Hon Peter Dunne
Minister of Revenue
Dunne: Child Support bill big step to fairer scheme
The Child Support Amendment Bill now before Parliament is the culmination of “the most major review of the Child Support scheme since its inception”, Revenue Minister Peter Dunne told Parliament at the Bill’s first reading today.
He said issues of fairness had come to dog the scheme, with around 40 percent of the correspondence he received as Minister relating to child support issues.
“The scheme is long overdue for updating and today it has come a big step closer to becoming fairer for all concerned,” Mr Dunne said.
The bill proposes changes which fall into three categories:
- a new child support calculation formula that reflects changed social and work realities faced by New Zealand families today
- secondary changes to update the child support scheme more generally, and
- amendments to the payment, penalty, and debt rules for child support.
The main change is to the formula used to calculate child support. Mr Dunne said that changing the formula was necessary as it had failed to keep up with changes in society and the reality of life for many families, such as shared parenting and both parents going out to work.
He said the scheme needs to provide a better balance to reflect the needs of children and parents today.
“For instance, there is now a greater expectation that both parents should share responsibility for the financial support and emotional well-being of their children. The child support system should reflect this expectation, whilst also providing better incentives to pay,” Mr Dunne said.
Along with calculating child support more fairly, it is also important to help ensure the stability of child support payments. The Child Support scheme has reached record levels of debt with a large part of the debt made up of penalties. Mr Dunne said that when penalties are seen as insurmountable, they effectively became an obstacle to paying parents meeting their responsibilities.
“For the sake of the children and parents involved, we need a scheme which is both fair and accurate and which helps ensure payments are made on time.
“If paying parents see that we have taken more account of their situations and are applying a more transparent formula then they will see the scheme as fairer and be more likely to comply,” he said.
Mark Stewart | Press Secretary | Office of Hon Peter Dunne
Cell +64 21 243 6985
Questions and Answers
Why is the child support scheme being changed?
The current system was introduced in 1992. Some of the assumptions that underlie the current system, the formula, and the penalties and write-off rules that underpin it are out of date. There is now a greater public expectation that both parents should share responsibility for the financial support and emotional wellbeing of their children. The child support system should reflect this expectation, while also providing effective incentives for parents to pay.
How many children are in the child support scheme?
The Government child support scheme helps provide financial support to approximately 210,000 children.
What are the changes to the child support formula being proposed?
After receiving over 2,000 submissions during the 2010 public consultation, it was considered that the child support formula should:
- be based on more up-to-date estimated expenditures for raising a child;
- recognise shared care of a child at lower levels than the current 40 percent of nights test – instead, shared care will be recognised using a tiered system starting at 28 percent of nights; and
- take the income of both parents into account, rather than just the paying parent’s income.
Why are more up-to-date estimated expenditures being used?
Child support payments should reflect a fair estimate of what it costs to raise a child and what a parent would normally be contributing towards meeting that expenditure if both parents were living together.
Why are greater degrees of shared care to be taken into account?
There are concerns that the current shared care rules do not recognise the contributions of some paying parents who have regular and substantial care of their children, but do not satisfy the 40 percent of nights test.
Why are the incomes of both parents taken into account?
The current scheme is based on the assumption that the parent who is the primary caregiver will perform this task full-time, and will not be engaged in paid employment. This assumption is less relevant given that women’s workforce participation has risen in recent years. Taking both incomes into account for child support purposes better reflects the financial responsibilities of both parents.
What are the other main changes being made to the child support scheme?
- changing the definition of “income” for child support purposes so that it excludes tax losses and includes certain trust income;
- making it compulsory for child support payments to be automatically deducted from salary and wages;
- changing the late payment penalty rates for child support; and
- relaxing the circumstances in which penalties can be written off (for example, when a payment arrangement is entered into).
Why is the definition of “income” for child support being changed?
To improve the child support scheme’s integrity and fairness, and to ensure that the definition used better reflects the real income that parents actually have available to them.
Why are child support payments to be compulsorily deducted from salary and wages?
Paying parents will have their payments automatically deducted from their salary to ensure that as many child support payments as possible are made, and made on time.
Is it fair that all salary and wage earners must have compulsory automatic deductions?
It is recognised that some paying parents will have concerns with this, for example about their employers knowing that they are making child support contributions, however the public interest in operating an effective child support scheme should outweigh these individual concerns.
Why are some late penalty rates being reduced?
Although penalties play an important role in encouraging parents to meet their child support obligations, if they are excessive they can discourage the payment of child support. This is to the detriment of the children concerned. Reducing penalty rates in certain circumstances, combined with other effective enforcement measures (such as more intensive case management), will help parents resume making child support payments.
Why are changes being made to the penalty write-off rules?
Writing off penalties in certain circumstances – for example, when entering into a payment arrangement with a paying parent – may help facilitate the regular payment of child support. Alternatively, it may be justifiable on certain hardship grounds.
Is reducing child support payments for some receiving parents fair?
The Government’s concern is about increasing the fairness of the child support system. Although it is recognised that, for some parents, changes to the formula will result in lower amounts being received, any move to a revised formula would be made with the aim of reducing current inequities to ensure the system is more balanced, that paying parents honour their responsibilities to their children and that it is perceived to be fairer overall. It should also be noted that the other (non-formula) changes to the child support scheme are designed to improve child support payment rates, meaning that more receiving parents will receive child support payments than is currently the case.
What are the current child support debt figures?
As at 31 March 2012, child support debt assessed and unpaid was $637 million. In addition there are $1,668 million worth of unpaid penalties, giving a combined total child support debt of $2,305 million as at 31 March 2012.
Since the scheme’s introduction in 1992, Inland Revenue has collected over 89.2 percent of all child support payments assessed.