For immediate release:  

Jo Doolan. Tax Partner. Ernst & Young.  

The focus needs to be on increasing productivity and increasing the average wage.

Revenue Minister Peter Dunne's long awaited concept of income splitting for families has finally emerged as a bill.  

This type of concept is used in other countries like the US where it is seen as family friendly in that it can encourage families to have one parent at home investing time with their children.  However, at a cost of $450 million a year, taxpayers could be reluctant to accept this type of cost at a time when the country is facing high deficits.  

Another challenge for this bill is the start date. If this legislation is passed the start date would be 1 April 2012.  Introducing a bill with a start date after the next election would need cross party support and the Labour party has already dubbed the concept of income splitting as "a form of moral blackmail".

There would also need to be further information from the Minister on how the concept of income splitting works with entitlements for working for families. Working for families is a great concept, but the reality is that it provides disincentives for those who exceed the income limits.  

What we cannot lose sight of is the fact that average wages in New Zealand are too low by international standards and supplementing wages via the tax system can only ever be a short term solution. Our focus needs to be on improving our productivity and increasing the average wage.

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