The legal budget breakdown 2017
Where the chips fall in Australia's federal budget can tip the scales of justice, with big implications for lawyers, law students and the wider community alike.
On the eve of the federal government’s 2017-18 budget, Lawyers Weekly spoke to industry leaders and key stakeholders in the legal profession about the bottom-line issues weighing on their minds.
Last night’s budget reveal had implications for a number of groups across Australia’s legal sector. The budget deficit for next financial year sits at $29.4 billion.
Notably, the budget confirmed a $55.7 million spend over three years from 2017-18 for legal assistance services. The federal government will also put $10.7 million over four years toward the hiring of family support staff to service families in three federal jurisdictions.
The main budget concerns for legal stakeholders include the price tag on access to justice, adequate funding of Australia’s courts and investment in broader social justice initiatives.
Lawyers Weekly also consulted leading tax lawyers for their views on how the budget will hit businesses and the housing market, which has been the cause of much controversy in recent years.
For the nation’s law students, the escalating cost of higher education is a major concern. All too aware of the competitive jobs market and the affordability implications that a reduction of the HECS-HELP threshold may bring, the government’s budget plan for tertiary education could have an ongoing effect on law students many years after they have graduated.
Legal assistance and access to justice
Access to justice in Australia has reached a crisis point, according to the president of the Australian Bar Association (ABA) Will Alstergren QC. He described the nation’s justice system as having been set up to fail, with under-resourced institutions and legal aid services buckling under the pressure.
While a Productivity Commission report released in 2014 put the figure for an urgently needed injection of funds into the legal assistance sector at $200 million per year, Mr Alstergren suggested other groups such as the Law Council of Australia (LCA) consider that a gap closer to $300 million per year must be met.
The issue of a sustainable and well-functioning justice system is multifaceted, Mr Alstergren said, with successive reforms to state and Commonwealth law and order regimes failing to match funding for the courts with the same kind of investment enjoyed by law enforcement bodies.
Although the matter of access to justice does not attract votes in the same ways that responding to calls for harsher criminal penalties does, the barrister said democracy depends on it.
“There’s no point having more people arrested and more people charged with the crimes but not providing for more people to be represented,” Mr Alstergren said.
“It creates a crisis point for access to justice because not only are you getting litigants who for all intents and purposes are probably not being represented properly, but you are putting enormous strain upon the courts and of course upon other people involved, the other side of the argument and delays in court,” he said.
Mr Alstergren added that attorneys-general, both state and Commonwealth, recognised the need for a budget that more adequately considers the Australian justice system. He suggested that failure to understand this need across government portfolios is where our politicians continue to fall short.
“Everyone is scrambling of course, down to the dollar, at budget time – but to show real leadership and show proper value in our democracy we need to have more money for access to justice,” Mr Alstergren said.
Echoing the ABA’s calls for a more sustainable funding model for justice, representatives from the Law Council of Australia (LCA), Australian Women Lawyers (AWL) and the Law Society Northern Territory also shared their thoughts.
LCA president Fiona McLeod SC applauded last month’s news that the federal government had decided to reverse an earlier plan to cut federal contributions to Community Legal Centre (CLC) and Aboriginal and Torres Strait Islander Legal Services (ATSILS). In April Attorney-General George Brandis QC said the federal government would commit a further $55.7 million to CLCs and ATSILS over three years. Those figures were confirmed in the 2017-18 federal budget.
However, Ms McLeod went on to note that this result would not have materialised without the concerted efforts of groups like CLCs, Legal Aid and the LCA campaigning against the cuts.
Essential additional funds for legal aid commissions across the country continue to be a pressing issue, Ms McLeod added. She also pointed to the $200 million annual funding the Productivity Commission recommended in 2014. The federal government is yet to respond to this recommendation.
“The thing that is not yet committed to is significant [extra] funding towards legal aid, in particular legal aid commissions.
“As we currently know there is something like 6 per cent of Australians that fall below the poverty line but are unable to access legal services when they need them. That equates to about one and a half million Australians who are missing out on legal services that the government has an obligation to fund,” Ms McLeod said.
AWL president Ann-Maree David urged the federal government to lead the states in restoring equity to Australia’s justice system.
“AWL welcomes the reversal of the decision to cut funding to the community legal sector,” Ms David said.
“However, the Productivity Commission estimated that a further $200 million per year is needed from Commonwealth and state governments to properly fund access to justice through legal assistance services. The Australian government can show valuable leadership in this area,” she said.
Tass Liveris, president of the Law Society NT, echoed these sentiments and urged the government to restore its contribution to legal aid funding to 50 per cent, in line with the states and territories.
“Whereas the Commonwealth’s share of funding has reduced from $11.22 per capita in 1997 to around $7.84 today, it must be brought back into line with the states and territories so that the national legal aid system is sustainable,” he said.
“As long as the federal government’s contribution remains on a downwards trajectory, accessible and sustainable legal aid is out of reach.”
Mr Alstergren said that governments around the country have some “big moral judgments” to make.
“There is such a huge gap of justice. And it can’t just be a matter of lawyers filling the gap. It’s gone way beyond that now. The justice gap is so wide that lawyers cannot fill the gap.
“The difficulty is that the courts are not just the querulous litigants anymore. These are unrepresented litigants, people who’ve got no choice about appearing in court, and our justice system was never set up to deal with those litigants and the amount of those litigants in an unrepresented way,” he said.
Budget details released last night confirmed the government has set $55.7 million aside for legal assistance services over the next three years.
Of that figure, $39 million will go to Community Legal Centres (CLCs) and $16.7 million will go to Indigenous Legal Assistance Providers, the budget said. Budget papers suggest that these allocations show the government’s commitment to supporting victims of domestic violence and addressing the rate of Indigenous incarceration in Australia.
The leaders of the ABA, LCA and AWL highlighted the courts as another area deserving of immediate funding. They concurred that extra investment for court infrastructure and personnel is critical.
Ms David said that more money for Australia’s overburdened family courts is worth underscoring. It is a subject that judicial officers and practitioners have consistently spoken out about in the past year.
“Australia’s family courts deal with some of the most vulnerable members of our society,” Ms David said.
“Greater funding of these courts generally, and in legally aided matters in this jurisdiction specifically, is required to ensure quality representation and access to justice, and to reduce the number of self-represented litigants,” she said.
Ms McLeod agreed that it is the most vulnerable people in Australian society who have the most to lose when the courts are not properly resourced.
“We're talking about people suffering from disabilities, we're talking about the elderly, people who are facing domestic violence orders, people who can't get a final hearing in a family court to determine where their kids should live when there's allegations of violence or substance abuse,” Ms McLeod said.
“We’re talking about a portion of our population who are simply missing out, and these things should be funded on a recurrent basis, just as hospitals and roads are,” she said.
Ms McLeod went on to describe the situation facing the Federal Circuit Court and Family Court as a “massive underfunding”, adding that nothing good would come from another three years without enough money.
“The funding situation, together with the pressure on legal aid services, means that the number of cases, the number of unrepresented litigants and the pressure on court resources such as they exist are worsening all the time,” Ms McLeod said.
“We would like to see in tonight's budget an announcement that there are further resources allocated to the Family Court and the Federal Circuit Court,” she said.
The budget’s expense measures since the 2016-17 MYEFO reveal that $10.7 million in Commonwealth money has been allocated over four years to employ additional family consultants. These personnel, comprising social workers and psychologists, will be hired to work across the country in the Family Court of Australia, Federal Circuit Court of Australia and Family Court of Western Australia.
According to the budget, the family consultants will assist families by offering “child-focused interventions” in circumstances where there are allegations of violence against children or abuse within a family.
The government said the investment is a response to recommendations from the 2016 Family Law Council report, which identified the need to address the risk of harm to vulnerable parties.
Mr Brandis added to the budget news last night with a statement saying the Australian Law Reform Commission (ALRC) would review the family law system for the first time since the Family Law Act commenced in 1976.
The ALRC is expected to report back to the government by the end of 2018, the A-G said.
“The government will also soon release, for public consultation, amendments to the Family Law Act to ensure that victims of family violence are not put in a position where they are personally cross-examined by alleged perpetrators, or required themselves to cross-examine their alleged perpetrator,” Mr Brandis said.
“This follows close collaboration with stakeholders to respond to concerns that family violence victims may experience further trauma from being directly cross-examined,” he said.
Mr Brandis also said the government would kick in an $80 million funding boost for frontline family law services. The $80 million comprises all those previously mentioned figures plus $12.7 million to establish parent management hearings and $3.4 million to pilot six new specialist domestic violence units.
The A-G described the introduction of parent management hearings as “an innovative forum for resolving simpler family law disputes between self-represented litigants”. Parramatta in NSW has been chosen as the first location for the scheme.
“Unlike the traditional system where two opposing sides present their cases, those managing the hearings will run inquiries and gather evidence to inform their decisions,” Mr Brandis said.
Clint Harding, a tax partner at Arnold Bloch Leibler, spoke to Lawyers Weekly about the tax considerations in the federal budget. Multinational tax avoidance was a major focus in last year’s budget, but Mr Harding said it was unlikely to be as big an issue this year.
“I’m hoping that the government’s focus on multinational tax avoidance has run its course,” he said.
“We’ve had, over the last few years, a number of new measures that are designed to ensure that multinationals are paying their ‘fair share’ of tax.
“I think largely there’s not many noises coming from the regulator, i.e. the Commissioner of Taxation, that he really requires any additional powers to those that he’s now got in order to make that happen.”
Mr Harding said tax lawyers will be more interested to see what the Commissioner does over the next few years with the tools he already has, namely the Multinational Anti-Avoidance Law and the diverted profits tax.
The release of the budget papers last night confirmed Mr Harding's stance, with the government announcing only that it will negate the use of foreign trusts and partnerships in corporate structures to circumvent the Multinational Anti-Avoidance Law.
Housing affordability is another cause of debate in the taxation space, with theories on how to combat the issue ranging from restricting negative gearing to allowing first home buyers to access their superannuation.
However, King & Wood Mallesons tax partner Michael Clough, who won the Excellence Award at the recent Lawyers Weekly Partner of the Year Awards, said it would be difficult for the government to take action on housing affordability without exposing the broader investment market to significant risks.
“We are not expecting significant changes other than that already announced (the special tax-free savings account) and, possibly, a limit on the number of negatively geared properties,” he said.
Mr Harding added that the variation in housing affordability across the country makes it a difficult subject to tackle at a federal level.
“It is largely a NSW and Victoria issue, so there are a lot of other areas in Australia where there isn’t that pressure on housing affordability,” he said.
“So when they make changes at a federal level, that impacts across the board, so that’s a delicate balancing area. The main levers that you would expect them to pull are negative gearing and CGT discount, but there’s already been some commentary that they’re pretty reluctant to do that.”
Federal treasurer Scott Morrison announced last night that the government intends to make several changes to improve housing affordability. One of these is a commitment of $1 billion for a National Housing Infrastructure Facility to support development in undersupplied areas.
The government also proposed to allow first home buyers to build a deposit within their superannuation, with voluntary contributions of up to $15,000 a year and $30,000 in total attracting a concessional tax rate.
The budget laid out new restrictions on foreign investors, including an annual charge to foreign owners of underutilised properties, the removal of the CGT main residence exemption for foreign and temporary residents, an increase of the CGT withholding rate for foreign tax residents from 10 per cent to 12.5 per cent and a reduction of the CGT withholding threshold for foreign tax residents from $2 million to $750,000.
But no matter what position it takes on these and other tax issues, Mr Harding said the government has proven that it does not have the capacity to push through a major tax reform.
“The best example of that is the company tax rate cut,” he said.
“What we ended up with was a major piece of policy that was well intentioned but without the political ability to pass it through both houses or the Senate, as was the case, what you end up with is a watered-down version.
“And certainly in the case of the company tax rate I don’t think that’s a great thing, because we now have a dual-level company tax rate system, which from a pure complexity position is not ideal.
“[There is] a growing list of already announced but unenacted measures from previous budgets and other policy announcements that’s growing and growing, and I would personally rather see a lot of these measures, which have been well thought through and have merit in their own right, being given priority rather than the surprise release of a host of new measures.”
The primary concern for law students and universities is the proposed cuts to higher education funding. With the government looking to cut university funding by 7.5 per cent and lower the HECS repayment threshold to $42,000 a year, law degrees could become a much greater burden to students.
The government also proposed a 2.5 per cent efficiency dividend in 2018 and 2019, further reducing its funding to universities.
Minister for Education and Training Simon Birmingham stated that the government wants to increase the focus on vocational and technical education, rather than university education.
“For too long, too many people have seen that the only option for a post-school education is university,” he said in a press release.
“While university is a critical element of our education system, a vocational and technical education should be as prized as a university degree.”
Rohan Barmanray, the president of the Sydney University Law Society (SULS), told Lawyers Weekly that although the changes are not as dramatic as those proposed by the Abbott government, they will still have a significant financial impact on law students.
“SULS is concerned about the proposed cuts to higher education funding,” Mr Barmanray said.
“A six-year law degree is forecast to rise by $3,900. We hope that any changes are offset by increased funding for students from low socio-economic or disadvantaged backgrounds.
“Although, SULS is pleased to hear that new postgraduate scholarships will be introduced as well as increased funding for regional study hubs.”
Western Sydney Law Students’ Association (WSLSA) president Tom Synnott agreed, saying that the association is wary of measures that will increase the cost of higher education.
“While we acknowledge the pressure placed on the national budget by rising education costs, we oppose any cuts that will adversely impact teaching levels and/or unreasonably increase the burden on students,” Mr Synnott said.
He added that the cuts would be particularly damaging to students from disadvantaged backgrounds, including those who are the first in their family to attend university.
“We note that a law degree is already within one of the highest course fee bands,” Mr Synnott said.
“We also note that Western Sydney University has a high proportion of ‘first in family’ university students. Many of our students come from lower socio-economic backgrounds than your ‘stereotypical’ law student.
“We are proud of the diversity of the student body and oppose any measures that would limit the ability of aspiring young lawyers to pursue a career in law.”
The proposed reduction of the HECS repayment threshold from $55,874 to $42,000 would be a significant boost for the government, introducing nearly 200,000 more graduates into the repayment system, according to The Sydney Morning Herald.
But with law degrees ranking among the most expensive qualifications, as well as the much-discussed competitiveness of the legal jobs market, a lower threshold could leave many students struggling to repay their debt.
“Our students are increasingly proving the strength of a law degree at Western Sydney University by obtaining employment at the highest levels of the legal industry,” Mr Synnott said.
“However, many are not exposed to the same high-level, high-paying opportunities available to others (at least not immediately upon graduation). Therefore, we hold concerns that lowering the repayment threshold may disproportionally affect our students.”