More tax cuts for the elite coming

Written By: - Date published: 10:13 am, August 14th, 2010 - 39 comments
Categories: class war, tax - Tags: ,

The Government is set to announce income splitting. Effectively, it allows a taxpayer to assign part of their income for taxation purposes to their partner. If the partner is on a lower income, the transferred income will be taxed at a lower rate than it would have been had the person who actually earned it paid the tax. This will benefit a select group: wealthy nuclear families, especially those with a stay at home parent.

Imagine two families.

  • In one, the two parents earn $50,000 each a year. In the other, one partner earns $100,000 and the other earns nothing.

Income splitting will give no benefit to the first couple because each faces the same marginal tax rate. The second family will save nearly $8,000 a year in tax.

  • Now, compare the situation of a family with one earner on $50,000 and another family with a single earner on $100,000, both with partners with no income.

The first family gets a $1200 a year tax cut, and the richer family gets $7900 a year. Double the income – over six times the tax cut.

  • Then, there’s the single mum on $100,000 compared to the partnered couple with one earner on $100,000.

The couple gets the $7900 a year tax cut. The single mum gets nothing.

Call it tax cuts for the rich, call it social engineering (proponents want to punish solo parents and keep mums at home with the kids, where they should be).

Call it an unfair, unaffordable policy that simply puts more of the government’s borrowed money in the hands of those who are already most well off.

39 comments on “More tax cuts for the elite coming”

  1. ghostwhowalksnz 1

    Isnt this effectively a private members bill for Peter Dunne?

    I cant see this being passed frankly

  2. prosaic 2

    You mention one of the groups that will benefit, average to middle income earners with a stay-at-home parent looking after their young children. Eg, he earns $50k, she earns nothing because they both value pre-schoolers being looked after by their parents rather than putting them in daycare. Believe me, a lot of educated and qualified women make this choice, rather than it being a case of the government trying to “keep mums at home with the kids, where they should be.” They get $1200 a year, you say. But you compare this amount to what wealthy people will get, dismissing the benefit this will bring to the very large number of families in this situation, ie, $1200 per year. For families in this group, currently, we are taxed more than two parents earning $25k, simply because we are looking after our children and in a way that a growing number of studies say we should be if we want healthy children ( It’s the same argument for your first example–you don’t mention that the two families will now pay exactly the same amount in tax (which may be fairer than the current situation). Maybe income-splitting is unfair and largely benefits the rich (some figures, though, on the numbers of types of families benefitting would be useful in your argument) but why do you ignore the benefits of the policy and focus solely on the downsides? We know National are shit and look after their own rich mates but it doesn’t mean that every single thing they do is all completely shit. I think there is an important fairness aspect to income splitting, fairness to families who choose to look after their kids themselves and take the hit in income–we need to know about this as well as it benefitting the rich.

    • Draco T Bastard 2.1

      Last time I looked, a family with ~$50k income pays no tax due to WfF. Income splitting isn’t needed and only adds unnecessary bureaucracy.

    • burt 2.2

      You seem to be assuming WFF is in place for the long haul?

  3. Tiger Mountain 3

    Income splitting for the ‘rest of us’ (ie the majority of NZers on under 50k per annum income) should mean everyone being treated as an individual for income support and tax purposes. So that if say one partner in a relationship is out of work they would be entitled to receive the appropriate welfare payment. Married and couples are currently regarded as a single entity.

  4. Pascal's bookie 4

    Wonder how they are going to define ‘partners’. Do we have to get one of them there certificates from the govt saying that our family is, in fact, a family? ie, do de-facto relationships count? If not, then doesn’t that break discrimination laws?

    If they do, then will there be bedroom snoopers checking the status of the relationship. How will the ird know the difference between a DF relationship and flatmates? Will there be a spike in single people living alone, and solo parents, taking in boarders with under the table rent payments?

    • Me 4.1

      Dunne says it will apply to all couples, including de facto. According to The NZ Herald:

      “It’s for parents with dependent children up to age 18 and the definition of parents will be exactly the same as that used for Working for Families and other benefits – married couples, civil union couples, de facto couples.”

      Flatmates would need to have children together – or the flatmate would need to officially be a step-parent – before they could opt for income splitting. Similarly for single parents with boarders – the boarder would have to officially become a step-parent, which then means they’re liable for child support (and on-going contact with the child) if the ‘relationship” later breaks down. Not a lie to undertake lightly.

  5. KJT 5

    You are wrong that the couple on $50 000 would not get more. They will because both will benefit from having less taxable income on a higher rate.

    You also failed to mention the couple on 50 000 a year from one income because Mum stays home to look after a mentally handicapped kid. With the very generous $75 odd a fortnight disability allowance.
    Or the couple on $35000 where the Dad stays home and they really struggle because they believe in giving kids a good nurturing start in life.
    Or the people who would like to do this which there are many.
    Most of the couples on lower incomes I know are both working out of necessity, not because they want to.

    Income splitting would be a lot of help for these people.

    The ones on high incomes are both working because money and possessions are their first priority.

    This is a good idea. Good ideas are good no matter who suggests them.
    Once the principle is established then we can work on people being treated as separate entities for benefits.

  6. prosaic 6

    And, for many, if not most, single mothers on $100k, the father of the children will also be contributing to that household so that it’s income is significantly higher than $100k. Perhaps income-splitting will bring the income of the ‘partnered couple with one earner on $100k’ in line with that of the single mother on $100k–which makes it fair for the kids in the respective families. If you focus on the affects the policy would have on children (rather than on individuals) it may look fairer. Income splitting should probably not apply to couples with no dependent children.

  7. Ah! – The politics of envy!

  8. Descendant Of Smith 8

    I also support this idea.

    The progressive tax rates and where they kick in are another issue.

    I had young children with disabilities when this was removed and it certainly made quite a difference losing that net disposable income. It was not surprising to me that many relationships broke up following this change, in part due to financial pressure.

    I could never figure out how I was supposed to not only support my wife and family on one income but also provide for my and her retirement savings. I’ve worked hard, and have developed some useful skills, to get promoted earn a decent income but we certainly struggled with power and phone disconnections a regular feature. Eating weetbix for a week to ensure the kids had food, reusing nappy liners – a disposable nappy to travel to see family was a luxury.

    There was always a price to pay in economic terms for having children but I never thought that paying more tax as a family compared to a couple earning the same amount of gross income should have been one of those.

    The experience of being in Wellington hospital, or Starship or Ronald McDonald house and being the exception as a couple rather than the norm reinforced how difficult it becomes when your earnings power is restricted.

    Many women, and in some cases men, have little choice but to have both partners working. If this brings back some real choice then that would be great.

    Like universal family benefit this is a policy that ignores whether you are well off or not. I don’t necessarily see that as a bad thing.

    • MikeG 8.1

      Agreed DoS.

      I’m earn over $100k (but voted for the rich prick tax) and my wife earns < $10k pa, so income splitting would be great for us. By 'staying at home' my wife has been able to assist on many school trips as an unpaid helper etc. – doing something that is necessary for the good and safe running of school trips. In addition she has been able to spend time with a number of less fortunate in the local neighbourhood – i.e. contributing to society in a very positive way, but not getting paid for it. Like many things, there are a lot of different aspects hidden by statistics like "Double the income over six times the tax cut."

      • Descendant Of Smith 8.1.1

        While I might personally benefit I’m more interested in those people that have young families, particularly those with children with disabilities, and are in a similar position as ours twenty years ago.

        It’s not clear if there will be any adjustments to WFF as a result but I certainly prefer this option to making people apply for assistance through the welfare system.

        It’s not clear how this would be paid for and that is a concern but I’ve consistently commented that this should return, along with Universal Family Benefit.

        I would also support tax rates going up to pay for it.

        It may also encourage men to support their partners rather than try and maintain a quasi relationship in order for the woman to get DPB.

        It’s a pity Labour hasn’t come up with any clear and useful policy. We know what they are against but I’m damned if I know what they are for.

  9. Santi 9

    About time!

  10. tea 11

    This is the announcement of a government that either thinks:

    we might get turfed out, better do everything


    there is no opposition we can do anything we want.

    This is more class warfare, plain and simple.

    • Marco 11.1

      This policy won’t affect any household on more than $140000 per year. It’s a policy to assist middle income New Zealanders who have been abandoned by their successive governments.

      The first example shows two households earning the same amount of money. This policy means they get to pay the same amount of tax. What on earth is wrong with that? Stop playing the fear card, your starting to remind me of Dick Chaney.

    • Me 11.2

      This is not government policy; it is a pet policy Peter Dunne has wanted to advance forever.

      I expect National will support the bill being read in the House, maybe even going to select committee, and will then not back it. Why? Well, where do they make up the lost tax revenue?

      Unless, of course, in the process, focus group research shows strong middle class support for the policy….

    • Me 11.3

      This is no more class warfare than expanding WFF to higher income families was class warfare.

  11. dave 12

    KJT,, how much would a one-income couple on 35k benefit from income splitting for tax purposes?

    • KJT 12.1

      I am sure you can look up the tax tables same as the rest of us, but more than $75 a fortnight which is a lot of money when you are on that sort of income.

  12. Joshua 13

    Ok, so I was correct when I said people posting Articles on this site will just attack everything the current Government is going to do, and not actually analyse the ideas given. Oh shit they are looking at releasing a policy, let find something wrong about it!

    • Descendant Of Smith 13.1

      It’s not the current government’s policy and it’s the way NZ used to be. It’s not even a new idea.
      Like all policy there are pros and cons – including how to pay for it.

      No doubt Joshua you are quite happy to pay a little more tax at the top end to support this good idea and fund it. I know I am.

  13. Herodotus 14

    Finally some common sense, this will negate the issue of Tax being based on the individual and welfare WFF based on income of the family. People remember the family (Perhaps I am on the wrong site for this term to be used !!)
    2 families on $80k one with single income(PAYE tax $19,950) the other with 2 on $40k PAYE tax $14,420 i.e $5,520 difference in take home pay . WFF and tax credit $100/week for both. YET one household receives $5.5k more, and both receive the same financial welfare from the govt. And this situation is equitable??
    It just displays the lack of appreciation past govts have towards one form of a family unit than to other forms that exist. Well marty how would you set govt policy to not disadvantage one form over others as current policy does?

  14. Carol 15

    I think tax cuts for some families with children, and where one partner earns considerably less than the other is fair, and a good investment in the future of the country. But I don’t think it’s fair for families where one earner is on a pretty high income, as Marty points out in his article above.

    Marty also rightly points out that single parents would most likely be the most disadvantaged in comparison.

    How does this NACT/Dunne proposal for income splitting work out in relation to NACT’s proposals to get mothers back to work ASAP?

    And as far as I’m aware, Mrs Key is a full time mother. So, under the proposed income splitting policy, would Key get a majorly large lowering of his tax? Or do they have revenue generating investments in Mrs Key’s name? And is Mr Key proposing to send his wife back to work ASAP?

    antispam: “impossible”

  15. rainman 16

    I’ll bet you that a family with one income of $80k, living in a major city, 2 or 3 kids, standard mortgage, etc don’t feel either rich or elite. Yet compared to many they are of course. The fact of our pitifully low wages is what has actually been ignored by successive governments. And they ain’t likely to be going up, in this current climate, particularly given Nact policy.

    I’ll also bet this will not pass into law. How on earth would we afford it?

  16. Gooner 17

    For those here who think this will never pass into law, did you not read the article?

    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.

    Dunne has been around a while. He wouldn’t say that if he didn’t think it would pass.

    • Pascal's bookie 17.1

      Doesn’t mean anything actual.

      You never say the numbers are doubtful, if you do, you take the pressure off those whose support you are seeking. Bank the support they have already given you and put the expectation on them for more. If it fails, the people that support the policy then blame the feckless nats, who have clearly hinted to Dunne, he craftily implies, that they will support him.

  17. Bea 18

    There can be nothing fair about a single working mum being on a higher tax rate than a couple. She will also be receiving less child support, given that child support is based on taxable income.

    I understand, incidentally, that the French split income for tax purposes based on a family headcount – ie it is split amongst the kids and the dependent granny as well.

  18. JJ 19

    For once I agree with what you write. Income tax splitting is a terrible idea. Welfare for those who don’t need it and tax lawyers too.

    • Herodotus 19.1

      So WFF also gives in a similar way. Any commenrts on the disparity in the welfare and tax system/
      refer my comment 14. Funny how WFF has created this, or are you comfortable that 2 families get differeing disposable incomes and yet get the same govt benefits?
      Nice to see that an issue that WFF created no one wants to address. But then giving welfare to the rich does that does it not Mr Cullen?

  19. vidiot 20

    Working for Families is a joke. A single income family is penalised for having a stay @ home mother.

    Family A with 2 kids under 11: 2 earners both on Min wage collect $52K per annum as a family unit, receive $144.00 per week in WFF payments. Weekly family income (including WFF) is $959.78

    Family B with 2 kids under 11: 1 (a rich prick) earner collecting $52K per annum as a family unit, receive $144.00 per week in WFF payments. Weekly family income (inc WFF) is $927.66

    The both have the same annual income (52K), yet somehow family B is worse off to the tune of just under $1700.00 a year. Sounds like a great system, let’s all go back to work @ leave the kids at home with 3rd parties.

  20. dc_red 21

    If family income is combined for determining eligibility for benefits from the state, surely it should be grouped for the purposes of determining liabilities to the state, too?

  21. Herodotus 22

    marty I noticed your examples of the tax cuts neglected to comment on the respective burdens thatboth sides of your exapmles covered or that they receive the same WFF yet they have vastly differing disposable incomes. I ask is there any reason for not declearing their current tax burden, or is it just because it is a Peter Dunn initiative, and his initiates are to be rubbished since the later part of 2008 but when Lab needed him they were valid?
    “Call it an unfair, unaffordable policy that simply puts more of the government’s borrowed money in the hands of those who are already most well off” Did not Labour give WFF to those who are multi home owners and for people in the top 5% income bracket perhaps even some on the rich list as some do not even pay the top tax bracket.

  22. Herodotus 23

    “This will benefit a select group: wealthy nuclear families, especially those with a stay at home parent.”
    So if you earn $100k as a mum/dad you are unworthy and rich, yet if both mum and dad work and earn $100 k you are not, let alone that the single income family pays $27.550k in tax vs $19,010 funny marty no mention of the difference of $8,550 additional tax !!. marty is being for me a bit disingerous by only stating what tax changes there are without also commenting on the difference in tax and disposable incomes the families live from.
    Blighty I am not proposing – + – = right. Just how tax and welfare are not aligned, and how Labour looked after the wealthy and knew the forseen consequences of policies that were to assist the poor and needy but also included the middle and even the rich list.

  23. Taxationman 24

    My understanding of the income splitting debate is that its being brought about to increase the ‘doubleness’ (not sure what its called) of the tax system. Like if you’re assessed as a couple for grants/benefits why shouldn’t you be assessed as a couple for tax purposes. This line of thinking is seen throughout most (if not all) western tax systems.

    You haven’t taken into account the tax credits and other benefits (working for familys etc) into account these lower income earner parents receive.

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