The topic of income splitting has gained some momentum lately. Having recently had my first child who is going into childcare soon, I thought it was time I crunched some numbers and compared the different approaches of childcare subsidation and incentivising stay at home parents.

Income splitting is already possible in several countries around the world to varying degrees, including Germany, Ireland, and Portugal. More recently Poland introduced a higher tax-free threshold for parents with 2 or more kids, which functions similarly, although allows both parents to continue working.

In Australia we have strong incentives for both parents to be working, with the Child Care Subsidy (CCS) being quite generous for people of all income levels. I will be using Australia's tax settings as of 2026 to run the numbers for the CCS against a potential income split. Income splitting will assume that one parent is not working at all and use the German model of which combines the two incomes and then averages them.

If income splitting was introduced it would come at the expense of... well something. The case for income splitting is usually made so that a parent can stay home, so the assumption is that this is an either or scenario, and that a CCS and income splitting could not be used in conjunction.

Where median wage is used it is taken from the latest ABS datawhich gives a median wage of ~$90,000 a year for full time employees. Due to child care fees mostly being charged daily it favours those who can work full days to maximise their income while the child is in care. Many jobs are flexible enough to offer part time work which can be utilised to reduce the need for child care while still maintaining a healthy and worthwhile income.

The Maximal Case for Income Splitting

Income splitting is obviously most beneficial if you're lucky enough to be in the top tax bracket, currently 45% for earnings over $190,000. Thus any earnings taxed in this rate that can be shifted to your spouse will move you down to lower brackets and lower your effective tax rate. So the maximum benifit available would be for a combined income of $380,000, any further increase would see both parents taxed at the 45% rate.

Income Splitting Comparison

Based on 2025-26 tax rates

In percentage terms it appears that income splitting works well for median earners, however in absolute terms such an arrangmement overwhelmingly favours ultra high income earners.

Child Care Subsidy Comparison

Use the following calculator to compare different earning scenarios with the current CCS settings. Based on 2025-26 standardand higher rates

After playing around with various scenarios it's abundantly clear that the CCS is better financially for basically everyone. Some notable calculations for comparison.

• With both parents as median wage earners, they are around $30,000 better off with CCS compared to tax splitting
• With the secondary worker on the median wage and working 3 days a week requiring 3 days of child care, the equivalent point between the two systems for the primary earner is... $280,000
• If you have two or more children with a combined income of over $367,563 then income splitting is better as you don't receive the higher subsidy rate

The only other justification for an income splitting model is for people who would stay home regardless, however the CCS model also allows for the secondary earner to work part time as a good compromise.

Secondary effects of the childcare model

Working produces many benefits not accounted for in the income splitting model.

• Super and leave entitlements accrue if both parents continue to work
• Extra skilled jobs created through childcare which flows back in to the tax system
• Better financial independence

Conclusion

Whilst the reality of both parents needing to work in the current day and age may not sit well with everyone, I believe the benefits are well justified. The CCS model also allows for greater flexibility to optimise financial benefit against spending time at home with your children, giving a best of both worlds feel.

Adopting an income splitting model would likely require a complete overhaul of the tax system and there would be winners and losers. At face value the goal of allowing for more stay at home parents just doesn't seem to be helped by such a scheme except for those earning enough money to not need assistance in the first place.

If you want to remove the financial burden of having children to encourage more people to have them, income splitting isn't likely to move the needle very far.