Big Wednesday: $2 billion in the pocket

Workers on the average wage will have an extra $15.66 a week in their pocket from Wednesday when changes including tax cuts, increases to benefits and superannuation, and a boost to the minimum wage take effect.

From April 1 nearly $2 billion in extra cash will start flowing into taxpayers' pockets as a result of the tax cuts and a 3.4 per cent increase in benefits and superannuation and student allowances.

The minimum wage will go up 50c to $12.50 an hour although critics say that when the increase is adjusted for inflation the real income gain on one year ago is only $3.78 a week.

An increase in Accident Compensation levies will take some of the extra money, but overall the changes leave fulltime workers on the minimum wage $24.30 a week better off.

People on the average wage of $48,500 a year will get an extra $15.66 a week and those on $100,000 will benefit by $18.46.

The tax cuts are worth just over $1 billion over the next year and will benefit 1.4 to 1.5 million people, the Treasury says.

They are an important part of the Government's plan to combat the recession and the message is clear - spend it for the short term good of the country, or pay off debt for the longer term good.

Finance Minister Bill English said people could use it as they chose, but spending it would help "cushion" the country.

"People who have high levels of debt need to reduce their debt and, as a rule, New Zealanders have too much debt. But if those who have lower levels of debt spend it, it helps the economy."

But the shaky jobs market appears to be putting people off spending.

Figures out yesterday showed the economy shrinking for the fourth consecutive quarter and household spending flat in the last quarter of last year.

Spending on items such as cars, appliances, furniture, food and beverages was down, despite the boost to incomes from tax cuts last October, and cuts in interest rates and petrol prices.

Asked about future tax cuts - which Prime Minister John Key has refused to confirm will go ahead as promised in National's election campaign - Mr English would say only that any changes were considerations for this year's Budget.

MAIN CHANGES

TAX CUTS
* 33 per cent tax rate starts at $48,000 instead of $40,000.
* $10 a week rebate for workers on $24,000 to $44,000 (phased out at $48,000).

KIWISAVER
* Workers can drop contribution from 4 to 2 per cent.
* Employer contribution rises from 1 per cent to 2 per cent, but will go no higher.
* No Government tax credit to employers and no fee subsidy for savers' accounts.

SMALL AND MEDIUM BUSINESSES
* Less provisional tax payable early.
* ACC levies for employers and self-employed up from $1.26 to $1.31 per $11 of payroll.