No losers from tax cuts package, NZIER suggests

Friday 19th March 2010

All taxpayers should be the same or better off as a result of a tax package cutting income tax rates at every level of income while raising GST, the New Zealand Institute of Economic Research said today.

NZIER assumes that the government will raise GST from 12.5% to 15% and move from the current four tier tax structure that taxes income as income rises at rates of 12.5%, 21%, 33%, and 38%.

Instead, income tax would kick in at existing income thresholds at the lower rates of 10%, 19%, 30%, and 33%.

NZIER estimates that while anyone, other than a pensioner, earning less than $19,600 a year would come out even after the GST rise, superannuitants would be $7 a week better off, while people earning between 19,600 and $38,000 would be $2 a week better off, moving up to $90 a week for people earning more than $146,900.

The NZIER analysis assumes the Tax Working Group was correct in assuming $1.3 billion in revenue would be available from ending depreciation allowances on investment properties, but Finance Minister Bill English signalled yesterday it was a substantially smaller number, and that the tax package would be constrained accordingly.

NZIER says the changes would deliver the greatest in-the-hand benefit to high income taxpayers, but they would remain paying the bulk of income tax and GST, and could expect to be worse hit by the investment property tax changes.

"The top 20% of households will continue to pay around 46% of all income tax and GST," said NZIER, compared with 30% of households on low incomes paying 8% of all income tax and GST.

Businesswire.co.nz

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