Rachel Siewert (WA, Australian Greens) Share this | Hansard source

I rise tonight to speak on the Families, Housing, Community Services and Indigenous Affairs and Other Legislation Amendment (2008 Budget and Other Measures) Bill 2008 and specifically on issues relating to fringe benefits and employment in the charitable and not-for-profit sector. The issue of fringe benefits tax arose in relation to this bill, due to concerns about the serious impacts on not-for-profit organisations of changes relating to how fringe benefits were to be calculated for the purposes of family tax benefits and childcare benefits. The Australian Greens note that our main concern originally—and, as I understand it, that of charitable organisations and other not-for-profit non-government organisations—related to changes made in 2006 by the previous government. These changes altered the income test for family tax benefits so that fringe benefits were grossed up, where they had previously been calculated on a net basis. The impacts of these proposed changes on the community sector were of such concern that I referred the matter to the Senate Standing Committee on Finance and Public Administration for inquiry. In the course of the inquiry a further issue in relation to fringe benefits tax in the not-for-profit sector was raised—namely, the cap on tax-free benefits. It is this specific issue that I would like to address tonight. The other main issue that came up is the viability of the not-for-profit sector.

The community sector—which is also called the not-for-profit sector or sometimes the third sector—is a vital part of our civil society. It plays a crucial role in that society. I was pleased to note that the Parliamentary Secretary for Social Inclusion and the Voluntary Sector, Senator Ursula Stephens, put out a media release on Friday. On her website she acknowledged:

As part of the Federal Government’s Social Inclusion agenda, we are dedicated to a new era of partnership with the not-for-profit sector.

The Government will continue to find new ways to support and promote the crucial work of the staff and volunteers within the sector in helping disadvantaged Australians.

She went on to explain that the government was in fact moving to reverse the changes that were going to come into effect on 1 July that were causing such concern to the not-for-profit sector. I will go into that in a moment.

The value of the community sector to the Australian economy is conservatively estimated to be in the order of $50 billion per year. I believe that is a highly conservative figure. This figure consists of $20 billion in expenditure, which the not-for-profit sector spends on these issues, and at least another estimated $30 billion in unpaid voluntary work. Again, I think that is a highly conservative estimate. Wages and conditions within the community sector are substantially below those offered in both the public and private sectors. If there was a decision by government to attempt to provide the services that are provided by the not-for-profit sector—which, for a start, I do not think the government could do—the cost of delivering the same level of services would be substantially more than $50 billion a year. And that is even thinking that they could provide the level of service that these organisations provide. However, the fact is the community sector cannot compete with public sector employment or private enterprise on wages and conditions, and this gap, alarmingly, continues to widen. As a result, the community sector relies on employees voluntarily forgoing the possibility of higher wages elsewhere for the opportunity to make a difference and to do some good within the community.

However, with the rising cost of living and other financial pressures, there are limitations on the degree of sacrifice employees are able to sustain and still be able to meet their living and family commitments. A survey of the community sector that the Australian Council of Social Services conduct every year, which was just released this month, found that 68 per cent of agencies which responded had experienced difficulty in attracting staff in the last year, and 43 per cent of them named staffing as one of the three most important issues facing their services. A significant proportion of respondents expressed concern about wage levels and indicated that they had considerable trouble attracting and retaining staff. Skilled occupations which obviously require appropriately qualified staff such as psychologists, social workers and accountants are becoming increasingly difficult to fill as skills shortages in these areas continue to bite and the salary gap with the public and private sectors continues to widen.

Employees within the community sector are in fact predominantly middle-aged women on low incomes. While many have strong personal commitments to their work and their organisations, we are now seeing increasing numbers approaching retiring age. On the whole, younger workers are less inclined to take on these lower paid and relatively stressful roles, and the sector potentially faces a looming crisis, particularly as younger people, even if they are inclined to take on these roles, find it quite difficult to sustain them and there is more churn through the sector. To this extent, both the use of adjusted fringe benefits totals and the capped exemption on fringe benefits taxes for public benevolent institutions, charities and other not-for-profit organisations have played an absolutely pivotal role in the capacity of these types of organisations to recruit and retain staff.

The unintended consequences of the change that would have come into effect on 1 July—that is, to use reportable rather than adjusted fringe benefits totals for family benefits—would act to effectively reduce the disposable income of many families of community sector employees, especially those in the $40,000 to $80,000 income range, where the primary income test for family tax benefit is applied. The reason that this change is such a concern to the Australian Greens is the likely impacts that it would have on the ability of a wide range of community service organisations to attract and retain suitably qualified and motivated staff, on their ability to deliver services efficiently to their disadvantaged clients and on the ongoing viability of the wider community sector. That is why we were particularly pleased when the government announced that they would introduce an amendment to deal with this issue. The Greens had already drafted an amendment, and I am pleased to see that the government are moving exactly the same amendment. However, the issues around the cap on the tax-free exemption and the viability of the community sector that came to light when this issue was raised in the public arena still apply to the community sector. There are many serious issues that the sector still has to deal with.

During the committee hearings, representatives of the community sector raised a number of other issues relating to the funding and ongoing viability of the sector. These include the need to raise the current tax-free ceiling on fringe benefits for public benevolent institutions, charities and not-for-profit hospitals and other relevant not-for-profit organisations. These tax-free fringe benefits allow those organisations I have just mentioned which qualify for this exemption to effectively offer higher salaries than they otherwise would be able to, while at the same time reduce the cost to the purchasers of these services, whether those purchasers are governments, fee-for-service clients or those of us who make donations to these charitable causes. The committee heard that the current tax-free ceiling for public benevolent institutions and other charities of $30,000 is not indexed and has not been increased since it was first introduced in 2000—in other words, for eight years. Our calculations indicate that if the current ceiling had in fact been indexed to the Consumer Price Index it would now be around $38,500 and if it were indexed to average weekly ordinary time earnings it would now be $43,000.

Given the importance of this benefit to the ability of charitable organisations to attract and retain staff and deliver services, the Australian Greens believe that the ceiling should be immediately lifted to $40,000 and indexation introduced into the legislation. A proposed new tax-free ceiling of $40,000 is, for those who are listening to the maths, between the two measures for indexing. We believe that this is a fair figure, given the current cap has not moved in eight years. The public or not-for-profit hospitals or ambulance services currently have a different fringe benefits tax-free ceiling of $17,000, which also is not indexed and has not changed in eight years. Our calculations indicate if the current ceiling had been indexed to CPI it would now be close to $22,000 and if indexed to AWOTE it would now be $24,000. Given the importance of this benefit to the ability of not-for-profit hospitals to attract and retain staff and deliver services, we believe the ceiling should be immediately lifted to $23,000 and indexation introduced into the legislation.

Once the issue of reducing the gap created by eight years without indexing the fringe benefits tax-free threshold has been addressed, it still leaves open the issue of indexation. The Australian Greens support indexation to average weekly ordinary time earnings, AWOTE. This is because the issue at hand is a benefit directly related to employment and wages; hence, AWOTE is, in our opinion, the appropriate indexation reference. Since the issue of the cap was raised in the committee last week, numerous people have contacted my office to indicate that increasing the tax-free threshold from $30,000 to $40,000 would be of huge benefit to their organisations. For example, one aged-care provider indicated the impact on their staff who are earning up to $45,000—and many of course are earning a lot less—would be an extra $883 in their hands per annum. This is a significant amount of money for those families that are not earning a lot of money.

The aged-care sector is having a particularly tough time at the moment. Aged-care service providers are struggling to survive due to a shortage of people to undertake work, rapidly rising cost structures across all essential items and services and an unprecedented demand for services. Any loss of staff due to a sudden decline in a worker’s take-home pay or access to government supports will further increase staff vacancies and reduce levels of service. In the current environment it is unlikely such organisations will be able to recover lost staff.

This situation is being experienced by all community and welfare service organisations and providers across the sector. I have been inundated with comments from people expressing concern around the current situation. Given the immense value of the not-for-profit sector, the Greens believe the impact on the government of increasing the tax-free limit is minimal compared to the benefits of ensuring continued quality service provided by qualified and appropriate personnel.

The capped exemption from fringe benefits tax for public benevolent institutions cost the government $250 million in forgone taxes in 2005-06. Even with the percentage increase in this figure that would occur—I will be positive—when the cap is lifted to $40,000, this is a small amount compared to the billions of dollars the community sector contributes to our economy and our society. Frank Quinlan from Catholic Social Services gave evidence to the inquiry last Friday on this issue. He stated:

... then we also have to do a further analysis about the merits of that cap on its own. I think there would be a strong argument to suggest that an upwards movement of the cap, even beyond indexing, would be welcomed and would provide a further tool available to us again to both deliver more services and deliver some compensation to low-paid workers. I emphasise that a shift in that cap actually has a multiplier effect, not just on the dollars that government gives us but also on the dollars that we raise from other sources. If we raise $100 from other sources, by packaging that in salary we can turn it into more than $100 worth of services. It is important that we are talking not just about government funding either from state or federal government. It is a way in which policy can actually deliver us a benefit that we draw from other sources of funding, whether it be philanthropy, fundraising or others.

Given the value of the sector to the government as discussed above, particularly in the provision of much needed services far cheaper than government could ever hope to provide or source them, we do not believe that the extra cost of this measure is a great impost on government or that that provides any reason for them to reject it. To this end, I will be moving amendments to increase the cap on the exempted level of fringe benefits tax for those two groups and to introduce annual indexation.

The Australian Greens agree with the wider principle put forward in the submission from the Australian Council of Social Services: our tax and social security systems need to be both fair and consistent in the way they confer benefits and attribute costs. We also note that relying on tax exemptions to remedy the poor remuneration offered by the community sector is a poor substitute for a properly costed and resourced welfare system. On that basis, we welcome the proposed Henry review of Australia’s tax system and hope that it will provide fair and consistent remedy to the existing inequities of our tax system and to the wider issue of sustainable funding for the community sector.

However, in the meantime we believe it is imperative to deal with the current viability crisis in the sector, brought on by these potential changes to the assessment of fringe benefits tax—the government is doing this—and also to deal with the ongoing reduction in real terms of the cap on allowable benefits, because that will deliver real outcomes to those working in the community sector now, not in a couple of years time when the Henry committee reports. We urge both the opposition and the government to support the Greens’ amendments that will bring real, meaningful changes to those working in the community sector now.