Jennie George (Throsby, Australian Labor Party, Shadow Parliamentary Secretary for Environment and Heritage) Share this | Hansard source

I am pleased to have the opportunity to participate in the debate on the Child Support Legislation Amendment (Reform of the Child Support Scheme—Initial Measures) Bill 2006. I was a member of the House of Representatives Standing Committee on Family and Community Affairs which produced the report Every picture tells a story, which led to some fundamental changes to the family law system and the creation of family relationship centres. As part of that reform process, the committee made numerous recommendations about adjustments and changes to the existing child support formula, which are being given effect by the further detailed consideration undertaken under the chairmanship of Professor Parkinson. That comes to us today in the child support legislation amendment bill which, regrettably, though, only addresses some of the many important issues that need to be considered in the revision of the child support system.

By way of introduction, I want to quote a paragraph from the Parliamentary Library Bills Digest that accompanies this bill, because I do think we need to see this issue in context:

The Child Support Scheme has been in place since 1988. The introduction of the Scheme was a major, controversial reform. It was expected that it would take many years to refine and become accepted. The CSS represented the government intervening in one of the most sensitive and traumatic points in the family life cycle. Given the acrimony and emotions associated with family breakdown, the proposal for a government administered maintenance collection process could not avoid being the focus for dissatisfaction and also grief and anger for individuals caught up in the turmoil of loss of family life and children.

It has been quite a vexed, difficult and emotional issue—an issue that all of us as representatives of our local communities deal with on a very regular basis. You have constituents who come to you with claims that their partners’ taxable incomes have been deliberately minimised to avoid their obligations and, on the other hand, you have non-custodial parents arguing that the system is all geared to maintaining the lifestyles of their former partners—you know the kinds of arguments that go on.

One of the things I have always found difficult in trying to come to a reasoned and rational position about the formula is that I could never understand the rationale for the setting of the formula in the percentage terms that have applied. Part of the difficulty was always the inability to give a reasoned argument for the way the system was structured in the first place. I am sure that, at the time it was introduced, people had all the arguments. But it has been difficult, as the committee found, to get to the basis of those arguments. We thought it would be fairer if we could reach some independent and objective analysis of the actual costs of raising children which would take some of the heat out of these vexed arguments.

The child support system was an important government intervention. It was important because it aimed to strike a fair balance between public and private forms of support for children, and to alleviate the poverty of sole parent families. We all know that sole parent families raising children are likely to be very much at the bottom end of the scale in terms of wellbeing and standard of living. We have always believed that any policy must put the interests of children first, reduce child poverty and operate in such a way that both parents contribute to their children’s well-being. It must also encourage both parents to maintain ongoing roles in their children’s lives. I welcome many of the long overdue changes that will come with the introduction of the staged changes to the formula. But, as the member for Sydney indicated, our support for the package as a whole is conditional on improved protection against income reductions for low-income households raising children. I will come back to that argument later.

The bill before us today seeks to implement only the first stages of change, and other speakers have gone into the detail of those changes. I think it is really regrettable that we are not in a position to debate the changes as a total package because, had we had that, it would have been much easier to assess the winners and the losers, and the equity considerations, of justice and fairness for all, that have to be part of the outcomes.

You cannot argue against the fact that the existing formula has been the cause of a great deal of angst in the community. The research undertaken recently by the Australian Institute of Family Studies found that more than 60 per cent of nonresident fathers and 45 per cent of resident mothers thought the system was not working well. This was confirmed in the evidence that came before us in the inquiry that led to the report Every picture tells a story. As we know, many constituents who have come to see their politicians have raised concerns about the application of the formula and what they perceive to be the many anomalies contained within it.

The formula as it now stands is, I think, based on the notion that somehow the living standards that applied in the intact family would continue to apply postseparation—what is referred to as the ‘continuity of expenditure’ principle. I find the rationale for the continuity of expenditure principle a little bit hard to fathom, because family breakdown does cause a different outcome in living standards before and after separation. But, also, I have always been concerned that I could not explain to my constituents the reason why the percentages were struck as they were, at 18 per cent for one child and 27 per cent for two, increasing depending on the number of children. I could not explain the rationale for those percentages being struck and applied in that manner.

On top of that, we had arguments about the adjustments to recognise a range of different circumstances. Coming with that were the argument about what was perceived by many to be the unfair treatment of children in second families; the issue of contact above the threshold of 110 nights, which reduces the payer’s liability; and the fact that the formula applied the same percentage of income regardless of the age of children. There was also the issue that it did not properly take into account the income of the custodial parent if that income was under average weekly earnings. In other words, the formula had not really kept pace with workplace changes, the greater participation of women at work and the issue of why their income was not part of that equation if it was under AWE.

In addition to concerns about the rationale and basis for the current child support formula, constituents continue to air grievances about what they see as inconsistencies and anomalies in the application of the formula. It is not uncommon for constituents to argue a case as to why the formula, in their view arbitrarily set, is on taxable income rather than on disposable income. There is the argument that the level of exempt income is too low for non-custodial parents. As we know, it is now struck at about 110 per cent of the single rate of the pension, around $13,500 a year. Constituents tell me—and it is the evidence produced to the inquiry—that the application of that level of exempt income leaves many non-custodial parents in a situation where they have little disposable income to sustain a decent lifestyle, let alone make arrangements for repartnering or for children in second marriages or their new relationships.

From the grievances that have come before me, there is no doubt that the self-employed are able to manipulate their taxable income and that others are able to minimise their income. As we all know from published data, the lack of enforcement provisions has seen a huge increase in debt recovery problems for the agency. As at the end of June 2003, the CSA had not collected $844 million due in liabilities.

Another vexed issue was the belief by many that in second families a child from the second relationship was treated with less consideration than a biological child from the first relationship. As we know, payers with new biological children are given a dollar figure increase in their exempt income before the relevant percentage is applied. Many nonresident parents who have repartnered and have further children in their new relationships constantly complain about the impact of overtime and second jobs on their liability for the children of their first marriage. To put it simply, let me quote from one of the submissions to the inquiry:

As it now stands, any person paying child support has little or no incentive to work any longer than they have to, knowing that any extra money earned is going to increase their child support payments ...

that is, it will increase payments to the children in their first relationship. So there has been a widespread raft of concerns about the basis for the formula, in the first place, and about the many anomalies that people on both sides of the equation—both payer and payee—see in terms of its application.

It was a vexed issue. I am delighted that the government followed the recommendations of our inquiry and set up the ministerial task force chaired by Professor Parkinson to undertake a detailed analysis and try to come up with a child support formula and system that addressed many of the issues that were causing concern in the community.

As we know, the task force has recommended fundamental changes. Those changes will see parents share in the cost of supporting their children according to their capacity. The new proposals move away from the notion of continuity of expenditure—somehow trying to artificially maintain the intact family standard of living post separation—towards what the task force refers to as an ‘income share approach’. I think that better reflects the notion of shared parental responsibility and changes in workforce participation by women.

It is proposed that in future the costs of raising children are worked out based upon the parents’ combined income, with the costs distributed between the mother and the father—or the resident and nonresident parent, with the mother usually being the resident parent—in accordance with their respective shares of that combined income and their level of contact with their children. Both parents will now have a component for their self-support deducted from their income.

Very importantly, in moving away from the arbitrary percentages applied to taxable income, we now have, for the first time, courtesy of the University of Canberra’s National Centre for Social and Economic Modelling, a much more objective and realistic assessment of what the actual costs of raising children might be. As NATSEM themselves say, the calculations cannot be perfect but they are as close as researchers believe it is possible to come. For example, they estimated that for a single child of up to four the average cost was $91 per week in a two-parent family and $115 in a single-parent family. For a five- to 12-year-old, the costs rose to $95 in a two-income family and $119 in a single-parent family. I give those as examples, because it makes it much easier to address complaints and concerns when you can say to people who come to see you that, at least for the first time, we have the best calculations possible as to the actual costs of raising children.

As I said earlier, calculating the costs of raising children is based on the parents’ combined income and is done in two age bands. I think one of the problems with the arbitrary formula applied previously was that the age of the children made no difference. As the NATSEM modelling shows, the costs of raising children increase as the children become older. The new proposal recommends that the support be calculated in two age bands—for children aged nought to 12 and for children aged 13 to 17—and that the costs are capped at a combined income of 2½ times the average weekly earnings, which means that at $104,702 the cap would apply.

Some people will argue that high-income earners are going to be advantaged by this change and will ask whether that is fair. I guess that is a judgment people will come to with regard to their individual assessments, but I would note that a nonresident parent supporting two children under the age of 12 would still be making payments of $472 per week under this lower cap, and that those payments are higher than the objective data that NATSEM has produced on the cost of raising children.

The task force recommended an increase in the self-support amount, that it should be the same for both parents and that children from first and second families ought to be treated as equally as possible. They also believe that regular face-to-face contact should be recognised in the formula. I have some concern about the withdrawal rate for child support liability. They suggest that regular contact—that is, contact of at least five nights per fortnight—should entitle the nonresident parent to a 24 per cent reduction in their child support liability. I would urge the government to review that, because I think that rate of reduction is too high and, in fact, has the unintended consequence of leaving too many sole parents—resident mums, normally—in a much more vulnerable position than they are today. I think if we could revisit that 24 per cent reduction for the nonresident parent who has the children for at least five nights a fortnight, we might get to a better and fairer outcome.

I can see some of the advisers looking perplexed. ‘Regular contact’ is defined as contact occurring between 14 and 34 per cent of the time, which averages to at least five nights per fortnight. If the nonresident parent provides that level of contact, under the Parkinson formula their liability for child support would reduce by 24 per cent. I am arguing that that 24 per cent is too high and is one of the reasons why there is concern that low-income resident families will be left in a very precarious position.

Finally, as legislators we have an obligation to ensure that all parents meet their obligations to their children. As a member of the inquiry, I was appalled to learn that, based on figures that I think went back to 2003, more than 40 per cent of all payers in our scheme today are paying $5 per week or less for child support, 56 per cent pay $40 per week or less and the average child support paid in July 2003 was $57.

They are appalling statistics and well below the actual costs of raising children. That is why the amendment moved by the member for Sydney expresses Labor’s concern that, whilst we do not decline to give the bill a second reading, we call on the government to provide protection against income reductions for low-income households raising children. We believe there is strong evidence to show that many people in the system are understating their taxable income, which does not properly reflect their capacity to pay a reasonable amount towards the support of their children. Only about half of the people paying $5 per week for their children are on minimum entitlements such as Newstart, DSP or other income support. So, in my judgment, there are a lot of people who are minimising their financial responsibilities to avoid providing for their children.

We will have ongoing debate about the impact that all these changes will have on resident parents raising children in sole parent households. I think it is incumbent upon the government to ensure that the overall package and its relationship to welfare policies will ensure in future that low-income households raising children are not left in a worse position than they are now where rising child poverty becomes an unintended consequence of the child support changes recommended by the task force. (Time expired)

See this speech in context