CHILD SUPPORT IN NEW ZEALAND - COLLECTION COSTS

Preliminary Treasury estimate

"... the scheme requires a vast bureaucratic machine in order to function. The cost of collection will be very much higher than the cost of collecting 'other tax revenues' and in a full year Treasury estimates that $68 million will be needed for administration, on top of $70.4 million establishment costs."

(Atkin, 1992, p.225)

It is interesting also to note that:

"The previous Labour Government had accepted as a matter of policy that 30 per cent of the amounts collected should be passed on to the beneficiary in the hope that, if liable parents see that all their payments are not going straight to the state, there would be an incentive to pay. This policy was not adopted by the National Government."

(Atkin, 1992, p.225)

Source: Atkin B, "Financial Support: The Bureaucratisation of Personal Responsibility", in Henaghan M and Atkin B (eds.) (1992) Family Law Policy in New Zealand, Oxford: Oxford UP, pp.210-230

Question 612 lodged in Parliament 1 March 1995:

Hon Winston Peters (Tauranga) to the Minister of Revenue: For each of the past three years, what has been the cost of administering child support, and what percentage of child support receipts does this represent?

Hon Wyatt Creech (Minister of Revenue) replied: The Child Support Agency has collected:

$82.7m during the 1992-93 financial year.
$134.7m during the 1993-94 financial year.
Is on target to collect $158m during the 1994-95 financial year.

The costs for administering the Child Support Scheme over the past three years were:

$53m for the 1992-93 financial year which is 84 percent of revenue collected.
$56m for the 1993-94 financial year, which is 42 percent of revenue collected.
On target to cost $53m for the 1994-95 financial year, which is 34 percent of revenue collected.

Question 611 lodged in Parliament 1 March 1995:

Hon Winston Peters (Tauranga) to the Minister of Revenue: How many cases of formula assessment does the Inland Revenue Department administer?

Hon Wyatt Creech (Minister of Revenue) replied: The Child Support Agency is currently administering 112 694 formula assessment cases. In addition to the formula assessment cases, the Agency administers 2044 voluntary agreements and 1781 Court Orders.

My comments

In the 1994-95 financial year, a total of 116519 cases, agreements and Orders were administered at a cost of about $53m, or approximately $455 each on average.
The minimum liability is $10 per week, or $520 per year.
The costs mentioned are the administrative costs, or costs born by the IRD. Total collection costs would also include compliance costs born by employers and other individuals and organisations involved in the child support collection process.
According to Child Support Review 1994: A Consultative Document by the Child Support Act Working Party, about 10 per cent of liable parents pay the minimum $10 per week (p19).
Also in the Child Support Review 1994: A Consultative Document, it is stated that assessments average approximately $37 per week (p19). This would mean that, in 1994, total assessed child support liabilities would total approximately $(37 X 52 X 112 694) or roughly $217m.

Enforcement costs can also be significant, as can be seen in the following table from the GAO report Child Support Enforcement: Families Could Benefit From Stronger Enforcement Program (Chapter Report, 12/27/94, GAO/HEHS-95-24):

Table 1.1

Net Budget Savings/Costs for States, Federal Government, and Taxpayers From the CSE Program, Fiscal Years 1980-1992

(Dollars in thousands)

Fiscal year | State net savings/costs | Federal net savings/costs | Net savings/costs to taxpayers

1980........ $230,152........ $-102,698........ $127,454
1981.......... 260,969.......... -128,377.......... 132,592
1982.......... 307,309.......... -147,946.......... 159,363
1983.......... 312,296.......... -138,078.......... 174,218
1984.......... 365,522.......... -105,048.......... 260,474
1985.......... 317,334.......... -230,888.......... 86,446
1986.......... 275,644.......... -263,177.......... 12,467
1987.......... 341,826.......... -337,278.......... 4,548
1988.......... 381,001.......... -355,424.......... 25,577
1989.......... 403,333.......... -480,056.......... -76,723
1990.......... 338,469.......... -528,135.......... -189,666
1991.......... 385,059.......... -586,454.......... -201,395
1992.......... 434,317.......... -604,946.......... -170,629

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Note: Federal net savings/costs refer to the federal share of AFDC collections less incentive payments and matching funds paid to the states.

Stuart Birks

Last modified 26 May 1999