Legislating as the curtains come down – not pretty but important – April 2017

Filed under: Economy and Finance, Tax, Politics, Australian Politics, Budget,

The final sitting weeks of parliamentary sessions are usually frantic and febrile – never more so than when, as now, the Government lacks a majority in the Senate and needs to force or negotiate its legislation through before a deadline.

The process is not always – ever! – pretty, as suggested by the apocryphal Otto von Bismarck quote about not watching laws or sausages being made. But it is an important part of government.

In the present case, over the last two weeks the deadline that the Government has been working against is the end of the sitting preceding the five week break before the Budget on Tuesday 9 May.

The pressure is for the Government to resolve a number of major spending and tax issues tied up with its childcare reforms and associated welfare cuts on one hand, and with its proposed company tax cuts on the other, so that it can formulate a credible Budget. The Government is under severe pressure to resolve the outstanding “zombie” Budget measures to produce a credible Budget outcome which will, besides the obvious political necessities, satisfy the ratings agencies which are threatening to downgrade Australia’s AAA credit rating. Some of these measures date back to the politically disastrous 2014 Abbott-Hockey Budget

On non-Budget matters the Government was under pressure to resolve (as best it can) the running sore of changes to the Racial Discrimination Act, which has put Prime Minister Malcolm Turnbull’s standing under pressure from the conservative wing of the Coalition.

The parliamentary sitting was scheduled to end on Thursday night 30 March, but continued on Friday as the Government sought some resolution of its changes to the Racial Discrimination Act and continued negotiations on its proposed changes to company tax announced in the 2015 Budget and taken to last July’s election.

On Thursday night the Government’s proposed changes to section 18C of the RDA  to replace the words ‘offend’, ‘insult’ and ‘humiliate’ with ‘harass’ (resulting in the formulation ‘harass or intimidate’) were, as expected, defeated in the Senate when the Government could raise only 28 votes for its changes against 31 votes for the Labor amendment which killed it off (see Racial hate speech change defeated but complaints streamlining passes).  Details of the vote are not yet available and some senators were absent, but the Government’s full complement is 29 senators.

On Friday, debate continued on proposed changes to streamline and simplify the Human Rights Commission’s complaints procedures, highlighted by the costs and delays in the aborted Queensland University of Technology and Bill Leek cases. The proposed streamlining was widely supported, both across the political spectrum and by the Human Rights Commission itself and was passed by the Senate and expected to be agreed to by the House.

While debate on the Human Rights Commission and RDA changes continued, the Government was negotiating with the cross bench on its proposed company tax changes.

The Government secured a key part of the company tax cuts which it took to the 2016 election after a compromise deal with the Nick Xenophon Team negotiated during an extended Senate sitting on Friday 31 March.

NXT leader Nick Xenophon agreed to a compromise deal which will give businesses with a turnover up to $50 million a staggered cut in the company tax rate from 30 to 27.5 per cent immediately and  to 25 per cent 2026-27. Companies will progressively become eligible for the tax cut depending on turnover, with companies with turnovers up to $10 million paying 27.5 per cent this financial year. From July 1, companies with turnovers up to $25 million will pay 27.5 per cent and, from 2018-19, the tax rate will apply to those with $50 million annual turnovers. The rate will drop to 25 per cent in 2026-27.

The negotiations over the issue were complicated and delayed by Senator Xenophon’s absence from Canberra on Wednesday and Thursday because of a death in his family.

The other major issue which the Government finalised only on Thursday when the Senate passed the Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill , was its childcare reforms and associated welfare cuts. 

Earlier in the week the Government succeeded in passing its important childcare reform measures with the passage of the Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill, but only after it made major changes to the legislation to secure the support of the nine cross-bench senators it needs in the upper house.

To get the measures through the Government was forced to abandon many – but not all – of the welfare cuts it had previously bundled together with the childcare measures.

Having excised the welfare cuts from the omnibus childcare bill it then as part of its negotiations with the Senate cross-bench, returned to the 2016 (pre-omnibus version) of the childcare bill which was passed tgogether with the new Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill, which resurrected a limited number of the welfare cuts and – importantly introduced a new Government savings measure: a two-year indexation freeze on family tax benefits, which had not previously been part of the mix.

The long-stalled childcare package rolls the existing childcare rebate and childcare supplement into a single means-tested payment that will significantly benefit families on lower incomes by skewing the benefits towards them.

Under the childcare changes, the annual $7500 cap on the means-tested rebate will be abolished for families earning up to $185,000 and increased to $10,000 for those above. Lower income families will have 85 per cent of their childcare costs rebated. This tapers down to 20 per cent for higher income families. (For more details see Childcare package passes after some welfare cuts dropped).

Most of the welfare cus were dropped. Instead the cross-bench agreed to a two-year indexation freeze on Family Tax Benefits.  This accounts for $2.1 billion of the $2.4 billion savings which the Government estimates will flow from the retained welfare and family tax benefit cuts.

Under the deal the Government reached with the Senate cross-bench the family tax benefit and welfare cuts approved by Parliament as part of the childcare package are:

  • Freeze family tax benefit rates for two years from July 1 (not part of the original Omnibus welfare cuts);
  • Freezing "income-free areas" and "means-test thresholds" for certain payments and allowances for three years;
  • Extending waiting periods for parental payments and youth allowance for those who are not full-time students or apprentices; and
  • Automating income stream review processes, which the government says will improve the accuracy of income support payments.

Welfare cuts included in dumped "omnibus" bill and not included in the childcare bill were:

  • Phasing out annual family tax benefit end-of-year supplements;
  • Making young people wait four weeks before receiving income support;
  • Shifting unemployed people aged between 22 and 24 to youth allowance instead of the dole;
  • Ending carbon tax compensation for new welfare recipients;
  • Scrapping the pensioner education supplement; and
  • Stopping pension payments for people (who've spent less than 35 years of their working life in Australia) after six weeks overseas.

The Australian Financial Review reported, “Last month, sources confirmed all unpassed budget measures, or so-called zombie measures, were likely to be dumped at the May budget because credit ratings agencies no longer believed they would ever pass and the government should take the savings off the books.”

Also according to The Australian Financial Review the measures not included in the childcare bill leave a further “$4 billion in budget savings in limbo, and at risk of being dumped altogether.” The $4 billion figure is a net savings, taking account of several spending measures (increases in family tax benefit payments) among the now-abandoned measures.

Technically, the childcare reforms were passed by both houses passing an amended version of the Family Assistance Legislation Amendment (Jobs for Families Child Care Package) Bill 2016 which dropped the welfare cuts previously included in it and passing the  Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017, which contained the retained welfare cuts plus the family tax benefits freeze.

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