1. The New Zealand Child Support Perspective Child Support Reform and Right Sized Orders A Fairer System To Increase Compliance Paula Knaap Manager, Capability Planning and Relationship Management Inland Revenue November 2015 Classified in confidence - Inland Revenue - Highly Protected

2. Overview Page 2 Classified in confidence - Inland Revenue - Highly Protected 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

3. About New Zealand Classified in confidence - Inland Revenue - Highly Protected

4. NZ Child Support Debt Environment Classified in confidence - Inland Revenue - Highly Protected 4,546($210 Million) Residing in Australia 83% penalties 12,531 ($551.4 Million) Referred to DHS 67% penalties 5,322 ($160.6 Million) Referred from DHS 65% penalties 91,955 ($1.4 Billion) Domestic residing in NZ 72% penalties 2s

5. New Zealand’s Child Support Programme Classified in confidence - Inland Revenue - Highly Protected  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

6. New Zealand’s Child Support Programme Classified in confidence - Inland Revenue - Highly Protected What 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

7. Review of The Older Child Support Scheme Page 7 Classified in confidence - Inland Revenue - Highly Protected  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

8. Older Child Support Scheme Formula Page 8 Classified in confidence - Inland Revenue - Highly Protected 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

9. Older Child Support Scheme Formula Page 9 Classified in confidence - Inland Revenue - Highly Protected

10. Review of Older Child Support Scheme Particular Policy Issues Page 10 Classified in confidence - Inland Revenue - Highly Protected  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

11. The Child Support Amendment Act 2013 introduced a new formula Page 11 Classified in confidence - Inland Revenue - Highly Protected 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.

12. More changes to come in 2016 Page 12 Classified in confidence - Inland Revenue - Highly Protected 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

13. Have Parents’ Perceptions Improved Since The New Scheme? Page 13 Classified in confidence - Inland Revenue - Highly Protected  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

14. Have Parents’ Perceptions Improved Since The New Scheme? Page 14 Classified in confidence - Inland Revenue - Highly Protected of customers are aware of the child support reforms

15. Have Parents’ Perceptions Improved Since The New Scheme? Page 15 Classified in confidence - Inland Revenue - Highly Protected 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

16. Page 16 Classified in confidence - Inland Revenue - Highly Protected 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) Have Parents’ Perceptions Improved Since The New Scheme? Areas for Consideration

17. Right Sized Orders Page 17 Classified in confidence - Inland Revenue - Highly Protected 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)

18. Reactions of Right Sized Orders Research Page 18 Classified in confidence - Inland Revenue - Highly Protected 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

19. Right Sized Orders in NZ - Research Page 19 Classified in confidence - Inland Revenue - Highly Protected  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.

20. Right Sized Orders in NZ - Compliance Page 20 Classified in confidence - Inland Revenue - Highly Protected 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

21. NZ – Right Sized Orders and Fairness Are they integrated? Page 21 Classified in confidence - Inland Revenue - Highly Protected Right Sized Orders Perception of Fairness Compliance

22. The PARE Model Classified in confidence - Inland Revenue - Highly Protected

23. NZ – Improving Compliance is a Multi Strategic Approach That Yields Positive Results Page 23 Classified in confidence - Inland Revenue - Highly Protected Early Intervention Targeting Those Most At Risk Locate Campaigns Customer Outreach and Education The PARE Model

24. Legal Classified in confidence - Inland Revenue - Highly Protected

25. The Effect of Reducing Debt To Improve Current Support Compliance Page 25 Classified in confidence - Inland Revenue - Highly Protected  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 without an arrangement:

26. To create services, Collections is using a service framework, thinking from the customer back, an organisation needs to… MASP STAC Customers Services Access Outside In Approach Needs 1.Define its customers 2.Understand their needs 3.Create services to meet these needs 4.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 Model Putting the Customer at the centre of our thinking

27. Questions? Classified in confidence - Inland Revenue - Highly Protected Contact Details: Paula Knaap LL.B Manager, Capability Planning and Relationship Management Inland Revenue Department PO Box 432, Hamilton New Zealand email: paula.knaap@ird.govt.nzpaula.knaap@ird.govt.nz Phone: 0064 29 959 0432