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The Government will write off $1.7 billion in penalty payments for parents who failed to meet their child support obligations, saying the system was "overly punitive".
Revenue Minister Todd McClay said forgiving the debt was to try to encourage more parents to pay child support.
He said child support debt was currently $3.2 billion but only $700 million of that was in child support while the rest was penalty payments. He said some parents faced "paralysing" levels of debt from penalties and had given up trying to pay it or meet their ongoing child support payments.
"This is the legacy of a penalty system that was overly punitive and is now being changed. We need to get parents to start paying so that children, many of whom are in hardship, are better off."
He said many had left New Zealand -- about $827 million was owed by those living in Australia while a further $778 million was owed by those in other countries.
"This is in no-one's interests. We want child support paid so it goes directly to the children who need it, or back to the taxpayers who are paying it by default in the form of a benefit to that child's family."
He said about 54,000 of the 120,000 with child support debt were on low incomes of less than $30,000 a year. Inland Revenue would decide which cases should have penalty payments written off and there would be mandatory write-offs of monthly incremental payments to those meeting their payment requirements.
The penalty rates would be amended from 10 per cent to a two-stage process of two percent for a late payment, rising to 10 per cent if the payment was more than a week late. Monthly incremental penalties will also reduce from two per cent to one percent.
Mr McClay said it was "not a soft option" and the Government remained intent on collecting debt, including arresting those who repeatedly failed to pay at the border.