Annual Report 2005 - Part 3

Enhance the administration of our social policy business

Inland Revenue has an important and growing role in delivering key aspects of the government's social support programme. We collect child support and student loan payments and distribute family assistance, paid parental leave and child support entitlements.

Family assistance and Working for Families

We successfully implemented the changes to family assistance entitlements and eligibility that formed the first phase of Working for Families. This was undertaken in collaboration with the Ministry of Social Development (MSD). The effect of the changes expanded our customer base considerably and our information and customer enquiries systems coped well with the increased demand. We enhanced our delivery services in a number of ways to meet the demand:

• We set up an information exchange with MSD which allows customers to transfer smoothly from benefit to work without having to reapply for family assistance.
• Customers now have the option of weekly family assistance payments.
• An online calculator lets customers check their own entitlement to family assistance.
• We increased our capacity and capability for handling family assistance enquiries.
• Customers experienced a better integrated service from MSD and Inland Revenue. Both agencies have been promoting each other's family income entitlement products and we now have stronger connections between our call centres.
• "Ring-fencing" was introduced to protect the value of family assistance payments during periods when a family receives a benefit.

Family assistance

There are currently four entitlements under family assistance. Family support is available to all families who meet the income criteria and is distributed jointly by Inland Revenue and Work and Income. We administer the other three entitlements available to families ¹. These are:

• child tax credit which provides a payment for each dependent child
• family tax credit which ensures that families receive a minimum income ²
• parental tax credit which is available to parents of newly born (or adopted) babies who do not receive paid parental leave.

The amount of family assistance distributed over the last two years is shown in Figure 45. The total amount distributed is expected to rise to $2.1 billion in 2008.

Figure 45 - Family assistance distributed

	2004 $ million	2005 $ million
By Inland Revenue	505	520
By Work and Income	497	481
Total	1,002	1,001

Family assistance debt

Family assistance debt was $172 million at 30 June 2005, $31 million higher than last year.

To reduce the chance of people receiving an over- or under-payment of family assistance when their circumstances change, we take proactive steps, such as checking actual income against predicted earnings. This seeks to avoid debt being incurred, or to minimise any debt that does occur. This year, 78% ³ of family assistance recipients were not overpaid, compared to 72% the previous year.

Working together for Working for Families A key vehicle for the promotion of Working for Families has been Work and Income staff working alongside Inland Revenue's Social Policy Liaison Officers. Both organisations recognised that working together to promote Working for Families would be an effective way of reaching New Zealand families and provide better customer service. Across the country there have been joint initiatives between Work and Income and Inland Revenue staff to coordinate activities and identify opportunities to speak directly to New Zealanders through presentations to community groups and events. These have included working with budgeting centres, Citizens Advice Bureaux, large employers, parenting organisations, Plunket and playcentre associations, as well as stands at festivals, field days and in shopping malls and supermarkets. The strength of this approach has been staff going to the places where our customers are and enabling them to get all the information about their entitlements at one time. Importantly, customers have told us that they valued this approach. Staff from both organisations also found the linked approach valuable and worthwhile. It has built stronger relationships between the two agencies-particularly at local level-and has enabled staff to develop a better understanding of each other's roles. Some of the highlights of the joint promotion have been: promotional stands at Te Ra O Te Raukura in Lower Hutt with over 5,000 people attending attending the 2005 Manukau Indian Community Information Day, Manukau Sri Lankan and Asian Food Festival, and PASIFIKA, all in March Social Policy Liaison Officers worked with Work and Income delivering Working for Families information to childcare organisations, real estate agents, tenancy services and employer groups.

We introduced a new calculation process in April 2005, called "accumulative adjustments", which provides customers with additional protection from over- or under-payment. When family circumstances change, the cumulative adjustments process takes into account payments already made in calculating future payments for the year ⁴. Along with ring-fencing, we will see the benefit of this modification next year.

The debt and hardship provisions also give us flexibility to write debt off if repayment of debt would place people in serious hardship.

Working for Families

Working for Families is being implemented by Inland Revenue and MSD over three years between 2004 and 2007. The three key aims of Working for families are to:

• improve income adequacy, targeting low- to middle-income families with dependent children
• make work pay by ensuring that people are better off being in work
• achieve a social assistance system that supports people to work by making sure people get the assistance they are entitled to.

A joint, broad-based promotion and education programme with the MSD of the first phase of Working for Families contributed to the strong uptake of the enhancements from 1 April 2005 (see Figure 46). Coupled with this has been a significant increase in our workload.

Figure 46 - Impact of Working for Families to date ⁵

	Impact
Number of families receiving family assistance	27% increase
Average weekly family assistance payment	35% increase
Number of customer contacts	10% increase

From November 2004 to April 2005 we recruited fixed-term staff in call centres to handle the additional Working for Families enquiries. Staff from processing and service centres also provided support during peak calling times.

Monitoring the success of the Working for Families programme is an important part of its implementation. During the year, we began a joint evaluation study with MSD to:

• report on the impact the changes have had on incomes, living standards and employment of low- to middle-income families with dependent children
• report on the impact of the programme in making sure that people get the assistance they are entitled to
• give feedback on the way the programme has been implemented.

Child support

This year we continued to place emphasis on improving compliance and reducing the growth of debt. Our focus has been on:

• new paying parents-to establish good compliance habits
• tailored actions for debtors-to re-establish compliance habits
• new services-to assist customer compliance (for example online account information, credit card payment options, translation services and text messages as payment reminders).

The growth in the amount collected and distributed is shown in Figure 47.

Figure 47 - Net child support collected and distributed

	2004 $ million	2005 $ million
Collected	288	309
Distributed	288	309
- to custodians	124	136
- to the Crown	164	173

Targeted paying parent debtors were individually case-managed by specialist debt teams. Our key achievements include:

• for salary and wage earners with debt over $5,000 and self-employed with debt over $2,000:
  • improving payment compliance ⁶ by 13 percentage points
   
  • clearing 763 debt cases ($7 million debt)
    
• arranging compulsory deductions from the salary or wages of approximately 53,000 other debtors
• locating 6,629 parents in Australia (whose location was previously unknown or unconfirmed)
• taking 127 cases to the Family Court, resulting in approximately $2.6 million being received, secured or under instalment arrangement.

Our service

This year we handled 934,446 customer contacts, 57,725 child support applications and over 100,000 adjustments for change in employment circumstances. Although our workload increased, we were able to maintain, and in some areas lift, our service performance. 67% ⁷ rated our service as good or very good, compared to 68% in 2003-04.

We have also enhanced some of our services to make it easier for people to interact with us and meet their obligations. The service improvements included:

• Our Look at Account Information service that allows customers to easily access information about their child support account. In the four months to May 2005 we received 8,000 enquiries through this service.
• A credit card option to make it easier for paying parents (especially those overseas) to pay. Since introduction in September 2004, there has been a steady growth in payments received this way and to date we have received 1,744 transactions for $0.6 million.
• Language Line (a service offered by the Office of Ethnic Affairs) for customers who do not speak English as a first language, following a trial of approximately 150 successful interpreting sessions involving 20 languages.
• Text messaging to customers' mobile phones (short message services). This service sends a monthly text message reminding the paying parent of the due date for their child support payment. Evaluation of a trial period showed that over the last three months there was a 10% improvement in compliance for the customers involved compared to the same period in the previous year.

Child support debt

The total value of child support debt continues to grow. There was a 16% increase this year, with debt reaching $987 million (see Figure 48). Approximately 70% of paying parents have a child support debt and of these, 32% owe less than $500 and 42% owe less than $1,000. Only 19% owe more than $10,000.

Figure 48 - Child support debt

Although the value of debt continues to grow, the rate of that growth has significantly slowed in the past two years (see Figure 49). The growth rate of penalty debt has decreased as a result of our success in targeting paying parent debtors by specialist debt teams and establishing more instalment arrangements.

Figure 49 - Child support annual debt growth

Child support debt is categorised into four main components (see Figure 50).

Figure 50 - Components of child support debt

Instalment arrangements

Approximately 74,680 debtors (54%) have an arrangement with us to make regular repayments, an increase of 13% compared to last year. Debt under instalment arrangement has increased to $282 million and represents 29% of total child support debt.

Reciprocal agreement with Australia

A total of 10,461 paying parents have been confirmed to be living in Australia and these paying parents owe $231 million, or 23% of total debt.

The reciprocal agreement with Australia has been in place since 1 July 2000 and allows for the exchange of up to 100 cases per month ⁸. At present, $137 million (14% of total debt) is under reciprocal agreement:

• The Australian Child Support Agency (CSA) manages 3,832 cases (including 3,812 debt cases ⁹ with a total debt of $107 million) for New Zealand Child Support. This year $5.0 million was received from Australia.
• New Zealand Child Support manages 3,358 cases (including 2,833 debt cases ¹⁰ with a debt value of $30 million) for the Australian CSA and this year we forwarded $4.9 million to Australia.

Figure 51 - Debt under reciprocal agreement

Additional funding has been made available in the 2005 Budget to manage additional cases under the reciprocal agreement with Australia.

Uncollectable debt

Debt is considered uncollectable if we have confirmed that regular debt repayments are unlikely in the foreseeable future (because the debtor is in hospital or prison, or cannot be located after rigorous efforts). Uncollectable debt has increased by 16% this year to $332 million, but has remained a consistent percentage of total child support debt (34%).

All debtors that cannot be located are monitored on an ongoing basis for new information that will allow us to locate them.

Some debtors have been missing for many years and we consider that approximately one third ($100 million) of uncollectable debt will never be collected.

Debt not under instalment arrangement

The remaining component of debt ($237 million) represents debtors who are not making regular debt repayments because:

• they are unable. We work with these debtors to establish some form of financially sustainable repayment.
• they are unwilling. For those who remain unwilling to make regular repayments, we consider legal action. As noted earlier, this year we took 127 cases to the Family Court (compared to 81 cases last year).
• we are pursuing contact. If we cannot locate a debtor their debt is reclassified as uncollectable until new information is obtained to allow us to progress the case.

Child Support Amendment Bill

The Child Support Amendment Bill (No 4) was introduced on 5 August 2005 ¹¹. One key focus of the bill is to address the problem of child support debt by foregoing the collection of some penalties to provide an incentive for non-payers to begin making payments. If they do, and if they maintain their payments of both current financial support and an agreed amount of their arrears for a specified period, some of their accumulated penalty debt will be written off.

Locating paying parents A recent tracing exercise successfully confirmed the location of 6,629 paying parents believed to be in Australia. Now that we know where they are, we are tracing their income details with assistance from the Australian Taxation Office and the Australian Child Support Agency. We will be able to correctly determine these parents' child support liabilities and collection activity can begin. In many cases the Australian Child Support Agency will collect on our behalf as part of the reciprocal agreement between our two countries. A team of eight was formed in July 2002 to trace paying parents who could not be located. Since establishment, approximately 15,700 cases have been allocated to this team, and the team has successfully reduced this number to approximately 9,200. Contacting these parents and reminding them of their responsibilities sends them the clear message that they cannot escape their responsibilities to their children. Feedback from located paying parents has been positive: "Thank you so much for helping us sort this out. It has been greatly appreciated-sincere thanks for your help with regards to arrears issues." Many of the parents located are long-term evaders of their child support responsibilities (57% having an ongoing child support liability). Because of this entrenched non-compliance we expect that recovery of the outstanding liabilities from these parents may take some time.

Student loans

This year we have continued to make compliance easier for borrowers, especially those overseas.

We have seen steady growth in the use of credit card repayments, which makes it easier for borrowers overseas to pay. This year we received over $4.0 million from more than 4,000 credit card transactions.

An increasing number of borrowers, especially those overseas, are using the secure online Look at Account Information service.

This year, 84.3% of student loan borrowers surveyed rated our service as good or very good.

In 2004-05 the total amount of borrowings under the student loan scheme rose by 12% to $6.7 billion and the amount repaid went up 14% (see Figure 52).

Figure 52 - Student loan borrowing and repayments

	2004 $ million	2005 $ million
Total borrowing	5,966	6,675
Repayments	447	510

The number of resident and non-resident borrowers, and the respective amounts borrowed is given in Figure 53.

Figure 53 - Student loan borrowers and amount borrowed ¹²

	Borrowers   number	%	Amount borrowed $ million	%
Resident	419,983	94%	$6,129	92%
Non-resident	25,091	6%	$ 546	8%
Total	445,074		$6,675

Overdue student loan repayments

There are currently 62,133 borrowers with overdue repayments totalling $188 million (14% of all borrowers and 2.8% of the total amount borrowed). Overdue repayments have grown by 35% during the year, due to a combination of factors, including increased borrower numbers (up 6%).

Figure 54 - Student loan borrowers with overdue repayments

	Borrowers   number	%	Overdue repayment $ million	%
Resident	49,974	80%	$ 78	41%
Non-resident	12,159	20%	$110	59%
Total	62,133		$188

Non-resident borrowers have a major impact on the level of overdue repayments. 48% have overdue obligations compared to 12% of resident borrowers. They have an average overdue repayment of $9,047 compared to $1,551 for resident borrowers. Factors that contribute to the rise in overdue repayments of non-residents include:

• the difficulty in maintaining contact with borrowers who are overseas
• the complexity of making repayments from overseas.

Figure 55 - Overdue student loan repayments

We are reviewing the issues and options for overseas student loan borrowers, especially for overdue repayments.

Student loan Look at Account Information service Student loan borrowers can look at their account information online in a secure environment. Our Look at Account Information service has been available to student loan borrowers for over a year. It's been very popular with students and they are giving us very positive feedback: "This is a brilliant service. I am currently in London and it makes a massive difference being able to check my account information online".  "I think the online service for accessing my student loan account is wonderful; it's user-friendly, clear and I appreciate being able to keep track of my debt without having to wait for those statements or ring up on the phones. Thanks for introducing it".

For detailed information see the Student Loan Scheme Annual Report, a joint publication of the Ministry of Social Development, Ministry of Education and Inland Revenue.

Paid parental leave

Paid parental leave (PPL) is a government-funded payment for parents who take leave from their job to care for a new baby or adopted child. Inland Revenue pays out PPL on behalf of the Department of Labour. In 2004-05 the amount paid out increased by 19% and the number of recipients went up by 18% (see Figure 56).

Figure 56 - Paid parental leave

	2004	2005
Distributed, $ million	64	76
Recipients	16,457	19,264

The number of PPL applications was above forecast due to a high response to legislative changes in December 2004.

From 1 December 2004, parents could get PPL payments if they worked for the same employer for six months before the expected date of birth or adoption of a child (previously 12 months). The payment period increased from 12 to 13 weeks.

By tailoring our business practices we ensured that all eligible applicants received their entitlements on time and 97.9% of all applications were processed in 10 days or less. The contact with parents, especially first-time parents, means we can also make sure they know about Working for Families entitlements and childcare rebates.

PPL payments will continue to grow as further changes to entitlements are introduced (especially if recent increases in the birth rate continue). From 1 December 2005 the payment period will be increased further to 14 weeks.  Legislation is also proposed to extend PPL to include self-employed parents.

 

¹ For those who meet the income criteria and who are not on a benefit.
²This requires a minimum number of hours of work per week.
³This percentage relates to the tax year to 31 March 2004.
⁴The accumulative adjustments process calculates the annual entitlement based on the new circumstances, deducts any payments already made and divides the remaining entitlement over the number of payments remaining in the year.
⁵Compares the month of June 2004 with the month of June 2005 for customers receiving weekly or fortnightly payments from Inland Revenue. In addition to these recipients there are families who receive family assistance from Work and Income, or a lump sum payment from Inland Revenue at the end of the year.
⁶ Monthly child support payments paid in full and on time.
⁷ Margin of error +/- 2.3%
⁸Between May and August 2004, a bulk exchange was negotiated, resulting in approximately 2,300 additional New Zealand cases being transferred to Australia for collection.
⁹Debt only or debt with ongoing liability. In the 2004 Annual Report we reported 5,200 debtors as at 30 June 2004. The correct number is 3,149.
¹⁰Debt only or debt with ongoing liability. In the 2004 Annual Report we reported 2,400 debtors as at 30 June 2004. The correct number is 2,040.
¹¹Since that introduction, Parliament has been dissolved. With recent changes to the Constitution Act 1986 this means that the bill has lapsed. Reinstatement will be considered by the new Parliament.
¹² As at 30 June 2005.

 

 

 

Date published: 11 Oct 2005

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