minor administrative improvements to the income management arrangements. It clarifies when the qualifying period begins for the matched savings scheme payment. It clarifies the role of nominees under income management arrangements. And it improves debt recovery arrangements in circumstances where Centrelink has issued a cheque on an income managed customer’s behalf.

This bill delivers on three of the government’s important election commitments-improving support for families, improving the delivery of the baby bonus for new parents and better supporting pensioners who work. It also makes minor amendments on income management and recognises the unique plight of thalidomide survivors.