NZ’s billion-dollar child support debt: Why is it still unpaid?

More than $1 billion is owed in child support, leaving some parents struggling with not enough income.

Thousands of Kiwi parents owe more than $1 billion in child support, debts that in some cases date back more than 30 years, Jane Phare reports.

Included in the list of unpaid child support owed to thousands of parents is a debt of $2.5 million, now 10 years old. Inland Revenue (IRD) won’t say how it came to be that size. All it will say is that the amount is “currently under a payment arrangement”.

Nor will the IRD be drawn on just how the amount of unpaid child support reached $1.023 billion, owed by 97,597 debtors as at April 30 this year. Nearly $434.2m of the total is in penalty fees. The oldest debt dates back 32 years since the IRD began administering the Child Support Act in 1992.

The Herald asked what the IRD could do to improve its collection rate.

“IRD’s collection rate has improved through system and legislation changes,” was the answer.

Not good enough says Pamela,* an Auckland mother who is owed more than $40,000 in child support, dating back more than five years. She is frustrated by the lack of progress the IRD has made in collecting the money from her former partner. Not only are the arrears not being paid but the monthly payments are erratic at best, more often non-existent, she says.

“I’m not asking for interest, just the money that’s owed.”

Child support payments have been random over the years, ranging from small one-off payments that made no sense to the occasional full amount, Pamela claims.

She told the Herald that her former partner owned property, businesses, cars, had money in the bank, earned a big salary and contributed a substantial amount to KiwiSaver each month. She had appealed repeatedly to the IRD to enforce the payments through her partner’s employer without success, she said.

“They [the IRD] say they won’t intervene. They just say they have methods in place, or something organised with the parent.”

‘Why won’t the IRD use that power?’

She wants to know why the IRD, which has the power to enforce employer-deducted payments or take money from bank accounts, doesn’t act.

“Why won’t the IRD use that power? What does it take for someone to qualify for that?”

Family Court judges have found in her favour at every appeal and have rejected her former partner’s objections to the IRD’s assessment of his income, she says. But still the child support doesn’t come.

“It’s an IRD failure as opposed to a Family Court failure.”

The lack of repercussions for the non-payment of child support, and for hiding – or lying about – income and assets contributed to the problem, she said.

The IRD won’t comment on specific cases but in a statement attributed to the families segment lead, Sue Gillies, it said as a result of legislative changes in the Child Support Amendment Act 2021, all newly liable parents paid through automatic deductions from an employer unless that option was deemed to be inappropriate.

“This could be if the liable parent is in seasonal employment, has irregular pay frequency or the liable parent has more than one employer and required deductions exceed 40 per cent of their net earnings from each employer. We would consider an enforced arrangement through an alternative source.”

Referring to child-support debts that date back years, the IRD said that although many of the affected children would now be adults, the debt remained against the liable parent and that collection action would continue to be taken.

Gillies said most of the liable parents either had an arrangement through their employer or made manual payments under an arrangement. Of the 97,597 liable parents, 86,728 were paying by employer deductions.

“For those not paying or paying late there are different collection methods, including legal action that we can take depending on the circumstances. Some liable parents actively avoid paying which adds complexity to the enforcement actions we have.”

Last year $481 million was collected from liable parents by the IRD, paid to 110,000 receiving carers with a total of 158,000 children. The figure does not include those paying under private arrangements.

Priority over KiwiSaver

Child support had priority over any other deductions from an employee’s net pay after PAYE deductions by an employer, including KiwiSaver, Gillies said.

“If there are any specific circumstances where this is not being completed, we would need to look at what’s going on. We might need to talk to the employer to make sure they understand their obligations.”

Pamela says in her case, no action has been taken by the IRD.

Instead, payments were drip-fed from her ex – less than $150 so far this year – which she suspected fooled the IRD into thinking voluntary manual payments were being made regularly.

The IRD denies that tactic would work.

“Liable parents will have automatic deductions through their employer, regardless of making occasional payments,” Gillies said.

Using businesses and trusts was another way of making available money disappear, Pamela said.

“It’s really hard because the onus is on the person to prove that they’re up to something and how can you prove that?”

She could not afford a lawyer to take her case, and said the issue has caused her stress for years. The lack of money meant she had fewer choices when raising her children.

“It’s so unfair. I feel like I haven’t done anything wrong and I have tried so hard to do the right thing. And there is just something in the system that is stopping the last bit happening.”

Although currently sitting at around $1b, the child support debt has dropped in recent years. In 2016 it peaked at $3.25b owed by 121,000 debtors. The drop is partly due to the IRD writing off nearly $1b in incremental penalty debt between 2020 and 2022, including removing penalties for late payments.

Although late payment penalties still apply, the IRD has dropped the incremental penalty, also known as the ongoing monthly late payment penalty.

In addition, the IRD says due to improvements in its business systems it can now get information and payments more quickly, and pass the money on to the receiving carer more quickly.

Jane Phare is a senior Auckland-based business, features and investigations journalist, former assistant editor of NZ Herald and former editor of the Weekend Herald and Viva.

https://www.nzherald.co.nz/business/nzs-billion-dollar-child-support-debt-why-is-it-still-unpaid/QHEL3YXJVJH3NCWNNA2SN2VN6E/