Terry Baucher says nearly everyone gets something in Steven Joyce's election year Budget, but he's surprised the threshold for the top tax rate of 33% remains unchanged at $70,000

Terry Baucher says nearly everyone gets something in Steven Joyce's election year Budget, but he's surprised the threshold for the top tax rate of 33% remains unchanged at $70,000

By Terry Baucher*

Rather like Oprah dishing out prizes, pretty much everyone gets something from this year’s Budget. 

The big tease is over and the much-anticipated tax cuts are here, or they will be from 1 April next year once the small matter of a general election has been resolved. 

As had been indicated, the tax cuts are targeted at low to middle earners. Coupled with increases to working for families tax credits and the accommodation supplement, the total cost of the package is about $2 billion per annum. 

Tax rates remain unchanged but the big changes are to the thresholds for the 17.5% rate up $8,000 or 57% to $22,000, and the 30% rate, raised by $4,000, or 8.33%, to $52,000 (still well below the average wage of $58,900). It’s worth noting that according to Treasury estimates 67% of all taxpayers, or over 2.4 million people, have annual income below $60,000. Very surprisingly, the threshold for the top rate of 33% remains unchanged at $70,000 where it has been since 2010. 

From 1 April 2018 the new thresholds will therefore be;

 

This year’s sneaky tax adjustment is the withdrawal of the Independent Earner Tax Credit, currently worth a maximum of $520 a year. This is probably unsurprising given that this credit specifically targets those with taxable income between $24,000 and $48,000, part of the main group targeted by the overall package. Apart from the income limits, the credit is only available to those not eligible to receive benefits, New Zealand Superannuation or Working for Families tax credits. 

Very surprisingly, apparently only 32% of those eligible to claim the credit have done so. That means thousands, if not tens of thousands of taxpayers are missing out. It would be worthwhile for earners in the $24,000 to $48,000 zone to review their position not only for the current tax year for prior tax years to see if they’re eligible. 

Elsewhere the Earthquake Commission’s Natural Disaster Fund will be rebuilt with increased levies. From 1st November this year the rate homeowners will pay will increase from 15c per $100 of insurance cover to 20c with an annual cap of $276 (GST inclusive). This will mean an increase of up to $69 per homeowner. The intention is that the Natural Disaster Fund which has exhausted its reserves will be restored to the EQC’s reinsurance excess of $1.75 billion within ten years. 

The changes to the working for families’ tax credits and accommodation supplement are expected to benefit more than 1.3 million families by an average of $26 per week. Apart from increasing family tax credit rates, the number of rates applicable will be reduced from five to two. This is apparently the first stage of simplifying the complex interaction between tax and benefits (universal basic income anyone?). 

The increases in working for families come with a sting though: from 1 April, the annual income threshold at which abatement of benefits starts is reduced from $36,350 to $35,000 and the abatement rate will increase to 25 cents in the dollar. This change had been signalled in previous years but not until 2025. It means that the effective marginal tax rate for someone receiving working for families and earning $40,000 is a hefty 42.5 percent (17.5 percent income tax plus the abatement). Add in ACC of 1.7 percent and student loan repayments of 12 percent and that’s an effective marginal tax rate of over 55 percent. This perhaps lies behind the review of the whole tax/benefits interaction. (Finance Minister Steven Joyce expressed some bewilderment at the plethora of tax refund companies currently operating, another by-product of the complexities in this area).  

Apart from the repeal of the independent earner tax credit, there were no other specific tax measures. This is a tribute to the stability of the generic tax policy process but it does make life a bit tame compared with an Australian or British budget which are full of tax surprises such as the special levy on banks in the recent Australian Budget. However, at the Budget Lockup Joyce commented that the tax revenue included an expected $250 million over the next three years from the Government’s proposed changes to the taxation of multi-nationals announced in March. Joyce considered this a “conservative” estimate. It will be interesting to see how much will come out of the initiative. 

There was nothing in the Budget about the taxation of savings although when asked about this, Joyce kicked for touch and suggested a future review was possible. Perhaps he didn’t want to admit how much of a nice little earner the current system is for the government. How long the present settings will remain is another story for another Budget.

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*Terry Baucher is an Auckland-based tax specialist and head of Baucher Consulting. You can contact him here »

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I am glad they didn't move the $70,000 33% rate threshold. The increase of the lower thresholds will benefit those above $70,000 so they get something. With the top marginal rate remaining at $70,000 the tax that would have been forgone on an increased threshold can be better spent on areas that need it e.g. health and education.

A good compromise in my opinion.

You can always argue it would be better spent elsewhere. But if its never raised then eventually almost everyone will be paying the rich pricks tax.

The same 16% of rick pricks who pay 70% of the country's tax.

Yep they're pretty damn rich

Remember that this is an election year.

9 year is too little too late and this also is to try and get vote - Give them vote and see how they give a royal snub to the average kiwi.

Whatever little is left will be gone forever. Vote for Change.

So the question for Labour is whether they will accept the tax changes or reject them?

Labour will reject them out of hand ..............you'll see .

Labour have no tangible policies other than more Taxes , Jacinda Ardern wants to even tax tourists coming to spend money here.

Crazy .

Labour just want to tax everyone into poverty , they dont have anything else to offer.

The Greens on the other hand are opposed to absolutely everything , so there will be no surprises from them

That's kind of my point - many of the things that Labour have crriticised the government over have been diffused by this budget. Health up, education up, and some tax cuts.

National can say that times were tough after the GFC but now the good times are here we can spend more and some tax cuts. Seems like a reasonable argument.

Housing though - that's the issue. But National will form the next government in September.

What countries have taxed their citizens into poverty Boatman? Is it possible? Can you name one?

High marginal tax rates disincentivize investment in productive enterprise leading to declining living standards. Basic economics.

Zimbabwe in the 1980s enacted policies that caused foreign investment to effectively shun it, so it compensated by raising local tax rates and successfully generated some of the highest inflation ever seen on this planet which in turn caused widespread poverty.

@Boatman...

What a load of nonsense I don't remember the country falling to bits under Aunty Helen and the 3 term Labour Govt in the 90's early 2000's..... I never voted for her - not my cup of tea but they ran a pretty tight and secure ship. Certainly no worse than this mob.

Talk about old biases clouding actual events.................

A bit of hyperbole for sure but Boatman's basic premise that Labour and the Greens are inherently a high tax group, is credible. Robertson and Little have pulled their heads in on borrowing and spending, only because they realised the electorate would punish them if they didn't. But you still see the old 'slam the rick pricks' mentality popping out between the cracks e.g. their recent threat that the comrades will 'appropriately tax' capital if they achieve the treasury benches. Leopards don't change their spots.

@ middleman..

So again explain to me how we all suffered under the reckless tax and spend reds last time? Maybe I have a short memory but I'm pretty sure it NEVER happened.

In fact the books were pretty well balanced - I personally didn't like the envy tax (think it was over 60k income?) nor did I vote for them, but compared to what I've seen from National (who I did vote for) they were no worse. GDP / Standard of living has hardly gone ballistic under National...but I do notice I cant drive anywhere in the city I live...and none of my neighbours speak English..and the crazy house prices John Key electioneered on in 2008 and was going to fix ...well that didn't go so good....

I think the term is "confirmation bias" - in other words most will cherry pick data to support an existing bias - nothing "factual" about it.

I highly doubt Labour will get in but if they did the sky will not fall in.

$70,000 top bracket under National isn't much different to $60,000 ten to fifteen years ago under Labour, especially if you factor in inflation. With the housing crisis engineered over the last few years and soaring prices and rents, $70K now doesn't go half as far as $60K back then.

And don't forget that extra 2.5 percent that the current lot put on GST Labour the tax-and-spend party? National fiscally responsible? My arse. Endless repeats of that mantra in Crosby Textor propaganda doesn't make it true. They're just banking up expensive problems for the future through corruption and neglect.

mvgsmf. The 'sky not falling in' is not exactly a ringing endorsement of voting for the other lot.

Your comment about cherry picking data to suit your/my positions is valid. We all do that. I could bang on about the benign environment Clark and Cullen enjoyed compared to the repeat catastrophes the Nats have had to manage but other than having a bit of fun taking the piss out of other contributors, such argy bargy is of historic academic interest only.

I agree with you about the immigration shambles. My biggest gripe with the Nats. Management of Auckland housing has also been dire.

Enter a dynamic Labour team with credible and genuine solutions and alternatives ...... ah, no. Pretty much the status quo with a few tweaks. Immigration the only real point of difference but so far all we have is Handy Andy repeating ... ' we'll cut tens of thousands, tens of thousands'. No detail. Housing the same where 100,000 will magically be built by a construction sector already running at white hot pace.

The men in red have yet to convince the electorate they are safer than a known way.

Yes and remember a big contributor to these 'balanced books' is the windfall from selling of power stations that our forebears had created in our ownership. Who holds that 49% now?

I hold some of it. And they have been a great investment. Unlike governments, I insist as a shareholder that the directors apply proper commercial disciplines and work capital efficiently. Consumers are enjoying the benefits of fierce competition and the government has been able to apply the capital raised to better benefit the people of NZ.

your kidding right.
I also grabbed some solely because if a fool wants to give me money I will take it.
name where the money went, debt repayment no, more or better income producing assets to replace the income it would generate no.
I'm sure you do the exact opposite of what they did i.e sell the shares spend it with no future return
as for competition between power companies please that would be nice, but its not going to happen to any great degree because it us shareholders want a decent ROI so investment in new capacity is held back to make sure prices can increase
that is why they are a good buy they are cash cows as everyone wants power

I've got a chunk of it too.

Sounds like you are a believer in governments running non core businesses despite their poor track record in doing so. Energy companies, airlines, that sort of thing. Been a wild success in the past, eh !

Being an old fart and Buffet disciple, I tend to hang on to utilities.

Can't see why you'd think ROI was not the perfect measure to trigger creation of more capacity. Been a while since I've heard anyone suggesting dictat from Wellington might be a better approach. Chuck up another Clyde dam because it sounds like a good idea.

no I don't think they should not have sold them, but should have sold them 100% sale over a lot longer time period.
But they should have kept one 100% in both islands to have influence over the amount of supply in the country and if needed in the future could ramp it up to make sure we don't end up like californa did with spot rates through the roof and blackouts

AND they should have been honest and upfront about selling them and not feed the BS about reinvesting the capital in more assets

Again, taxpayers are going to subsidize landlords with an increase in the accommodation supplement. Landlords will only put up the rent by the amount of the supplement.
This is the most blatant election year bribe in my time

@ middle man, that's my point. If they are a great investment for you it is because the previous owner (NZ inc.) got a poor deal on the sale. By all means governments should aim to balance books through thrift and prudent spending. That is not the same as selling the silverware to buy groceries.

Not necessarily. It's possible the govt undervalued the float price but return on capital (and share price) will improve where there are better corporate disciplines.

how is that to happen while the government is the majority shareholder and calls the shots.
I agree they botched the sales, they should have sold them all (total sale) over a longer time frame except one (which they own 100% ) that had generation in both islands,
that way they would have got a better price whilst also keeping some skin in the game in case they needed to increase supply

As long as we have a government that ensures market disciplines are applied, I have no problem with NZ inc holding a majority. Given power is a strategic utility I would be uneasy about foreign interests gaining control over more than a minority of our power supply.

The risk of interference you outline lies with political agenda driven interference, such as Labours loopy plan to centralise pricing.

The market will give more accurate signals of the real need to for additional supply, than central government planners who are influenced by political considerations. E.G. a marginally economic dam at Clyde sounds like a great idea, lets do it.

A cut to the top rate would have been nice for middle income earners.