History and Context
New Zealand’s legal tradition is based on that of the UK. Until 1981, maintenance orders and agreements were determined and/or administered by the courts. In 1981, the Liable Parent Contribution Scheme was established to collect maintenance for the benefit of children living with income support recipients. The Scheme was administered by the Department of Social Welfare. Arrangements for parents not in receipt of income support continued to be made through the courts.
In 1992, the Child Support Scheme was established, administered by Inland Revenue. It is compulsory for custodial parents receiving income support to seek child support through the scheme. Other parents can use the scheme or can make voluntary or court-based agreements.
Due to increasing rates of separation and childbirth outside marriage, rates of sole parenthood have risen significantly in recent decades, and are higher than in Australia. Nearly half of mothers have spent some time as a sole mother before they turn 50. Young mothers are the most likely to be sole parents. Approximately 30% of sole parents have never lived with the other parent of their children. The rate of sole parenthood is much higher amongst Māori and Pacific Islands families.
The NZ government spends somewhat less per child than the Australian government does on providing family benefits and services. Families receive $269 (all figures in New Zealand dollars, NZ$1=~A$0.95) a fortnight Family Tax Credit, which starts phasing out at a family income of $9,500 and stops completely at $17,500. They may also receive $30 a fortnight per child in Child Tax Credit, diminishing from $33,000 family income (higher where there is more than one child) and Family Support of $144 a fortnight for the first child and $94 a fortnight for each additional child, diminishing once family income reaches $20,000. Importantly, if there is no private income in the household, parents are entitled to Family Support only. (The structure and levels of these benefits have recently changed substantially.)
Sole parents are eligible for Domestic Purposes Benefit, which is about $250pw. Part-time work is required of the parent once the youngest child turns six, and full-time work is required when the youngest child turns fourteen.
If the payee is on sole parent benefit, all child support paid is retained by Inland Revenue to offset government expenditure on benefits, unless the payer pays more
than is dictated by the formula. In 2003–04, more child support was actually retained by government than passed on to payees (this includes penalties as well as formula-based liabilities).
Basis of scheme
The New Zealand scheme works on a percentage-of-payer-income method, with a self-support component, which component is increased for new families.
The steps are:
- Work out the paying parent’s taxable income
- Take away a living allowance from that income
- Multiply the result by a percentage based on the number of children for which the paying parent pays child support.
NZ uses the previous year’s taxable income if the paying parent’s income from the last tax year was only from salary, wages, interest or dividends. (Such parents are not required to lodge a tax return in NZ, but the information is reported monthly by employers.) 10 months worth of salary and wage details are known when the assessment is made, and 2 months are estimated so that the assessment can commence at the start of the financial year. When the end of the year is reached, the assessment is adjusted if the full year information varies the total income by more than $500. The income used is from two taxable years ago (inflated by a factor) if the income included sources other than those listed, for example, rents or self employment. In most of these cases, the individual is required to lodge a tax return. The payee’s income is not taken into account.
The deduction for living varies with the family arrangement of the payer. The living allowance is increased if the payer has a spouse (married or de facto), and further increased for each child living with the paying parent, whether a natural or step child of that parent. The allowances are based upon gross benefit rates. In 2005, the living allowance for the payer parent is $12,578 for a single person, $17,011 with a new partner, $23,889 with a child, with further allowances of approximately $2,500 for each additional child.
The percentages where the parent is not sharing care of the children (greater than 40%) are 18% for one child, 24% for two, 27% for three, and 30% for four or more.
Where care is shared (40% of nights or arrangements judged to be equivalent), each parent can apply for child support from the other. The percentages used are reduced by approximately 30%, to 12, 18, 21, and 24 respectively, with further increments for up to 8 children. The living allowance (for each parent) is assessed on the basis that the children are with them – so if there are two children in the shared arrangement, each parent will have a disregarded amount of $25,746. Parents’ liabilities are assessed against each other and the balance is due.
The maximum amount on which child support is assessed is 2½ times average income. For 2005 this is $93,522, giving child support liabilities, in a situation without shared care or a new family, of $14,570 for one child, $19,427 for two, $21,854 for three, and $24,483 for four. The minimum amount for 2005 is $688 (per payer, not per child or payee). This amount is adjusted annually. The average child support assessment for the year 2003–04 was $2,391, with 1,095 people paying the maximum, and 64,600 assessed to pay the minimum amount (out of 141,962 child support payers).
If parents feel that the formula should not apply to them, they can request an administrative review. There are ten grounds for review, which are mostly similar to their Australian counterparts – they deal with situations where the costs of the children, the parent (including contact with the children), or the parent’s new family are higher than "usual", and where the earning potential or assets of one of the parties has not been taken into account. Parents can make voluntary agreements, but may not agree to less than the formula amount if the payee is in receipt of income support.
If the payer expects their income to be more than 15% lower than the amount to be used in their assessment, in most cases they can provide an estimate of income (with some supporting evidence). This is reconciled with their actual income at the end of the year. A penalty may be payable for estimates less than 80% of actual income.
If a parent feels that an error has been made or that the assessment is wrong, they can object. They are encouraged to discuss the matter over the telephone first; if the issue cannot be resolved they must object in writing. The procedure for dealing with complaints is through internal (IR) custom service advisors and then through the Complaints Management Service.
Outcomes
In 2003–04, 73% of entitlements were collected, 61% on time in full. 86.4% of child support due has been collected since inception of the scheme in 1992. Child support is automatically deducted from social assistance benefits paid. Wages and bank accounts can be garnished and tax refunds and other due payments intercepted. Courts can, through contempt proceedings, sentence defaulters to community service.
Penalties for late payment are $5 or 10%, whichever is greater, with an additional 2% for each extra month. These penalties are retained by the government, as are all payments made on behalf of children whose resident parent is in receipt of government benefits. This has an extremely negative effect on public perceptions of the scheme.
Overall, the scheme is very similar to that currently in operation in Australia (NZ’s scheme was closely modelled on the Australian version) and so positive and negative elements are also very similar, the demographic differences of the two countries notwithstanding.