Changes to child support system

United Future Party leader, Peter Dunne. Photo /Sarah Ivey

The Government intends using increased data matching abilities between departments and will introduce mandatory automatic payments as it seeks to crack down on what is now $2 billion in overdue child support payments.

However, Revenue Minister Peter Dunne also said a new formula will be developed to calculate support payments which may reduce the amount "non custodial" parents have to pay, and he indicated there could be concessions for those already owe large amounts.

Mr Dunne today released a discussion document, Supporting Children, outlining wide-ranging proposals to change the system.

Parents owe about $2 billion in unpaid child care payments and penalties. The scheme arranges financial support for the care of 210,000 children.

Mr Dunne said it needed to be fairer.

"The options in the discussion document also seek to get a balance between the welfare of the parent who receives child support and the obligations of the parent who pays it," he said.

"In keeping with the need for this balance, the document asks whether child support payments should be automatically deducted from employees' income, and whether the penalty and write-off rules for child support need to be amended to provide better and more effective incentives to pay."

Mr Dunne said collection of the outstanding amount, $1.4 billion of which was penalties and interest would be aided by greater cooperation between Government agencies.

Two months ago Mr Dunne announced plans to beef up the Inland Revenue Department's IT systems which would throw up the wider issue of the extent to which information gathered by the IRD and other departments was shared between them.

Yesterday, he said moves to increase collection of child support fitted in with the wider data sharing strategy.

"It's consistent with the general direction we're taking." It was also consistent with recently announced initiatives to recover outstanding student debt.

"There's a pattern there."

The discussion document also proposes changes the formula used to determine the amount of child support to be paid by a parent. Mr Dunne said it could be changed to take into account factors including the cost of raising children, the degree of shared care between parents who are living apart, and the income of both parents.

"An important part of getting the scheme right will be creating a situation where paying parents are more likely to comply with their obligations voluntarily.

"They are more likely to do that if they see their obligations as fair, transparent and reasonable - and not based upon some formula that seems to have no regard for their individual circumstances."

Mr Dunne said the scheme was introduced 18 years ago and was "outdated and sometimes unfair".

Families were often more complex; both parents were more likely to be working and often separated fathers had a greater role caring for children than in the past.

It was better if parents could reach their own arrangements but the scheme was a good backstop when that could not be worked out, Mr Dunne said.

The discussion document will be on Inland Revenue's website with submissions closing on October 29.

Case Study:

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.