Child support payments to be automatically deducted, and all parents' income opened up to Inland Revenue

Revenue Minister Judith Collins and Finance Minister Steven Joyce , announcing the overhaul of IRD social policy payments at Parliament today. Photograph by Mark Mitchell

Overdue child support payments will be automatically deducted from liable parents' pay packets as part of major changes proposed by the Government.

In announcing the reforms, Revenue Minister Judith Collins revealed that debt on family support was now in the "billion of dollars", much of it overseas, including $4 million owed by a single parent.

In a bid to claw back some of this money, the Government will change the law to allow payments to be automatically deducted from parents' wages or salaries.

Child support payments will also be based on all income made by parents, including anything held in trusts.

The Inland Revenue Department (IRD) already has powers to pursue student loan debtors overseas, and Collins would not rule out extending those powers - including arrest at the border - to negligent parents.

"Most people who need to pay child support pay it directly to the parent ... and most people sort things out themselves," she said at a press conference at Parliament this afternoon.

"But there are some people who over the years have decided to scoot off to other countries to escape their responsibilities."

Much of the child support debt was the result of penalties on late payment, rather than actual child support payments. As a result, Collins said the penalties will be scrapped because they appeared to deter rather than encourage people to pay off their debt.

Collins said the Government already had some arrangements with the Australian Government to collect the child support debt owed by people there.

Asked whether powers to arrest student loan borrowers at the border could be extended to parents owing child support money, Collins said people could propose such a move as part of the consultation process.

"It may be one of the very good suggestions that someone might like to make," she said.

The child support changes are included in an overhaul of the way the IRD collects or pays social support, including Working for Families payments, student loans, and child support payments.

The main part of the reforms is to introduce a "pay-as-you-go" system which would allow the IRD to base payments on up-to-date information held by third parties rather than requiring an annual tax return.

IRD would use information from banks and other third parties to automatically calculate and issue tax or refunds.

Finance Minister Steven Joyce said people were currently being asked to estimate their income over the year ahead.

"[This] is okay if you're on a salary of a 40-hour-a-week wage but many people have more variable incomes."

There would be similar changes for student loan payments and Working for Families entitlements.

Joyce said the old IRD system was not set up to handle the complex Working for Families payments. That meant around 40 per cent of recipients were underpaid, while 25 per cent were overpaid.

"Our new system will allow us to base payments on better information and allow IRD to be much more accurate and adaptable to families' changing circumstances and incomes."

The changes will be gradually introduced over the next three years.

CHILD SUPPORT DEBT
Debtors: 122,116
Payments owed: $616,716,864
Penalties owed: $2,200,191,735
Total Debt: $2,816,908,599