The cost of implementing a new child support system has rocketed to $163 million – a blowout that dwarfs the bill for fixing the controversial Novopay school payroll system.
The new figure has been described as “gobsmacking” by a former top Government executive who was in office when the cost was originally put at $30 million.
The child support reform affects 134,000 paying parents and 138,000 receiving parents. The $30 million estimate was issued in 2011.
Herald graphic
But implementation has been delayed until April 1 this year, to allow Inland Revenue time to change its computer system.
Further amendments to the 2013 enabling legislation were introduced to Parliament last week to make more changes. These, if passed, will take the cost to $163 million – $133 million more than first budgeted.
Robin Oliver, former Deputy Commissioner of Inland Revenue, says this is “gobsmacking”.
“I baulked at the $30 million, so $163 million on IT costs and administrative costs for simply changing little bits of the [child support] formula around is an enormous sum of money to be spending.”
For comparison, the Education Ministry said last month that fixing the Novopay school payroll system had cost $45 million.
The costs of merging the computer systems of Auckland’s eight pre-2010 councils into the new Auckland Council blew out from $71 million to $157 million, and the costs of a new border management system for Customs and the Ministry for Primary Industries jumped from $76 million to $104 million.
Taxpayers’ Union director Jordan Williams said the child support blowout was the biggest since his group was formed in 2013.
“This dwarfs Novopay,” he said. “$163 million is an extraordinary cost, more than $100 for every New Zealand household.” The changes in the formula are in fact the biggest since the current child support system was created in 1991.
The main one is that child support payments will now be based on the incomes of both parents and the hours that each parent cares for each child.
Until now, payments have been based only on the non-custodial parent’s income unless both parents cared for the child at least 40 per cent of the time.
The new payment formula will still come into force on April 1 this year. The latest amendments only affect other changes that were due to take effect from April 1 next year.
The main changes in the proposed new amendments are:
•Child support will not be deducted by employers through the income tax system unless a paying parent requests this voluntarily. The option of paying through a separate billing system will remain.
•Paying parents will not be able to deduct school fees and certain other payments they make for their children off their obligations.
•The definition of taxable income will not be changed to include income from trusts and companies.
Inland Revenue says existing provisions in the law can be used to achieve “similar outcomes” to these last two changes.
A regulatory impact statement says the $30 million initial cost estimate was revised to $120 million over 10 years when a business case was prepared in 2012, reflecting “a greater appreciation of the complexity of the changes”.
It says the department realised in 2013 that most of the costs would be for upfront capital spending rather than ongoing operating costs as initially assumed.
“If the correct assumption had been made in the business case, the cost of the reforms would have been much higher than $120 million,” it says.
“The revised estimate of the project [before the latest changes], including costs from the delay and the higher ratio of capital expenditure, is now $210 million for the 10-year period from 2011-12 to 2020-21.
“The majority of the higher cost is the depreciation and capital charge associated with the capital expenditure.”
Revenue Minister Todd McClay said the final cost of $163 million included $56 million on depreciation and the capital charge – a notional charge equivalent to an interest rate to make departments allow for the cost of capital.
“The reforms were not being rolled back. The first stage is on track for implementation on April 1,” the minister said.
“Parliament had agreed to reform the child support system as it was seen to be unfair and placing additional pressure on both custodial and liable parents.
“It’s important that we make this system as fair as possible to parents and their children.”
Reference: http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11410615