ISE11/20-21

• There are some 58 400 single parents rearing their children aged below 18 in Hong Kong, taking up 8% of all families living with children.^{1Legend symbol denoting In this piece, single parents in Hong Kong refer to parents who (a) live with children under 18; and (b) become single due to divorce or separation. Unmarried and widowed parents are excluded from the analysis, however.} While single parents are likely to make maintenance arrangements with their ex-spouses to support the children, some are deterred by difficulties in collecting payments. According to a survey of Census and Statistics Department ("C&SD"), of all divorcees entitled to maintenance, 41% could not receive full payments from their ex-spouses in 2015, but most (88%) of them did not apply to court for arrears recovery, partly on the grounds of complicated court procedures.^{2Legend symbol denoting Statistics here referred to all divorced or separated persons, regardless of whether they had children or not. See Census and Statistics Department (2016).} Given that as many as one-third of single-parent families live below the poverty line, there are repeated calls in the community for an independent board to collect maintenance payments on behalf of payees.
• During 1997-2020, the Legislative Council ("LegCo") passed at least three motions supporting the suggestion of a maintenance board. Nevertheless, the Government rejected the suggestion in a review report released in 2000, partly on the grounds of public scepticism about conferring "wide powers on a public body" just for the purpose of private debt collection.^{3Legend symbol denoting Home Affairs Bureau (2000).} The suggestion was alleged to be "unlikely to bring" any significant benefits to both maintenance payees and taxpayers, relative to enhancement of the existing system. The Government then enhanced the court's power for arrear recovery in the early 2000s, but with limited effect so far. During 2001-2015, the number of maintenance arrears went up by 13% to 13 900, renewing calls for further government intervention most recently.
• Globally, many affluent places (e.g. Australia, New Zealand, the United Kingdom and the United States) have launched dedicated programmes or set up public bodies to assist in collection of child maintenance for single parents. In New Zealand, the government launched the Child Support Scheme in 1992, resolving fourth-fifths of annual arrear cases. This issue of the Essentials discusses the child maintenance programme in New Zealand, after a brief review of recent policy developments in Hong Kong.

Recent policy developments of child maintenance in Hong Kong

• Financial plight faced by single-parent families: In 2019, there were 334 000 divorced/separated adults in Hong Kong, within whom 58 400 or 17% of divorcees lived with children aged under 18. As single parents are more likely to stay out of labour force or work shorter hours due to childcare responsibilities, their livelihood relies heavily on child maintenance payments, or else welfare payments of Comprehensive Social Security Assistance ("CSSA") Scheme.^{4Legend symbol denoting In 2018-2019, maintenance payments represented 20% of non-welfare income of single-parent recipients of Comprehensive Social Security Assistance. See Labour and Welfare Bureau (2020).} Reflecting this, the median monthly income of single-parent households was only HK$16,900 in 2018 (just half of that of HK$35,000 for overall families with children). Worse still, about one-third (35%) of single parents lived below the poverty line.
• Existing court-based system of child maintenance: Under the Matrimonial Proceedings and Property Ordinance (Cap. 192), a person unable to reach a private agreement with the ex-spouse can apply for a maintenance order ("MO") during divorce proceedings in court. By 2015, there was a stock of 50 000 MOs issued by the court, many of which were presumably to divorcees with children. In case of maintenance arrears, payees can apply to court for Attachment of Income Orders ("AIO"), ordering employers to deduct arrears from employment income of maintenance payers for onward transfer to maintenance payees.^{5Legend symbol denoting Home Affairs Bureau (2019).} This AIO can also apply to other income sources of maintenance payers (e.g. rental income).
• Nine-tenths of arrear victims not seeking legal action: According to the C&SD, there were 13 900 cases of maintenance arrears in 2015, taking up 40.5% of maintenance cases.^{6Legend symbol denoting Including 4 600 voluntary maintenance agreements, but excluding 20 800 cases with nominal maintenance (HK$1) or awaiting the court's ruling on mode of payment. See Census and Statistics Department (2016).} However, 88.1% of the arrear victims refrained from taking legal action to recover arrears, partly due to complicated legal proceedings especially for poor single parents needing legal aid. Some court cases reportedly could take two years just for a hearing.^{7Legend symbol denoting 香港社會服務聯會：《離婚單親家庭貧窮研究》。} When asked for reasons not taking legal action, 27.2% of these payees cited "the ex-spouse would not pay maintenance", 22.5% "application procedures for legal proceedings were too complicated" and 18.7% "unable to contact the ex-spouse".^{8Legend symbol denoting This apart, 26.5% of arrear victims reported not taking legal actions because "the ex-spouse was unable to pay maintenance". See Census and Statistics Department (2016).}
  
  In calculation of welfare payments under the CSSA Scheme, it is assumed that single parents can receive maintenance payments on time. As such, maintenance arrears can aggravate the hardship of single-parent families. For those single-parent families troubled by arrears, a study deduced that the poverty rate hit 58.7% in 2015, 9 percentage points higher than that for single-parent families receiving maintenance.^{9Legend symbol denoting Figures should be considered with caution as they might have covered households in which there was no parental relationship between the divorced/separated person and the children, although such cases conceivably constituted a very small fraction. See Census and Statistics Department (2016) and 香港社會服務聯會：《離婚單親家庭貧窮研究 - 從贍養費出發簡報》.}
• Reform proposals during 1997-1999: Over the past 23 years, there have been repeated calls in the community for a "maintenance board to collect and enforce maintenance payments on behalf of the divorcees", to save single parents the trouble of dealing with their ex-spouses. Two supportive motions were thus passed in the LegCo in February 1997 and December 1999. The Government responded with a policy review report in May 2000, rejecting the proposal because (a) it was not appropriate to give an executive public body a wide range of powers to collect "private debts"; (b) overseas maintenance boards were responsible for determining the level of child maintenance, duplicating the existing work of the court-based system; and (c) there were questions over the cost-effectiveness of such a new body.^{10Legend symbol denoting Home Affairs Bureau (2000).}
• Limited effect of measures introduced in the early 2000s: Instead, the Government introduced certain measures to enhance the court-based system during 2000-2005, such as: (a) making it easier to issue AIOs; (b) imposing surcharges on ex-spouses defaulting maintenance payments; (c) allowing certain departments (e.g. Immigration Department) to disclose addresses of maintenance payers to lawyers of payees for tracking payments; and (d) synchronizing applications for legal aid for arrear recovery and CSSA payment adjustments due to arrears.^{11Legend symbol denoting GovHK (2019) and Home Affairs Bureau (2020).}
• Renewed calls for government intervention: While these improvements helped reduce the maintenance arrear ratio from 57.2% in 2001 to 40.5% in 2015, there were only 35 applications for AIO to recover arrears during 2016-2018, representing less than 1% of the arrear caseload in 2015.^{12Legend symbol denoting Census and Statistics Department (2016) and GovHK (2019).} Although the court has been empowered to order deduction of arrears from income of defaulting ex-spouses, arrear victims are still reluctant to take legal action due to concerns over complex court procedures, thus prolonging their economic hardship. Most recently in June 2020, a motion was passed in the LegCo again, calling for a maintenance board to facilitate collection of child maintenance, along with an emergency fund to help poor single parents owed maintenance payments.^{13Legend symbol denoting Legislative Council Secretariat (2020).} Meanwhile, the Family Council commissioned a consultancy study on this matter in June 2018, which was scheduled for completion by end-2019. Apparently, this has been delayed due to the outbreak of COVID-19.

Child Support Scheme for single parents in New Zealand

• In New Zealand, there are some 200 000 single-parent families right now, accounting for a high share of 28% of overall families with children. It used to have a dual system on child maintenance before 1992. While child maintenance matters were largely handled by the court, the Department of Social Welfare ("DSW") delivering social security benefits to single parents was also responsible for collecting maintenance payments from their ex-spouses for recovery of benefits.
• Limitations of the dual system before 1992: Yet the dual system was plagued by problems and confusion. First, there were huge discrepancies between amounts of maintenance payments ruled by court and those calculated by DSW, as they adopted two different assessment modes. Secondly, there were complaints over long and complex court procedures for single parents not applying for social assistance. Thirdly, both systems were ineffective in collecting payments, with a collection rate of only around 40% in 1990.^{14Legend symbol denoting Inland Revenue (2010) and Department of Justice Canada (2015).} The government of New Zealand thus decided to take up the responsibility to safeguard the financial welfare of children of single parents.
• Child Support Scheme in 1992: After a two-year policy review, the Child Support Act was passed in New Zealand in 1991, launching a new Child Support Scheme ("CSS") in July 1992 for handling maintenance matters for all single parents free-of-charge. This was followed by a series of modest reforms after 2013 involving mostly technicalities in the calculation of maintenance payments and penalties.^{15Legend symbol denoting Reforms since 2013 have mainly focused on (a) adjusting the assessment formula to reflect actual costs of child care and shared responsibilities of divorced parents; and (b) reducing interests on arrears to encourage defaulting ex-spouses to clear the debt. See New Zealand Parliament (2013).} In short, CSS displays the following salient features:
  
  

  (a)	Tax authority becoming the authority for child maintenance: After the reform, the Department of Inland Revenue ("DIR") has replaced DSW and the court to become the single regulator over all child maintenance matters in New Zealand, by virtue of its access to all tax information and its expertise in arrear collection. In 2019, as an integrated part of DIR, CSS handled maintenance payments for about 136 000 single parents in 2019;16Legend symbol denoting Department of Inland Revenue ("DIR") does not have a separate division for the Child Support Scheme ("CSS"), but it was estimated that 520 staffers worked for CSS in 2009, accounting for 9% of DIR workforce. See Controller and Audit-general (2010) and Inland Revenue (2020b).
  (b)	Compulsory power to deduct arrears from monthly wages of payers: For ex-spouses without arrears, they can make maintenance payments to DIR direct for subsequent transfer to payees, or through automatic wage deductions. In case of overdue payments, DIR can automatically deduct them from monthly wages of the ex-spouses;17Legend symbol denoting In March 2020, the government introduced a bill seeking to deduct maintenance payments from salaries of ex-spouses by default. The bill is now being considered by a select committee. See Deloitte (2017) and New Zealand Parliament (2020).
  (c)	Voluntary participation for divorcees without social assistance: For single parents receiving social assistance, their maintenance payments are mandatorily calculated and collected by DIR. For other single parents not receiving social assistance, they have a few options to choose from. First, they may handle all such matters themselves through private agreements with their ex-spouses. Secondly, they can draw up private agreements on maintenance with their ex-spouses, but ask DIR to collect payments. Thirdly, they can ask for the same treatment as those receiving assistance payments;18Legend symbol denoting Inland Revenue (2020a).
  (d)	Court acting as the last resort: In spite of loss of authority in general maintenance matters, the court still has a final say in case of disputes. For instance, if there are disagreements over the calculated amounts of maintenance payments even after review by DIR, ex-spouses can apply to the court for a different calculation. For collection of arrears, if DIR decides that ex-spouses should be subject to heavier punishments, DIR can apply to the court for departure prohibition orders or further sentences;19Legend symbol denoting Ministry of Justice (2020).
  (e)	Information sharing with other departments to locate defaulting ex-spouses: In the event that ex-spouses default, DIR can acquire their location addresses from other departments through the Approved Information Sharing Agreements under the Privacy Act. For instance, the Customs Service helped locate 10 300 maintenance debtors trying to enter or leave New Zealand in the single year of 2019, representing 24% of annual arrear cases; and
  (f)	Recouping social assistance benefits from maintenance payments: For single parents on social assistance, they can receive social benefits in full in the first place. After DIR have collected their maintenance payments, the money will be retained by the government to offset the cost of the paid benefits.20Legend symbol denoting In 2019, NZ$181 million (HK$950 million) or 38% of the total maintenance money collected was retained to offset the paid social benefits. The other 62% was directly transferred to single parents who were not on social assistance. See Inland Revenue (2019).

• Policy effectiveness: CSS seems to have assisted single parents to receive steady income in New Zealand. First, CSS has become a preferred choice for most of divorced parents in settlement of maintenance payments, even for those without social assistance. DIR handled 136 000 cases in 2019, representing nearly 70% of single-parent families. Secondly, 70% of maintenance cases were paid in full and on time in 2019, while 79% of debt cases could be resolved within a year. Thirdly, the maintenance collection ratio (in terms of amount collected) reached a high level of 82% in 2019, double the respective ratio of just around 40% in 1990. Both figures are calculated on a comparable basis. ^{21Legend symbol denoting In an earlier research report entitled "Child support agencies in selected places" published by the Legislative Council Secretariat in December 1998, it was not clear whether the collection ratios before and after implementation of CSS in 1992 were calculated on a like-with-with basis. In October 2020, the Research Office wrote to DIR in New Zealand for clarification. DIR confirmed by email that the collection ratios in 1990 and 2019 are broadly comparable, as both are derived from dividing the amount collected by the amount due for the respective fiscal years, excluding debts outstanding from previous years. See Legislative Council Secretariat (1998).} Finally, after a further review of CSS in 2017, the government of New Zealand concluded that "the fundamentals of the scheme are sound", though with a need for further improvement.^{22Legend symbol denoting New Zealand Parliament (2020).}
• That said, the administrative cost of running CSS was NZ$87 million (HK$456 million) in 2019, representing about 18% of the total maintenance payments collected in the year.^{23Legend symbol denoting Inland Revenue (2019 and 2020b).} The outstanding debt owed to CSS reached NZ$3.3 billion (HK$18.3 billion) in 2016, though 80% was unpaid penalties rather than maintenance arrears.^{24Legend symbol denoting Most recently, the bill mentioned in endnote 17 seeks to further reduce the penalties to incentivize timely payments. See Beehive.govt.nz (2020) and Inland Revenue (2019).}

Concluding remarks

• Local single-parent families are prone to poverty trap due to challenges in collection of child maintenance payments from ex-spouses. While the dedicated scheme in New Zealand (i.e. CSS) set up in 1992 boosts collection of such payments for overall welfare of children, it takes up some of the responsibilities of the court-based system. What also warrants attention is the administrative cost of running the new scheme.

Prepared by Germaine LAU
Research Office
Information Services Division
Legislative Council Secretariat
15 December 2020