1998

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

HOUSE OF REPRESENTATIVES

A NEW TAX SYSTEM (AGED CARE COMPENSATION MEASURES LEGISLATION AMENDMENT) BILL 1998

EXPLANATORY MEMORANDUM

(Circulated by authority of the Minister for Aged Care, the Hon. Bronwyn Bishop, MP)

ISBN:  0642 38715X

A NEW TAX SYSTEM (AGED CARE COMPENSATION MEASURES LEGISLATION AMENDMENT) BILL 1998

OUTLINE

The A New Tax System (Aged Care Compensation Measures Legislation Amendment) Bill 1998 amends the Aged Care Act 1997 to quarantine the 4% pension increase announced by the Government as part of the taxation reform package from the fees payable by residential aged care recipients.  This ensures that there is no increase in the fees paid by both pensioners and non-pensioners as a result of the pension increase and that pensioners receive the full pension increase.

The Act also ensures that war widows and widowers continue to pay the same amount in income tested fees as other care recipients on the same total income.

FINANCIAL IMPACT

There is no financial impact. 

A NEW TAX SYSTEM (AGED CARE COMPENSATION MEASURES LEGISLATION AMENDMENT) BILL 1998

REGULATION IMPACT STATEMENT

Introduction

The Government’s policy ‘Older Australians – A Secure and Stable Future’ stated that as part of the taxation reform package the full pension will be increased by 4% and that the pension increase will be quarantined from the formula for setting the fees paid by residential aged care recipients.

Problems in the Current System

The Government has stated that the existing taxation system is out of date, unfair, internationally uncompetitive, ineffective and unnecessarily complex.  It is a system that is preventing the development of a more efficient, relevant and accountable framework for Commonwealth-State financial relations.

A new tax system will help gear up the Australian economy to meet the challenges of the twenty-first century.  All Australians, including older Australians will have better and fairer tax and income support system. 

The Changes and Their Impact

The amendments to the Aged Care Act ensure that the 4% pension increase is quarantined from the formula that calculates the amount of residential care fees that pensioners and non-pensioners pay.  This means that there will be no increase to the fees care recipients pay on the introduction of the new tax system and that pensioners receive the full 4% increase in their pension.  This will leave pensioners with a greater fortnightly disposable income.

Residential care fees will then rise in line with future pension increases as they currently do.

The changes also ensure that war widows and widowers continue to pay the same in income tested fees as other care recipients on the same total income.

Consultation

The Government is undertaking ongoing and targeted consultations to ensure the successful implementations of the overall tax reform package. 

A New Tax System (Aged Care Compensation Measures Legislation Amendment) Bill 1998

NOTES ON CLAUSES

Clause 1- Short Title

This is a formal provision that specifies the short title of the Act is A New Tax System (Aged Care Compensation Measures Legislation Amendment) Act 1998.

Clause 2 – Commencement

This clause specifies that the Act commences on the day on which it receives Royal Assent while Schedule 1 to this Act commences at the same time as Schedule 1 to the A New Tax System (Compensation Measures Legislation Amendment) Act 1998.

This is to ensure that all the legislation related to taxation reform commences at the same time.

Clause 3 – Schedule(s)

This clause indicates that, subject to the commencement provisions above, the Schedule to the Act amends the legislation that is mentioned therein.  In this case the Schedule amends the Aged Care Act 1997.

Schedule 1 – Aged Care Act 1997

Clause 1 – Section 44-25

This clause amends the formula in s44-25 of the Aged Care Act 1997 which ensures that war widows and war widowers pay the same in income tested fees as other care recipients on the same total income as a result of the 4% pension increase.

Clause 2 – Subsection 58-3(1)

This clause repeals subsection 58-3(1) of the Aged Care Act 1997 and substitutes a new sub-section that defines the standard resident contribution for care recipients who do not receive an income support payment.  This amount is 1.25 times the standard pensioner contribution.

This amendment also breaks the nexus between the standard resident contribution for this group and the indexation provisions contained in the Social Security Act 1991.  This will ensure that the amount of standard resident contribution paid for residential aged care by non-pensioners does not increase as a result of the 4% pension increase introduced as part of the taxation reforms.

The non-pensioner rate will then continue to rise in line with any future pension increases, as is currently the case.

Clause 3 – Clause 1 of Schedule 1 (definition of standard pensioner contribution)

This clause introduces a new definition of standard pensioner contribution as an amount equal to 81.5% of the basic age pension amount.  It is currently defined as 85% of the basic age pension.  This new 81.5% benchmark is the proportion of the new higher pension represented by the same unchanged resident contribution at the time of the 4% increase.

Reducing the percentage payable will ensure that residential care fees for pensioners do not increase as a result of the 4% pension increase introduced as part of the taxation reforms.  This amendment ensures that the full 4% increase in pension is passed on to pensioners and is not diminished as a result of paying higher residential care fees.

The pensioner fee will then continue to rise in line with any future pension increases, as is currently the case.