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.
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.
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.
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.