Editors --- "Income maintenance period: meaning of severe financial hardship due to unavoidable and reasonable expenditure" [2011] SocSecRpr 11; (2011) 13(1) Social Security Reporter, Article 11

• SECRETARY TO THE DEEWR v ERGIN
• Background
• Issues
• Decision
• Formal decision

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Income maintenance period: meaning of severe financial hardship due to unavoidable and reasonable expenditure

SECRETARY TO THE DEEWR v ERGIN

(Federal Court of Australia)

Decided: 22nd December 2010 by Tracey J.

Background

Ergin’s employment was terminated on 27 March 2009, and on that day he received a lump sum termination payment (after tax) of approximately $46,000. Ergin quickly spent this sum - $20,000 was used to repay a loan, $8000 was used to pay for a holiday in Bali, $12,000 was lost gambling, and $6000 was used for living expenses.

On 5 May 2009, Ergin applied for newstart allowance. On 24 June 2009, Centrelink accepted the claim but determined that Ergin was subject to an income maintenance period until 4 April 2010. Ergin appealed the decision to the SSAT (which affirmed the decision) and then applied to the AAT for a review of the decision.

On 25 September 2009, the AAT varied the decision. The AAT found that Ergin was in ‘severe financial hardship’ and concluded that $27,898 of the lump sum payment had been used for ‘unavoidable or reasonable expenditure’. The sum of $27,898 was made up of the $20,000 loan repayment, $560 for motor vehicle registration and $7388 for living expenses.

The AAT decided to exercise the discretion in s.1068-G7AM of the Social Security Act 1991 (the Act) by excluding from the income maintenance period that part of the termination payment that was expended on unavoidable or reasonable expenditure ($27,898). The AAT recalculated the income maintenance period, which resulted in the income maintenance period ending on 20 August 2009.

The Secretary appealed the decision to the Federal Court of Australia.

Issues

The issue for determination by the Federal Court was whether the AAT had erred in the exercise of the discretion in s.1068-G7AM of the Act.

Decision

The Federal Court found that the legislative purpose behind the ‘income maintenance period’ is clear – a person who receives a termination payment is expected to use that payment to cover his or her reasonable living expenses and is not entitled, immediately, to receive income support from the public purse.

The Court found that the occasion for the Secretary to give consideration to the exercise of the discretion in s.1068-G7AM will only arise if the Secretary is satisfied of three things:

1. The applicant is in severe financial hardship;

1. The applicant is suffering hardship ‘because’ he or she has incurred unavoidable or reasonable expenditure; and

2. Such expenditure has been incurred whilst the income maintenance period applies to the applicant.

The Court further found that, once the Secretary is satisfied that these preconditions have been met, the exercise of the discretion is unfettered (save by implications derived from the subject matter, scope and purpose of the legislation). The Court noted that there may be cases in which the Secretary is satisfied that each of the preconditions have been met and, nonetheless, determines not to waive any of the income maintenance period.

The Secretary contended before the Court that the discretion in s.1068-G7AM of the Act, to determine that the whole or any part of an ‘income maintenance period’ does not apply to a person, could only be exercised where the person is in ‘severe financial hardship’ which is solely due to ‘unavoidable or reasonable expenditure’ incurred during the ‘income maintenance period’. The Court did not agree with this submission, and considered that the question for determination before the discretion was enlivened was whether the person was in severe financial hardship because s/he had incurred ‘unavoidable or reasonable expenditure’ during the income maintenance period.

The Court held that s.1068-G7AM requires that there is an inquiry as to why an applicant is suffering severe financial hardship. Before the decision-maker can exercise the discretion, s/he must be satisfied that the cause of an applicant’s hardship was the incurring of ‘unavoidable or reasonable expenditure’ during the relevant period. The Court held that the AAT in the present case had failed to ask this question and, despite failing to find that Ergin’s hardship arose out of his incurring of unavoidable or reasonable expenditure, had assumed (in error) that it was in a position to exercise the discretion in s.1068-G7AM.

Although not necessary to determine the appeal, the Court commented on the ‘apportionment’ method the AAT had applied to determining what part of the income maintenance period should not be applied to Ergin. The Court commented that, depending on the circumstances, the Secretary may be satisfied that the cause of an applicant’s impecunious state was unavoidable or reasonable expenditure, even though some of the termination payment may have been spent on items which do not fall into this category. Without determining the issue, the Court remarked that it might be appropriate in such a case for the decision maker to adopt an ‘apportionment’ method to determine what part of an income maintenance period should not be applied to an applicant.

Formal decision

The Court allowed the appeal and remitted the matter to the AAT for rehearing according to law.

[S.O.]