This final chapter synthesises the main themes of the report, and sets out the practical implications of the Taskforce’s recommendations for children, resident parents, non-resident parents, and Government.
It should be borne in mind that, like other areas of family law, child support is an area heavily imbued with competing interests. As a consequence, difficult choices have had to be made on the basis of the best evidence available to the Taskforce.
18.1 Outcomes of the proposed changes to the formula
Any changes at all to the Child Support Scheme will necessarily mean changes to the amount of money that some payees receive in child support and that some payers must pay. The Child Support Scheme is about legally enforced private transfers between parents for the wellbeing of their children. It follows that, for every payer who pays less, there is a payee who will receive less. For every payer who pays more, there is a payee who will receive more.
Overall, the effect of the proposed formula will be that the majority of payers will pay less than they do at present, but a substantial minority will be required to pay more. Furthermore, improvements in compliance will mean that more children receive the child support that they ought to receive.
18.1.1 When child support payments will increase
In some cases, the child support paid will increase as a result of these reforms if the Government chooses to accept them. Recommendations that will have this effect include:
- the provisions for minimum payments;
- recognition of the higher costs of teenagers;
- different treatment of the earnings of resident parents above average weekly earnings; and
- measures to improve compliance.
The minimum payment will rise to $6 per week based upon the Consumer Price Index increases since 1999 and to the end of 2005. That minimum payment will continue to be indexed from now on. This increase is modest, and refl ects the Taskforce’s (and Reference Group’s) concern for parents with a weak economic base to support themselves and their children.
Resident parents will also receive more realistic levels of child support when the children are teenagers, in recognition of the greatly increased expenditure that is necessary in comparison with younger children.
Resident parents who are qualified for jobs that pay more than about $40,000 per year on a full-time basis (in 2005 dollars) will have more incentive to take such positions or to increase their working hours. This is because these earnings will improve their children’s living standards without the substantial reductions in child support that result from the existing formula. A significant disincentive to workforce participation for resident parents is therefore removed.
The Taskforce also recommends that more resources be given to the Child Support Agency (CSA) to enable it to determine a realistic and fair level of child support for those who structure their financial arrangements, legally or illegally, in a way that artificially minimises their tax obligations, and therefore also their child support.
Addressing the same problem, the Taskforce proposes a significant new measure aimed at those who appear to be under-reporting their real income, claiming to have an income lower than the maximum rate of Parenting Payment (Single) without being on income support. While there may be genuine reasons to explain how the parent is able to support himself or herself without any apparent means of support, he or she will be initially assessed to pay a fixed payment of $20 per week per child. The onus will be on parents for whom this assessment is made to show that they genuinely do not have the fi nancial resources available to them to meet that level of payment for their child. It will not be a sufficient answer that their taxable income is reduced to a minimal level through the operation of family companies or trusts.
The Taskforce also proposes more powers to improve the compliance of people who are self-employed and avoiding their obligations.
Resident parents will also benefit in many cases from receiving all the Family Tax Benefit (FTB), Parts A and B, and not having to split it with the non-resident parent other than when care is being shared. FTB provides a guaranteed and regular income to the resident parent, whereas child support may not always be paid in full and on time, as Chapter 5 shows.
18.1.2 When child support payments will decrease
In other cases, the child support received by payees will decrease as a result of the proposed reforms. Recommendations that may have this effect include:
- recognition in the formula that expenditure on children declines as a percentage of household income as incomes increase;
- the provision for recognition of regular face-to-face contact in the Child Support Scheme (offset by the limitation of FTB splitting to shared-parenting families); and
- the lower percentages applicable to children aged 0–12.
The recognition in the formula that expenditure on children is not fixed across the income range and that it declines as a percentage of income represents a recognition that the payments of many parents are too high under the present formula. Payers that are required to pay more than the full cost of the child may effectively be paying the difference as spousal maintenance rather than support for children. If the principle is accepted that the fairest way of working out child support obligations is to look at the best available evidence about what the payer would be contributing in child-related costs if the parents were living together, then the existing percentages as they apply to higher-income earners cannot be justified. While, on the basis of the recommendations in this Report, child support obligations will fall significantly for higher-income payers, it should be recognised that this is a relatively small group compared to the majority of child support payers.
The proposed reforms also address the issue of regular face-to-face contact. The Taskforce recognises that the costs incurred by one parent who has regular contact are not matched by a corresponding significant decrease in expenditure for the resident parent. It is more expensive for children to live in two homes than one. The recommendations of the Taskforce are designed to share this increased cost as fairly as possible between the two parents. As a consequence, there is a recognition in the proposed formula that parents who have regular care of their children for 14% or more nights per year incur substantial costs, and there is provision to recognise the costs of extensive daytime contact where these are commensurate with the costs of having children stay overnight.
The proposed reforms also mean lower child support payments for younger children in particular. Given the substantial increases in family payments since 1988 (see Chapter 7), the amount that parents need to spend out of their own incomes in an intact family has declined. Inevitably therefore, this must flow through to lower child support payments if the continuity of expenditure principle (also discussed in Chapter 7) is to remain the basis for the Scheme.
The level of payments now made to families through FTB is such that it has been appropriate to bring down the percentages of income required to support two and three children under 13. This is because FTB Part A is paid as a flat rate per child, without taking into account any economies of scale. This inevitably flows through again to child support payments. The difference in FTB amounts between payments for a child 0–12 and a child 13–15 is not so great as to offset the increased costs of raising teenagers, and for this reason child support payments for teenagers will generally increase rather than decline.
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18.1.3 ‘Second’ families
The position for second and subsequent families under the proposed reforms is mixed. Second families are often seen as being disadvantaged by the current Child Support Scheme, but, as discussed in Chapter 6, for many payers in low-income families, the effect of the increased exempt amount is to give much greater priority to children in the new family than to the children of the first family. Because this is a flat rate allowance, the proportionate benefit from this exempt income declines further up the income scale. Some, but not all, second families have cause for complaint under the existing formula.
Second families will benefit in general from the proposed reforms’ greater recognition of step-children who have no biological parent able to support them, and from the provisions concerning change of assessment in relation to overtime and second jobs (see Chapter 12).
The Taskforce proposes, consistent with the aim of the original Scheme, that children in first and second families be treated as equally as possible. While some payers with second families may receive a reduced allowance for a new child or children on the basis of this principle compared to the present provisions, the effect of this recommendation needs to be considered together with the impact of all the other recommendations, including a greatly increased self-support amount, fairer recognition of the costs incurred in contact, recognition that the same percentages of before-tax income should not be applied across the income range, and other changes to the way in which child support obligations are calculated. The availability of FTB to the second family should also be taken into account. For low-income families, the Taskforce research shows that the maximum level of FTB meets most of the measured costs of children in intact households.
Taking all these factors into account, the impact of the proposed reform on second families will depend upon the payer’s income level, the age of the child support children and new children, whether the payer has regular contact with, or shared care of, the child support children, whether there are any step-children who may be treated as dependents on a change of assessment, and whether any income from overtime or a second job is excluded.
18.1.4 The effect of the Maintenance Income Test
The operation of the Maintenance Income Test (MIT) (see Chapters 4 and 11) means that for most families, the gains by one parent will not be matched exactly by the losses for another. Where less child support is paid, the effect of this may be cushioned by the fact that above a free area, the payee only keeps 50 cents in the dollar of child support paid in any event. Conversely, where child support payments go up, not all of this will necessarily be transferred to the resident parent because the MIT operates to recoup some costs to taxpayers.
18.2 The Child Support Scheme and the Best Interests of Children
In undertaking the review, the central concern of the Taskforce was with the wellbeing of children after separation. It might be argued that any reform that is in the best interests of children will lead to increases in child support, but not decreases. On such a view, the changes that will lead to increases in child support payments will be welcomed, and the changes that lead to reduced payments will be criticised as contrary to the best interests of children.
This position assumes, of course, that the existing percentages used in the Scheme have some intrinsic validity. The Taskforce has reached the conclusion that they cannot be justified, given the best available evidence in 2005 and taking into account the substantial increases in government payments to support children over the last 15 years. Decreases in child support are proposed where this adjustment is necessary because people are currently paying more than they would be contributing to the support of the children if the parents were living together.
The Taskforce has also taken a much wider view of the best interests of children. Children’s wellbeing cannot be measured only in financial terms, nor can it be measured by the living standards a child experiences in only one home. While the great majority of children have one primary caregiver, children usually have two parents and, where there is regular contact, they live for periods of time in both their parents’ homes.
18.2.1 Reducing conflict
One of the central issues for the Taskforce and the Reference Group was how to reduce conflict between parents over money, because research shows that children suffer most when there is ongoing high conflict between the parents long after separation. Arguments about child support are one source of such ongoing conflict.
The Taskforce believes that the proposed reforms have the potential to reduce conflict and to promote cooperation between parents in a number of ways.
Firstly, the changes proposed to take account of regular contact and to confi ne FTB splitting to families where there is shared care (as defined in this Report) are designed to reduce substantially the level of conflict over parenting arrangements. While child support payments initially drop if contact reaches the threshold of 14% of nights, or on average one night per week over the year, there will be no further changes to child support until contact reaches 35% of nights, on average five nights per fortnight, in a year. This will mean that minor variations in contact levels around an agreed level will not affect child support payments. The recommendations also address the issue of daytime face-to-face contact.
Arguments about FTB splitting based upon the exact number of days, nights, or even hours that each parent spends with the child will be greatly reduced. Similarly, the incentive to negotiate parenting arrangements that ensure that the non-resident parent has the care of a child for at least 110 nights is also addressed. Conversely, there will be no disincentive to agreeing to such an arrangement if it is in the best interests of the child.
There will be a new threshold at 35% of nights per year for the shared care formula (Table B in Chapter 9), but the transition from regular contact to shared care in the formula does not involve any ‘cliff effect’—that is, any substantial change in child support payments because that threshold is crossed. There is a very modest increase for each additional night the non-resident parent has the care of the child above 35% of nights, rising to a position where they are deemed to be providing an equal share of the costs of the child for approximately equal levels of care.
Secondly, the Taskforce believes that the proposed reforms should minimise all reasonable argument about the formula used in the Child Support Scheme and therefore reduce the level of criticism of the Scheme both in private and in public arenas. There is no objective answer to the question of how much children cost, and therefore how much child support ought to be paid. However, the Taskforce has endeavoured to rely on the best available evidence after the most substantial and thorough investigation ever conducted into this question in Australia. Furthermore, it has sought to clearly document and be as open and transparent as possible in the way that it reached its policy recommendations. It has also paid close attention to community values as revealed in the survey conducted by the Australian Institute of Family Studies for the Taskforce, to recent empirical data on post-separation patterns of parenting in Australia, and to the views of the Reference Group.
No doubt the Child Support Scheme will continue to cause controversy. The proposed new formula cannot and will not address all the grievances that people have about the Scheme. Sometimes grievances about child support reflect concerns about other aspects of family law, such as resentment about the difficulties in enforcing contact orders, or disagreement with the ‘no fault’ basis of Australian divorce law. The Scheme cannot address these issues. However, in the long term, children will benefit most if the proposed formula is seen to be fairer and more explicable than the existing Scheme.
Thirdly, the proposed reforms deal with some of the most serious complaints about the current Scheme. These include the issue of ‘capacity to earn’ income that a parent is not actually earning, the problem of overpayments, and the issue of overtime and second jobs worked in order to re-establish oneself after separation.
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18.2.2 The Child Support Scheme and shared parental responsibility
The proposed formula recognises explicitly the responsibility of both parents to support their child or children. Child support assessments will be based upon an allocation of the cost of the child (given the parents’ combined income level) according to the parents’ respective capacities to pay.
It also provides explicit recognition in the Child Support Scheme of the shared parental responsibility of parents following separation and that many of these children have two homes rather than one. Where, as a result of these recommendations, child support payments decrease rather than increase, this does not necessarily mean a decline in living standards for children. Changes in child support obligations will not signifi cantly alter the financial resources available to the children across the two homes. They will only impact on the
distribution of those resources between the two homes.
That distribution of resources needs to be as fair as possible, without creating disincentives to participate in the workforce. The majority of child support payers, as well as payees, are on modest incomes. Comparisons of the disposable income of each parent in low-income families needs to take proper account of the impact of government benefits, including the value of pension concessions and rent assistance where it is payable.
18.2.3 Child support and children’s living standards
Because the majority of child support payers have modest incomes, child support payments are not necessarily very substantial under the present Scheme. Indeed, 40% of all payers on the CSA’s caseload have a minimum liability of $5 per week. There is also a significant gulf between the numbers of payers who have child support obligations and the numbers of children who benefit from full and timely compliance with those obligations.
Consequently, changes to those obligations, whether by way of an increase or decrease, are only part of the picture in assessing living standards of children. The Government has done much to improve children’s living standards both in intact and separated families through the increases in FTB and other payments. Children’s living standards are also affected by the resident parent’s workforce participation, and whether the resident parent is living with any other adults in a common household. Where a parent has re-partnered, and one or both of them is in the workforce, the loss of living standards consequent upon separation may be substantially ameliorated.
18.3 Reforming the Child Support Scheme—a matter of principle
The Taskforce has identified many anomalies in the existing Scheme. The correction of those anomalies requires that child support obligations must go up or down. The Taskforce believes that its recommendations can best be assessed by reference not to a comparison between the outcomes of the current and proposed formulae, but by reference to the principles and evidence upon which these recommendations are based.
As far as possible, the Taskforce has sought to base its recommendations on the best evidence available to it about the costs of children, and the most defensible principles for the allocation of those costs between the parents. It is with children’s interests as the paramount consideration that these recommendations for reform of the Scheme are made to the Government.