Should parents get to share their tax bills? Photo: 123rf
The founder of a startup business that helps employers and parents with parental leave is asking whether it's fair that parents are taxed as individuals.
Stephanie Pow said she regularly helped parents navigate their entitlements, including Working for Families and Family Boost.
All of these supports are assessed on the basis of household income.
But when it came to tax, that is applied on an individual basis.
"This creates some interesting consequences, especially during those early parenting years when one parent might step back from paid work to care for children."
A couple earning $55,000 each would pay $16,400 in total tax but a couple where one person was earning $110,000 and the other stayed home would pay $26,180 in tax each year.
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"That is 60 percent more tax for the same household income. Some countries have joint filing or income splitting to address this disparity. It raises an interesting question: if we treat families as a unit for benefits, should we consider doing the same for taxation?"
She said it was something that many people did not even consider as a possibility.
But she said it was increasingly difficult for families not to have both parents working.
"It's definitely still possible, but I think the average Kiwi is finding that model harder, which wasn't the case when I was growing up, as an example. So if we want to support that model where it is feasible for a family to survive on an average income, and therefore for the other parent to be able to spend more time at home, yes, that should be something we at least investigate and do some more work on."
She pointed out research that showed about half of parents went back to work as soon as their parental leave ran out.
"There was a really good study done by Motu a couple of years ago … that shows that 70 percent of mums take less parental leave than they want to.
"If this is what a good number of parents want, and it's not being facilitated, and it's good for children, with lots of broader societal impacts, then shouldn't we facilitate this a bit better through paid parental leave, and through the tax system? What's the outcome we want to drive as a society? And is the tax system incentivising or setting people up to do that?"
Robyn Walker, tax partner at Deloitte, noted there was work done in 2009, driven by United Future, that considered an income-splitting tax credit.
At that time, it was estimated that more than 300,000 families or about 60 percent with a dependent child would benefit.
She said she did not think it was likely that the idea would be picked up again.
"It was a particular pet project for Peter Dunne and it wasn't something which had broad political support.
"From memory it formed part of confidence and supply agreements to allow the consultation to be undertaken but there wasn't support for it. I would suspect in this day in age that there are so many different types of relationship status that trying to develop a rule would be difficult. It would be much simpler in the old days of traditional nuclear families who were 'married for life'.
"In this day and age there may be less willingness to have one's tax affairs entangled with another person.
"That said, other regimes such as Working For Families and FamilyBoost do assess entitlements against the income of both parents."
Revenue Minister Simon Watts said it was not something being considered by the government.
"Currently we have a tax system based on individual incomes, and supplemented with targeted family-based tax credits such as Working for Families (and other general government payments and services supporting families such as subsidised health services). Any change would need to be considered against the principles of a good tax system such as fairness, efficiency, compliance costs, and administrative impacts."
A Green Party spokesperson said in general it thought that settings should move in the opposite direction.
"We think that tax and welfare entitlements should be individualised and not dependent on relationship status. That's because there's a high risk of unintended consequences - for instance, encouraging people to stay in unsafe relationships and penalising single parents.
"Low income and working families need support, but this is not the best way to do it. Our tax and income policies would provide better and more fair support to working families, and combined with free and high quality public ECE (early childhood education) would be better for whānau than this proposal."
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