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Ministerial Speech

Senator the Hon Joe Ludwig
Minister for Human Services

23 June 2008

- Check Against Delivery -

Minister unveils tough new program to collect child support

Good afternoon members of the Child Support National Stakeholder Engagement Group. I am delighted to be here today as this is my first chance to address you all in this important forum.

These meetings bring together a range of important stakeholders who support separated parents both directly and indirectly. These meetings also provide an important opportunity for the government to engage with stakeholders on child support policy and service delivery issues and activities. I value your input and I appreciate the time you set aside to work with the Child Support Agency to deliver a fair and balanced child support scheme.

We’re here together at a challenging time. This Government is implementing the third and final stage of the most significant change to the child support system since its creation twenty years ago. Many here today have been part of the long process that has led to these changes and have been pivotal in helping design the new system.

I thank you for your efforts and let me say that the Government remains committed to implementing this reform and continuing our dialogue to ensure that the transition to the new system works well.

As all of you are aware, a new fairer and more balanced approach to assessing child support will start in one week’s time, and the CSA’s compliance approach underpins the integrity of the scheme with a balance of education, support, advice and compliance activities.

While the new system is a significant reform, I think the compliance package I am announcing today is an essential complement to the wider changes.

Compliance with child support obligations is a key priority for me. I know that it is also a priority for everybody in this room. I recognise that while some parents don’t meet their obligations, most parents try to do the right thing. The starting point for these parents is for CSA to work with them to pay their child support in full and on time. If that is unsuccessful CSA will investigate and enforce payment using the most appropriate measure depending upon the parents’ circumstances as outlined in the strategy document. The methods range from:

• deducting payment areas from their salary;
• intercepting tax refunds;
• travel bans; and
• court action.

I am here to work with you to ensure that the child support system delivers for kids of separated parents. It is about the children. They need the financial support the new scheme will bring. The children need it to work well. The children and their carers need the system to function so that child support obligations are met in full and on time.

This afternoon I want to give a clear message. I am committed to ensuring the system delivers a better outcome for children and that compliance with child support obligations improves.

WHY HAVE A NEW STRATEGY: COMPLIANCE TOO LOW

It is worth asking why we need a new strategy at this time.

One of things that struck me when I was first briefed on the child support system is how many people do not fully meet their obligations.

The latest numbers are concerning.

Examination of the compliance statistics since the 2003/2004 financial year shows that just under half of child support payers whose payments are collected by CSA fully met their obligations.

According to the Child Support Agency’s estimates, in the past four financial years there were more people who didn’t pay up and fully meet their obligations than those who did.

Child support debt is growing. In the past two years it has grown by over $50m a year, at an average annual rate of 5.6%.

Total child support debt has just reached a billion dollars. About one fifth ($231m) relates to overseas debt.

This is money that should have been directed to supporting kids of separated families.

That’s a lot of school lunch orders and excursions that should have been paid for, a lot of stress and struggle for resident parents that could have been avoided if the system worked better.

$255m, over a quarter of this debt, is over 4 years old. Some debt dates back nearly 20 years to the start of the scheme. By any commercial standard, that is now debt which is very hard to recover.

We can do better. Compliance systems need to be strengthened. It is time to strengthen the scheme and seal the leaks.

PREVENTION BETTER THAN ENFORCEMENT

Of course, everybody recognises the best way to improve overall compliance is through prevention strategies. The Family Relationship Centres do perform an important role. Although they don’t provide financial advice, they can provide a means by which separating parents are assisted to manage the changes in their lives.

The process helps both parents gain greater understanding of their changed circumstances – and can lead them to take more ownership of their situation.

The work of the FRCs pays off in other ways, in improved child support compliance down the track.

But we need to do more, especially where there is serious noncompliance.

THE NEW STRATEGY: IMPROVING WHAT WE DO NOW

The CSA was given $162m over five years in 2006 to develop a more rigorous compliance program. The report I launch today spells out how this Government is converting these promises into concrete outcomes. It provides a coherent strategic framework for planning our current compliance functions.

The strategy document is titled “The Child Support Agency’s Compliance Strategy for 2008-2010: Supporting parents to meet their child support responsibilities.”

Everybody should have received a copy of the strategy prior to today’s meeting.

The existing measures we are implementing include:

• The tax return lodgement project. This involves asking the Australian Tax Office to pursue CSA customers who fail to lodge tax returns on time. This program has been very successful. By the end of march this year 42,571 clients lodged 75,314 tax returns resulting in the collection of $17.3 million child support;
• The Active Avoiders project involves negotiating with parents who have not paid their child support on time. It’s high-level case management and intensive debt collection.
• The Income Minimisers project. Under this program. the CSA investigates when it appears that either parent’s taxable income is not a true reflection of their financial situation.
• The Litigation Project. This is when the CSA takes to court parents who refuse to pay. This has forced many serious non-payers to finally meet their obligations;
• The Departure Prohibition Orders Project. It stops parents with substantial debts leaving the country. Just last week we had an example of the effectiveness of this project. A person who owed substantial child support sailed into Australian shores on a yacht and was identified. The CSA issued a DPO and the debtor paid up some thousands of child support debt.

COMPLIANCE TARGETS: SEEKING FULL FUNDING

It is important to measure the outcomes.

The previous Government promised that these measures would yield $464m in extra child support by 2010.

This forecast collection target was published in the Budget Papers of 2006/7.

I have now been advised that the target was wrong.

The $464m target was based on four year program funding. But not all programs were fully funded over the forward estimates and the intensive debt collection activity was funded for only three years.

The previous Government continued to use the uncorrected figures for intensive debt collection activities as late as April last year, although the correct targets were known in May 2006.

On the advice provided to me, I have to set the record straight: the figures should have claimed $339m in extra child support under the programs funded in 2006/7 (a shortfall of $124m).

Nevertheless, the programs do continue to deliver good outcomes through increasing child support payments. Therefore, I will work hard to continue to fully fund these initiatives.

However, the problem of non-compliance is so significant we need to adopt new targeted strategies in persistent problem areas.

NEW MEASURES

Today, I’m announcing four new initiatives to enhance the CSA’s ability to ensure all child support payments are paid on time and in full.

NEW MEASURE ONE: OPTICAL SURVEILLANCE

I would like to announce the beginning of a new project that will target a small minority of the CSA’s worst offenders — the Optical Surveillance Program.

Another agency in my portfolio, Centrelink, has been using optical surveillance effectively for some years to identify welfare fraud. CSA has carried out a four-month pilot surveillance project, with encouraging results.

The pilot was aimed at improving investigations into complex cases.

These are initiated when it’s strongly suspected customers are deliberately attempting to deceive the CSA about how much income they actually earn.

Optical surveillance services can then be used to provide compelling visual evidence to the CSA’s financial investigators and help in any criminal prosecution.

This form of surveillance will be useful where separated parents tell the CSA they aren’t working and can’t pay their child support, but there is evidence to indicate something else.

For instance, in our pilot, one paying parent owed around $12,000 in child support payments, along with an annual liability of $4,500.

The person was making no payments. The optical surveillance pilot showed the parent was working cash-in-hand.

This new information led to further inquiries. The paying parent’s assessment has now more than doubled and the person has entered into an arrangement to pay both the ongoing liability and arrears.

Another example was the separated parent with $25,000 in overdue child support who claimed to be unable to pay anything — ongoing or debt.

The CSA suspected the parent had transferred ownership of his company to a relative in an attempt to hide his income stream and assets, and avoid paying the correct amount of child support and the large outstanding amount.

Despite the person claiming no involvement with the former company, optical surveillance showed the parent using machinery belonging to the operation.

As a result of subsequent discussions between the CSA and the parent, an agreement was negotiated to pay the overdue child support. This was then registered as a consent order in the court.

On the basis of these good initial outcomes, I have asked CSA to begin a one-year extended trial of this optical surveillance project.

I want child support cheats to be caught out on camera so the courts can see the truth.

NEW MEASURE TWO: GETTING TO THE ASSETS – ITSA MOU

The CSA has built up strong relationships with the Australian Taxation Office and the Department of Immigration. This helps enforce Child Support obligations.

I can announce today that we are now formalising a new important partnership with the Insolvency and Trustee Service Australia.

“The Insolvency and Trustee Service Australia is the government agency responsible for the administration and regulation of the personal insolvency system in Australia.” Its “Official Receivers exercise powers to assist trustees to obtain information and recover property” in accordance with court orders.

I am concluding a Memorandum of Understanding with ITSA to formalise arrangements between the two organisations and bolster collection efforts.

Where the CSA has exhausted all other avenues to collect overdue child support, they take paying parents to court to enforce payment.

As part of these proceedings, the CSA can seek court orders appointing a statutory trustee, such as the Insolvency and Trustee Service Australia, for the sale of assets, should a parent fail to comply with the orders for payment. The assets could include real estate or a motor vehicle.

The MOU means the CSA can engage the Insolvency and Trustee Service Australia to seize and sell a Child Support Agency customer’s property, in cases where the customer owes child support, after all other avenues to collect the outstanding child support have been exhausted and the CSA has a court order empowering them to take this approach: that is to sell the realisable assets of individuals who seriously avoid their obligations.

NEW MEASURE THREE: NEW TAX RETURN LODGEMENT RULES

The child support system is closely linked to the taxation system.

Taxable incomes are the basis from which child support obligations are assessed.

Prompt lodgement of tax returns is required if the system is going to work well.

Under current arrangements, the Tax Commissioner asks all paying parents to lodge a tax return.

The introduction of the new formula has provided an opportunity to revisit these rules and refine them. Following consultation between the Department of Human Services and the ATO, I can now announce that the Commissioner of Taxation has decided to change the tax lodgement return rules for child support taxpayers.

I am advised that the Commissioner will make a regulation under his delegated powers to require all child support clients to lodge a tax return, unless they have taxable income of less than $18,252 and they received income support for the whole of the income year.

This will now apply to receiving and paying parents in line with the more equal treatment their incomes receive under the new child support arrangements.

Overall, this will mean more tax returns are lodged.

This will enhance the accuracy of the child support assessment process and increase child support compliance.

This measure will deliver more benefits to kids of separated families.

NEW MEASURE FOUR: BUDGET CHANGES

Many of you will be aware the government is focusing on putting fairness and integrity back into the tax system. This was a key theme of the Treasurer’s first budget.

Income testing arrangements for accessing government financial assistance have not kept pace with the range of remuneration and investment structuring options available to Australians. This has enabled some income earners to shift around their finances to minimise their income for child support assessments and some government payments.

Separated parents on a wage or salary can salary sacrifice their superannuation to legitimately reduce their taxable income.

However, as of 1 July 2009, the Child Support Agency will be required by law to add back these salary sacrificed amounts to establish a more accurate child support assessment.

Customers will still be able to enjoy the tax benefits of salary sacrificing into super, but they will not be able to double dip and use it to either boost the amount of child support they receive or reduce the amount they pay.

This is not connected to the Government’s recent decision to reverse the error made in the 2006/7 Costello budget that hurt workers of charities who salary sacrifice.

CONCLUSION

The CSA’s toolbox just got a lot bigger.

Here I have built on current programs to announce a tougher system of compliance with child support obligations.

We must increase the level of compliance and fight the burgeoning levels of child support debt.

It is time to put kids first and drive better compliance outcomes.

Child Support Agency Key Contacts

• www.csa.gov.au
• CSA Publication Ordering: 1800 040 972
• General Inquiry Line: 131 272
• Fraud Tip off line: 131 524

Downloads

• Download Speech in PDF format (48k)

Media Contact

Joe Scavo — 0413 800 757.