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NZ Child support system 'overly punitive' - Budget 2015

Cover photo acknowledgement: About $827 million is owed by those living in Australia while a further $778 million is owed by those in other countries. File photo / Doug Sherring
NZ Budget 2015: Child support system 'overly punitive' - About $827 million is owed by those living in Australia while a further $778 million is owed by those in other countries. File photo / Doug Sherring

The New Zealand Government will write off $1.7 billion in penalty payments for parents who failed to meet their child support obligations, saying the system was "overly punitive."

Revenue Minister Todd McClay said forgiving the debt was to try to encourage more parents to pay child support.

He said child support debt was currently $3.2 billion but only $700 million of that was in child support while the rest was penalty payments.

Revenue Minister Todd McClay said
Some parents faced "paralysing" levels of debt from penalties and had given up trying to pay it or meet their ongoing child support payments.

"This is the legacy of a penalty system that was overly punitive and is now being changed. We need to get parents to start paying so that children, many of whom are in hardship, are better off."

Many paying parents had left New Zealand - about $827 million was owed by those living in Australia while a further $778 million was owed by those in other countries.

He said about 54,000 of the 120,000 with child support debt were on low incomes of less than $30,000 a year. Inland Revenue would decide which cases should have penalty payments written off and there would be mandatory write-offs of monthly incremental payments to those meeting their payment requirements.

The penalty rates would be amended from 10 per cent to a two-stage process of two percent for a late payment, rising to 10 per cent if the payment was more than a week late. Monthly incremental penalties will also reduce from two per cent to one percent.

Mr McClay said it was "not a soft option" and the Government remained intent on collecting debt, including arresting those who repeatedly failed to pay at the border.

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NZ Herald

Finance Minister Bill English with Prime Minister John Key. Photo / Mark Mitchell Finance Minister Bill English with Prime Minister John Key. Photo / Mark Mitchell

Prime Minister John Key says he hopes that plans to write off $1.7 billion in penalty payments on parents who missed child support payments will encourage those who have moved overseas to start paying child support again.

Revenue Minister Todd McClay said the overly punitive system had resulted in "paralysing" debts for some parents which meant they had given up trying to pay and thousands had gone overseas.

About 120,000 people had child support debt which totalled $3.2 billion - about half of which was owed by people now living overseas. Only $700 million of the total was in child support while the rest was interest and penalty fees for late payments.

Mr Key said it was the responsibility of liable parents to make child support payments.

Prime Minister John Key said
They have a legal obligation to pay for their kids and they have a moral obligation to pay for their kids, and they should be doing it
Prime Minister John Key says he hopes that plans to write off $1.7 billion in penalty payments on parents who missed child support payments will encourage those who have moved overseas to start paying child support again.

Revenue Minister Todd McClay said the overly punitive system had resulted in "paralysing" debts for some parents which meant they had given up trying to pay and thousands had gone overseas.

About 120,000 people had child support debt which totalled $3.2 billion - about half of which was owed by people now living overseas. Only $700 million of the total was in child support while the rest was interest and penalty fees for late payments.

Mr Key said it was the responsibility of liable parents to make child support payments.

Prime Minister John Key said
They have a legal obligation to pay for their kids and they have a moral obligation to pay for their kids, and they should be doing it..

However, the Government had to take a pragmatic approach and recognise that many were simply failing or could not afford to meet those obligations.

We need to breathe the hope into those 120,000 families and individuals who see a hopeless position. "What we are saying to those people is to come back, start making the principal payments to those low-income families that you owe it to, and we will forgive the interest and we will forgive the penalties
Mr McClay said 54,000 of those who owed child support were on incomes of less than $30,000 a year. Inland Revenue would apply a "fair and reasonable" test to write off debt in some situations. Others meeting payments by compulsory deduction would also have monthly penalties written off, likely to cost $1.7 million over four years.

Revenue Minister Todd McClay said
This is the legacy of a penalty system that was overly punitive and is now being changed. We need to get parents to start paying so that children, many of whom are in hardship, are better off

He said about $827 million was owed by those living in Australia while a further $778 million was owed by those in other countries. The penalty rates would be amended from 10 per cent to a two-stage process of 2 per cent for a late payment, rising to 10 per cent if the payment was more than a week late. Monthly incremental penalties will reduce from 2 per cent to 1 per cent.

Child support Stats

• Total debt: $3.2b, of which $2.5b is penalty payments and interests.
• Owed by: 120,000 people. $1.6b is owed by people living overseas.
• 54,000 of those are on incomes of less than $30,000.
• Total expected debt write-off: $1.7b over four years.

Edited

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