Income splitting hits the lower paid
Revenue Minister and United Future MP Peter Dunne's proposal to allow couples with children to split incomes for tax purposes is aimed squarely at those on middle and high incomes - such as those who predominate in his Ohariu electorate in Wellington.
Last week Dunne announced that his proposal would benefit 300,000 families. It would mean that a family with children where one partner earned $10,000 and the other $60,000 would have both earners taxed on incomes of $35,000 each. Because the higher income attracts more tax, by splitting the incomes the family would pay $1780 less tax.
Dunne says this would help families where one partner worked while the other stayed at home looking after the kids. A single income of $50,000, for example, would be taxed at two incomes of $25,000 - again resulting in some savings on tax.
However, it takes just a moment's thought to work out that the big winners here will be those on middle and high incomes because the benefit comes from the lower tax from splitting the highest income. The more you earn, the more tax Dunne's proposal would will save you from paying. If we put this idea alongside Finance Minister Bill English's declaration that any changes to the tax system must be fiscally neutral - tax saved in one place must be made up with an increase elsewhere - then it's obvious Dunne's proposal by itself will result in a higher tax burden on the low paid and families without children.
Under its coalition agreement with the single-MP United Future Party, National has agreed to sponsor Dunne's proposal at least as far as a first reading in Parliament so it will reach a select committee hearing.
Dunne will no doubt argue that middle- and low-income families received assistance from the Working for Families package of the last government and its time to give the higher paid a break.
However, the WFF compensation for the income distortions created by the so-called free market are not enough to keep low-income families at a reasonable standard of living. The market is a blunt, amoral financial mechanism and cannot remain the major arbiter of income.
Unfortunately it has been allowed to take up this role. Low-income workers must now work much longer hours to bring in the same income of a generation ago.
Dunne's proposal is in the same field of wet dreams as the free marketeers. By itself it will bring a little more joy to the well off in Ohariu but an added burden to families in Porirua.
We must hope for a lot better from the Buckle tax review, which met for the last time a week ago to prepare its final report for the Government. That report is due for public release in January and we can only hope the review members have a broader look at the greatest issue facing New Zealand - the plight of the working poor. These are the people who keep the country running by working hard with a poor reward from employers and then face greater burdens from the state, which responds to pressure from the likes of Peter Dunne for tax breaks which benefit the better off at the expense of everyone else.
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Your comments are ridulous. Thanks to WWF circa 50% of households dont actually pay income tax. This places a huge burden on the rest of us that fund the life styles of others. I personally dont believe in income splitting even though i would benefit handsomly from such a scheme. It is too open to abuse.
We should move toward a flat tax rate then there is no need for all these 'rules' or add ons' or exceptions. get ride of all the deductions, and loop holes (that the so called rich expoit)ban LAQC's, scrap WWF. Everyone get treated equally, and isnt that the fairest system of all? In fact lets make it easier for those on low incomes. make the first 10,000k tax free for all. then everyone gets taxed at 25%, this includes the corporate tax rate and a capital gains tax on ALL property.
All NZers would then know if they earnt an extr dllar they get to keep 75c of it. That is areal incentive to improve your place in life. The Harder you work, the smarter you invest the better off you will be. That is the type of NZ i want to live in.
As a nation we have forgotten the leasons hard learnt by our grandparents, thrift, hard work, a moral compass and the desire to stand on our own 2 feet
You conviently leave out the fact that there is an effective cap on how much the "high" income earners would save under such a scheme and the fact that as you move up the tax brackets the savings will be less on the same size pay disparity between a couple. e.g. a couple on $40,000 and $20,000 will save more than a couple on $60,000 and $40,000
Yes, it would benefit the middle to high income earners.....and what the hell is wrong with that? I pay a ridiculous amount of tax. Personally i dont think this goes far enough. If we were to all pay the same e.g. 20% or 25%, I am still paying more tax than someone earning $30k a year, so why also put me on a higher rate on top of that? What incentive is there for me to work hard and get pay increases etc, if most of it goes in tax?
As tax is effectively theft, anything that results in a tax cut for anyone is a good thing. Taxation should be voluntary, if the politicians did a good job with our money, then I'd happily pay mine.
#4 Davo - Hence many skilled workers flocking away from New Zealand.
John, you would love Sir Roger Douglas's 16% flat income tax on every dollar for those "filthy rich" earning above $31,200.
The good bit is that those you worship for union fees on low incomes would not pay any income tax.
You should give that tax policy some credit where credits due. You are right to give Peter Dunne a drop kick as his version is tenth best like him and his party.
I don't see anything wrong with something that gives more to the higher paid for once. I pay more in tax each year than the average income in NZ (I also work close to 70 hr per week on average) and in return for the taxes I pay I get significantly less back from the Government than the average NZer. My children go to a high decile rating school so their fees are significantly higher than in other state schools, in addition the school gets very limited funding for "non-essential" items so we as part of the school community must fund anything that is non-essential which other schools have provided by the Government. We do not have a community services card so even to take my 7 year old daughter to the doctor costs $ 56.00 so we have private medical insurance for the family. Any surgical procedures or anything that requires hospitalisation is done through private health providers because unless it was an accident we simply wouldn't be able to get into a public hospital. This means that we are paying for a public health system that we do not use as well as paying for a private health system. I am in the same boat as an increasing number of New Zealanders who pay a disproportionately high % of the tax take but are the lowest users of public goods and services. If I was receiving the same benefit as other NZers for the taxes I pay I wouldn't have an issue (even with paying significanlty more tax than most) however when I am required to pay significantly more and receive significantly less in return it is hard not to consider the tax system as anything but a wealth re-distribution mechanism designed to take income of hard-working high income earners and give it to those who are not prepared to put in the hours and effort that I do.
This is nothing more than leftist thinking by John Minto a well known leftie who believes that the hard work of some should be a tool with which to generate state-funded lifestyles for the masses by having high top tax rates and generous government handouts for low income earners and those who choose not to work.
Any income splitting would benefit everbody with children (certainly nobody would be worse off) unless the family income is so low that the income is already taxed at the lowest marginal tax rate.
It is true that higher income earners will benefit the most but they are the people who give the most to the government.
Not sure I agree with John's complaint - the maths seems a bit suspect, and he is assuming the money will come from those on lower wages. Personally I'd like to see them coming from a properly implemented capital gains tax (which would, hopefully, also take care of house affordability by stopping greedy baby boomers from buying up so much residential housing as an "investment").
My main concern with this policy, however, is that it only applies to people with kids. Why shouldn't a couple with a high income disparity and no kids be able to income split? Why, in an overpopulated world rapidly running out of essential resources, are we incentivising people to have kids they can't afford?
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John - I presume that you never taught maths. Those who earn the most pay the most tax. So whenever there are tax cuts of any sort (either by rate or structure) then those who earn the most are likely to make the most savings. Headline grabbing comments such as those you make hide the truth of where you're coming from - basically that you'd like to see a society where everyone earns pretty much the same regardless of the amount of effort they put in or regardless of how useful their contribution is. (Sour grapes here, perhaps, at the small amount of monetary 'gratitude' shown by society for professional left wing ranters?) Unfortunately your sort of society has been tried many times and has always been a total failure.