The Child Support Scheme grew out of concerns about the poverty of women and children following separation and divorce and about the increasing government expenditure required to maintain children where their absent parents were not making an appropriate contribution to their upkeep.
2.1 The issue of poverty in sole-parent households
It has been estimated that, between the years from 1972–73 to 1985–86, the proportion of children living in poverty increased from 7.2% to 17.5%.
3 This increase was partly due to the rising number of sole-parent households (from 9.2% of all families with dependent children in 1974 to 14.4% in 1985), who tended to be fi nancially disadvantaged in comparison with two-parent families.
4 Increasing marital breakdown was responsible for much of the rise in sole-parent households. Following the commencement of the Family Law Act in 1975, the number of divorces increased from about 17,000 per year to about 45,000 per year before falling and stabilising at about 39,000 from the mid 1980s. While the rate of births outside marriage also increased over this time, 1982 Australian Bureau of Statistics data showed that around two-thirds of sole-parent households had been formed through divorce (37%) or separation (30%).
5 In its 1986 study of the financial consequences of divorce, the Australian Institute of Family Studies (AIFS) found that women with children who did not repartner suffered the greatest losses from marriage breakdown.
6 Concern about the ‘feminisation of poverty’, particularly in female-headed sole-parent households, was a signifi cant theme in discussions of the financial outcomes for men and women following separation.
7 Community concern came to focus on the court-based maintenance system, which was perceived as inequitable, inaccessible, and lacking powers of enforcement. Only 30% of non-resident parents were making regular payments and only 26% of sole parent pensioners were receiving maintenance. Average levels of maintenance were inadequate, there was little or no indexation of court orders, and the proportion of the population covered was inadequate, particularly for parents who had never married.
8 In general, the court-based system was seen as being too discretionary and as leading to inconsistent outcomes for people in similar circumstances.
There was also concern about the costs to taxpayers of the growth in the numbers of sole-parent households.
9 Most sole-parent families were at least partially reliant on government welfare payments
10, and courts tended to award maintenance at levels below the free area (so as not to reduce welfare payments), which effectively transferred obligations to the Government.
11 During the 1980s, there were several major reports and academic studies addressing the issue of maintenance (child support) in Australia, including:
- Cost of children in Australia (the Lovering Report), AIFS, August 1984;
- A Maintenance Agency for Australia: Report of the National Maintenance Inquiry, AGPS, 1984;
- A paper by Edwards, Harper and Harrison on ‘Maintenance and Maintenance Enforcement’, presented to the Family Law Conference in November 198412;
- Work by the Family Law Council: Maintenance Enforcement in 1985, and Child Maintenance: The Family Law Council Proposal in 1986;
- Settling Up, AIFS, March 1986 (and the work done for its follow-up, Settling Down);
- A paper by Harrison, McDonald and Weston in 1987 on research fi ndings and reform proposals13;
- A briefing paper on Child Maintenance Reform developed by the Parliamentary Library Legislative Research Service in 1987; and
- Work by Lee in 1989, providing courts with a benchmark on which to base maintenance amounts.14
It was generally agreed that the system was far from perfect, and community consultations also indicated public support for reform.
In October 1986 the Government initiated community consultation following the release of
Child Support: A Discussion Paper on Child Maintenance, and in March 1987 the Minister for Social Security announced the implementation of the Child Support Scheme in two Stages.
The Child Support Consultative Group (CSCG), chaired by the Hon. Justice Fogarty of the Family Court of Australia, was set up in May 1987 to advise the Federal Government on a legislative formula for the administrative assessment of child maintenance. The CSCG report,
Child Support: Formula for Australia, was presented to the Minister for Social Security in May 1988.
2.2 Introduction in 1988 of the Child Support Scheme
The first Stage of the Child Support Scheme commenced on 1 June 1988. Stage One, empowered by what is now the
Child Support (Registration and Collection) Act 1988, sought to move the collection and enforcement (but not assessment) of child support away from the courts to an administrative agency. This stage was primarily for those already in the existing (court-based) system. Stage Two then transferred the assessment function to the administrative agency. This Stage was primarily for new clients to the child support system.
Stage One covered children born before 1 October 1989 whose parents separated before that date (unless these children had a sibling born on or after that date, in which case Stage Two applied). Stage Two of the Scheme came into effect on 1 October 1989, empowered by the
Child Support (Assessment) Act 1989. This Stage applies to children whose parents separated on or after 1 October 1989, or who were born on or after 1 October 1989, or who have a sibling born after that day.
In Stage One, the Child Support Agency (CSA) was established as part of the Australian Taxation Office. Under the
Child Support (Registration and Collection) Act 1988, the Commissioner of Taxation was given responsibility for the collection of periodic child and spousal maintenance, and the power and authority to use collection and enforcement methods similar to those used for the collection and enforcement of income tax. It was envisaged that in most cases payment would be made as automatic deductions from salaries and wages, thus removing many of the difficulties and anomalies associated with the collection and receipt of child support. Child support awards were still assessed by the court, but the
Family Law Amendment Act 1987 (amending the Act passed in 1975) asserted the primacy of the financial needs of children over all other considerations bar the basic self-support of parents.
Stage Two introduced the formula to calculate child support liabilities, making such calculation an administrative, rather than judicial, procedure. The formula was based on the recommendations of the CSCG, although not all of its recommendations were accepted. The administrative formula sought to produce much greater certainty and equity for children through equal access to fair, secure and regular child support at a level that represented an appropriate share of their parents’ income. The aim of the CSCG was to design a system that was predictable, accessible, simple, inexpensive, and readily understood. The formula was also intended to be flexible enough to apply fairly to a variety of circumstances.
The underlying philosophy of the Scheme shifted the balance more towards private parental responsibility for the financial wellbeing of children, rather than government-funded programs. One of the foundation principles of the Scheme, for example, was (and still is) that Commonwealth involvement and expenditure be limited to the minimum necessary for ensuring children’s needs are met.
2.3 Design of the Scheme
The Child Support Scheme rests on certain principles concerning how the responsibility for providing support and care to biological and adopted children should apply where two parents are not living together. It also expresses a basis for apportioning between the parents and the Government the additional costs faced by families that live apart.
The three most important design features of the Scheme are:
- the use of percentages of the liable parent’s income as the basis for the child support obligation, with the percentages assessed on the principle that a non-resident parent should contribute a similar amount to that contributed in an intact family;
- the modification of that principle by use of an exempt amount for the liable parent’s own self-support; and
- the disregard of the resident parent’s income except to the extent that it exceeds average weekly earnings.
The CSCG also gave a great deal of attention to the definition and identifi cation of income and financial resources for the purposes of the Scheme.
2.3.1 The continuity of expenditure principle
The Australian Scheme, as proposed by the CSCG in 1988, was based upon a principle which has been influential in the development of child support policy in the United States and in other countries. This approach is known as the ‘continuity of expenditure’ principle. It was explained by the CSCG in this way:
As a starting point in considering what proportion of income should be shared, the Consultative Group accepted the proposition that wherever possible children should enjoy the benefit of a similar proportion of parental income to that which they would have enjoyed if their parents lived together. This proposition is based on the view that children should not be the economic losers from the separation of the parents or where the parents never lived together.15
For this reason, in setting the percentages applicable for the payment of child support, the CSCG drew upon estimates of the percentage of gross income that is spent on children in an intact relationship. The notion underlying the basic formula (where there are no biological children of a second family) is that the liable parent can be expected to continue to contribute out of salary the same proportion as he or she would have contributed had the relationship not broken down. The percentages were based mainly on research from the United States on the share of family income spent on children, although the CSCG also had the benefit of one Australian study.
16 The continuity of expenditure principle was only a starting point. In determining the percentages applicable in the Scheme, the CSCG had regard to a number of other factors, including:
- additional costs of rearing children where parents do not live together;
- indirect costs of children (cost of care and loss of future earnings);
- access (contact) costs incurred by non-resident parents; and
- community views on what would be a fair level of child support.
The model for the Scheme in Australia was greatly influenced by the work of Irwin Garfinkel and the approach adopted in Wisconsin, U.S.A.
17 This model is known as the percentage-of-obligor-income approach. In Wisconsin, however, there is no self-support component.
18 This is the case also in other jurisdictions that adopt a percentage-ofobligor-income approach.
19
2.3.2 Exempt income
An important factor modifying the basic principle of continuity of expenditure was the need to ensure that liable parents had enough income for their own support. The CSCG wrote:
However, in designing an appropriate formula it was necessary to temper the application of this proposition in order to ensure a workable scheme and one which took into account the realities of capacity to pay and maintained appropriate incentives to work for both parents […] The recommended formula therefore guarantees the non-custodial parent a protected component of income, the self-support component, on which no child support is levied.20
The exempt income amount meant that higher-income non-resident parents paid a higher proportion of their income than lower-income non-resident parents.
The Group proposed also that the exempt income amount should be increased where the liable parent had a second family. The basic aim of the Group was to treat all children of the parties as equitably as possible. In particular, the Group saw no value in transferring hardship to the children in the second family by giving no allowance whatever, whilst recognising that the increased self-support component may have the effect of reserving a greater proportion of a liable parent’s income for their second family, at least for low-income payers
21. However, the Group felt that it was important to avoid discouraging the formation of new relationships and families. The Group did not give an allowance to a second dependent spouse, except to acknowledge a spouse’s dependence by virtue of responsibility for children by giving a greater increase in the exempt income amount for the first dependent child.
22 The CSCG was strongly of the view that a parent’s assumed responsibility to a step-child should not take priority over the parent’s responsibility to their own children, except where this responsibility was ordered by a court.
23 The allowances for children in a second family were therefore not extended to step-children.
2.3.3 The resident parent disregard
Another aspect of the Scheme was the resident parent disregard. This is the amount of income a resident parent is allowed before the rest of their income is taken into account in the calculation of the non-resident parent’s child support obligation.
The purpose and level of the disregard was considered closely in the original design of the Scheme. The CSCG noted that there were strong arguments for not taking resident parent income into account in the assessment, particularly that the carer parent is sharing a percentage of their income directly with the child by virtue of having the day-to-day care of the child. It was also noted that the more a resident parent’s income is taken into account, the greater the likelihood that the resident parent will remain on a benefit and not rely on paid employment. However, the CSCG recognised that there would be situations in which the results of not including payee income could be perceived as unfair by the general community.
24 Accordingly, it was determined that payee income would be disregarded unless it was relatively high.
2.3.4 The definition of income
The CSCG originally recommended a very detailed definition of income, going so far as to deal with trusts, private businesses and partnerships, capital gains, and the imputation of income. They were particularly keen to ensure that opportunities for income minimisation were reduced as much as possible, and particularly recommended that any sharing of income with a spouse be undone, treating the income entirely as the income of the liable parent.
25 These recommendations were not initially implemented. The Government chose to apply the percentages just to taxable income. The availability of other financial resources was dealt with through the grounds for departure from the formula.
2.3.5 Shared care
The CSCG recommended a variation to the formula where the liable parent had care of the children for at least 35% of nights in an annual period.
26 At the outset, the legislation set the threshold for the operation of the shared care formula at 40% of nights. Where care was ‘shared’, the calculation treated both payer and payee as liable in turn, and offset the resulting assessments. The child support percentage used in each calculation was reduced.
2.3.6 Grounds for departure
While the use of a formula was intended to create certainty and consistency, the CSCG was aware of a need to retain the discretionary elements previously applying in the court-based system, yet not to the extent that the advantages of a formula system were undermined by overly broad discretion.
27 The CSCG proposed a court-based change of assessment process, with the court retaining a discretion to depart from the formula on specified grounds. The grounds for departure proposed by the CSCG included:
- high costs are incurred by either parent as the result of the liable parent having contact with the child28;
- additional costs exist due to special needs of children in either the carer or liable parent household29;
- adjustment is needed for income received by natural or adopted children30 or by step-children31 in the liable parent’s household, or for income of children received by the carer parent household32;
- there are special needs of a spouse which amount to hardship33;
- income of new partners may be taken into account where income splitting operates to avoid child support obligations34;
- variation is required to exceed the cap where the circumstances justify a greater contribution by the liable parent35;
- variation is required to factor in the financial resources of the parties not accounted for in the formula36;
- adjustments are required to allow a court to deal with subsequent obligations of a liable parent, where they are now liable to a further carer37, a court has imposed a secondary obligation to a step-child38 or liability for a child is additionally imposed on a step-parent39; or
- a reduction in child support obligations exists on a narrowly defined ground of serious hardship or inequity.40
The implemented change of assessment grounds drew broadly upon this range of reasons.
2.4 Reviews since the Scheme’s commencement
Recognising that neither families nor the world they live are static, the Scheme has been reviewed on several occasions since its inception.
Previous evaluations of the Child Support Scheme, prior to the 2003 Inquiry into Child Custody Arrangements in the Event of Family Separation, include:
- The Child Support Scheme: Progress of Stage 1, CSCG, August 1989;
- Who Pays for the Children? AIFS, 1990;
- The Child Support Scheme: Adequacy of Child Support Coverage of the Sole Parent Pensioner Population, Child Support Evaluation Advisory Group, AGPS, August 1990;
- Paying for the Children, AIFS, 1991;
- Child Support in Australia, Final Report of the evaluation of the Child Support Scheme, Child Support Evaluation Advisory Group, 1991;
- The Family Law Act 1975: Aspects of its operation and interpretation, Joint Select Committee on Certain Aspects of the Operation and Interpretation of the Family Law Act 1992; and
- The Operation and Effectiveness of the Child Support Scheme, The Joint Select Committee on Certain Family Law Issues, 1994 (the Price Committee).41
2.5 Changes since the Scheme’s commencement
On the recommendation of reviews of the Scheme, the Government has made various changes over the years, resulting in some modification of its operation, although its structure and goals remain essentially unaltered. The major changes are as follows.
2.5.1 Effect of care arrangements
Care and contact arrangements for children have always been factored into the calculation of child support, on the basis that care arrangements affect the contribution to child support required of parents, but as noted above, to begin with shared care was only recognised in the formula where each parent cared for the child for at least 40% of nights (or equivalent care) per year. Where care is ‘shared’, the calculation treats each parent as liable to the other in turn, using an increased exempt amount and reduced percentages. The liability of each parent to the other is offset to find the overall payer.
Since 1 July 1993, a liable parent who has care of the child between 30% and 40% of the nights of the year has an assessment made as for a shared care assessment (each parent treated as liable and the calculations offset), although the percentages applied are different from those applying to parents with more than 40% care, and the parent’s exempt income is not increased from the basic rate without dependants. Generally, the levels of care each parent actually provides for a child are reflected in the assessment.
However, from 1 July 1999, the legislation was amended to reduce any fi nancial incentives the Scheme was creating to encourage parents to breach orders or court-registered parenting agreements. As a consequence, where a parent breaches a court’s parenting order without reasonable excuse, the level of care used in the assessment cannot exceed that set out in the order.
A further change is that, since 1 July 1999, parents can agree that the liable parent has substantial contact with a child, even though the care did not amount to 30% of nights annually.
Prior to 1 July 1999, all changes in care arrangements had effect for the entirety of the financial year to which the assessment applied, both for dates prior to and dates after the date of the change. Often, changes in care notified late in the year resulted in overpayments or debt being created. Since 1 July 1999, a change in care only has effect from the date the Child Support Registrar is notified. However, the care is still calculated over the entire child support period. Past periods of care are factored in when determining whether a change in the level of care has actually occurred such that the assessment should be prospectively amended.
2.5.2 The assessment of income
The income upon which child support was originally calculated was taxable income. Initially, the child support assessment was made for a financial year and was based on the taxable income from the financial year two years previously, inflated by a factor to represent the equivalent income in more current terms.
Since 1 July 1999, the period of a child support assessment is a maximum of 15 months, commencing the month after the making of a tax assessment by the Tax Commissioner for the last financial year. The relevant tax assessment is generally that of the payer. This permits the taxable income from the latest financial year to be used in an assessment as soon as possible after the ending of the financial year, to most closely represent the financial position of the payer.
Since 1 July 1999, supplementary amounts are added on to taxable income, including exempt foreign income and net rental property losses. Reportable fringe benefi t amounts have been included since 1 July 2000.
42 This mirrors social security provisions where such forms of income were generally taken into consideration.
Where a parent’s taxable income was not known, the assessment was originally required to be based upon a default figure equivalent to 2.5 times average weekly earnings. Since 11 December 1992, CSA can choose an appropriate default income where a new assessment must start and taxable income information for the relevant year is not available.
Where a parent’s income situation has worsened (by 15%) since the relevant income period, the parent has an option of asking for the assessment to be based on their estimate of current income. Initially, this was an estimate of income for the full length of the then current financial year (which was retrospective). Such estimates regularly resulted in overpayments. The estimate provisions were changed from 23 December 1997, to allow an estimate for the whole financial year, but then to adjust the income used from the date of the estimate so that the resulting liability for the total year, adding the periods prior to the estimate to those after, resulted in the same rate as though the income for the entire year had been changed. This avoided overpayments in most instances.
Since 1 July 1999, with the advent of variable child support periods not tied to the financial year, estimates have been changed to being a prospective indication of expected annual income, from the date of the estimate. CSA can amend an assessment where the estimate is inaccurate or the income of the parent has changed.
2.5.3 Exempt and disregarded amounts
The exempt amount allowed to the payer and the disregarded amount allowed to the payee were designed with different functions in mind: the exempt amount is meant to prevent the payer (and any second family) from falling into poverty, while the disregarded amount includes the payee’s financial support of the children. This difference notwithstanding, the large disparity in the level of the amounts is one of the features of the Scheme that attracts the most criticism from the public.
Initially, the payer’s exempt income amount was equivalent to the annual amount of the relevant single rate of Social Security pension for the child support year. If the payer had relevant dependent children (that is, biological or adopted children or step-children for whom there is a legal responsibility living with him or her), the exempt income amount was twice the annual amount of the relevant married rate of Social Security pension for the child support year, plus additional amounts for relevant dependent children.
Since 1 July 1999, the payer’s exempt income amount has been increased to 110% of the unpartnered rate of Social Security pension. When the liable parent has relevant dependent children, the exempt income amount is 220% of the annual amount of the partnered rate of Social Security pension, plus additional amounts for relevant dependent children.
The exempt income rules change where the children for whom the assessment is in place are cared for by both the payer and payee (either on a shared basis in some proportion, or because some of the children live with the payee, and some with the payer). Prior to 1 July 1999, the exempt income amount allowed to each parent where both parents care for the child for 40–60% of nights was only that of a parent with no relevant dependants. Since 1 July 1999, additional amounts for the children are added to the single rate of exempt income where parents have care of above 40%.
Prior to 1 July 1999, CSA could include relevant dependent children in a child support assessment from the actual date when they became a relevant dependant. Substantial time could elapse between this date and the parent informing CSA, resulting in overpayments. Since 1 July 1999, the maximum allowable period of backdating is 28 days.
2.5.4 The resident parent’s disregarded income
The payee’s disregarded income was initially the ‘full-time adult weekly earnings’ figure, plus additional flat amounts for childcare for any children under 12. Any excess amounts were deducted in full from the payer’s Child Support Income. The payer’s liability could not be reduced to less than 25% of the assessment that would otherwise have applied.
Since 1 July 1999, the payee’s disregarded income is based on the ‘all employees average weekly earnings’ figure rather than the higher full-time average weekly earnings figure, and extra amounts for childcare costs are no longer added to it. In calculating the amount payable in an assessment, the payer’s income is reduced by 50 cents for every dollar of the carer parent’s income above the disregarded income amount. The payer’s liability can still be reduced by a maximum of 75% by this adjustment. A change of assessment reason allowing a payee to claim high childcare costs was also added.
2.5.5 Consideration of step-children
From 1 July 1999, a payer’s step-child is automatically considered to be his or her relevant dependant if a court has made an order under s.66M of the
Family Law Act 1975. Prior to this, the paying parent would need to seek a change of assessment to have a legal duty under a court order to support the step-child taken into account in the assessment. This has not resulted in significant numbers of cases, due to the limited range of eligibility for parents to take advantage of s.66M (which is generally only available in the context of an application for maintenance against a step-parent living apart from the child).
A new change of assessment reason was added from 1 July 2001, allowing a parent to apply for a change of assessment on the basis that they were earning additional income to benefit a child living in their household. The child could be either their biological child or their step-child.
2.5.6 Minimum liability
Initially, where a payer had an income that resulted in a formula assessment of less than $260, the resulting child support liability would be nil. In 1999, a minimum child support liability of $260 was introduced, with few exceptions. This change was designed to reinforce the Government’s view that all parents should contribute financially to the support of their children. There was also a belief that payment of even a token amount would encourage the non-resident parent to be involved with the child, and would instil a habit of payment that could be used to support the children if the payer’s fi nancial situation improved.
2.5.7 Requirement that resident parents seek maintenance
At the inception of the Scheme, any resident parent (payee) in receipt of child support, after becoming eligible for a Commonwealth payment by originally seeking an assessment, could elect to end an assessment at any time. From 6 April 1992, payees in receipt of an income-tested pension, allowance or benefit could not elect to end their assessment. However, such payees could agree with the payer that the amount of the assessment would be nil, effectively getting around the 1992 amendment.
From 29 May 1995, CSA was required to refer a private child support agreement to the Secretary of the then Department of Social Security if the payee received more than minimum family payment or Sole Parent Pension. CSA could then accept these agreements only if the Secretary decided that the agreement passed the ‘reasonable action to obtain maintenance’ test. CSA was required to refuse to accept an agreement if the payee received more than the minimum family payment or Sole Parent Pension and had not applied for a child support assessment.
From 1 July 1999, payees who received more than the base rate of Family Allowance could elect to end their assessment if the Secretary of the Department of Family and Community Services approved. The same rule now applies to parents in receipt of Family Tax Benefit (FTB) Part A. The Secretary must be satisfied that the payee is taking reasonable action to obtain maintenance for the child. In practice, this generally requires that the payee be granted an exemption from reasonable maintenance action. Such exemptions are granted for reasons such as fear of violence and, more recently, well-founded doubts as to the parentage of the child.
2.5.8 Effect of maintenance payments and receipt upon Commonwealth payments
Consideration of maintenance income (including a requirement that resident parents seek maintenance) was introduced in June 1988 with the commencement of the Child Support Scheme. The maintenance income test covered all forms of received maintenance (cash, non-cash and capitalised maintenance). Both child and spousal maintenance were assessed. Maintenance income affected pensions, JobSearch, Newstart Allowance and sickness allowances and special benefi ts. The annual maintenance income free area was converted into a weekly figure of $15 plus an additional $5 per week for a second and each subsequent child dependent on the maintenance recipient. Payments were reduced by 50 cents for each dollar over a maintenance threshold.
With the integration of family payments from 1 January 1993, maintenance income no longer affected income support payments, but it reduced Additional Family Payment. Additional Family Payment and Basic Family Payment were merged in 1996 to form Family Payment, which was then subject to the maintenance income test. With the change to FTB from 1 July 2000, the maintenance income test was essentially retained, with the 50% taper rate applied to income over the maintenance threshold.
Parents paying maintenance could deduct 50% of the amount from family income for the purposes of their receipt of Family Allowance from 1 July 1999. The 50% deduction was retained when FTB was introduced. From 1 July 2001, the deduction was increased to 100% of maintenance paid.
2.5.9 Administrative system for changes of assessment
Although it was the exclusive domain of the Child Support Registrar to make child support assessments for children coming under the legislation, the flexibility of the system was preserved by allowing the Family and Magistrates Courts to depart from the formula in particular circumstances. From 1 July 1992, departure from the formula via an administrative process was established, which was free of charge and for which the parties did not require legal representation. Child Support Review Offi cers assessed applications for administrative departure from the formula, relying on the grounds previously available to the courts.
2.5.10 Payment of child support otherwise than to the CSA
Initially, where the child support liability was registered with the CSA, the Scheme required that payment be made to the CSA. From 1992, this was eased to a limited extent, and CSA could credit an amount as a Non-Agency Payment where the payer made that payment otherwise than to the CSA, although only if both parents intended the payment to be for child support. The provisions additionally required that there be special circumstances.
The requirement for special circumstances was removed from 1 July 1999 along with an easing of the payee parent’s choice to collect the liability privately, and the scope of Non-Agency Payments extended to non-cash payments. Payments were prescribed as payments which may be credited as child support, although only against 25% of the periodic liability.