Julia Irwin (Fowler, Australian Labor Party) Share this | Hansard source

The Child Support Legislation Amendment (Reform of the Child Support Scheme—New Formula and Other Measures) Bill 2006 represents the next instalment in the reform of the child support payments system and follows measures passed earlier this year. As I said at the time of the debate in the House on those earlier amendments, I have been closely involved with this issue through my role as Deputy Chair of the House of Representatives Standing Committee on Family and Community Affairs—and I thank the honourable Chief Opposition Whip for his assistance on that committee.

That House of Representatives Standing Committee on Family and Community Affairs, as it was then known, reported to the House in December 2003 with Every picture tells a story. That inquiry only partly addressed the issue of child support payments. This legislation owes much to the Parkinson task force and the modelling undertaken to establish the costs of raising children in separated families. The committee’s report reached the conclusion that:

... it is imperative that independent modelling of the cost of children in separated families should be undertaken and published to establish what the impact would be if child support payments were based upon those results. In any event, the results of the study should be used to determine the basis of future child support payments.

Given the major changes to family payments since the original child support formula was introduced, it can be appreciated that substantial change was necessary. But it was also valuable to have a more realistic assessment of the true cost of each child in a separated family, and that became the starting point for the new formula.

A major assumption in the original formula was the acceptance that people spend the same proportion of their income on children. The old formula, therefore, took a fixed percentage of the remaining portion of the payer’s income. Those percentages were set at 18 per cent for the first child, 27 per cent for two children, 32 per cent for three, 34 per cent for four children and 36 per cent for five or more. It sounds like the ‘cheaper by the dozen’ principle.

The Parkinson review drew on international research showing that, the higher the household income and the more parents spend on their children, that expenditure declines as a percentage of their income. The review also commissioned its own research, carried out by the National Centre for Social and Economic Modelling. I must admit—and I am sure that more than a few members would be in the same boat—that interpreting graphs is not one of my strengths, but Parkinson clearly shows that for middle to higher income payers, the current child support payment exceeded the estimated gross cost of children. It is clear that the often claimed unfairness of the child support scheme is borne out by the research.

I should also note that the studies showed that, for lower rates of payer income, the cost of children exceeded the amount of payment. While it is assumed that family benefit payments would make up for much of this shortfall, we cannot assume that no resident parent will be worse off under the new formula. I will come back to this point later, but I must say at this stage that none of the reports or research has been able to put a figure on just how many resident parents will be worse off and which particular income bands those payer and payee parents fall into.

I will come back to the question of the fairness of the child support formula. Parkinson concluded that the fairest reference point for the Child Support Scheme was the continuity of the expenditure principle. This principle requires that a non-resident parent should contribute the same amount towards the child after separation as they would if they were living with the other parent. As we have seen, expenditure on children rises with income, so a formula based on the parents’ incomes would be fairer, rather than a fixed sum. But Parkinson also concluded that it was not feasible for child support to maintain the child’s living standards, as this would involve a degree of spousal maintenance and the effect of new partners, all of which would lead to a much more complex formula. The task force concluded:

... it is proper for child support obligations to be based on the best available evidence of how much children cost to parents with different levels of combined household income in intact relationships, and for the costs of children in separated households to be considered in evaluating how to take account of contact arrangements and shared care in the formula.

Another factor in looking at the cost of children is the age of the child. The task force presented figures prepared by NATSEM which showed a great difference in the cost of children according to age. The percentages for middle-income households ranged from six per cent for a child aged nought to four and up to 27 per cent for a 16- to 17-year-old. These large differences led the task force to consider special allowances for the age of the child. I am concerned, though, that there will be some losers under the new formula and that for low-income families the cost of children is greater as a percentage of income. If we look at the figures given, we can see that for a low-income family a 13- to 15-year-old costs 28 per cent of income and a 16- to 17-year-old costs 39 per cent. The costs of those children may be met through other forms of assistance. Again, we will find that some families will struggle as children grow into their teens.

Another issue which concerned the House of Representatives Standing Committee on Family and Community Affairs, as well as Parkinson, was the question of the use of before- or after-tax income in the formula. The task force went to considerable lengths to find a fair solution to this problem. Its report shows that the Australian Institute of Family Studies community attitudes survey found that 87 per cent of non-resident fathers and between 71 and 79 per cent of men and women in the other three groups believe that child support payments should be based on net rather than gross income. The family and community affairs committee agonised over the issue but gave reasons of simplicity and the impact on low-income families for not preferring after-tax income. But the final choice of before-tax income recommended by the task force adds the deciding factors that its costs are based on expenditure on children in intact families, where combined before-tax income is considered, and allow for family benefit payments.

The other factors follow the task force’s recommendation that the percentage of income for higher income payers should decline. While the amount would still be higher for higher income earners, the percentage of income devoted to child support payments would be less. In deciding on the percentages for each income bracket, the impact of income taxation can be taken into account. There will, I am sure, still be those who would advocate that before- rather than after-tax income should be used in the formula. I think that it is essential that the point I have just made—that is, that income tax rates are taken into account when setting the percentage—should be made clear to all child support payers. At a time when we have seen this government lavish tens of millions of dollars on advertising, and with an election year coming up, I am sure we will see even more money spent. I think it is not too much to ask that some of that money be spent to explain the new formula. That should include issues like the calculation of child support based on before-tax income.

I also refer to the principles that the task force used in their proposal to redesign the Child Support Scheme. Those principles included the expectation that children who do not live with both parents should have an adequate living standard and that the non-resident parent should provide support based on what they would be likely to spend if the two parents were living together. The second principle was that parents share the expenses at a level appropriate to their income and in proportion to their capacity to pay. The third principle reflects the change in family assistance since the introduction of the old formula.

We all remember the words of former Prime Minister Bob Hawke that no Australian child will live in poverty. While many may have scoffed at the idea at the time, the children most likely to live in poverty when that statement was made were children in single parent families. We have come a long way since that promise. While I do not think we can yet say that no Australian child lives in poverty, the expansion of family benefits since then has meant that we should consider the effect of those benefits when calculating child support payments.

I said earlier that we know that the new formula will leave some low-income non-resident parents worse off. While government funded family benefits provide the bulk of income for a great proportion of single parent families, we should not lose sight of the principle that a non-resident parent has a responsibility to support his or her child or children, and that takes priority over all financial obligations other than those necessary to support themselves and any other legally dependent children.

While it is clear from the findings of the task force that government-provided family support payments make up the great bulk of support for more than half of all children of separated families, we do not have a realistic measure of whether those payments are sufficient. To give the House an indication of the cost of a child in a single parent family, I quote the figures presented in the task force report. Where the average weekly income is $583, the cost of nought- to four-year-olds is estimated at $115 per week. For five- to 12-year-olds it is $119 per week, for 13- to 15-year-olds it is $140 per week and for 16- to 17-year-olds it is $240 per week. So you can see for a single parent family on that fairly low income the high proportion of income that goes to meeting the cost of the child.

That brings me back to the matter I raised earlier: that we can be certain that some resident parents will be worse off as a result of this legislation. I would have hoped to have had a better guide to exactly who and how many would fall into that group, and I should add to that the effect of this government’s Welfare to Work requirements. During the deliberations of the family and community affairs committee on this issue, one principle stood out as being essential for any new arrangements. That was that no resident parent should be worse off and, in particular, no low-income resident parent should be worse off. With the new formula to come into effect in July 2008, we will not see its effect until after the next election—and that is something government members may take some comfort in.

However, bearing in mind that these changes will be coming into effect following the introduction of Welfare to Work changes, I think it is reasonable to assume that many thousands of low-income resident parents will find themselves worse off under the new formula. In the time available until then I think that, as a matter of priority, agencies involved in providing benefits and support should do their best to get some hard data on those who stand to lose from the changes. For those reasons I support Labor’s second reading amendment so that we can get some accurate figures on the effect on low-income families.

It is shameful that the Senate inquiry was given so little time to look at this important question. It seems that the government does not want to acknowledge that there will be losers under this new formula—and there definitely will be losers—and that it does not want to be put in a position where it will need to make up for the loss of income. We should, at the very least, be trying to find out who the losers will be. Only then can we consider ways of minimising the impact on those families. We may even have the chance to make further adjustments to minimise the impact on those families.

I note the provisions in this bill to allow for an independent review of child support decisions by the Social Security Appeals Tribunal. This measure is welcomed by Labor members as it will provide an inexpensive, fair and speedy means of reviewing decisions. As almost every member of this House will have encountered someone who claims to have been harshly dealt with in claims for child support, I am confident that this review procedure will provide a transparent means of reviewing child support decisions.

One common grievance which is addressed in this bill is the matter of income from overtime and second jobs. The complaint from a non-resident parent seeking to establish a new home after separation is that, if you work harder or longer to try to get ahead, you are required to make higher child support payments. The possible exclusion of that income in the first three years will be appreciated. However, I question, as I am sure many child support payers will, why it is limited to three years.

On the earlier bill I expressed my concern that the minimum payment was indexed from $5 per week to the grand sum of $6.15 per week, so I am pleased to see that parents who deliberately minimise their income—and there are a lot of parents out there who deliberately minimise their income to avoid paying child support—may be required to pay $20 per child per week. I believe this is consistent with the principles of the Child Support Scheme and better reflects the community’s expectation that parents have an extended responsibility to provide support for their children.

The bill also allows further flexibility for parents to make arrangements between themselves, and that is also very welcome. Other changes make the system simpler and fairer. This legislation is welcomed for providing what should be a fairer system of child support payments. It would be a great shame if this improvement, with all its benefits, were to cost some of the most disadvantaged children in Australia because of its failure to ensure that no low-income resident parents would be worse off. There is time to take a closer look, to do the research and to come up with measures that will avoid that happening. We will definitely just have to wait for a Labor government at the end of next year to do that as a matter of high priority—and that Labor government will do it.

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