Penalty Tax For Being Married As High As $15,000
Family First says that a UK report just released showing that married couples are thousands of pounds worse off than parents who do not live together is a mirror reflection of the tax system in NZ.
In NZ, a married couple both working and on low incomes, or a family with a full-time parent are being penalised by up to $15,000 in their household income compared with a couple who separates or divorces. Low income families are being hardest hit by NZ’s ‘marriage penalty tax’ and poverty trap, according to calculations obtained from the NZ Institute of Economic Research (NZIER)
For a married couple who are both working and receiving low incomes (for example $40,000 each) and have 3 children, their joint income is $14,715 lower than if they were separated or divorced because of the interaction of family income assistance programmes such as the Working for Families Tax Credit and the Accommodation Supplement.
For a married couple where one parents full-time and the other is on a low income ($40,000) the parents could be $12,000 better off by separating before allowing for Child Support and changes in expenses. In addition, if the parents each receive a small pay increase, the family tax rate on this extra income can be as high as 69%.
“Previous governments have created a system which contains perverse disincentives for parents to get or stay married,” says Bob McCoskrie, National Director of Family First NZ. “The presence of marriage penalties in our tax system means that some people are discouraged from entering into or remaining in a relationship in the nature of marriage because of the family income assistance system, thereby putting at risk the stability of the family and the welfare of children.”
Poverty traps occur when, due to taxation and the clawback of assistance, there are few or no financial incentives for people to enter into or remain in work, or to increase their hours of work or wage rates.
According to a 2002 OECD report, NZ has some of the highest effective tax rates in the world. It is argued that this is contributing to high levels of family breakdown.
Family First released a report in October (“The Value of Family – Fiscal Benefits of Marriage and Reducing Family Breakdown in New Zealand”) estimating the price of family breakdown and decreasing marriage rates to be costing the taxpayer at least $1 billion per year and $8 billion over the past decade.
“With the report showing the huge fiscal cost of family breakdown and these figures showing the tax disincentives for marriage, it is urgent that these factors be included in research on policy issues concerning poverty and family breakdown,” says Mr McCoskrie. “The decline of marriage, NZ’s high teenage fertility rate, and our rate of solo parenthood is not just a moral or social concern but should also be a concern of government and policymakers.”
“We hope that the new National government will be willing to talk about the benefits of marriage and how to promote and strengthen marriage. Family First is calling for tax breaks for married couples, especially where one parent chooses to parent fulltime.”
The NZIER Marriage Tax Calculator (and report on “The Value of Family”) can be downloaded here https://www.familyfirst.org.nz/index.cfm/research/the_value_of_family.html