Nash StuartCHILD SUPPORT AMENDMENT BILLFirst ReadingHon STUART NASH (Minister of Revenue): I move That the Child Support Amendment Bill be now read a first time. I nominate the Social Services and Community Committee to consider the bill. At the appropriate time I intend to move that the bill be reported to the House by 11 August 2020.The Government wants to ensure that all New Zealanders have an equal opportunity to participate in and contribute to society. The child support scheme is intended as a back up when parents do not live together and are struggling to come to an arrangement. Ensuring that children continue to be financially supported by their parents even when they don't live together is critical to the outcome for children and their families. The scheme currently helps provide financial support to around about 185000 New Zealand children. We have an obligation to those children to ensure that the child support system works as smoothly and efficiently as possible. The fundamentals of the scheme are sound but how the rules are administered can be improved. That is why I'm proud to introduce this bill.The bill will improve the administration of the scheme by introducing fairer and more efficient and effective penalty rules compulsory deductions of child support from source deduction payments made by an employer for newly liable parents a fairer definition of income" used for child support purposes and a four-year time bar on the reassessment of child support. The bill also includes a number of technical amendments to help Inland Revenue work better with customers including those in unusual circumstances. Some of the proposals are aimed at helping the liable parent get it right from the start and others are aimed at removing uncertainty for parents. All of the proposals will form part of the Government's simplification and modernisation of the tax and transfer system.Inland Revenue has been progressively moving its various functions over from an old technology platform to a new one and New Zealanders are enjoying the benefits of greater efficiency and simplicity. Next year it will be the turn of child support and that presents an opportunity to make legislative changes which will further improve the child support scheme.For the benefit of members I'll give you a quick run-through of the main features of this bill. Penalty rules: the child support scheme imposes penalties on parents who fail to meet their obligations—this is important. Avoiding the penalty by meeting your child support obligations is an incentive to pay so the penalty must be substantial enough. There is a place for penalties but we need to impose them more astutely. At the moment if a parent fails to pay their child support on time an initial late-payment penalty is imposed. This is applied in two stages: immediately after the default at a rate of 2 percent and then a follow-up penalty at 8 percent seven days later. There are further penalties known as incremental penalties which are also added each month after the payment remains outstanding. The proposal is to shift that second stage of the initial late-payment period to 28 days after the due date rather than the current seven days after the due date. The intention is that once the liable parent has had the initial penalty Inland Revenue would have time to work with that parent to get them back on track with the objective of preventing the second-stage penalty being imposed. It proposes a grace period before penalties are changed for newly liable parents.Compulsory deductions—members who have been watching the Government's Business Transformation will be aware that an earlier phase of the transformation introduced pay-day reporting. Pay-day reporting makes a more efficient and accurate PAYE deduction system and it has been made possible by technological advances. This has allowed me to introduce provisions for compulsory deductions of child support by a newly liable parent's employer. This change will improve compliance and help liable parents get it right from the start.The definition of "income": another way we can help make the scheme fairer is by looking at the definition of "income". When calculating how much child support is payable the income of both parents is used but the income from interest or dividends is not currently included in the calculations simply because the amount of that income earned in a year is not known until the end of the tax year. That has changed now because of the Business Transformation which I mentioned earlier and now Inland Revenue has better access to more frequent information. We therefore propose widening the definition of "income" to include interest and dividends. That makes the scheme fairer as child support payments can reflect liable parents' true capacity to provide support.The bill also addresses another issue of the "income" definition. Currently it is possible for a parent's income to be lowered because of tax losses in the previous year which reduces their current child support liability. One of the objectives of the child support system is that the level of child support payable is determined by the parent's relative capacity to provide support. Using losses to offset your income and reduce your child support liability is not fair and so this bill proposes that the system operates using a net income rather than a taxable income basis for calculations.The time bar: moving to another matter at the moment no time bar exists for the child support scheme. That means that when reassessing a parent's income in order to calculate child support Inland Revenue is obliged to go back all the way to the inception of this scheme in 1992; this is clearly inefficient and a waste of time and money not to mention a source of uncertainty for the parents. The bill therefore proposes introducing a time bar for income reassessments as currently exists for income tax. A four-year time bar would improve efficiency in administration and provide certainty for parents.Technical proposals: the bill also includes a number of technical amendments which will also contribute to a better more efficient child support scheme. These include proposals such as improvements to the estimation provisions to make them fairer. Normally child support is assessed on a person's income from the previous year; however people whose income has decreased by 15 percent or more can provide Inland Revenue with an estimate of their current year income to base their child support assessments on. If a person makes an assessment more than once a year they could be assessed on income which is actually greater than what they earned in some periods leading of course to an unfair outcome. So the bill proposes an amendment to the end-of-year square-up provisions to try and arrive at a more accurate reconciliation for such parents. There are also changes to the way child support is calculated in certain situations. For some households in the child support scheme there is a shared care arrangement where one or more children live with one parent and one or more lives with the other parent. At present there are special rules to try and allocate costs appropriately to each child according to their different ages; unfortunately what this can sometimes result in is the household with the younger children being allocated some of the expenditure intended for the older child. So we are proposing to change these rules to ensure child support is allocated fairly to each child.In conclusion these are the main features of this bill. These changes will mean a better child support scheme which means better outcomes for children and young people. If enacted the proposals in this bill will form the final major part of the Government's transformation of Inland Revenue and the objective of the bill to support the Government's aspirations for the tax system for the economy and for our society. It is therefore with considerable pride that I recommend this bill to the House for its consideration. Thank you."