20 October 2015
Bill on Child Support debt passes 2nd reading
Revenue Minister Todd McClay says measures aimed at encouraging liable parents to meet their child support obligations and reduce unreasonable levels of long-term child support debt are a step closer, following the second reading of an omnibus tax bill in Parliament today.
The Taxation (Annual Rates for 2015-16, Research and Development, and Remedial Matters) Bill includes proposals to deal with long-standing child support debt, announced in Budget 2015.
They include measures to encourage liable parents to re-engage with their child support obligations and to strengthen Inland Revenue’s ability to work with parents to regain control of their child support debts and enter into repayments.
“Child Support debt is currently $3.2 billion and rising, and only around $700 million is actual child support,” Mr McClay says.
“The rest is debt from penalties. This is the legacy of a penalty system that was overly punitive and which is now being changed.
“The Government wants child support debt paid so the money goes directly to the children who need it.
“To help make that happen, the measures in this bill will allow Inland Revenue the discretion to adopt a “fair and reasonable” test to consider applying penalty relief when it makes sense to do so.
“In many cases, the amount of penalties charged far outweighs the actual child support due,” says Mr McClay.
“The result is that some liable parents, particularly those on low incomes, feel the debt is sometimes so onerous it is impossible to repay - and so they ignore their child support obligations altogether.
“The Government will not allow that to continue.
“Liable parents must pay what they owe and meet their obligations to their children,” says Mr McClay.
“The measures proposed in this bill will help them to do that.”
The bill also proposes to extend the mandatory write-off of monthly incremental penalties for payment arrangements subject to 26-week review.
Currently, when a repayment arrangement for debt is negotiated and agreed between Inland Revenue and a liable parent, an automatic write-off of monthly incremental late payment penalties is considered at each 26-week period (or at the completion of an arrangement). Liable parents who remain fully compliant with their repayment arrangement receive an automatic write-off of monthly incremental late payment penalties.
Some parents who are making repayments but who have not explicitly agreed to the arrangement cannot receive the write-off.
The bill extends the mandatory write-off of incremental penalties to all liable parents under these arrangements.
Mr McClay says the proposed change will be fairer for around 27,000 liable parents with child support debts under such payment arrangements.
The proposed changes will come into force on 1 April 2016, following enactment of the Taxation (Annual Rates for 2015-16, Research and Development, and Remedial Matters) Bill.
Media contact: Lesley Hamilton 027 490 1345