New Zealand’s Child Support reforms - an opportunity lost
While there are many similarities in child support policies between Australia and New Zealand, there are also some critical differences – differences which put low-income single mothers at greater disadvantage, while making it harder for them to re-enter the workforce. Today’s policy analysis Identifies critical areas that need review in order to better support single mothers and their children. Michael Fletcher will be speaking on this topic at the upcoming Good Conversations event: Child Support Policy and Its Impacts on Women’s Economic Security.
Scorecard on Women and Policy provided by Michael Fletcher, Auckland University of Technology
Topic: Child Support
Reform of child support policies happens seldom in New Zealand. Despite one Ministerial Working Party and numerous minor amendments, New Zealand’s child support scheme remained largely unaltered from its inception in 1992 until the Child Support Amendment Act 2013. It is unfortunate then that these recent reforms have failed to address the most fundamental problems with the New Zealand scheme. As a result a rare opportunity to improve outcomes for children and the parents who care for them, especially those in low-income households, has been missed. This analysis focuses on two key issues.
Similarities and differences between Australia and New Zealand
Historically New Zealand has tended to follow Australia’s lead in child support policy. Its original 1991 Act was modelled broadly on Australia’s scheme and, in particular, the formula for calculating liability was based on a percentage of the liable parent’s income after deduction of a personal living allowance and with the percentage rising with the number of children. The 2013 reforms also followed the 2008 Australian changes, basing the liability on empirical estimates of the costs of raising children, taking both parents’ incomes into consideration, and reducing the threshold for recognising the costs of sharing care.
Child support paid to the state
There are, however, some important differences between the two schemes, differences which significantly affect the final outcomes in terms of support for children and parents with care. The most critical of these is the absence of ‘pass-on’ in respect of parents receiving a sole-parent rate of benefit. These parents are required as a condition of receiving welfare to apply for child support but payments collected from the other parent are retained by the State to offset the benefit paid to them. Only in the relatively small proportion of cases where the total child support paid exceeds the benefit is the excess passed on to the parent with care. In the 2014/15 year, $463 million was paid by 174,000 liable parents; $198 million (43 percent) of which was retained by Inland Revenue. The effect of this is that child support makes no contribution to the family income of more than half the children and parents with care who are part of the scheme. For the paying parents affected, child support is simply an additional tax and any increase in their payments is of no benefit to their child.
Childcare costs not supported
A second problem – and one where New Zealand did copy the Australian model – is that childcare fees and the opportunity costs of caring for children are not included in the expenditure on children estimates which liability is based on. New Zealand childcare costs are often high, even for those receiving the targeted Childcare Subsidy. The most common arrangement for couples with a pre-school-aged child is for one parent to work full time in paid work and the other to either have part-time employment or no paid work at all. Only 26 percent of partnered women with a child under five years old work in paid employment for 30+ hours per week (2006 Census data). When it comes to child support, however, the assumption is that the payment is to support direct costs of the child only and a sole parent with care of a pre-school child is expected to combine care of his or her children with paid work to provide an adequate income for himself or herself. The new post-2013 formula has actually worsened this problem in that (like Australia) it assumes lower child costs for younger children than for teenagers. Most low-income receiving parents with children under 13 years old receive less under the new formula than the old (Fletcher, 2016).
Step one: Clarify the objectives
A thorough reform of the child support scheme would have addressed both these issues. A starting point should have been to clarify the confused objectives statement in the Act. It is remarkable that the Act’s twelve objectives do not include a clear statement regarding child well-being. In terms of pass-on, instead of ruling it out as ‘unwarranted at this stage’ as the Minister’s original discussion document did, a first step would be to follow the Australian approach and pass all child support payments on. This would allow better integration with the benefit and social assistance system. One option would be to treat a beneficiary parent’s child support receipts in the same way as any other income – abating the benefit if the amount exceeded a specified minimum. This is, after all, the way the same income would have been treated if the parents lived together.
Addressing opportunity costs faced by parents raising children requires wider changes to the welfare system as well as to child support. Currently in New Zealand the welfare system does not expect a sole parent beneficiary to be available for work if her/his youngest child is aged 0 to 3 years. Child support policy, in contrast, implicitly assumes she is able to earn. Recognising opportunity or work-related costs in the child support formula would make a big difference. At the same time, though, many families – including many two-parent families – also need better social assistance through family tax credits to compensate for the loss of income when children are young.
Overall, the recent amendments may have ‘updated’ the scheme in ways that more closely reflect the situation of better-off separated parents, but they have done little to improve the circumstances of lower-income parents and children who most need an effective child support system.
Dunne, P. (2010). Supporting children: A Government discussion document on updating the Child Support scheme. Wellington: New Zealand Inland Revenue. Retrieved from http://taxpolicy.ird.govt.nz/sites/default/files/2010-dd-supporting-children-full.pdf
Fletcher, M. (2016). New Zealand's Child Support Amendment Act 2013: Some likely short-term effects of the new liability assessmen formula. Australian Journal of Family Law, 30, 28-50.
This analysis is a contribution to the Scorecard on Women and Policy project, initiated by the Women's Policy Action Tank. We invite policy specialists in all areas to provide analysis of public policy using a gender lens: email@example.com Follow us on Twitter: @PolicyforWomen