Time for a Real Choice

2008-04-30 13:54:00.0
AUTHOR: Judy Turner

In 2006 the current government released a 10 year action plan called “Choices for Living, Caring and Working”, which outlined a number of initiatives aimed at providing parents with “real” choices in combining their paid employment and parenting roles.

To date most of the flow-on from that strategy paper has been around assisting both two-parent and solo parents who wish to be in paid employment to be able to afford the inevitable child-care costs that paid work necessitates. Child-care subsidies, Out of School Care and Recreation (OSCAR) subsidies and more recently the 20 Hours Free Early Childhood Education support are all policies they have implemented to meet this agenda.

However there remains one group for whom there are currently no government support measures to support the “real” choices they want. These are the two-parent families who would like to be able to afford to have one parent stay at home either full or part-time to care for their own children themselves.

For years now UnitedFuture has advocated for a change to tax law that would allow couples with dependent children to have their combined incomes taxed as a household rather than as individuals.

Income Splitting is not a new idea. At present a number of countries including France, USA and Germany have some form of family-based or joint taxation options available. In 1982 a New Zealand report of the Taskforce on Tax Reform (the McCaw Report) strongly recommended income splitting be allowed in New Zealand as a means of reducing the tax liability of many families.

As part of the post-election discussions UnitedFuture got agreement for the production of a government discussion paper on how income splitting could work in New Zealand. That paper was prepared by Inland Revenue and launched last week by Hon Peter Dunne.

There are a number of ways Income Splitting could be achieved, however the most easily understood approach is that parental income is first combined and then split evenly between both parents and then taxed accordingly.

This would mean for example, that a family with one partner earning $80,000 a year and the other earning $20,000 a year would be taxed as if both partners earned $50,000 a year. Thus the highest tax rate applying to their combined income would be 33% rather than the top rate of 39% that the high earning partner would attract under individual taxation. This would mean a tax saving of $3,360 a year for the family.

In the decade or so that we have been promoting Income Splitting as a tax option, a lot of things have changed. The “Working for Families” assistance has improved the disposable incomes of many families although as mentioned earlier, the most help has is on offer to families where both parents choose paid employment over having one parent stay at home.

The questions that now remain are whether families require additional support and choice and whether Income Splitting would be the best way to provide any extra help?

The government is seeking feedback from the public and submissions close 30 June 08. The can be mailed to:
Policy Advice Division
IRD
P.O. Box 2198
Wellington
Or e-mailed to policjy.webkmaste2r@irdj.govts.nzi

Why not tell IRD what you think?

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