With the Coalition hoping to win back women voters at the next election, deputy Nationals leader Perin Davey says the idea of income splitting between partners has merit.
Davey says that rather than encouraging both parents to return to work as soon as possible after birth, there needs to be a discussion about having a tax system that gives the mother or father the choice of staying home to raise children.
“I would support a very close look at income splitting”, Senator Pavey said.
“It gives families the choice. We could look at how we address the tax-free threshold when one is a stay-at-home parent, for example”.
“There is a lot of pressure on women at the moment to get straight back into the workforce and not every woman wants to do that”, she said.
The notion of income splitting is good in theory and would certainly benefit my household.
However, it is unrealistic financially and would be economically damaging.
First, the cost of income splitting for the federal government would be excessive, likely costing the budget tens of billions of dollars in lost tax receipts.
This lost tax revenue would need to be raised elsewhere, or the federal government would need to cut back on health, infrastructure, welfare, and other spending to balance the books.
Second, implementing a policy of income splitting would result in lower labour force participation rates as second-income earners leave the labour market. This would worsen labour shortages and lower the economy’s potential growth, all else being equal.
Finally, income splitting would be unfair to single households, who would be required to shoulder a larger share of the nation’s tax burden.
Ultimately, income splitting is a policy gimmick.
Australia instead needs genuine broad-based tax reform that shifts the base away from personal income taxes and towards consumption, resources, and wealth.
