Case: Secretary, Department of Social Security v Banks (1990) 20 ALD 19
Outcome: cited
It is useful to look at the policy considerations that informed the inclusion of the 50 percent rule in the SS Act. Provisions that were substantially the same as ss 17(3)(a) were introduced by the Social Security Amendment Act 1988 (Cth) (Act No 58 of 1988) . The Second Reading Speech on the Bill set out the reason for the rule (Australia, House of Representatives, Debates (13 April 1988) Vol HR160, p 1497 (Mrs Kelly, Minister for Defence Science and Personnel)): This Bill contains measures to improve the administration and integrity of the compensation recovery provisions. Where a person receives personal injury compensation that makes up for lost income the Social Security Act provides that pension or benefit may be reduced or recovered. This is one way in which social security expenditures are directed to those most in need. Settlements of lump sum compensation particularly in the workers compensation jurisdiction are being manipulated to obscure the economic loss component and to avoid recovery of social security payments. To prevent this abuse, the Minister announced on 8 February 1988 that, for future personal injury settlements made by agreement or by consent order, 50 per cent of lump sum compensation will be deemed to be in respect of economic loss. This Bill gives effect to that proposal. It is clear that the policy objective was to prevent manipulation to obscure the economic loss component in compensation payments and instead deem a flat 50 percent in all cases, with a reduced preclusion period to compensate for an RPCP component. In deciding Mr Clark's case, the AAT had regard to this policy, citing the discussion of the amendments and the background to them by von Doussa J in Secretary, Department of Social Security v Banks (1990) 20 ALD 19. 42 The construction supported by Mr Clark would itself result in an anomaly in relation to a young person whose loss of earning capacity accounted for a large part of his or her lump sum compensation payment. Assume a settlement for an LSP of $2,000,000, that there was an RPCP of $200,000, and that, although not specified, the sum of $2,000,000 included $1,400,000 for loss of earning capacity. According to the s 17(3) and s 17(4) formulae, the compensation part of the LSP would be only $900,000. On what basis in fairness would the injured young person have a claim to have the preclusion period (calculated by reference to that amount) begin back on the date of the injury, rather than the day after the end of the period covered by the periodical compensation payments of $200,000? The arbitrary figure of $900,000 would already be an understatement of the amount received for loss of earnings and of earning capacity, and to adopt the date of the injury as the start of the preclusion period would only increase the "over generous" treatment of the injured young person. In a perfect world, the preclusion period would run from the date of injury until the sum of $1,400,000 was exhausted, and in Mr Clark's case from 31 October 2000 until whatever amount was included in the sum of $280,000 for loss of earnings and of earning capacity was exhausted. But in an imperfect world in which settlement figures were being manipulated so as to understate the component for loss of earnings and of earning capacity, the legislature has solved the problem by the rough and ready 50 percent rule. 43 The provisions reflect a policy decision to treat that which remains after any repayment of any periodic compensation payments as relating, as to 50 percent, to loss of earnings or of earning capacity, in respect of the period after the expiry of the period covered by those payments. The provisions reflect an acceptance by the legislature that it is not practicable to achieve complete justice attuned to the circumstances of each individual case.