The Taxpayers' Union suggests five ways the government can provide $3bn of tax relief to New Zealanders in its May Budget; Attacks bracket creep

By The Taxpayers' Union*

The Government’s failure to index tax brackets to inflation since 2010 now costs the average Kiwi income earner almost $500 each year according to a new report released by the Taxpayers’ Union. The report, "5 Options for Tax Relief in 2017", models five options to deliver meaningful tax relief packages which could be part of Budget 2017 with fiscal implications of $3 billion or less.

Taxpayers’ Union Executive Director, Jordan Williams, says, “The National Government likes to talk the talk on lower taxes, but this report shows very clearly that they are simply not walking the walk.  Because tax thresholds have not been adjusted with inflation, the average Kiwi worker is now paying $483 more per year in tax than in 2010.”

“By 2020, Government surpluses are expected to be $8.5 billion per year. With Bill English having pumped $10.36 billion into new spending, and only $415 million allocated for tax relief in that time, if now isn’t time for meaningful tax relief it never will be.”

“In addition to modelling various options for tax relief to compensate New Zealand families who are paying more, the report calls for tax thresholds indexed to inflation going forward.  That would prevent Wellington increasing the average tax rate paid by New Zealanders every year, raising extra revenue for the Government, in real terms, without the transparency of actually raising taxes.”

“If we instead indexed thresholds to the growth in average earnings, dating back to 2010, the average earner would save $1,350 each year, or $26 each week."

“With the Government set to make a decision on Budget 2017 and its tax relief package in the coming weeks, we hope this report gives taxpayers assistance in understanding what is realistic for Budget 2017.”

The paper was prepared by the Taxpayers’ Union, with input from Research Fellow, Jim Rose, former IRD head of policy, Robin Oliver, and a former team leader of revenue forecasting at Inland Revenue, Dr Michael Dunn.

$3bn relief package - 5 options

5 Options for Tax Relief assumes the Government commits to a $3 billion tax relief package. When asked in 2016 how substantial a tax relief would be on the cards in 2017, John Key said "$3 billion I reckon".

There is a distinction between inflation-indexation and average-earnings indexation. Inflation-indexation involves adjusting the thresholds of each tax bracket to inflation. Average earnings indexation involves adjusting the thresholds to the growth rate of average earnings. For example, if average wage growth is 3% in 2017, the thresholds of every bracket will increase by 3%.

The options with a fiscal impact of $3 billion or less which are modeled in the paper include:

  • a tax-free threshold up to $13,000. This would save all taxpayers earning more than $13,000, $1,295 each year;
  • a reduction of the marginal tax rate of earnings between $48,001 and $70,000 to the lower rate of 17.5%, and an increase of the 10.5% threshold from $12,000 to $24,000. This would benefit all full-time income earners but especially targets middle-income earners. For example, a dual-income earning household with a combined income of $100,000 would save over $4,000 a year;
  • reducing the tax burden of high income earners by eliminating the top tax bracket and reducing the $48,001+ rate to 26%. The model also reduces company and trust tax rates are reduced to 26% – reducing incentives to income shift and minimise administrative burden. This option would save a professional, earning a salary of $120,000, more than $4,300 each year; 
  • an increase to every threshold without adjusting any of the tax rates; and
  • a reduction of the company tax rate to 13%. This would make New Zealand the second most tax competitive country in the OECD.

__________________________

* The New Zealand Taxpayers’ Union is an independent and membership-driven activist group, dedicated to being the voice for Kiwi taxpayers in the corridors of power. You can see its website here.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

6 Comments

Taxpayers Union - typically moving the deck chairs on the Titanic without considering the stability of the ship.
Who are they anyway?
It all looks too like NZ Initiative illogic but very acceptable to the nimble minds of National like Bill and Steven.

New Zealand seems to be coming apart at the seams and the Tax Payers Union want tax cuts. They seem to be a bunch of liberal weirdos and ACT rejects who would rather see us buried in debt. National's last tax cut and GST increase just made inequality worse and pushed tax onto low income earners. Perhaps the Tax Payers Union should be less focused on greed and selfishness and use their time more productively.

Let's not call this tax relief or tax cuts. Call it a government subsidy to the well-off and/or a pretext-in-advance for further trashing of public services and public assets.

A combination of 1 and 4 is the most equitable and politically acceptable tweaks. Most of the changes proposed by Union are ridiculous:
#2: There should be more tax brackets, not fewer. The jump from 17.5% to 30% is already too big
#3: Aiming tax cuts at the "rich" is political suicide
#5: reducing company tax rate only helps multinationals. You'll enter a race to the bottom as other nations cut rates, so it's throwing money onto a fire.

Taxpayers Union.
A further look at their web site shows that they pretend to have no political ambitions. Their committee includes at least one right wing , very pro Nats blogger which makes me happy to ignore any advice they may offer.

It would be great if New Zealand could reduce taxes on income, and gst. This would free up disposable income to stimulate the economy.

I like australia's system, 10% gst.
plus pretty decent looking income taxes
https://www.ato.gov.au/rates/individual-income-tax-rates/