Keith Rankin's Thursday Column
Accounting for Child Support
1 June 2000
On Tuesday, the television programme Money Doctor featured a solo father wanting to save for a house for himself and his young daughter. He earned over $40,000 per year while also receiving $100 Child Support per week from his child's mother. Trouble was, he was spending $600 per month on his social life. Directly or indirectly, the money from his ex-partner funded his lifestyle.
If the mother was watching the programme, she would have had every right to be dismayed. Indeed with the father committed to a fulltime job and a full-on social life, I could only presume that neither parent was looking after the daughter most of the time.
The Child Support scheme is actually designed so that "child support" payments provide negligible support for children, the nominal beneficiaries. In most cases no money paid by the second parent even gets near the child who is the nominal beneficiary. Inland Revenue collects it in lieu of benefits that are paid regardless.
But it's the payments that do reach the care-giving parent that I'm most interested in here. In these cases, Child Support is an adult-to-adult remittance scheme.
Most parents pay for the essential needs of their children as their number one spending priority. I have no reason to doubt this in the case of the father in the television programme. Core parental income is used to provide children's needs. Marginal parental income is used to satisfy parents' wants.
Child Support receipts are a marginal source of parental income. The receiving parent has no control over the amount received, or when it is received. Changes in the income or family status of the paying parent automatically lead to a reassessment. These payments are just too unreliable to be budgeted for the needs of children. In practice they enable parents and step-parents to raise their own living standards. No doubt many use Child Support money, indirectly, to pay the lawyers who helped them to gain custody of their children.
Child Support payments are just one example of remittances; a growing but under-researched part of the economic lives of many New Zealand citizens and residents. Child Support is a transfer from one adult to another, enforced by the Child Support Agency of the Inland Revenue Department.
In practice, most remittances paid to family or ex-family members are a compulsory obligation. In addition to Child Support, remittance payments include urban Maori sending money to their whanau, international and internal migrants sending money 'home', the payment of church tithes, or parents sending money to adult children embarking on their OE. Some whole countries survive on remittance income.
Remittances will be - when acknowledged - a major challenge to New Zealand's income support system. Like debts, they are ignored when assessing means-tested benefits. (Except that Child Support remittances are accounted for in calculating Family Plus tax credits.)
Within New Zealand, households receiving remittances (classed as gifts) qualify for income-tested benefits/supplements that they would not get were the remittances classed as income. On the other hand, those who pay remittances get less income support - in some cases much less support - than is appropriate for their often very low levels of disposable income. Remittances are generally treated, in law, as voluntary payments.
I cannot help speculating on the circumstances of the mother paying $100 per week to the father featured on Money Doctor. She would have been earning about $42,000 per annum (or over $50,000 if she was providing for a new family). Maybe she was a deadbeat mum, driving a BMW and living the high life on undeclared earnings? Somehow I doubt it. Not too many absent parents fit that stereotype.
Maybe she lost custody of her daughter because she admitted to assaulting her ex after he spent much of the household budget on his socialising habit. Under our present conventions for determining the custody of children, an act of domestic violence is more likely to disqualify a parent than is a history of improvidence.
Maybe she left the father for a new partner, and is now providing for her new partner and their children as well as paying a remittance of $100 per week to her first partner. That's tough. Even worse she may be paying Auckland rents.
Whatever, it is likely that the loss of $100 of disposable income every week will have significantly diminished her standard of living. At the very least, it will have impacted on her ability to be a parent to her daughter.
Not all remittances are paid from the relatively rich to the relatively poor. Many remittances - like most interest payments - are made by people of modest means to people who do not respect the sacrifices made by the payers. We urgently need to learn about the net impact on poverty in New Zealand (and on child poverty in particular) of remittance obligations in general, and of the Child Support scheme in particular.
The reform of Child Support needs to be extricated from the "too hard" basket. Instead of being designed as a punishment for deadbeats, the reform needs to attend to the best interests of children. And it must acknowledge that modern households have diverging financial obligations that cannot accommodate 'one size fits all' levies.
Child Support could be reconceived as a fund to which both parents have controlled access to. A Child Support system that places obligations on and gives opportunities to both parents has to be better for children than a system that pays one parent to party at the expense of the other.
© 2000 Keith Rankin
Thursday Column Archive (2000): http://pl.net/~keithr/thursday2000.html