Income Splitting Discussion Paper misses main point

It shouldn’t really have come as a surprise. The government’s Discussion Paper on Income Splitting couched the issue in terms of what single tax policy is best for families in New Zealand. Almost as if it was Income Splitting or everything else the government is doing.

The real question should have been “Would Income Splitting be a helpful option for parents?” You don’t have to abolish all other measures to introduce Income Splitting.

At the moment we have a variety of welfare payments, income support and Working for Families programmes in place. These cater for most low and middle income families where both parents work. However the group that is visibly overlooked at the moment are at home parents who choose to forego career development and wages or salary to invest in the next generation of New Zealand citizens. Not all of these families by any means are high or even middle income earners. Income Splitting would provide an option of paying tax as a couple rather than individually and thereby recognise the work of the at home parent.

In its recent submission Parents’ Choice ’08 set out some of its reasons for supporting Income Splitting:

Negative impact of overemployment on families: in recent years there has been a growing understanding about the longer term costs of overemployment. Today it is not uncommon for parents to be jointly working 90 hours or more per week. Such absence from the home takes its toll on families.

Large numbers of ordinary NZ families would benefit: Two parent families with children who would benefit from Income Splitting numbered 447,894 in the 2006 census.

Treasury papers have alluded to research which points to the negative impact on 0-3 year olds of having both parents working full time. “Nechyba, McEwan and Older-Aguilar (1999) briefly reviewed a range of studies using the US NLSY that consistently (but not without exception) relate early maternal employment to poorer behavioural and cognitive outcomes during early childhood for most children” http://www.treasury.govt.nz/publications/research-policy/wp/2003/03-26/03.htm
Treasury also mentioned that there was “…some evidence suggests the effects of parental employment on adolescents may be harmful, and may be arise from reductions in parental supervision” (Lopoo 2002, Paxson and Waldfogel 1999) http://www.treasury.govt.nz/publications/research-policy/wp/2003/03-26/03.htm

Many OECD countries provide tangible support and recognition for the work of at home parents without harming their economy. Indeed countries that usually tax couples rather than individuals (such as Ireland, Germany, and Norway) tend to be countries that also perform well in a range of social and economic performance indicators. While there may or may not be a causal link we can say that income splitting does not appear to have hurt the countries economic performance.