An even better option
June 30th, 2009 at 8:03 am by David FarrarThe NZ Herald says:
Thus there may be a case for compensating a household when one of the earners becomes unemployed in the current recession. Two Auckland economists have called for a relaxation of the rule that refuses the dole to a person whose partner is earning even a modest income. They point out that this is inconsistent with the taxation system which treats couples as separate income earners.
They have not drawn the obvious conclusion, though, that a better solution might lie in changing the tax system. If couples could combine their incomes for a tax assessment, and each be taxed for half of it, the loss of one income would reduce the tax on the other, delivering an appreciable benefit to the household. …
This proposal, known as “income splitting”, deserves consideration for reasons wider than unemployment. If it was adopted as a permanent feature of income tax it would be fairer than the present system for couples in which one partner chose not to be in paid employment.
So the Herald says a better option that allowing people to go on the dole if their partners are working, is income splitting.
I’m not a big fan of income splitting as it will lead to all sorts of “false couples” in order to income split, but I have an even better option that achieves the same end without the perverse incentives.
A flat tax rate. Then there is no need to income split. And you just have a guaranteed minimum family income for low income earners.
Tags: income splitting, NZ Herald, tax rates
June 30th, 2009 at 8:09 am
The income splitting could be done through a matrimonial property agreement. That should get rid of a lot of fake relationships as you are acknowledging through that agreement that you split everything.
Vote:June 30th, 2009 at 8:13 am
Yes, what ACT argued years and years ago. Along with that we should have a cap on government spending and a cap on rates. With more money in people’s pockets that they’ll save they’ll be able to look after themselves in hard times and won’t need convoluted and arbitrary dole rules.
What’s so difficult about that?
Vote:June 30th, 2009 at 8:14 am
Drum roll and Trumpet fanfare.
DPF joins ACT!
Vote:June 30th, 2009 at 8:17 am
False couples? @What are they, Peter and Helen?
Vote:June 30th, 2009 at 8:24 am
And why shouldn’t married couples income split? It seems National are making all sorts of excuses as to why tax cuts aren’t being applied.
Vote:June 30th, 2009 at 8:24 am
A flat tax rate
It’s what’s made Iceland and Estonia the economic miracles they are today!
Vote:June 30th, 2009 at 8:35 am
“..And you just have a guaranteed minimum family income for low income earners..”
and what rate would you (ideally) see that set at..?
..(i ask..given your (previous stated) proclivities to decimate state-support for sole-parents..and the like.. )
phil(whoar.co.nz)
Vote:June 30th, 2009 at 8:48 am
DPF, you’ve got as much chance of getting a flat tax out of National as from Labour.
It is ACT policy.
Maybe if everyone that wants a flat tax voted or volunteered for ACT instead of National, then ACT would have enough influence to demand one?
Vote:June 30th, 2009 at 8:51 am
I don’t expect to see National doing much more than managing Labour’s legacy. A flat tax rate would be a giant step forward but I don’t recall National pouring anything but scorn on it when ACT proposed it. ACT has been promoting this for 15 years. Come on you National Kiwiblog lurkers – why don’t you speak up on this issue and back DPF?
And Danyl (8.24am) – where is any evidence whatsoever that the tax rate in Estonia and Iceland has anything to do with their woes? You might as well point out that they both have cold miserable climates – now that’s a more likely cause of depression, surely!
Vote:June 30th, 2009 at 8:51 am
Under the current system we have “false non couples” in order to get the dole/benefit (I guess “false non couples” would be “friends with benefits”) as “false couples” would be approximately = to “false non couples” there would be little difference at all and the real benefit of income splitting would go where it is meant to go, to single income families. The value of a stay at home parent are well known yet no government is prepared to encourage them financially rather they would rather support those parents who choose to have two incomes by providing free child care. It is also notable that social expectations are put on stay at home parents to provide free child care for other working parents and to work voluntary at schools etc because the working parents are too busy.
I would support income splitting for a variety of reasons however I would prefer a flat tax rate.
Vote:June 30th, 2009 at 8:57 am
then philu burbled some bollox.
Vote:June 30th, 2009 at 9:00 am
Come on you National Kiwiblog lurkers – why don’t you speak up on this issue and back DPF?
If that was their thing, wouldn’t they be ACT Kiwiblog lurkers?
Vote:June 30th, 2009 at 9:00 am
“..now that’s a more likely cause of depression, surely!..”
no..it was untrammelled rightwing/freemarket ideology/greed gone ‘mad’..
..surely..?
phil(whoar.co.nz)
Vote:June 30th, 2009 at 9:02 am
would a no tax threshold and a higher gst be an option?
Vote:June 30th, 2009 at 9:03 am
the compliance with income tax is huge… look at the staff numbers in the tax department.
Vote:June 30th, 2009 at 9:05 am
Excellent idea DPF. The Labour weasels will scream because a flat tax provides no opportunity to manipulate the voter base implementing policies of envy. Furthermore it is fair for all and we all know that in twisted minds of “rich prick haters” if it is fair – it is discriminatory.
Vote:June 30th, 2009 at 9:05 am
If that was their thing, wouldn’t they be ACT Kiwiblog lurkers?
If the world made any sense, that is. Look at those political spectrum scores from the other day, made Kiwiblog look like a Peter Dunne fan club.
Vote:June 30th, 2009 at 9:06 am
DPF
Next suggestion – a capped tax rate. IE: No further income tax needs to be paid once you have paid flat tax on say $150K. IE: Income over $150K tax free – you have already paid many times more than the average tax payer by that stage.
Vote:June 30th, 2009 at 9:11 am
Danyl Mclauchlan
Hey aren’t all countries with progressive tax systems in recession at the moment ? That must be what did it – progressive tax systems cause recessions…. Wow Danyl logic is amazing!
Vote:June 30th, 2009 at 9:12 am
*A flat tax rate*
“It’s what’s made Iceland and Estonia the economic miracles they are today!”
yeah, don’t worry about correlation or causation – just blurt something out!
Vote:June 30th, 2009 at 9:24 am
no petal..
we’ve already sorted that out..
“..it was untrammelled rightwing/freemarket ideology/greed gone ‘mad’..
..surely..?..”
is that enough ‘correlation’ and ‘causation’..?
..to be getting on with..?
phil(whoar.co.nz)
Vote:June 30th, 2009 at 9:27 am
Peter Dunne supports income splitting. He subscribes to the Telecom school of political management – complicate things so that no one can work out what’s really going on. A flat tax rate is the answer, but that’s too simple. Much better to complicate things endlessly so that you can finesse your way out of criticism with a barriage of verbal flim-flam.
Vote:June 30th, 2009 at 9:27 am
We seem perfectly happy for people to “bend” the rules around business tax – what’s the big problem with income splitting? Hell, just let married couples with kids register the whole unit as a business and be done with it…
Vote:June 30th, 2009 at 9:33 am
DPF I am shocked! Shocked, I tell you!
In this thread you suggest that members of the public cannot be trusted (to do the right thing). In the next thread (related to reporting on schools) you argue that the public can be trusted. Should I interpret these two positions to mean that the public can be trusted except when they have a financial interest?
[DPF: You misinterpret what is the right thing. When there is a financial incentive to call yourself a couple, many people will rationally decide they are a couple. Some people may even start rogering their flatmates just so they can pay less tax. Nothing wrong with that.
That has nothing to do with whether or not you suppress information from the public]
Vote:June 30th, 2009 at 9:35 am
The current law seam very unfair in its present form. Ignoring the possibility to cheat the system, why is my partner’s salary not looked at when I pay my tax, but is when I need to claim something, after all I’ve paid my fair share, and if I was single then I would be entitled to it. The tax system is mean’t to be built on the premise of fairness. I agree there should be a flat tax, so I can keep more of my own money, and therefore be able to put some aside for such a rainy day where I would not need to go cap in hand to the state, heaven forbid that I might be able to take some personal responsiblity to see myself through a tough time, rather than depend on the state.
Vote:June 30th, 2009 at 9:43 am
The current law evolved at a time when couples were either married and in households, or not married and living apart. Whether we like it or not, this is no longer the case. ‘Families’ come in all shapes and forms these days, so trying to write rules around income splitting would invite huge complexity and an army of bedroom snoops.
Better to admit that the world is far to complex for this sort of fine tuning. The fairest and simplest approach is a flat tax with a tax free threshold.
This would put a lot of lawyers and accountants out of work – trading trusts, family trusts, partnerships, companies – all set up to legitimately income split would no longer have as much economic rationale.
And the state would not have to enquire about who lived with who and for how long and when and where.
This would be a nightmare for Peter Dunne of course as it would be so simple and easy to administer!
Vote:June 30th, 2009 at 9:44 am
Everyone knows Iceland’s economy tanked because socialist democrats got into government in 2007. Estonia is doing fine by the way. Danyl seems to be full of faeces
Vote:June 30th, 2009 at 10:10 am
“..Everyone knows Iceland’s economy tanked because socialist democrats got into government in 2007..”
(heh..!..)..really..?
..they were able to do it so quickly..?
..and no ’causes’ prior to that ‘lurch’ to the left..eh..?
..do you ever do open-mike nights at comedy clubs..?
..if not..you should..
phil(whoar.co.nz)
Vote:June 30th, 2009 at 10:20 am
[DPF: You misinterpret what is the right thing. When there is a financial incentive to call yourself a couple, many people will rationally decide they are a couple. Some people may even start rogering their flatmates just so they can pay less tax. Nothing wrong with that. That has nothing to do with whether or not you suppress information from the public]
Remind me to turn down any offers to go flatting with you
Vote:But on the more serious matter, isn’t the educational question equally about letting the parents maximise their self interest (choosing the best schools)?
Like you, I disagree with the principals, and think the parents should have access to all the information that allows them to maximise the chances of getting the best out of the education system. I am a bit surprised you are opposed to allowing individual couples to minimise their tax contribution (within the law). The similarity I see is that they are both about self-interest.
June 30th, 2009 at 10:24 am
Well, we may not be far away from that flat tax and guaranteed minimum income idea. If you look at the make-up of the Tax Working Group the Government recently convened I wouldn’t be at all surprised if that’s one of the recommendations they report back.
Vote:June 30th, 2009 at 10:29 am
virtualmark
You are probably correct. Pretty much every tax working group has come to the same conclusion. The last one caused Labour all sorts of trouble because they wanted to (and did) do the exact opposite. Now we have a recession – see Danyl, it’s the progressive tax systems that stuff the economy.
Vote:June 30th, 2009 at 11:26 am
As mentioned, the last working group was totally ignored by Labour, because the recommendations were politically and/or ideologically ‘wrong’. National on the other hand might be happy to follow at least some of the new recommendations because it probably loosely aligns with their politics/ideology, plus you can say your working group recommended it, ‘so we should do it! Why have a working group if you don’t listen to them, right?!’
Vote:June 30th, 2009 at 11:26 am
An even better option…
Vote:NO company or employee tax on income at all.
Just GST on everything at 20%.
Sure, you may have to pay for health and education – but just think of the layers of paperwork and bureaucracy that this would remove!
June 30th, 2009 at 11:31 am
Hey aren’t all countries with progressive tax systems in recession at the moment ? That must be what did it – progressive tax systems cause recessions…. Wow Danyl logic is amazing!
Australia is a country with a progressive tax system that is not in recession. China has a very complicated and progressive tax system and will enjoy the best economic growth in the world. Try again
[DPF: Australia has had nine years of tax cuts so by your logic that is why they are not in recession.]
Vote:June 30th, 2009 at 11:45 am
Australia has had nine years of tax cuts so by your logic that is why they are not in recession.
Maybe it is – but just to be sure, we should probably implement their additional high income tax bracket, capital gains tax and mandatory 10% employer super contributions as well.
Vote:June 30th, 2009 at 11:52 am
Danyl
Labour decided that NZ should not have such a high rate of “rich tax” as the tory Aussie govt – therefore Labour must be very right wing. Are you a right wing party supporter Danyl or was it just the party name and flag colour that attracted you to Labour?
Vote:June 30th, 2009 at 11:54 am
Flat tax and ditch the dole.
How bad could it be?
Vote:June 30th, 2009 at 11:58 am
Labour decided that NZ should not have such a high rate of “rich tax” as the tory Aussie govt – therefore Labour must be very right wing. Are you a right wing party supporter Danyl or was it just the party name and flag colour that attracted you to Labour?
I think there’s too much salt in your diet.
Vote:June 30th, 2009 at 12:17 pm
Danyl
That didn’t answer the question – are you a right wing party supporter or just a common-or-garden Labour supporter who has an ideology of “whatever Labour said” ?
Vote:June 30th, 2009 at 12:36 pm
Danyl isn’t exactly known for his shrill Labour party endorsements.
Vote:June 30th, 2009 at 1:01 pm
philu..for effs’ sake..just because there are always some greedy people in a population..it doesn’t mean they are all ‘right-wingers’, far out am I over being accused of greed for standing for freedom..how terribly ‘greedy’ of me.
Vote:June 30th, 2009 at 1:08 pm
there are plenty of chardonnay socialists out there philu.
in fact, it’s easier to be socialist when you also happen to be rich. Just look at prince charlie.
Vote:June 30th, 2009 at 1:10 pm
Iceland do not have true flat tax. So, do not refer to them as having flat tax.
Vote:June 30th, 2009 at 1:10 pm
wreck1080
Or Jim Anderton.
Vote:June 30th, 2009 at 2:04 pm
The Herald says income splitting would be “fairer than the present system for couples in which one partner chose not to be in paid employment”.
The issue here is not one of choice. We’re talking about when someone is made redundant or can’t find work. So the Herald needs to be disavowed of the notion that dole queues are getting longer because people are all of a sudden choosing not to work.
As for a flat tax rate, how exactly will that address the issue of someone being unemployed and not being entitled to the dole? Presumably, the partner who is working will be better off, but what about their unemployed partner? A flat tax rate will not help them. A minimum income is unlikely to cut the mustard either, unless the partner not working is guaranteed a minimum income.
Neither you nor the Herald seem to understand the problem, so any solutions offered are going to miss their mark.
Vote:June 30th, 2009 at 2:35 pm
I thought the stinking bloody socialists would kill for a flat tax rate, as long as it is set at 100%.
Vote:June 30th, 2009 at 3:06 pm
heidi +wreck..
yes..greed is trans-ideological..
..but the right is where that greed takes formal political life..
..you have your libertarians with their plaintive crys of ‘it’s mine..!…theft..!..”
..and their advocacy of returning to the private/voluntary charities/poorhouses of the victorian era..
..whereas the opposite benchmark in that ‘personal/class greed as politics’..
..would have to be the high-tax/secure safety-nets..for all..
(..what the righties here call ‘filthy socialism’..)
..of the scandanavian countries…
..so..wreck/heidi..the politics of personal greed..are proven to be the policies of the right..
..how can that not be…?
phil(whoar.co.nz)
Vote:June 30th, 2009 at 3:29 pm
The issue of what is a “fair” tax is not altogether straightforward, but I am fairly certain that nobody should have their income taxed under the point at which it can allow them to purchase the necessities of life. Most western countries have tax-free thresholds, and it is a disgrace that New Zealand taxes the first dollar every lowly cleaning lady in this country earns. A true flat tax would not prevent this, and ACT supporters who advocate it need to justify that sort of theft from the most vulnerable.
The best income tax would be no income tax at all. A 1% consumption tax would fund a judiciary and pay insurance premiums allowing for defence against hostile invasion.
Of course if you are not quite that libertarian, the consumption tax at the rate you require is the fairest option. It encourages saving/investment and punishes lavish spending. If you’re even less libertarian than that, the income threshold with a flat rate above is the best way to arrange an income tax. And if you have that, why not have income splitting? If more than one person is dependent on your income, why shouldn’t the income be assessed based on the way it is distributed – ie. split between those people? It makes no sense to discount those dependents.
Vote:June 30th, 2009 at 8:31 pm
A Flat Tax Rate.
Vote:It is so obvious to us tax practitioners.
The heavily graduated tax scale introduced by Cullen has made the fees paid to practitioners like me, for administering inter vivos trusts, the best money somebody can spend.
Get a flat tax rate and get bean counters like me into more productive income enhancing employment like helping developing businesses with financial modelling and other tasks that spreadsheet data processing have made so easy and helpful to building business.
Inter vivos trusts is the ancient legal term for what are nowadays usually referred to as family trusts.