the new zealand child support perspective child support reform and right sized orders a fairer...

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The New Zealand Child Support PerspectiveChild Support Reform and Right Sized Orders

A Fairer System To Increase Compliance

Paula KnaapManager, Capability Planning and Relationship Management

Inland RevenueNovember 2015

Overview


• About New Zealand • New Zealand child support debt environment• New Zealand’s child support programme• Review of the older child support scheme• What has changed?• Have parents’ perceptions improved since the new scheme?• Right sized orders and research in NZ• Right sized orders and fairness – an integrated concept• The PARE Model• New Zealand’s multi strategic approach• The effect of reducing debt to improve current support compliance• The future – Customer Driven Operating Model


About New Zealand


NZ Child Support Debt Environment

4,546($210 Million) Residing in Australia83% penalties

12,531 ($551.4 Million) Referred to DHS67% penalties

5,322 ($160.6 Million)Referred from DHS65% penalties

91,955 ($1.4 Billion)Domestic residing in NZ72% penalties 2s


New Zealand’s Child Support Programme

The NZ Child Support Regime is ‘Administrative’

Administered by NZ Inland Revenue - assessment & collection

Liability is established by way of administrative assessment

Where no mutual agreement between parents (by application to IR) or where receiving parent is in receipt of a state-provided benefit

Assessment based on standard formula


New Zealand’s Child Support ProgrammeWhat does IR Collect and Distribute in Child Support?

Number of Paying Parents = 175,183 Total Collections = $449.5 million in 2014 Distributed $242 million to custodial parents Total Debt $3.05 billion 77.6% penalties

NZ IR has a total of 125,000 debt cases:

94,345 NZ based debtors 31,000 International debtors

Review of The Older Child Support Scheme


NZ Child Support Act enacted 1991 – more than 20 years ago

Recognition that there have been significant shifts in patterns of child raising, workforce participation, expenditure for raising children and family law

Older Child Support Scheme Formula


Current Formula:(a-b) x c

where:‘a’ is the paying parent CS income amount‘b’ is the living allowance‘c’ is the CS percentage

Older Child Support Scheme Formula


Review of Older Child Support SchemeParticular Policy Issues


Many paying parents considered scheme unfair

- very high shared care threshold (40%) - receiving parent income not taken into account

Many receiving parents concerned about

- non-payment or instability of payments - payments not covering ‘true cost of raising a child

The Child Support Amendment Act 2013 introduced a new formula


What has changed:

– The incomes of both parents are now taken into account.– Shared care reduced to 28% – Both parents now receive assessments which may include

allowances for any other children of their own who live with them

– This allowance is based on the children’s ages, and the current cost of raising children in New Zealand

– Parents’ assessments no longer include allowances for partners, or children living with them who are not their own.

More changes to come in 2016


More changes to come in 2016

– Two new administrative review grounds

• Re-establishment Costs• Debt off-setting Review

– A lower maximum age of eligibility

– New debt and penalty rules

New two-stage initial late payment penalty:

• 2% if a payment is not made by due date; then • further 8% if the amount remains unpaid after seven

days • Reduced incremental penalty of 1% after 1 year of non-

compliance

Have Parents’ Perceptions Improved Since The New Scheme?


Telephone Survey completed by Colmar Brunton in May/June 2015 one month after April 2015 reform changes

– 225 NCPs– 225 CPs– 50 Both NCP and CP

Results compared to baseline survey in 2013



of customers are aware of the child support reforms



NCPs feel less resentful towards paying

child support

21% now feel resentful ( 8 points)

Fewer NCPs and CPs rate the formula as

inflexible

52% believe it is inflexible

( 10 points)

Fewer NCPs believe the system favours

one parent

52% think it is unbalanced

( 16 points)

Key Improvements in Perception From 2013


NCPs are less likely to believe the amount

they pay is reasonable

43% now feel the amount is reasonable

( 11 points)

More CPs feel that their circumstances aren’t taken into account

30% don’t believe they are considered

( 9 points)

Fewer NCPs think IR responds quickly to

changes in their circumstances

48% believes IR responds quickly

( 17 points)


Areas for Consideration

Right Sized Orders


Research in California has shown:

• that setting orders no higher than 19% of the NCPs gross earnings for one child families results in higher compliance (Takayesu and Eldred 2011)

• The use of imputed income to set order amounts yielded poor compliance. Use of actual income to set order amounts is more likely to achieve compliance

• Setting ‘right sized orders’ and engaging NCPs in family centred services to help overcome barriers, improves family engagement and child support compliance (Takayesu and Eldred 2013)

Reactions of Right Sized Orders Research


• OCSE has welcomed the research findings – these providing a basis to encourage the practice of setting right sized orders to improve the financial well-being of families

• Results have been shared internationally prompting international discussion:

• “It is crucial that the payment amount is in reasonable proportion to the payment ability, and that the level of support is transparent and verifiable for the father” – Bern Mix, Stadt Osnabruck, Special Dept. for Children, Young People and Families

• “The study should be a good reason for Germany to consider which factors affect support payments, and what strategies can help to make child support a reliable source of income for families” – RA Prof. Dr. Roland Proksch, Nurnberg

Right Sized Orders in NZ - Research


About 96% of salary wage earners have right sized orders (0-20% of NCP gross wages). In aggregate, compliance for these cases is high (80% of current support paid). The new scheme did change this ratio from comparing May-14 to Jun-15.

The remaining cases do not report actual income or are self employed. These cases have a compliance rate of 41.9%. If actual income is not available, these cases are set at a minimum value of $74 per month.

Salary and Wage Earners (One Child Families)

Ratio NCP Gross Wages to CS Obligation Number of Cases % of Total Number of

Cases % of Total

00-20% 56,851 96.7% 52,883 95.8% 20% + 1,936 3.3% 2,302 4.2%

Sub Total 58,787 100.0% 55,185 100.0%

No Income S/ Employed 22,786 27.9% 19,498 26.1%

Total 81,573 74,683

May-14 J un-15

Right Sized Orders in NZ - Compliance


• The implementation of the reform Phase 1 did not produce a decline in overall compliance for both domestic and international cases.

• The increase in compliance in 2015 Q2 can be attributed to the many best practices underway at IR

• Future research in IR will identify the influence of perception on payments and compliance among other best practices in existence today

NZ – Right Sized Orders and FairnessAre they integrated?


Right Sized Orders

Perception of Fairness

Compliance


The PARE Model

NZ – Improving Compliance is a Multi Strategic Approach That Yields Positive Results


Early Intervention

Targeting Those Most At

Risk

Locate

Campaigns

Customer Outreach and

Education

The

PARE

Mod

el


Legal

The Effect of Reducing Debt To Improve Current Support Compliance


Current research examines how closing their debt cases early and bringing customers under an arrangement to pay off their debt improves current support compliance.

Relieving child support debt enables customers to pay their current support payments

NZ Domestic Debt cases that are closed have a higher compliance vs. cases with an existing debt:

NZ Domestic Debt cases with an instalment arrangement have higher current support compliance than those withoutan arrangement:

To create services, Collections is using a service framework, thinking from the customer back, an organisation needs to…

MASP

STACCustomers

ServicesAccess

Outside In Approach

Needs

1. Define its customers2. Understand their needs3. Create services to meet these needs4. Define how these services are accessed

5. Ensure the services are filled by the Most

Appropriate Service Provider (MASP)6. The MASP has the Skills, Tools, Authority

and Competency (STAC) to fulfil the service.

This is an ‘Outside In’ approach to customers

Customer Driven Operating ModelPutting the Customer at the centre of our thinking


Questions?Contact Details:

Paula Knaap LL.BManager, Capability Planning and Relationship ManagementInland Revenue DepartmentPO Box 432, HamiltonNew Zealand

email: [email protected]: 0064 29 959 0432

mailto:[email protected]

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