Child poverty: Government considered making child support pass-on policy ‘income’ for the child

Child poverty in New Zealand is slowly declining. Photo / 123rf

The Government considered regarding child support payments as income for the child, meaning the payments would not eat into the benefit payments of their parents, but ultimately decided against it, despite the fact it would make greater inroads on poverty levels.

The Government recently introduced a law change that will see more child support passed on to solo parents, rather than being used to offset their benefits.

Currently, child support payments are collected by the Inland Revenue Department (IRD) and used to offset the cost of the benefit paid to these parents.

Under the Bill introduced, that full payment would go to the parent, though it would be treated as income and therefore, the benefit level would reduce if it reached the abatement threshold.

Social Development Minister Carmel Sepuloni said the change to child support would benefit more than 41,000 sole parents by a median of $20 a week.

It is estimated to help lift 14,000 children out of poverty.

In a Regulatory Impact Statement, officials from IRD and the Ministry of Social Development looked at a range of options, including passing on the full child support payment but treating it as income for the child, not the parent.

This would mean the parent would receive the full amount of child support and the full benefit, without any reduction.

“Treating child support as income for the child would be in line with the general purpose of child support payments, which [are] intended to support the child, not the parent or the carer of the child.

“It would have a greater impact on child poverty reduction levels.”

Officials did not state exactly how much greater the impact on child poverty reduction levels could be.

Ultimately, officials recommended the option chosen by the Government.

They said treating child support as income for the child was a “significant policy shift” from the general purpose of the Social Security Act 2018, which states that clients must use all available resources before they seek financial assistance.

“This purpose would no longer apply [with] respect to child support payments,” they said.

There were also “equity concerns”, as people who received large sums of child support could still be eligible for a benefit.

Cabinet signed off on the child support pass-on policy in March last year, and it was supposed to be fully implemented by April this year.

The document reveals how there were difficulties in meeting that timeline, so officials recommended a phased approach instead.

Phase one would see child support passed on, and most child support treated as income for financial assistance purposes from July this year.

Phase two would see all child support charged as income, with the more complex income charging rules implemented in this phase. This could take until 2025, officials said.

The difference in terms of child poverty outcomes from doing a phased approach would be “statistically insignificant”, they said.

The Bill passed its first reading at the end of March, with the support of all parties.

It will see child support collected by Inland Revenue and passed directly on to parents on a sole parent rate of their main benefit from July 1, 2023.

It was a change recommended by the Welfare Expert Advisory Group in 2019, which said “money intended for children should not be withheld by the Government”.

“The Child Support (Pass On) Acts Amendment Bill will remove the discriminatory policy which has withheld child support from some of our most vulnerable sole parents,” Sepuloni said in introducing the Bill.

“Through this legislation, this Government is delivering on its commitment to put dignity back in the welfare system and to make it fairer.”