TREASURER:
Good morning everyone. We are just here to discuss the impact of a measure introduced by the Howard Government in the 2006 Budget which particularly impacts on workers employed in the not-for-profit and charitable sectors. We are also here to discuss a measure from this year’s Budget which doesn’t start until 1st of July next year. So, the measure from the Howard Government starts on 1st of July this year.
Now, there is a story or two around today that confuses both of those issues and it is very important to separate both of those issues.
They are a year apart from when they take effect and a world apart in terms of their impact and their intent. As I said, the first measure was decided in the 2006 Budget by the former government. Of course, it does take effect in a fortnight. The second measure was decided in our Budget, and as I said, it doesn’t come in for a year.
Now, the first measure which starts on July 1 essentially applies a fringe benefit tax regime for executives to lower paid workers in the church and charitable sector and does have a profound impact on all of those people. So, I want to throw to Jenny Macklin to talk about that measure and what we propose to do about that.
MACKLIN:
Thanks very much Wayne, and thanks everyone for being here. As you are aware now, this measure was decided by the Howard Government in the 2006-07 Budget. It was decided as part of the major reforms that that government put in place to the child support system.
Its aim is to bring into line the treatment of fringe benefits tax so that the way in which people treat fringe benefits tax for child support purposes is the same as for other people receiving family tax benefits.
So, the previous government made the decision back in 2006-07 to make this measure apply from 1st of July this year. We have only recently become aware of the impact of this measure on a significant number of people in the church and charitable sector. And of course these are people delivering services, very important services, to some of the most vulnerable people in our community. It is also the case, as the Treasurer has just indicated, that a number of these people are on fairly low incomes.
We are concerned to address this issue. We do understand that it will have an impact on a number of people in the church and charitable sector doing very, very important work. We have given a commitment to do this as quickly as possible. But I just say to the people who are working in this sector, doing a very important job, to bare with us. It is very complex and we’re currently seeking advice from the Department about the best way forward.
These are measures that we do intend to have a clear policy on before the end of this financial year, so in the next little while, and we also intend to address it as quickly as we can. But I would say to you today that we do understand how complex it is, how complex the systems are to change as well, and that may mean that it takes Centrelink extra time to in fact implement the change once we have a clear policy position.
TREASURER:
Thanks very much, Jenny. I just want to say something about the Government’s Budget measure which was in this year’s Budget, announced in the Budget Speech and has been in the public domain every day, essentially, since the Budget was brought down and has been the subject of media coverage.
Essentially, what the measure that we put in place in this Budget to begin from the 1st July next year does is that it does close a very big loophole which allows families or individuals to claim a higher level of family benefits than somebody else in similar circumstances. Essentially, the loophole allows individuals to reduce their income for family assistance purposes by making large pre-tax contributions to superannuation so they can completely reduce their income in terms of the means test and get much more in terms of family payments than somebody else on a similar income.
That is a very big loophole in the system and that is the measure that was announced on Budget night, subject to press coverage the next day and through the weeks from there, and is due to take effect from the 1st of July next year.
So, some families are getting thousands of dollars more in family payments than others who are in exactly the same circumstances in terms of their income.
Now these changes will affect less than four per cent of the 2.2 million families, less than four per cent. And I’d like to make this very important point, because the change that we are introducing from the 1st July next year applies a means test which currently is applied in this form to aged pensioners and to the self-employed. So, this is a means test which is already there for those two groups but not there in terms of family payments for employees. So, this is consistent treatment with a means test that is applied elsewhere in the social security system.
Over to you.
JOURNALIST:
Ms Macklin, just on the question of your Budget changes…
MACKLIN:
No, they’re not my Budget changes. That’s the critical point, Dennis, they’re not my Budget changes.
JOURNALIST:
No, that’s correct, and I don’t think I said otherwise. The Howard Government Budget changes. You mentioned the charitable and church sector. Are you aware of teachers in religious-based schools who may be affected by the same measure?
MACKLIN:
As I understand it, there will be some other public benevolent institutions who may also be affected – hospitals for example – so there are other people as well.
JOURNALIST:
Do you have any idea of the number of people…
MACKLIN:
We’re still seeking advice as to the extent of the measure. So, once we have all of the advice about the extent of the measure and the policy solutions we’ll obviously make that public.
JOURNALIST:
Why is it that you didn’t know about this when your own Department was sending out letters…
TREASURER:
I’ll just comment on that, Dennis, and we’ll come to that, because there is tremendous complexity in this change that was announced two years ago, tremendous complexity. I think it’s fair to say that that complexity had not been appreciated at all, and that does mean that there will be other knock-on effects of this change. The most dramatic and severe impact of this Howard Government change is in the not-for-profit and the church and charitable sector. And this does then point to the need for a comprehensive review of the factors involved that have caused this. One of issues in the middle of this is the Fringe Benefits Tax and the application of grossed-up benefits as they apply across the board.
Where they have their very big impact is in the church and charitable sector. Why? Because that is an area where employment has been encouraged through the Government providing an exemption from FBT for very large amounts of salary, basically. So, that’s why the impact is much bigger in the church and charitable sector. But there will also be an impact in other sectors as well but it won’t be as large. So, we think having a look at this FBT issue in the context of its application to low income workers – where its original intent was to apply to executives particularly – is something that the Henry Review will certainly take into account.
The changes that we make to rectify the injustice that has been done here do have implications elsewhere in the system, which is why sorting our way through this complex detail that we actually inherited is what we are doing at the moment.
In terms of when it was drawn to our attention, most significantly by the church and charitable sector some weeks ago. I think you would appreciate, Sue, that Centrelink, when it does its planning, when it does it IT changes, has a very, very long lead time. And when we became aware of the seriousness of this issue we commenced work on it, but it has not been in time to turn around the internal processes that have been taking place for some time within Centrelink. That’s what we are now working on at the moment.
JOURNALIST:
Can you tell us when you first became aware of it?
MACKLIN:
Just a few weeks ago, post the Budget.
JOURNALIST:
Can you send letters to those who received them from Centrelink, giving them some breathing space while you review this?
TREASURER:
We have everything on the table at the moment. We understand the impact of this Howard Government measure will be severe for people in the not-for-profit sector. We are intent on doing everything we possibly can to address it, and we are examining every aspect of its application and every communication that we can possibly do to clear it up.
JOURNALIST:
So, what are the options that you’re considering? (inaudible) that whole sector from changes? What are the options available to you?
MACKLIN:
I think what’s important really is for us to look at those options. We’re still getting advice from the Department about the different ways in which we might address the problem. So, as soon as we have those and we make our position clear, of course we’ll make it public.
TREASURER:
Can I just say something in general about the whole income support system, and it wouldn’t surprise many people in this room to hear me talk this way, but as it has grown up in the last decade, it has become incredibly complex. Dealing with some of the disincentives that are built into the system – one being the effective marginal tax rates, but there are many others, the type of which we’re talking about today – is going to be a central feature of reform under this Government. And we’re just dealing with the leading edge of one horrendously complex issue which I think has eluded most departments and certainly eluded us until it was drawn to our attention recently. This 2006 measure has been ticking away in the system.
Let me make this point. Having inherited what is a very complex system which has got all sorts of perverse disincentives in it, having a look at the intersection of the tax system and the family payments system is something that is also a central focus of the Henry Review. We commenced, in this Budget, some of the changes that are necessary but there are many more that must be put in place over time and that is the point of the Henry Review.
JOURNALIST:
You said that it was an unintended consequence. Are you saying that it was an unintended consequence way back then, two years ago?
TREASURER:
What I am saying is I don’t think there was a thorough appreciation of the savage impact this was going to have in the charitable and not-for-profit sector. It was announced in the 2006 Budget. Now that we have been made aware of just how badly people will feel the impact of this – and we intend to right the wrong – doing so, however, is extremely difficult. We’re putting up our hand and trying to address this issue now that it’s been brought to our attention. But it was locked in place two years ago.
JOURNALIST:
(inaudible) isn’t it as simple as repealing it?
MACKLIN:
Well, that’s why we’re looking at all the options.
JOURNALIST:
What options?
MACKLIN:
I think it’s very important, Patricia, to actually do the work. And one of the things that I said in my introductory remarks was that this has been put in place in Centrelink for some time. These are very complex systems for Centrelink to undo, and so we’re seeking advice about the best way forward and the way in which we can do it efficiently and with the least pain for those who are going to be affected.
JOURNALIST:
The idea about some of the options that are on the table…
MACKLIN:
I don’t think you’ll have to wait very long.
TREASURER:
You won’t have to wait very long. We’re not going to make the policy by press conference. We have been working on this issue. We are close to a resolution. But it is a complex issue.
JOURNALIST:
But why not take the public into your confidence?
TREASURER:
Because there are a range of policy alternatives, some are short term, some are long term. There are a range of communications issues, some are short term, some are long term. They’re all on the table and we’ve been addressing this and we will make our announcement as soon as we are satisfied that that is all there coherently and does the most we can possibly do, in the circumstances that we are in, to address this issue.
JOURNALIST:
Do you think you were surprised by discovering this issue, or it being brought to your attention? Didn’t you notice it in the Budget in 2006? And did Labor say anything about it at the time, and if so, what?
TREASURER:
In 2006 this was attached to changes to the child support system and the whole focus went on the changes in the child support system, and the inclusion of this means test more broadly was a logical consequence of some recommendations that were made. It wasn’t, certainly, appreciated by us at the time – the dramatic impact that would have had on the not-for-profit sector. We supported the whole child support package. But whether it was appreciated by the government at the time, I can’t say. But it certainly was a consequence of the changes to child support that were announced in that Budget.
JOURNALIST:
Mr Swan, given that your Department and your office have been unable to supply the numbers of people affected by your changes from July 1 in a range of programs which have been given to the Estimates Committee, not just family support, which of course the family tax benefit is the largest area, but there are at least 12 other programs effected by this, according to your Department. Do you know how many people will be affected by your changes on these issues across the whole programs, and aren’t you in danger of having unintended consequences?
TREASURER:
We will certainly be ensuring we don’t have unintended consequences. And our measures that are announced in this Budget which are aimed at closing a loophole, a very big loophole when it comes to family payments, have not even been put in the legislation or presented to the Parliament as yet. So, there is plenty of time to work our way through all those issues. We have worked our way through those internally. Some of that information is actually contained in the Budget Papers, and some of it was published by Sue Dunlevy in the Telegraph after the Budget.
JOURNALIST:
On the changes to take effect in just over two weeks’ time, the new financial year, you said you want to fix this by then but it may take a while for the changes to take effect. Can you say whether anyone in that church and charitable sector won’t be worse off?
MACKLIN:
Well, what we’re aiming to do is address their concerns, I make that absolutely clear. We do understand that this is a serious issue for the people working in the church and charitable sector. We do intend to address their concerns. We’re currently working through the options that we have available to us. But what I’m saying to them and to all of you here today is that it is very complex, not only the policy shift but of course the actual implementation with Centrelink’s systems. So, we’re talking with Centrelink at the moment about how we can do that in the most effective way possible and the quickest way possible. And as soon as we have that advice about the best way we can do it, we’ll let people know. But it will take some time.
JOURNALIST:
Some could be worse off?
MACKLIN:
What I’m concerned about is to do it as quickly and as effectively as possible and to address their concerns.
JOURNALIST:
What’s the cost direct to revenue if you stop this (inaudible)?
TREASURER:
We’ll announce that when we’ve got the full set of proposals.
JOURNALIST:
Do you know what the cost to revenue is?
TREASURER:
When we’ve got the full set of proposals I’ll give you…
JOURNALIST:
Does addressing their concerns amount to making sure that they’re not worse off or doesn’t it?
MACKLIN:
Obviously what I’m saying is we understand their concerns. We don’t want them to be worse off so we’re trying to find a way through it.
JOURNALIST:
Could you backdate changes, for example?
MACKLIN:
They’re the all the options that we’re looking at.
TREASURER:
There are a whole range of options.
JOURNALIST:
There’s six days of Parliament before July 1 and the big break. Will you call Parliament back if you can’t get this done in the next six days?
TREASURER:
It will be most certainly done. I don’t think you have to worry about that. This is a very serious issue, I think we’ve indicated the seriousness of it and we are responding as quickly as we can and as comprehensively as we can, given the circumstances that we’ve inherited here. And we will deal with it as quickly as we possibly can and as responsibly as we possibly can.
JOURNALIST:
Given that there are teachers, as you’ve said, teachers employed by church organisations…
MACKLIN:
I didn’t actually say that. I said that there were others employed. So, I’ll check about the teacher issue. I’ll double check on the teacher issue, but there’s certainly others in public benevolent institutions who will be affected.
JOURNALIST:
And are you prepared to treat them differently within that sector?
MACKLIN:
We’re looking at the whole group who’ve been affected because, of course, all of them are working in very important organisations.
JOURNALIST:
The WA gas crisis, how is it going to affect the economy in general?
TREASURER:
The WA gas crisis is serious and it does have economic flow-throughs into the national economy. The Prime Minister indicated that in the Parliament only yesterday. We stand ready to provide every assistance we can to the Western Australian Government and it’s a really timely reminder of how important energy security is.
Thanks very much.