Low-income earners will see the greatest effect on their wallets. Photo / Northern Advocate
Finance Minister Michael Cullen has delivered bigger percentage tax cuts to low-income earners as promised, despite a big nod to high earners by lifting the base of the top tax bracket from $60,000 to $80,000.
"I think it's fair," said Salvation Army social services director Major Campbell Roberts.
"Given the huge pressure that is in the electorate for change at this point, I think as far as working families are concerned it's a fair outcome. The one area of concern is beneficiaries."
The only tax rate cut in the Budget is the lowest rate, currently 15 per cent up to $9500 a year.
The rate will come down to 12.5 per cent, and the income level for that low rate will go up to $14,000 from October 1 and to $20,000 by 2011.
Above that, the only changes are in the income thresholds - up from $38,000 to $42,000 for the top end of the standard 21 per cent tax rate, and up from $60,000 to $80,000 for the income at which the tax rate rises from 33 to 39 per cent.
In dollar terms, the tax cuts get bigger as your income rises - from $22 a week at $20,000 a year to $32 a week at around $50,000 and a maximum cut of $55 a week at $80,000 by 2011.
But in percentage terms, the biggest cuts are at the bottom - 5.7 per cent at $20,000, 3.3 per cent at $50,000 and 3.6 per cent at $80,000.
The cut remains $55 a week at all incomes above $80,000, so it falls as a percentage of income to just 1.4 per cent by an income of $200,000.
Low-income families also benefit from a 5 per cent rise in family tax credits from this October and a similar rise in the income level at whichthe credits will start being clawed back.
But these increases merely adjust for inflation and would have happened next April if they had not been brought forward.
Major Roberts said the tax cuts appeared to have been made without the need to cut social services.
"This is a heck of a lot of money - $10 billion over three years. That's more than the amount spent on superannuation in a year," he said.
"If we were to go past this, if people start pushing for even more tax cuts, then it cannot in my view be done without there being a significant reduction in some government services.
"And my fear would be that it's going to be the most vulnerable that would suffer at that point."
