Finance Minister Bill English has come up with a tax package "that almost looks like white rabbits out of the hat", New Zealand Institute of Chartered Accountants Institute tax director Craig Macalister says.
It had not seemed possible to produce a tax package to please everyone, but Mr English came close, and may have reignited the economy in the process, Mr Macalister said.
"A lot of people will be quite happy with it. We might see a bit of confidence return to the economy."
Middle income earners received a surprise windfall in the Budget, which will see tax rates fall across the board from October 1.
Mr English's second Budget cuts the top and bottom tax rates as expected, but also delivers much bigger than anticipated cuts for middle earners.
But about half the $29.42 tax cut for someone on the average wage will be clawed back by an increase in GST from 12.5 to 15 per cent, also on October 1.
Superannuation, benefits, Working for Families, student allowances and other income support will rise by 2.02 per cent on the same day as the tax changes to compensate for the higher GST.
The Budget also stops property investors from using depreciation to avoid paying the top rate and ends the free ride for wealthy households which shelter income in trusts to rort Working for Families.
Mr Macalister said the economy had been on hold for the budget, so struggling small businesses might now get a shot in the arm.
While higher income earners would benefit most, that was simply what happened with a proportional income tax system - they paid more tax in the first place, he said.
"We have to be realistic - people earning over $70,000 are not wealthy."
While property developers would lament the clampdown on their ability to claim depreciation, it was hard to argue with the Government approach, even if the institute was "not entirely" in favour of the move.
If there was a flaw in the budget, it was the Government placing great store in Inland Revenue being able to collect an additional $745 million over four years, he said.
While it had received $120m to help, Mr Macalister doubted Inland Revenue would collect as much as budgeted, as it was possible those it chased down would have no money.
Law firm Chapman Tripp labelled the Budget "the biggest overhaul of the tax system since 1987", and one with the capacity to wean New Zealanders off their propensity to over-invest in property. And KPMG chief executive Jan Dawson called the tax initiatives the most wide reaching in 20 years.
Company tax and tax on some savings schemes will also fall next year.
From October 1, the top tax rate, payable on income above $70,000, will fall from 38 cents to 33 cents in the dollar. The 33 cent rate which applies on income between $48,000 and $70,000 will fall to 30 cents and the 21 cent rate, on income between $14,000 and $48,000, will fall to 17.5 cents.
The bottom rate, on earnings below $14,000, will be cut from 12.5 cents to 10.5.
The changes to the top and bottom rates were well-signalled ahead of the Budget, but the cut to the 33 cent rate was kept under wraps. The size of the reduction to the 21 cent rate was also bigger than expected.
The Government estimates the changes will deliver $29.42 a week to someone on the average wage of about $50,000 a year, before the extra costs of the rise in GST is taken into account.
Budget documents estimate that, assuming that earner spent all their after tax income on items that attract GST - which does not apply to rents and mortgage payments - they would face extra costs of $15.71 a week, leaving them $13.71 a week better off.
But the cuts to the middle rates flow through to higher earners, meaning those at the top also get more than expected.
Someone earning $120,000 a year will be $89.04 a week better off after the tax cuts, and $56.08 better off accounting for the rise in GST, according to Budget calculations.
Mr English said the changes were part of an 'overwhelming' need to rebalance the tax system to make it fairer and end rorts.
"Tax reform is a centrepiece of this Budget," he told Parliament.
"We want a system that rewards effort and helps families get ahead. One that attracts and retains skilled people in New Zealand. One that encourages savings and productive investment."
He said earlier the cuts, together with the increase in GST, would see most households between 0.4 and 0.7 per cent a year better off.
Other tax changes include cutting the company rate from 30 cents to 28 cents from next year - a move that will put New Zealand ahead of Australia's rates. The rate on portfolio investment entities (PIEs), unit trusts, superannuation funds and life insurance policies will also reduce from 30 cents to 28.
From next year, property investors will no longer be able to claim depreciation on their buildings against their income and the values of assets held in trusts will be counted as part of a household's income when deciding eligibility for Working for Families.
Inland Revenue has estimated thousands of households with investment properties have used trusts to rort Working for Families.
Other Budget highlights include:
* An extra $2.1 billion for health over the next four years, including $512 million this year.
* An extra $1.4 billion for education, including $417 million this year
* $1.45 billion for infrastructure projects, including $200 million for ultra-fast broadband, $500 million for rail, $337.4 million to increase prison capacity and $177.4 million for new school buildings.
The Budget estimates the economy will grow by 3.2 per cent in the next year, and remain at similar levels for the next three years.
Unemployment is forecast to decline from 7.1 per cent in December last year to 6.2 per cent next year and continue tracking down to 4.6 per cent by 2014.
- with NZPA
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