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.

National doubtful about Income Splitting

National Party Finance Spokesperson, Bill English,has responded to a letter from Parents Choice indicating that while National would continue to discuss the issue at this stage they did not support it on the basis that under Income Splitting the benefits would not get to the right people.

Parents' Choice '08 will continue to lobby a range of political parties, including National, to promote the value of parenting and to push for Income Splitting as a valuable addition in a progressive tax regime.

United Future's Tax policy released

Last weekend United Future released its tax reform policy. Party leader, Peter Dunne, set out the key elements of the tax policy: income up to $12,000 taxed at 10%; income between $12,001 and $38,000 taxed at 20%; income above $38,000 taxed at 30%; Income splitting for parents with dependent children; Honoraria for volunteers up to $1,000 to be tax free; and Gift duty to be abolished.

Dunne says that United Future has carefully costed the impact of these policies and in a full year, they would cost $4.5 billion. "Looking at the tax cuts alone for a family on $45,000 a year, from 1 October this year, they will get a tax cut of $33 a fortnight. Under UnitedFuture's plans, the same family would get a tax cut of $45 a fortnight. Couple that with UnitedFuture's income splitting plan, and the tax cut rises to $87 a fortnight." Further details are available at www.unitedfuture.org.nz

Parents' Choice welcomes United Future's reiteration of its support for Income Splitting. We also welcome tax relief for kiwi families who are finding it increasingly difficult to cover the cost of fuel and food price rises. We note that the government's Budget tax policies contained $10billion of tax cuts targeted at low and middle income earners. www.labour.org.nz for more details.
We await with interest the National Party's tax reform plan. www.national.org.nz

Congrats to Parents As Partners

Congratulations to "Parents As Partners" - for their TV3 news interview this week. Christine Reymer (Spokesperson) has been a tireless campaigner for Income Splitting over many years. We have set up a link to the TV3 clip from our blog. We encourage you to take a look - esp if you have broadband.

Well done Christine!

Income Splitting Moves Step Closer

Income Splitting Moves Step Closer
Monday, 28 April 2008, 9:55 am
Press Release: Parents Choice '08

Parenting lobby group – Parents’ Choice – welcomed the release of a Discussion Paper on Income Splitting by Revenue Minister, Peter Dunne.

“Parents’ Choice welcomes the release of this document as another move towards the introduction of Income Splitting and recognition of the work of “at home parents” said Chairman, Roger Ellis.

“Income Splitting is the missing element in New Zealand’s tax system. It provides greater fairness for families who would like to have increased flexibility so that at least one parent can spend more time with the children” said Mr Ellis.

“New Zealand has failed to keep pace with recognising the value of at home parenting. More than a dozen OECD countries allow some form of joint tax assessment. New Zealand needs to catch up with the more progressive countries that recognise the value of parenting and allow parents the freedom to choose how they will parent” said Mr Ellis.

The advantages of income splitting go beyond the purely financial. Creating a level playing field for parents to choose whether they wish to be at home with the children, or return to work, could have substantial benefits for children and for society in general. Attachment between child and adult, especially during the first five years, is believed to be vitally important in terms of a child’s development. These factors should also be considered when deciding whether to introduce income splitting.

Parents’ Choice will be canvassing supporters and providing a submission on income splitting. We urge all other parenting groups to make their views known on this very important aspect of tax reform.

Submissions close on June 30th and can be sent to the IRD Deputy Commissioner. The IRD Discussion Document can be found online at:
http://www.taxpolicy.ird.govt.nz/publications/files/incomesplittingdd.pdf

The Parents Choice blog can be found at www.parentschoice08.blogspot.com

ENDS

Income Splitting Moves A Step Closer This Month

Income Splitting moves a step closer to implementation this month with the public release of a Discussion Paper by the Minister of Revenue, Peter Dunne.

Income Splitting is a way for parents to split their combined incomes so that they collectively pay less tax. It is also a way for governments to give recognition to the role of at home parents. If Income Splitting is to win sufficient support in parliament then we need to have as many parents as possible write to their local MPs asking them to support income splitting.

Parents' Choice 08 encourages parents who believe in the value of parenting to also write to the Minister of Revenue and ask for a free copy of the Discussion Paper when it is released. Postage is free. Just write to : Hon Peter Dunne, Minister of Revenue, Parliament Buildings, Wellington.

Parents could use a tax cut too

This week the government cut the company tax rate to 30 per cent - down from 33 per cent.
“Reducing the company tax rate will allow successful businesses to re-invest a greater share of their profits in new technologies and in further building-up the skill base of employees,” Minister of Finance, Dr Cullen said.

“We expect that lowering of the company tax rate will serve to strengthen the competitiveness of New Zealand-based companies, and that is good for the long-term interests of all New Zealanders,” Minister of Revenue Peter Dunne said.

The cut to the company tax rate to 30 per cent is the first time the company tax rate has been reduced in New Zealand since 1988.

Dr Cullen said that the latest initiative is part of the Labour-led government’s economic transformation package that includes the significant moves on depreciation and other business tax measures announced in 2005, tax credits for R&D and changes to the tax treatment of savings vehicles.

It's good to see that many small and medium sized businesses will get some relief through lower taxes. But what about families relying on one main income? Parents Choice is writing to the various political parties urging them to give greater recognition to the plight of two parent families and to allow income splitting for tax purposes.