Tax relief a diversion?

A topic that has once again boiled up to the surface with events today. At the same time that record tax revenue is reported and predicted through to FY0809, we have Labour trotting out additional tax relief.

Let me sidestep for a moment, to explore the terminology being used. I've become more interested in the way the terms tax cut and tax relief are being used. To me - tax cut is simply descriptive of the action of cutting tax. Tax relief on the other hand would appear to have subtle differences in the meaning communicated - particularly the emotional meanings - "The easing of a burden or distress, such as pain, anxiety, or oppression; something that alleviates pain or distress; public assistance". I did find this definition rather amusing - "a pleasant or amusing change; a diversion". Ha! How true that is.

So, it would appear that the term tax relief is most likely being used for the emotional link that is created by use of the word relief. Tax cut does sound much more harsh and almost has a cold clinical ring to it. So I think it is only reasonable that we start talking about Tax Relief in future - as well as creating a greater emotional attachment, it also dilutes any advantage Labour has in using the term over other parties.

Back on topic, I want to expand on a few posts I’ve been making around the place today.

My biggest beef with announcements from Labour is that they are targeted packages that only impact a part of the community – families. Now I’m single, but I fully respect the challenges that families are under – I have many friends currently in the first year or two of bringing up their children. It must be incredibly difficult – in reverse, things are relatively simple for me as a single thirty-something male. But the problem is that the programme of tax relief is too specific to families, and doesn’t cater for other sections of the community.

I fear that National had a careful line to tread when developing their tax relief policy – soon to be announced. This careful line is between tax relief for all and tax relief for families. I am however hopeful that National releases a tax relief policy that finds a good mix between the individual and the family.

To this end, I want to provide what I think is a simple means to balance this decision. Any form of tax relief should be accomplished through the dropping the tax rates. At the same time, a family should be able to pool the parents income, and that combined figure would be assessed at double the income thresholds of an individual. In this simple way, a married couple would be able to achieve much greater tax efficiency by spreading the income between two. Here’s an example.

Ann and Bob between them earn $60k per annum. Charlie is single and also earns $60k. If Ann earns all the money, then Ann and Charlie will pay the same amount of tax (ignoring rebates/Working for Families etc) because they are taxed as individuals. What would happen if Ann and Bob were able to pool their income and be treated as one taxable entity for income purposes? Well, instead of the next tax bracket starting at $38k (19.5c moves to 33c) as Charlie, because they are a couple, that threshold wouldn’t occur until $76k dollars (double $38k). What would this mean in real dollar terms?

• Charlie earns $60k, pays $14,670 in tax and nett $45,330.
• Ann and Bob earn $60k, they pay $11,700 in tax and nett $48,300.

Over the soon-to-be 48 week working year, that would mean that Ann and Bob would be up to $62 a week better off - which seems pretty reasonable to me.

What are some of the other benefits?

• You don’t have to apply for rebates – every marriage would be eligible
• The benefits of tax relief by changing tax thresholds are felt by all, but families would obtain more benefits than single people
• The system is far simpler to understand than Working for Families
• Oh, and there is no additional WINZ bureaucracy required to run it. Yay! Less Bureaucrats!

Surely it can’t be that simple? What am I missing? I can see one loophole – a married couple/civil union with no children stands to benefit under this suggested arrangement versus WFF which appears to explicitly target children. Sure, there will be less accurate targeting of assistance, but that is good because it won't create such distinct taxation differences between members of society.

It will be interesting to see what transpires at 7.30pm tomorrow on TV One. Don’t forget to watch.