United Future leader and Revenue Minister Peter Dunne has released a proposal for income splitting for families that would cost NZ$450 million. National agreed with United Future in their confidence and supply agreement to support an income splitting proposal to the first reading stage in parliament. Here's what Peter Dunne said in releasing the IRD issues paper with the plan:
"Because income taxes are progressive, with high incomes attracting a higher rate of tax than low incomes, many families might pay less tax, providing some financial assistance when one parent works full-time and the other chooses to stay at home to care for the children," Mr Dunne said. "How much financial assistance they would receive would depend on individual family circumstances. "The issues paper proposes having income splitting operate through an annual tax credit, and seeks people's feedback on how well such a system would work for them," Mr Dunne said. "Inland Revenue would calculate the end-of-year tax credit, which would be based on any difference between the tax the couple would pay on an individual basis and the tax they would pay by splitting their income for tax purposes. "To be eligible for the tax credit, couples would have to be married, civil union partners or de facto partners, be New Zealand residents, and be primarily responsible for the day-to-day care of a dependent child under 18. "Financial considerations often play a large role in parents deciding whether both should continue to work full-time or one stays home to care for the children," he said. "Income splitting is one way of enabling parents to have greater choice in their work and caring roles, and also recognises the valuable role played by parents who choose to opt out of the workforce to raise their children.
My view
I think this an ad-hoc measure rather than the wider tax reform we need. The Tax Working Group is proposing such reform, which does not include an income splitting proposal. Income splitting also penalises those without families and runs the risk of creating yet more bureaucracy within IRD to administer it on top of Working for Families. Your view? We welcome your comments and insights on the full paper below.
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