Budget 2010 is all about tax, with the Government this afternoon unveiling what it says is the biggest overhaul to the New Zealand tax system in 25 years.
And it's promising the "vast majority" of New Zealanders will be better off as a result.
All personal tax rates will be cut from October 1, GST is being raised to 15pc, company tax will be cut next year and loopholes favouring property investment are being closed.
A "typical family" - with two children and an average household income of $76,000 will be about $25 a week better off, said Finance Minister Bill English.
A person on the average annual wage of around $50,000 will get an income tax cut of about $29 a week. After the GST increase is taken into account, this will fall to an extra $15 a week, if they pay an average rent or mortgage.
Today's Budget includes these key points:
- GST increases from 12.5pc to 15pc
- Company tax rates fall from 30pc to 28pc
- All income tax brackets fall, with the top rate levied on income over $70,000 per year coming down from 38pc to 33pc.
- Landlords and businesses will no longer be able to claim depreciation on buildings that are expected to increase in value.
- Rules around 'loss attributing qualifying companies' often used by property investors to reduce their tax payments are being tightened.
- All benefits including NZ Super and working for families will increase by 2.02pc to compensate for the increase in GST
- An extra $2.1bn is being spent on health over the next four years, which includes $1.7bn of new operating funding.
- Funding for schools is going up by $1.4bn over the next four years, which includes $350m in new operating and capital funding for school property.
English said the reforms, which go further than some predictions by including a cut in the tax rates of middle income earners, will make the New Zealand tax system fairer.
He is promising these income tax cuts will "more than offset the rise in GST - and low, middle and high income groups broadly receive the same proportionate increase in disposable income".
As far as the Goverment's books go, the tax reforms are broadly neutral, with the increased money raised from the GST hike and property changes matching the cut in revenue from the income tax reforms.
"These changes will make the tax system fairer by ensuring the treatment of property is consistent with other forms of investment," said English.
"This will reduce the incentive for people to buy property purely for tax reasons and will help tilt the economy towards saving, productive investment and exports."
Property investors will no longer be able to use losses from their rental properties to inflate their eligibility for the Working for Families programme, which was introduced to help those on low incomes.
Inland Revenue has been given more money in today's Budget to target property investors who have been avoiding paying tax on their "trading gains".
On the broader economic front, English said today's Budget marked a new phase in the Government's economic strategy.
"Last year's Budget was focused on getting New Zealand through the worst global crisis in living memory," he said.
"This Budget is about our long-term objective of lifting New Zealand's growth rate and New Zealander's living standards.
"It is designed to strengthen the recovery, help New Zealand families get ahead and maintain sound Government finances."
It continued the process of shifting the New Zealand economy away from borrowing, consumption and Government spending and back towards saving, investing in productive areas and exporting.
Most Government agencies have received little, if any increase in funding from today's Budget. Three quarters of its $1.1 billion operating allowance has been allocated to improving health and education and lifting science and innovation.
Some $1.8 billion has been "freed up" says English and redirected to "higher priority areas" which include health and education.
The Government expects to return to surplus in 2015, with net debt peaking at 27.4pc of GDP in 2014. If economic growth improves quicker than expected, then the extra money will be used for deficit reduction.
The Government has set up a website that will help show how much the tax cuts will affect different people.
It is at taxguide.govt.nz.