Benjamin Franklin, one of the Founding Fathers of the United States, once wrote, “Nothing in this world can be said to be certain, except death and taxes.” But apart from these two absolute cer-tainties in life, one other certainty which almost everyone can always count on is change.
Change often happens when you least expect it. But today’s announcement from Government, which officially unveiled what it called – “the biggest over-haul to the New Zealand tax system in 25 years”, came as no big surprise to many despite much speculation and uncertainty going around the country since January this year.
In a recent speech delivered by Finance Minister Bill English during a session of Parliament, English outlined most the significant tax changes that were publicly announced today. In broad terms, he described the package that was to be unveiled shortly as addressing some of the more obvious anomalies in the current system.
The Government, according to English, set two criteria for tax reform. First, was that the package both needed to be fair and to be seen to be fair to make worthwhile tax changes permanent and enduring. Second. The package needs to be broadly neutral in terms of its impact on income distribution and must also be fiscally neutral.
Insofar as the new lower personal income tax stacks up for individuals against the backdrop of an increase in GST to 15%, the table below outlines how the new Budget affects you depending on which bracket you happen to fall under.
The new personal tax thresholds rates are: bracket $0-$14,000 will drop from 12.5% to 10.5%; bracket $14,001-$48,000, 21% to 17.5%; bracket $48,001-$70,000, 33% to 30%; and, for those earning over $70,000, 38% to 33%.
Bill English was also quoted as saying that across-the-board personal tax cuts and other changes will leave average wage earners about $15 a week better off, and average family about $25 per week better off. Furthermore, all benefits including NZ Super and Working for Families will increase by 2.02% to com-pensate for the increase in GST.
The Finance Minister said 73 per cent of income earners would have a top tax rate of 17.5% or less. The tax cuts take effect in October. But here’s a rub on that argument. Economist Dr. Bill Rosenberg des-cribes today’s budget as fundamentally unfair.
“Someone on the minimum wage of $26,520 gets an extra $4.13 a week but some-one on 4x the minimum wage or $106,080 gets an extra $43.08 a week,” he said. “Their tax cut is 10x more than the worker on the minimum wage.”
Even worse, someone on 10x the minimum wage gets a tax cut of $153.92 a week, which is around $150 more a week than the person trying to get by on the minimum wage.
Government’s response on this issue, however, is that while higher income earners pay more tax and therefore receive larger personal income tax re-ductions, these groups also bear the impact of most of the tax base broad-ening such as the closing of tax avoidance loopholes, particularly for property investment holdings and property investors who make Working for Families claims. Nevertheless, all household income groups will receive on average around a 0.5% to 1% increase in their real disposable income.
If you’re not sure how to figure out how much you’ll be paying (or getting) under the new tax regime structure, you can visit the 2010 Budget Tax Guide web page of The Treasury to find out how these changes affect you.
The devil is always in the details somewhere, as the saying goes. If you want to dig deeper, we’ve provided an Executive Summary which you can download at your convenience. Get ready to use your fine-tooth comb!