PM sees no need for speed over higher tax brackets

By AUDREY YOUNG political editor

Prime Minister Helen Clark yesterday rebuffed calls to adjust tax thresholds to reduce the proportion of taxpayers who have been forced into higher tax brackets under her Government.

"It is not being considered and right now it is not a priority," she said in response to questions at the post-Cabinet press conference about the so-called "fiscal drag".

The Government is facing criticism about the growing number of taxpayers who are creeping into higher-tax brackets as their income rises.

Because the thresholds have not changed, the Government nets a bigger windfall from more taxpayers. The figure paying the top 39c rate is nearly double the original estimate.

One of Labour's credit card pledges in the 1999 election said that only 5 per cent of taxpayers would pay more when it increased the top tax rate from 33c to 39c on income over $60,000.

But National Party finance spokesman Don Brash says that 19 per cent of full-time workers and 10 per cent of the total taxpayers are being "hammered by the 39 per cent rate".

He says in order to maintain the 5 per cent pledge, the threshold for the 39c rate should be moved to $80,000.

Fiscal drag is also catching taxpayers in other tax bands. The threshold for the 33c tax rate is $38,000 and the average earnings, including overtime, reached $38,664 in February.

Helen Clark said the issue was not an "urgent priority".

"Fiscal drag used to be a big player on the stage back in the years of high inflation. You don't have that now."

Labour had pledged to affect only 5 per cent of taxpayers at the time, "and that was the case".