nzherald.co.nz will have full coverage of today's Budget, with news, comment and analysis from 2pm.
The Government would like us to judge the tax package it announces today on two grounds: Will it be good for economic growth and jobs; and is it, more or less, fair?
On the first point the International Monetary Fund reckons a shift from taxing income to taxing consumption should
expand the economy by about 1 per cent over five or six years. Worthwhile, but not transformative.
More radical options put up by the tax working group would have allowed much deeper cuts to income tax - a top rate of 27 or even 25 per cent - funded by a big new tax on land or capital gains.
It would have meant deep cuts in the marginal tax rate not only for the top income decile but also for the 400,000 or so who earn between $50,000 and $70,000 a year and whose marginal rate is 33 per cent. The Government swiftly ruled that out on political rather than economic grounds.
The proposed tax changes would not significantly change how much of the overall tax burden falls on people in different income bands.
The New Zealand Institute of Economic Research estimates that under the proposed tax changes the tax burden (income tax and GST) will remain broadly unchanged.
Those on high incomes would benefit most, because they pay more tax as a percentage of their income. They earn more and spend more.
The top 20 per cent of households, ranked by income, will continue to pay around 46 per cent of all income tax and GST.
The upper half of households by income will continue to pay around 80 per cent, and the bottom 30 per cent of households will continue to pay around 8 per cent of all income tax and GST.
NZIER has assumed that the top rate (on income above $70,000) is cut from 38 to 33 per cent, the upper-middle rate (above $48,000) from 33 to 30 per cent, the lower-middle rate (above $14,000) from 21 to 19 per cent, and the bottom rate (up to $14,000) from 12.5 to 10 per cent.
Offsetting that is the clearly foreshadowed increase in the GST rate from 12.5 per cent to 15 per cent.
But the institute's calculations do not include the impact of any changes to the tax treatment of property investment.
The Government has said that the tax changes will leave the "vast bulk" of people better off and that they will be broadly revenue neutral.
For both of those things to be true, a minority will be need to be left considerably worse off, hence a level of nervousness among landlords.
