Media Statement
For immediate release
Wednesday, 25 August 2004
Income splitting is the answer
United Future revenue spokesperson Gordon Copeland has again spelt out why income splitting for couples raising children
should have a place in New Zealand’s income tax future.
“After the Budget,” Mr Copeland said, “John Key, now National’s finance spokesperson, pointed out that the net take-home
pay of a one-income two-parent family with two young children living in Auckland or Wellington would be a mere $2,376
per annum more for a family on $60,000 than a family on just $38,000.
“This is because the family on $38,000 would receive a net $4,860 under the government’s new Working for Families
package whereas the family on $60,000 would pay a net tax of $14,764.
“However, having identified the problem, John Key has yet to propose a solution. For its part government ministers Dr
Michael Cullen and Steve Maharey simply respond by saying that “high marginal tax rates for people in the middle income
bracket are always a feature of income assistance schemes of this type”. Hardly a satisfactory answer.
“United Future therefore seems to be the only party able to offer for couples with dependent children an answer. That
answer is income splitting.
“The income of the family on $60,000 would then be split 50/50 for tax purposes with a resultant tax saving against
their present position, of $2,970 per annum. They would then enjoy a net income differential of $5,346 – almost twice
the figure calculated by John Key – over the $38,000 per annum couple.
“Income splitting dovetails well with the Working for Families package announced in the government’s 2004 Budget. The
package commences at low income levels and phases out towards the top end of the middle income bracket.
“Income splitting on the other hand starts to pay dividends to couples raising kids from the middle income level up to a
family income level of $120,000 per annum.
“It’s an idea whose time has come. It is now a key feature of the income tax system in several American States and is
being promoted by the newly formed “Family First” political party in Australia. It is a fair and concrete way of
recognising that couples raising children face additional costs by comparison with singles or couples without dependent
children.
“More importantly, it is a tangible recognition that raising kids is the most important job in the world since it is an
investment in the future of our nation.
“It will remain a key United Future point of difference going into the 2005 elections.”
Ends.
Footnotes.
1. Table showing the effect of income splitting for one-income, two- parent family with two young children living in
south or West Auckland or Wellington City:
INCOME SPLITTING
Gross Income
$ 38,000
$ 60,000
$60,000
Income Tax
- $7,410
-$14,670
- $11,700
ACC levy
- $ 456
- $720
- $720
Family assistance
+ $7,198
+ $598
+ $598
Accommodation supplement
+ $5,528
+ $28
+ $ 28
Net Income
$ 42,860
$ 45,236
$48,206
DIFFERENCE
+ $2,376
+ $5,346
2. Treasury have costed United Future’s income splitting policy at $500 million per annum before taking into account
what is known as “second round effects” through increased GST revenue etc. The secondary effects would reduce the costs
to around $425 million, an amount which United Future believes is readily affordable via reduced government expenditure,
e.g. a switch to a mixture of public and private provision in health, education and prisons.
2