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The Government's much anticipated tax cuts will strengthen economic growth and help New Zealand families get ahead, Finance Minister Bill English said.
The biggest tax reform in nearly 25 years is expected to leave the average family with about $25 more in their pocket from tomorrow.
Standard income tax rates are going down by between 2 per cent for low income earners and 5 per cent at top incomes, at the same time GST increases from 12.5 per cent to 15 per cent.
However English said changes to income tax cuts would more than offset the rise in GST.
"After the GST-income tax switch, an average income family will be about $25 a week better off, an average wage earner about $15 a week better off and a couple on NZ Super about $11 a week better off. These benefits will actually grow over time as wages increase."
Treasury estimates the changes will add about one per cent to economic growth over the next few years.
"As well as improving the incentives to work, the package tilts the economy towards savings, investment and exports and away from the unsustainable borrowing, consumption and over investment in housing of the past decade," English said.
For ordinary New Zealanders the changes would reward effort, encourage savings and help families to get ahead, English said.
Even the Opposition appeared to accept that most New Zealanders would be better off under the tax switch, English said.
"After attracting single-figure audiences around the country during their failed 'axe the tax' bus tour, all Labour can come up with now is a politically desperate gimmick of removing GST from fresh fruit and vegetables.
The "flawed move" would deliver a meagre $1 a week for the average Kiwi - and would force taxpayers to borrow another $250 million a year to pay for it, English said.
"It's just one of a growing number of unfunded Labour policies that will add billions of dollars to public debt," English said.
The main tax changes to take effect from tomorrow are:
• Personal income tax rates will be cut across the board leaving 72 per cent of taxpayers facing a top rate of 17.5 per cent or less.
• The resident withholding tax rate on savings such as bank deposits will drop in line with personal tax rates.
• The top tax rate on savings in PIE investments will drop to 28 per cent.
• The rate of GST will increase from 12.5 to 15 per cent.
• New Zealand Superannuation, Working for Families and benefit payments will increase by 2.02 per cent to compensate for the rise in GST.
Find out what the tax changes meant for you here.
- NZ HERALD ONLINE