Finance Minister Grant Robertson says the National Party's plan to link tax thresholds to inflation only gives $1 a week to low-income workers, yet still begs the question: how will National pay for it?

National leader Simon Bridges has retorted, saying an inspection of the current Government's "wasteful" spending would reveal plenty of money to pay for it.

This afternoon in his State of the Nation speech, Bridges pledged to increase income tax thresholds in line with inflation every three years, a move that would put $430 a year in the pocket of the average worker in 2021 (assuming 2 per cent inflation).

The move would address bracket creep, when inflation pushes income into a higher tax threshold.


After his speech, Bridges dangled the prospect of more money for taxpayers, saying National would release a complete tax package in election year that may include tax cuts as well as the indexing proposal.

Tax thresholds have not moved since 2010 and are currently at 10.5 per cent for annual income up to $14,000, 17.5 per cent to $48,000, 30 per cent up to $70,000, and 33 per cent above $70,000.

Assuming inflation of 2 per cent, National said that someone earning the average wage of $52,000 would be $430 a year better off after the first adjustment, $900 after the second, and $1400 after the third.

"By 2022, New Zealanders on the average wage are expected to move into the top tax bracket. That's not fair, and it's not right," Bridges said.

Based on today's estimates, it would deprive the Government of $650 million a year in tax revenue, and Bridges said "we can afford that by managing the books prudently and spending wisely".

But Robertson said National had to show how they would cover not only the $650 million hole, but also the "billions" needed to reach National's debt-to-GDP target, its plan to improve state highways while also scrapping the Auckland regional fuel tax, and for more teachers' pay - though National has not said how much more teachers should be paid.

"Ultimately they have to answer the question: What will they cut? Because they cannot afford what they're saying they want to do," Robertson said.

"Probably Simon Bridges has found Steven Joyce's [$11 billion] fiscal hole in his backyard. All we've seen today from Simon Bridges is effectively a slogan ... The National Party really is the dog barking at every car that goes by."


When National was last in power, it had a goal to reduce Crown net debt to 10 to 15 per cent of GDP by 2025, compared to the current Government's target to have debt at 20 per cent of GDP in 2020/21.

A spokesman for National said the party would release its full fiscal policy - including its debt target - closer to the election.

Robertson also questioned whether the indexing policy for tax thresholds was worth it.

"If we take the numbers at face value, it is worth $8 per week to the average earner in 2021. For someone on $40,000 a year, it would be $1 per week."

After his speech, Bridges told media that National would find the money.

"If you stop the waste, whether it's $2.8 billion in fees-free, whether it's Shane Jones' [$3 billion] slush fund, there is money there."

He clarified that he was not saying he would axe either of those policies, but that in general money could be found by cleaning up wasteful spending.

Robertson said the report of the Tax Working Group, which will be delivered to the Government by the end of the week, may well include recommendations around indexing tax thresholds to inflation.

But he noted that the group's recommendations would be a tax-neutral package, leaving no open questions about how any funding hole would need to be filled.

National's tax relief:

• Raise tax thresholds in line with inflation within 12 months of the 2020 election

• People earning the average wage ($52,000 a year) would save $430 a year after the first adjustment (assuming 2 per cent annual inflation)

• This would see $650m a year less in tax collected by the Crown

• About 84,000 people would be kept from moving into the 33 per cent tax
threshold, and 95,000 people from moving into the 30 per cent tax threshold