– Tax individualisation is inherently unfair to single-income couples and discourages one parent from staying at home with their children
– Income splitting is fairer because it takes account of the fact that a family is a group of people with common interests rather than a group of individuals who happen to live in the same house
“Tax policy used to enable couples with children to be relatively self-reliant. The principal earner (usually the husband) had one tax allowance to cover his own subsistence needs, another to cover those of his wife, and a third in respect of his children, so they didn’t need much extra help from government. A married man with a family to support would end up paying much less tax than a single person earning the same money. This is known as ‘horizontal equity.’
But many countries have moved away from this system as traditional family life has weakened. The UK has gone further than most by radically individualising its tax system, (a path Ireland is also following). In Britain, there is now no additional allowance for a spouse, or for dependent children. Instead, you pay the same tax on the same level of earnings irrespective of your family circumstances, and the government then tops up families with transfer payments.
This has had two major effects on how families behave. One is that it discourages one partner from going out to work while the other stays home to raise the children. With no tax allowance for couples, single-earner couples in the UK pay a lot more tax than two-earner couples on the same total income. They are taxed more highly than anywhere in the EU. The system in Britain rewards single parent families while penalising one-earner couples.
The other effect is that even relatively affluent middle-class families have been turned into benefit claimants, for they pay a lot of tax, and then claim big chunks back as family payments of one kind or another. Britain’s middle classes have been encouraged to look to the government to support them, rather than supporting themselves from their own efforts, as they used to do in the past.”