16.1 The modelling tool
The Taskforce commissioned the National Centre for Social and Economic Modelling (NATSEM) at the University of Canberra to build a highly sophisticated modelling tool to facilitate the development of options for a new formula. The model helped the Taskforce to:
- better understand the effects of the current child support formula;
- examine the characteristics of alternative new formulae; and
- comprehensively test the operation of the proposed formula, using a wide variety of family types and circumstances.
The modelling tool allows the input of a broad range of initial settings and assumptions. It uses an enhanced version of NATSEM’s tax and transfer modelling tool, STINMOD, to calculate not only child support payments but also income support and family payments, income tax, and other flows. Finally, it produces a range of charts and tables showing detailed analysis of changed outcomes for both the payee’s and payer’s families, including scenarios where there is contact and shared care, where there are new biological or adopted children, and where one or both parents have re-partnered. A strength of the model is its ability to hold one parent’s private income constant while incrementing the income of the other parent, enabling ready analysis of ‘what if?’ scenarios and of how the various elements of income and expenditure interact.
The tool enabled the Taskforce to assess both the functioning of the current Child Support Scheme and the proposed changes to a level of precision that had not previously been possible. The marked improvement in computing power in recent years has helped enormously in this pursuit.
In this chapter, output from the model (calibrated with the settings contained in Recommendation 1) is used to demonstrate key features of the proposed formula. Broadly speaking, the model simulates the 2005–06 policy and economic environment. The results are only indicative at this stage, as the changes in the Consumer Price Index and average weekly earnings that will be used to index social security payments and child support formula components in 2005–06 are not yet known. Further, changes to income tax, income support and family payments announced in the 2005–06 Budget (which have not been passed by the Senate at the time of writing) have not been incorporated. In essence, the modelling simulates the rules of the various taxes and programs as they were expected to be in 2005–06 at the point when the modelling was undertaken in early 2005.
Modelling of outcomes for the largest parent groups is presented in the following graphs, together with tables comparing outcomes at a glance.
It should be noted that in all of the following results it has been assumed that resident parents with low to medium levels of private income receive Parenting Payment (Single) and that non-resident parents with low levels of private income receive Newstart Allowance. (In both cases, the rules of the relevant income tests in 2005–06—prior to the announced 2005 Budget changes—have been replicated.) This is why the results do not show any non-resident parents with private incomes below $18,000 paying the $20 per child minimum payment proposed by the Taskforce for those non-resident parents whose taxable incomes fall below the maximum annual rate of Parenting Payment (Single)
and who are not on any form of income support. Thus, in all of the following charts non-resident parents with private incomes below this level are assumed to be receiving Newstart Allowance and therefore paying only the $6 minimum payment when their level of contact is below 14%.
Four key types of distributional output are presented in the following sections:
- Section 16.2 compares child support liabilities under the proposed new scheme with those payable under the current Child Support Scheme. This is done for a range of illustrative family types and ages and numbers of children.
- Section 16.3 shows the change in effective marginal tax rates for four non-resident parent categories.
- Section 16.4 examines how the costs of children and child support liabilities vary, for both resident and non-resident parents, at four income levels—very low (zero private income), low ($26,000), middle ($52,000) and high ($78,000).
- Section 16.5 analyses the outcomes of the proposed scheme for five hypothetical sets of parents.
16.2 Child support outcomes by income level
16.2.1 Non-resident parent’s income increasing
This section shows the outcomes of the proposed new scheme for non-resident parents with progressively increasing levels of private income, where the private income of the resident parent is held constant at zero (and as a result, although the resident parent is assumed to be receiving Parenting Payment (Single), his or her adjusted taxable income is below the self-support threshold).
Figure 16.1 shows a common scenario: the resident parent’s taxable income is less than the self-support amount, there is one child aged 0–12 years, no sharing of care and no new biological/legal children. The non-resident parent’s private income is increasing from $0 to $141,000, in $3,000 increments of private income.
In this figure (and in Figures 16.2 and 16.3) the resident parent has income below the self-support amount, so that the costs of the child are fully met by the non-resident parent. This amount is shown in the solid blue line, which represents child support liabilities under the proposed formula.
Figure 16.1: Child support paid—resident parent’s private income $0, non-resident parent’s private income increasing, one child support child aged 0–12 years 
Taskforce Child Support Model.
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Up to approximately the proposed new individual self-support amount of $16,883 in 2005–06, the non-resident parent is required to pay only the minimum payment under the proposed new scheme. At $18,000 of private income the non-resident parent ceases to receive any Newstart Allowance, so their private income at $18,000 and above is the same in this scenario as their adjusted taxable income.
Under the proposed scheme, the cost of the child begins to increase immediately either parent’s private income increases above their individual self-support income amount. The rate of increase slows at higher income levels, in line with the reduced marginal child cost rates at higher income thresholds proposed by the Taskforce. This is why the solid line of child support liabilities shown in Figure 16.1 does not continue to increase at the same rate as income.
Figure 16.1 shows that the Taskforce’s suggested child support liabilities for a child aged 0–12 years are less than the current formula at all income levels, but particularly so at higher income levels.
Figure 16.2, like Figure 16.1, shows a scenario where the resident parent’s income is less than the self-support amount, there is no sharing of care, no new biological/legal children and the non-resident parent’s income is increasing from $0 to $141,000. The difference is that the sole child is aged 13–17 years rather than 0–12 years. Again, the non-resident parent is meeting the full cost of the child, so that the solid blue line of the proposed child support to be paid by the non-resident parent coincides with estimated child costs (not shown separately).
Figure 16.2: Child support paid—resident parent’s private income $0, non-resident parent’s private income increasing, one child support child aged 13–17 years
Taskforce Child Support Model
Figure 16.3: Child support paid—resident parent’s private income $0, non-resident parent’s private income increasing, two child support children (one aged 0–12 years, one aged 13–17 years)
Taskforce Child Support Model.
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Figure 16.2 shows that the Taskforce’s proposed liability for a child of this age is slightly less than the current formula at the lowest levels of income, higher than the current formula across a large range of incomes, and again lower at high income levels.
Once again, Figure 16.3 shows a scenario where the resident parent’s income is less than the self-support amount, there is no sharing of care, no new biological/legal children and the non-resident parent’s income is increasing from $0 to $141,000. However, in this scenario there are two child support children, one in each of the proposed two age groups.
As shown in Figure 16.3, the current formula amount for the two children is higher than the Taskforce’s proposed estimated costs and child support payments at all income levels. As the two children span both of the age ranges proposed by the Taskforce, the net costs are higher than would be applicable for two children aged 0–12 years and lower than those that would be applicable for two children aged 13–17 years.
In Figure 16.4, the resident parent’s income is again less than the self-support amount, there is no sharing of care, no new biological/legal children and the non-resident parent’s income is increasing from $0 to $141,000. However, in this scenario there are three child support children, all in the younger age group.
The current child support formula amounts are considerably higher than the Taskforce’s estimated costs and proposed child support paid for three younger children. As shown in Chapter 8, estimates of the gross costs of additional children after the fi rst refl ect the effect of economies of scale. This effect is further accentuated when net costs are calculated, as the Government pays the same amount of Family Tax Benefi t (FTB) Part A for each child.
Figure 16.4: Child support paid—resident parent’s private income $0, non-resident parent’s private income increasing, three child support children (all aged 0–12 years) 
Taskforce Child Support Model.
16.2.2 Resident parent’s income increasing
The figures in section 16.2.1 examined the impact of the new scheme where the resident parent’s income is held constant and the income of the non-resident parent is increased. In contrast, the figures in this section show what happens when the non-resident parent’s income is held constant, and the resident parent’s income is increasing.
The scenario in Figure 16.5 illustrates the impact of the proposed new scheme on the child support received by resident parents where the non-resident parent has $700 per week of taxable income.
Figure 16.5: Child support received—resident parent’s private income increasing, non-resident parent’s private income $700 pw, one child support child aged 0–12 years 
Taskforce Child Support Model.
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In this scenario the costs of the child are not zero when the resident parent’s income is below the self-support amount, because the non-resident parent has income above the self-support amount. When the parents’ Child Support Incomes are equal, they each pay half the costs of the child under the proposed formula. Thus, when the resident parent’s income reaches about $36,000, the proposed child support of about $61 per week represents half of the net child costs of $121 per week. The gap between the two unbroken lines represents the resident parent’s expenditure on the child from his or her own resources.
Note that the resident parent’s rising income has only a small effect on the non-resident parent’s liabilities at the lower levels of income. This is because net child costs, which increase as combined family income increases, are rising almost as fast as his or her income. However, under the current formula, the resident parent’s rising income has no effect whatsoever on liabilities until it exceeds $39,312, as shown by the broken line in the figure.
At higher levels of combined income, the ‘income shares’ effect of the proposed formula becomes more pronounced, and each additional dollar of income earned by the resident parent decreases the child support liability by an increasing amount. This figure (and Figure 16.6) also suggest that non-resident parents whose former partners have middle-to-high incomes have not been paying their fair share of the costs of children under the current formula.
In Figure 16.6 the income of the non-resident parent is again held constant, this time at $1,000 per week, while the income of the resident parent is increasing in $3,000 increments. This scenario illustrates the impact of the proposed new scheme on middle-income non-resident parents as the income of the resident parent increases. Similarly, it shows resident parents with a middle-income non-resident parent the likely impact of the proposed new scheme upon their child support received.
Figure 16.6: Child support received—resident parent’s private income increasing, non-resident parent’s private income $1,000 pw, two child support children (one aged 0–12 years, one aged 13–17 years)
Taskforce Child Support Model.
Higher-income payers whose former partners earn above about $39,000 would see a significant rise in child support liabilities under the proposed formula. This is shown by the solid line of child support received under the proposed new scheme being higher than child support received under the current Scheme. As with the previous scenario, resident parents at lower levels of private income would experience a slight fall in child support received.
16.2.3 Regular contact and shared care
The figures in this section illustrate the impact of the proposed new scheme where there is regular contact or shared care.
It is useful to compare Figure 16.7 with Figure 16.1: the situation is identical except that the non-resident parent in this case has care of the child for 20% of nights. The solid dark blue line (representing child support paid under the proposed formula) is well below the dotted line (representing child support paid under the current formula) because the current formula does not take account of contact at this level. The figure reflects the Taskforce’s recommendation that regular contact or shared care at or above the level of 14% of nights per year by a parent should result in that parent being taken to incur some proportion of the costs of the child.
Figure 16.7: Child support paid—resident parent’s private income $0, non-resident parent’s private income increasing, one child support child aged 0–12 years, non-resident parent has 20% care 
Taskforce Child Support Model.
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The gap between the two unbroken lines represents the non-resident parent’s expenditure on the child during the 20% of time that the child is in his or her care. As in Figure 16.3, because the resident parent has taxable income below the self-support amount, the non-resident parent is meeting the full net cost of the child. However, the non-resident parent is paying some of that cost in child support (the amounts shown in the solid dark blue line) and an increasing amount in direct expenditure while the child is in his or her home as income rises (represented by the gap between the solid lines).
Where the non-resident parent’s income is below the self-support amount, these examples assume that he or she receives government income support payments and is therefore not subject to the fixed payment of $20 per week per child. In addition, non-resident parents who have care of 14% or more are not liable for the minimum payment. Therefore, as Figure 16.8 shows, there is no minimum liability or fi xed payment imposed under the proposed formula in this example.
Figure 16.8: Child support paid—resident parent’s private income $0, non-resident parent’s private income increasing, one child support child aged 0–12 years, non-resident parent has 35% care 
Taskforce Child Support Model.
In the preceding scenario there was a significant difference between the current and proposed child support liabilities, in part because under the current Scheme shared care of less than 30% does not affect child support liabilities. This scenario, in contrast, shows the outcomes of the proposed scheme where the non-resident parent has 35% care, the resident parent still has zero private income, and there is still one child aged 0–12 years. There is less of a difference between current and proposed child support liabilities in this scenario than in Figure 16.7 because the current child support system also reduces child support liabilities when care is shared at this level.
In this scenario the blue dashed line of child support paid under the current system is lower than the blue dashed line in Figure 16.7 because, as noted above, the current Scheme reduces child support liabilities when the non-resident parent has 35% care. The solid light blue lines, of the net costs of the child, are the same in both this figure and Figure 16.7. The solid dark blue line shows the proposed new child support payments by the non-resident parent to the resident parent, while the gap between the solid lines shows the estimated child costs incurred by the non-resident parent when the child is in his or her care.
This example shows that the proposed formula takes into account, to a greater extent than the current formula, the non-resident parent’s expenditure when the child is in his or her care.
16.2.4 Second families
The figures in this section illustrate the impact of the proposed new scheme on non-resident parents with second families.
An important issue for any child support scheme is how new biological children are treated in comparison to existing child support children. Figure 16.9 shows the impact of the proposed and current schemes on a non-resident parent who has a new biological child aged 0–12 years and a child aged 0–12 from a previous relationship for whom he or she is paying child support. In this example, the resident parent’s taxable income is below the self-support amount, as his or her private income is zero.
Figure 16.9: Child support paid—resident parent’s private income $0, non-resident parent’s private income increasing, one child support child aged 0–12 years, non-resident parent has a new biological child aged 0–12 years 
Taskforce Child Support Model.
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The key difference between the current and proposed systems is that the current system allows a flat-rate deduction for new biological children, whereas the proposed scheme allows a ‘percentage of income’ deduction. At middle-to-higher income levels, the proposed percentage of income represents more dollars than the current fl at-rate deduction.
For a non-resident parent with a new biological child aged 0–12 years, the impact of the Taskforce’s recommendations is to increase the child support paid at low levels of private income and decrease the child support paid at upper middle-to-higher levels of private income.
The increase in child support paid by the non-resident parent at low income levels is because the proposed reduction in the Child Support Income of the non-resident parent due to the new biological child represents a lower dollar amount than the current Scheme exemption for new biological children. Conversely, the reduction in child support paid by non-resident parents with taxable incomes above about $55,000 is due to the percentage reductions in Child Support Income at this income level because of the new children representing a higher dollar amount than the current flat-rate deduction for new biological children. The generally lower child support percentages at higher income levels also contribute to the reduction for these non-resident parents.
In Figure 16.10, the non-resident parent has one child support child aged 13–17 years from an earlier relationship and has regular contact. The non-resident parent also has two new biological children, one aged 0–12 years and the other aged 13–17 years.
Figure 16.10: Child support paid—resident parent’s private income $0, non-resident parent’s private income increasing, one child support child aged 13–17 years, non-resident parent has two new biological children, one aged 0–12 years and one aged 13–17 years, non-resident parent has 25% care 
Taskforce Child Support Model.
Here the proposed amount of child support to be paid lies above the current child support liabilities for low-to-middle-income non-resident parents. There are two reasons for this. First, the child support child is aged 13–17 years and the proposed child support payments are therefore higher than the current Scheme’s non-age-related rate for one child. Second, the current flat-rate deduction from taxable income applicable for two new biological children is a higher dollar amount than the proposed percentage reduction in Child Support Income until well up the income range. However, the effect of this is moderated because the non-resident parent has regular contact.
16.3 Effective marginal tax rates
This section examines the impact of the proposed new scheme on effective marginal tax rates (EMTRs). An EMTR measures the increase in income available to a person to spend after their private income (e.g. from earnings) has increased. Thus, an EMTR of 70% means that, out of a one dollar increase in private income, a person has a 30-cent increase in the income that they have available to spend, in this case after taking full account of any possible reductions in income support or family payments, payment of income tax, and changes in child support paid or received.
It should be noted that the figures in this section do not show the EMTR facing parents on their next dollar of private income, but instead show the averaged EMTR that they will face on the next $3,000 of private income. (Thus, the calculation is the increase in effective disposable income after allowing for child support, income tax, family payments and income support changes, expressed as a percentage of the $3,000 increase in private income. An EMTR of 50% therefore means that the parent can expect to retain half of a $3,000 increase in private income.)
Using output from the NATSEM model, this section examines EMTRs produced under the current and proposed new systems. These figures show EMTRs resulting from income tax and from taper rates for income support and (where applicable) family payments, as well as those resulting from the operation of both the current and proposed child support schemes.
Figure 16.11 shows EMTRs for the scenario presented earlier in Figure 16.1, where the resident parent has no private income, the non-resident parent therefore meets the full estimated costs of the children, there is one child aged 0–12 years and the non-resident parent’s income is increasing in $3,000 increments up to $141,000.
Figure 16.11: EMTRs—resident parent’s private income $0, non-resident parent’s private income increasing, one child support child aged 0–12 
Note: Effective marginal tax rate averaged over the $3,000 income range between one income point and the next.
Taskforce Child Support Model.
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At low levels of private income (below $18,000) this non-resident parent is assumed to be in receipt of Newstart Allowance (the most common case). When the non-resident parent is on Newstart Allowance and has some private income that takes his or her total taxable income above $13,462, there is a modest reduction in EMTRs due to the increase in the self-support threshold from the current $13,462 to the proposed scheme level of $16,883.
At $18,000 of income and above, EMTRs for the non-resident parent are reduced across almost all income ranges, with significant reductions at higher income levels up to the level of the current cap. This is due to the proposed child support percentages for younger single children being lower than the 18% used in the current scheme. Workforce disincentive effects of child support are thus reduced under the proposed scheme. Above the level of the current cap of around $131,000, EMTRs under the proposed scheme are somewhat higher than at present.
Figure 16.12 shows the payer’s EMTRs for the families represented earlier in Figure 16.2. This is a very similar example to that shown in Figure 16.11, with the single exception that the child support child is aged 13–17 years, rather than 0–12 years. In this example, while the payer is initially in receipt of Newstart Allowance, EMTRs are high and fall slightly under the proposed scheme due to the increase in the self-support threshold.
Figure 16.12: EMTRs—Resident parent’s private income $0, non-resident parent’s private income increasing, one child support child aged 13–17 years 
Note: Effective marginal tax rate averaged over the $3,000 income range between one income point and the next.
Taskforce Child Support Model.
At $18,000 of private income and above, by which time the non-resident parent is not receiving any Newstart Allowance, EMTRs are initially higher under the proposed new scheme because of the higher rate applicable to an older child. This reflects the higher rate of net child costs and therefore child support paid for older children, relative to the current system. While EMTRs are around five cents in the dollar higher for lower- and middle-income earners, they are significantly reduced at higher income levels up to the level of the current cap.
Figure 16.13 shows the EMTRs facing resident parents with increasing incomes and with a non-resident parent whose income is $700 per week (the example shown earlier in Figure 16.5). The EMTRs facing resident parents fall here at taxable incomes of about $39,000 to $78,000, due to the removal of the provision in the existing Child Support Scheme that sharply reduces child support received once the income of the resident parent exceeds this level. Thus, work incentives for resident parents on middle to high incomes who have a non-resident parent with some private income will be improved under the new scheme. The reduction in child support paid under this scenario when the resident parent’s income is below this $39,000 threshold results in a very slight increase in the resident parent’s EMTRs, although the increase is so marginal that it can barely be seen in the graph. Similarly, the proposed new scheme has little impact upon the EMTRs faced here by resident parents with taxable private incomes above about $78,000.
Figure 16.13: Child support received—resident parent’s private income increasing, non-resident parent’s private income $700 pw, one child support child aged 0–12 years 
Note: Effective marginal tax rate averaged over the relevant income range.
Taskforce Child Support Model.
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16.4 Contributions to the cost of the child
This table and those on the following pages show liabilities under the current and proposed schemes, Taskforce agreed net costs of the child or children, and the average expenditure by the resident parent, for various numbers and ages of children and at various levels of parents’ incomes. The tables show the outcomes for resident parents and non-resident parents each at four different private income levels, namely very low ($0), low ($26,000), middle ($52,000) and high ($78,000).
| Private Income of Non-Resident Parent |
Private Income of Resident Parent1 |
| $0 |
$26,000 ($500 pw) |
$52,000 ($1,000 pw) |
$78,000 ($1,500 pw) |
| One child support child aged 0-12 years |
| $0 |
| Current CSS payment by non-resident to resident parent |
5 |
5 |
5 |
5 |
| Proposed new system |
| Costs of child |
0 |
42 |
111 |
180 |
| Non-resident parent contribution2 |
6 |
6 |
6 |
6 |
| Resident parent contribution |
0 |
36 |
105 |
175 |
| Change in non-resident parent contribution |
1 |
1 |
1 |
1 |
| $26,000 |
| Current CSS payment by non-resident to resident parent |
43 |
43 |
21 |
11 |
| Proposed new system |
| Costs of child |
30 |
72 |
137 |
201 |
| Non-resident parent contribution2 |
30 |
30 |
28 |
26 |
| Resident parent contribution |
0 |
42 |
109 |
175 |
| Change in non-resident parent contribution |
-13 |
-13 |
7 |
15 |
| $52,000 |
| Current CSS payment by non-resident to resident parent |
133 |
133 |
111 |
66 |
| Proposed new system |
| Costs of child |
111 |
148 |
201 |
253 |
| Non-resident parent contribution2 |
111 |
109 |
101 |
92 |
| Resident parent contribution |
0 |
39 |
100 |
161 |
| Change in non-resident parent contribution |
-22 |
-24 |
-10 |
26 |
| $78,000 |
| Current CSS payment by non-resident to resident parent |
223 |
223 |
201 |
156 |
| Proposed new system |
| Costs of child |
180 |
210 |
253 |
291 |
| Non-resident parent contribution2 |
180 |
173 |
161 |
146 |
| Resident parent contribution |
0 |
37 |
92 |
145 |
| Change in non-resident parent contribution |
-43 |
-50 |
-40 |
-10 |
- This is the private income of the resident parent. In all of these examples the resident parent is assumed to be receiving Parenting Payment (Single), which is taxable and can therefore affect the estimated costs of the children if it takes the taxable income of the resident parent above the self-support amount. PPS received is $250 a week at $0 of private income, $74 at $26,000 of private income, and zero at $52,000 of private income and above. This is why the resident parent's contribution is greater than the non-resident parent's contribution when their private incomes both equal $26,000 (because the resident parent's taxable income equals $29,848, which is greater than the non-resident parent's taxable income of $26,000). All figures in table rounded to nearest $.
- In this example, this is the amount that the non-resident parent has to pay the resident parent in child support
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| Private Income of Non-Resident Parent |
Private Income of Resident Parent1 |
| $0 |
$26,000 ($500 pw) |
$52,000 ($1,000 pw) |
$78,000 ($1,500 pw) |
| Two child support children, one 0-12 years & one 13-17 years |
| $0 |
| Current CSS payment by non-resident to resident parent |
5 |
5 |
5 |
5 |
| Proposed new system |
| Costs of child |
0 |
66 |
177 |
299 |
| Non-resident parent contribution2 |
6 |
6 |
6 |
6 |
| Resident parent contribution |
0 |
60 |
171 |
293 |
| Change in non-resident parent contribution |
1 |
1 |
1 |
1 |
| $26,000 |
| Current CSS payment by non-resident to resident parent |
65 |
65 |
32 |
16 |
| Proposed new system |
| Costs of child |
47 |
112 |
222 |
338 |
| Non-resident parent contribution2 |
47 |
47 |
46 |
44 |
| Resident parent contribution |
0 |
65 |
176 |
294 |
| Change in non-resident parent contribution |
-18 |
-18 |
14 |
28 |
| $52,000 |
| Current CSS payment by non-resident to resident parent |
200 |
200 |
167 |
100 |
| Proposed new system |
| Costs of child |
177 |
225 |
338 |
437 |
| Non-resident parent contribution2 |
117 |
176 |
169 |
159 |
| Resident parent contribution |
0 |
49 |
169 |
278 |
| Change in non-resident parent contribution |
-23 |
-24 |
2 |
59 |
| $78,000 |
| Current CSS payment by non-resident to resident parent |
335 |
335 |
302 |
235 |
| Proposed new system |
| Costs of child |
299 |
341 |
437 |
502 |
| Non-resident parent contribution2 |
299 |
294 |
278 |
251 |
| Resident parent contribution |
0 |
47 |
159 |
251 |
| Change in non-resident parent contribution |
-36 |
-41 |
-24 |
16 |
- This is the private income of the resident parent. In all of these examples the resident parent is assumed to be receiving Parenting Payment (Single), which is taxable and can therefore affect the estimated costs of the children if it takes the taxable income of the resident parent above the self-support amount. PPS received is $250 a week at $0 of private income, $74 at $26,000 of private income, and zero at $52,000 of private income and above. This is why the resident parent's contribution is greater than the non-resident parent's contribution when their private incomes both equal $26,000 (because the resident parent's taxable income equals $29,848, which is greater than the non-resident parent's taxable income of $26,000). All figures in table rounded to nearest $.
- In this example, this is the amount that the non-resident parent has to pay the resident parent in child support
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| Private Income of Non-Resident Parent |
Private Income of Resident Parent1 |
| $0 |
$26,000 ($500 pw) |
$52,000 ($1,000 pw) |
$78,000 ($1,500 pw) |
| One child support child aged 0-12 years, non-resident parent has new child aged 0-12 years |
| $0 |
| Current CSS payment by non-resident to resident parent |
5 |
5 |
5 |
5 |
| Proposed new system |
| Costs of child |
0 |
42 |
111 |
180 |
| Non-resident parent contribution2 |
6 |
6 |
6 |
6 |
| Resident parent contribution |
0 |
36 |
105 |
174 |
| Change in non-resident parent contribution |
1 |
1 |
1 |
1 |
| $26,000 |
| Current CSS payment by non-resident to resident parent |
5 |
5 |
5 |
5 |
| Proposed new system |
| Costs of child |
25 |
67 |
133 |
197 |
| Non-resident parent contribution2 |
25 |
25 |
24 |
22 |
| Resident parent contribution |
0 |
42 |
109 |
175 |
| Change in non-resident parent contribution |
20 |
20 |
19 |
17 |
| $52,000 |
| Current CSS payment by non-resident to resident parent |
94 |
94 |
72 |
27 |
| Proposed new system |
| Costs of child |
94 |
131 |
188 |
242 |
| Non-resident parent contribution2 |
94 |
91 |
86 |
79 |
| Resident parent contribution |
0 |
40 |
102 |
163 |
| Change in non-resident parent contribution |
0 |
-3 |
14 |
52 |
| $78,000 |
| Current CSS payment by non-resident to resident parent |
184 |
184 |
162 |
117 |
| Proposed new system |
| Costs of child |
158 |
188 |
235 |
279 |
| Non-resident parent contribution2 |
158 |
151 |
140 |
128 |
| Resident parent contribution |
0 |
37 |
95 |
151 |
| Change in non-resident parent contribution |
-26 |
-33 |
-22 |
11 |
- This is the private income of the resident parent. In all of these examples the resident parent is assumed to be receiving Parenting Payment (Single), which is taxable and can therefore affect the estimated costs of the children if it takes the taxable income of the resident parent above the self-support amount. PPS received is $250 a week at $0 of private income, $74 at $26,000 of private income, and zero at $52,000 of private income and above. This is why the resident parent's contribution is greater than the non-resident parent's contribution when their private incomes both equal $26,000 (because the resident parent's taxable income equals $29,848, which is greater than the non-resident parent's taxable income of $26,000). All figures in table rounded to nearest $.
- In this example, this is the amount that the non-resident parent has to pay the resident parent in child support
16.5 Cameo illustrations of the operation of the formula
This section provides five worked examples of the operation of the proposed new scheme.
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Tom and Meng
Tom and Meng have three children, all under 12. They separate. All of the children live with Meng. They stay with Tom for 25% of the nights per year (generally alternate weekends and half of school holidays).
Step 1—Find Tom and Meng’s Child Support Incomes Tom has an adjusted taxable income of $51,500 and Meng has an adjusted taxable income of $27,000. Deducting the self-support component ($16,883) from each gives Tom a Child Support Income of $34,617 and Meng a Child Support Income of $10,117.
Step 2—Calculate the costs of the children Tom and Meng’s Combined Child Support Income is $44,734. The cost of the children is calculated by taking 27% of the first $25,324 of this and 26% of $19,410 (the remainder of the Combined Child Support Income).
27% of $25,324 is $6,837, and 26% of $19,410 is $5,047, giving a total of $11,884. (In the Costs of Children Table, this is shown as $6,837 plus 26 cents for each dollar over $25,324.) This is the cost of the children.
Step 3—Apportion this cost between the parents This cost is apportioned according to each parent’s capacity to pay. A parent’s capacity to pay is determined by the proportion that they have of the Combined Child Support Income. Tom has 77.38% of the Combined Child Support Income, so Tom is responsible for 77.38% of the cost and Meng is responsible for 22.62% of the cost.
Under the formula, Tom is given credit for incurring 24% of the children’s costs by caring for the children. Therefore only the balance of Tom’s obligation must be contributed through his child support payment. Tom’s payment is his total obligation (77.38% of the children’s cost) less his credit due to care (24%). His payment is 53.38% of the costs of the children.
53.38% of $11,884 is $6,344. Tom must pay this to Meng.
Other outcomes Tom’s payment to Meng equals 12.3% of his adjusted taxable income of $51,500. This reflects the self-support threshold, as well as the sharing of care between Tom and Meng. Tom’s payment equals 15.9% of his post-income-tax income. (It should be noted that this estimate is based on the currently promulgated income tax scales for 2005–06, not the tax scales put forward for 2005–06 in the May 2006 Budget, which at the time of writing this Report have not yet been passed by the Senate.)
Ali and Leila
Ali and Leila have two children, one is 14 and one is 16. They separate. They share care of the children equally.
Step 1—Find Ali and Leila’s Child Support Incomes Ali has an adjusted taxable income of $54,000 and Leila has an adjusted taxable income of $67,000. Deducting the self-support component ($16,883) from each gives Ali a Child Support Income of $37,117 and Leila a Child Support Income of $50,117.
Step 2—Calculate the cost of the children Ali and Leila’s Combined Child Support Income is $87,234. The cost of the children is calculated by taking 29% of the first $25,324 of this, 28% of the next $25,324, 25% of the next $25,324, and 20% of $11,262 (the remainder of the Combined Child Support Income).
29% of $25,324 is $7,344, 28% of $25,324 is $7,091, 25% of $25,324 is $6,331, and 20% of $11,262 is $2,252, giving a total of $23,018. (In the Costs of Children Table, this is shown as $20,766 plus 20 cents for each dollar over $75,972.) This is the cost of the children.
Step 3—Apportion this cost between the parents This cost is apportioned according to each parent’s capacity to pay. A parent’s capacity to pay is determined by the proportion that they have of the Combined Child Support Income. Leila has 57.45% of the Combined Child Support Income, so she is responsible for 57.45% of the cost of the children and Ali is responsible for 42.55%.
Under the formula, Leila is given credit for incurring 50% of the children’s costs by caring for the children. Therefore only the balance of Leila’s obligation must be contributed through her child support payment. Leila’s payment is her total obligation (57.45% of the children’s cost) less credit due to care (50%). Her payment is 7.45% of the costs of the children.
7.45% of $23,018 is $1,715. This is the amount that Leila is required to pay to Ali.
Other outcomes Leila’s payment to Ali equals 2.6% of her adjusted taxable income of $67,000. This reflects the self-support threshold, as well as the sharing of care between Leila and Ali. Leila’s payment equals 3.4% of her post-income-tax income. (It should be noted that this estimate is based on the currently promulgated income tax scales for 2005–06, not the tax scales put forward for 2005–06 in the May 2006 Budget, which at the time of writing this Report have not yet been passed by the Senate.)
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Peter and Kate
Peter and Kate have two children, one is eight and one is 15. They separate. Both the children live with Kate 100% of the time.
Step 1—Find Peter and Kate’s Child Support Incomes Peter has an adjusted taxable income of $50,000 and Kate has an adjusted taxable income of $24,000. Deducting the self-support component ($16,883) from each gives Peter a Child Support Income of $33,117 and Kate a Child Support Income of $7,117.
Step 2—Calculate the costs of the children Peter and Kate’s Combined Child Support Income is $40,234. The cost of the children is calculated by taking 26.5% of the first $25,324 of this and 25.5% of $14,910 (the remainder of the Combined Child Support Income).
26.5% of $25,324 is $6,711, and 25.5% of $14,910 is $3,802, giving a total of $10,513. (In the Costs of Children Table, this is shown as $6,711 plus 25.5 cents for each dollar over $25,324.) This is the cost of the children.
Step 3—Apportion this cost between the parents This cost is apportioned according to each parent’s capacity to pay. A parent’s capacity to pay is determined by the proportion that they have of the Combined Child Support Income. Peter has 82.31% of the Combined Child Support Income, so Peter is responsible for 82.31% of the cost, and Kate is responsible for 17.69% of the cost. Kate spends her share of the cost in paying for day-to-day expenses from her money and Peter pays Kate his share to meet the remaining expenses of the children.
82.31% of $10,513 is $8,653. Peter must pay this to Kate.
Other outcomes Peter’s payment to Kate equals 17.3% of his adjusted taxable income of $50,000. This reflects the self-support threshold, which results in child support paid as a percentage of taxable income being lower than the 26.5% net costs of children rate embedded in the proposed new formula for income immediately above the self-support threshold. Peter’s payment equals 22.3% of his post-income-tax income. (It should be noted that this estimate is based on the currently promulgated income tax scales for 2005–06, not the tax scales put forward for 2005–06 in the May 2006 Budget, which at the time of writing this Report have not yet been passed by the Senate.)
Jack and Sharon
Jack and Sharon have one child aged nine years. They separate. The child lives with Sharon 100% of the time.
Step 1—Find Jack and Sharon’s Child Support Incomes Jack has an adjusted taxable income of $26,000 a year. Sharon has no private income of her own and is paid the maximum rate of Parenting Payment (Single), giving her an estimated adjusted taxable income in 2005–06 of $12,979. Deducting the self-support component ($16,883) from each gives Jack a Child Support Income of $9,117 and Sharon a Child Support Income of zero.
Step 2—Calculate the costs of the childrenJack and Sharon’s Combined Child Support Income is $9,117. 17% of $9,117 is $1,550. (In the Costs of Children Table, this is shown as 17 cents for each dollar.) This is the cost of the child.
Step 3—Apportion this cost between the parents This cost is apportioned according to each parent’s capacity to pay. A parent’s capacity to pay is determined by the proportion that they have of the Combined Child Support Income. Jack has 100% of the Combined Child Support Income, so he is responsible for all of the cost of the child. Jack pays Sharon $1,550.
Other outcomes Jack’s payment to Sharon equals 6% of his adjusted taxable income of $26,000. This reflects the self-support threshold, which results in child support paid as a percentage of taxable income being lower than the 17% net costs of children rate embedded in the proposed new formula for income immediately above the self-support threshold. Jack’s payment equals 7% of his post-income tax income. (It should be noted that this estimate is based on the currently promulgated income tax scales for 2005–06, not the tax scales put forward for 2005–06 in the May 2006 Budget, which at the time of writing this Report have not yet been passed by the Senate.)
Living standards are often compared by using equivalent income measures, which essentially reflect the number of people that have to be supported by each parent’s income. The Organisation for Economic Co-operation and Development (OECD) equivalence scale is widely used and gives a value of 1 to the first adult in the family and 0.3 for each child. Under the proposed new scheme, Sharon’s disposable income (after receiving Parenting Payment (Single), FTB, and child support) would be $397.70. If this is divided by 1.3, to take account of the fact that she is supporting herself and her child with this income, then her equivalent disposable income is $305.90 a week. Jack’s disposable income, after paying child support and income tax, is $387.40. As he is only supporting himself with this income, his equivalent disposable income is the same, at $387.40.
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Stephen and Vimia
Stephen and Vimia have two children aged six and four. They separate. The children spend some school holidays with Stephen, so that Vimia’s share of care is 90%.
Step 1—Find Stephen and Vimia’s Child Support Incomes Stephen has no private income of his own and is receiving Newstart Allowance, giving him an estimated adjusted taxable income of $10,462 a year. Vimia has no private income of her own and is paid the maximum rate of Parenting Payment (Single), giving her an estimated adjusted taxable income in 2005–06 of $12,979. Deducting the self-support component ($16,883) from each gives both Stephen and Vimia a Child Support Income of zero.
Step 2—Calculate the costs of the children Stephen and Vimia’s Combined Child Support Income is zero. There is therefore no cost to be apportioned between the parents.
Step 3—Calculating the child support obligation As Stephen is receiving income support and has less than 14% care of the children, he pays Vimia the minimum payment of $6 a week in child support.
Other outcomesAfter taking account of the new higher payments of FTB received by Vimia under the proposed new scheme, her income is about $451 a week (made up of Parenting Payment (Single), FTB, and the $6 child support paid by Stephen, and with no income tax paid in this case). Using the OECD equivalence scale (which is 1 + 0.6 for two children reduced to 0.54 because Vimia has the children only 90% of the time) gives Vimia an equivalent income of $293 a week (that is, $451 divided by 1.54).
Stephen also pays no income tax and thus has a disposable income of about $195 a week after paying his $6 a week of child support to Vimia. As he has the two children for 10% of the time, this gives him an equivalent income of $184 a week (that is, $195 a week divided by 1.06).
Vimia’s equivalent income is higher than Stephen’s, which is largely a result of Parenting Payment (Single) and associated benefits being significantly higher than Newstart Allowance.