1 July 2008

Income Splitting A More Just Way Of Taxing

Maxim Institute has made a submission on the IRD discussion document Income splitting for families with children, submitting that income splitting is a fair and just policy that should be available to all families in New Zealand.

"Income earned by partners should be treated as income earned 'by and for' their family," says Alex Penk, Maxim Institute's Policy and Research Manager. "Income splitting recognises their interdependence, allowing them to be taxed as a unit, rather than as individuals. This is a fair and just approach."

"Families work together to support each other, both emotionally and financially. Income splitting considers the income earned by the family as a whole, distributing the tax burden equally across both partners. This acknowledges that income is earned by the family unit as a whole, and taxes consistently with this principle. It is consistent with other schemes, such as Working for Families, which also treat the family as a unit."

"This policy should be available to all families in New Zealand, not just families with children," says Mr Penk. "Income splitting is a reflection of the principle that income is earned 'by and for' the family, not just the individual, a principle that is not limited to the existence of children."

"If, however, income splitting is restricted to families with children then we should see a reduction in the Working for Families benefit scheme. Limiting income splitting to families with children reduces it to a targeted assistance policy and it has not been demonstrated that even more targeted support is required by every family with children."

"Income splitting would give families more choice in the way they structure their earnings. Effective marginal tax rates currently encourage both partners to work. Income splitting allows greater choice for families to have one person to stay at home with the children or do voluntary work."

"Income splitting would make a substantial difference for many New Zealand families by reducing the tax burden and putting it on a fairer footing," says Mr Penk. "The government needs to seriously consider this as a legitimate option."

Maxim Institute's submission on income splitting is attached, or can be downloaded from www.maxim.org.nz.

ENDS

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