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Source: ONE News -
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Prime Minister John Key says the tax cuts announced in the Budget mean 75% of Kiwis are paying only 17.5% income tax and he thinks most Kiwis will welcome that.
In the Budget announcement today, Finance Minister Bill English confirmed cuts in personal taxes across the board and that GST will rise to 15%.
Key told TV ONE's Close Up that the Budget wasn't just a win for the rich.
"For three quarters of all New Zealanders, their top personal tax rate is 17.5%, or in other words, they keep 82.5% of what they earn."
Key says that top 10% of Kiwi earners currently pay three-quarters of all the personal tax in New Zealand (excluding Working for Families and other benefits) and while he thinks most Kiwis will be happy with those high earners getting a tax cut, he also wants to move more people into that tax bracket.
"That's been a big part of this whole Budget, it's not just about tax, it's about trying to put the right incentives in the economy so people say yeah, it's worth going that extra mile," Key says.
Alonside those income tax cuts, superannuation, Working for Families and benefit payments will increase from October.
High income earners stand to make the biggest gains from the Budget tax shake-up but there's also a crackdown on property investors and tax evaders.
The top tax rate, on income over $70,000, will come down to 33% from 38%.
The company tax rate will fall from 30% to 28% next April in a move the government says will encourage investment and competitiveness.
It means New Zealand will beat Australia which is cutting its company tax rate to 28% but not until the middle of 2014.
Superannuation, Working for Families and benefit payments will also increase from October.
Tax rules for investment property will be tightened from next April to make the tax system fairer and encourage productive investment and exports. The rate for trusts will be aligned with the top tax rate at 33%.
What the tax cuts mean
English says the tax package will leave someone on the average wage of about $50,000 with an average rent or mortgage about $15 a week better off - Find out how the tax changes will affect you with this calculator.
A typical family with two children and average household income of $76,000 will be about $25 a week better off, he says.
Here's what the personal tax cuts from October are:
- Income up to $14,000 will be taxed at 10.5%, down from
the current 12.5%
- Tax on income from $14,001 to $48,000 will be 17.5%, down from
21%
- Income from $48,001 to $70,000 will be taxed at 30%, down from
the current 33%
- The top tax rate, on income over $70,000 will be cut to 33% from
38%
English says at all taxable income levels, the personal tax cuts will more than offset the rise in GST - and low, middle and high income groups broadly receive the same proportionate increase in disposable income.
"As well as improving incentives to work, the package tilts the economy towards savings, investment and exports and away from the unsustainable borrowing, consumption and over-investment in housing of the past decade," he says.
"These tax changes are broadly fiscally neutral and will make New Zealand more competitive globally at a time when many countries are increasing taxes to tackle rising debt from the global recession.
"That will help attract and retain skilled New Zealanders who might otherwise look for better opportunities overseas."
Significant tax reform
English says it's the most significant tax reform package in New
Zealand for nearly 25 years.
"Across the board personal tax cuts and a package of other tax changes will help boost economic growth, make the tax rules fairer and help hard-working Kiwis get ahead under their own steam."
He says his second Budget also sets a credible path for getting back to surplus in 2016 , three years sooner than forecast in last year's Budget, by controlling rising debt.
He says the government still expects to borrow an average $240 million a week until 2013 before this amount falls away as we move closer to budget surplus.
The personal tax cuts will be worth $14.3 billion over four years.
Revenue Minister Peter Dunne says aligning the top tax rate with the trust rate at 33% ensures that wage earners in the top tax bracket - like many high school teachers, nurses and police - no longer pay a higher tax rate than wealthy individuals who can structure their tax affairs and effectively select the tax rate they want.
Also from October, tax rates for most PIEs and bank interest will fall. The top tax rate for most PIEs will fall from 30% to 28%.
The tax rate for other savings vehicles will fall to 28% from
next April, to encourage savings.
Property tax changes
From April 1 next year, depreciation deductions will be denied for buildings such as rental housing and office buildings with an estimated useful life of 50 years or more.
In an immediate change, the government is removing the 20%
accelerated depreciation loading for new plant and equipment
purchased after Budget day.
Property investors will be prevented from using rental losses to
inflate Working for Families eligibility and payments, from
April.
Revenue Minister Peter Dunne says closing loopholes that allow well-off families to use investment losses to inflate their eligibility for Working for Families payments will remove another incentive to invest in property.
Inland Revenue will get funding over the next four years to target property speculators who have been avoiding paying tax on their trading gains.
Dunne says cutting the top personal tax rate from 38% to 33% will reduce the value of losses higher-income earners can claim on property investments.
There will also be changes to tax rules for qualifying companies and loss attributing qualifying companies, so shareholders cannot deduct loses at their marginal tax rate and pay tax on profits at the lower company rate. The comes into effect next April.
Dunne says these changes will generate at least $2.48 billion additional revenue over the next four years which can be returned to all taxpayers as part of the government's package of across the board tax cuts.
The Treasury estimates the impact on rents of the Budget tax changes will be slight, with rents rising about 1.4% more than they otherwise would have over the next three to five years.
There will be a cut in the tax rate faced by unit trusts, life insurance policyholders and some other savings vehicles from 30% to 28%, from next April.
Benefits
From October, there will be tax cuts on New Zealand Superannuation and a 2.02% increase in payments to recipients of NZ Super, main working-age benefits and Working for Families - reflecting Statistics New Zealand's calculation of the effect on prices of the rise in GST - worth $2.2 billion over four years.
Extra spending
The Budget allocates $321 million over four years for research, science and technology which the government says is a key engine for a faster growing economy.
It also provides an extra $2.1 billion for fontline health services over the next four years, including an extra $512 million in 2010/11.
An extra $ 1.4 billion is invested into schooling and early childhood education over four years, including and extra $417 million in 2010/11.
Public services
Another $1.8 billion of lower priority government spending is freed up over the next four years for priority areas such as healthcare, education and law and order. This is in addition to the $2 billion of lower priority spending found in the 2009 Budget.
English says it's clear to the government that previous ways of delivering essential frontline services and social policy programmes can be improved.
"On behalf of taxpayers, we spend tens of billions of dollars a year on public services and social programmes, so we owe it to those taxpayers and users of public services to do the best possible job for them."
There is considerable scope to remove duplication, improve processes and reallocate resources to deliver better frontline services, he says.
"We are calling on government agencies to account and changing the way we work with the NGO (non governmental organisations) sector - giving more control of service delivery to communities."
The government says it will live within its $1.1 billion annual operating allowance for new spending in this Budget, and will restrict subsequent increases in the allowance to 2% annually.
Deficits to continue
English says the government expects to run an operating deficit of $8.6 billion in the coming year and further deficits are forecast until 2016 when it returns to surplus.
As a result, net debt is forecast to rise sharply from 14.1% of GDP in the current year to a peak of 27.4% of GDP in 2015, and then fall.
Growth is forecast at 3.2% this financial year, compared with the 2.4% predicted in December.
The Budget tax package is conservatively forecast to add about 1% to the size of the economy by 2017, says English.
But he says the higher growth outlook does not alter the medium-term challenge of getting back to surplus and reducing debt.
Add a Comment:
Post new commentlauzyeah said on 2010-05-27 @ 14:22 NZDT: Report abusive post
I am coping now, just, with prices as they are, but once they go up im going to struggle.and if it wasn't for Working for families, i would have to be on a benefit, and im sure this is the case for thousands of parents.i'm working to get ahead, and im doing a damn good job too, would you rather they cut WFF and have thousands back on the benefit,using more money? think about it
westy mum said on 2010-05-24 @ 07:30 NZDT: Report abusive post
WELL WE ARE REALLY STRUGGLING NOW FAMILY OF SIX ONE PARENT WORKING WE CAN BEARLYH AFFORD FOOD WEEKLY NOW WE DONT DRIM\NK HAD TO GIVE THAT UP WE DONT SMOKE TO DEAR, WE HAD TO GIVE OUR CAR UP WE COULDNT AFFORD GAS SO WE USE THE TRAIN WE ARE WE GUNA GET A BACK COME ON IF IT WASNT FOR THE WORKERS OF THIS COUNTRY WHERE WOULD WE BE
entwine said on 2010-05-23 @ 20:32 NZDT: Report abusive post
Being a single 40+ female, with no children I think the budget will be of benefit to me. To be honest, I was a bit sick of the previous Governments working for families etc. We all have choices in life, why should I pay via my taxes for someone else deciding to have children? I struggle to make ends meet too!
Juanita01 said on 2010-05-21 @ 17:36 NZDT: Report abusive post
This is a step in the right direction. If people can not afford to have these childen, then stop. Stop complaining that things are going to cost more, stop spending! People have to start taking responsibility for there actions and stop expecting the government to hand them everything.
lauzyeah said on 2010-05-21 @ 15:50 NZDT: Report abusive post
I am a single mother of 2 children both under age 4, i am 23 , i am not on a benefit, and i am working to raise these boys. I cannot afford to stop working and go study to get a better job, if i did, i would have to go on the benefit, which would cost the government and tax payers more money. the government wants people off the benefit and working, but now have raised tax on everything, making it a hell of alot harder to do so.