CHILD SUPPORT REFORMS The Australian Experience

Margaret Harrison

The ure of the Australian equivalent to the Internal Revenue Service is described and the far-reaching efforts of the Australian government to collect. Readers from other countries will recognize similar themes: noncompliance with orders, establishing orders in a majority of cases, providing an efficient means for modifving support awards, creation of two classes of enforcement-for those receiving public support and for those who are entitled to support and do not receive pensions, the use of statistics regarding compliance, andmany others. This article documents the common concerm for all modern, industrialized nations in ensuring adequate support for children.

Australia’s child support reforms were introduced in two stages between mid-1988 and late 1989. As has been described elsewhere, albeit in more detail (Harrison, Snider, & Merlo, 1990), Stage 1 sought to improve the payment and collection of money ordered to be paid pursuant to a court order, whereas Stage 2 assessed amounts due according to an administrative formula.

The objectives of the reforms have been more closely analyzed in hind- sight than they were at the time of their implementation, as the program’s effectiveness has come under increasingly intense scrutiny. Those objectives were always at least potentially ambiguous, with twin objectives being the advancement of children’s welfare and the saving of public expenditure. They were explained more formally in the 1986 Cabinet Subcommittee Discussion Paper on Child Maintenance as involving the need to strike a balance “between public and private forms of support to alleviate the poverty of sole-parent families and to achieve some constraint on government outlays on sole-parent payments.”

For readers who are unfamiliar with the Australian Child Support Scheme, a number of its major characteristics are described briefly below. The remainder of the article will attempt to identify the Scheme’s apparent strengths and weaknesses, which have emerged both from empirical studies and as a result of the preparation of summaries for the current Parliamentary Inquiry.

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PRECURSORS TO THE CHILD SUPPORT SCHEME

The implementation of the child support reforms was preceded by several discussion papers and the publication of empirical research which docu- mented the rarity of payment, the paucity of amounts paid as child support, and the low incidence of compliance with orders and agreements (McDonald, 1986). North American and other readers will find many parallels in these findings. They showed how financially vulnerable many women and the children in their care were after separation, compared with men, and how small (if any) arole was played by financial contributions of the noncustodial parent.

Despite this information and acertain amount of media hype, it is doubtful whether many members of the Australian public were aware of the signifi- cance of the changes intrduced or the rationale for their implementation. This has understandably changed in the relatively few intervening years, as the Scheme has affected more and more separated parents and has become the subject of several evaluations and reviews, culminating in a Parliamentary Inquiry.

Stage 1 of the Scheme has had a minimal impact on the financial circum- stances of those for whom it is operating. The prerequisite that there be a Court order in place limited its operation to a minority of eligible parents from the beginning. The Australian Institute of Family Studies demonstrated that prior to mid-188 only 40% of all custodial parents had finalized a court-approved agreement or order (Harrison et al., 1990). In the absence of an enforced requirement that sole-parent pensioner applicants seek support from the other parent before being eligible for public assistance; in a climate where compliance with court-ordered obligations was honored far more in the breach than the observance; in the face of evidence that the going rate of court orders for support was far lower than the costs of child raising and that amounts only kept up with inflation by dint of further court variation proceedings, it is unsurprising that Stage 1 changed the financial situation of very few children of separated parents.

Nevertheless, the Stage 1 package of legislation, which included amend- ments to the Family Law Act to emphasize the priority to be given to child support and to require the Court to take into account research into the costs of children, also implemented important administrative procedures that form the basis for the Scheme as a whole. These include (inter alia) the siting of the Child Support Agency within the Australian Taxation Office and the establishment of the mechanism by which money is paid and disbursed, via the Department of Social Security, to the custodial parent.

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A unique feature of registered child support liabilities is they convert a personal obligation into a debt owed to the Commonwealth, thus eliminating private enforcement actions. A major selling feature of the Stage 1 reforms was the method of collecting child support by way of automatic withholding from the wages of liable parents. This has proved to be most effective in the instances in which it operates, but coverage of autowithholding has proved to be far lower than was originally expected and it is currently occurring in only about one third of all registered cases,

The Scheme has national coverage and determines and collects support in relation to both nuptial and ex-nuptial children. The involvement of the Taxation Office allows for interception of tax refunds and garnishment of payments from both third parties and from bank accounts. Tracing of the whereabouts of payers occurs by way of tax records including tax file numbers, with provisions for privacy being an important consideration. Where a tax return has not been lodged, the agency has the power to issue an assessment on the latest available income information.

An additional important characteristic, but of Stage 2 only, is the annual reassessment of liabilities by the Child Support Agency, which examines the taxable income of the liable parent and the custodian for the year before last. This mechanism ensures that the liability increases or decreases according to the most recent income information. Unfortunately, Stage 1 parents are still required to return to court if no private agreement for increases to take account of inflation or higher income is forthcoming.

The commencement of Stage 2 of the Child Support Scheme saw its full implementation and introduced the most significant changes. The Child Support (Assessment) Act provides for the payment of financial support for children whose parents separated on or after October 1 , 1989 or who were born on or after that day or have a sibling so born. The decision to make administrative assessment totally prospective has been criticized on the basis that it prejudices the financial welfare of children whose parents fall outside the requisite dates, combined with evidence that court-ordered or privately negotiated amounts are generally lower than those produced by the application of the formula (Child Support Evaluation Advisory Group, 1992).

The government’s adamant refusal to make formula assessment available to a wider group of children is based on the arguments offered in relation to any form of so-called retrospective legislation; the possibility of undoing settlements that were originally finalized on a different basis from that which subsequently operates.

Briefly, the main characteristics of administrative assessment are:

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The standard formula set out in the legislation allows for a number of variants that account for situations where the children are split between parents orshared, where they are in the care of a third person such as a grandparent, or where the income of the custodial parent is sufficiently high to warrant it being taken into account. The formula percentages are applied to gross taxable income. In the usual instances where the custodian has sole care, the amounts payable are quantified according to the number of children for whom the liable parent has responsibility; these are 18% for one child, 27% for two, 32% for three, up to 36% for five or more. An amount of the liable parent’s income (referred to as the self-support component) is formula-free to allow for his or her living expenses-where the parent has no responsibility for natural or adopted (not step) children of another union, the relevant amount is approximately AUS $8,000, where there is such a responsibility the amount nearly doubles and ranges from $14,000 to about $17,000, depending on the number of children. The amount of the self-support component is equivalent to basic pension rates. The income of the custodial parent is only taken into account where it exceeds average earnings, (approximately $30,000 per annum), with a small additional amount for childcare expenses where the children are less than 12 years old. This provision has generated a considerable amount of controversy but the income has been relevant in very few cases due to the high proportion of pensioner custodians in the Scheme. A cap is imposed on the amount payable, on the basis that over a certain figure, child-raising expenses become elective rather than directly proportional to income. The cap is currently set at two and a half times average earnings, which amounts to approximately $72,000. The formula effectively eliminates the role of the Courts in assessing the quantum of child support obligations. Departure applications are available on very limited grounds where there are significantly unusual circumstances, thus preserving the integrity of the formula in all but a small percentage of cases. Since July 1, 1992, applications to depart from the formula have been heard administratively by specialiy appointed Child Support Review Oficers. De- spite the widespread complaints about the equity of various aspects of the formula, to date only about 4% of the 280,000 custodial and noncustodial parents eligible to apply for a departure have done so. Those outside the pension system are freely able to negotiate their arrange- ments and the extent to which the existence of the formulainfluences negotia- tions is largely unknown. Child support payments are collected monthly in arrears and paid out by the 7th day of the following month.

SOLE-PARENT PENSIONERS AND THE CIE[LD SUPPORT SCHEME

Revenue savings to the Commonwealth are achieved viathe Child Support Scheme by income-testing sole-parent pensions and reducing the maximum

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entitlement by 50 cents on the dollar up to a prescribed level, at which the pension cuts out altogether. Maintenance income is treated separately from other income (such as salary and wages) in order to diminish work disincen- tives. As a result of the child support measures, the Department of Social Security has reported that in December 1992, 40% of the approximately 300,000 sole-parent pensioners declared receipt of some child support, up from 26% in 1988. Savings of $108 million, although falling far short of original estimates, were obtained in that period from reduced payments to these beneficiaries.

The Child Support Scheme reactivated a previously dormant provision which had required applicants for sole-parent pensions to take reasonable action against the other parent for maintenance. For Stage 1 parents the requirements are somewhat complex, as in 1988 there was already a large cohort of pensioner custodial parents who had obtained public assistance without having had to first seek support from their childrens’ other parent.

The current situation is that a social security client covered by Stage 1 is required to take maintenance action within 3 months of being so advised, unless an exemption is granted or was granted prior to the Scheme’s com- mencement. Payments must be collected by the Child Support Agency where the pension was granted before January 1, 1993; otherwise the parent may choose private collection. Those who were granted their pension before Stage 1 came into operation are not required to take action unless they have an unpaid court order or registered agreement obtained on or after June 1,1985.

Stage 2 pensionex parents must apply for a child support assessment within 28 days of being so advised. Payments may be collected privately or by the Child Support Agency. In all cases clients are exempted from taking action where to do so would be unreasonable or impossible, as in the case of violence, rape, or incest cases or where the father is unable to be identified.

Despite the complex requirements referred to above, the Scheme has in most cases encouraged Department of Social Security clients to arrange child support privately where appropriate amounts are involved. In the financial year 1992-1993, more than 70% of the $450 million declared by custodial pensioners was in fact collected privately rather than paid into the Child Support Agency.

The affluxion of time has, not surprisingly, altered the size of the Stage 1 population, which has halved from 63,000 in June 1990 to 31,000 in Decem- ber 1992. Correspondingly, the Stage 2 population has been increasing rapidly, up from 57,000 in June 1990 to 189,000 in December 1992.

Although the Child Support Scheme was introduced for the benefit of the children of all separated parents, the population for whom it is almost

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exclusively operating is a sole-parent pensioner one. Despite the gender neutral nature of the legislation but reflecting the continuing primacy of the mother’s role in day-to-day child raising, nearly all these custodians are women. Nonpensioners have chosen to finalize their own arrangements, about which consequently virtually nothing is known. As of April 1993,90% of custodians registered with the Child Support Agency are sole-parent pensioners, and 90% of these have no earned income.

These characteristics have a profound effect on the income profiles of child support recipients and illustrate the relative newness of the Scheme, as pension entitlement is lost once a recipient repartners or obtains significant paid employment.

This newness is also reflected in the fact that only about 1 % of Stage 2 noncustodial parents have subsequent biological children for whom they are financially responsible.

HAVE THE REFORMS SUCCEEDED?

One challenge for the Child Support Scheme is the extent to which it produces fair results and is accepted by a majority of those affected by it, once the characteristics of its clients become more heterogeneous.

There are, of course, a number of dimensions on which the success or failure of a policy such as the Child Support Scheme may be measured. The dimensions of the Scheme are made more obvious by the involvement of two major Commonwealth departments (taxation and social security) in its o p erations, and by the very sensitivity of parental relationship breakdown and the welfare of children in what is at best afairly brutal structure for the transfer of money from one parent to another.

Performance indicators are a popular method of evaluating success, at least at the bureaucratic level. The Child Support Agency boasts acompliance rate of 73%, higher than any comparable international figures (Child Support Agency, 1993). Others query these figures on the basis that they exclude a number of unsuccessful matters where parents are untraceable or collection has proved to be impossible (Family Law Council, 1993). Critics also p i n t to the fact that only 55% of registered liable parents pay in full and on time.

Examining the quantum of amounts determined by the application of the formula and predicting what would have awarded had there been no Child Support Scheme is another method of noting its impact. ?he Agency figures show an average of $46.34 per week per child resulting from a Stage 2 assessment, with Court orders made over the same period averaging $42 and

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calculations estimating that amounts would have averaged $31 had the Scheme not been introduced (Department of Social Security, 1993).

Administrative problems have dogged the implementation of the reforms from the beginning. The submission of the Commonwealth to the Parliamen- tary Inquiry lists a number of difficulties, including failure to recover arrears, difficulty in making contact with agency staff and in comprehending material distributed, inability to locate a parent despite the provision of relevant information by the other parent, delays in processing, and the distribution of wrong and misleading advice (Commonwealth Ombudsman, 1993).

The philosophy and nature of the Scheme has been widely criticized by those who see themselves as its victims; predominantly noncustodial fathers. Complaints include the alleged unfairness of the percentages in relation to the cost of children, the failure to take ages of children into account, the financial inability of noncustodians to repartner or reparent once their child support obligations have been met, and the inability of courts to ensure access.

In an attempt to measure the fairness of the formula itself, the Department of Social Security has recently undertaken a distributional analysis of its impact, looking not only at support per se but also at the taxation and social security breaks and benefits on families and their interactions. Broadly speaking, the department concluded (inter alia) that noncustodial parents are better off financially after the formula has been applied than are custodians and the children in their care; and at all levels of income noncustodial parents with second families are better off on aper capita basis than are intact families with the same total number of children.

CONCLUSION

Australia’s Child Support Scheme is obviously greater than the sum of its parts. It has wide social and emotional impacts and represents a major incursion by government into the lives of family members. It is and will remain a highly controversial and much criticized policy and has become more complex than was ever rather naively envisaged. In the context of Australian family law it ousts the jurisdiction of the courts at one level and introduces a nondiscretionary administrative system into the midst of a highly discretionary framework of property distribution and custody and access determination. The Scheme also links taxation, social security, and family law into a wider and more comprehensive policy than has been the case before.

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REFERENCES

Cabinet Subcommittee on Maintenance. (1986). Child support: A discussion paper on child maintenance. Canberra: AGPS.

Child Support Evaluation Advisory Group. (1992). Child support in Australia (Final report). Canberra: AGPS.

Commonwealth Ombudsman. (1993). Submission to the Join1 Select Committee on Certain Family Law Matters, Official Hansard Report, Vol. 2.

Department of Social Security. (1993). Subtnission to rhe Jriint Select Commirtee on Certain Family Law Matters, Official Hansard Report, Vol. I .

Family Law Council. (1993). Submission 10 the Joint Select Committee on Certain Family Law Matters, Official Hansard Report, Vol. 2.

Harrison, M., Snider, G., & Merlo, R. (1990). Who paysfor the children? Afirst look at the opermion ofAustra1iak new childsupport scheme. Melbourne: Australian Institute of Family Studies.

McDonald, l? (Ed.). (1986). Settling up: Property und income distribution on divorce in Australia. Sydney: Prentice-Hall.

Margaret Harrison is a senior legal ussociate to the Chief Justice. Fumily Court of Australia.