Child Support Amendment Bill

I move, That the Child Support Amendment Bill be now read a first time. I nominate the Social Services and Community Committee to consider the bill. At the appropriate time I intend to move that the bill be reported to the House by 11 August 2020.

The Government wants to ensure that all New Zealanders have an equal opportunity to participate in and contribute to society. The child support scheme is intended as a back up when parents do not live together and are struggling to come to an arrangement. Ensuring that children continue to be financially supported by their parents, even when they don’t live together, is critical to the outcome for children and their families. The scheme currently helps provide financial support to around about 185,000 New Zealand children. We have an obligation to those children to ensure that the child support system works as smoothly and efficiently as possible. The fundamentals of the scheme are sound, but how the rules are administered can be improved. That is why I’m proud to introduce this bill.

The bill will improve the administration of the scheme by introducing fairer and more efficient and effective penalty rules, compulsory deductions of child support from source deduction payments made by an employer for newly liable parents, a fairer definition of “income” used for child support purposes, and a four-year time bar on the reassessment of child support. The bill also includes a number of technical amendments to help Inland Revenue work better with customers, including those in unusual circumstances. Some of the proposals are aimed at helping the liable parent get it right from the start, and others are aimed at removing uncertainty for parents. All of the proposals will form part of the Government’s simplification and modernisation of the tax and transfer system.

Inland Revenue has been progressively moving its various functions over from an old technology platform to a new one, and New Zealanders are enjoying the benefits of greater efficiency and simplicity. Next year, it will be the turn of child support, and that presents an opportunity to make legislative changes which will further improve the child support scheme.

For the benefit of members, I’ll give you a quick run-through of the main features of this bill. Penalty rules: the child support scheme imposes penalties on parents who fail to meet their obligations—this is important. Avoiding the penalty by meeting your child support obligations is an incentive to pay, so the penalty must be substantial enough. There is a place for penalties but we need to impose them more astutely. At the moment, if a parent fails to pay their child support on time, an initial late-payment penalty is imposed. This is applied in two stages: immediately after the default at a rate of 2 percent, and then a follow-up penalty at 8 percent seven days later. There are further penalties known as incremental penalties, which are also added each month after the payment remains outstanding. The proposal is to shift that second stage of the initial late-payment period to 28 days after the due date rather than the current seven days after the due date. The intention is that once the liable parent has had the initial penalty, Inland Revenue would have time to work with that parent to get them back on track, with the objective of preventing the second-stage penalty being imposed. It proposes a grace period before penalties are changed for newly liable parents.

Compulsory deductions—members who have been watching the Government’s Business Transformation will be aware that an earlier phase of the transformation introduced pay-day reporting. Pay-day reporting makes a more efficient and accurate PAYE deduction system, and it has been made possible by technological advances. This has allowed me to introduce provisions for compulsory deductions of child support by a newly liable parent’s employer. This change will improve compliance and help liable parents get it right from the start.

The definition of “income”: another way we can help make the scheme fairer is by looking at the definition of “income”. When calculating how much child support is payable, the income of both parents is used, but the income from interest or dividends is not currently included in the calculations, simply because the amount of that income earned in a year is not known until the end of the tax year. That has changed now because of the Business Transformation, which I mentioned earlier, and now Inland Revenue has better access to more frequent information. We therefore propose widening the definition of “income” to include interest and dividends. That makes the scheme fairer as child support payments can reflect liable parents’ true capacity to provide support.

The bill also addresses another issue of the “income” definition. Currently, it is possible for a parent’s income to be lowered because of tax losses in the previous year, which reduces their current child support liability. One of the objectives of the child support system is that the level of child support payable is determined by the parent’s relative capacity to provide support. Using losses to offset your income and reduce your child support liability is not fair, and so this bill proposes that the system operates using a net income rather than a taxable income basis for calculations.

The time bar: moving to another matter, at the moment no time bar exists for the child support scheme. That means that when reassessing a parent’s income in order to calculate child support, Inland Revenue is obliged to go back all the way to the inception of this scheme in 1992; this is clearly inefficient and a waste of time and money, not to mention a source of uncertainty for the parents. The bill therefore proposes introducing a time bar for income reassessments, as currently exists for income tax. A four-year time bar would improve efficiency in administration and provide certainty for parents.

Technical proposals: the bill also includes a number of technical amendments which will also contribute to a better, more efficient child support scheme. These include proposals such as improvements to the estimation provisions to make them fairer. Normally, child support is assessed on a person’s income from the previous year; however, people whose income has decreased by 15 percent or more can provide Inland Revenue with an estimate of their current year income to base their child support assessments on. If a person makes an assessment more than once a year, they could be assessed on income which is actually greater than what they earned in some periods, leading, of course, to an unfair outcome. So the bill proposes an amendment to the end-of-year square-up provisions to try and arrive at a more accurate reconciliation for such parents.

There are also changes to the way child support is calculated in certain situations. For some households in the child support scheme there is a shared care arrangement, where one or more children live with one parent and one or more lives with the other parent. At present, there are special rules to try and allocate costs appropriately to each child according to their different ages; unfortunately, what this can sometimes result in is the household with the younger children being allocated some of the expenditure intended for the older child. So we are proposing to change these rules to ensure child support is allocated fairly to each child.

In conclusion, these are the main features of this bill. These changes will mean a better child support scheme, which means better outcomes for children and young people. If enacted, the proposals in this bill will form the final major part of the Government’s transformation of Inland Revenue and the objective of the bill to support the Government’s aspirations for the tax system, for the economy, and for our society. It is therefore with considerable pride that I recommend this bill to the House for its consideration. Thank you.

It’s a pleasure to be talking on the Child Support Amendment Bill, first reading. I just wish the Minister of Revenue had talked with a little bit more enthusiasm doing that speech. It was informative, I must admit, but he just lacked a certain enthusiasm for this matter. I note that he said how he is pleased to be doing this—and he capped that off at the end of his speech as well. I am just so pleased he did too, because this bill came out as a result of a review undertaken by the previous Government in 2017. The big question I’ve got for him is: if this bill is so important—and I think it is; I think it is—why has it taken it so long to come to the House? Why are we just in the closing stages of Parliament—child support, something that is vital to families in New Zealand—and only at this stage does the Minister bring it forward to the House? I think there is a question to be asked there.

The other thing I am disappointed about is I’ve heard that he is going to refer it to the Social Services and Community Committee. I am disappointed; the Finance and Expenditure Committee was looking forward to reviewing this bill. In fact, it has a rapacious appetite to be able to look at tax matters and assess them in the proper light of day, and I think it’s unfortunate that the Minister has chosen to send it off to another committee, because tax matters should go to the Finance and Expenditure Committee.

Anyway, I thought the Minister did a pretty good coverage about the key issues. This bill doesn’t include radical policy changes to the whole issue of child support but it does have some very important elements. I think the first one is around the definition of “income”. We have many situations where one parent is not paying their full due and, consequently, our children in those broken homes are in a situation where they’re not getting the full financial benefit, and I think it’s absolutely essential that the definition of “income” is appropriate and tidied up. As the Minister noted, what this piece of legislation does is clarify it—it brings in things like dividends and other income to make sure that when one partner is declaring their income and they have to come to an agreement on how much they’re going to support the child, then it’s important that the full range of income is taken into account, and any tax losses or those types of things. I think having absolute clarity around that is very, very important. I’m sure all of us here, all of us members who hold an electorate seat—and I must admit, most of those are held on the National side, so we see this more readily—have seen situations where one parent is not meeting their requirements.

I think the other one is this issue around penalties. I think this is where the bill strikes a good balance, because what happens at the moment is, basically, there’s a $5 surcharge or 2 percent levy. What it does is it gets rid of the $5 penalty and just says that if you’re late, you initially pay a 2 percent penalty on the unpaid amount of child support, and that is appropriate. But where this is being pragmatic in the bill’s approach is that it said under the previous stage, you had eight days to make a correction to get it right. In many cases, people are inadvertent about the way that they’re doing that; not all parents don’t fulfil the obligations. But what this 28-day clause does is it gives the time for both the parent and the IRD to recognise that there is an issue and to make good that issue before penalties start to apply, and I think that is a very good thing.

There’s also a built-in proposition around a grace period when parents initially have to start to pay their child support. There’s been a lengthened time frame now to 60 days, basically two months, and, again, I think that’s pragmatic. That recognises that when people are just in this situation where they’re just starting to pay child support, they’ve been through all the trauma of that, all the heartache that goes with marriage break-ups or partner break-ups. This is, again, a pragmatic approach to that and one that, I think, is appropriate in the circumstances.

The other one is around the reassessments, and the Minister spoke about it. I thought the previous rule was actually you could only go back five years—and the Minister talked about going back into the 1990s for one particular case. What this bill makes provision for is that there is a four-year period for going back retrospectively to make sure that if there are inappropriate or incorrectly calculated returns for child support, they can be retrospectively looked back over the past four years. You’ve got four years to make that application, but there are five exclusions, and that is the exceptions apply where information provided by a person in the child support assessment is fraudulent. The second one is where a person who’s providing the child support has died. The third one is where a person should never have been made liable; there’s been an incorrect allocation. Fourthly, amendment is required for the purpose of avoiding double liability, and sometimes that can happen. And, finally, a court order is received—that applies to an earlier period. I think, again, those exceptions create enough tolerance to reflect life—its circumstances—but also give adequate time for reassessments to take place.

The final thing I think I just want to pick up on is this issue about recognising at what point child support is required and when it’s not, and the bill makes the definition clearer. So a child cannot be deemed to be financially independent if they are under the age of 16. And the second thing is: if a child is still in school when they turn 18, there is a requirement to pay child support out to the end of that calendar year in which they have their 18th birthday. I think that’ll be a bit of a discussion for the select committee, but I think this is a good bill to try to tidy up some of these very important matters. I know that many of the members of the House will face inquiries and concerns from constituents who have come in seeking clarification around that. And, on that basis, I think we will be supporting the bill. I’m just disappointed that we won’t have the opportunity in the Finance and Expenditure Committee to be reviewing it in particular.

Thank you, Madam Speaker. The previous speaker, Andrew Bayly, was lambasting the Minister for his lack of enthusiasm, and he may well do; he’s a man with the enthusiasm of a Jack Russell on methamphetamine often as he stands in this House, but it was a shame he didn’t maintain that enthusiasm. He then turned to the perennial outrage of a Dr Nick Smith. So he does cover a range. But, Madam Speaker, perhaps back to the bill at this stage.

This, again, is a very sensible piece of legislation, and as I look through it, some of the main parts that will help—I think anyone who’s ever been involved with, or had to assist, or had a family member who’s been paying child support knows that what starts out as quite a simple process can very quickly, often through failure or through fault not necessarily of their own—all of a sudden, people get into arrears, and once people are in arrears, they get in real trouble. What I see here is something that will assist that—particularly those eight days. Once you’re in arrears, normally the process would start after eight days. One would suggest that the very facts, the very situation, that put one into arrears are very hard to rectify in that short period, whereas going to 28 days certainly does make more sense. Certainly it gives the IRD time to maybe just find the person and alert them—alert them to what will happen if they don’t resume payments.

The second part around Inland Revenue and the automatic payments, which currently exist—and, of course, with improved IT systems with Inland Revenue—is that becomes a much more streamlined system. However, what I do think is a good idea is that there will be those who want to have an alternative payment system for whatever reason, often privacy reasons—they may not want their employer to know they are in that situation. So, provided they can come to an arrangement with the IRD, they will be in a position to actually make such an arrangement—again, a very sensible provision. I do commend this bill to the House.

I’ve got a fairly diverse range of things to speak on this afternoon, from organics to this complicated bill, the Child Support Amendment Bill.

This, in my experience of it, is a minefield, and it’s a minefield that Parliament has to be involved in. It certainly is a very contentious area in our society and has caused, I suppose, in my time in this business, a lot of inquiries to my office and a lot of complaints to my office. It is—as I said—a very difficult area for all of those people involved in it. And when you think that there are 164,000 parents liable for this—that’s today; there’s probably more tomorrow, liable to pay child support, and that involves 135,000 carers of whichever ilk they might be, and about 180,000 children—it’s pretty amazing. It is, as I said, a very contentious area, and it’s a minefield that the Government has to be involved in. It’s a difficult area to get the legislation right on, and it will never please both parties—I’m not talking about the parties in the House—so whatever we do it can’t really please those people involved in it. But, none the less, it is an important area, and I think that the changes that are made in this bill will improve it. They will make it a little simpler to implement, and I think the fact that the IRD transformation is taking place will certainly enable the calculations and the administration of the child support scheme to become much simpler and be much more successfully managed.

We certainly support the implementation of this bill, and a lot of the early work on the changes to this bill were undertaken during the National Government’s time in office. It’s taken a long time to get it to the House, and the reasons for that are pretty sound really because, as I’ve said, it is a very complicated piece of legislation. The problem with the system is that it’s so easy to game the system. And one of the challenges, I think, for this bill really is to identify and make sure that it’s equitable and fair. It’s so easy—well, I don’t suppose that it’s easy, but frequently this piece of legislation has been gamed in the past, and it’s very easy to change your income base. It’s equally as easy not to work, and that is the most frustrating thing for the other partner. When one of the former partners—I guess I’m talking about one of the partners in paying the bill in this case—decides not to work, it becomes very complex and very frustrating for that piece of the family that’s left wearing the bill.

So it is a difficult area to get involved in. I think that the changes that this bill proposes will be sound, they will make some progress, but none the less it will challenge the system as it goes along. There’s a few frustrating things about this whole system, and one of them is for employers because, effectively, you’ve got to deal with the compulsory deductions—they then go through the system—and often an employer can end up with both parties involved in the same business as well. So you come front and centre of a battle from the sideline, and it’s not always pleasant. But I do think that the bill, on the whole, will make changes that are worthwhile and, as I said, the Business Transformation scheme will make quite a difference to the ability of Inland Revenue to administer the scheme in a more equitable and fair manner.

It is a difficult area, but I do think that this bill will solve a lot of the problems in that area, and I commend it to the House, and I’m sure it will work its way through the process, probably with some difficulty and with some very interesting submissions along the way. There’s no question the submissions will be contentious, to some extent, as well, because when you think of the stuff that comes through our offices on this topic, there will be so many and diverse opinions on how this should be implemented and how it should be put into law, and, when the law is finally established, on how it is put in place in a manner that is fair and cannot be gamed easily. So I commend it to the House, and I wish it every success as it goes through the select committee stage. It’ll be interesting.

Thank you very much for the opportunity to speak on the Child Support Amendment Bill, and, like has already been spoken tonight, I think this is an excellent bill for the fact that it makes stronger and fairer a system that already exists, and aims to provide a same home background for children while they might be going between two different houses—in trying to introduce that level of fairness.

The difficulty in any legislation or system, or in such an area as child support, is tailoring it to such individual circumstances that—and, as members of Parliament, we will all no doubt be aware of individual cases, and trying to have a system that’s flexible enough to meet the needs that are quite diverse for individual circumstances is a real challenge. So I look forward to the select committee process to hear, in person, from the members of the public to understand how we are able to improve the current system.

This bill will improve the administration of the scheme by introducing a fairer and more effective penalty regime for rules. In addition to that, there are compulsory deductions of child support from source deduction payments made by an employer or for newly liable persons. Also, including in there a fairer definition of “income” is interesting. And I know that is a way I have seen people not providing child support when they probably should’ve—by having a more fair definition of that term “income” and what is included. There will also be, finally, a four-year time ban on the reassessment of child support.

So I look forward to this bill going to select committee and I look forward to hearing from a wide range of submissions about how we can improve the existing system. I commend this bill to the House.

Thank you, Madam Speaker, I’m very happy to make a contribution on this, the first reading of the Child Support Amendment Bill. It’s probably good to acknowledge that when you come to talk about child support, there are real stories behind what’s happened. And I think it’s good that we can support a system, and streamline a system to provide better clarity for groups of people who—ultimately, at the end of the day, there’s been some conflict, and there are children involved.

So I’m here to stand and say I really support the measures of some practical steps noted in this amendment, which ultimately will reflect some of the modern realities of this environment today. So clearly there are some good things here around enabling IRD to be able to provide a better system in processing this, and that’s a good thing.

I note the numbers for New Zealand. We’ve got 164,000 parents that are liable to pay child support and 135,000 carers who are looking after 182,800 children. So there’s a significant number of people in our community that will be affected by this bill and it’s good that we can stand on both sides and support measures to make it a better, hopefully fairer, system for all parties involved.

I note some of the key changes in the bill around—they’ve already been mentioned by some colleagues—some definitions, which is good. The definition of income now includes dividends and interest. The other one, I think is really good to note, is the introduction of a grace period of 60 days where people who are new to paying child support won’t be charged that penalty. Again, I think that’s a good change. If you’re new to paying child support, this is a very recent development in your life or in the life of that family, so I think it’s good that this is acknowledged in this way, that there is some sort of a grace period as it’s a transition for all parties going into the space of child support payments.

The other change is that it requires a person new to paying child support to pay it by automatic deduction from their wages or salary by the employer. And I think that just helps to bring better certainty as well to some parties. So I think this is a good change, and I’m pleased to support this, and I’m pleased also to note the report-back date the Minister has indicated. I think you do need a good time to allow as many people, particularly in this time that we’re facing at the moment, to be able to make a contribution in the select committee process. Actually, this is my select committee. I sit on the Social Services and Community Committee. So I look forward to this bill coming to the committee and to be able to get a good understanding of how people in the community, parents, Inland Revenue, and other parties feel about some of the changes and to get their feedback on that, too. I commend this bill to the House. Thank you.

Thank you, Madam Speaker. I also rise, on behalf of the Green Party, in support of the Child Support Amendment Bill. A number of the previous speakers have alluded to how it would be very useful for this to go through at this particular moment, because this is a time when all New Zealanders are going to need a great deal of support, and, of course, those who are most at risk need the most support. So an improvement to the child support system which affects 185,000 children around New Zealand is most welcome.

I just want to read something from the commentary on the bill. It says that there was a discussion document that circulated in 2017 which said the problems ranged from “unfairness [in the system]” to the need to address situations where “the person’s circumstances are unusual or complex. Those problems can lead to dissatisfaction with the scheme and reduced compliance.” I think that belies just the sheer frustration that people have with the current system. So I think, whilst most of it looks quite technical and so on, what it will lead to is a much simpler system that’s easier for people to interact with, and I commend it to the House.

Debate interrupted.

The House adjourned at 6 p.m.