The screw turns a little more….

The recent Budget by Treasurer the Hon Scott Morrison has had many perplexed in the past 10 days. On the one hand, we have some minor proposed tax cuts and a rationalisation of 5 tax brackets down to 4 and to pay for them, it seems the Government’s ongoing great social experiment continues to be delivered unabated with quiet efficiency and little comment.

Under one of the Treasurer’s more controversial moves to pay for this, it seems the government is going to get tough on those that haven’t paid their fines or who are in trouble with the law as part of a new Centrelink crackdown to reduce social welfare spending. From March 2019, new welfare claimants will first have to undergo police checks. This is further evidence of Australia heading towards an Animal Farm state that has its genesis in Treasury. We have seen some previous evidence of moves in this direction when we witnessed the implementation of the cashless card where bureaucrats have the power to determine who spends what and where. This is population control by economic electronic means. Whilst arguably protecting the desperate and vulnerable from themselves, it’s harmful consequences had to have been foreseen. Fortuitously, this ABC News article today highlights some of them.

A budget news article states that despite perhaps paying taxes and assuming the applicant isn’t a new migrant, who will now have to wait 4 years instead of 3 years before becoming eligible for a payment, if they are found to have an outstanding arrest warrant on their record, their welfare payments will be frozen until they turn themselves into police. Those with children will have their payments halved “to encourage co-operation with the police, but if the warrant is cleared within a month, the benefits will be reinstated”. Centrelink payments will be cancelled altogether for people who fail to turn themselves into the police. With Centrelink still chasing non-existent debts currently, one wonders how many more unintended consequences will come out of this as we don’t know how accurate those state-based agencies records are. One Victorian magistrate has already seen evidence of malfeasance by State governments when, in 2016, he found that many fine dodgers were being overcharged for minor traffic fines and this must be occurring in other States.

Social Services Minister Dan Tehan is quoted late last week as saying “[p]eople should be expected to repay their debt to society” and so the Government is to also clamp down on those that haven’t paid their fines. It proposes to do this by making ‘small deductions’ from the welfare payments and pass these funds to state and territory governments. The new focus on debt recovery is expected to save $300 million over three years from 2019-20.

This is an interesting approach by Government because it’s at a time when many financial counsellors, welfare agencies and even former Prime Minister John Howard are calling for Newstart allowances to be significantly increased. Instead of being a safety net, this benefit forces recipients to live below the poverty line and the repayment of fines would be a major shift in social welfare policy. Currently, under s.60 of the Social Security (Administration) Act 1999 (Cth), Centrelink benefits are inalienable. The benefits cannot be sold or transferred to another person and even the ATO has to have permission granted by the beneficiary to pay back tax debts. If a person becomes bankrupt, some types of Centrelink income such as family payments are not counted as income by virtue of s. 139K(b)(ii)(A) of the Bankruptcy Act 1966 (Cth) and case law has established that this income doesn’t vest in a trustee in bankruptcy. Regardless of this, though, the income of a person that would be dependent on Centrelink benefits primarily is more than likely to be well below the level at which a bankrupt is required to make a contribution from income, so why does the Treasurer now believe it’s OK to force people to repay fines to state governments from what little support they receive from Federal Government?

When we see the details behind these new measures once they are finally submitted to Parliament, are we to see the ATO possibly gaining some kind of priority over state debt? What about the removal of the inalienability of a benefit payment? Will we see some kind of bullying by Centrelink staff, legitimate or otherwise, so that a benefit could be withheld or vastly reduced unless ‘permission’ to debit these small deductions is granted? Financial counsellors and welfare agencies must be wondering just how big these ‘small deductions’ could end up being. Given there are measures from the 2016 budget that haven’t been passed by the Senate, though, we shall have to wait and see if this measure manages to pass Parliament.

If it look like doing so, it could have serious implications for lenders because it could affect the assessments of affordability made at the time of the credit contract’s creation and just as with one of the consumer’s in the ABC story mentioned earlier, throw consumers into further indebtedness.

There is a positive side to the idea, though, as there’s an equally valid argument credit providers must also be able to get in line and have the benefit recipient repay their unpaid debt from benefits in the same way as fines. Clients are reporting a significant increase in the number of borrowers that are cancelling their DDR Authorities before the first repayment (many, seemingly, on the day of receipt of the funds) and then simply refusing to communicate. One client even received an advice there exists a Facebook page detailing exactly how to go about doing this. It’s not happening with SACC loans either; some car financiers are also reporting the same happening to them. If you know the URL of this page, please report it. This is one instance where the Credit Reporting regime really needs to be amended to allow for the reporting of these offenders as what they’re doing is criminal. Unfortunately, with recent legislation changes in some states, proving fraud or fraudulent intent may be difficult.

Where you have a client that has cancelled their DDR Authority when drawing the first repayment, you should not hesitate to send that borrower a s.88 Default Notice in order to ascertain the reason. You can then escalate enforcement action if required, depending on the response.

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