Just want to know a few things

[David McAlary]

John

We have spoken about 30/30 before. One of the things I am still confused about is how this proposed system would deal with a 16 year old who is still in School and lives with their parents. Say this person has a part time job delivering pamphlets to peoples letterboxes, earning $60 per week on average. Would the NIT allow such a person to collect $8,064 from the government?

[John Humphreys]

There are a number of issues of "reform 30/30" that still need to be clarified in more detail. One very important party is the treatment of children.

The base version of the policy applies to adults (ie over 18). Children could not claim the negative income tax. Under this version, parents would have the entire responsibility for bringing up their children. The logic behind this is that children are the responsibility of their parents, who chose to have the children. By removing the consequences of your decisions (ie decision to have children) from the activity -- people are given the wrong set of incentives.

However, there are two responses to this. The stronger (in my opinion) is that the children also have rights and that once an irresponsible parents (who cannot propertly support their children) has brought a child into the world there is a good argument for some sort of help for that child. The weaker (in my opinion) is that the government should be subsidising children because there is a national population policy.

Because of the former reason, the original policy was modified so that parents could have access to an additional $2000 per year per child under 18. That effectively changes the tax free threshold for a parent with one child to around $36,000.

The level of assistence shows an attempt to balance support for the child with a contiuation of a real responsibility by the parents.

There is an outstanding question of how to treat children on the tax side of the ledget. Should they be given a $30k TFT or not? I think this point is open to debate, and neither answer would fundamentally change the system.

[David McAlary]

John

Sorry, how would the extra $2,000 work? Would it be made as a payment, or would the income of a parent have an effective tax free threashold of $36,000? Does that mean that if both parents of a 3 child family were working, the tax free threshold would be $41,000 each parent?

Also how would 30/30 handle the situation where an 18 year old, still in school had a part time job at McDonalds earning on average $100 per week, would NIS apply to that situation?

Regards

[John Humphreys]

The two options you give for how the $2000 would work are the same.

A couple with 3 children would have an effective TFT of over $78,000. Great, isn't it?

An 18 year old is an adult. They should be treated like an adult. Age is not relevant. The same question could be asked of a 38 year old person, still at university with a part time job.

The fact that some adults chose to gain the benefits of economies of scale (for example by living with other people) or pursue education is a good thing.

[Asaf Socolowski]

30/30 almost sounds too good to be true, I can't wait to see the costings.

[David McAlary]

John

Under 30/30 are couples able to income split?

[John Humphreys]

They can income split if they want I guess -- but there is no longer any benefit in it because everybody always has a 30% EMTR. That's one of the advantages... it avoids the incentive to play tricky tax games (such as using trusts).

Example: If one partner has $100k income and the other 0 then the first person pays $21k tax and the second person receives $9k NIT. Net position of $12k tax per year.

If one partner has $50k income and the other $50k also, then the first person pays $6k tax and the second person $6k tax with a total position of $12k tax per year.

[terje]

Here is my idea for the record (again).

Stage 1. Make all welfare taxable for income tax purposes (welfare is subject to GST already). Abolish means testing of welfare and let the tax system claw it back automatically. There may be some modest top up to welfare at this stage.

Stage 2. Introduce a flat 30% tax with a tax rebate for each individual of up to $10000pa.

Stage 3. Reduce the income tax rate and now you win friends everywhere.

[fatfingers]

Have their been any calculations done on what 30/30 would raise in taxes? Would there be no tax deductions at all? What kind of amount would that on its own raise? What, in other words, are the costings (although I understand they could only be rough)?

[John Humphreys]

Costings will be released soon. As a rough guide, if you extrapolate from Turnbull's tax costings you can guess at a tax cut of $35 billion. Over time it would cost signficantly less as the employment and economic growth dividends helped to pay for the reform. The remaining costs are very affordable and could be paid for by removing tax expenditures and corporate welfare.

There would be no tax deductios except those necessary to ensure the integrity of the income tax system (ie work related expenses). For most people that would not be relevant, so for most peope there would be no deductions. As there is also only one marginal tax rate -- there is never any confusion about how much tax to pay and no need for an annual tax return.

[Sam Ward]

John, how would you deal with the situation of a child under 18 who has no connection with their parents? That is, a completely independent individual who is working full-time, lives apart from parents etc. And then an individual under 18 who is independent with no income?

After all, some people's parents are drug addicts, dead, in prison etc, not everyone can count on their assistance.

[John Humphreys]

My point of differentiating between adults and children (age 18) is the null hypothesis, not a final position. If real independence can be proven then an under-18 year old should be treated as an adult.

[timq]

John, you say most people wouldn't have deductions. Surely most people do have work related expenses? Are you planning on limiting these or what?