The benefits of income splitting
Voters want family-based taxation. But are Australia’s political parties listening?
Despite the stark absence of family policies this election from the major parties, new polling shows strong support for pro-family taxation measures among almost all demographics.
The poll, commissioned from Sexton Marketing by the National Civic Council, asked voters whether they support family-based taxation (FBT).
Also known as income splitting, FBT allows a person with a higher income to “share” their earnings with a lower- or zero-income spouse before tax – usually a stay-at-home parent.
Income splitting treats single-income families with dependents as basic economic units, lowering the family’s overall tax burden and minimising welfare churn.
Seventy-five percent of married and de facto couples supported FBT, 72% of Labor and Greens voters, and 68% of Coalition voters.
The poll showed that income levels do not influence support for FBT, with 71% of both individuals earning under $80,000 a year and earning over $120,000 approving of the policy.
“The reasoning for this support among voters is not hard to grasp – 86 per cent said that financial stress is a catalyst for separation or divorce. Indeed, 80 per cent believe that many families are suffering economic stress by cost-of-living pressures,” said NCC President Pat Byrne.
“80 percent believe that many families are suffering economic stress by cost-of-living pressures”
Dr Terry Dwyer, an economist and tax lawyer who authored a monograph on income splitting for the Centre for Independent Studies, said the policy was based in logic.
In the case of families it makes little sense to tax based on who earns income, because for sole breadwinners income is shared with dependent spouses and children. “Think of the family as a partnership between the spouses, and a trust for the children,” Dr Dwyer said.
FBT also helps prevent welfare dependency and inefficiency, he added. “You’ve ended up with a situation where you tax somebody while at the same time giving means-tested assistance potentially to the same family,” Dr Dwyer said. “That creates huge inefficiencies in terms of creating disincentives to work and provide for oneself.”
He described current tax arrangements as “socially and economically inefficient and undermining, in a way”. “It undermines the ability of people to look after themselves. In other words, if you don’t want welfare dependency give people the chance to look after each other.”
Dr Dwyer said the resistance to family-based taxation was because of “treasury’s intellectual laziness and greed”. “The problem people don’t realise is that labour is a key factor of production, and if it can’t afford to support and reproduce itself, you run out of taxpayers.” Dr Dwyer said.
“I once remember talking to a treasury official, when i was in the bureaucracy, who said having children was a personal consumption expense!”
“It’s been a really short-sighted policy of treasury over the last 50 years to treat all family expenditure as consumption. I once remember talking to a treasury official, when I was in the bureaucracy, who said having children was a personal consumption expense!”
With the majority of women now working at least part-time even after having children, Mr Byrne said flexibility in taxation and work-family arrangements had an obvious rationale.
Yet despite its popularity with voters, FBT is yet to be implemented by the major parties.
“Back in 1983, Prime Minister Malcolm Fraser was set to introduce FBT when he lost office. John Howard was considering FBT when he lost office,” Mr Byrne said.
“The time has come for FBT and whichever party is prepared to back this overdue policy will be on an election winner.”