5 Activity and Income Tests

5.1. As described earlier, most unemployed people have to comply with an activity test in order to receive an allowance and this usually requires them to sign an activity agreement specifying a number of obligations. The activity test does not apply, however, to people who are undertaking some types of referral, such as to the Community Support Program. It is also possible to obtained individual exemptions from the activity test in specified circumstances for short periods.

5.2. The initial activity agreement is usually prepared by Centrelink but subsequent agreements, usually incorporating all or most of the previous agreement, are often prepared by a provider and then subject to approval by DEWR. The specific obligations which are commonly imposed in activity agreements include recording efforts to find work in a weekly jobseeker's diary and providing up to ten certificates per fortnight from employers whom the jobseeker has approached for work. These are in addition to other common obligations such as attending specified training courses and job interviews, accepting reasonable offers of employment, and undertaking paid work experience or "voluntary" (i.e., unpaid) work.

5.3. We have explained earlier that it is beyond the scope of this report to make comprehensive recommendations about the overall design of the activity test and activity agreement system. However, our inquiries indicate that some detailed aspects of the way in which the test and agreement system are applied have a considerable impact on the incidence of breaches and penalties. Accordingly, it is both appropriate and necessary to address them here to some extent.

5.4. Jobseekers must also make regular and accurate declarations of income in order to continue receiving an allowance. Usually they are required to do so on a fortnightly basis but in some instances they may be allowed to report quarterly. Failure to do so constitutes a breach and, indeed, this is one of the most common causes of breaches. This aspect of the income test for allowances is therefore squarely within the scope of our review. We are not concerned here, however, with broader aspects of the income test.

5.5. In this chapter, we consider the following issues:

• activity test exemptions;

• completing activity agreements;

• reporting income.

Activity test exemptions

5.6. The Act provides that exemptions from the activity test can be granted to individual jobseekers for such reasons as temporary incapacity or "special circumstances" which would make it unreasonable to be expected to satisfy the test. DFACS policy states that special circumstances include "major personal disruption" (of which flood and burglary are provided as examples) and "major personal crisis" (such as homelessness, marriage breakdown or domestic violence). Although there is statutory power to grant exemptions for up to 13 weeks, DFACS policy specifies that the standard exemption period for major personal crises should be two weeks, which can be extended to four weeks in extremely traumatic circumstances.

5.7. Our inquiries suggest that greater efforts need to be taken to ensure that the possibility of granting such an exemption is sufficiently considered, especially at an early stage of a jobseeker's involvement with the system. This applies particularly to many homeless people who are especially vulnerable to difficulties in compliance with obligations and commonly incur breaches (and further accommodation crises) as a result. Also, the grounds for exemption due to "special circumstances" should be extended to include being in transient or unstable accommodation.

5.8. There should also be greater scope for longer exemptions to be granted, at least up to the statutory limit of thirteen weeks. It is unrealistic to expect many personal crises such as homelessness and domestic violence to improve substantially within a few weeks. At present, some people in these situations may eventually obtain much longer relief from the test by being referred to the Community Support Program. But lengthy waits for those referrals are common and, in any event, there should be more scope for some middle ground between the long and short periods of relief that are currently available.

5.9. We have recommended earlier that special processes should be established for identifying jobseekers who are especially vulnerable to difficulties in compliance and for taking steps to addressing their vulnerability. One important measure to which special consideration should be given in these processes is granting an activity test exemption, thereby avoiding inappropriate exposure to risks of non-compliance and breach.

5.10. A related issue concerns the requirement that activity tests and agreements operate on every day of the year. A large number of jobseekers are unable to find work for as much as one, two or more years. It is unreasonable to deny them any break from job search over such a long period. It is also unreasonable to deprive their families of the opportunity to have holidays with them. In our view, a less harsh approach should be taken in this area, one consequence of which would be fewer breaches.

R15. Activity Test Exemptions

(1) The guidelines about "special circumstances" in which activity test exemptions can be granted should be broadened (especially in relation to jobseekers in transient or unstable accommodation) and should allow for somewhat lengthier exemptions.

(2) Specific consideration of possible eligibility for an exemption should be required whenever activity agreements are being signed or reviewed by Centrelink or providers.Completing activity agreements

5.11. The circumstances under which many activity agreements are signed raise questions about the extent to which they can accurately be called agreements, in the sense of being genuinely voluntary and informed contracts. Both Centrelink and provider staff are usually under considerable pressure to ensure immediate completion of the agreement in their presence, rather than allowing jobseekers to take time for active negotiation or to respond a few days later. It is very important that the obligations in activity agreements are carefully considered and discussed with the individual jobseeker, rather than being principally a standard list which includes items that may be unduly harsh, inappropriate or pointless in the particular jobseeker's circumstances.

5.12. Our inquiries indicate that current practice often falls short in these respects and, amongst other consequences, gives rise to breaches and penalties that further aggravate the harm. Two particular areas of concern relate to obligations to keep jobseeker diaries and/or submit employer contact certificates. These can be unreasonably onerous, especially for long-term jobseekers in periods when, or areas where, job opportunities are scarce. The cost of travel for this purpose can be very substantial and is not necessarily covered by travel concession cards. This can militate against being able to pursue more effective job search initiatives. Moreover, jobseekers having to request an employer contact certificate can incur a "black mark" in the eyes of employers and thereby reduce their chance of being offered any subsequent vacancy that may arise. While current policies seek to make some allowance for these problems, our inquiries indicate that greater efforts should be made to ensure that Centrelink and provider staff prepare activity agreements in a careful, flexible and fair manner.

5.13. It is usual and appropriate for activity agreements to require that a jobseeker must accept a reasonable offer of employment. The Act states that jobseekers can be required to accept job offers even though they will involve a total of up to three hours travel time to and from work each day. Some workers, of course, accept such travel time and cost as a price worth paying for being able to live where they choose. But many jobseekers are not living where they choose and cannot afford to live elsewhere. For them, the time and cost of such lengthy travel is likely to put unfair and counter-productive stress on themselves and their families. Our inquiries suggest that the current rule should be relaxed and greater care should be taken to ensure that unreasonable requirements are not imposed and jobseekers do not incur breaches for refusing to accept job opportunities in such circumstances.

5.14. In the next chapter we consider whether, when investigating a potential breach of an activity agreement requirement, the reasonableness of that requirement should be explicitly reviewed.

R16. Activity Agreements

(1) Greater efforts should be made by Centrelink and providers to ensure that requirements in activity agreements are appropriate and reasonable in the particular circumstances of the jobseeker in question. Amongst other things, this will require improving the time and training provided to staff for developing such agreements.

(2) In particular, relevant guidelines and practices should be modified to prevent imposition of inappropriate requirements about jobseeker diaries, employer contact certificates, and acceptance of jobs involving very lengthy travel times.

Reporting income

5.15. It is often difficult for a jobseeker to determine what kinds of payment should be declared as income. In some instances the legal position is complex, even for experts. Also, many people do not realise that they must declare gross income, not merely the amount received after tax. Although incorrect declaration of income is one of the most frequent reasons for breaching, the rate of prosecutions for fraud in this respect is very low. This implies that a large number of jobseekers are breached even though Centrelink accepts that their misstatement of income is a genuine mistake rather than deliberate deception.

5.16. A jobseeker is required to declare income "earned", "derived" or "received"'. The first two types of income refer to situations when there is an entitlement to income but it has not been received. Accordingly, Centrelink's income declaration form requires jobseekers to "tell us what you will get even if you have not been paid yet". Jobseekers frequently carry out work in one Centrelink reporting period (usually a fortnight) but are not paid until outside that period. For much casual or commission work, the pay period is different from the jobseeker's reporting period. Moreover, if jobseekers have to report prior to actually receiving the income, they may be unable to say precisely how much they have earned or derived. When the income is subsequently received, they may experience considerable difficulty in determining whether it has already been declared in full and to what Centrelink reporting period it relates.

5.17. Our inquiries show that these difficulties create a substantial disincentive for many jobseekers to seek casual or commission work. When a jobseeker reports that an amount has been earned, the allowance is reduced in that period but the jobseeker may not yet have received the earned income and may not do so for some considerable period. This can cause substantial difficulties in meeting basic living expenses. Moreover, innocent and understandable mistakes in reporting can lead to unfair reductions in allowance or to disputes with Centrelink which may even involve criminal investigations.

5.18. Centrelink has prepared an optional Income Record Form to help jobseekers keep a record of income earned and received, so as to be better able to complete the income declaration accurately. This form can help with record-keeping but there is currently no requirement that it be made available to all jobseekers for whom it may be useful. In any event, it is clear that the form commonly does not resolve the difficulties that a jobseeker may have in distinguishing between income earned, income derived and income received.

5.19. These problems could be substantially reduced if the income declaration form clearly distinguished between income from work and income from other sources, such as bank interest, and if, in relation to income from work, it concentrated principally on income actually received. The advantages would include more reliable reporting; increased incentive to find work; and reduced levels of misstatements, investigations, breaches, overpayment calculations and recoveries.

5.20. The following questions outline how a declaration form might seek to achieve these distinctions:

• Have you received income in the past fortnight for work you have done ? If yes, how much?

• Did you do any work in the past fortnight for which you expect to receive pay in the future? If yes, describe the work and make sure that you tell us about the income when you actually receive it.

• Have you earned, derived or received any income in the past fortnight from sources other than work (such as bank interest)? If yes, how much?

• Have you received any money, such as gifts, in the past fortnight which you do not think counts as income? If yes, describe the type and amount of payment.

5.21. As well as simplifying the basis on which income is reported, greater flexibility needs to be introduced to the periods for which income must be reported. It can be particularly beneficial if jobseekers who have some fluctuating income from casual or intermittent work, or who tend to receive income considerably after it is earned, are enabled to submit income declarations on a quarterly rather than fortnightly basis. In this way, a jobseeker can more readily account for income received at intermittent intervals over a period of time and Centrelink can avoid complex fortnightly apportionment of income and adjustment of payment. Quarterly reporting is currently available in some circumstances but we support the government's indication last year that it would be made more widely available in future. The position may also be improved to some extent by the new Working Credit modifications to the income test which are due to be introduced later this year. For example, that system reduces the extent to which jobseekers may be disadvantaged, or unwittingly incur an overpayment, by failing to attribute income to the correct fortnightly cycle.

R17. Reporting Income

(1) Centrelink should substantially simplify its rules and practices about jobseekers notifying income, especially in relation to income that may have been "earned or derived" but has not yet been "received".

(2) In particular, steps should be taken to enable jobseekers who indicate that they have "earned or derived" income in a particular reporting period to delay reporting the precise amount until they have actually received it.

(3) Centrelink should also extend the range of jobseekers who can choose to report income on a quarterly, rather than fortnightly, basis.