# "Extra Care" Child Support Formula

##### A new child support formula for Australia is here, the "Extra Care" formula.

- Parents who pay child support simply pay for extra care provided by the other parent above 50%. They don't have to pay more if the other parent has a low income.
- Parents receive child support if they provide more than 50% care. They aren't penalised for earning income and don't even have to report their income.

##### Soon we could say goodbye to the problems with the old (income sharing) formula. No more complexities, flaws, unfairness, and bad outcomes for children.

##### Child support can be calculated in a simple, transparent and fair way. And it can be done while encouraging parents to earn a good living.

##### Australian children should be given the opportunity to prosper from a new formula; one that both protects them and increases the incomes of their parents.

The new Pay for Extra Care child support formula is shown here. Child support is calculated in 3 steps.

To calculate child support, all you need to know is the taxable income of the paying parent, the number and ages of the children, and the percentage of care provided by the main carer.

- You don't need to refer to complex cost tables or anything like that.
- And you can calculate child support using simple maths.

Child support is calculated by (1) working out the annual cost to the payer of raising a child (2) adjusting costs for the number and ages of children and (3) calculating how much the payer saves from providing less than 50% of care.

## 1. Cost of a Child

##### Cost of a child =

##### 15 cents per dollar of payer income from 0 to $75k

+ 5 cents per dollar of income from $75k to $180k

**Example.** John is the payer (has <50% care) and had $90,000 in taxable income last year. The annual cost of care for a child is 15% of $75,000 plus 5% of $15,000. This is $11,250 + $750 = $12,000.

The cost of a child is based on the payer's income. By doing this, child support reflects * ability to pay*.

The initial rate (15% of income up to $75k) means payers on low-to-medium incomes contribute about the same as under the current system.

The high-income rate (5% of income between $75k and $180k) is less than half the initial rate in after-tax terms. The reduced rate applies to payers who, due to a high income, will contribute more than the normal costs of raising children.

**Key benefits**

- The formula ensures child support always stays in line with measured ability to pay. Payers are not required to contribute more than is manageable (which is a significant problem under the current scheme).
- Because care cost depends only on payer income, the recipient is not penalised for earning income. This removes current disincentives for the main carer to work.
- Payer incentives to work hard are also improved since the cost formula avoids excessive taxing of income (which currently happens in many cases).
- The calculation is simple and transparent. It effectively replaces a set of large, complex tables.

**Disadvantages**

None that we can think of. The new way of calculating the cost of a child is simple, effective and non-distortionary. It avoids problems arising from the current scheme's ambitious but fundamentally flawed method (see here).

## 2. Cost of the Children

##### Cost loadings =

##### 50% for a 2nd child, or

70% for 3+ children.

15% for each teen (max 30%), or

40% where only child is a teen.

**Example.** For John, the cost of a child is $12,000. Since his child support is for 2 teenagers, the adjusted cost = $12,000 x (100% + 50% + 15% + 15%) = $21,600.

The cost loadings account for the extra costs of (i) multiple children and (ii) older children.

The settings approximate the implied settings under the current scheme (which were determined by analysing the various cost tables).

Here, we are trusting the cost research underpinning the current scheme.

**Key benefits**

The cost factors are simple and transparent. They allow cost tables to be replaced with what you see above.

**Disadvantages**

None. These cost parameters remove unecessary complexity.

## 3. Pay for Extra Care

##### Child support = adjusted cost x (receiver care % - 50%)

**Example.** For John, the adjusted cost of children is $21,600. Kate has their children 11 nights per fortnight, or 78.57% of the time. That means the extra care provided by Kate above 50:50 is 28.6%. So John pays Kate 28.6% of $21,600 = $6,178 in child support annually.

Under the Pay for Extra Care formula, child support is calculated to compensate the recipient for providing extra care. The payer contributes the amount they save from providing less than 50% of care.

**Key benefits**

- The formula is relatively easy to understand.
- Assessments are essentially fair. Child support leaves the payer no financially better or worse off compared to being a 50:50 co-parent. The main carer is compensated for providing extra care to the extent that the payer can afford (and will normally be overcompensated because payers have a higher average income).
- Children benefit from increased parental resources. Fair assessments help motivate parents to reach their full career potential. The main carer isn't penalised for working. The payer is penalised less for earning a high income.

**Disadvantages**

Under the current income-sharing formula, the payer pays for 100% of care (not just 50%) if the receiver has a low income and full-time care. That concession will be taken away.

## Comments

The current scheme will not survive over the long term, nor should it. Introducing the new formula, or some variant of it, would be an extremely positive move towards improving the welfare of Australian children.

### A mathematically sensible formula

For those wondering what the hidden agenda is behind the formula, there actually isn't one. We're applying the IJMS principle – It's Just Maths Stupid.

The new formula is a mathematically valid one. The current one isn't. That's the point.

By adopting a mathematically sound formula, you get better, fairer outcomes and solve a lot of problems. The prospect that real-world outcomes will be improved is the justification for applying better mathematics.

The formula was actually developed mathematically using the same economic assumptions (i.e. the same average costs of children) that apply to the current formula.

### Breaking stereotypes

But we're still interested in family, cultural and economic impacts...

Persistent and growing discontentment with Australia's child support scheme can be put down to the increasing irrelevance of gender stereotypes in our modern society.

Why should child support be set up to (a) encourage recipients (usually women) to stay at home and (b) heavily penalise payers (usually men) for being a good provider?

- Mothers of school-age children have every opportunity to be a working role model if they choose. To illustrate, Australian women outnumber men at universities by a ratio of 11 to 8.
- Australian fathers of today want to be with their children and not just pay for them. However, the current child support scheme encourages recipients to dominate care.

Treating parents fairly ultimately benefits the children who rely on them. So let's help Australia's children by dropping the convoluted and ineffective old formula and introducing a new, simpler, better and fairer one.

### Further reading

See our home page for discussion and explanations of how the t"Extra Care" formula improves on the current income-sharing scheme.

You can quickly calculate child support under time sharing using our online calculator. See the ANALYSIS section.

### In the news

*New proposed child support formula* (Best in Australia, 3 Feb 2018).