Jenny McAllister (NSW, Australian Labor Party, Assistant Minister for Climate Change and Energy) Share this | Hansard source

I move:

That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows—

Today I am introducing a Bill to establish a clear legal basis for means testing the income from military invalidity payments affected by the Full Federal Court's 2020 'Douglas decision', when recipients of those payments also seek support through our income support system.

The Bill amends the Social Security Act 1991 and Veterans' Entitlements Act 1986, to give these veterans certainty and to maintain equity in the way different income support recipients are means-tested.

This Bill is necessary as a result of the Douglas decision determination that relevant veteran invalidity benefits paid from the Defence Force Retirements and Death Benefits Scheme and Military Superannuation and Benefits Scheme should be taxed as superannuation lump sums rather than defined benefit superannuation income streams.

In our response to this decision, the Albanese Government passed legislation, ensuring affected veterans could retain the tax benefits of the decision and the benefits that flowed from any resulting changes to their taxable income in areas such as Family Tax Benefit and child care subsidy.

We also prevented adverse impacts, including on veterans with child support obligations—or their ex-partners—by recognising the Douglas decision as a special circumstance and proactively remediating any child support debts caused by changes to taxable income through an Act of Grace strategy.

The Bill I am introducing today has no impact on the Government's existing response to the Douglas decision, however it is now clear the Court's findings have had additional consequences for the Social Security Act and the Veterans' Entitlements Act. Analysis of these consequences has now identified there is no clear, legal basis for means testing these payments when recipients also seek support through Australia's income support system.

One of the key features of our social security system is that it is means-tested, to ensure that this taxpayer-funded support is targeted to people who need it most, based on their need and circumstances. These means testing arrangements—which are generally applied to all applicants in the system—include an income test and an asset test.

Veterans who receive a relevant military invalidity payment from the DFRDB and MSB schemes can be assessed on whether they can get further support from the social security system, and the level of that support. To do this, historically we have always treated them as asset-test exempt defined benefit income streams in the means test.

This is the same way we treat other veteran retirement benefit payments from the same DFRDB and MSB schemes.

But because of the Douglas decision, it is now understood that this means-testing treatment for social security purposes—as an asset test exempt defined benefit income stream—can no longer apply to the invalidity benefit payments.

When we apply the framework used to assess income types in the Social Security Act and the Veterans' Entitlements Act, it is apparent there is no explicit, alternative means-testing treatment for these payments that we can use instead.

The only alternative identified is clearly not intended for statutory superannuation benefits of this type. Analysis shows the only other way these income streams could implicitly be treated under existing legislation has significant legal risk and uncertainty, is unclear, and creates inequities in the system, including among veterans themselves.

This is why we need a clear way forward.

To this end, the Bill introduces a new classification of "military invalidity pension income stream" in the Social Security Act and Veterans' Entitlements Act, to include the military invalidity payments affected by the Douglas decision.

The assessment of a military invalidity pension income stream within the means test is designed to produce the same result as the historical assessments of the affected invalidity payments.

In addition, the Bill will provide for military invalidity pension income streams to be considered "asset-test exempt income streams" under the Acts, ensuring the payments remain exempt from the assets-test for income support.

Together, these provisions are intended to ensure veterans with income from a military invalidity pension income stream receive income support at the same rate they were always intended to receive, and consistent with outcomes for other veterans.

Importantly, in almost every case these amendments will result in no changes to payment rates for the approximately 850 veterans (or their partners) who receive one of these invalidity benefit payments and also an income support payment from the social security system.

An alternative option the Government could have taken would be to make amendments to classify these invalidity benefit payments as 'lump sums' for the purposes of income support legislation. This would adopt the same nomenclature as the definition the Douglas decision assigned in tax law.

But the Social Security Act and Veterans' Entitlements Act are not bound by the way different types of payments are classified in the tax system. And in fact, if the lump sum treatment was applied to these payments in the social security means test, because of the way that treatment works, these veterans would actually be worse off. This is because it would have the effect of reducing recipients' rates of support from the social security system, leaving them with less money in their pockets.

That is why, with this Bill, I am introducing means testing arrangements that are designed to mirror the assessments obtained from the previous treatment before the Douglas decision. These amendments will ensure that the relevant invalidity payments can be means tested for income support in a way that delivers the same outcomes for these veterans as the pre-Douglas arrangements.

This will mean veterans and their partners continue to receive income support at a rate that is consistent with entitlements for other income support recipients, including the other DFRDB and MSB veterans who receive retirement defined benefit income streams, under existing arrangements.

These provisions will apply in determining income support payment rates for existing social security recipients who have income from a military invalidity pension income stream, as well as new applicants, from the day after the Bill receives Royal Assent.

The Bill also includes a provision to validate past assessments of the affected invalidity payments under the means test for income support, as these may have become invalid due to the payments being treated as asset-test exempt defined benefit income streams, which the Douglas decision now precludes.

Importantly, this provision confirms past means test assessments without removing people's rights of review or appeal in cases where decisions may have been invalid for other reasons.

The Bill also allows the Secretary of the Department of Social Services, or the Repatriation Commission, to specify additional income stream payments as military invalidity pension income streams by means of a disallowable instrument. This will allow for other incapacity payments from legacy superannuation schemes—that may also be found to no longer meet the requirements for being treated as an asset test exempt defined benefit income stream for reasons independent of Douglasto be included down the track.

In summary, this Bill:

I commend this Bill.

Ordered that further consideration of the second reading of this bill be adjourned to the first sitting day of the next period of sittings, in accordance with standing order 111.