Public want income splitting: Dunne

United Future leader Peter Dunne. Photo / Mark Mitchell

United Future leader Peter Dunne says he is confident public support for his "income sharing" policy will force the Government to back it despite widespread criticism the scheme is expensive and poorly targeted.

Mr Dunne yesterday introduced legislation to give effect to his long-standing income sharing proposal that will allow couples with children under 18 to combine their income and then split it for tax purposes, reducing their overall tax bill.

The policy would see a family with one income earner on $50,000 a year receive a $1230 annual credit but a single income family earning $140,000 a year would be $9080 better off.

If the scheme was picked up by the estimated 310,000 families who would be eligible, it is expected to cost $450 million a year.

However in echoes of recent comments from Finance Minister Bill English, the proposal was widely panned as poorly targeted.

Labour MP Stuart Nash said his party would not support it as the scheme favoured wealthy parents over families that really needed extra support.

Greens co-leader Metiria Turei said there were fairer ways of spending half a billion dollars such as increasing childcare support, Working For Families and increasing benefits.

Prime Minister John Key yesterday said he recognised how important the proposal was to Mr Dunne, and his Government would give it "a fair run" by supporting it to the select committee stage. However in pointing to its potential problems Mr Key suggested support beyond that point was uncertain.

"With the Government's finances remaining constrained there is a very high bar for tax changes that cost the Government money, but we'll reserve final judgment until the select committee process has run its course."

Also the proposal, "works really well for some couples and not so well for others". Furthermore, the Government's package of tax cuts which takes effect in several weeks, "did address some of the issues income splitting would pick up".

But citing a New Zealand Herald online poll which showed support for the policy running at about 80 per cent yesterday, Mr Dunne said the Government would face "a big challenge" if it decided not to back it.

"I'm confident that there are enough New Zealanders out there that want this that they will send that message loudly and clearly to politicians."

Mr Dunne said the bill was about "recognising the fact that both parents contribute to the upbringing of their children, some financially and some through their care in the home."

Pros:

* Makes it easier for one parent to stay at home as a full-time caregiver.

* Provides support to upper middle-income families who may not qualify for Working for Families.

Cons:

* Favours those on higher incomes.

* Cost up to $450 million yearly.

* Couples where both partners work and receive similar income would receive little or nothing.

* Single parent families don't qualify.

How much would you get?

* A family with one income of $30,000 would receive a credit of $980 a year.

* A family with one income of $140,000 would receive $9080.

* A family with two incomes, one of $60,000 and the other $30,000, would receive a credit of $1500.