7 Penalties for Breaches

Introduction

7.1. When it has been determined that a jobseeker has committed a breach, a statutory penalty automatically follows. There is no discretion to waive or modify the penalty in particular circumstances.

7.2. The penalties vary according to whether the breach is categorised as an activity test breach or an administrative breach. An activity test breach is defined by the Social Security Act as failing to enter into or comply with an activity agreement, failing to accept a job offer or leaving employment voluntarily or through misconduct. On the other hand, administrative breaches involve matters such as failing to attend a Centrelink interview or to return Centrelink forms on time. The penalties for activity test breaches also vary according to whether they are the first, second or subsequent breaches incurred by the jobseeker during the previous 24 months (the "accumulation period").

7.3. The penalties are shown in the following table.

In the case of administrative breaches, the jobseeker can opt for an alternative penalty of losing all of one fortnightly payment.

7.4. The following table gives an indication of the impact of the penalties for single jobseekers over 21 years of age, without children, who were receiving the full rate of allowance prior to the penalty.

7.5. In this chapter we consider the following issues:

• the nature and level of penalties;

• notification of penalties;

• relief from penalties;

• post-breach referrals;

• moves to low-employment areas;

• loss of travel concessions.

The nature and level of penalties

7.6. Our inquiries indicate that a considerable number of jobseekers have incurred substantial financial penalties and consequential hardship as a result of breaches which were minor, inadvertent and/or did not demonstrate a deliberate intent to evade their obligations. In many instances, this has forced them to call on emergency aid from relatives, charities or other sources. In some others, it appears that they may have felt compelled to resort to illegal or unsafe income-earning activities. Moreover, the penalties commonly make it even more difficult for jobseekers to meet the costs of search for, travel to, and effective presentation at, potential employment opportunities.

7.7. It must be remembered in this context that the relevant allowance levels are already at or below a basic minimum for meeting ordinary living expenses. They are significantly lower than other social security payments, such as age or disability pensions, and those payments are not subject to comparable penalties in the event of breach. Also, for reasons that we explain later, imposition of a penalty often causes other substantial expenses and obstacles which may considerably aggravate the overall impact on jobseekers.

7.8. Our inquiries indicate that the current penalty regime is excessively harsh and unfair, and that it unduly and counter-productively diminishes many jobseekers' prospects of finding employment. Several principal directions for reform should be pursued in order to remedy these weaknesses.

Categories of breaches and penalties

7.9. Greater efforts should be made to match penalties to the seriousness of the relevant breach and the apparent need for deterrence. The current system covers a very wide range of seriousness from an isolated instance of inadvertence or misadventure in relation to attending an interview to a deliberate and sustained refusal to seek work and attend appropriate job interviews. It seeks to achieve some degree of matching or "proportionality" by distinguishing between administrative and activity test breaches, and between the number of prior activity breaches. But this is a very "hit and miss" approximation, especially as no account is taken of whether the breach was deliberate. Moreover, breaches of some activity test requirements, such as failure to keep a jobseeker's diary up-to-date, may prove to be very minor if correctly investigated. In general, much closer matching in these respects is achieved in penalty systems in other areas such as taxation and corporate regulation.

7.10. Moreover, as mentioned earlier, the distinction between the two categories of breaches has been subverted by the widespread practice of providers and Centrelink staff writing into activity agreements many obligations that were meant to be covered by the administrative category. It is not clear how this practice was initiated but its effect is to nullify the decision of Parliament, explicitly stated in the legislation, that administrative breaches should be less heavily penalised than other breaches. An additional problem is that repeated activity test breaches automatically lead to escalating penalties, yet each breach may have been very minor. This problem can be partially addressed by substantially shortening the current two-year accumulation period.

7.11. There is a strong case for adopting a more carefully graduated system that distinguishes between deliberate and other failures to comply with obligations, and perhaps replaces the current activity test/administrative breach distinction. If the current distinction is to be retained, however, it should be drawn more carefully and protected from subversion of the kind to which we have referred. For example, it could be ensured that simple failures to attend appointments or return forms are not placed within the activity test category, unless perhaps they relate to appointments to attend job interviews. This approach would achieve the great benefit of encouraging prompt compliance while reducing the risk of causing unduly harsh and counter-productive hardship for genuine jobseekers.

Recovery of penalties by jobseekers

7.12. The system should provide greater encouragement for jobseekers to rectify their breaches as soon as possible. This could be achieved by providing that the amounts that have been withheld as a penalty from an allowance can be recovered by the jobseeker if he or she promptly arranges to comply with the obligation that gave rise to the breach. This is the system that applies to non-compliance by other social security recipients, such as age pensioners. Indeed, it appears that a somewhat similar effect is already achieved informally by some Centrelink staff who, if a jobseeker fails to attend a Centrelink or provider interview, briefly withhold payment in order to induce the jobseeker to attend. If they do attend within a short period, the payment is released and no breach is recorded. But this practice is not officially sanctioned and lacks necessary safeguards, since no formal process of decision-making and potential review is involved.

7.13. Where pensioners fail to comply with obligations, their payments are fully withheld until compliance is achieved and are fully back-paid if they comply within 13 weeks (in practice, a longer period is sometimes permitted). In the case of jobseekers, it may be considered appropriate to seek earlier compliance. But it may take jobseekers some time to be able to comply in full. A fair balance could be to permit recovery where reasonable steps to achieve compliance are taken within four weeks of imposition of the penalty.

Duration and rates of penalties

7.14. The current durations and rates of reduction in allowances often operate in an unfair and counter-productive manner. They can be substantially harsher in impact, for example, than the penalties commonly imposed for some criminal offences which threaten physical harm. It is essential to bear in mind in this context the already straitened circumstances of most affected jobseekers and, therefore, the heightened deterrent and punitive impact upon them.

7.15. It must also be borne in mind that breach penalties often trigger extra penalties such as bank overdraft fees, utility charges for late payment or re-connection, and even the costs of eviction and trying to find alternative accommodation. Where jobseekers' conduct also leads to their receiving more than their proper entitlement, there will usually be a further reduction by Centrelink to recover the overpayment. It is significant in this context that the standard deduction rate used by Centrelink to recover overpayments from jobseekers who have no other income is 14%. This presumably reflects a view that a higher rate would leave them with insufficient money for basic necessities.

7.16. The determination of an appropriate penalty structure involves striking a difficult balance between the need to induce prompt and continued compliance and the need to avoid leaving highly vulnerable jobseekers and families without essential income (especially if the penalty occurs at short notice or is accompanied by other Centrelink deductions). It is also necessary to beware of setting unduly light penalties that may induce a lack of sufficient investigation, consideration and care prior to imposition of breaches.

7.17. Durations: If our recommendation for recovery of past reductions in the event of prompt compliance is accepted, it will nevertheless remain necessary to reduce the duration of current penalty reductions (save perhaps in relation to persistent serious breaches). Prolonged reductions for 26 weeks are a severe deterrent to continued job search, as well as often being unduly damaging to jobseekers and their families, while achieving little if any increased impact on compliance. A maximum period of eight weeks would be a much more appropriate way of ensuring imposition of a significant penalty while minimising the risk of the undesirable impacts to which we have referred.

7.18. Rates: If our recommendations in relation to recovery and duration are adopted, it might be appropriate to have a maximum rate in the vicinity of 25%, except for persistent serious breaches. Given that most jobseekers are already in difficult financial circumstances, this rate would provide very strong pressure to achieve prompt compliance. Indeed, there is a risk that it will be too harsh for those jobseekers who lack sufficient resources to pay essential bills for even a short period while they achieve compliance and their payment is restored. The proposed rate is higher than the rate currently imposed for first and administrative breaches. But it is a maximum and, therefore, a lower rate could be set for categories of less serious breach. In any event, it must be borne in mind that our recommendations involve a much shorter duration of penalty for those breaches than at present and, most importantly, the penalty would be fully recoverable upon prompt compliance.

Another option

7.19. If our recommendation about full recovery of penalties is not adopted, it will be essential that both the durations and rates of penalties are reduced. In our view, the highest priority should be to proceed with our proposed reduction in duration of penalties to a maximum of eight weeks. But it will also be important to reduce the rate of penalties to some extent, except perhaps for persistent serious breaches. We believe that a maximum rate of 15% would be appropriate for that purpose. In forming that view, we have taken into account the factors mentioned earlier in relation to the especially adverse impacts of penalties on many low-income jobseekers and on their job search activities. We have also taken account of the likelihood in a large proportion of cases that the penalty will be accompanied by other adverse financial consequences of the kinds we have mentioned earlier.

R24. Structure of the Penalty System

(1) The structure of the penalty system should be modified to match penalties more accurately with the seriousness of the breach in question.

(2) If the current penalty structure is retained,
• administrative requirements should not be written into activity agreements;

• the accumulation period should be reduced to twelve months.

R25. Recovery, Rate and Duration of Penalties

(1) All penalties should be fully recoverable if the jobseeker takes reasonable steps to comply with the obligation in question not later than four weeks after imposition of the breach.

(2) The duration of penalties should not exceed eight weeks and the rate of reduction in allowance should not exceed 25%, except in the case of persistent serious breaches.

(3) If penalties are not made fully recoverable as recommended above, the duration of penalties should not exceed eight weeks and the rate of reduction should not exceed 15%, except in the case of persistent serious breaches.

Notification of penalties

7.20. Our inquiries show that jobseekers are often unaware that a breach has been imposed on them until either they go to withdraw their expected fortnightly payment and find reduced or no funds available or they receive notice from the bank that their account is overdrawn. Even then, they may not realise that their payment has been reduced but may instead attribute any shortfall in the expected balance to their own miscalculations.

7.21. Lack of significant advance notice of penalties can cause considerable unfairness and hardship - including loss of money, reputation and credit rating - as a result of overdraft fees, rejection of credit card payments, disconnection of utility services and the need to take emergency measures to obtain basic living expenses and accommodation. In many cases, reasonable notice may enable arrangements to be made for avoiding these consequences.

7.22. These problems can even arise for jobseekers who utilise the Centrelink service (Centrepay) which enables them to authorise their banks to make ongoing deductions from their allowances in order to pay bills from sources such as a public housing authority or utility supplier. There is no system by which Centrepay payout authorities are at least re-confirmed with the jobseeker where a penalty has reduced the amount of allowance from which they can be made. Another problem with inadequate notice of penalties is that it deprives the jobseeker of an opportunity to seek speedy review of the decision, preferably before it takes effect.

7.23. These problems could be substantially reduced if a sufficient minimum period of notice was required and strictly observed. In addition, the notice itself should be made simpler and clearer along lines we have recommended earlier in relation to other Centrelink communications, with special emphasis on the reason for the breach and the amount of the reduction in allowance. The notice should also give clear advice as to how to exercise review rights and information about possible sources of legal advice and other support; we return later to these matters in a more general context.

R26. Notification of Penalties

(1) Penalties should not commence until at least fourteen days after notification to the jobseeker.

(2) Penalties should be notified in writing, with the use of words and format that clearly draw attention to their causes and consequences.

(3) The notification should also provide information about specific sources of emergency relief and of advice from a welfare rights worker or other independent adviser.

Relief from penalties

7.24. While a penalty is usually intended to have an adverse impact on the penalised person, a common element of many penalty systems is to allow for modifying, delaying or waiving the standard penalty if that is necessary to avoid undue hardship, including for dependants. As mentioned earlier, it is clear that reductions in their allowances can cause severe hardship for some jobseekers, including insufficient money to meet essential food, accommodation, clothing, health, school and transport costs.

7.25. This situation may be exacerbated by the extra expenses and difficulties, as mentioned earlier, to which a penalty can give rise through inducing overdrafts, defaults, disconnections or evictions. Our inquiries indicate that the impact of penalties can be especially severe on jobseekers who have regular debt repayment obligations. The reduction or suspension of allowance can lead to the full amount of the debt becoming due and then to enforcement proceedings, loss of property and, in some cases, even loss of liberty.

7.26. These additional consequences may flow directly from the imposition of penalties yet be well beyond the severity of punishment that is intended by the penalties regime or justified by the breaches for which they have been imposed. Here, as in relation to many other types of penalty, there should be explicit scope for reducing, delaying or foregoing the penalty in the event of special hardship. Provisions of this kind already apply to Centrelink's deductions for debt recovery and could readily be applied in this area also. It would also be appropriate to ensure a clearer and tighter limit on the extent to which Centrelink can simultaneously reduce allowances through a penalty and a debt or loan recovery.

7.27. At present, jobseekers can obtain cessation of their penalties if they agree to undertake "work-for-the-dole". The practical availability of this option, however, depends on whether or not there is a place available at the relevant time. In any event, we can see no good reason why the provision should not also apply to jobseekers who agree to undertake at least a specified number of hours in the other forms of work or study that are already recognised by the system as improving employment opportunities. This extension would not only provide additional scope for relief from hardship but also increase incentives for active job search.

R27. Relief from Penalties

(1) Centrelink should be empowered to reduce, delay or forego a penalty on the ground that it is likely to cause hardship. The existence of this power, and the relevant application processes, should be notified to jobseekers when the penalty is notified.

(2) The current provision that penalties cease if the jobseeker agrees to undertake "work-for-the-dole" should be extended to include undertaking a specified number of hours in paid work, work experience, voluntary work or a course of study.

(3) The combined rate of a jobseeker's reduction in allowances through penalties and Centrelink recoveries should not exceed 20%, unless the jobseeker is able to terminate the penalty by taking reasonable steps to comply with the obligation that gave rise to it.

Post-breach referrals

7.28. As mentioned earlier, Centrelink's Second Breach Intervention Pilot operated for a trial period in 2001 in relation to jobseekers who have incurred a second breach and penalty. It sought to provide much of the investigation into the jobseekers' circumstances and facilitation of practical assistance for them that we have recommended earlier. Our recommendation emphasised the need to take such action at an earlier stage or stages, particularly in relation to especially vulnerable jobseekers. A referral for such action would usually be desirable after a second breach, at least if it has not occurred sufficiently at an earlier stage.

R28. Post-breach Referrals

(1) Upon imposing a breach, Centrelink should consider referring the jobseeker for an interview with a social worker, occupational psychologist or other specialist officer.

(2) Such referral to a specialist officer should be mandatory after a second activity test breach, unless it has already occurred or would clearly be ineffective.

Moves to low-employment areas

7.29. Jobseekers who move to an area that has a low supply of employment opportunities are liable to be denied an allowance for a period of 26 weeks. Although this rule does not technically involve imposition of a breach, it does amount to the imposition of a substantial penalty and accordingly we deal briefly with it here.

7.30. Some exemptions from the rule apply where the move is made for family, medical or educational reasons. Our inquiries indicate, however, that substantial problems can arise from the way in which Centrelink defines low-employment areas and from an undue reluctance by some officers to accept that moves may have been made for valid reasons that do not involve seeking to reduce work prospects. For example, areas that have low employment opportunities can also tend to be areas in which living costs are low or public housing more readily available. Low living costs can substantially assist a jobseeker's ability to pursue job search activities.

7.31. Determinations of ineligibility on this ground can involve very difficult assessments of personal circumstances and motivation. In this situation, and in light of the severity of the penalty of 26 weeks ineligibility, the relevant criteria, guidelines and practice should be improved in order to preclude excessively harsh decisions. In particular, it should be ensured that officers proceed on the basis that Centrelink bears the onus of being satisfied that there was no valid reason for the move. Also, the maximum period of ineligibility that can be imposed should be limited to 12 weeks unless a longer period up to the overall maximum is approved at a specified senior level within Centrelink. Indeed, there is a strong case for returning the statutory maximum to 12 weeks, as it was prior to 1996.

R29. Moves to Low-employment Areas

(1) The period of ineligibility that may be imposed on jobseekers moving to low-employment areas should be limited to 12 weeks, unless a longer period up to the statutory maximum of 26 weeks is approved in a particular case by a senior Centrelink officer.

(2) The current criteria, exemptions and practice should be reviewed to ensure that no period of ineligibility is imposed unless Centrelink is satisfied that no valid reason applied and the jobseeker's personal employment opportunities were substantially reduced. Valid reasons for moving should include a need to achieve lower living costs and accessible accommodation.

Travel concessions

7.32. A particular problem in relation to penalties concerns their impact on the travel concessions provided to jobseekers by State and Terrritory authorities. The nature of these concessions, and the eligibility rules, vary considerably in different parts of Australia but often they are restricted to jobseekers who are receiving the full allowance. Accordingly, reduction or temporary cancellation of the allowance results in the loss of the concessions, thereby increasing the financial impact of the penalty and often severely limiting the jobseeker's capacity to look for work and attend to other essential personal or family needs. In our view, there is no good reason for discriminating against part-rate jobseekers in this way; indeed, its impact is often both unfair and counter-productive.

R30. Travel Concessions

(1) State and Territory authorities should provide the same travel concessions to all jobseekers who are receiving an allowance, irrespective of whether it is a full- or part-rate allowance.