Cullen Speaks On Individual Tax

by Carla Johnson, Investors Offshore.com, London

15 October 2007

Michael Cullen, Minister of Finance for New Zealand, in a Questions for Ministers session last week, commented on individual tax rates.

Questioned with regard to the $39,000 threshold for the 33c in the dollar tax rate, Dr. Cullen explained that:

"There are various factors that can tell me whether someone earning that amount does pay 33c in tax at the margin. The average rate he or she pays at that point is normally 20 percent. In the example of a single-income earner in a family with two children, the Working for Families package means that person may effectively pay no net tax at all."

The government is currently being questioned over whether those who fall into higher tax brackets are due some relief in the next budget.

Dr. Cullen commented: "I think it is fair that what people see as the priority depends very much on where they are on the tax scale. I have heard people argue that the priority is to lower the top tax rate; they tend to be on the top tax rate. I have heard people argue that the 33c in the dollar rate is the most important criterion, and they tend to be on the 33c in the dollar rate. I tend to hear a lot of people—something like 45 percent of total full-time wage earners, and way, way more than that as a percentage of total income earners—who are on the bottom tax rate, and who would like to see some relief at their level, as well."

He added:

"It is a fair comment that the Government’s priority around tax cuts has been for modest-income families with dependent children - but we do worry about people who are struggling to bring up their kids and provide properly for them. Other changes in the taxation system, of which there are many potential changes, can help those people who are not in that position. But, of course, I emphasise that once one gets into tax cuts across the board, then the cost of those becomes very expensive in relation to the benefit for any individual person."

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