NZ Govt Publicizes Tax Cuts

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

22 September 2010

Despite the rise on the same date of the goods and services tax (GST) rate, New Zealand’s government has emphasized that personal income tax cuts on October 1 will still improve real after-tax wages for most people in the country.

The Finance Minister, Bill English, has released Treasury advice that “shows that even when all forecast cost of living increases for the rest of the year are taken into account, including the rise in GST and a range of other factors, real after tax wages are forecast to grow due to the October 1 changes."

According to the advice, real after tax average earnings should increase by 1.2% in the three months to December 31, 2010, following the 8.7% increase in real after tax average earnings since September 2008.

The main tax changes that take place on October 1 are a reduction in personal income tax rates, leaving 72% of taxpayers facing a top rate of 17.5% or less, and a drop in the resident withholding tax rate on, for example, bank savings in line with personal tax rates, while the GST rate will increase from 12.5% to 15%.

"After the October 1 GST-income tax switch, an average income family will be about NZD25 (USD18.25) a week better off and an average wage earner about NZD15 a week better off. These benefits will actually grow over time as wages increase,” English said. "At all taxable income levels, the personal tax cuts will more than offset the rise in the GST and low, middle and high income groups broadly receive the same proportionate increase in disposable income.”

Similar calculations have also been made with regard to the effect of the tax changes on the country’s pensioners, and it has been found that the personal income tax cuts and superannuation compensation payments on October 1 will make pensioners better off even after the GST increase.

The Social Development Minister, Paula Bennett, said: "A combination of tax cuts and compensation for the rise in the GST means superannuitants will have more disposable income."

Once the increase in prices due to the rise in the GST is taken into account, a single superannuitant, living alone, will be better off by about NZD8.50 a week. After the GST increase, married couples will be better off by about NZD11 a week.

Recommended