4. JONATHAN YOUNG (National—New Plymouth) Link to this
to the Minister of Revenue
How will the tax system be fairer and more equitable for all New Zealanders from 1 October?
Hon PETER DUNNE (Minister of Revenue) Link to this
In response to the member’s question, the tax system will be fairer and more equitable in the following ways. By next Friday the bottom tax rate will have fallen 30 percent in the last 2 years to 10.5c, and the threshold up to which it applies will have gone up considerably, from $9,500 to $14,000. All intermediate tax rates will have been reduced, and every income tax threshold increased, so much so that for nearly three-quarters of taxpayers the top marginal rate will now be just 17.5 percent. When the effect of Working For Families tax credits is added in, a family with two children will now pay effectively no tax at all until their earnings exceed $50,000.
That is a very interesting question. Two-thirds of the cost of the income tax cuts will go to reducing the bottom two marginal tax rates. The rate for income up to $14,000 will go down from 12.5 percent to 10.5 percent, and the rate for income up to $48,000 will reduce from 21 percent to 17.5 percent. In every single income level, the income tax cuts will more than offset the rate of increase in GST. A further important point is that we are also reducing the top personal tax rate to 33 percent, and aligning that with the rate payable by trusts.
The costs of these cuts do have to be met, and the Budget is therefore not a lolly scramble. The groups that will pay more are property owners, large foreign companies with interests in New Zealand, people who use trusts to reduce their taxable income to gain access to Working for Families tax credits, and also smokers. For its own part, the Government will be giving another $120 million to the Inland Revenue Department to better prosecute cases, and we expect about a fivefold return over the next 4 years. In response to both this question and the previous questions, all these measures put together are overall a much fairer tax system for every single New Zealander.
Stuart NashHow can the tax cuts be fair when they increase the wage gap between someone on the median wage and someone on $120,000 by over $75 a week?
I do not think the member was listening to my earlier answer. The biggest point of fairness in this package is the fact that nearly three-quarters of New Zealand taxpayers after 1 October will face a top marginal tax rate of just 17.5c in the dollar. That is a huge improvement on the position just a couple of years ago, when that rate was over 30c in the dollar, and it certainly boosts our international competitiveness.
How can it be equitable when the Minister himself will be better off by almost $140 a week while someone on the median wage in his electorate will be better off by less than $5 a week?
Unlike the member, I am not fixated by what I earn. The reality is that with two-thirds of the cost of this package being borne by the bottom two tax-rate changes, the vast majority of the impact of the package will be beneficial for people on those lower income tax rates.
Hon Heather RoyWill the final tax proposal outlined in his Making tax easier discussion document prevent workers who have been overtaxed through no fault of their own from receiving a tax refund; if so, how is this fair or equitable?
Firstly, we are still consulting on that particular proposal, but the point at issue there is that by having a better method of collecting tax from people, through greater reliance on electronic measures, we will actually get the tax rate right first up, so there will not be the need for the unders and overs square up at the end of the year. So I can assure the member that no one will lose out under that proposal.