When tax brackets go past their use-by date

Todd Talks
By Todd Muller

When the tax brackets were last adjusted in 2010 there was a $21,000 gap between the average wage and the top tax threshold of $70,000.

That gap has narrowed to just $8000 today, and if nothing changes then within a few years the average wage-earner will be in the top tax bracket. That was clearly not the intent of the Income Tax Act.

While the tax thresholds have remained frozen for the last decade, the cost of living has been rising and under this tax-happy Government those costs are now accelerating. Every New Zealand family knows a dollar doesn’t go as far as it once did.

The effect is known as bracket creep, where inflation leaves someone worse off even as they cross into a higher tax bracket. It is taxation by stealth.

National legislated to change the thresholds in 2017 but the current Government cancelled that. It was a mistake. Someone earning $70,000 doesn’t feel wealthy when all their costs are rising and they shouldn’t be punished for thresholds that haven’t moved with the times.

A National Government will amend the Income Tax Act so tax thresholds are adjusted every three years, in line with the cost of living. For someone on the average wage of $62,000 the policy will put an extra $9900 back into their pocket during 10 years.

National commits to indexing tax thresholds to inflation in its first term. Under our policy within 12 months of an election the Treasury would be required to advise a new Government how much the thresholds should be adjusted for inflation.

The Finance Minister of the day would be able to veto an adjustment in adverse circumstances such as a financial crisis but would then be expected to explain why Kiwis were falling behind.

When compared to this Government’s wasteful policies, the impact in lost Crown revenue is relatively modest. The estimated $650 million of foregone tax after the first adjustment is roughly one-fifth of the current Government’s commitment to NZ First’s provincial slush fund.

We believe that’s achievable, with National’s prudent and sensible economic policies.

This is only one aspect of National’s policy programme but it goes to one of our core beliefs: that ordinary New Zealanders should be able to keep more of what they earn.

They certainly need every dollar under the current Government, whose policies have added to the cost of petrol, rent and electricity and which is squandering hundreds of millions of dollars on working groups.

National is committed to helping New Zealanders get ahead. We won’t allow future Governments to use inflation as an annual tax increase by stealth and we’ll cancel new taxes piled on by the present Government.


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