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Dunne outlines key child support law changes


Hon Peter Dunne
Minister of Revenue

EMBARGOED until 10.30am
Sunday 21 August 2011 Media Statement

Dunne outlines key child support law changes

The way child support is calculated will be changed to reflect the actual cost of raising children today, the degree of shared care between parents and the income of both parents, Revenue Minister Peter Dunne announced today.

Speaking at the UnitedFuture conference in Wellington, with Prime Minister John Key in attendance, Mr Dunne said these and other changes would be in legislation introduced to Parliament in the next few months.

The changes included:

• The number of nights a year used to determine shared care being reduced from 40 percent to 28 percent of nights;
• Having child support payments deducted directly from the paying parent’s pay-packet; and
• Changing the penalty rules for parents defaulting on their payments so they are not so punitive as to discourage parents from resuming payments.

Mr Dunne said many parents had a real sense that the current system was unfair.

“And they have been right. We have reviewed it, we have called for public submissions and we have listened to them, and I think the changes we are now proposing reflect the very strong feedback we received,” he said.

Mr Dunne said he did not expect the changes to please everyone.

“On something as contentious and as emotionally charged as child support, which only ever comes into people’s lives when their relationship has broken down, it is not about trying to please people. It is about creating a system that people feel is fundamentally fair, and crucially, that they feel is for the benefit of their children.

“If we get those two factors through to people, then we have succeeded, and I believe we are doing that here,” he said

“While many separated parents are able to make their own child support arrangements amicably, and this is what we want people to do, we need a State-run system as a backstop for those who cannot or will not come to their own agreements.

“At that point my concern and the Government’s concern is simple – we need to look after the more than 200,000 New Zealand children who rely on child support to feed them, clothe them and keep them well.

“That is our number one priority here,” Mr Dunne said.

He said the changes to the current child support scheme were long overdue and needed to provide a better balance to reflect the needs of children and their parents today.

Family life in New Zealand has changed a great deal since the scheme was introduced 18 years ago, Mr Dunne said.

“Both parents are far more likely to be working today, and separated fathers are generally more actively involved with their children than perhaps they were a generation ago, so what we are aiming for is a child support scheme that reflects those societal changes and better serves the needs of the children and parents involved.”

Mr Dunne said parents who believed the system was fundamentally fair would be more likely to comply with their obligations, but in the end, all parents were responsible for their children and society has a right to expect children to be supported by their parents.


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, we consider 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 that 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?

These include:

• 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 30 June 2011, the child support debt relating to child support that has been assessed and is unpaid is $605 million. In addition there are $1.666 billion worth of unpaid penalties that are outstanding, giving a combined total child support debt of $2.271 billion as at 30 June 2011.

Since the scheme’s introduction in 1992, Inland Revenue has collected over 89 percent of all child support payments assessed.

When will the changes to the child support scheme take effect?

The changes to the child support formula will apply from 1 April 2013. Changes relating to the payment, penalty and debt rules, and other changes to the scheme, are to be introduced from 1 April 2014. These timescales are necessary due to the scale of the changes involved and to allow for the required significant changes to Inland Revenue’s systems and processes that these will entail.

ends.

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