Income Taxes Set To Be Cut In New Zealand

by Mary Swire, Tax-News.com, Hong Kong

11 December 2008

Tax changes introduced to parliament on Tuesday are crucial to boosting New Zealand's economy as financial uncertainty continues worldwide, and lifting New Zealand's long term growth rates, Finance Minister Bill English has commented.

Under the Taxation (Urgent Measures and Annual Rates) Bill - which will come into effect on April 1, 2009 - personal income tax will be cut by NZD4.4bn (USD2.4bn), the 33% tax-rate threshold will be increased to NZD48,000 from NZD40,000 and the rate on income exceeding NZD70,000 will be reduced to 38% from 39%.

Announcing the news at the official opening of parliament in Wellington, Governor-General Anand Satyanand also announced that a new tax credit for low and middle income earners will be introduced for those who don't yet receive welfare benefits, and measures will be introduced to ensure the country's KiwiSaver is more affordable.

Commenting on the measures, English remarked:

"In the short term tax cuts will put money in New Zealanders' pockets just when it is needed to keep the economy going."

"In the longer term this package will encourage people to invest in their own skills to earn more money, because they'll have to pay less of it back in tax. We see this move as a step towards our goal to deliver a personal tax system that rewards effort and provides better incentives to get ahead."

"People know best what to do with their own money. They can choose to spend their tax cuts, pay off the mortgage, or invest the money for the future."

Another – controversial – element of the Tax Bill is the repeal of the research and development tax credit from the 2009-10 income year. Of this, English commented:

"We firmly believe in the importance of research and development to keep New Zealand internationally competitive, but the tax credits aren't the most effective way to ensure that."

"We will work with business to better target government expenditure on innovation", he added.

Mr English stressed that the tax package was affordable, explaining that the tax cuts do not add to government debt, as the tax cuts are funded by the savings from changes to KiwiSaver, discontinuing the research and development tax credit, and replacing the previous government's proposed tax cuts.

The bill is expected to pass through the House on Wednesday, December 10.

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