This chapter sets out the broad social context for revising the existing Child Support Scheme, and sets out the principles on which the proposed new formula is based.
7.1 No change to the fundamentals of the Scheme
The Taskforce does not propose any change to the fundamentals of the Scheme. There are many aspects of the current Scheme that work well in providing an adequate level of financial support for children. The Taskforce was not asked to re-examine these fundamentals and, in any event, considers that they remain appropriate.
Fundamentals of the Scheme that would
not change with the recommendations of this Report are as follows.
- The use of a formula-based administrative system for the calculation of child support.
- The provision of a self-support component below which only a minimum rate of child support is payable.
- The principle that children should share in the standard of living of both parents with the consequence that child support levels depend on parental income.
- The system of being able to seek a change of assessment through a simple administrative process, if certain criteria are satisfi ed.
- Responsibility to pay child support based upon biological or legal parenthood.120
- Assessment of child support based upon the parents’ individual incomes, disregarding the incomes of new partners.
- Collection and enforcement through the Child Support Agency (CSA) where the parents are unable to agree on their own arrangements for private transfers.
The Taskforce considered that its Terms of Reference did not invite it to engage in a re-assessment of these fundamental principles of the Scheme, nor did it consider it desirable to do so.
The results of the community attitudes survey conducted by the Australian Institute of Family Studies (AIFS), as seen in Figures 7.1 and 7.2 on the next page, showed a considerable level of support for the broad principles of the existing Scheme.
Figure 7.1: Do you think a father who does not usually live with his child or children should always be made to pay child support?
Notes: GP nonsep = general population non-separated sub-sample; CFC sep =
Caring for Children after Parental Separation sample comprising separated/divorced parents with at least one child under 18; χ2 (6) = 44.23,
p<.001.
Smyth B. & Weston R., ‘A snapshot of contemporary attitudes to child support’, in Volume 2 of this Report, p. 27.
Figure 7.2: Do you think a mother who does not usually live with her child or children should always be made to pay child support? 
Notes: GP nonsep = general population non-separated sub-sample; CFC sep =
Caring for Children after Parental Separation sample comprising separated/divorced parents with at least one child under 18; χ2 (6) = 13.50,
p<.05. Smyth B. & Weston R., ‘A snapshot of contemporary attitudes to child support’, in Volume 2 of this Report, p. 27.
The majority in all groups felt that child support should always be paid, regardless of the gender of the non-resident parent. Of those who did not endorse this view, some felt that child support should not always be paid and others volunteered that payment should depend on other factors.
The two groups of women were less likely than the two groups of men to reject the idea that child support should always be paid by non-resident fathers (9–12% as against 20–26%), while only 2–9% rejected the notion of universal payment by non-resident mothers.
As shown in Figure 7.3, three of the four groups also supported the idea that child support payments should be relative to the income of the parent, rather than being set by basic costs of raising children.
Figure 7.3: Do you think child support payments should just cover the basic costs of children or should fathers who earn more pay more than this? 
Notes: GP nonsep = general population non-separated sub-sample; CFC sep =
Caring for Children after Parental Separation sample comprising separated/divorced parents with at least one child under 18; χ2 (12) = 48.37,
p<.001.
Smyth B. & Weston R., ‘A snapshot of contemporary attitudes to child support’, in Volume 2 of this Report, p. 31.
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The majority of non-separated women and men (57–61%) and resident mothers (69%) thought that the level of payment should depend on the father’s income rather than the basic costs of children. However, non-resident fathers were fairly evenly divided on this issue (41% opted for the ‘basic costs’ model and 42% opted for the ‘earning capacity’ model).
The survey showed gender differences regarding support for government involvement in the collection of child support, as shown in Figure 7.4.
Figure 7.4: Do you think most fathers would pay child support without any government involvement?
Notes: GP nonsep = general population non-separated sub-sample; CFC sep =
Caring for Children after Parental Separation sample comprising separated/divorced parents with at least one child under 18; χ2 (3) = 54.67,
p<.001.
Smyth B. & Weston R., ‘A snapshot of contemporary attitudes to child support’, in Volume 2 of this Report, p. 37.
Views on this issue varied according to gender and residency status. In terms of gender, women were more sceptical than men, with most women (61–74%) of the opinion that fathers would not pay without government involvement, while more than half the men said that they would pay without government intervention. This pattern was especially pronounced for separated parents: 74% of resident mothers thought that payment would not be forthcoming; 59% of non-resident fathers believed that it would.
7.2 Including both parents’ incomes in the calculation of child support
While endorsing the fundamentals of the Scheme, the Taskforce considers that there is now the need for a new approach to the assessment of child support obligations. This need arises from problems with the existing Scheme and from the significant social and demographic changes since 1988. In particular, the Taskforce considers that changes in educational attainment and patterns of employment for both mothers and fathers since that time mean that it is no longer justifiable to base the Child Support Scheme on the income of only one parent, as the current Scheme does in most cases.
7.2.1 Changes in educational attainment since 1988
The increase in levels of education is the first of several social changes justifying that both parents’ income should be taken into account by the Scheme. School retention rates have increased markedly since the 1980s. In 1984, the retention rates from Year 7/8 to Year 12 for females was 48% and 42.1% for males. In 2004, this has risen to 81.2% for females and 70.4% for males.
121 Women and men are now participating in higher education in record numbers. Overall numbers in tertiary education rose from 393,730 in 1987 to a high of 695,500 in 2000.
122 Between 1987 and 2000, the rate of participation in higher education for women has nearly doubled, increasing by a multiple of 1.9 (and by 1.6 for men).
123 In 1967, about one-quarter of students were female. Over the next two decades, the proportion of women increased rapidly to one-half by 1987. By 2000, the proportion of women had reached 55.2%.
124 In 1987 around two-thirds of students were male in the fields of: agriculture and animal husbandry; architecture and building; business, administration and economics; and science. Over 90% were male in engineering and surveying. In contrast, the fi elds of study including arts, humanities and social sciences, education, and health had around two-thirds female students. Only law and legal studies and veterinary science had a relative balance of male and female students. By 2000, the gender imbalance, while still evident, had improved in most of these fields. The exceptions were the fi elds of education where the gender imbalance increased (three-quarters female) and veterinary science where a gender imbalance emerged (two-thirds female).
125 These figures indicate that formal education levels are now generally higher for the whole population. Of particular relevance, less women today are held back from participation in the workforce by of a lack of appropriate educational qualifications.
7.2.2 Changes in patterns of labour force participation
The second aspect of social change justifying that both parents’ income should be taken into account is the change that has occurred in patterns of labour force participation. Labour force participation rates for women grew by one-quarter between 1983 and 2004, from 44.8% to 55.9%.
126 Particular groups of women whose rate of employment increased markedly were partnered mothers with dependent children and sole mothers.
127 The proportion of partnered mothers with dependent children in employment rose by one-half (or 21.7 percentage points) from 42.1% in 1983 to 63.8% in 2003. The proportion of sole mothers in employment rose by 56.1% (or 18 percentage points) from 32.1% in 1983 to 50.1% in 2003.
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7.2.3 Growth in part-time work
The strong growth in part-time employment is a major factor in the increase in labour force participation for women.
128 Over the two decades to 2004, the proportion of the labour force in part-time employment increased markedly. For females, the increase was from 31.8% in August 1983, to 42.5% in August 2004. For males, the proportion increased from 5.4% to 14%. For both males and females, the proportion of the labour force in full-time work fell.
Women with children tend to have different patterns of employment from the average. Between 1983 and 2003, part-time employment for that group increased from:
- 22.3% of all partnered mothers with dependent children to 37.8%; and
- 11.8% of all sole mothers to 27.1%.
The rate of full-time employment for partnered mothers also increased from 1983 to 2003, but not as much as the rate of part-time work. Their rate of full-time employment rose by 7.6 percentage points from 18.3% in 1983 to 25.9% in 2003. In contrast, the rate of full-time employment of sole mothers fluctuated within a small range of between 20.3% in 1983 to 28.7% in 1988, then falling to around 23% in 2003.
129
7.2.4 Mothers’ workforce participation increases as children grow older
Not surprisingly, female workforce participation increases as children grow older, although there has been a significant increase in the workforce participation of women with preschool-aged children since the 1980s.
130 In 1986, just over a third (37.2%) of partnered mothers whose youngest child was under five were employed, compared to one-half of that group (50.7%) in 2003. Of these employed mothers, in 1986 two-thirds were employed part-time and one-third were employed full-time. Although participation rates are greater in 2003, the preference for part-time work has continued, with two-thirds of employed partnered mothers of preschool-aged children continuing to work part-time.
Although sole mothers of young children are also participating more in the labour force, their participation rates remain much lower than partnered mothers. This trend has persisted since the 1980s.
131 In 1986, 21.8% of sole mothers with preschool-aged children were working (11.8% full-time and 10% part-time). In 2003, the employment rate of sole mothers with a preschool-aged child had risen to 32.9% (9.8% full-time and 23.1 % part-time).
Sole mothers tend to participate more as their youngest child reaches primary age, however, not as much as partnered mothers. In 2003, 20.3% of sole mothers of primary school-aged children were working full-time, while 32.9% were working part-time.
This is an employment rate of just over one-half. The figures for partnered mothers with primary school-aged children are 25.8% and 41.3% respectively, with more than two-thirds (67.1%) in the labour force in total.
7.2.5 Decreased labour force participation rates for men
Between 1983 and 2004, men’s labour force participation levels dropped from 76.7% to 71.5%.
132 The biggest decrease has been for sole fathers. Full-time employment for sole fathers declined from 66.6% in 1983 to 50.2% in 2003.
133 Full-time employment among partnered fathers declined less, from 86.7% in 1983 to 83.4 % in 2003.
Although the part-time rate of employment for men, as for women, has increased markedly, these figures indicate that while women have entered the labour force in record numbers, in contrast, there has been a sharp decline in the numbers of sole fathers in the labour force.
7.2.6 Changes in unemployment levels
The 1980s was characterised by higher average unemployment levels than today. In 1983, trend unemployment rate peaked at 10.3%. After that, it undulated, peaking again at 10.7% in 1992 and 1993, before following a gradual overall downward trajectory, reaching 5.1% in January 2005.
134 Clearly, with very high levels of employment, there is a much greater chance of being able to participate in the labour force than in times of lower employment.
7.2.7 Two-income households
Many couples with dependent children depend on two incomes, if not two full-time incomes, in supporting the children in an intact relationship, and many separated parents caring for children have some income from part-time or full-time work. In most cases, the income of the separated parents caring for children is not factored into the assessment of child support payable by the non-resident parent.
Whatever the merits of minimising emphasis on the resident parent’s income back in 1988, changing patterns of workforce participation suggest that it is reasonable now to take account of both parents’ capacity to support the child.
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7.3 Changes in patterns of parenting after separation
Another major social change since 1988 is the increasing recognition of the importance of both parents in bringing up children after parental separation. The principle of joint parental responsibility was given emphasis in the
Family Law Reform Act 1995, which amended Part VII of the
Family Law Act 1995. These reforms were intended to bring about a much greater emphasis on shared parenting.
135 The Family Law Reform Act, particularly in its statement of objects and principles, emphasised the equal responsibility of both parents after divorce, and the child’s right of contact with both parents, unless contrary to the child’s best interests.
136 The concept of shared parenting has very widespread support in the Australian population, including in the divorced population. Research by the Australian Institute of Family Studies in the mid-1990s
137 indicated that when parents are married, 78% think children should always be cared for by both parents, sharing the duties and responsibilities for their care, welfare and development and another 20% think this should mostly be the case.
138 When parents are separated or divorced, support is still strong for this proposition, although somewhat more conditional—50% of Australians think this should always be the case and another 33% think this should mostly be the way parents care for their children.
139 These were the views of respondents in the survey taken as a whole. But even among the subset of those who had experienced separation and divorce, the results were very similar.
140 These changes in the law and social attitudes towards parenting after separation have been accompanied by changes in attitudes towards post-separation parenting by non-resident parents, mostly fathers. Over time, there have been significant changes in the ideal of fatherhood, with a greater emphasis on emotional closeness and active involvement with the children.
141 This has led to a greater involvement of men in parenting in intact relationships, which then affects fathers’ attitudes towards post-separation parenting.
142 As a consequence, child support policy can no longer just be concerned with determining and enforcing the financial obligations of reluctant non-resident parents. Ensuring the payment of child support is one part of a bigger picture of encouraging the continuing involvement of both parents in the upbringing of their children. Furthermore, since many children after parental separation, where there is regular contact or shared care, have two homes, often one for most of the time and another for a minority of the time, it is important that the infrastructure costs of both parents are reflected properly in assessing how much child support should be paid.
7.4 Assessing the fairness of a child support formula
In making its recommendations, particularly concerning the amount of child support that should be paid, the Taskforce considered that the basis of working out a fair level of child support is fundamental to this.
The Child Support Scheme aims to ensure that parents contribute financially, as far as they are able, towards raising their biological children, whether or not they live with those children. This now widely agreed principle encapsulates ideas of fairness:
- for the child (that he or she should share in the income and living standards of both of their parents);
- for the resident parent/payee (that he or she should not be required to bear all the financial costs of raising their child);
- for the non-resident parent (that his or her contribution must be commensurate with his or her financial capacity); and
- for the state/taxpayer (that the state’s contribution towards children in separated families should not replace the financial contribution of parents).
However, beyond these shared principles, there is a range of views about determining the fairness of child support. Some people argue that fairness requires that non-resident parents pay sufficient child support to ensure that their children are not fi nancially disadvantaged by separation. Others argue that fairness should ensure that non-resident parents only pay the basic costs of raising the child, surplus amounts being regarded as spousal support.
The four main and competing principles for calculating child support obligations are:
- the continuity of cost principle;
- the meeting child costs principle;
- the maintaining a child’s living standards principle; and
- the equivalent living standards principle.
Continuity of cost principle
The continuity of cost principle is based on the idea that fairness requires that a non-resident parent contribute the same amount towards the child after separation as they would if they were living with the other parent.
To put this principle into operation and assess it, it is necessary to identify the amount a non-resident parent would hypothetically contribute if living with the other parent and the child, and compare this amount with his or her child support obligation when in separate households. An important consideration is to take into account that the parents are not the only parties financially contributing towards the costs of raising a child. The Government supports families through a range of family benefits, and the child may also have an income.
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Meeting child costs principle
The meeting child costs principle is based on the idea that fairness requires that a non-resident parent’s child support obligation be to ensure that the resident parent receives sufficient monies to meet the cost of raising the child
after separation.
This principle recognises that costs of raising children in couple households can vary from those in separated households, all other things remaining constant. In particular, research has shown that sole parents caring for a child 100% of the time often face higher costs in raising a child, compared with parents in intact households.
143 However, other research suggests that this is the case for middle- and high-income households, but not for low-income households, where access to a range of discounts and in-kind benefits can in turn reduce the costs of children as compared with costs for intact families.
144 To put this principle into operation and assess it, it is necessary to compare the costs of a child after separation with the contribution towards that cost coming from:
- child support from the non-resident parent;
- notional child support from the resident parent calculated on a similar basis; and
- government child benefits.
Should the three items add up to more than the cost of the child, then it could be argued that either government family benefits or the child support formula are higher than what is needed to raise the child.
The above comparison might be relatively straightforward when a child is living solely with one parent and has no contact with the other parent, and if there were a fi xed cost involved in raising a child. However there is no fixed cost. Furthermore, in the common case when a child spends time with both parents, the comparison for both parents needs to be relative to the costs each of them face in raising their child when the child is in their care. Previous research and research conducted for the Taskforce indicates that when regular overnight contact occurs, the total costs of the child—that is, the addition of the costs of the child in both households—significantly exceeds the cost of caring for a child 100% of the time in one household, be it an intact couple or separated sole parent household.
145
The maintaining a child’s living standards principle
The maintaining a child’s living standards principle is based on the idea that fairness is achieved by ensuring that a child’s living standard does not suffer as a result of separation.
The principle is based on a desire to ensure that children are not financially (and thus socially) disadvantaged by separation. However, because living standards are usually regarded as being equally shared within a household (for example, a lounge room, a car, a refrigerator and televisions are all shared household items from which each occupant derives a living standard), this principle requires that all occupants in the household in which the child resides do not suffer a drop in living standard relative to their standard before separation. As a consequence, to achieve this aim, it is necessary for child support to have a component of ‘spousal support’ built into it, as the ex-spouse’s living standard will be necessarily underpinned by ensuring a child’s living standard is maintained.
This principle can be put into operation by comparing the living standard after separation with the living standard in the circumstance prior to separation (or under identical private incomes in an equivalent couple household). In practice this is usually unachievable, because of the increased costs in separated households, especially where there is contact or shared care.
The equivalent living standards principle
The equivalent living standards principle is based on the idea that fairness is achieved when sufficient child support is transferred to ensure both post-separation households have the same living standard.
This principle recognises that in an intact family, living standards achieved through income are evenly distributed within the family and that it should stay this way. However, like the previous principle, it implies a level of ‘spousal support’ and does not allow parents any financial separation from their ex-partners. Relationships of fi nancial dependency are maintained and there can be significant workforce disincentives.
This principle can be put into operation by calculating and comparing the living standards post-separation of each household. Accordingly, under this principle, child support would be regarded as insufficient if the (net) payer’s household maintained a higher living standard than the (net) payee’s household, and vice versa.
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Taskforce view
Having considered these competing principles of fairness, the Taskforce concluded that the continuity of expenditure principle provides the fairest reference point for the Child Support Scheme. There is no fixed cost of a child. How much a child costs beyond providing for his or her basic needs depends on the incomes of the parents and the living standard they want the child to have.
The Taskforce also concluded that it was not a feasible basis for the Child Support Scheme either to maintain the child’s living standards or to equalise the living standards in each household. These objectives cannot be achieved without a significant degree of spousal maintenance when there is a disparity between the parents’ incomes.
It is also difficult to fulfil either of these objectives without taking into account the financial circumstances of new partners. If the objective were to maintain a child’s living standards despite the parental separation, it would first be necessary to work out whether the child was experiencing the same living standard as he or she would have if the parents were living together. If the child did not have that living standard, the next step would be to work out how much child support would need to be transferred to achieve it. If the resident parent has re-partnered, then the primary responsibility for the child’s support, on this principle, would rest with the resident parent and step-parent, with child support payments being used to ‘top up’ the child’s living standard if necessary.
If the objective were to give each household equivalent living standards, then the incomes of new partners in both households would have to be considered. To aim to do this would contradict one of the fundamental principles both of the existing Child Support Scheme and the
Family Law Act 1975—that the two parents have continuing parental responsibility for their children, not step-parents. Section 61C of the Family Law Act encapsulates the principle:
- Each of the parents of a child who is not 18 has parental responsibility for the child.
- Subsection (1) has effect despite any changes in the nature of the relationships of the child’s parents. It is not affected, for example, by the parents becoming separated or by either or both of them marrying or re-marrying.
Furthermore, it is not possible to maintain the living standards of the child where there is regular contact, without one parent also bearing all the costs of contact.
For these reasons, the Taskforce concluded that it is proper for child support obligations to be based on the best available evidence of how much children cost to parents with different levels of combined household income in intact relationships, and for the costs of children in separated households to be considered in evaluating how to take account of contact arrangements and shared care in the formula.
In reaching this conclusion, the Taskforce was mindful of the evidence on the effects of relationship breakdown on living standards.
146 While the standard of living of many resident parents falls after separation, this loss in living standards may be ameliorated if they remarry, form stable de facto relationships, or manage to increase their workforce participation. The child support formula needs to apply generally until the children are 18 and the circumstances of parents can change considerably over this time. Part VIII of the
Family Law Act 1975 gives the courts wide-ranging powers to divide the property of parents. The financial needs of the children’s primary caregiver following separation are an important factor that courts consider. Courts also have the power to award spousal maintenance in appropriate cases. Certain powers to alter interests in property and to award maintenance also exist under State and Territory laws concerning de facto relationships. Government benefits such as Parenting Payment (Single), the provision of Family Tax Benefit (FTB) B for sole parents, Rent Assistance, special health care benefits and the pension concession card also help cushion the effects of separation for parents.
The child support formula should provide a transparently fair basis for calculating child support. This requirement cannot be met if the Scheme aims to fulfil objectives other than sharing the costs of children equitably between the parents.
7.5 Gross or net income
The Taskforce also gave consideration to the question of whether the formula should apply to income before or after tax. The results of the AIFS community attitudes survey demonstrated very strong support for the use of after-tax income as the basis for the formula, as shown in Figure 7.5.
Figure 7.5: Should child support payments be based on a percentage of the parent’s income before tax (gross) or after tax (net)?
Notes: GP nonsep = general population non-separated sub-sample; CFC sep =
Caring for Children after Parental Separation sample comprising separated/divorced parents with at least one child under 18; χ2 (3) = 15.05,
p<.01.
Smyth B. & Weston R., ‘A snapshot of contemporary attitudes to child support’, in Volume 2 of this Report, p. 32.
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Most respondents in all groups maintained that child support payments should be based on net rather than gross income. This view was expressed by 87% of non-resident fathers and by 71–79% of women and men in the other three groups.
The history of consideration of this issue was given in the House of Representatives Standing Committee on Family and Community Affairs’ Report as follows:
147
6.47 In devising the child support formula the CSCG recommended it apply to taxable income (before tax) rather than after tax (net income). This was done because:
- this was consistent with placing child support as a primary responsibility equivalent to paying tax;
- before tax income is readily identifiable during the year, thus allowing a non-resident parent to more easily predict their liability, compared with after-tax income that is not certain until after a tax assessment;
- a before tax base impacts less heavily on lower income earners because lower marginal tax rates apply at lower income levels;
- it is easier for the CSA to calculate;
- using taxable income would not add to the difficulties likely to be encountered in calculating more complex cases (such as self-employed persons); and
- administrative assessment under a formula which takes into account a tax liability could not apply to recent years of income figures for provisional taxpayers.
6.48 Subsequent reviews of the formula by the Child Support Evaluation Advisory Group in 1991 and the Joint Select Committee on Certain Family Law Issues in 1994 supported the use of taxable income.
The use of taxable income was also supported by the CSA. The CSA wrote:
148
The possibility of assessing child support on after tax income rather than taxable income has frequently been suggested. The main argument in support of such a change is that net income may better reflect a paying parent’s capacity to pay child support.
While this argument is acknowledged, it does not counter the strong rationale for using taxable income to calculate child support. This rationale includes:
- Using taxable income for child support purposes is consistent with other Government business requirements such as FTB, Medicare levy, superannuation surcharge, and child care rebate;
- Using taxable income retains benefits of administrative simplicity; and
- Using taxable income impacts less heavily on lower income earners.
All families, intact or separated, support their children using their taxable income.
The rationale that using taxable income rather than after-tax income impacts less heavily on lower income earners would not apply if the Child Support Scheme ceased to be based upon a standard percentage of income across the income range.
Other arguments do not withstand careful scrutiny. For example, it is not the case that PAYG taxpayers support their children from their taxable income rather than their disposable income, for tax is deducted before the PAYG earner receives it. Furthermore, the principles by which the Government calculates benefits and imposes liabilities for the purposes of its business requirements may not in all cases be directly relevant to child support, which is a private transfer between individuals (often through the CSA as intermediary), not a government benefit or tax. Nonetheless, the arguments about administrative simplicity remain.
The Taskforce also had other reasons for rejecting the use of after-tax income. As will be seen later in the Report, the methodology of the Taskforce has involved basing child support liabilities on the best estimates of how much the payer would be contributing if the two parents were living together, after taking account of government benefits.
Surveys of expenditure on children indirectly take account of the impact of income tax, because they provide an indication of how much of the parents’ disposable income is spent on children, while expressing this as a proportion of the total household income available.
The impact of marginal tax rates is one reason why expenditure on children declines as a percentage of taxable income across the income range. By reflecting this in the formula, account can be taken of the after-tax income available to support children. As will be seen, the Taskforce is recommending that child support obligations should no longer be expressed as a fixed percentage of taxable income. Rather, the percentages applicable in the formula should gradually decline as combined taxable income increases. As a consequence, a liable parent with a high income will pay much more in child support than a parent with a low income, but less as a
percentage of his or her taxable income than the parent with a low income. Thus, although the proposed formula continues to be based on taxable income, the impact of income taxation on disposable income has been taken into account indirectly.
7.6 Principles for a redesigned Child Support Scheme
The Taskforce proposes that a redesigned scheme be based upon the following central principles and values. The principles provide a contemporary interpretation of the Child Support Scheme’s objectives, and have guided the development of the detailed proposals contained in this Report.
The key principles that have guided the Taskforce are as follows:
- Children who do not live with both parents should have an adequate living standard and, as far as possible, should receive support from a non-resident parent commensurate with the amount that the parent would be likely to spend out of his or her taxable income if the two parents were living together, taking account of that parent’s direct expenditure on the children when they are in his or her care.
- The formula should be so designed that it can be demonstrated that parents are sharing in the expenses of raising their children at a level appropriate to their combined incomes and in proportion to their capacity to pay.
- In assessing the level of support the non-resident parent should provide, account needs to be taken of the contribution that the taxpayer provides in supporting all children, whether in intact or separated families, through government benefits.
- The Government contribution to the expenses of raising children where parents are living apart should be no less than if the parents were living together. The Government is entitled to expect a contribution from the non-resident parent towards the taxpayers’ costs of supporting the children beyond this level of contribution.
- The Child Support Scheme should take proper account of the costs to each household where children are spending time in the homes of both parents.
- The Child Support Scheme should endeavour to treat children in first and subsequent families equally.
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7.7 Explanation of the principles
- Children who do not live with both parents should have an adequate living standard and, as far as possible, should receive support from a non-resident parent commensurate with the amount that the parent would be likely to spend out of his or her taxable income if the two parents were living together, taking account of that parent’s direct expenditure on the children when they are in his or her care.
This is the fairness to children principle. It combines two yardsticks by which the proper measure of child support may be assessed. The first is the need of the child for an adequate living standard. The approach that was once taken by the Family Court, for example, was first to consider the needs of the child and then to examine the parents’ respective capacities to meet that need.
149 Children are entitled to an adequate living standard and non-resident parents should contribute towards meeting this in accordance with their capacity to pay. The Government provides considerable assistance towards providing that adequate living standard whether the parents are living together or apart. The non-resident parent needs also to contribute towards that adequate living standard.
The second yardstick is the continuity of expenditure principle, as noted above. The idea is that child support is not just about meeting children’s basic needs, and that children should enjoy a standard of living commensurate with their parents’ income level, in the same way they do in intact families. That justifies looking at the level of expenditure that, on average, parents in intact families spend on their children, as a way of working out what is appropriate for the non-resident parent to contribute after separation.
The continuity of expenditure approach needs to be qualified by the recognition that non-resident parents may not be able to afford to make the same level of contribution after separation as they might have done in an intact family. Separation and divorce increase expenses for the two parents. There are now two households rather than one, with duplicated infrastructure costs as well as costs associated with having contact, such as transportation between the two households. There is also direct expenditure on the children while they are in the care of the non-resident parent and in buying birthday and Christmas presents, for example, which modify the extent to which the child support formula can track the patterns of expenditure in an intact family.
- Parents should share in the expenses of raising their children at a level appropriate to their individual income and in proportion to their capacity to pay.
This is the cost-sharing principle. It recognises that while there is no fixed ‘cost of children’—for this depends on the living standards of the family—the Child Support Scheme should take account of research on the costs of children at different standards of living and patterns of household expenditure on children, as a starting point in working out what is a fair allocation of those costs between the parents.
This principle is consistent with the first three objectives of the Child Support Scheme, that:
- parents share in the cost of supporting their children according to their capacity;
- adequate support is available for all children not living with both parents; and
- Commonwealth involvement and expenditure is limited to the minimum necessary for ensuring that children’s needs are met.
The cost-sharing principle makes transparent that there are significant costs associated with raising children and that if either parent is not contributing to the costs of children in accordance with his or her capacity to pay, then those costs have to be borne either by the other parent or by the taxpayer, or the children’s living standards will suffer.
- In assessing the level of support the non-resident parent should provide, account needs to be taken of the contribution that the taxpayer provides in supporting all children, whether in intact or separated families, through government benefits.
In intact families with care of children under 18, the Government provides support for children, and this is substantial in the case of low-income households. It does so by supplementing the income of the parents through government benefits such as FTB.
The significance of family payments is much greater than it was in the late 1980s, since there is now much greater financial support given to intact families through family benefits. Comparing expenditure on family benefits now to those in the period when the Child Support Scheme was introduced is not straightforward, since the structure of family payments has changed significantly. Some allowances that are now payable as a benefit to families were formerly allowable deductions in the tax system.
Nonetheless, the Department of Family and Community Services has estimated that between the years 1993–94 and 2003–04, expenditure on family payments increased in real terms (after adjusting for inflation) by about 115%, from $7 billion to $15.3 billion in 2003–04 dollars.
150 Much of this growth has been in payments to intact families.
Because of this growth in family payments no analysis of child support policy can ignore the significance of these government benefits in assessing how much of the parents’ own income is spent on children for child support purposes. Child support is payable from parents’ private income. In working out how much needs to be transferred from the non-resident parent’s household to the resident parent’s household, it is important to take account of the fact that the family benefits which formed part of the total household income of the intact family are paid mainly to the primary caregiver following separation. This level of support should be taken into account in assessing the relative contributions by the parents in accordance with their capacity to pay.
- The Government contribution to the expenses of raising children where parents are living apart should be no less than if the parents were living together. The Government is entitled to expect a contribution from the non-resident parent towards the taxpayers’ costs of supporting the children beyond this level of contribution.
This is the neutrality principle. In many cases, total government support to the separated family is much higher than to the intact family, as a consequence of various benefits.
It follows that it is justifiable for the Government to seek some reimbursement from the non-resident parent towards the additional costs associated with supporting the household in which the children live with their primary caregiver after separation. This argument supports the principle of ‘clawback’ through the Maintenance Income Test (MIT), but the neutrality principle sets a limit to the total amount of clawback that is justified. In accordance with this principle and reflecting the requirement in the Terms of Reference of the Taskforce that the current balance between private and public contributions be broadly maintained, the Taskforce has examined whether it is possible to reconfigure the application of the MIT.
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- The Child Support Scheme should take proper account of the costs to each household where children are spending time in the homes of both parents.
This principle ensures that the Child Support Scheme takes proper account of the costs of shared parenting where this has been agreed between the parents or ordered by a court.
The principle is that the child support obligation should be lower where there are regular overnight stays with a non-resident parent. The Scheme needs to take into account the infrastructure costs of contact and the level of expenditure incurred during regular contact in a way that balances the interests of payers and payees fairly. This principle needs to be qualified by the recognition that where there is regular overnight contact, the infrastructure costs are duplicated rather than being shared. When a primary carer has less than 100% overnight care, there are cost reductions in caring for the children in consumables, such as food. However, this may be countered to some extent by increased costs in communication and transportation in coordinating contact between the two households.
The infrastructure costs for a non-resident parent are clearly incurred at a level below that of 30%+ overnight stays per year. It is arguable that once a child is spending on average one night per week or more with the non-resident parent (or 14% of nights), the increased infrastructure costs involved justify some recognition in the child support formula.
Because of the duplication of infrastructure issue, and because of wide variations in who bears the transportation costs of regular contact, it is very difficult to make allowance for the costs of contact in a scientific way. It may be best just to give recognition to the costs of contact in a general way, while taking account of the fact that the resident parents costs also may not be greatly reduced.
- The Child Support Scheme should endeavour to treat children in first and subsequent families equally.
The principle here is that children should not be systematically more disadvantaged through the Scheme in one household than the other. Children should be treated equally, whatever the order of their birth to the liable parent. This view was shared by the House of Representatives Committee.
151 This is, indeed, exactly the same view that the original Consultative Group reached back in 1988. It wrote:
152
The fundamental precept of the Consultative Group is that all children of a parent share equally in that parent’s income.
Whether the current Scheme has achieved that in practice is another matter. Achieving equality of treatment in the formula is very difficult, for the first family gets a sum of money and the second family can be given a deduction before the child support is calculated, but then has access to the liable parent’s remaining disposable income as well. Approximate equality is therefore an aspiration to guide us more than a destination to reach.
7.8 Trade-offs between principles
It is important to recognise, however, that translating these principles into practice inevitably requires broad judgments and trade-offs between the principles in the interests of arriving at a workable scheme.
A formula-based approach to assessing child support is administratively straightforward, transparent, and efficient by comparison with more discretionary alternatives such as relying on the courts. It provides the mechanism for the costs of children to be distributed equitably in accordance with the parents’ capacities to pay. Its outcomes are more predictable. Its administration is also more efficient and cost-effective.
However, any child support formula that is assessed administratively represents a series of compromises between competing objectives including fairness, simplicity, and cost-effectiveness. What an administrative formula offers in terms of simplicity and speed of assessment, it may lack in capacity to adjust to the individual circumstances of all parties affected by it. The principles therefore were used to guide the development of the Taskforce’s recommendations at a general level, subject to making the necessary trade-offs between principles in order to develop a workable scheme.