This article was published on 9 October 2004. Some information may be out of date.

QMy wife does not work, but will focus on child rearing until our children are at school.

There is much sociological evidence that this decision is likely to be of benefit to our children, and presumably for society.

I work, of course, and we are penalised by losing my wife’s income and by being taxed at a higher rate than if we each worked to earn the same gross income.

Why can’t my income be shared between my wife and me for tax purposes?

AIf you were self-employed, to some extent it could be. Does that mean we should also let waged and salaried workers split their income with their spouses?

It’s an issue that seems to be debated in every developed country. Different countries have different solutions. None is fair to everyone.

Let’s assume that you earn $70,000 and your wife earns nothing. Next door lives a family, including young children, in which the husband earns $40,000.

They can struggle on a much lower income than you, or the wife can work. If she earns $30,000, bringing their total income to the same as yours, should the two families be taxed at the same rate?

They would probably not think so, given that you’ve got the relative luxury of having someone available to run the family and household.

But that’s only the start of our problems. Some others include:

  • When your children are grown, your wife might decide to take a part-time job, earning $20,000.

Under your proposal, that would be added to your $70,000. You would then each be taxed as if you earned $45,000.

That means your wife’s income would be taxed at a higher rate than currently — rather discouraging for someone starting out again in the work force.

  • Is it fair that you and a single colleague at work, both on $70,000, should pay different taxes?

You might think that’s fine if she has no children. But what if she’s a widow with more children than you. Should she pay more tax than you?

She might well come up with a compelling argument that there’s a greater need for decent deductions for child care expenses.

  • What about a gay couple raising the children of one of them? Or a divorced woman with an older child who is bringing in income? Should they be allowed to split income? Where do we draw the line?
  • If the presence of children in the household is the deciding factor, perhaps we should just give a government subsidy to all parents.

But is that fair? Should wealthy parents get money when poor non-parents don’t?

A key point in any discussion about tax breaks is to consider where the lost revenue will come from — assuming that we want government services to continue unchanged.

What you propose would actually only benefit families with income over $38,000, and especially those with income over $60,000. To cover the tax they no longer pay, tax rates in general would have to rise.

The couple in our example above, making $40,000 and $30,000, would probably end up paying higher taxes to give you your break. Is that fair?

Years ago, when I lived in America, my husband and I and many of our friends paid thousands of dollars more in tax because we were married, and both earning, than if we had stayed single. Some people didn’t marry for that very reason.

The problem arose from an income splitting system not unlike what you’re proposing.

The Americans are currently trying a solution, but it’s not perfect.

Basically, the trouble is that you cannot have a tax system that has all three of the following features:

  • Every person on the same income is taxed at the same rate; and
  • Every family on the same income is taxed at the same rate; and
  • The system is “progressive” — meaning there’s more than one tax bracket.

Now there’s a solution, a flat tax rate!

Only trouble is, many people think that’s not fair either. Oh dear.

QWhen considering retirement, we have a desired “retirement lifestyle” in mind. How much per week does it cost?

Could you please do some case studies on real life retirement lifestyles and what they cost per week? That is New Zealand Super-inclusive, after-tax investment income per week.

Six hundred dollars per week, $800, $1000 — what does it get for today’s retirement couples? Is it only basic housing and housekeeping? Can you run two cars? Do you manage to get holidays?

Perhaps you could ask your readers to send in their lifestyles in retirement.

There is much written on saving for your nest egg, and even more written on how to invest your nest egg. The starting point is what do you want to spend each week in retirement. Then plan from there.

AMy first reaction to your letter was: This isn’t going to work.

Everybody’s circumstances are so different. Your spending depends so much on where you live; your standards of accommodation, food, entertainment, clothes and so on; your health; your priorities — I could go on and on.

Because of that, I would think that you would be best qualified to work out your own cost of living.

Couldn’t you just keep tabs on what you spend now, and make suitable adjustments for more leisure spending, less commuting, different clothing requirements and so on?

On second thought, though, perhaps other readers could make some helpful contributions.

Please don’t send me your entire budgets. But maybe some of you could tell us how your spending has differed before and after retirement, and broadly how you cope on your budget — sticking to the 200-word letter limit.

Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.