Penny Wright (SA, Australian Greens) Share this | Link to this | Hansard source

I seek leave to move two motions together.

Leave granted.

I move:

That item 4.10A of Schedule 1 of the Bankruptcy Amendment (2014 Measures No. 1) Regulation 2014, as contained in Select Legislative Instrument 2014 No. 36 and made under the Bankruptcy Act 1966, be disallowed [F2014L00350].

(Eleven sitting days remain, including today, to resolve the motion or the instrument will be deemed to have been disallowed.)

I also move:

That the Division 2.11 of the Bankruptcy (Fees and Remuneration) Determination 2014, made under subsection 316(1) of the Bankruptcy Act 1966, be disallowed [F2014L00367].

(Eleven sitting days remain, including today, to resolve the motion or the instrument will be deemed to have been disallowed.)

As the instigator of these disallowance motions, I rise to highlight exactly what they will disallow. I urge the Senate to disallow these provisions. In so doing, the Senate will send a clear message that we are looking out for vulnerable people in Australia.

Last year's Mid-Year Economic and Fiscal Outlook, MYEFO, directed the Australian Financial Security Authority to recover its own costs by introducing a new $120 fee for people who apply for a debtor's petition. What is a debtor's petition? It is a form of voluntary bankruptcy. A person files for a debtor's petition when their debts are insurmountable, when all other options have been exhausted and when they have finally—often after a long, protracted period—decided to take control of their own finances by filing for this form of voluntary bankruptcy.

In coming to the decision to move this disallowance,    I have been closely consulting with consumer advocates and financial counsellors, in particular the representatives of Financial Counselling Australia and the Consumer Action Law Centre who brought the consequences of this fee to my attention. Many of us in this place will not have personally experienced the stress and worry that others face as they struggle to get on top of stifling debts. No doubt some of us in this place have faced or will face such a situation, but I think there would probably be fewer here than in other parts of Australia. The debts some people face are impossible to deal with and are a constant living nightmare—people can often see no way to get out of the financial nightmare they are in.

Some Australians are in the midst of that nightmare right now. Just last week in South Australia, I met with some financial counsellors who told me about the experiences of a couple of their clients. One of them told me about a man who had developed a serious physical illness, a debilitating illness. He, along with his wife, had been running a small business. He had been struggling to continue with the business and to pay his mounting debts. He was initially very unwilling to consider bankruptcy, because he considered his debts his moral responsibility to repay. But the situation was becoming increasingly hopeless. There was no end in sight—either in recovery from his illness or in resurrecting his business. He finally came to a decision to petition for bankruptcy, but this fee, which came into effect on 1 April, was one more impediment—after the long series of steps he had taken in coming to that decision—and once again the situation seemed hopeless to him.

What these financial counsellors were at pains to convey to me—and they have been doing so all along—is that people do not undertake voluntary bankruptcy lightly. There is a still a strong sense of shame and stigma in Australian society for people who have had to publicly acknowledge that their financial circumstances are out of their control. So people usually only go into voluntary bankruptcy after a long process of consideration and a series of steps. With that final decision—which they always make on a personal basis; the counsellors give them the options, but it is always the decision of the client—there often then comes a sense of relief. They start to have a sense that they are reasserting control over their lives, that there is a light at the end of the tunnel. However, what I have been consistently hearing from these representatives of vulnerable and marginalised people is that this final fee, this fee of $120, was just one more impediment—and often, in fact, impossible.

For people on our incomes, $120 may seem little more than a meal out, perhaps. But there are many people in Australia who are struggling on low incomes. I am not even talking about people on fixed incomes, on pensions; I am talking about people on below average incomes who would find it impossible to find $120 in their budget for this. People who are contemplating bankruptcy, of course, are at the end of the spectrum where they have no hope of being able to control their finances. So where do they find this money? Can they put it on a credit card? Probably their credit card is one of the debts they have not been able to manage. Even if they did have some credit limit available, arguably it would be fraudulent to use the card for that fee—because they would know, at the time they put the fee on the credit card, that they would have no means of repaying that credit card debt. We know about the risks of going to payday lenders and the exorbitant interest rates they charge. Or do they go to an agency—an NGO somewhere—who can support them to find this fee? At best that is just cost shifting, but increasingly, in the current environment, it is not going to be possible anyway.

Financial counsellors have been telling me that those who truly need to go bankrupt may be, ironically, the very people who cannot afford it. I am told that, since the fee was introduced on 1 April, just after the Senate rose from the autumn sittings, it has already made it harder and more complicated for vulnerable people to decide to file a debtor's petition. It has already acted as a disincentive. In fact in Senate estimates in May I questioned the authority about this, and the authority's own figures confirm this. It is difficult to draw conclusions after a short period of time, of course, and there are seasonal factors from year to year and numbers go up and down, but certainly the number of people filing for a debtor's petition has decreased since the fee was introduced.

The alternative, if a person cannot take this step to resolve their nightmare situation where debts are just insurmountable, is to live with the anxiety that someone else may well then force your bankruptcy at any time. Any of your creditors can do that, and of course that means it is out of your control and you do not know when the blow is coming.

I now want to deal with a few furphies that are floating around. We know that there is a common perception that bankrupts are perhaps high-flying entrepreneurs who had one luxury vehicle too many—maybe people like the Christopher Skase's of this world will come to mind—but in fact that is just not an accurate representation of the sorts of people who are needing to make this difficult decision. AFSA's own figures show that this is false imagery. They show that unemployment is by far the biggest cause of personal bankruptcy in Australia, and that most people earned less than $30,000 in the year before they ultimately became bankrupt.

Forcing people to live with debt that they cannot repay is not only unfair, but it is bad for the business sector and the economy. That is why the business sector, especially those who are common creditors, is on the record as saying that the fee should not be introduced because continued accessibility to an orderly, methodical means of resolving and ongoing situation like this, and to bankruptcy, not only supports debtors but also creditors and the entire financial system. They know that a very real consequence of this filing fee is a reduction in the number of debtor's petitions filed.

The Australian Greens stand with people on low incomes, consumer advocates and the business sector in saying that this fee is not acceptable. That is one of the reasons we are disallowing these instruments. It is an unfair and rather unsophisticated way to recover costs. The introduction of the debtor's petition fee hits disadvantaged people the hardest, quite obviously. Often they will have no other means to support themselves, and it is happening in the wake of a federal budget that we know is going to have increased adverse effects—it is a cruel budget—on people who are already struggling, such as the unemployed, older people, single parents and people who are already doing it tough. We know that these people are already in trouble. With cuts to services, cuts to benefits and the proposal that young people under 30 who are not earning or learning go without income support for six months, the conditions are rife to see an increase in the number of people who will be facing the incredibly difficult decision to file for bankruptcy.

The Australian Financial Security Authority, which is introducing this fee, at the government's direction, has published figures showing the profile of those who this fee would affect. Unemployment or loss of income has consistently been nominated as the most frequent cause of insolvency for non-business related bankruptcies since 2003. In 2011, the majority of bankrupts who owed less than $5,000 were not employed at the time of bankruptcy and had low-level utility debt.

As the Australian Greens spokesperson for legal affairs, I have fought for people's access to justice. Despite successive governments' obsession with full cost recovery, increasingly, the Greens believe that institutions like courts, tribunals and bankruptcy in Australia provide an essential service in ensuring that people have avenues to pursue their legal rights. I think the assumption that essential services such as these should earn back their own costs needs to be questioned. When the Labor government raised Federal Court fees, the then shadow Attorney-General and now Attorney-General, Senator Brandis, called it another disguised Labor tax. But the messaging has changed now that he is the Attorney-General and is looking at the same thing in relation to courts and so on.

Financial counsellors emphasise that no person makes the decision lightly to go bankrupt. It is considered as a last option, but an appropriate one in some cases.

As a result of the Greens moving of a notice to disallow these regulations, a clear message has been sent that the Australian Greens are willing to heed the policy advice of those people who are currently working to assist some of the most vulnerable people in Australia. As a result I have had the opportunity to make the case to the Attorney-General's Department and to representatives of the Attorney-General himself. I do want to indicate that there has been a series of productive meetings where representatives of Financial Counselling Australia and the Consumer Action Law Centre have been able to strongly advocate against the introduction of this new fee and have painted a picture of its detrimental effects on their clients. They have been able to put to the government that instead of closing the debt recovery loop by hitting the most financially vulnerable people in Australia, the government could look at other options—for instance, to nuance the realisations charge, which applies to all administrations under the Bankruptcy Act.

The Financial Counsellors Association and the Consumer Action Law Centre, which is a community legal centre, are highly respected and highly expert people in the area of dealing with consumer credit issues with vulnerable people in Australia. I do find it somewhat ironic that they have indeed, I suppose you would argue, been engaging in advocacy by taking their combined experience with the effects of law changes on their clients and making a strong case about changing the law in a better way so that their clients are not disproportionately affected. Ironically, given the new mantra from the Attorney-General that funding for these sorts of organisations, particularly community legal centres, should not ideally used for advocacy and instead should be used for front-line services, it would mean that perhaps in the future this advocacy may not be so possible, or the representatives of those organisations may have to do it on their own time, which would mean that the meetings perhaps would have had to have occurred outside business hours. But in any case there was an opportunity for these representatives to meet with representatives of the Attorney-General's Department and the Attorney-General and make the case about this particular change, which is to impose a $120 fee that had not been there before, against the evidence in other countries that the fee becomes shifted and creditors end up bearing the cost, or else it shifts to other government agencies. They were able to make that case.

I do have an understanding that in fact there may be action coming forward on the part of the government to indeed waive that fee entirely and to find some other means of cost recovery, perhaps by increasing the asset realisation charge with a review to see how that is going ahead. If that is the case, I would certainly welcome that. That would certainly be something that would ameliorate the worst aspects of this fee, as it has been indicated and conveyed to me and the Attorney-General's representatives. In that case, it may be that there will not be a need to look at disallowing a fee further in the future. We will wait and see what comes out of that. But if that is the case, then I would like to think that this has been a good example of a process whereby good policy can be pursued on the basis of information and evidence coming forward.

Just to finish, I would say that the Australian Greens do urge the government to nuance its cost-recovery measures with AFSA in a way that provides real relief and good policy for those people who are making the most difficult decision to file for a debtor's petition and which indeed provides a genuine benefit to the Australian community, including the business and finance sector. I move that the Senate supports this motion.

Lisa Singh (Tasmania, Australian Labor Party, Shadow Parliamentary Secretary to the Shadow Attorney General) Share this | Link to this | Hansard source

I rise to also support this disallowance motion. I think Senator Wright has outlined clearly some of the reasons why this new fee is unfair. It is unfair on debtors. We know very well that voluntary bankruptcy is an important last-resort option for those who are unable to pay back unmanageable costs. It does happen; it is not something that people take lightly, but it is an option there. That is an important option. It still carries with it a very serious social stigma. Therefore, financial counsellors know when they deal with clients the awful effect of what that will mean for their clients that they are providing advice and support to, and therefore they do not make that decision lightly. It is not a course taken lightly at all.

Bankruptcy offers an orderly process in which all creditors are able to recover some of their outstanding debts, without costly debt collection and legal fees. That really is the key: without those costly collection and legal fees, it enables debtors to deal with their financial difficulty with some dignity. It is something where, whilst they do not take the decision lightly, it is in a sense a clearing of the decks and it allows them to start anew or start afresh. In doing that now, there is obviously this new fee on bankruptcy itself. It just makes those already at their rock-bottom face just another very hard financial hurdle. Yes, $120 may not sound like a lot; but when you already have however many hundreds or thousands of dollars of debt, a burden on top of that is simply probably too much to bear.

As Senator Wright pointed out, we are not talking about high-flyers here. We are talking about people who are often at their rock-bottom. People who opt for voluntary redundancy are often on incomes of less than $20,000. They are those poorer members of our society. On this level of financial hardship, with this $120 fee, for some of those people—if you think about it, they are on an income of $20,000 or less—that would be 30 per cent of their weekly income.

Those considering bankruptcy often have difficulty at things that we take for granted every day. They are things like being able to pay their rent. It is their basic expenses like rent, food, transport and the like. I was actually at the Fitzroy community legal centre last Friday and we were talking about this very matter. Some of the clients, some people that they support and deal with coming through their doors, are people facing financial hardship. It often does start with losing your job. This kind of downward spiral can occur from thereon in, where people end up getting into debt because they have not had that opportunity to find another job and the debt then keeps piling up. Their rent keeps becoming due, they need to get food on the table, there are transport costs, they may have a car, and it just keeps going on and on. You think about someone's life and how easy it is, if they were already on a low income, for them to end up in a debt situation.

I think that the government here has various options for recovering the costs of administrating bankruptcies and I do not think the current option that they have is the right one at all. I do think it is unfair. I think the recovery of a small amount of revenue for government should not come at the expense of some of the most desperate people in our country. That is really what we are talking about here and that is why I think this disallowance motion is really important.

In a sense, this new fee has the absurd effect of rendering some of those in financial hardship—that is, some of those debtors—as too poor to go bankrupt. It is a bit ironic, but that is really where they end up. I would think that a lot of them do not have access to a line of credit if they are declaring bankruptcy. They would be in a position where they would be compelled to pay a fee with funds derived from wherever else they have them. Obviously, for a lot of those people who are on very low incomes, the only area from which they could derive funds to pay such a fee would be their welfare payments. So, if they are paying this $120 fee from their welfare payments, how are they living? How are they providing themselves with food and ongoing needs such as shelter and the like? There are also charitable institutions. But, surely, we do not see the role of charitable institutions as one of providing those in need with money to pay a government fee. This is not the role of charitable institutions. Basically, they are the only two options that I can think of for people who are on very low incomes and who are in the situation of declaring bankruptcy. They would be the only two options that people would have to try and find the money to pay this absurd fee.

Senator Wright commented on discussions and so forth with the Attorney-General's Department, I think it was, and that there might be some movement in relation to this fee. The government might be reconsidering its options of how to recover such a fee. With whatever the government is going to be looking at, if that is a real outcome then it is fantastic; it is really good. It shows that this disallowance motion has certainly been worth its weight in gold in bringing about a change that will have an effect out there in the community for those people most in need.

We also need to consider this issue in terms of the financial hardship currently facing a number of people who are on low incomes. We have already outlined that people do not take lightly the idea of having to go down the voluntary bankruptcy path; but, at the same time, if they are now going to face cuts to basic welfare payments that they have had to sustain themselves when they have lost a job then how is this fair and how are they going to be able to get back on track? I am thinking here of the indexation of the pension and also of young people who are seeking Newstart. Those who lose their job will not be able to access a welfare payment. If they have already got some kind of debt that they have been unable to pay and then there is not even a welfare payment there to support them—the safety net that it is—then how are they going to get ahead and move on until the next job comes around the corner? This is reality for a lot of people. It is not a matter of someone just knocking on their door and offering them a new job. When you lose a job it does take time, often, in between jobs—before a new one comes around the corner. It is at this crucial point that people can fall off the edge in relation to their financial situation. They find themselves without any savings, living on a low income, having to pay rent, food and ongoing transport costs and the like and not being able to make ends meet.

Labor want to ensure that we have a safety net for people in this country, and that is why we have made our position very clear on the government's budget: it is a very unfair budget. Couple the budget with that fee for those people who have to make the really hard choice of declaring themselves bankrupt. It is just a ridiculous proposition to have someone too poor to declare themselves bankrupt because of a $120 fee that they have to pay.

Senator Wright also touched on the issue of cost-shifting to creditors or other agencies. This is another factor that the government needs to consider; it is another potential from this policy. It is one thing for governments to come forward with policy ideas to raise more revenue but they really need to think about who they are targeting. In this case, they are targeting some of the most vulnerable, lowest income Australians, who really deserve to be given a bit of support to get back on track so that they can again become contributors to our society, as much as they wanted to do in the first place. We support this motion.

Sue Boyce (Queensland, Liberal Party) Share this | Link to this | Hansard source

The Abbott government is determined to repair our budget and to put Australia on a path of sustained prosperity and this, as I hope everyone has realised, requires some tough decisions to ensure that the load is shared fairly and responsibly. Accordingly, our budget will protect the most vulnerable members of our community.

We were pleased to work with Senator Wright to address concerns about the fee imposed on debtors who wish to file for bankruptcy. The government will not be opposing these disallowance motions, but it will mean that the cost of administering insolvent estates must be recovered from elsewhere in the insolvency system. This system plays an important part in the regulation of business and in fostering a flourishing economy in which investors and consumers can have confidence. Ironically, it is important to ensure the ongoing viability and integrity of the insolvency system. So the outcome of the proposed disallowance motions is that even more of the burden will be passed on to creditors through an increase in the asset realisation charge. The charge will be gradually increased to seven per cent from 4.7 per cent. It moves to six per cent on 1 July.

I hope people realise that creditors already bear heavy burdens in the insolvency system. They are the other side of the coin to those people who need to go into bankruptcy. While the distress associated with going into bankruptcy is huge, it is important to remember that creditors are not all from what Labor and the Greens would call the 'big end of town'. They are not all big banks and big businesses. Creditors include sole traders such as hardworking tradespeople—electricians, plumbers and the like. They include husband-and-wife businesses and many other sorts of small businesses. Even parents and siblings who might have gone guarantor for a loan for a car or something like that can be affected. The other side of the coin is the harm that can be done to creditors by bankruptcy.

With this in mind, the government will monitor closely the effects of the increased asset realisation charge to ensure that the insolvency system remains viable and that the burdens of insolvency are shared fairly.

Question agreed to.