Offsetting arrangements have been supported by successive governments for over 40 years.
On 7 December 1972, the Repatriation Act 1920 (RA) was extended to peacetime military service. In doing so, certain clients were, for the first time, able to receive benefits under two compensation schemes for the same injury or illness (The RA and the Compensation (Commonwealth Government Employees) Act 1971).
In 1975, an inquiry was conducted by the Hon. Justice Toose into dual entitlement. It was recognised that the two schemes had different levels and forms of benefit, entry criteria were different and the proof required was different. In the circumstances where the same source, that is the Commonwealth of Australia, provided both benefits this situation ought not to apply.
On 22 May 1986, the Veterans’ Entitlements Act 1986 (VEA) commenced, largely superseding the RA.
On 1 December 1988, the Commonwealth Employees' Rehabilitation and Compensation Act 1988 repealed and substituted the 1971 Act. This Act was renamed in 1992 as the Safety, Rehabilitation and Compensation Act 1988 (SRCA), made some significant changes to the previous compensation scheme
In 1994, the VEA was amended to enable compensation offsetting related to war-caused conditions following legislative amendments to allow non warlike and war like coverage under the SRCA. That is to say, s30A-30P of the VEA were introduced into the VEA by virtue of the Veterans’ Affairs Legislation Amendment Act 1994. These provisions commenced operation on 21 June 1994.
Prior to this date offsetting only occurred on disability pensions paid under Part IV VEA, ie Defence-caused conditions. Payments received prior to this date are not offset against disability pension paid in respect of war-caused conditions.
Also in 1994, the Military Compensation Act 1994 was introduced. It brought into existence dual eligibility between the VEA and SRCA for members on operation, peacekeeping or hazardous service, adding another layer of complexity to military compensation. It did however, have the effect of removing dual eligibility under the VEA and SRCA for those with peacetime service (from 6 April).
Following a budget initiative in 1997, fortnightly equivalents of lump sum payments have been indexed (increased) by CPI since 24 September 1998.
In 2003, a Senate Committee conducted an Inquiry into the offsetting provisions. The Inquiry, chaired by Senator Sandy MacDonald investigated dissatisfaction with offsetting arrangements, particularly cases where the cumulative total of the offsetting exceeded the initial lump sum amount, or where the client was not fully informed of the implications of accepting a lump sum. The Senate Committee considered alternatives to offsetting such as a loan model, removing offsetting and ending dual eligibility. These were considered impractical and the final recommendations were that DVA staff be better trained in administering and explaining offsetting and more information be provided prior to people choosing to accept a lump sum.
2004 brought the introduction of the modern compensation Act, the Military Rehabilitation and Compensation Act 2004 (MRCA). The MRCA is expressly based on a ‘whole-of-person’ impairment methodology. The MRCA was developed with transitional provisions, which look at the effects of VEA and SRCA injuries on MRCA compensation.
Furthermore, section 25A was inserted into the VEA by Item 135 of Schedule 1 to the Military Rehabilitation and Compensation (Consequential and Transitional Provisions) Act 2004. Prior to the introduction of section 25A, if compensation was paid under the SRCA for a condition which was not accepted under the VEA, then the offsetting provisions did not apply (from 1 July).
During the development work on the MRCA, it became apparent that the existing legislation delivered an unintended outcome in the VEA offsetting provisions for those veterans who receive disability pensions or allowances at the above general rate, in that the veteran could receive additional compensation under the SRCA by way of a lump sum payment for permanent impairment provided the disability was not an accepted disability under the VEA.
In effect, this resulted in the veteran being compensated at more than the maximum level. This was an unintended consequence of the operation of these overlapping Acts. The introduction of section 25A corrected this anomaly.
2009 was important for the decisions in the various cases stemming from the original Smith v The Commonwealth of Australia [2009] FCA 684 decision. The interpretation of section 30C of the VEA in respect of ‘incapacity from that injury’ was the main subject before the court in this case and its subsequent appeals.
The court found in the favour of Mr Smith and contrary to DVA policy. The court decided that the preferred interpretation of the offsetting provisions in the VEA should be to look at commonality of injury and not incapacity, with reference to the term ‘incapacity from that injury’. The court decided it not appropriate to offset Mr Smith’s disability pension under the VEA because the condition for which this was granted was different to the condition being compensated at common law.
The Commonwealth appealed the decision and on 16 December 2009, the Full Federal Court dismissed the appeal. Chief Justice Black affirmed the decision of the Federal Court, finding that the injury for which both pension and compensation are paid need to be the same.
Counsel’s view was sought about the prospects of appeal to the High Court. Counsel’s advice was that the case was not suitable for consideration by the High Court.
The government was of the view that the Full Federal Court decision highlighted the need to clarify the legislative provisions of offsetting and the associated VEA amendments were announced in the 2011-12 Budget. These amendments in the Veterans’ Entitlements Amendment Act 2011, enacted on 16 September 2011, ensured that the VEA was clear in its intent: that offsetting is based upon a common incapacity. That is to say, based upon the commonality of the effects of injuries and diseases.
The Review of the Military Compensation Arrangements, released in June 2011 considered offsetting arrangements between the VEA & SRCA noting that it had ‘been the subject of widespread criticism and concern in the veteran community for some years’. This Review comprised representatives of the departments of Veterans’ Affairs, Defence, Employment, Finance and Treasury, as well as independent expert Peter Sutherland. The Prime Minister’s Advisory Council also assisted, and representatives from Legacy, the RSL, Vietnam Veterans Federation of Australia and the Australian Peacekeeper and Peacemaker Veterans’ Association were also consulted.
While submissions were critical of the methodology to determine the offsetting amounts, the Review did not take issue with the principle underlying offsetting – that an individual is only compensated once for incapacity resulting from accepted conditions. Furthermore, it agreed that total compensation under all three Acts should not exceed the maximum permanent impairment compensation intended to be paid by the Commonwealth for a person’s defence service under the MRCA.
As a result of the legal advice received on the Smith decision and its potential future impact, Schedule 2 of the Veterans’ Entitlements Amendment Act 2011 was developed to amend the offsetting provisions and ensure that the wording of the Act contained no ambiguity that compensation offsetting was undertaken based on common incapacity, not common injury.
The legislative amendments received Royal Assent on 15 September 2011.
These amendments did not change offsetting practice, but sought to clarify and affirm the longstanding practice and policy, as applied since 1973.
In 2012, a new Compensation Offsetting System (COS) was rolled out, which aimed to provide an approved, centralised system for processing compensation offsetting. Unfortunately, due to a number of factors, the COS was not fully adopted across the offsetting processing areas and often cases are still processed manually.
MRCA transitional methodology was amended from 1 July 2013 flowing from a 2012 Budget decision on a MRCA Review recommendation. The amendment provided an improved formula for calculating MRCA PI entitlement in such cases.
In August 2015 the Repatriation Commission considered a further submission on offsetting which asked the Commission to endorse the current regime of not delineating between economic and non-economic loss for the purposes of compensation offsetting under the VEA. After considering this submission, the Commission agreed to affirm the current legislative and policy position.