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1998-99
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
SENATE
A NEW TAX SYSTEM (COMPENSATION
MEASURES
LEGISLATION AMENDMENT) BILL 1998
SUPPLEMENTARY EXPLANATORY MEMORANDUM
Requests for amendments to be moved on behalf of the Government
Amendments consequential upon requests for amendments to be moved on behalf of the Government
Amendments to be moved on behalf of the Government
(Circulated by authority of the Minister for Family and
Community Services,
Senator the Hon Jocelyn Newman)
ISBN: 0642 404593
A NEW TAX SYSTEM (COMPENATION
MEASURES
LEGISLATION AMENDMENT) BILL 1998
OUTLINE AND FINANCIAL IMPACT STATEMENT
The changes proposed to the A New Tax System (Compensation Measures
Legislation Amendment) Bill 1998 (the Bill) affect the Social Security
Act 1991, the Veterans’ Entitlements Act 1986, and
the A New Tax System (Family Assistance) Act 1999 (when enacted).
They are as follows.
The Bill, as currently drafted, provides for a 4% increase in the maximum
rate of social security and veterans’ benefits and allowances. The 4%
increase incorporates a component that represents an advance on future CPI
increases that result from the impact of the GST. To ensure that double
compensation does not occur, the Bill provides for the advance on CPI to be
recouped by adjusting CPI increases that occur after 1 July 2000 until the
overall increase in payment rates is 1.5%.
A number of changes are made
to the relevant provisions in the Bill with the following effect.
First,
CPI increases will be adjusted from the first indexation day after
19 March 2001.
Second, adjustment will occur until the overall
increase in payment rates is 2%.
As currently drafted, the Bill provides for a 4% increase in social security
and veterans’ pensions from 1 July 2000. The increase is currently
included in the maximum basic rate of pension.
Under existing
legislation, the maximum basic rate of pension (incorporating the 4% increase)
cannot fall below 25% of male total average weekly earnings
(MTAWE).
Instead of including the 4% increase in the maximum basic rate,
a new pension supplement is introduced. The rate of the pension supplement is
initially set at 4% of the maximum basic rate and after that is subject to CPI
indexation in March and September of each year. This is consistent with the
indexation arrangements for maximum basic rates of pensions.
By keeping
the maximum basic rate and 4% pension supplement separate, pensioners are
assured of a maximum basic rate of pension that is at least 25% of MTAWE and the
additional pension supplement.
To avoid double compensation, changes are
also made to enable 2% of the maximum basic rate of pension and 2% of the
pension supplement as at 19 March 2001 to be recouped by adjusting CPI increases
that occur after that date.
The cost to revenue of the changes to the compensation package
is:
$500 million in 2000-01
$490 million in 2001-02
$820 million in
2002-03
A NEW TAX SYSTEM (COMPENSATION MEASURES
LEGISLATION AMENDMENT) BILL 1998
NOTES ON REQUESTS FOR AMENDMENTS
The A New Tax System (Compensation Measures Legislation Amendment)
Bill 1998 (the Bill) increases the maximum basic rates of social security
pensions that are subject to the MTAWE safety net by 4%. As currently drafted,
this is done by incorporating the 4% increase into the maximum basic
rate.
Requests for amendments number 1 to 4 change this approach
for social security pensions by introducing a separate payment called a pension
supplement, the rate of which is set at 4% of the maximum basic rate of pension
(thereby representing the 4% increase).
Request for amendment number 1
amends section 1064 of the Social Security Act by inserting new module BA to
provide for the new pension supplement.
New point 1064-BA1 provides that
the pension supplement is based on a person’s maximum basic rate of
pension. Because there are several maximum basic rates of pension depending on
a person’s family situation, there will also be several pension supplement
amounts, determined on the same basis.
The amount of the pension
supplement is set at 4% of the maximum basic rate of pension as at 1 July 2000,
rounded to the nearest multiple of $2.60. The amount of the pension supplement
is set under new points 1064-BA2 and BA3 and the rounding rules are contained in
new points 1064-BA4 to BA6.
A note at the end of new point 1064-BA2
indicates to the reader that the pension supplement amounts are indexed 6
monthly in line with movements in the CPI.
Similar amendments are made to
sections 1065, 1066 and 1068A of the Social Security Act by requests for
amendments number 2, 3 and 4 respectively.
Request for amendment
number 5 provides for the indexation of the pension supplement. The CPI
indexation table in subsection 1191(1) of the Social Security Act is amended to
ensure that pension supplement amounts are indexed on 20 March and 20 September
each year in line with movements in the CPI. The indexation regime for the
pension supplement is the same as that which applies to index maximum basic
rates of pension.
The Bill also increases the maximum basic rates of veterans’
pensions that are subject to the MTAWE safety net by 4%. This is currently done
by incorporating the 4% increase into the maximum basic rate.
Consistent
with amendments to the Social Security Act, this approach will be replaced by
the introduction of a new pension supplement which represents the 4%
increase.
Request for amendment number 6 amends section 30 of the
VE Act (war widow/er pension) in two ways.
First, subsection 30(1) is
amended to separately identify an amount of pension supplement as a component of
war widow/er pension.
Second a new subsection 30(1A) is inserted that
sets the amount of the pension supplement. The amount of the pension supplement
is the fortnightly amount of pension supplement that would be payable to a
service pensioner who is not a member of a couple.
Request for
amendment number 7 provides for the indexation of the pension supplement.
The CPI indexation table in subsection 59B(1) of the VE Act is amended to ensure
that pension supplement amounts are indexed on 20 March and 20 September
each year in line with movements in the CPI. The indexation regime for the
pension supplement is the same as that which applies to index maximum basic
rates of pension.
Request for amendment number 8 amends Schedule 6
of the VE Act by inserting new module BA to provide for the new pension
supplement.
New point SCH6-BA1 provides that the pension supplement is
based on a person’s maximum basic rate of pension. Because there are
several maximum basic rates of pension depending on a person’s family
situation, there will also be several pension supplement amounts, determined on
the same basis.
The amount of the pension supplement is set at 4% of the
maximum basic rate of pension as at 1 July 2000, rounded to the nearest multiple
of $2.60. The amount of the pension supplement is set under new points SCH6-BA2
and BA3 and the rounding rules are contained in new points SCH6-BA4 to
BA6.
A note at the end of new point SCH6-BA2 indicates to the reader that
the pension supplement amounts are indexed 6 monthly in line with movements in
the CPI.
A NEW TAX SYSTEM (COMPENSATION MEASURES
LEGISLATION AMENDMENT) BILL 1998
NOTES ON AMENDMENTS CONSEQUENTIAL UPON
REQUESTS
FOR AMENDMENTS
Consequential amendments number 1 to 4 are consequential upon the
introduction of the new pension supplement.
Consequential amendment
number 1 amends the method statement in point 1064-A1 of the Social
Security Act to build the new pension supplement (new step 1A) into the overall
rate calculation process.
A reference to the new step 1A is also
inserted into step 4 of point 1064-A1 so that the pension supplement, like the
maximum basic rate, is a component of the “maximum payment rate” of
pension.
Similar amendments are made to points 1065-A1, 1066-A1 and
1068A-A1 of the Social Security Act.
Consequential amendment number
5 amends the “Indexed and Adjusted Amounts Table” in section
1190 of the Social Security Act. New item 1AA of the Table identifies pension
supplement amounts which are then indexed in accordance with section 1191 of the
Social Security Act. Consequential amendment number 5 is therefore
consequential upon the indexation arrangements inserted for the new pension
supplement.
Consequential amendment number 6 amends the note at
the end of subsection 1192(2) of the Social Security Act (inserted by
clause 121 of Schedule 1 of the Bill) so that it reflects the adjustment
arrangements in new section 1206GB as inserted by consequential amendment
number 11. That is, on indexation days after 19 March 2001 (instead of 1
July 2000), the indexation of amounts that were increased by 4% on 1 July 2000
may be affected by the adjustment arrangements in section
1206GB.
Consequential amendments number 7 to 10 omit references to
pension maximum basic rates from the table in new section 1206GA (inserted by
clause 122 of Schedule 1 of the Bill). The effect is that the maximum
basic rates of those pensions will not be increased by 4% under section 1206GA
but will be provided for by the pension supplement.
Consequential
amendment number 11 provides for the modification of the way certain amounts
are indexed after 19 March 2001.
The new adjustment rules apply
to:
• amounts in the table in new section 1206GA that are subject
to the 4% increase and that are indexed in line with movements in the CPI under
Division 2 of Part 3.16 of the Social Security Act;
• the
maximum basic rates in points 1064-B1, 1065-B1, 1066-B1 and 1068A-B1;
and
• the pension supplement amounts.
The method statement
in new section 1206GB would operate to modify the way these amounts are indexed
after 19 March 2001 as follows.
The adjustment rules would operate in
relation to these amounts as follows.
Step 1 is used to identify the
current figure for the affected amount as at 19 March 2001.
The
current figure is then multiplied by 0.02 to arrive at the “provisional
overall adjustment amount” (see step 2).
The provisional overall
adjustment amount is then rounded in accordance with new subsections 1206GB(3)
to (5) using prescribed rounding bases to become the overall adjustment amount
(step 3 refers).
Step 4 is used to work out the first indexation increase
amount (ie, the amount of the CPI increase) for the first indexation day for an
affected amount that occurs after 19 March 2001. This amount is arrived at
by subtracting the current amount from the indexed amount worked out using the
method statement in subsection 1192(2) of the Social Security Act.
Step 5
requires a comparison between the overall adjustment amount and the first
indexation increase amount.
If the overall adjustment amount is less than
or equal to the first indexation amount, then steps 6 is invoked. Under step 6,
the overall adjustment amount is subtracted from the indexed amount. If the
indexed amount is a pension supplement, the result will need to be rounded to
the nearest $2.60 in accordance with step 7.
The result obtained under
step 6 or 7 is the indexed amount for the purposes of step 4 of the method
statement in subsection 1192(2) of the Social Security Act. This indexed amount
may be increased under section 1195 to keep the amount at 25% of MTAWE (the note
at the end of step 8 refers). Where step 8 applies, no further adjustment in
respect of subsequent CPI indexation under new section 1206GB is
required.
If the overall adjustment amount is more than the first
indexation increase amount, then step 9 applies. Under step 9, the current
amount is taken to be the indexed amount (there is no CPI adjustment to the
affected amount for that first indexation day after 19 March 2001). The indexed
amount may, however, be increased under section 1195 to keep the amount at
25% of MTAWE (the note at the end of step 9 refers). Step 10 then
applies.
Step 10 is used to work out the “remaining adjustment
amount” which is relevant for the second indexation day for an affected
amount that occurs after 19 March 2001. The remaining adjustment amount is
arrived at by subtracting the first indexation amount from the overall
adjustment amount.
The second indexation increase amount (ie, the amount
of the CPI increase) for the second indexation day after 19 March 2001 is worked
out using step 11. This amount is arrived at by subtracting the current amount
from the indexed amount worked out using the method statement in subsection
1192(2) of the Social Security Act.
Step 12 requires a comparison between
the remaining adjustment amount and the second indexation increase
amount.
If the remaining adjustment amount is less than or equal to the
second indexation amount, then steps 13 is invoked. Under step 13, the
remaining adjustment amount is subtracted from the indexed amount. If the
indexed amount is a pension supplement, the result will need to be rounded to
the nearest $2.60 in accordance with step 14.
The result obtained under
step 13 or 14 is the indexed amount for the purposes of step 4 of the
method statement in subsection 1192(2) of the Social Security Act. This indexed
amount may be increased under section 1195 to keep the amount at 25% of MTAWE
(the note at the end of step 15 refers). Where step 15 applies, no further
adjustment in respect of subsequent CPI indexation under new section 1206GB is
required.
If the remaining adjustment amount is more than the second
indexation increase amount, then step 16 applies. Under step 16, the current
amount is taken to be the indexed amount (there is no CPI adjustment to the
affected amount for that second indexation day after 19 March 2001). The
indexed amount may, however, be increased under section 1195 to keep the amount
at 25% of MTAWE (the note at the end of step 16 refers). Step 17 then
applies.
Step 17 requires the process in steps 10 to 16 to be repeated
for the third and subsequent indexation days until the remaining adjustment
amount is zero.
Consequential amendment number 12 makes a
consequential amendment to new subsection 1206GB(2) (inserted by clause 122 of
Schedule 1 of the Bill) so that it reflects the new adjustment rules described
above. The existing reference to “step 9” is changed to read
“step 11”.
Consequential amendment number 13 amends the “Indexed and
Adjusted Amounts Table” in section 59A of the VE Act. New item 2 of the
Table identifies pension supplement amounts which are to be indexed in
accordance with section 59B of the VE Act. Consequential amendment number
13 is therefore consequential upon the indexation arrangements inserted for
the new pension supplement.
Consequential amendment number 14
amends the note at the end of subsection 59C(2) of the VE Act (inserted by
clause 3 of Schedule 2 of the Bill) so that it reflects the adjustment
arrangements in new section 198H as inserted by consequential amendment
number 18. That is, on indexation days after 19 March 2001
(instead of 1 July 2000), the indexation of amounts that were increased by 4% on
1 July 2000 may be affected by the adjustment arrangements in section
198H.
Consequential amendment number 15 makes a number of changes
to Schedule 6 of the VEAct as a result of the introduction of the new pension
supplement.
The relevant method statements in Module A of Schedule 6 are
modified to build the new pension supplement into the overall rate calculation
process. The effect is that the pension supplement, like the maximum basic
rate, is a component of the “maximum payment rate” of
pension.
Consequential amendments number 16 and 17 omit references
to pension maximum basic rates from the table in new section 198G (inserted by
clause 32 of Schedule 2 of the Bill). The effect is that the maximum basic
rates of those pensions will not be increased by 4% under section 198G but will
be provided for by the pension supplement.
Consequential amendment
number 18 provides for the modification of the way certain amounts are
indexed after 19 March 2001.
The adjustment regime provided for in
consequential amendment number 18 works in the same way as the adjustment
regime described above in relation to certain social security
payments.
Consequential amendments number 19 to 25 make a number
of changes to new subsections 198H(3), (4) and (5) (inserted by clause 32 of
Schedule 2 of the Bill) so that these new provisions reflect the new adjustment
rules in consequential amendment number 18.
A NEW TAX SYSTEM (COMPENSATION MEASURES
LEGISLATION AMENDMENT) BILL 1998
NOTES ON AMENDMENTS
Amendments number 1 and 2 amend the commencement provision in
the Bill to ensure that new Schedule 4 of the Bill commences immediately after
the commencement of Schedule 4 of the A New Tax System (Family Assistance)
Act 1999.
Amendment number 3 inserts a new Schedule 4 into the Bill. New
Schedule 4 amends the Family Assistance Act by inserting a new clause 9 and
method statement into Schedule 4 of that Act.
New clause 9 operates to
modify the way the rate of rent assistance is indexed after 19 March 2001.
The method statement in clause 9 (outlining the adjustment arrangements for rent
assistance) works in a similar way to the adjustment regime described above in
relation to certain social security payments. The differences
are:
• the MTAWE safety net does not apply to rent assistance so
the references to section 1195 (or the Family Assistance Act equivalent) are not
relevant; and
• as the 4% increase will be included in the rate of
rent assistance, any references to a supplement are not relevant.