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Tuesday, September 07, 2004

Why is Income Splitting Bad?

The inimitable Chris of BP has asked me to spell out the argument against income splitting.  Here are my main objections:

1) It make the lesser earner in a relationship more dependant on the other (usually the woman)

2) It is an incentive for a lower female participation rate in the workforce

3) It prejudices against single income earners (including single parents - mainly women)

4) The money could have been spend better elsewhere

5) It favours higher income earners who can afford to split.

Australia still has a long way to go to reach equality for women, this policy is a huge step in the wrong direction.  For further information on the rationale behind such bold statements please refer to the following links. 

Taxing Times for Women: Feminism Confronts Tax Policy - Claire Young

Election 2004: Taxing times for working families - Patricia Apps

The end of equality? Australian women and the Howard government - Anne Summers

That'll do for starters.  Then you have the laughable situation of providing childcare while people are training (good idea), but what about when they go to work?  The more I read this policy the more it looks like a Coalition paper.  They had better come up trumps on education.

Here is my spurious attempt at further explanation.  Let us assume that income splitting is in, rather than a more equitable way of returning money to the people.  Let us take the case of Bob and Doris and some made up tax rates.  The tax free threshold is $6000 per person.  The next rate is 30%.  Bob earns $20K which becuase of income splitting means he pays 30% on $8K (ie $6000).  Now Doris wants to get back to work.  This being Australia and her being a woman means she can only get a crappy part time job at $6000.  But guess what, as a family unit they are already using her tax free dowry, so in the eyes of her hubby Bob anything she earns will be taxed at 30%.  This is a huge disincentive to get back into work.  Now add to this that the Better Family payment (though not quite as insidious as FTB - part B) is assessed on joint income. This will effectively increase her tax at an even higher rate.  Now add the fact that child care assistance is bugger all and you have a picture where because of the loss in benefit, the perceived increase in tax on Doris' wages and the cost of working means that it isn't worth it after all. 



Minor point: shouldn't your first argument read, "It make the lesser earner in a relationship (usually the woman) more dependant on the other".
 
That looks sound to me Paul. It will be interesting to see how it plays politically. Will women's groups attack Latham? Things are so grim, one even wonders whether this will be a bad (political) thing? How far we have come when we figure we have to get inside Howardian territory! The sooner Jack's curse is lifted from the fair land, the sooner we'll be able to get back to the nobler fight. Onwards!

cs
 
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The old comment thing seems to have a few problems. I have yet to see any fire from the feminists, maybe they have thrown the towel in, as now there is not as clear a choice as before.
 

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