Social Security (Benefits Adjustment) and Income Tax (Minimum Family Tax Credit) Amendment Bill

Members, we come now to the Social Security (Benefits Adjustment) and Income Tax (Minimum Family Tax Credit) Amendment Bill. When we were last considering the bill, we were debating Part 2. Part 2 is the debate on clauses 9 and 10, amendment to the Income Tax Act 2007. The question is that Part 2 stand part.

Madam Chair, I believe the last time we were debating this we were having discussions around the minimum family tax credit and the Minister was asked—and I’m not sure if we actually received a response, so this is where I’d like to start—whether or not there would continue to be a differential between those on the lowest income who are getting the minimum tax credit versus those that are on benefit. There was also a question raised about whether or not the numbers of those receiving the minimum tax credit will increase or decrease because of the changes to this particular piece of legislation. Those were the first two questions I could remember on the minimum family tax credit and there were others, but I will ask the Minister to answer those ones first.

Thank you, Madam Chair. Look, I’m interested in this bill and the minimum family tax credit. In particular, I’m interested to know exactly how it is going to address the cost of living issues that the new Government is so committed to. I appreciate it’s an indexing issue and, obviously, this House has seen considerable debate around indexing over the past week or so. I’m interested to understand exactly how this bill will relate to the other debate we’ve been having and whether, in fact, it’s taking the same approach or whether it’s taking a more generous approach given that it’s a tax credit framework.

One of the issues that came up with Part 1 that is relevant to Part 2 was we were trying to ascertain what the adjustment would look like, what the differential was between inflation and our wage growth and so what the point of difference would be there. At the last committee stage, we did have it clarified that net wage growth was going to be 5.3 percent versus the Consumers Price Index, which is 4.7 percent. I just want to know how the Minister is able to make the adjustment known in Part 2 for the minimum family tax credit when we haven’t yet got the figures for benefit in terms of the 1 April adjustment. I thought that the minimum family tax credit adjustment was made in line with the shift that benefits receive on 1 April, but that doesn’t seem to be the case if they are already able to state what the adjustment for the minimum family tax credit is, but they’re not yet able to state what the adjustment for the actual benefits are going to be. I think that that is a valid question. I think that the Minister may be seeking advice on that one. However, I’m going to give the Minister a little bit of time so that she can seek that advice because I’d be really interested, actually: why do we have the numbers for minimum family tax credit, but we don’t have them for what it will mean for indexation to benefit?

Thank you, Madam Chair. I can see that the Minister isn’t yet ready to answer that question. Once again, for fear of the debate collapsing because the Minister is not responding to the questions, what I would like to know further to the questions asked by the Hon Carmel Sepuloni is—hers was about the formula and how you arrive at those figures. Given that the number that we have been using in the supplementary analysis report and so on has subsequently been updated, will that affect the numbers that are hard here in legislation? It doesn’t just say it will be according to the formula that’s used, but actually gives the prescribed amount in the legislation, so are we passing something that really should be updated? Has it been updated according to that or is it working off some different type of formula? My next question is: how many people does this apply to?

I have, I think, a relatively brief question. Because, as I understand Part 2, the framework is about when the tax credits kick in to make sure that families are, in fact, better off in work than not in work. Given the change to the indexation of main benefits to track inflation rather than wages or inflation, will this in fact have a projected fiscal saving to the Government? Because benefits are going to increase at a slower rate, I’m assuming that will also mean that the family tax credits will increase at a slower rate as well. And has there been work done to understand that because this increases at a slower rate because it tracks main benefits; whether there’s fiscal savings to the Government in the forecast?

Thank you, Madam Chair. I’m not going to traverse issues from Part 1 in this contribution. So the specific questions around the minimum family tax credit: there’s been no change in the way it is calculated, it has been calculated the same way for quite some time. The only change in this legislation is the threshold and there’s—for members’ benefits, I’m sure some are well aware of it but I’ll go through it anyway. The calculation considers a range of factors: the rate of income taxes, main benefits, and the minimum wage, and the approach to calculating it, as I have said in earlier contributions in this debate, ensures that sole parents are better off working and receiving the minimum family tax credit than they would be receiving a benefit on an annual basis. In terms of timing, it comes into effect at the start of the tax year.

Thank you, Madam Chair. This picks up nicely from what the Minister just talked about, in relationship to being better off in employment. I won’t relitigate stuff from Part 1, but I do want to pick up on the fact that there is a missed opportunity in this bill too. Because of the reversal to inflation adjustment main benefit changes, it’s interesting that in Part 2, in relationship to the minimum family tax credit, there is no update to the abatement threshold for inflation. I do have an amendment here in relationship to that that would actually update the abatement thresholds in line with inflation.

I guess my question is: how can she be confident that the settings that we have adequately support people into employment when the abatement threshold for the minimum family tax credit is so out of date and does not reflect the incomes that have grown over time or real costs that families experience? Because that means that, in terms of real purchasing power and wages that people earn, people actually will have that income abated at a rate that would have been faster than in 2006. So my question is: does she think that by leaving those abatement thresholds not fully updated, she’s actually creating a perverse outcome in not adequately supporting people into employment? And, if so, then, how can not updating those abatement thresholds stand up to the statements she has made previously around her focus being supporting people into employment?

Thank you for the opportunity to ask this question on Part 2. Minister, I wanted to ask you, in terms of arriving at the explanation that we have here in the paper, what engagement or consultation you have specifically had with parents or the community who will be affected by this legislation change once it passes, because there are many families in our community where the cost of living is really important and they are suffering. So, if there are changes from the way it is indexed, that is going to mean—although I have heard earlier contributions from $2; however, the figure is an $18 loss in their income per week. Can you explain to me, to help me understand, what specific engagement you have had with the community.

Thank you—sorry, I was just laughing because some of us were competing for a call. Subsequent to my questions in relationship to abatement thresholds, I was curious to see if she had done any distributional impact analysis on the changes to the minimum family tax credit and particularly with the abatement thresholds as they are. I wanted to pick that up, because of the fact that we do have a relatively large number of people who are working part-time and who may not be working those 40 hours, and who have a varying degree of income.

A lot of the people who are working part-time, who may be receiving some form of income support, are parents, are people who may be studying, are people who may be juggling other caregiving responsibilities—because we know this from the debate on Part 1, in relationship to the impacts on child poverty. I wonder whether there is a missed opportunity to at least mitigate some of the harm done in Part 1 by actually having a minimum family tax credit that adequately supported those people in part-time work.

And, subsequent to that, does she know who the communities are who could most benefit from having the abatement threshold changed, or does she know who is actually losing the most by keeping the abatement threshold as it is right now?

I really would like some more clarification from the Minister around the way in which the minimum family tax credit is adjusted. In the clause by clause analysis of Part 2, it states, “For the tax credit system to work as intended, the minimum family tax credit must be increased whenever main benefits go up. Clause 10 therefore increases the minimum family tax credit, effective from 1 April 2024, in line with the adjustment to the main benefits that is due to happen from 1 April 2024 under section 453 of the Social Security Act 2018”.

If it’s in line with the adjustments to benefits that are going to be made on 1 April, then how can we have this figure already in legislation, given that recently the number has changed from the modelling for wage growth or Consumers Price Index—the comparative at least—and/or how come we’ve got that figure in the legislation but we don’t have the figure for the changes to benefits in the legislation? Surely if a minimum family tax credit is being adjusted in line with the changes that are going to happen on 1 April, then we would have those changes in the bill as well. So I just want to know from the Minister, what is the case there?

Just going back, I think it was a really good point that Duncan Webb made, and that was the point around whether or not there are going to be projected increased fiscal savings with the minimum family tax credit, given that the modelling that the Minister has now shows that the inflation number did outstrip, or will outstrip, for the 1 April adjustments, the actual—no, wage growth will outstrip inflation, which is a change from the modelling that we received before.

Also, in the supplementary analysis report that we received for this bill, we do have the modelling around the indexing of benefits and we do have the number of $670 million fiscal savings from this piece of legislation. Is the $670 million just on benefits or does that include savings to the minimum family tax credit because of these changes? If not, are there other savings that will be made from the minimum family tax credit?

I want to just come back and answer the question from Mr Menéndez March and the question around part-time work. In terms of the minimum family tax credit work-hours test, “full time” is actually defined as 20 hours or more per week for a sole parent and 30 hours or more combined for a two-parent family. So you could potentially have each parent working less hours than that for a combined total of 30, and we’re not proposing any changes in this bill.

I take the Minister’s point. And to that, I guess I’m asking whether the Minister realises that because of the current abatement thresholds, it actually eats up what they could be getting from the minimum family tax credit at a much faster rate than would have done, say, in 2006. And when that happens, it actually creates a situation where the so-called gap that she seeks to widen between wages and the benefits actually is narrowed by the fact that people are not able to keep as much as they could from the minimum family tax credit when they enter employment, due to those abatement thresholds not being updated, effectively undermining the goals that she has talked about time and time again of relentlessly supporting people into employment.

The abatement threshold as it is right now actually undermines people receiving adequate support when they enter employment. And I just really wanted to ask the Minister to look at updating it, because otherwise she seems to be contradicting herself by pushing people further into poverty by what she’s doing in Part 1 and not adequately supporting people who are entering employment by updating that abatement threshold. So, again, looking at the Minister’s comments in relationship to how the current settings that she’s only very, very, very, very marginally tweaking are actually supporting families entering the workforce.

I have said I’m not going to talk about things that are not in this bill, and the abatement rate and abatement thresholds are not in the bill. So, no, I’m not going to answer questions on that.

Ricardo Menéndez March: Madam Chair.

CHAIRPERSON (Barbara Kuriger): Ricardo Menéndez March—just in the nick of time.

Thank you. So I hear the Minister saying that she won’t talk about things that aren’t on the bill, but there are tabled amendments in relationship to this issue. If she doesn’t want to support them, that’s fine, but what it is in the bill is an overall bill that it is creating impacts on how incomes change for those on the lowest incomes and an intent to push people into paid employment.

Now, the consequence of the way that Part 2 is outlined and of the very, very marginal changes that she’s making to the minimum family tax credit do have consequences for the people who continue entering employment with a minimum family tax credit that is out of date in the way that it is being set up. And rather than just pushing back my argument as though it is not related to what we’re discussing, I’m asking the Minister to engage with substance on the issue of how we then support people entering the workforce—particularly those with children—to then have enough to get by. Otherwise, as I said, the settings, as they are, and in relationship to what my amendment is trying to address—so, yeah, the settings as they are basically create a perverse outcome for people entering the workforce where they’re not adequately supported in the way they would have been, say, in 2006. Because, since then, wages have moved, costs have moved, and we have gone through a period of high wage growth as well, which means that really affects those abatement thresholds—sorry, not abatement thresholds; it changes the rate or it affects the point at which that abatement starts kicking in and, therefore, creates situations where families may be thinking, “How much am I actually better off in employment as a result of that and how much am I actually supported, if I’ve got a family, when I’m thinking of moving into employment?”

So I think in some ways she’s actually undermining the work she says she wants to do by not supporting my amendment, by leaving things as they are, bar very, very, very minor changes to the prescribed amount in the family tax credit from $34,216 to $35,204. So that’s something I’m really, really keen to unpack, because she is changing that amount ever so slightly, but not the threshold to which it starts abating. So, if she’s just changing that amount ever so slightly but not the rate it abates, she’s actually condemning many families who are entering the workforce to not receiving support that matches the current realities that we’re experiencing. [Bell rings]

CHAIRPERSON (Maureen Pugh): I call Ricardo Menéndez March.

RICARDO MENÉNDEZ MARCH: Sorry, I’ll just ask in relationship to—

CHAIRPERSON (Maureen Pugh): I’m expecting new material.

RICARDO MENÉNDEZ MARCH: Did she seek any advice or did she engage with groups such as the Child Poverty Action Group? I’m trying to now unpack on Part 2 in relationship to engagement with stakeholders or conversations she would have had with organisations that have been advocating to changes to the minimum family tax credit. Has she engaged with published reports and research from groups, like Child Poverty Action Group and others, who have called for changes to the minimum family tax credit? And the reason why I’m now moving into engagement on literature and stakeholder groups is because the issue that’s been addressed in my amendment is not new. So, when deciding to shift that amount ever so slightly, I’m interested to know who she’s engaged with, basically. What level of advice has she sought about the impact that just changing the amount would have for those people entering the workforce? And, if she didn’t engage with anyone, I’m just really curious—and I’m pleading in good faith—for the Minister to engage with the reality of increasing that amount slightly but the abatement threshold not changing. I won’t relitigate that part that much, but I just genuinely am asking for that engagement in relationship to how Part 2 affects people entering the workforce and, then, getting the minimum family tax credit in the way it was intended to.

Madam Chair, it is an absolute privilege to contribute to this debate. We are on Part 2 of the Social Security (Benefits Adjustment) and Income Tax (Minimum Family Tax Credit) Amendment Bill. Part 2 is a pretty narrow part of the bill, looking at the changes that are made to benefits and the impact that it has on tax credits.

I do have a question around the tax implications of such a move and whether the Minister has in fact investigated any of the tax implications and the fiscal implications for such a change, because, of course, greater tax credit to families will, of course, impact the fiscal envelope and the fiscal financials for the Government. So I’d be curious to know if the Minister has received any advice around the likely tax implications. I think that would be something we’d want to consider in terms of the overall cost of such a change to the Government’s books.

Overall, there have been some discussions around the abatement changes and the impact of those, and I think there are legitimate questions around making sure that we’re not discouraging those families from working and not discouraging those families from getting ahead. On this side of the House, we certainly want to encourage those families to get ahead through work and through less time spent on a benefit. So am curious about the Minister’s perspective on this. I know it is in Part 2, and we look forward to traversing this topic in more detail.

I thank the member for his question. So the minimum family tax credit is actually part of the Working for Families suite. What we want to ensure is that there are incentives for people to work, so lifting the threshold provides that opportunity for people to be in work and not be penalised and for it not to then be a choice between working or not.

In terms of the impact on tax, I mean obviously what we’d like to see over time is that with more people being in work, taking on more work, obviously that’s lifting their incomes—and the Minister of Finance would also like, over time, some of the income tax that generates.

But the two pieces—so the second part fits very importantly with the first part that we’ve already talked about. So anytime that there is the ratio to increase benefits, we must also then look at the threshold for the minimum family tax credit to ensure that it is in balance. That is, quite simply, a very small piece in Part 2. We’ve debated it at length, but it is about making sure—and our Government is very focused on how we support more people into work. This is a small measure of a suite of measures that our Government will progress in terms of making it beneficial for people to be in work.

So I think both the member and the Minister just almost got to the point of this issue, right? The member was asking about issues around the mission to support people into employment; I hear that. At the same time, you know, while I would dispute what Part 1 is doing in relationship to actually meeting those goals, Part 2, as the Minister alluded to, speaks to the broader Working for Families package, which, as she said, is intended to support people into employment. And when people transition from a benefit into employment, they may incur additional costs, right? They may incur childcare costs, transport, etc.

Now, the Working for Families package is supposed to assist with those things, but the Minister talked about the need to change the threshold, and just in the previous call. That’s not necessarily what Part 2 is doing in any way that actually adjusts for inflation. And by not changing the abatement threshold in line with inflation, what that means is that the amount that people receive will start being eaten away a lot faster, because we haven’t changed those settings, effectively undermining the things that both the member and the Minister have just outlined.

I think this is what I’m getting at with my amendment and those contributions and the continued goal around supporting people into employment, because Part 1 certainly does not do that. Part 2 changes and slightly tweaks a package that is supposed to support working families, but not in any way that actually updates the threshold at which it starts abating in a meaningful way.

So I just would like the Minister to help me understand how the settings and the way that she’s tweaking them right now actually will support families entering work. And if not, can she give us assurances that she will look at those abatement thresholds? Because in a vacuum, I know that she’s talked about how this bill will be part of another range of interventions, but in a vacuum, as it stands, we’re not doing anything to support people who are entering work by leaving things as they are.

I thank the member for his persistence, and I can give him every confidence that we will absolutely, as a Government, be looking at those pieces to ensure that it is—we want to encourage more people into work, and there will be barriers currently, but today is not for debating that; that is for another occasion.

Ricardo Menéndez March—this is new material, isn’t it?

Yeah. So did she seek any advice at any point around the thresholds, then, or was this not considered by the Minister at all in the process of introducing this legislation? So the thresholds at which it starts abating the minimum family tax credit—did she seek any advice and relationship to it or no? Was this considered at any point in creating this legislation?

It’s not in the scope of this bill.

The question is that Ricardo Menéndez March’s amendment to insert new clause 9A set out on Amendment Paper 13 be agreed to.

The question is that Ricardo Menéndez March’s amendments to insert new clauses 9A and 11 set out on Amendment Paper 15 be agreed to.

The question is that Ricardo Menéndez March’s amendments to clause 10 and to insert new clause 11 set out on Amendment Paper 16 be agreed to.