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

I move:

That this bill be now read a second time.

This bill introduces the legislative amendments required for the 2015-16 Mid-Year Economic and Fiscal Outlook measure, described as:

Applying a General Interest Charge to the Debts of Ex-recipients of Social Security and Family Assistance Payments.

From an intended implementation date of 1 July 2016, the bill will provide for the application of a new annual interest charge to outstanding debts owed by former recipients of social welfare payments who have failed to enter into, or have not complied with, an acceptable repayment arrangement.

The interest charge will apply to social security, family assistance (including child care debts), paid parental leave debts and student assistance debts.

At the end of June 2015, there were over one million debts with a value of $3.04 billion. These debts have increased by 10 per cent in value since June 2014.

Of this total debt base, approximately $870 million is held by around 270,000 former recipients who do not make sufficient or regular payments.

While the average value of social welfare debt per person is $2,357 and the average length of debt is just over three years, there are some serious circumstances that must be addressed which I will expand on shortly.

To understand how we have found ourselves in a situation with over $3 billion in social welfare debt, we must first understand how social security and family assistance debts are raised. A debt to the Commonwealth occurs where a welfare recipient receives an overpayment—a payment, in effect, to which they were not lawfully entitled.

There are several reasons for overpayments, including, firstly, that welfare recipients have not lodged a tax return. For instance, until a tax return is lodged, the entire FTB payment for an individual is raised as debt. This cohort of debtors represents 20 per cent of debts and 39 per cent of the value of debts.

A second phenomenon is advance payments. Former recipients received an advance payment, and before it could be recovered through withholdings, ceased to be a payment recipient. This cohort represents 15 per cent of debts and 1.5 per cent of the value of debts.

There is also the phenomenon of undeclared earnings and wrongly-declared earnings. There are former recipients who have, either accidentally or, on occasions, deliberately, failed to declare earnings or accurately declare earnings. This cohort represents 16 per cent of debts and 20 per cent of the value.

A fourth phenomenon is reconciliation. FTB and childcare assistance payments through the year are based on recipient income estimates, which are then reconciled at the end of the financial year. Debts are raised when a recipient has been overpaid due to underestimating their income. This is not a fraudulent activity in the main, but is often the alternative result of the fact that some families have inconsistent income, fringe benefits and other sources of tax offsets, including negative gearing, so that they can only finally determine their income at the end of financial year. This cohort represents 13 per cent of debts and 10 per cent of the debt value.

Importantly, current recipients of social welfare payments who also have a social security or family assistance debt have their welfare payments reduced until their debt is paid. The critical issue pertinent to this bill is that there is no similar arrangement in place to recover debts once a person no longer requires social welfare or family assistance payments.

As a result, not only is there insufficient incentive for former recipients who are no longer dependent on the welfare payment system to repay their debts the reality is that some proportion of ex-recipient debtors actively avoid repayment.

The application of an interest charge will provide a very significant incentive for the responsible self-management of debts and will encourage debtors to repay their debts in a timely manner where they have the financial capacity to do so.

Debtors who are no longer eligible to receive financial support through social welfare payments are more likely to have the financial capacity to make repayments than those in receipt of income support or family assistance.

The introduction of the interest charge will ensure that people who once received social welfare payments do not receive an unfair advantage by having received what has been until this point, in effect, an interest-free loan from the government, with no specified requirement for scheduled repayments.

The rate of the proposed interest charge (of approximately nine per cent) will be based on the 90-day bank accepted bill rate (of approximately two per cent) plus an additional seven per cent, as is routinely applied by the Australian Taxation Office under the Taxation Administration Act 1953.

To ensure all debtors are treated consistently and fairly, the interest charge will also apply to those receiving childcare assistance and/or paid parental leave payments (and no other social payment) yet with outstanding debts. These debtors are not subject to deductions from the payments, as would be the case if they were receiving general social security and student assistance payments, and these debtors should also be required to enter into an acceptable repayment arrangement to repay their debts, as will be the case with other debtors.

It is important to reiterate that the general interest charge will only apply to former recipients of social security and family assistance payments who have a debt to the Commonwealth, such that it is being applied to a person who has received a payment to which they are not entitled and who have not yet entered into, or who are not honouring, an acceptable repayment arrangement.

Debtors will receive a letter seeking repayment of the debt in full to avoid the application of the interest charge. Where the debtor cannot repay the debt in full, the letter will encourage the debtor to contact the Department of Human Services within 28 days to negotiate an acceptable repayment arrangement.

If no arrangement is made within 28 days, the interest charge will be applied to the full balance of the debt, accruing on a daily basis, until an acceptable debt repayment arrangement has been entered into. As soon as an acceptable debt repayment has been entered into, the interest charge will cease to be applied to the debt.

In cases of severe financial hardship, a debtor can still apply to the Department of Human Services for a review of their capacity to pay, and the debt may be waived or temporarily written off until the debtor's financial circumstances improve. Alternatively, a reduced rate of recovery may be applied. No interest charge would be applied for that period of time.

This bill is expected to achieve savings to the fiscal balance of $24.4 million over four years from 1 July 2016, with underlying cash savings of $416.5 million.

The bill levels the playing field to ensure that former welfare recipients with a debt to the Commonwealth are subject to the same requirement to repay the debt as is expected of current welfare and family payment recipients and indeed any other Australian with a lawful civil debt.

I look forward to the support of those opposite, and I commend the bill to the House.

Debate adjourned.