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Income Splitting Is The Answer

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


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