Fallow on Income Splitting

May 1st, 2008 at 12:29 pm by David Farrar

is in the news as has finally got the Government to publish a discussion document on it. For those who don’t want to read the whole 29 pages, Brian Fallow has a good summary of the issues in the Herald:

Broadly speaking, the left is not keen because it is not well targeted at relieving child poverty, the extent of which the Child Poverty Action Group’s report this week makes clear.

Income splitting is no use at all to single parents, who have the hardest row to hoe.

And it is seen as favouring a 1950s model of the family – with mum at home baking biscuits and looking after the children – that bears little relation to the realities of modern times.

At the same time, the right isn’t keen because of the opportunity cost: like any other targeted tax relief, it reduces how much would be left for across-the-board tax cuts.

Fallow also notes that lowering the top tax rates would reduce much of the demand for income splitting. It is that high 39% marginal tax rate that makes income splitting so attractive.

In terms of who would benefit:

The most populous part of the income distribution among couples consists of families whose main breadwinner earns between $50,000 and $60,000 and his or her partner up to $40,000.

About 70,000 families fall into that group and they would stand to gain between $1000 and $3000 a year.

The largest gains, however, would be among couples with larger incomes.

The biggest gain, nearly $9000 a year, goes to a couple where one partner earns $120,00 a year and the other earns nothing.

His conclusion:

Many families are under pressure, no question. But income splitting only benefits some of them and only because of the structure of the income tax scale. Either flatten it or put more resources in Working for Families. But spare us any more complexity in the tax laws.

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49 Responses to “Fallow on Income Splitting”

  1. PhilBest (5,120 comments) says:

    Look, this is a no-brainer. Marriage and the 2-parent family are so superior in outcomes for the children, proven in study after study, that it is lunacy to be penalising and disincentivising it.

    A quick one to look at:

    Anna SARKADI / Robert KRISTIANSSON / Frank OBERKLAID / Sven BREMBERG “Father’s involvement and children’s developmental outcomes: a systematic review of longitudinal studies” (Google it youself)

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  2. dime (9,806 comments) says:

    FFS just give a tax cut and stop discriminating against single people or those without children!!!

    why should people like myself be penalised? because we want to be set up financially before having kids??

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  3. Bykmad (21 comments) says:

    Philbest. You are correct. This is a no brainer. The Current Government will not entertain this idea, as they have shown in the past 9 years that they will and have done everything in their power to destroy the family unit. Over and above that, it will benefit all the rich pricks, and they have shown their utter contempt for them already.
    This current mob of pigs at the trough will do nothing for those who get out and work and make a success of themselves. These successful people must be crushed, because they think for themselves and that does not fit in with Nanny State (Aunty Helen and Uncle Michael) regulating everyting we are allowed to do. They are, quite simply, grabbing everything they can, while they can.

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  4. jafapete (766 comments) says:

    Yes, Philbest, 2-parent families do better in the aggregate. But…

    How are we currently “penalising and disincentivising” them? Note, this is not the same as not providing incentives.
    Are you suggesting that people are put off marriage because there are no tax breaks?
    Would incentivising to marry those people who would be incentivised by a few thousand dollars a year less tax be effective in reducing social problems?
    Would you only allow income-splitting for those who have a marriage certificate?
    How would not helping those (single-income and beneficiary-income) families who are not doing so well in the aggregate lead to improved outcomes?
    Did you know that most of the (many fewer than 9 years ago) children who are living in officially defined poverty are in families which derive their income primarily from benefits?

    Edit: Also, I know that Working for Families is detested by the kiwiblog right, but isn’t it better to target support to families and not income earners? We are talking about $370m per annum here, after all (at least, according to IRD estimates… hope somebody’s checked these).

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  5. ghostwhowalks3 (387 comments) says:

    So what is the National party position on income splitting ?

    wait for labour to come with an answer and copy it.??

    Or like Working For Families which does provide HUGE tax relief for any sort of family unit, married, solo parent, unmarried couple will National oppose it with every bone in their body only to slip and slide around that before the election so they can slip and slide some more if they win

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  6. democracymum (660 comments) says:

    I believe Peter Dunne’s initiative of Income Splitting is long overdue.

    Income splitting would reduce the enormous tax burden on families where one parent has chosen, for the good of the children to stay at home.

    It would also send a message that the unpaid work of cooking meals, supervising homework, cleaning the house, looking after children is valued by our society, allowing more children to be cared for in their homes, by a parent in a stable home environment.

    These are the very reasons that Helen Clark is so against it!

    It is very much the feminist agenda, which is after all, this government’s alter ego, that demands that women are never subservient to men. That they gain full employment, so that they never have to rely on a ‘man’ for financial support.

    God forbid that they would want to cook their husbands dinner, or care for their children, when they could pursue their own careers often to the detriment of both.

    During their 9 years in government the Labour Party have done everything in their power to ensure that women with children go out to work.
    They have provided free daycare and extended financial support for women through their working for families packages.

    If I was unemployed (as the government seems to think I am as a stay at home mother) I would not be able to claim the unemployment benefit, as it would be assumed that my husband would care for me financially, and our household income would be assessed jointly.

    The Labour Government can’t have it both ways!

    The only reason they don’t support Income Splitting, is that hard working, families who look after their children, are not part of Helen’s feminist agenda

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  7. bwakile (757 comments) says:

    “And it is seen as favouring a 1950s model of the family – with mum at home baking biscuits and looking after the children – that bears little relation to the realities of modern times.”

    The ‘realities of modern time” as this ***** puts it is that we have had a government which has gone out of it’s way to destroy this traditional family structure, which successfully raised generations of good people.

    Why doesn’t he “report” that, instead of making excuses for the mongrels that govern by taxing the living daylights out of us and then deciding whom will the recipients of their WFF “charity”

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  8. Mr Nobody NZ (397 comments) says:

    I would just like to see the government be consistent in the way it handles couples. When it comes to taking your money through taxes etc you are an individual however when it comes to gaining assistance from them eg benefits if your in a relationship then your partner’s income is considered and the amount they will assist you is adjusted.

    One way or another its time the government to stop trying to have its cake and eat it too on this issue and this situation resolve it fairly once and for all.

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  9. ghostwhowalks3 (387 comments) says:

    Democracymumbo jumbo.

    You cant cliam the benefit since you wouldnt be available for work? If you went to WINZ today they would have you in a job before the end of the week. Scares you does it

    If you need more income , tell your husband to get a second job.
    You can stack supermarket shelves in the evening instead of watching TV

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  10. BlairM (2,317 comments) says:

    If we had a flat income tax this would not be an issue. Aside from being sick of paying for other people’s children, that’s all I really have to say on income splitting. Flatten the tax!

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  11. bwakile (757 comments) says:

    “If you went to WINZ today they would have you in a job before the end of the week”

    So by that stroke of genius we should be able to eliminate the unemployment benefit by the following week
    Fantastic news
    Then we can start on Helen’s Sickness Mates.

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  12. democracymum (660 comments) says:

    ghostwhowlaks3

    Actually our family makes plenty of income, but the government keep stealing it by way of taxation.

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  13. Johnboy (15,903 comments) says:

    “So what is the National party position on income splitting ?

    wait for labour to come with an answer and copy it.??”

    Hell ghost I think you got that back to front. Isn’t it the liarsparty who is doing the flip-flop copying now. Something to do with the polls perhaps? Did not Dear Cockroach herself say “Relief would be TIMELY”.
    I would not expect income -splitting though as that will favour the “rich pricks”. More WFF targeted assistance (bribery) in a futile attempt to save her bacon. It will be too little, too late.
    Cullens head on a plate may help, Benson-Pope could use his well known skill and stick the apple in Mickys gob.

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  14. East Wellington Superhero (1,151 comments) says:

    I am not a supporter of income splitting but I thought the comment about “mum at home baking biscuits and looking after the children” was ignorantly disrespectful of woman who do choose to stay at home.

    I know a number of young women who have honours degrees in all sorts of disciplines who choose to stay at home, not because they’re simpletons who can’t do anything except bake and clean nappies but because they value motherhood.

    I’m sure Brian Fallow is a well meaning and nice guy but the fact that he accessed that line and used it as a throw-away comment reveals an accepted myth about motherhood and how we as a nation value it.

    Maybe if we valued motherhood and bit more and put our energy into helping parents to choose whether someone stays home, we wouldn’t have to get so worried about Grand Theft Auto IV.

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  15. dave (987 comments) says:

    Income splitting would reduce the enormous tax burden on families where one parent has chosen, for the good of the children to stay at home {doing] the unpaid work of cooking meals, supervising homework, cleaning the house, looking after children is valued by our society

    But it won’t be an enormous reduction unless the other parent earns more than 100k because the stay at home parent’s economic value is based on their partner’s earnings. A lazy partner of a rich person who can’t cook, but likes to go to cafes every morning while the kids are at school is deemed to be worth many times more than a hard working partner of a cleaner of presechool kids who can also cook well. A household with a single earner on $60,000 can save $3,217 per year from income splitting. However, a household on $36,000 stands to gain only $570 per year. That is, a family on just over half the income gets less than one fifth as much tax relief.

    In summary, if you are in a partnership and are a one income family – have a child and income splitting would be for you. If you are in a poor family, you`ll be relatively poorer compared to other families with kids with income splitting. Childless get nothing.

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  16. Brian Smaller (4,037 comments) says:

    “Or like Working For Families which does provide HUGE tax relief for any sort of family unit, married, solo parent, unmarried couple ”

    What about people whose families don’t include kids GWW (by choice, because of sexual orientation, because of medical reasons, because their kids have left home)? Aren’t they entitled to “tax relief” as well? Give us real tax cuts. Stop stealing it in the first place.

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  17. democracymum (660 comments) says:

    Let’s be honest

    The children that are causing the most problems in society at the moment come from the following backgrounds

    A)Low income, single parent, fatherless families
    b)Middle – High Income families, where both parents are so busy working that the parents are not supervising the children adequately.

    By not allowing families to split their total income, the government effectively penalizes the families, where one parent is at home LOOKING AFTER the children.

    Mothers who stay at home, are now treated by this government like second class citizens, as indicated by the very snide comment in the report about “baking biscuits”

    Why should these families be forced to send the other parent out to work, to pay the tax for others who choose not to work, or to have so many children that they are unable to look after them properly without state assistance.

    The current tax regime, is not just unfair it discriminates against the very people, who are doing the best job of raising children in our society.

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  18. ghostwhowalks3 (387 comments) says:

    Brain , do you think your $10 week from Slippery will make any difference. The polls for the act party (silent on income relief especially for families) is 1.5%

    meanwhile the low income family($38,000) with 3 kids gets $244 plus a week in tax relief

    Why even money bags democracymumbo jumbo may even qualify if she has say 3 kids
    heres the link
    http://www.ird.govt.nz/calculators/tool-name/tools-c/calculator-wfftc-estimate-2009.html?id=righttabs
    you got nothing else to do

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  19. siobhan (278 comments) says:

    What dime said.

    What about those who are single, married without kids, 50+ whose kids have left home but too early to retire? WTF is wrong with losing the “politcally correct” discrimination against people that don’t have 0 – 18 yo kids.

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  20. democracymum (660 comments) says:

    ghostwhowalks3

    Sadly I do not qualify for any of Labour’s bribes or as they like to call it (tax relief)

    Call me stupid, but I only had 2 children, as that was the number my husband and I could afford to look after.

    Question:
    This government hands out bribes to encourage you to…

    A) Have lots of children
    B) Go out to work
    C) Not look after your children properly
    D) All of the above

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  21. slightlyrighty (2,508 comments) says:

    Of course those on the highest incomes get the highest relief, they pay more in the first place.

    But lets look at the example of the couple where one earns 100k and the other nothing. Compare that to a couple who both earn 50k

    The single earner pays 9000 more in tax. Yet each household has the same expenses, uses the same infrastructure, any children still need to eat, and go to school, yet one household is penalised not because of how much they earn, but simply because of how that money arrives in the house.

    Is that fair?

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  22. adamsmith1922 (890 comments) says:

    what dime and Siobhan said

    No more to Working for Families

    I am sick and tired of paying for families.

    GhostWW3 – then they should not have had 3 children as I like to call them, because when I went to school people had children and goats had kids.

    BTW I have a nasty suspicion that a good many of the so called poor think they are poor but have:-
    cellphones, playstations, TVs,cars, DVDs etc

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  23. PaulL (6,030 comments) says:

    Income splitting sounds attractive but is an administratively very complex way to get to a solution. An across the board tax cut is much more practical, and doesn’t disadvantage those who don’t quite meet Peter Dunne’s view of normal.

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  24. infused (652 comments) says:

    Isn’t a simpler solution just to cut the higher tax rate or move it out to 80k?

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  25. toad (3,674 comments) says:

    I think it’s a silly idea that would create some major headaches. First, it is regressive in that it gives far greater advantage to high income earners.

    Furthermore, full and actual income splitting, where each partner nominally receives one half of the other’s income as a wage, and on which s/he pays tax in his/her own right and ACC levies as a worker, creates a number of difficult questions. Would it mean each partner acquires all the rights under the Employment Relations Act in their nominal (as well as any actual) employment? Who is employing whom? Just what is s/he being paid for? What happens when they separate leaving one with the job and the other with the kids, or, alternatively, one with both. If income splitting were voluntary, what are the rights of a non-remunerated care-giver, as opposed to one who is remunerated though income splitting?

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  26. democracymum (660 comments) says:

    slightlyrighty

    Excellent example!

    To make matters worse, this year I had to pull my daughter out of her Decile 10 State school, to homeschool her, because the standard of education she had been receiving was so incredibly bad!

    So now in addition to paying an enormous amount of tax, as a family, I cannot go out to work, because I am having to teach my own child.

    Wasn’t that what our taxes were suppose to be spent on in the first place?
    Education, Health etc.

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  27. pkiwi (111 comments) says:

    what democracymum said (two earlier posts).
    Practically it may be simpler (and so long overdue) to lower taxes, but I am all for it as a principle.
    toad – “gives greater advantage to high income earners” – you mean they get some of their dosh back? how evil.
    And so what if it ‘inequal’ in regards to people without kids. You don’t get much of a society if there aren’t, like replacements, you know.

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  28. Lucyna (35 comments) says:

    I’m with democracymum.

    So what if the couple with the husband on 120K gains the most? At least that way he would only be paying the same amount of tax as the couple who are both on 60K. And all those people who begrudge the allowing the 120K hubbie to keep more of his own income because he uses it to support his family – shame on you. That kind of thinking shows an envious nature – one of the seven deadly sins.

    For more, see my post on NZConservative.

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  29. dave (987 comments) says:

    but lets look at the example of the couple where one earns 100k and the other nothing. Compare that to a couple who both earn 50k.The single earner pays 9000 more in tax. Yet each household has the same expenses

    Hardly Slightly Rightly – you`re not even slightly right. The couple who each earn 50k have way more expenses, and these expenses are way more than the 9k tax relief on a single 100k income with income splitting. Lets see, the childcare for two kids alone will cost more than 9k, even after the rebate. You have twice as much transport costs to getting to and from work, you have extra clothing costs to keep up with business attire, you have extra makeup costs for the eyeliner etc, extra transport costs, lunch is more expensive if you are buying it, if kids are sick you use up your leave, which is effectively a cost. And the couple who each ern 50k will get nothing from income splitting but will be comparatively worse off than the single income 100k family, who probably has company car and no transport costs.

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  30. toad (3,674 comments) says:

    pkiwi: I’m quite happy for our birth rate to remain where it is (just below replacement level), with limited immigration to fill skill shortages (although a better planned education system and encouragement for graduates / tradespeople to remain in NZ through lower tertiary fees and universal student allowances would be an even better idea.

    But with the prospect of returning expats and refugees from the South Pacific coming to New Zealand as a result of climate change induced ecological disasters, we need to maintain some spare ecological population capacity. Given that most current estimates are that the sustainable ecological population carrying capacity of New Zealand is only between 5 and 6 million, the last thing I think we need is more incentives for New Zealanders to have larger families.

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  31. PhilBest (5,120 comments) says:

    Well said, Democracymum and others.

    I just finished reading “In Praise of Prejudice” by Theodore Dalrymple, in which he points out that in the PC brigade’s efforts to de-stigmatize certain activities, they end up merely shifting the stigma from something that WAS damaging to society onto something else that WAS beneficial to society. Now that girls can choose to have babies as a career option, low-paid jobs like stocking supermarket shelves have been stigmatised i.e., it is quite acceptable for a girl to choose to have babies without a father instead, because after all, who wants to stock shelves? Theodore Dalrymple points out that well, would we want supermarket shelves to NOT BE stocked? Why, then, can we not regard the persons who do it with more dignity than that? Then there is the modern-day PC stigmatisation of being married and staying at home looking after your kids – witness the pejorative language so readily used by Brian Fallow and most media commentators and some on this blog.

    I hope some of you are looking up that study I referred to at the top of this thread.

    Anna SARKADI / Robert KRISTIANSSON / Frank OBERKLAID / Sven BREMBERG “Father’s involvement and children’s developmental outcomes: a systematic review of longitudinal studies” (Google it youself)

    Basically a bunch of Swedish-Government-funded liberal academics desperately trying for years to find holes in the studies that prove that 2-parent kids do better, and ultimately having to concede to the overwhelming evidence.

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  32. bwakile (757 comments) says:

    “But with the prospect of returning expats and refugees from the South Pacific coming to New Zealand as a result of climate change induced ecological disasters, we need to maintain some spare ecological population capacity. Given that most current estimates are that the sustainable ecological population carrying capacity of New Zealand is only between 5 and 6 million, the last thing I think we need is more incentives for New Zealanders to have larger families.”

    Toad, hop a long and find another pond to play in.

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  33. democracymum (660 comments) says:

    dave

    I have just done some calculations on your couple each earning 50K each on the IRD calculator

    Providing, they fulfil the goverment’s “Are you working enough hours formula”

    They will be given a Working for Families Tax Credit of $410 per week ie $19,680 per year extra!!!

    So while they might incur some additional expenses the government reimburses them big time.

    The wider question – is having two full time working parents, providing the best care and support for New Zealands’ children?

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  34. dave (987 comments) says:

    That depends on the income and the childcare costs. If both partners were getting 30k, ( or one partner was a fulltime student) then yes, having both parents in full time study or work is necessary to pay the bills and feed most families provided the kids are at school. Even with two kids in child care at 20 hours ( not really) free it will cost at least $160.00 a week with most providers. $410.00 per week wont cover unsubsidised childcare for 2 kids at $6.00 an hour – which is the going rate. My post on income splitting refers

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  35. pkiwi (111 comments) says:

    I don’t know of any families who think income splitting is a bad idea and who would like less pressure on the working hours to spend on family! It has got to the stage that a wife ‘at-home’ is a status symbol. Democracymum – you are a ferrari :) (or substitue other luxury good)

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  36. ghostwhowalks3 (387 comments) says:

    Democracymumbo jumbo is an education expert as well.
    Isnt she amazing.
    And what does she expect to do once her kids are in high school?
    And once they are in the workforce / tertiary education.

    Youll only be usefull for the checkout at the warehouse

    And that of course will be all the governments fault

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  37. toad (3,674 comments) says:

    bwakile, why do you bother to post when all you do is quote me and then make an inane comment directed at me that doesn’t even contain a hint of an argument in response to my post or anything else on this thread?

    Seems like wasted energy to me.

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  38. democracymum (660 comments) says:

    ghostwhowalks3

    Thanks! As a former Tertiary Lecturer, I would hope to know a thing or two about education…

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  39. bwakile (757 comments) says:

    Toad mostly because your post is the biggest load of crap I have seen since philu departed to parts unknown

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  40. toad (3,674 comments) says:

    bwailke: Again with no explanation why you think it is crap. Please enlighten the readers, or at least give me an argument to respond to. What do you claim are the errors in my argument?

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  41. Tauhei Notts (1,680 comments) says:

    Hey, pkiwi,
    I have to dash home and get my status symbol to cook me some tea.
    But before she does that I will have to give her a big listening to.

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  42. Tamaki Resident (66 comments) says:

    Dave – You have made a lot of incorrect assumptions in your post of 3:29pm which make some of your arguments invalid.
    (Disclosure: I fall into the category of one income of approx. $100k) For example: Transport costs – I don’t have a company car, so my transport costs are definitely nowhere near zero as we still need 2 cars. Lunch – if both parents are working there is still nothing stopping them making their lunch at home.
    It is a choice (only one of us working) that we made as we felt it would be best for our children, even though it would be harder financially. There are a lot of things that you cannot put a monetary value on, and having a mum at home is one of those. It does mean that our children haven’t had an overseas holiday, unlike the vast majority of their class mates, but I don’t really think that that matters in the long-term.

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  43. phobius (46 comments) says:

    Gotta go with dime on this one. I do respect people with familes and hope to start one myself. I also empathise with families who are facing increasing costs. But I can’t help but feel a little punished for being single and earning a decent living

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  44. side show bob (3,660 comments) says:

    And Toad, you poor sad individual, who told you that NZ had an ecological population carrying capacity of five to six million. I bet it was some sorry arse green bastard who would stuggle to find two brain cells to rub together

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  45. Michael E (274 comments) says:

    As someone who would benefit greatly from income splitting, I think it’s a crock of s*** that’s designed to push a happy clappy christian agenda of working dad and mum at home with the kids, and to make splitting up financially punishing on the male. It’s costly and confusing to administer, and a poor way of achieving a social aim (by using the tax system).

    If the tax burden on families is too high, then the tax burden is too high for everyone. So cut the tax rates for everyone.

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  46. Razorlight (52 comments) says:

    I believe National would stumble onto a very popular policy if they threw WFF out the window for middle New Zealand and replaced it with comprehensive tax cuts. No body would be worse off and savings in administrative costs would be immense.

    They are obviously playing the safe game and refraining from doing anyhting that will scare middle New Zealand but if they can show in their policy noone will lose out financially then why not do it.

    Income splitting and WFF is simply not fair on hard working single childless workers. Present something that will benefit all and at the same time address another key policy of slashing beaurocracy.

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  47. toad (3,674 comments) says:

    side show bob – try reading this research http://www.mfe.govt.nz/publications/ser/eco-footprint-sep03/html/index.html, and do the maths.

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  48. freethinker (688 comments) says:

    Mr Nobody

    I like that insight – more please

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  49. getstaffed (9,189 comments) says:

    Aye, what Democracymum said yesterday.

    Why all the moaning from the “this proposal doesn’t do anything for me” brigade? There are loads of tax/benefit options that are very closed to me because of my income level, marital status etc. That’s life. Surely we want to create an environment that applauds and encourages responsible parenting, an environment where familes are strong?

    All the nonsense about it benefiting high income families is an idelogical smokescreen. It’s perfectly feasible to offer tiered rates, to ensure the most benefit is felt by those most in need.

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