Christian Porter (Pearce, Liberal Party, Minister for Social Services) Share this | Hansard source

I thank all the members for their contributions to the second reading debate on the Social Services Legislation Amendment (Budget Repair) Bill 2015. In closing that second reading debate, I will just take a brief moment to make a couple of comments, but particularly on the issue that seems to have gathered the most attention in that debate, which is the change to the proportionalisation rules that relate to the age pension.

The bill introduces four measures, and the first of those measures is a measure that was announced in the 2015 budget, and that is the measure that I have just spoken of: the measure that reduces the length of time that recipients of the age pension—and also a small number of other payments with unlimited portability—can continue to be paid overseas at their basic means-tested rate. In putting it in the context of the issue of fairness—and I note many of the comments that have been made by members opposite—there are some important issues of context that have to be taken into account here. One is that, obviously, we face very difficult budgetary circumstances. I have stewardship of a portfolio that represents more than a third of the Commonwealth budget—indeed, it is the third of the Commonwealth budget that is growing faster than any other part of the Commonwealth budget—and the reality is that, if we cannot find savings measures inside the social services budget, it will simply be impossible to return to surplus. So there is an imperative for any rational government that considers it an important thing to return to surplus—and I am not aware of any divergence of views across the House that it is an important thing to return to surplus. It is just a matter of economic reality that some savings have to be found inside the social services budget. That is not always an easy task. However, with an eye to trying to do that in as fair and equitable a way as possible, and with a comparison to international standards as to what is considered fair and reasonable in all the circumstances, we have made some decisions.

I think that this first measure is an example of how there are some international comparisons that are relevant. It is the case at the moment that, if you are able to avail yourself of a means-tested pension in Australia—the old age pension, that is—and you travel overseas, you can be paid a part of that pension abroad indefinitely, in effect. But there is a proportionalisation that applies to that indefinite payment. Pausing on that for a moment, Australia is one of the few nations in the world that is generous to the extent that we allow for the maintenance of a system that pays a non-contributory pension—which is what the old age pension is in Australia—abroad indefinitely, at, of course, a proportionalised rate.

This is, clearly, a savings measure. It is designed to drive sustainability into the expenses associated with the pension, and the net savings with respect to this measure are in the vicinity of $168 million.

Essentially, what has been known as the 26-week rule will be amended to a six-week rule. That rule is that, if you are a recipient of the age pension—and there are a small number of disability support pensioners who this will also apply to: those where the continuing inability to work which is assessed on the Australian standard is something that occurred whilst overseas; and there are a small number of wife pension and some widow B pension recipients who will also be subject to this change from the 26-week rule down to the six-week rule—the notion is that, at some point in time, if you are overseas and receiving an Australian pension, the amount of the pension that you receive should reflect that proportion of your working-life residence in Australia. Working-life residence is the period of time that a person has resided in Australia between the age of 16 and the pension age. So, from 1 January 2017, the rate of these pensions will be proportionalised at six weeks rather than the current 26 weeks, according to the pensioner's working-life residence. So, for instance, until the issue of this legislation, it would have been the case—and is the case today—that you would be able to stay outside of Australia for 26 weeks and receive precisely the same pension that you would have been receiving in Australia, but, after that 26-week point, proportionality would be taken into account. So if you were resident in Australia at 25 of the relevant 35 weeks, you would be paid 25 35ths of the pension that you would have otherwise received in Australia. That same method of proportionalisation will apply. It is simply that it will commence earlier—that is, after six weeks overseas rather than 26 weeks overseas. So, for instance, that will mean that a pensioner with 35 years or more of Australian work-life residence and those already exempt from the proportional payment rules will not be affected by this rule. So if you are a pensioner with more than 35 years of working-life residence in Australia then these rules will not affect you in any way, because the proportionalisation will be at 35 35ths. Pensioners overseas on the implementation date will stay under the current 26-week rule until they return to Australia, and it is subsequent trips overseas that will be under the new six-week rule.

This measure, as I have noted, does not affect the length of the portability period. The payments affected by this measure continue to be payable overseas indefinitely. Only the amount that the pensioner may receive after six weeks' absence may change. So it is the six weeks that is the key issue here. The term 'portability' simply refers to the continuation of Australian income support payments during a recipient's overseas absence. Portability policy acknowledges that travel is an integral part of modern living, but it also acknowledges that the age pension in Australia is a non-contributory scheme and that it is meant to reflect the fact that a large proportion of a person's working life has been spent in Australia rather than in another country.

On this point, it is important, I think, with respect to these issues of fairness and equity that members opposite raised, to understand that there is a very important and fundamental difference between ours and many overseas based pension schemes—and I use that word loosely because many overseas pension schemes are in fact insurance based contributory schemes, and the Australian social security system has not had one of those. The Australian income support system is residence based. It is funded from general taxation revenue. The rate of benefits paid in Australia depends on need, assessed through income and assets tests, rather than the length or amount of an individual's contribution. So it is not a system, as is the case in many other countries, where people, over the course of their working life, pay into the pot and then draw down from the pot at the end of their working life by virtue of there being an insurance based pension scheme. Ours is not contributory in that sense. It reflects time worked in Australia, and this is why we are making this rule change to six weeks.

The measure in the bill contributes to ensuring that countries share the cost of social support in retirement—and I think that is an issue that is going to become increasingly important as the international labour market becomes more fluid. This change has been made because of the budgetary circumstances that the government finds itself in and the need to return to surplus, and the need, thereby, to find some form of savings inside the social services portfolio. But there is also a fair principle at the base of this change, and that is that a person's retirement costs should be fairly distributed between the country a person has spent most of their working life in, and, where the person has divided their working life between two or more countries, each of those countries should share responsibility for the retirement costs of that person. So it is the expectation that, where a person has spent a significant proportion of their working life overseas, they will be also eligible to receive a pension from that country. Indeed, Australia now has 30 international social security agreements around the world to support people living and working in more than one country, and they have been hard-won agreements over many years. Generally the agreements that I am speaking of—those 30 international social security agreements—allow Australian residents to maximise their income by helping them to claim payments from other countries where they have spent part of their working life as well as claim a pension or part-pension in the Australian jurisdiction where they have also spent part of their working life.

It is very important to note that Australia is one of the few countries in the world which pays a non-contributory pension abroad indefinitely. So, when we talk about fairness and equity, of all the nations on earth we are one of the very few whose generosity extends to a non-contributory pension scheme that is still applied to you when you travel abroad indefinitely. Indeed, Canada and New Zealand are the only other examples of countries that do this and they require you to have worked in Canada or New Zealand for 40 and 45 years respectively to receive a full rate of pension. The measure presently before the House acknowledges the residence based nature of the Australian social security system.

The bill also takes the opportunity to reintroduce some other measures from the 2014 budget. I will briefly move on to those. Two of the reintroduced measures are to cease the pensioner education supplement and the education entry payment. The pensioner education supplement was introduced in 1987 to assist, in essence, single parents with the ongoing costs of education. At the time, this was in recognition of the notable difficulties that single parents experienced when obtaining employment after being in receipt of what was then the sole parent pension for up to 16 years. Since then, eligibility has been selectively extended. I must note here that, despite its name, the pensioner education supplement is not available to people receiving the age pension. Having read many of the contributions of members opposite, it appears to me to be either the inference or the understanding of some of the individuals who spoke that the pensioner education supplement is a supplement paid to age pensioners. That is not correct. The most common payment type whose recipient also receives the pensioner education supplement—that is, people who receive the supplement—are generally on parenting payment single. That represents nearly half, about 45 per cent. Others are on the disability support pension and some are on the carer payment.

The education entry payment is an annual lump sum payment which was introduced in 1993 to help remove financial barriers to education by providing assistance to certain long-term payment recipients with the up-front costs of study when they begin approved education. In 2014-15 there were around 83,000 recipients who received that payment and it was worth about $208 a year. When both of those payments were reduced, they obviously had the very worthy aim of trying to assist long-term income support recipients who had been out of the workforce for a considerable period of time. However, since the introduction of the payments, there have been several policies introduced which are designed to reduce the length of time that income support recipients, including single parents, who have the capacity to work can and should remain out of the workforce. Those policy changes, including varied eligibility and participation requirements for parenting payment, recognise that, as children age, their parents' capacity to work increases.

There have also been a number of changes to assessment and eligibility criteria for payments for people with reduced capacity to work that require that these people work or look for work in line with their capacity. The individuals are assisted into the workforce through services such as jobactive, which can help job seekers develop skills that they need to find and remain in work. The point is that, as policies have changed around the mutual obligation to search for work, the people who were subject to the mutual obligation were able to avail themselves of the assistance of workforce services, such as jobactive, which help job seekers develop the skills they need to find or remain in work. So it is the case that, whilst the supplements were meant to achieve a desirable end, there are now other ways that type of assistance into the workforce can be garnered and given to individuals who previously would have been the recipients of those payments.

Ceasing the two supplements will also have the benefit of, in part, simplifying the system of welfare that exists in Australia. All members present would be well aware of the recommendations of the McClure review which were to the effect that, when you maintain a system of over 20 basic payment types and 55 different subcategories, supplements and add-ons that have been layered by government after government onto the welfare system, it produces a complicated and unwieldy set of supplements and add-ons that any government rationally has to try to look at reducing.

Finally, the bill also reintroduces elements of the 2014 budget measure maintaining eligibility thresholds for Australian government payments for three years. One of those elements is to maintain at level for three years the income-free areas for all working age allowances other than student payments and parenting payment single from the new start date of 1 July 2016. A further element is to maintain at level for three years the income-free areas and other means test thresholds for student payments, including the student income bank limits. Those amounts were not to be indexed on 1 January 2016, 1 January 2017 and 1 January 2018. The start date for the implementation of pauses to these payments for the first year has indeed passed. These thresholds were indexed, according to normal arrangements, on 1 January 2016. This resulted in a loss of approximately $7.4 million in expected savings from the original total estimated savings of $93.8 million over the forward estimates. This brings into play an important point: the freezing of this type of indexation on income-free areas is a lever that has been used by successive governments. It was a lever that was used by the previous government with respect to a range of welfare payments. I note that it was not a matter that was the subject of pointed comment in many of the contributions from members opposite, and I would hazard a guess that that is because this is precisely a lever that members opposite used, in any reasonable observation in a fair way, to restrain savings and to restrain expenditure growth in the welfare budget when they were in office.

The changes help achieve the long-term sustainability of the payment system whilst ensuring that Australia has a targeted, means tested income support system that provides financial assistance to those most in need. Under the current rules, income-free areas and means test thresholds are indexed annually in line with movements in the consumer price index. Not indexing the value of these free areas and thresholds for three years will mean that increases to payments that would otherwise have occurred on the relevant indexation dates will not occur. It is estimated that, if this bill were to pass, the indexation of the thresholds would recommence in 2019.

Finally, it is important to consider these measures in the context of the broader financial situation, as I have mentioned, that the coalition government inherited. Unfortunately, the situation is one of debt and deficit. With it involving over a third of the Commonwealth budget—in fact, 35 per cent of the Commonwealth budget—welfare bills must be restrained. I thank members opposite for their contributions. I close the second reading debate with those brief comments.

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