Dunne: 80% of families will pay for income splitting & get nothing

Written By: - Date published: 9:28 am, August 17th, 2010 - 41 comments
Categories: class war, tax - Tags: ,

OK, that’s not the actual title of Peter Dunne’s press release. The real title is:

Income Sharing could benefit up to 310,000 families

(Notice how ‘income splitting’ has been replaced with ‘income sharing’, sharing sounds so much nicer and more innocent, more innocent than ‘tax breaks for wealthy nuclear families with stay at home mums’ at any rate, also notice weasel phrasing ‘could’ and ‘up to’ – Dunne’s selling this like a late night ad for ab machines).

Statistics New Zealand tells us there are 1,600,000 households in New Zealand. And my calculator purports that 310,000 is 19.3% of 1,600,000.

Labour estimates income splitting will cost $500 million a year.

So, 19.3% of households get an average of $1,600 each. Everyone else gets nothing because they aren’t in nuclear families or mum and dad are in the same tax bracket (most of us are in the 21, soon to be 17.5% tax bracket), or they face no net tax thanks to Working For Families anyway.

But wait, there’s more.

The money for these cuts doesn’t come out of thin air (or even that right wing cornucopia that always turns out to be empty – ‘slashing government waste’). It comes from spending cuts and higher borrowing. Ultimately, those cuts and that borrowing are paid for by New Zealand households.

So, 19.3% of households get $1,600 on average from income splitting and 100% of households pay an average of $312 to fund it.

But wait, there’s still more.

On average, the lucky few who get income splitting will get $1,600 per household but, as with everything this government does, the real money goes to an even smaller rich elite.

If the couple’s incomes are pretty similar, the advantages of income splitting are small. For example, a couple with incomes of $45,000 and $55,000 would get $375 a year, $7 a week. But say you are a stay at home mum with zero income and your husband is, say, Prime Minister of New Zealand – your family’s tax cut is $9000 a year, or $173 a week.

So, of the 19% of households who are lucky enough to get anything from income splitting, most will get bugger all and a lucky few will win big, and when I say ‘win big’ I really mean ‘pocket cash earned by the 1.3 million households who get nothing at all out of income splitting’.

Incidentally, I’ve just calculated that John Key has voted himself $22,000 worth of tax cuts on his PM salary alone since taking office, paid for with canceled tax cuts for lower income workers and government borrowing.

What do you think the odds are he will get National to back Dunne’s income splitting and pocket another $9,000 a year for himself? He’ll be tempted, but I don’t think even ol’ smile and wave would be able to convince the public that borrowing another $10 million a week to give him another tax cut is worthwhile.

41 comments on “Dunne: 80% of families will pay for income splitting & get nothing ”

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  1. RedLogix 1
    17 August 2010 at 9:53 am

    Yet fundamentally the income splitting idea is is valid because our current tax system is unfair in the way it assesses income for tax purposes on individuals, but largely assesses income for benefit purposes on households. And the problem is exacerbated by very low the ‘partner qualifying’ income in this country.

    But you are right Marty, that income splitting done under the present regime does simply become another stealth tax cut for the wealthy. The failure of the current system to achieve fairness, even in the face of this fairly minor change…this tells you is that the current system is fundamentally flawed.

    By contrast the Universal Basic Income system inherently achieves income splitting …in fact the issue does not arise at all and achieves it for all taxpayers. UBI is not new, it’s been around for ages, and if the left really wanted to set the agenda around tax reform, this is the big idea that can get traction.

    • Draco T Bastard 1.1
      17 August 2010 at 2:37 pm

      Well, we know that Labour won’t do UBI – I asked. David Cunliffe(sp?) said no.

      • Herodotus 1.1.1
        17 August 2010 at 3:26 pm

        Any reason for this refusal to undo the inequity of the system re WFF and the difference in disposable earnings of a family unit vs individuals within the same unit. Especially as Govt Welfare views the family unit as one and IRD as individuals?
        Or is David comfortable with the current position?

        • Draco T Bastard 1.1.1.1
          17 August 2010 at 8:04 pm

          I didn’t ask and he didn’t address those specific questions but, IIRC, he was comfortable with the current system.

  2. tc 2
    17 August 2010 at 10:35 am

    Couldn’t keep his own little christian party together (how hard can that be !)and now looks desperate with this extra lolly scramble for the already better off thanks to nat’s tax cuts…..in essence you don’t really know what you’re voting for with Dunne over any period of time.

    Looking forward to Chauvel seeing him off hopefully.

    • bbfloyd 2.1
      17 August 2010 at 1:50 pm

      tc…. keeping his little christian party together was always going to be a hill too steep to climb. they spend more time sniping at each other, and rubbishing other denominations than actually despising us”heretics”. what chance a unified front? none whatsoever. they have neither the intellect or the maturity as a group to do any more than create an annoying background buzz.
      when you vote for dunne, you are voting to keep him in the manner with which he has become accustomed. there are always going to be enough religious bigots prepared to throw away their votes in order for him to get back.
      i’ll make a prediction… dunne will be the first “mp for life” when he drops dead of old age sitting on his seat in parlaiment.. just after he gets his knighthood.

      • Katherine 2.1.1
        18 August 2010 at 8:56 am

        As far as I know, Income Splitting has been a Dunne/United Future policy for a while. He probably thinks he actually has a chance of getting it through now. No chance with the last government obviously.

  3. Lanthanide 3
    17 August 2010 at 11:54 am

    Dunne is now saying ‘if you run a business then you can organise your incomes in such a way to achieve the same thing, this is just extending the same opportunity to those on salaries and wages’. So it’s the same National trick of “fixing a loophole” not by changing the rules correctly to close the loophole but by cutting a chunk out of the fabric instead, leaving an even bigger hole (in the public purse).

    Also I would suggest that those who are in a position of owning a business, and able to craft the salary so that both partners pay the same tax rate should probably be allowed to continue doing this. Running a business is risky and very hard work, and I think the fairly marginal/small tax benefits that can be derived from this sort of organisation is acceptable – we’re talking about a maximum of $9k a year here. Sheltering money in trusts for tax reasons is an entirely different matter, however (the sky’s the limit on the $$ there).

    • vto 3.1
      17 August 2010 at 12:15 pm

      Lanthanide “Dunne is now saying ‘if you run a business then you can organise your incomes in such a way to achieve the same thing, this is just extending the same opportunity to those on salaries and wages'”

      I heard him say that too.

      Is this guy serious? He is the Minister of IRD for fucks sake and here he is telling all NZ business people that they can slot income all around to suit their tax purposes. Which is EXACTLY what the High Court has just ruled is tax evasion in the case of the two Christchurch surgeons who income-split in their business!

      Dunne does not know his shit. Dunne has just said it is ok to do what the courts have said is illegal.

      Maybe I am missing something but this seems like a pretty major mistake – both in not knowing his most basic tax law and in advising NZers that it is ok to do that which has been judged illiegal.

      (edite: to clarify. the case over the two surgeons turned on their business not paying them market salaries. Dunne has just implied that you can pay the non-working partner in the business a salary that suits tax purposes and not market salary for the work done in the business.)

      • NickS 3.1.1
        17 August 2010 at 1:53 pm

        It’s because he’s utterly incompetent.

        And yet another Minister in the NACT government that really shouldn’t have a portfolio of any consequence.

  4. loota 4
    17 August 2010 at 12:12 pm

    I cannot believe you have used a photo of Doctor Who on the front page with Dunne photoshopped in. Besmirching the name of the good Doctor, Time Lord extraordinaire!

    Hmmmm, disappointed in The Standard for once.

    • bbfloyd 4.1
      17 August 2010 at 12:42 pm

      agreed…. bit of a brainfade there. the doctor cherishes the whole of humanity. dunne is picking and choosing which bits get help. and who gets the bums rush. isn’t he supposed to be a christian? looks more like one of the crowd thrown out of the temple.

  5. Herodotus 5
    17 August 2010 at 1:07 pm

    So as this assists only 20% we should exclude this, even thogh there is an inherent error in the Labour welfare system that disadvantages one form of a family. As stated before a rick $100k single income family pays $8.45k more tax than a family with 2 $50k incomes, and both can get WFF.
    Perhaps this is a great reason for the tax system in conjuction with welfare should be reviewed. No one within Lab (Esp T Mallard) can even tell me what is a substainable income for a family to live on. perhaps we may be even giving valuable welfare to many who dont need it and this could be directed to those in need.
    I cannot see why let this progress to1-3 rd readings with improvements, limit amount of income applicable to be split.
    But we cannot be seen supporting this form of a family unit, or even place this in parity with other forms, no wonder some get the impression that the tradition family is under pressure, for me mainly due to little or no support from political parties. But we the tax payer pay the cost: financial, social, mental etc and the govt gives to their special niche groups that could vote for them.
    “So, of the 19% of households who are lucky enough to get anything from income splitting, most will get bugger all and a lucky few will win big” so Marty from this logic you will be against the removal of GST off fruit and vege as most households will only benefit $1-$2 per week. And that is if all the savings are passed on thru the food chain!! As said before if you are worried limit the amount that can be split. Dont be against everything that this govt “is comfortable with” or “just kicking the tyres” see how it could be improved. Even the other side has ideas that could be incorp to improve NZ.

    • bbfloyd 5.1
      17 August 2010 at 2:05 pm

      H.. another convoluted and untenable argument from yourself. if you can’t do any more than widen the discussion out into areas that have no semblance of relevance to the original issue at hand, then i suggest you write a couple more drafts, and then read them slowly.
      playing shallow word games is no substitute for substantive debate. reacting to certain phrases is nothing more than that. that doesn’t equate to a contribution to the debate.

      • The Baron 5.1.1
        17 August 2010 at 3:24 pm

        Untenable evidently means something different to you than to every other english user. Here’s a hint – “I don’t like it” doesn’t equal untenable.

        There is a very clear and well made point about the relative benefit for two different families who are in the same net position. It has facts and figures in it, two things you seem to not have an affinity with. Here’s another hint – being a fanboy isn’t a substitute for substantive debate. If its the latter that you’re aiming for, can you please tell me where in this thread you have measured up to your own lofty pinnacle?

        So how about you go away, do form 2 english comprehension again, and try again when you have got a bit more of a clue?

        • wyndham 5.1.1.1
          17 August 2010 at 4:51 pm

          Pardon my cynicism but doesn’t Peter Dunne, one of the the chameleons of politics, happen to have that rather prosperous area known as Karori within his electorate? ‘Splitting’ incomes, (now to be known as ‘sharing’)would go down very well in Karori. There’s an election coming up !

          • loota 5.1.1.1.1
            17 August 2010 at 4:55 pm

            Awful of you to even suggest such a thing. 🙄

            • The Baron 5.1.1.1.1.1
              17 August 2010 at 5:05 pm

              Pardon my cynicism, but aren’t there a lot of:

              – beneficiaries in south auckland
              – students in north dunedin
              – food purchasers in new zealand

              all of whom will benefit from labour policy? there’s an election coming up!

              your analysis is as juvenile as it is stupid. again, being a fanboy doesn’t substitute for substantive debate.

  6. stevo 6
    17 August 2010 at 5:43 pm

    Negative knee jerk reaction to policy ideas like this will keep labour out of power for…ever.
    I have an email from Michael Cullen over this matter prior to the last election where his reply completely missed the point we were trying to make, that being where families, through no fault of their own, find themselves on a single income, say through caring with a family member with a disability. He wittered on about if we do it for you then we have to do it for everyone.
    Now he is gone, lets have some clear thinking on this.

    • NickS 6.1
      17 August 2010 at 6:01 pm

      So we should just ignore that it doesn’t help single parents, nor those on middle to lower incomes? And it basically only benefits those who already have already quite significant incomes, and if they aren’t brainless at budgeting, should be more than enough to raise and care for any children. i.e. why exactly do the rich need more welfare? When they already have access to free childhood education and subsidised health and dental care.

      • KJT 6.1.1
        17 August 2010 at 8:19 pm

        No true and you could limit the amount also. Say $80k.

        Though I am all for a minimum individual income administered through IRD. Save a heap of money used in deciding allocation also.

  7. dave 7
    17 August 2010 at 9:16 pm

    I posted on this on my humble blog too. Dunne has also said that Income splitting would encourage mums to stay at home and look after their kids which is rubbish.

    Many low income families will get nothing from income splitting – but a childless couple on $120,000 could get up to $8480 tax free just by having a child. That’s more than nearly all couples – including the very poorest who get nothing from income splitting – get in Working for Families payments for having their first child.

    Its also more than many couples with one child, (and lots with two or more) get in WFF payments, tax cuts, and income splitting for tax purposes COMBINED.

    • Frank Macskasy 7.1
      20 August 2010 at 9:25 pm

      “I posted on this on my humble blog too. Dunne has also said that Income splitting would encourage mums to stay at home and look after their kids which is rubbish. ”

      Perhaps he’ll suggest they wear a burkha as well?

  8. Frank Macskasy 8
    20 August 2010 at 9:23 pm

    One thing that occurs to me with income splitting/sharing/stashing…

    According to our esteemed Minister of finance, we’re already borrowing $200 million a week to pay for a portion of state expenditure.

    Permitting relatively affluent folk further tax-cuts – which is what Dunne’s proposal really is – begs the questions;

    1. How much more will we have to borrow to make up for a lower tax-take?

    2. If we don’t borrow more, what State services will be cut? School funding and fewer books? Fewer nurses in our hospitals? Market rents for state houses? Fewer bullets for our troops in Afghanistan?

    3. If we do borrow more, will our children or grand-children be lumbered with this debt?

    I may be a left-winger, but even I know that “there ain’t no such thing as a free lunch”. Someone, sometime, will have to pay for tax-cuts or cuts in services. It’s basic arithmetic.

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