Hon Peter Dunne, Minister of Revenue's discussion document on child care in New Zealand.
What are the main options being considered?
Options to change the current child support formula are considered, including;
– Comprehensively revising the formula so that it recognises lower levels of regular and shared care, the income of both parents and up-to-date information on expenditure for raising children; or
– Only revising the formula to incorporate some of these elements – for example, by providing more recognition for lower levels of regular and shared care; or
– Retaining the current formula.
Improving payment rates by introducing the compulsory deduction of child support payments from the salary and wages of employees in all cases.
Options to improve incentives to pay child support and reduce debt, mainly through the penalties system, include reducing penalty rates in later years and instead increasing non-financial enforcement measures.
Why are the changes being made?
Many parents believe the current child support formula does not take into account their circumstances, in particular:
– A parent may significantly share the care and expenditure associated with raising their children, but not have this recognised under the current child support formula because they do not have arrangements that qualify for ‘shared care’;
– The incomes of both parents are not taken into account – increased workforce participation by both parents means that the paying parent may not actually be the primary income earner;
– It does not accurately reflect the expenditures involved in raising children in New Zealand.
Custodial parents are concerned about non-payment of child support payments by the paying parent, or the instability of such payments. Some may also consider that current payments are insufficient to meet expenditures incurred in caring for their children.
Child support debt levels, in particular from penalties, have reached record levels. Although penalties play an important role in encouraging parents to meet their child support obligations, if they are excessive they can sometimes actually discourage payment.
What would the options mean?
Example 1 – how the option for a revised formula would deal with the increasing incidence of both parents taking an active involvement in their children’s lives.
Barry and Mary, who are separated, have two children together who live with Mary. Barry now has another child with a new partner and an income of $70,000. Mary is on a sole parent benefit. Barry cares for the two children from his relationship with Mary every alternate weekend and for half of the school holidays.
If Barry’s share of the care were taken into account under a revised formula, his child support liability would be reduced, even after taking into account his other dependant child. Being on a benefit, Mary would be unaffected by any change.
Example 2 – how the option for a revised formula would deal with the fact that the existing formula may not always accurately reflect the cost of raising children in varying family circumstances.
Frank and Sarah, who are separated, have two children who are now 14 and 16. Neither have any other dependants. Frank has an income of $80,000 and Sarah an income of $25,000. Frank does not share the care of his children although he does see them once a month and on special occasions.
Under a revised formula, the higher cost for teenagers would be taken into account and this would mean an increase in Frank’s child support liability.
Example 3 – how the option for a revised formula would deal with the fact that, increasingly, both parents now work and are able to financially contribute to raising their children.
Stuart and Anna, who do not live together, had a child. They do not have any other dependants. Stuart usually cares for the child for an evening every week. Stuart has an income of $40,000 and Anna an income of $70,000.
If Anna’s income was also taken into account under a revised formula, Stuart’s child support liability would be slightly reduced. This reflects the fact that Anna earns significantly more than Stuart, and is able to contribute financially.
Example 4 – how the various options in respect of child support payments, penalties and debts would assist in payments being received on time, and also reduce penalties and debt levels.
Peter, an employee with a large company, owes a significant amount of overdue child support and associated penalties. His debt is now so large that he has stopped making any child support payments, as to pay it all off would leave him in serious financial hardship. His children are not benefiting from any contributions from their father.
If Inland Revenue was given greater ability to negotiate the write-off of child support penalties (which are due to the Crown) in return for Peter paying all of his core child support payments, his debt could be cleared and his children would once again benefit from his contributions.
To ensure that Peter makes future payments on time – meaning that he does not get into debt again and his children do not go without any assistance – Peter, and all other employees, will now have child support automatically deducted from their wages.