Budget 2015: Up to $1.7 billion in "punitive" child support debt written off
Up to $1.7 billion in child support debt is to be written off by the Inland Revenue in a bid to increase payments.
As part of the Budget, Revenue Minister Todd McClay announced an overhaul of the penalty regime for child support payments.
The programme will charge a lower level of penalties and adopt a "fair and reasonable" test as to whether debtors can reasonably repay what they owe.
McClay insisted the move was not a "soft option" and was designed to get those who otherwise wouldn't pay to do so.
New Zealand's child support debt is $3.2b, however only $700 million of this is what was originally child support.
"The rest is debt from penalties. This is the legacy of a penalty system that was overly punitive and which is now being changed," McClay said.
"We want liable parents to pay what they owe. To make that happen, Inland Revenue will adopt a 'fair and reasonable' test to consider applying penalty relief where it makes sense to do so."
Much of the debt is owed by those on low incomes; according to McClay almost 54,000 of the 120,000 people with child support debt earn less than $30,000 annually. Collectively, this group owes more than $700m.
"This is in no one's interests. We want child support paid so it goes directly to the children who need it, or back to the taxpayers who are paying it by default in the form of a benefit to that child's family."
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Around $827 million of the total debt is owed by those living in Australia, mostly in the form of penalties. A further $778m, 84 per cent of which is penalties, is owed by those living elsewhere.
"We need to get parents to start paying so that children, many of whom are in hardship, are better off. Liable parents are facing paralysing levels of debt from penalties, and as a result are not attempting to pay their outstanding amount, nor are they meeting their current obligations."
The growth of child support debt is expected to slow through reforms including cutting penalty rates from the current 10 per cent immediate penalty, to 2 per cent once the debt is overdue and a further 8 per cent if the amount remains unpaid after seven days.
Monthly incremental penalties will be cut from 2 per cent to 1 per cent.
"These measures should not be seen as a soft option," McClay said.
"We remain focused on liable parents meeting the obligations to their children and will have no tolerance for parents who deliberately avoid responsibility.
The write-off will not create a huge hole in the government's books, with $1.6b of the debt already reflected as an impairment on the books. According to McClay, the move will decrease Crown operating revenue by $47.1m over four years.
The changes will take affect from April 2016.