Shake-up on child support payments

Similar changes are being proposed for Working for Families benefits.

People who pay child support would have no choice but to have payments automatically deducted from their pay by their employer, under a government proposal.

The Government is also consulting on whether deductions should be varied more frequently – perhaps to reflect people’s actual income each month – rather than being ‘‘averaged out’’ over a year. Almost three-quarters of people who pay child support – and who only receive salary and wage income – already elect to have payments automatically deducted from their wages. But Inland Revenue noted some people did not want their employers to know they were paying child support.

Keeping that secret might no longer be an option under the Government’s proposal.

Currently, people’s child support obligations are assessed once a year and divided into 12 equal monthly payments.

But under some of the proposals that are now up for consultation, deductions could be frequently and automatically revised to reflect people’s actual incomes from both earnings and investments.

Similar changes are being proposed for Working for Families benefits, which might be based on people’s actual weekly or monthly incomes – rather than an estimate of what they were expected to earn through the year.

The proposals have come about as a result of Inland Revenue’s business transformation programme, which is designed to deliver a more ‘‘real time’’ tax and benefits system, that avoids under and over-payments.

Inland Revenue said one benefit was that people were less likely to get into debt as a result of annual estimates proving inaccurate.

Finance Minister Steven Joyce said more than 40 per cent of people who received Working for Families benefits were underpaid on their entitlements to some degree through the year, while a quarter were paid too much and ended up owing money to Inland Revenue.

Some people choose to be paid Working for Families benefits annually in arrears because of the risk they might otherwise be paid more than their entitlement, he said.

But a discussion paper acknowledged that tackling those issues involved a trade-off.

A downside of making child support deductions more responsive to changes in people’s actual income is that would also make the payments that carers received less predictable through the year.

Inland Revenue cited an example of a person who earned $3836 one month and $8445 the next. Under the current system, the carer would be entitled to equal payments of $600 each month, but they might get $415 one month and $1000 the next, if the system changed.

A third set of changes proposed by the Government would extend the automatic deduction of student loan repayments to earnings from payments made to contractors and for casual agricultural work.

Submissions on all the proposals are due by September 15.

Revenue Minister Judith Collins said any changes that were made would be introduced ‘‘over a couple of years’’, with law changes likely to go through Parliament next year.

Joyce said any changes were likely to be cost neutral for the Government, but would lead to ‘‘more people getting the right amount of money at the right time’’.