Thursday, August 19, 2010

Income splitting II

Peter Dunne has said that income splitting for tax purposes would give about 310,000 families tax relief. However it appears that this group of people include those who have more than one job, and thus get taxed on secondary income. A one income family on $80k will get $5280 in tax relief from income splitting. But they wont if a partner was home, and 25 percent of his income was taxed as secondary tax. If that couple had two jobs - one on $50,000 the other on $30,000 - that will get them $250 tax relief. This means that both couples pay the same amount of tax, even though one couple pays more transport costs in getting to and from work.

The bill does not seem clear as to how family income will be equalised through income splitting with secondary tax, meaning that partner not only pays a higher proportion of their income in tax, they cant split their income for tax purposes the same way as other couples either. This impacts lower income families - who are likely to have several part time jobs - more as a family who earns $60k between them - one on $40k, the other on $20k - gets no relief from income splitting. They won't get any tax relief if one of these partners works two jobs. For example, the higher earner may have 40 percent of his income taxed at secondary tax, and although that couple earn exactly the same amount, as other families on $60k - they'll pay more tax if it is not equalised. They'll also have more transport costs to and from their various places of work.

And these days there are more and more people in this situation. And a parent doing three jobs at a 35/30/40 percentage income split will be paying most of their tax on the secondary rate, with no clawback on income splitting.

Having bills that go to select committee on the basis of pre-arranged agreements is political reality under MMP. At least the public can have their say on matters as raised above and in my earlier post on the issue.

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