Costs not worth the benefits

Remits seeking to enable single income families to split their income for tax purposes used to be hardy annuals at National Party conferences.

I used to think it was a good idea but patient explanations from people who work on facts rather than emotion persuaded me to change my mind.

One point raised was the difficulty if the income earner had an accident or became ill – his or her ACC  or insurance payments would be based on the split income not the full one.

High administration costs; an increase in marginal tax rates if the partner on no or low income started work, worked longer hours or got a pay rise; and the bulk of the benefit going to those who needed it least were other arguments raised.

Lower taxes and a simpler tax system would do more for most people than tinkering which adds compliance costs.

These arguments apply to the income splitting bill Peter Dunne is trying to get through parliament and several government departments have raised other concerns:

Papers obtained by Radio New Zealand News under the Official Information Act show the Government consulted the Labour and Inland Revenue departments, the Ministries of Social Development and Women’s Affairs and the Treasury.

The departments raised concerns the proposal discourages women’s workforce participation, discriminates against sole-parent and low-income families, and increases the gender pay gap.

I’m not going to take issue with any of these points but note all these arguments could be used against Working for Families.

3 Responses to Costs not worth the benefits

  1. dave says:

    Not so sure that ACC payments will be split. To do that, I would have thought the ACC Act will need to be changed. Currently, AFAIAA, if a person earning $70,000 with a non earning partner went on ACC, he`d still get 80% of 70k in compensation, and could later choose to income split for tax purposes.

    What would happen if that 70k was between three different employers?

    I’ve written about income splitting here.


  2. homepaddock says:

    I was basing the ACC assumption on the experience of a farm manager whose salary was divided between him and his wife so they’d pay less tax. When he had an accident compensation was based on the salary he’d been paid not the total salary before it was divided.


  3. gravedodger says:

    You make valid points against but something that meant one parent was able to be a fultime operater in the serious job of parenting must have significant upsides for many.
    As full contributing partners in our farming days we saved significant sums by income splitting and the ACC problem is always an issue with income reduction management so we supplemented that cover with private insurance (deductable).

    Why not make domestic help costs deductable for people who choose to work in highly remunerated jobs with that deductability transferable, two big upsides become apparent. Income tax liability reduced for the higher earner and another job created at the skill level of the most disadvantaged in society.

    So long as the socialists follow the line of fining the rich pricks for just being rich and donating those fines to the idle then the rich pricks will pay accountants and lawyers to minimise tax liability if for no other reason than mine, the government is a very poor manager of the money they steal from me. Meanwhile a wage earner will continue to make by far the greater contribution to that ponzi scheme run by the IRD as manipulating the system is either not seen as an option or more likely just not cost effective. Hence low tax rates and very flat progressions would clearly remove much of the manouvering, something that “big government proponents always fail to grasp.
    IMHO I can make much more robust and sensible investment decisions than a public servant who has no attachment to the money they are spending.


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