The family ‘unit’ is perhaps the foundation that safe and healthy and contributing communities are built on. It is hard to argue with this. It’s time our income tax system was changed to reflect this, and to put more money back in families’ pockets.

Some countries operate an elective tax system where couples can choose to be taxed as a couple rather than as individuals. In other words they file a combined or ‘joint’ income tax return and often end up paying less tax in total due to the way personal marginal tax rates work, and the ‘averaging’ effect that filing as a couple achieves in many cases. One could make a rational argument that perhaps that taxing option should always have been available in New Zealand given the central importance of the family unit, and also on the basis of the real world economics of the family unit (and I am talking about family in the broad sense here – not the ‘nuclear family’ concept I was taught about at school).

I believe it is time to adopt this approach in New Zealand. Such an approach I think would reflect the reality of how many or perhaps most family units operate. This was the view of Peter Dunne, former Minister of Revenue. In fact he had a bill before parliament which proposed a tax credit for couples with children, which was designed to achieve something along the lines of what I have described above – a family being taxed on its ‘family income’, rather than each individual being taxed on their personal/individual income. Mr Dunne’s bill passed its first reading in 2010 and made it to Select Committee but then made it no further and then lapsed in 2017.

One of the hurdles identified in respect of that bill at the time was that supposedly under the Bill Of Rights Act such a law would discriminate against those not in a relationship with children. Really? Please forgive my ignorance – I’m not a lawyer and I’m certainly no expert on the Bill Of Rights, however to a lay person is that really “discrimination”? If so, is Working For Families also discrimination since it is in part based on the number of children you have – the same issue raised in relation to Mr Dunne’s bill?

Putting that aside, I can think of no good reason why a family with a single income earner earning $100,000 should pay significantly more tax than the same family with two income earners earning $50,000 each. Families with one primary income earner are being overtaxed. Now is the perfect time to fix that, put more money in families pockets, and have the tax laws more accurately reflecting how many families operate.

Tax changes in recent years, at least as they have affected the typical SME and SME owners have been largely tinkering, except perhaps in respect of tightening up on rules aimed at property speculation (but which unfortunately go somewhat further then mere property speculation). However now is the time to act. Tax changes need to feature in this week’s Budget, and they need to help business owners.

Below are some ideas of some changes which I have tried to restrict to those things that would be reasonably easy to implement. So for example removing GST from so-called healthy foods, or fresh fruit and vegetables, is not there as I believe this would actually be quite complex in practice.

Some of the ideas may be met with calls that they favour wealthy business owners more than a minimum wage earner – a criticism of many tax reforms which lower the tax burden in this country. But now us not the time for those howls of protest – now is the time when we need to be incentivising and assisting those in our communities who have ideas, skills, and the willingness to take calculated business risks. These are the people that we want to encourage to start a business or expand or improve their existing one: to employ that extra person, start a now product line, enter a new market, invest in new technology, undertake some research and development, and ultimately grow our cake – increase the wealth of this country. Too often the discussion in this country seems to focus on how the cake should be sliced, rather than how we make it bigger for the benefit of all.

Tax has a role in helping grow a bigger cake, so below are some thoughts.

(I’ve not mentioned any tax rate reductions as for a variety of reasons I think these are unlikely…)

1. Re-indexation of the tax thresholds in terms of the income figures at which tax rates start to apply, at least based on CPI or average income movements. This hasn’t been done since October 2010 – ten years ago! Backdate to 1 April 2020.
2. Big increase in small asset writeoff deductions, and simplify the rules around how these apply. The $1,000 threshold which will apply once the current temporary (one year) increase to $5,000 finishes should be at least $10,000. Perhaps have a deduction allowed for up to $20,000 of new assets each year – similar to the legal expense deduction rule which allows up to $10,000 of deduction each year. Backdate to 1 April 2020.
3. Depreciation loading on new assets (with the exception of buildings) of 50%, for the current and future income years.
4. 150% deduction allowed on R&D expenditure which results in NZ owned IP.
5. Permanent loss carry back rules for up to four years, and extension of the current temporary loss carry back rules to allow carry back for up to four years not the current one year.
6. Allowing couples to file joint tax returns if they choose.

Comment with your thoughts on what YOU think should be in the budget.