A new tax scheme with the potential to save couples with children as much as $9000 a year will be announced on Monday by Revenue Minister Peter Dunne.
Called income-splitting, it allows partners to combine their income and split it down the middle for tax purposes.
That can put each partners’ income into a lower tax bracket.
It would also apply when there is one income earner in a family. When that income is split in two, savings could be significant.
Mr Dunne, the leader of the United Future Party, has wanted to bring in income-splitting for years and made it part of his support agreement with the Government after the 2008 election.
“Obviously, the higher the income the greater the saving…we have figures which show a couple splitting incomes could be better off by as much as $9000 a year.”
Mr Dunne has called a press conference on Monday to announce his Taxation (Income-sharing Tax Credit) Bill.
He has guaranteed government support to get it through its first reading and expects to have the numbers after that to have it enacted.
If it is passed it will come into force in April 2012.
I don’t see how we could possibly afford it – you’re talking about thousands of dollars a year for hundreds of thousands of families. I also don’t see how we’re supposed to grow the economy if the government reforms the tax system to encourage half the work force to quit their jobs and stay at home with the kids.
I guess Bill English could borrow yet more money and then sternly warn us that the government’s high levels of debt would mean further cutbacks to state services; or they could massively scale back WFF – but frankly I can’t see Key wanting the kind of divisive, angry election campaign that a conservative social engineering policy like income splitting would lead to.
The Treasury advice will be interesting: we always hear about how progressive taxation is evil because it threatens ‘the integrity of the tax system’ so you’d think income splitting – in which your tax rate is dependent on your marital status – would be similarly destructive. But since income splitting disproportionately benefits the highest income earners I’m guessing that Treasury and the majority of economics commentators won’t have a problem with it.
I do hope that you are not implying that next year is an election year Danyl and that Peter “Trump” Dunne is a political whore.
Comment by expatexpat — August 15, 2010 @ 5:18 am
I wish there was an online calculator that could tell me the price of my new bike.
Comment by mjl — August 15, 2010 @ 7:15 am
I’ve yet to see the details but I’m pretty miffed that Peter Dunne is proposing that I be taxed at a higher rate because I’m single.
Single people’s cost of living is already much higher than people who are in couples (I think the last research I saw was that the cost of living for a person in a coupled household was 0.6 that of a single person).
It’s pretty much impossible to buy a house on one income these days. Dunne’s proposed tax on singledom means single people will be subsidising homeowning couples.
Comment by James Shaw — August 15, 2010 @ 7:36 am
It’s pretty much impossible to buy a house on one income these days. Dunne’s proposed tax on singledom means single people will be subsidising homeowning couples.
The flip side to the argument is that to own a house you need two incomes, so many couples can’t afford to have children because they can’t take the time off work to raise them. I’m pretty confident that’s a debate that John Key really, really doesn’t want to have.
Comment by danylmc — August 15, 2010 @ 7:54 am
“I don’t see how we could possibly afford it – you’re talking about thousands of dollars a year for hundreds of thousands of families.
Except the Labour Govt cheerfully gave a “tax credit” (WFF) of $6000 per family for 400,000 families.
“I also don’t see how we’re supposed to grow the economy if the government reforms the tax system to encourage half the work force to quit their jobs and stay at home with the kids.”
But we already have about the highest worker participation rate in the developed world at 68.1%.. typically the US and Europe have 57-63% participation. So economic growth is not tied exclusively to this factor.. in fact, it might well be a better use of capital is employed to make up the effect of numbers.
To put it another way, you can get much closer to 100% participation with a slave economy, but its no guarantee the slaves or indeed the nation will be rich.
JC
Comment by JC — August 15, 2010 @ 7:58 am
I’m curious to know how much this is going to cost and to see what Treasury reckons it’ll do to workforce participation rates and productivity. The right are always whining about the effects on incentives to work and yadda yadda, and this is one of the best ways to help me achieve by goal of being able to afford my drug habit on my old lady’s income that I could possibly have dreamed of. Thanks Badger!
Comment by Guy Smiley — August 15, 2010 @ 8:04 am
“… in fact, it might well be a better use of capital is (sic) employed to make up the effect of numbers.”
I was promised as a youngster that the machines would do all the work for us in the future so that we could play golf and such. I had thought I was misinformed, Who would have thought that it would be Badger that would make it happen? BTW do you have a degree in economics and futurism JC?
Comment by Guy Smiley — August 15, 2010 @ 8:16 am
“Obviously, the higher the income the greater the saving…we have figures which show a couple splitting incomes could be better off by as much as $9000 a year.”
I love this quote so much. $9000!!! That’s awesome! Oh wait, how much does your household income need to be? *crickets*
Comment by QoT — August 15, 2010 @ 10:15 am
National – committed to the proposition that government of the middle class, by the middle class, for the middle class, shall not perish from this land.
Comment by Sanctuary — August 15, 2010 @ 10:21 am
Think about the combination of a tax-free threshold (per the Greens and māori party), and the effect of income-splitting. The mind truly does boggle.
L
Comment by Lew — August 15, 2010 @ 11:33 am
Think about the combination of a tax-free threshold (per the Greens and māori party), and the effect of income-splitting. The mind truly does boggle.
Think of the consequences of paying less tax? Don’t get your point sorry.
Comment by Stephen — August 15, 2010 @ 2:23 pm
“Think of the consequences of paying less tax? Don’t get your point sorry.”
Summarise the last thirty years of right wing thought in 12 words or less.
Comment by Pascal's bookie — August 15, 2010 @ 3:12 pm
GOT to get married and have kids! What with working for families and this we could potentially live off just one incomes (my partner’s of course) while I care for my children and tend my vegetable garden. Awesome!
Course, if my partner ever leaves then I’ll be f**cked and my kids consigned to poverty. But hey, who cares about single parents? It’s not like they ever struggle to make ends meet – right?
Comment by LucyJH — August 15, 2010 @ 3:16 pm
One more thing about single parents: Child support is assessed on taxable income so if that partner who leaves then remarries and splits his income, single mum will likely be both on a higher tax rate than him and receiving less child support.
On the other hand, if she receives less child support, she’ll receive more working for families tax credits courtesy of the taxpayer.
Comment by Bea — August 15, 2010 @ 3:42 pm
oh fucken great….now i gotta go and adopt a Romanian baby!
Comment by kerry — August 15, 2010 @ 4:14 pm
…it allows partners to combine their income and split it down the middle for tax purposes.
That can put each partners’ income into a lower tax bracket.
Er, what? How exactly could splitting their income conceivably put both of them into a lower tax bracket?
Obviously, the higher the income the greater the saving…
Yes, the govt just isn’t doing enough for high-income people and hasn’t been for a long time. Will no-one think of the rich children?
Comment by Psycho Milt — August 15, 2010 @ 4:31 pm
This is just such a good opportunity for a Labour or Green MP to say something completely retarded which can be spun as “Labour learns nothing, hates families” for the next twelve months.
Probably why it’s being done, actually.
Comment by JD — August 15, 2010 @ 4:47 pm
Summarise the last thirty years of right wing thought in 12 words or less.
Well heh, sure, though Lew incorporates Greens and MP policy into his utopian vision/mocking statement here.
Comment by Stephen — August 15, 2010 @ 7:10 pm
And 13 is like,the new 12.
Comment by expatexpat — August 15, 2010 @ 8:33 pm
lol @19
Comment by mjl — August 15, 2010 @ 9:15 pm
That settles it. When I finally get back to NZ, I’m getting married for tax purposes.
Comment by georgedarroch — August 15, 2010 @ 11:32 pm
Hello from Canada where we don’t have income splitting but many wish we did. We had a national conference on it in 2007 with economists, lawyers and tax specialists discussing its merits, which are many.
I think that it is not quite accurate to say that income splitting would remove progressive taxation. In the US there is the option to declare as sharing income or separately as the household wishes, and there are still tax brackets. The rich still do pay more than the poor.
WHat income splitting does though is make official what is already happening in practice – income is being split, shared, divided up, used to cover more than one person. It is a way, right now nearly the only way, of recognizing that people’s contribution to how a household functions it not just how much money they earn but also their unpaid roles like cleaning, cooking, tending the children, remembering to feed the dog and plan a birthday party for grandma. It is the only way that the nonmonetary side is recognized for its equal partnership. Right now with only individual based taxation, the nonearner is looked on as useless and like a child, completely dependent on the earner.
The other thing we noticed is that all households benefit from income splitting except maybe 1%. If there is no income splitting couple A earning $30,000 and $30,000 pays a certain tax. Couple B earning $50,000 and $10,000 pays a slightly higher tax even though they have the same total income as the first couple. Couple C earning $40,000 and $20,000 pays even more tax and Couple D earning $60,000 and zero actually pays the highest tax of all. Even though all four have the same total income and ‘ability to pay tax’, one pays up to 54% more than the other but all pay more than the first couple with equal salaries, which is very rare.
When we did polls to see if splitting income would be popular, it overwhelmingly was because it is fair. Our government in Canada moved to provide pension splitting only but even that is widely appreciated by pensioners. Our government then moved to provide the option to income split to parents raising a handicapped child. For some reason this particular arrangement merited recognition of the nonearning care role. But so far no other arrangements are recognized, but they should be. To recognize the home-based roles is vital to valuing lower paid work and unpaid work, which is often where women are.
Some have objected that single parents would lose out since they have no one to split income with. France has even solved that by permitting a declaration that the child is splitting income with the earner.
The last point I guess is that if anyone feels income splitting is bad, they can choose not to do it. In the US it is a tax option. Couples figure out which would benefit them more, to declare separately or together.
Comment by Beverley Smith — August 16, 2010 @ 1:01 am
And the message to families without children (or benefit of clergy/civil union celebrant): Get fucked.
Forget Treasury, someone from the Department of Stats should explain that quite a few registered electors are having children later in life, if at all.
Comment by Craig Ranapia — August 16, 2010 @ 3:31 am
BTW, any desperate and dateless women out there with no libidos willing to be my tax-break beard?
Comment by Craig Ranapia — August 16, 2010 @ 3:32 am
I’d be interested to see how income splitting would work in tandem with WFF. If you have, say, some Catholic family with five kids, Dad on $80,000 and Mum at home you’d be taxed at $40,000 and then eligible for several hundred dollars a week in WFF ‘tax credits’.
Comment by danylmc — August 16, 2010 @ 6:13 am
I’ve been following the thread, and people have latched onto something that doesn’t appear to be in the original quote at all.
1) You must be married/in a civil union. Where does it say that? In fact, in the article it *specifically* says de-facto couples qualify.
Danyl @ 25: WFF takes account of the family income. Income splitting wouldn’t affect your eligibility. If Dad was on $150k and he split $70k off to mum to abuse the thresholds, they still wouldn’t qualify. I’m surprised you didn’t do some basic research before getting your hackles up. And yes, a family with 5 kids – why the dig at Catholics? – would qualify for WFF with 80k regardless. National had their go at the thresholds when it came out for being too
Same goes for you Craig – this is about as anti-gay as WFF itself. I’ll be honest and say I can’t be arsed looking up your particular reaction when that piece of legislation was announced, but I’d imagine it wasn’t quite as cynical as above.
Yes, Dunners is a fuckwit in general. No, I’m not a fan of the policy as it gives preferential status to parents over non-parents but it’s not quite the apocalypse you make out, unless you’ve got info not supplied above?
Comment by Simon Poole — August 16, 2010 @ 7:41 am
Errr, got lost in thought there.
“National had their go at the thresholds when it (WFF) came out for being too…” should ideally be a sentence about the abatement rate being too steep, and Labour being forced to adjust the thresholds upward to prevent families from losing money for each extra dollar they earned between $X and $Y.
Comment by Simon Poole — August 16, 2010 @ 7:49 am
Oh, and regarding the $9000 figure, that’s the difference between one person earning and paying tax on $140k, and two people paying tax on $70k each. Pretty fucking ridiculous example, but that’s about what you’d expect from a politician.
Comment by Simon Poole — August 16, 2010 @ 9:26 am
I think the arguments for income splitting are excellent, if you’re a couple with children. If you’re single I’m still unclear why you should pay higher taxes to support people who are able to combine their incomes to buy otherwise unaffordable assets like houses; and who have made the personal choice to have children.
Comment by James Shaw — August 16, 2010 @ 10:22 am
regarding the $9000 figure, that’s the difference between one person earning and paying tax on $140k, and two people paying tax on $70k each. Pretty fucking ridiculous example, but that’s about what you’d expect from a politician.
But if you’re an MP almost everyone you know is earning a six figure salary – so it might seem silly to 99% of the population but to them it’s a reasonable example.
WFF takes account of the family income.
Good point – I forgot about that.
If you’re single I’m still unclear why you should pay higher taxes to support people who are able to combine their incomes to buy otherwise unaffordable assets like houses; and who have made the personal choice to have children.
It’s in the general interest of all taxpayers for us to have a subsequent generation to pay for us when we retire, so I’m not opposed to financial incentives for parents. But if you had to pick the least fair, most regressive, worst targetted way of doing that you’d get income splitting.
Comment by danylmc — August 16, 2010 @ 10:38 am
Beverley from Canada is on to it.. income splitting is already happening via trusts and companies. Sole traders and small companies do it all the time by employing the partner to look after the books or somesuch.
JC
Comment by JC — August 16, 2010 @ 10:55 am
I am shocked – SHOCKED – to hear that the Government is incentivising New Zealanders to have children they cannot afford and rewarding these “lifestyle progenitors” with tax breaks! Everybody knows that women deliberately get pregnant just to get on the DPB after all; who knows what this will lead to? Get a brain New Zealand!!!!!
Comment by Rory MacKinnon — August 16, 2010 @ 12:09 pm
If you like it then you shoulda put a ring on it
To the left, to the left.
Everything Danyl thinks is in that little box to the left.
Comment by Phil — August 16, 2010 @ 12:16 pm
It’s actually a very good idea. It will take off the financial pressure of having kids.
Comment by Liam — August 16, 2010 @ 12:46 pm
@SimonPoole: I was equally cynical about WFF. My brother and his wife can’t have children — and that’s not a “lifestyle choice” but intractable biology and I don’t think their medical history, or the decade they spend trying to conceive, needs to be aired in a public forum. But I get more than a little pissed off at the idea that if you don’t have children, then somehow it’s all la dolce vita. Balls.
Comment by Craig Ranapia — August 16, 2010 @ 1:56 pm
I like being friends with Peter Dunne on facebook. It offers such a wonderful insight into his thinking.
“Peter Dunne: Labour simply does not understand that life is about choices. According to them, if you have choice you are wealthy, and that is not fair.”
Comment by The PC Avenger — August 16, 2010 @ 2:44 pm
Don’t know why this is just for families with children. Going by the previous National govt logic:
a) The wealthy already income split.
Therefore
b) Make it legal.
Comment by J Mex — August 16, 2010 @ 2:49 pm
@36: Who’s going to tell Dunny that for many of us our fertility is not a “choice” at all?
Comment by Craig Ranapia — August 16, 2010 @ 4:10 pm
Funny, the two main econ commentating bloggers, me and Nolan at TVHE, have both come out against it for
1) increasing the marginal tax rate on second earners
2) cutting taxes in a particularly ineffective way (bringing down average rates while not doing much good, or doing harm, on marginal rates)
3) unduly privileging particular family types (those with kids) and consequently requiring tax increases on other groups
Maybe we’re against it because the policy just isn’t effective enough at helping the highest income groups (two earner households both over $80K), but I think it’s because we’re principled.
Comment by Eric Crampton — August 16, 2010 @ 4:21 pm
@danylmc: It’s in the general interest of all taxpayers for us to have a subsequent generation to pay for us when we retire, so I’m not opposed to financial incentives for parents.
I am. The logic of growing the population in order to pay for retirees is unsustainable – at the time we created it there were about 12 workers for every retiree, now there are 6. Within the next 30 years there will be 2. If we want to reverse that so that it goes back to being affordable we have to expand the population well beyond our carrying capacity – ad infinitum (as those people will also need more workers than retirees to pay for them).
And/or raise the retirement age so that people can only draw on it for a couple of years before they die, like it was 50 years ago when the average life span was 67, not 76.
I think if people want to have kids, they should have kids, not because they want to produce tax-paying workers to fund their retirement. And yes, I am for compulsory super.
Comment by James Shaw — August 17, 2010 @ 9:41 am