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Peter Dunne – Changes to Child Support

Posted by Stuart Nash on August 21st, 2011

Peter Dunne has finally announced proposed changes to the child support regime in order to make it fairer. He admits that “on something as contentious and as emotionally charged as child support… it is not about trying to please people. It is about creating a system that people feel is fundamentally fair, and crucially, that they feel is for the benefit of their children. If we get those two factors through to people, then we have succeeded, and I believe we are doing that here.”

Aside from the obvious contradiction there (‘not trying to please people… but about creating a system that people feel is fundamentally fair’: in my experience, people are pleased with a fair system, and not with one that isn’t), I don’t think anyone would disagree with the sentiment. As Revenue spokesman, I get many e-mails from people who believe they are being ‘ripped off’ by a discriminatory child support regime.

Three points I would make however:
1. Two and a half years ago Dunne said he would complete a review of the system in 6 months. What took him so long?
2. Dunne’s IRD is undertaking a round of redundancies (16 front line staff in Napier alone) and yet they are about to restructure the child support system… Does that mean ‘more with less’? Give me a break.!
3. Most importantly, Dunne has said that the changes to the system will be in legislation introduced to Parliament in the next few months. There are only four sitting weeks left this term. This is incredibly important legislation because over 200,000 NZ children rely on child support payments. I hope like hell this isn’t something that Dunne and the Nats are planning to introduce under urgency.

I am not saying there doesn’t need to be changes to the child support system, because there quite obviously does (of the approximately $2b in child support debt, under $200m is actually principle). But any legislation reforming the child support system needs to go through the proper parliamentary process; e.g. public select committee where all NZers can have their say.

The real shame of all this: if Dunne had done what he said he would do, then we would have had this whole system reformed months ago. Wonder why he hasn’t…

Filed under: Child Support, IRD, Tax
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S&P: National on negative watch (part I)

Posted by David Cunliffe on November 23rd, 2010

National’s counter-spin on yesterday’s placement by Standard and Poor’s of New Zealand’s sovereign credit rating on negative watch shows increasing desperation, the latest of a torrent of bad economic news.  I comment in two parts: the announcement and the counter-spin.

First the announcement’s overview:

  • “We perceive New Zealand’s projected widening external imbalances and the country’s weakened fiscal flexibility as increasing risk to the sovereign.
  • New Zealand’s vulnerability to external shocks, stemming from its open and relatively undiversified economy, also raises risks to the country’s economic recovery and credit quality.”

The S&P Report’s rationale makes the drivers even clearer:

  • widening external imbalances
  • weakened fiscal position
  • under-diversified economy
  • high external liabilities
  • a return to high current account deficits averaging 5.9% of GDP over the next three years.
  • and crucially, that “net external liabilities … predominantly reflect dependance by households on foreign capital to fund consumption and property investments”

In other words: New Zealand does not save enough, it has too much private debt, and that debt was used to fund the wrong things (property speculation not real business investment).  New Zealand’s exports are under-diversified and New Zealand will continue structural bleeding on our external accounts after the immediate recession.

The logical repsonse to these problems should be;

  • strong action to close the savings deficit (if possible by building good household saving behaviour)
  • diversify and increase exports (presumably moving beyond a narrow range of bulk commodities)
  • managing the fiscal position to encourage sustainable growth, employment and healthy tax revenues without blowing the fiscal deficit.
  • ensuring monetary policy supports the direction of reform rather than acting against it.

It obviously should NOT include:

  • borrowing more for tax cuts to upper income earners that neither create powerful stimulus nor correct the underlying imbalances
  • reinforcing exisitng bulk commodity exports while reducing investment in innovation and R&D to divesify and add value to the export base
  • cutting back Kiwisaver; cancelling prefunding for the NZ Super Fund; and taking two years to set up a Savings Working Group (and even then proscribing a range of strong policy options)
  • pretending monetary settings are ideal when exporters face extreme currency volatility

Bill English and John Key declared S&P lifting their previous negative outlook as a” verdict’ on Budget 2009.

They should be straight-up enough to accept that S&P has now reversed its verdict.

After 18 months of National Government policies National can have only itself to blame.

In part II of this post we’ll check whther their rhetoric matches this reality.

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Filed under: Budget, IRD, Investment, Tax, bank, business, debt, economic, economy, finance, international, monetary policy
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Child support debt – the national shame

Posted by Stuart Nash on August 5th, 2010

A recent report tabled in the House by the Office of the Auditor General on the IRD’s management of the child support system highlights some serious issues in this rather sensitive area.

Over $1.5b is owed in child support payments.!  This is forecast to rise to $7b by 2018 unless something drastic is done soon to address the problem.  Of the current $1.5b outstanding, only around $195m is actually owed to parents – the rest is owed to the IRD in penalties and interest.!  The OAG concluded that the severity of the penalty regime can actually act as a disincentive to people meeting their parental responsibilities, as opposed to the incentive it is supposed to be. 

I think most of us agree that any parent who doesn’t take responsibility for their children by providing for the necessities of life needs to take a good hard look in the mirror.  ‘Front up and take responsibility’ is the message society needs to send to those who abandon their dependants.  About 68% of parents do make the correct payments on time, but that leaves 32% of parents who don’t.!

However, we need to have a system that is fair and an agency managing the system that understands its own responsibilities to the country’s citizens as well.  The data in the OAG’s report shows that the IRD only calls around 40% of those who enter into the child support scheme.  Remember, people enter this scheme often at a time of great turmoil and emotion.  IRD should be making an effort to contact EVERYONE and work with people to outline their financial responsibilities and how to best manage the situation.  A staggering 96% of all those within the child support system have had to pay a penalty at some point in time.  This is astounding.  The penalties are harsh – as mentioned, the OAG acknowledged this - if you are a minute late in paying, your debt jumps by 10%, then a further 2% per month.  A person’s debt doubles around every 3 years. 

The thing I find a little disturbing though, is that the penalty payments collected by the IRD don’t go to the parents looking after children, but straight into the IRD coffers.  How about this: if a person with a child support debt dies, the IRD tries to claim that debt from the estate – the estate doesn’t go to the children, who could well do with the funds – but to the IRD.!  How perverse.

At a speech in October last year, Minister Dunne said that he would have a paper to cabinet in ‘a couple of weeks’.  Almost a year later, and no sight of it yet.  So, like the management of most issues, Key’s cabinet collectively fiddles while Rome burns.  Its becoming a common theme.  Does this govt actually care?  Dunne has known about this problem for around 3 years (remember the man was Revenue Minister under Labour), and still hasn’t done a thing.!  Where is the plan to remedy this situation?  It simply doesn’t exist.  And who suffers?  Kiwis who can least afford it.  That’s hardly fair Mr Dunne and Mr Key.

Filed under: Child Support, IRD, children, debt, economic
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