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New Zealand|Politics

Kiwis 'pay $483 a year more in tax because income brackets not adjusted for inflation'

26 Mar, 2017 04:00 PM3 minutes to read
The average Kiwi is paying $483 a year more in tax because income brackets have not been adjusted with inflation, a new report by a right-wing lobby group claims. Photo / File

The average Kiwi is paying $483 a year more in tax because income brackets have not been adjusted with inflation, a new report by a right-wing lobby group claims. Photo / File

Nicholas Jones
By
Nicholas Jones

Political Reporter

VIEW PROFILE

The average New Zealand worker is paying $483 a year more in tax because income brackets have not been adjusted with inflation, a new report by a right-wing lobby group claims.

The Taxpayers' Union report is released today and written with input from former Inland Revenue staff - former head of policy Robin Oliver and former team leader of revenue forecasting Dr Michael Dunn.

In an effort to put pressure on the National-led Government ahead of May's Budget, the report assumes $3 billion is available for tax relief in 2017/18.

The report outlines five different options for how those tax cuts could be divvied out.

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They are:

• A tax-free threshold of up to $13,000. The report states this would save taxpayers $1295 a year, for those earning more than $13,000.

• Cutting the marginal tax rate for earnings between $48,001 and $70,000 to 17.5 per cent, and increasing the 10.5 per cent threshold from $12,000 to $24,000.

The report says this would particularly benefit middle income earners, giving the example of a $4000 a year saving for a dual-income household with a combined income of $100,000.

• Cutting tax rates for high income earners by eliminating the top tax bracket and reducing the rate above $48,001 to 26 per cent, and slashing company and trust tax rates to 26 per cent.

Those measures would save a person earning a $120,000 salary more than $4300 a year. A low income earner would get no benefit, while the average earner would save just $360 a year.

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• Increasing the income thresholds of each tax bracket without adjusting any of the tax rates.

• Reducing the company tax rate from 28 per cent to 13 per cent, at a cost of $2.88 billion.

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The report stated that an "average worker" on $57,000 is paying $483 a year more in tax than they would had income tax thresholds been adjusted for inflation since 2010.

On tax cuts, Prime Minister Bill English has said "something will be covered" in May's Budget and any changes would take effect from April 1 next year.

However, it won't be as drastic as the options outlined in the Taxpayers' Union report, with English saying changes won't be a "sugar hit". Adjusting tax brackets was part of the discussion about how to give tax relief, the Prime Minister said.

Labour and the Green Party have criticised National for dangling the prospect of tax cuts in front of voters, saying education, health and other public services are badly underfunded and New Zealanders are suffering as a result.

Labour has pledged not to raise taxes if it leads the next Government, aside from a previously announced policy to extend the "bright line" test from the current two years to five years, to target property speculators.

The Government this month recorded a stronger operating surplus than forecast, at $1,145 million for the seven months to January, compared with the $442m surplus that had been forecast.

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It shelved plans for a small $1 billion tax cut programme in last year's Budget and instead put the money into health.

However, then-Prime Minister John Key signalled more significant tax cuts were in the pipeline either for the 2017 Budget or as a National Party policy in the 2017 campaign.

The last round of tax cuts were in 2010 when National reduced the thresholds and lifted GST to 15 per cent to pay for it. It left the average earner $15 a week better off.

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