Wednesday, 8 October 2008

Tax Cuts down, as National aims for fairness

After the revelations this week of the extent of damage Cullenomics has done to the New Zealand economy over the last 9 years, the National Party has largely held their ground and confirmed its package of tax cuts, planned to come in over the next 2 1/2 years if it wins the election.

Admittedly it's not the most ambitious or innovative tax package National could have come up (but then ambition and innovation have never been National's strong points), but it's probably not too bad considering all the other Labour-lite policies Johnboy has adopted over the last year.

National Leader John Key says the changes would leave the average worker better off by a reasonable $47 a week by 2011. National's package include adjustments in the thresholds that higher tax rates kick in, as well as small drops in the actual tax rates.

National plan to introduce the biggest cuts on April 1st next year, to boost the economy...

- Income up to $14,000 would be taxed at 12.5%
- Income $14,000-$48,000 would be taxed at 21%
- Income $48,000-$70,000 gets hit with 33%
- and a top tax rate of 38% for income over $70,000 (currently 39%)

Thresholds and tax rates will be adjusted further on April 1 2010, with the second band rising to $50,000, and the top rate dropping to 37%.

A year after that on April 1 2011, the 21% tax rate will be lowered slightly to 20%, with "medium term" plans to cap New Zealand's top tax rate at 33% (as it was before Cullen introduced his "envy tax").
It is interesting to see National trying to balance out things for single people and couples without children, with plans for a tax rebate of $10-15 a week for those earning $24,000-$50,000 who don't receive anything from Working for Families.

However I suspect it would have been cheaper and simpler to just ditch/cut the whole 'Working for Families' system (which rewards those who breed like rabbits), and instead give the money back directly to both groups through larger tax cuts, rather than wasting some of that money by having to put in place another "rebate" system.
Johnboy Key says National wouldn't have to borrow any additional money to pay for the expanded tax cuts programme, because of changes to the KiwiSaver scheme. National would cap maximum subsidies to 2%, and remove the employer tax credit.

Key says together with dropping Labour's planned "research and development" subsidy, National's changes would save $5.9 billion over the period to 2011/2012... against the cost of increased tax cuts of $5.7 billion.

Roarprawn has discovered a good Tax Calculator (Excel-based) at the NZIER website, which allows you to compare the differences National and Labour's tax policies would have on your annual income...

* Full National tax cuts package and analysis at Kiwiblog
* NZ Herald: KiwiSaver changes to help fund National's tax cuts
* Stuff: Nats trump Labour's tax package

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