Overview

Introduced in 1992, the New Zealand child support scheme helps to provide financial support for over 210,000 children. Although many parents reach private agreement on their financial contributions and care arrangements, many cannot. The scheme, therefore, provides a back-up for those parents who cannot mutually agree on their financial contributions to support their children. It also applies when the parent who is the primary caregiver receives a state-provided benefit.

While the current child support scheme provides a relatively straightforward way of calculating child support liability for the majority of parents, there are concerns that the scheme is now out of date.

The amendments in the bill aim to reduce these and other concerns. The changes provide for a revised assessment calculation for child support payments that takes a wider range of individual circumstances and capacities to pay into account. The bill also includes changes to the rules relating to the payment of child support, the imposition of penalties, and the writing-off of penalties.

Broadly, the changes in the bill fall into three categories:

a new child support calculation formula;
secondary changes to update the child support scheme; and
amendments to the payment, penalty and debt rules for child support.

Revised child support formula

The new formula introduced in the bill will provide a more equitable system of financial support in a variety of circumstances. In particular, it will better reflect many of the social and legal changes that have occurred since the introduction of the current scheme, such as the greater emphasis placed on separated parents sharing the care of and financial responsibility for their children. This in turn will increase the incentives for parents to meet their child support obligations.

The new formula bases child support payments on:

a wider recognition of care of children, based, in the first instance, on there being care of at least 28 percent of nights in a year;
the income of both parents; and
estimated average expenditures for raising children.

Secondary changes to update the child support scheme

The bill also includes amendments which affect the operation of the child support formula and scheme more generally. The amendments:

allow Inland Revenue to rely on parenting agreements and orders when establishing care levels;
introduce a Commissioner’s discretion to make it easier for significant daytime care to be recognised for shared-care purposes in addition to nights;
more closely align the definition of “income” for child support purposes with the broader definition of “family scheme income” for Working for Families tax credit purposes;
introduce a Commissioner’s discretion to allow, in certain circumstances, certain payments to be recognised for child support payment purposes;
recognise re-establishment costs, following a separation, as an administrative review ground in certain circumstances; and
reduce the qualifying age of children subject to the child support scheme from under 19 years to under 18, unless they are 18 years and enrolled in full-time secondary education.

Changes to payment, penalties and write-off rules

The rules relating to payment, penalties and the write-off of child support debt play an important role in encouraging parents to meet their child support obligations on time. A system that is overly penal and inflexible can lead to very high debt levels that discourage parents from contacting Inland Revenue and arranging payment. The changes in the bill are aimed at encouraging parents to make timely payments of child support. To that end, the bill:

allows for compulsory deductions of child support from the employment income of paying parents;
introduces a new two-stage initial penalty, with the current full 10 percent only being charged if the debt remains unpaid after 7 days;
reduces the incremental monthly penalty from 2 percent to 1 percent after a year of non-compliance;
changes the circumstances in which penalties can be written off, including when a paying parent enters into an instalment arrangement or is in serious hardship, when debt recovery is a demonstrably inefficient use of Inland Revenue’s resources, or when only a low level of penalty debt is outstanding; and
allows Inland Revenue to write off assessed debt owed to the Crown, in relation to a receiving carer who is on a benefit, on serious hardship grounds.

Application dates

The amendments proposed in the bill will apply in two phases. The bill currently states that the new child support formula will apply for assessment periods from 1 April 2013, with all other changes to the child support scheme applying from 1 April 2014.

It should be noted that these implementation dates are currently under discussion with Ministers, and are due to be considered by Cabinet in late September. Further details will be submitted to the Committee once this consideration has taken place.

General theme of the submissions received

Sixty written submissions were received on a variety of issues relating to the bill. These ranged from holistic views on all of the changes taken together, to comments on specific proposed amendments.

There was no overarching theme that could be gleaned from the submissions received, with views instead ranging from the very supportive, to vociferous opposition. This is not surprising given the inherent potential for divergent views on the subject of child support reform.

Nearly half of the submissions either supported the proposed amendments in their entirety or alternatively, elements within the package. Within this group submissions said that either the reforms did not go far enough or that other specific changes should be made.

Those who generally did not support the changes in the bill provided a variety of reasons to support their views.

This report identifies and provides comment and recommendations on the following matters:

main policy issues raised in submissions (generally raised by a number of parties);
other policy issues raised in submissions;
further policy issues raised by the Social Services Committee during the hearing of oral evidence; and
further policy issues raised by officials.

In addition, other technical and remedial legislative issues raised in submissions and by officials are included for the Committee’s consideration.