Question Time – Income Splitting for Single-Income Families

Senator DAY: My question is to the minister representing the Minister for Finance. A short while ago I wrote to the government about income splitting, which is something, I know, Senator Canavan on my left feels very strongly about. Income splitting reduces the tax burden on single-income families by letting them combine and split their incomes for tax purposes. Some countries even allow taxable income to be split with children, and rightly so, given that Australian children pay, on average, half a billion dollars of GST per annum. Today’s children also bear a greater burden of paying this generation’s debt and deficit than current and past generations. Given all these factors, isn’t it equitable for the whole family to pool and split their incomes for tax assessment?

Senator ABETZ: I thank Senator Day for his question and I acknowledge his longstanding interest in all matters to do with families and taxation. I note that this is the second time today that Senator Canavan has been mentioned in questions, so well done! In relation to senators sitting to your left, I can honestly say that there is only one senator that sits to my left and that is the President.

In relation to the question that has been asked, many of the issues that the senator raises are matters that we as a government are seeking to grapple with, such as the deficit and debt burden. Senator Day has helped us to try to deal with that situation, whereas the Australian Labor Party and the Australian Greens, having created the mess, have no intention of assisting us in that regard. The current tax system is based on the individual, while the transfer system is based on the family unit. The transfer system that we have is based on the family as this is the more appropriate way to assess the means of a family unit and to provide targeted assistance.

People can mean many different things when they refer to income splitting. It may, for example, involve a joint filing system, which may involve significant new administrative costs to implement. There are also other options conceivable in tax theory. So when one looks at all the opportunities available, one thing that I would say to Senator Day is that this government is determined to look after the family and also to reduce the tax burden on the family unit. I know that that is what motivates Senator Day. It similarly motivates us. (Time expired)

Senator DAY: Mr President, I ask a supplementary question. Minister, the Assistant Treasurer replied to my letter stating that income splitting would be ‘a disincentive for secondary earners to participate in the workforce’. Given the irrefutable evidence of the economic, social, emotional and other benefits for children of having a stay-at-home parent, why is the government so eager to drag parents away from their children and have them put into child care?

Senator ABETZ: We do have appropriate support for families where one parent does not work principally through Family Tax Benefit Part B. We do see the social benefits of time invested by parents in raising their children. I do not think that should ever be underestimated. The current individual tax arrangements support workforce participation, which is one of the government’s key principles of tax reform. The recent Intergenerational report projected that the proportion of people working is expected to fall as the population ages. A lower proportion of Australians working will mean lower economic growth over this period. Accordingly, the government is delivering policies that encourage people who are not working to enter or re-enter the workforce.

Senator DAY: Mr President, I ask a further supplementary question. Minister, the Assistant Treasurer’s letter also states that Family Tax Benefit Part B provides assistance to low- and middle-income single parents. I stated in my letter, and have always stated, that I am open to capping income splitting, as they do in other countries. Does the government accept that similar results that are presently achieved via Family Tax Benefit Part B can, instead, be achieved by a capped family income-splitting model? (Time expired)

Senator ABETZ: I am not pretending to be an economic expert, but I would say to the honourable senator that, broadly speaking, I suspect that the honourable senator is right. In addition to the Family Tax Benefit Part A, eligible single-income families currently have access to Family Tax Benefit Part B annual payments totalling up to $4,274 for children under the age of five and $3,091 for children aged between five and 15 years. Depending on the design of the system, income splitting alone may not replace Family Tax Benefit Part B in simple dollar terms and could be less targeted than the current transfer system. Income splitting, depending on how it is designed, may add complexity to the tax system and discourage secondary earners from entering the workforce through high effective marginal tax rates, and additional assistance would still be required.