Key hints at middle-income surprise

Middle-income earners without children look set to get a surprise windfall from today's Budget.

Prime Minister John Key repeated yesterday that middle and low-income earners would not be worse off, despite an expected increase in GST to 15 per cent.

"The good news for them ... is that they will be getting more, and the interesting thing ... is that someone earning $60,000 a year with no children, who waited 10 years under a Labour government to get absolutely not a cracker, will be getting more in the Budget than they might expect."

The comments suggest the Government is looking at a tax rebate aimed at earners with no children, who don't qualify for Working for Families cash.

Those earning between $24,000 and $44,000 a year presently qualify for a $10-a-week independent-earner tax credit, and Mr Key's comments suggest the Budget could increase the scope of the payments.

The Government has signalled it plans to cut the top tax rate, on earnings above $70,000, from 38 cents to 33 cents. It is also expected to cut the 12.5 per cent and 21 per cent rates. But it faces a challenge to provide sufficient help to the 400,000 people on $48,000 to $70,000 to offset the rise in GST.

A straight tax cut for that bracket would be hugely expensive and flow through to even bigger cuts for people on more than $70,000.

Mr Key also moved to quell suggestions very-high-income earners would all be big winners, saying many would pay more tax because of changes to tax rules on investment properties and trusts, which can be used to shelter income.

His comments came after he said on Monday that Kiwis should not be envious of tax cuts for people earning more than $70,000 because they included nurses, lawyers, accountants and scientists who were crucial to the economy.

"Those people are in demand all around the world and we need to have their careers here, put to work in New Zealand," he said.

But figures from Statistics NZ show workers from all areas of the economy – many in low-paid jobs – are heading across the Tasman.

Specialised managers made up the biggest group leaving permanently for Australia in the year to September 2009, but housekeepers, restaurant workers, drivers and labourers were among the top 10 occupations of the 23,102 people who left in that period. Nurses, teachers and finance and sales professionals were also in the top 10.

Nurses Organisation adviser Glenda Alexander said registered nurses with five years' experience earned on average $60,000 a year. The union was surprised nurses had been included in Mr Key's list of the highest paid.

"We were pretty put out by that, because the top tax rate doesn't kick in till $70,000, so we're not sure why he would put us in the category of people at the top, rich people."

She said the way to deal with the loss of nurses was to lift pay rates. Though they were about the same on both sides of the Tasman, the cost of living in Australia was cheaper and the rise in GST here would widen the gap.

The Council of Trade Unions has also identified wages as the main reason for workers heading to Australia.

- © Fairfax NZ News