Today, the Eternal Minister of Revenue, Peter Dunne, is scheduled to release details of his income splitting tax Bill.
Dunne has long advocated couples with children being able to split their income to minimise their tax obligations. Fortunately, past Finance Ministers Bill Birch and Michael Cullen, and even self-styled Treasurer Winston Peters in the 1996 National – NZ First Government, would have no truck with this obsession of the Eternal Minister of Revenue.
But today, thanks to the confidence and supply deal between Dunne’s one-MP Party and National, income splitting will be back on the agenda. National has guaranteed support for at least a First Reading in Parliament for this loopy idea.
Under income splitting the following would occur:
- One parent earning $140,000 and one parent not working: $8800 less tax
- One earning $50,000 and one earning $25,000: $250 less tax
- One earning $35,000 and one earning $15,000: no tax savings
- Parents earning the same: no tax savings
So it is highly regressive; providing substantial tax savings to some wealthy couples with children, but doing nothing to assist those on low incomes.
It is also a licence for child support avoidance. Child support is assessed on taxable income, so if one partner pays child support in respect of children from a previous relationship, the amount received by the custodial parent of those children will be reduced if the non-custodial parent enters an income splitting arrangement with his or her new partner.
It discriminates on the basis of marital status. It also discriminates on the basis of family status, because it is not proposed to be available to couples without children.
And bizarrely, given that Government is pushing single parents out to work, income splitting provides an incentive for parents with a high earning partner to stay at home or reduce their hours of work.
Let’s hope National sees sense and promptly consigns this stupid idea from Peter Dunne to the dustbin of legislative history where it rightly belongs.