Budget gifts for the rich

BY VERNON SMALL

Prime Minister John Key is urging Kiwis not to be jealous if the rich get more from Thursday's Budget tax package – because the rich are crucial to the economy.

What is shaping as the biggest tax package in decades could be worth more than $3 billion.

But it is expected to deliver little more than $6 a week extra to low and middle-income earners as across-the-board personal tax cuts are clawed back by a rise to 15 per cent in GST and extra tax from property investors.

Those earning more than $500,000 a year would get a $481-a-week tax cut, and even taking into account their extra GST payments, they will be more than $300 a week better off.

Mr Key has promised that the "tax switch" will leave no-one worse off and the vast bulk of people better off.

But yesterday he began selling the need for bigger tax cuts for higher earners.

"We can be envious about these things but without those people in our economy all the rest of us will either have less people paying tax or fundamentally less services that they provide," he said.

He added that those on the top rate, expected to be cut from 38 per cent to 33 per cent, consumed more and therefore paid more GST.

"But ... those who pay the top personal rate fit into some core and critical categories for our economy. They include doctors, entrepreneurs often, scientists, engineers, lawyers, accountants, school principals, nurses," he said.

The top rate kicks in on income above $70,000.

"On Thursday [you will see] a deliberate attempt to make sure those people stay and put their skills to work here in our economy," Mr Key said.

The Government says other changes will make the tax system fairer by closing property investment loopholes and clamping down on those sheltering income to qualify for Working for Families payments.

The $3b package compares with Michael Cullen's $1.5b tax cut in 2008 and the $1.1b from National's finance minister Bill Birch in 1998. However, they involved genuine cuts to government revenue, rather than the fiscally neutral package promised by Finance Minister Bill English.

The GST increase is expected to raise about $2b with up to $1b more coming from the pockets of property investors.

The hike in tobacco excise will raise $200 million.

Some will be spent on compensation for superannuitants, beneficiaries and Working for Families recipients.

As well as the cut from 38 per cent to 33 per cent, the 12.5 per cent rate, on income up to $14,000, could fall to 10.5 per cent while the 21 per cent rate, on income between $14,000 and $48,000, could fall to 19 per cent.

It is not clear if Mr English will also lower the 33 cent rate.

If he does not, someone on just below $70,000 would get the same tax cut as someone on $48,000, but would pay more GST on their extra spending.

HOW YOUR TAX CUT COULD ADD UP

If GST goes up to 15 per cent and the current 12.5, 21, and 38 cent tax rates drop to 10.5, 19 and 33 per cent, how is that likely to affect you (assuming you do not get Working for Families or own rental properties)?

 

 

 

Annual pay       Weekly tax cut          Likely extra GST          Extra per week

$10,000                     $3.85                      $3.00                               85c

$26,520                     $10.20                    $6.00                                $4.20

$50,000                     $18.50                    $12.00                              $6.50

$70,000                     $18.50                    $18.00                                50c

$100,000                    $48.65                    $24.00                              $24.65

$500,000                    $481.00                  $120–180                          $300–$360

NB: The extra GST costs are a guide only, based on an estimate of spending at each income level and an inflationary impact of 2 per cent from an increase in GST to 15 per cent. If earners spend all their income, their extra take home pay will therefore be lower than the estimate.

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