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New Zealanders will have more money in their pockets from October with the start of a three-year programme of personal tax cuts which will also boost superannuation payments.
Finance Minister Michael Cullen has stuck to his warning of a week ago that tax cuts in the Budget could not be huge at a time when government revenue is lower than forecast.
He has reported an operating surplus of $3.1 billion for the current financial year and a cash deficit of $3.5 billion when contributions to the New Zealand Super Fund and capital spending are taken into account.
The election-year Budget delivers a three-year programme of tax cuts costing $10.6 billion and boosts to Working for Families tax credits to take account of inflation costing $1.1 billion over four years, both starting from October 1.
The Budget is seen as crucial to Labour's hopes of winning a fourth term.
Cullen has created a new tax rate of 12.5% on the first $14,000 earned and the amount a person can earn before higher tax rates cut in, will be raised.
The 21% rate will apply at $40,000 instead of $38,000, the 33%
rate takes effect at $70,000, up from $60,000 and the top rate of
39% that currently hits those earning $60,000 will apply now to
those earning more than $70,000.
FIND OUT HOW MUCH YOU WILL BE GETTING
Cullen says a couple on the current average household income of $72,000 with two children aged 11 and eight will be better off by $2,223 a year ($43 a week) from October, rising to $4397 a year ($85 a week) from 2011.
The changes mean somebody on $50,000 a year will have $16 a week more in take home pay from October 1, $22 more from April 2010 and $32 extra from the following April. That's an annual increase in take home pay of $1,670 from 2011.
There will be a boost to the Family Tax Credit and an increase to the Working for Families Tax Credit income threshold from October, which will be worth $14 a week for a family on the average wage with two young children.
A further expected increase to the Family Tax Credit and income threshold from 2011 will be worth an extra $16 a week for the same family.
"This tax cut programme should hopefully provide some relief from the current increases in the cost of living, although for many families they will not compensate them totally," says Cullen.
"This year we have seen households around the world come under considerable pressure, as all nations cope with rising food and petrol prices and higher mortgage repayments driven up by the credit crunch."
He says the tax cuts are designed to be as fair as possible to all workers, with those on low incomes to feel the greatest impact on average take home pay.
Older New Zealanders
New Zealand Superannuation payments will increase from October as a result of personal tax cuts.
The net married couple rate of NZ Superannuation is maintained
above 66% of the net average wage.
The increase in net payments for a married couple will be $45.88 a
fortnight and $23.84 for a single superannuitant living alone. This
is on top of the annual adjustment made to reflect increases to
living costs.
There will be further increases to the rates of net NZ Superannuation in April 2010 and 2011.
As part of New Zealand First's confidence and supply agreement with the government, the Budget also provides $72 million over four years to provide free off-peak travel for SuperGold Card holders on public transport and $18 million to increase the subsidy for hearing aids.
There's a $24.6 million boost to assist 7,500 caregivers caring for more than 10,000 children. The new funding enables the Unsupported Child's Benefit and Orphans Benefit to match the Foster Care Allowance from next April.
Also, $446.5 million is allocated to fully fund contracted essential services delivered by community organisations for vulnerable families, children and young people and to make annual adjustments. This includes elder abuse and neglect services.
Other Budget highlights
- The Budget allocates $325 million as part of more than $500 million to facilitate high speed broadband in urban areas and extend the reach of broadband into under-serviced regions.
- A programme to improve literacy and numeracy in the workforce gets $168 million. The government says the business community, workers and government will progress the programme together to boost the skills of the workforce.
- The New Zealand Fast Forward fund to boost innovation in the pastoral and food industries receives $700 million in capital.
- The government's purchase of Toll New Zealand's rail and ferry business is funded with $690 million in the 2007-08 year.
- The Budget includes $750 million a year or $3 billion over four years to improve health and wellbeing, including new programmes such as the new vaccination programme to fight cervical cancer.
- There's $182 million in operating funding to reduce year 1 class sizes.
- The Budget allocates $180 million in operating funding for more police.
- For students, changes include a 10% increase in the parental income threshold for a full student allowance from next January, benefiting 12,000 students a year. The student loan living cost component will be indexed to inflation.
- Under the heading National Identity, there's $276.4 million to develop defence capability, $165.2 million to strengthen New Zealand's presence in the international community and $124.4 million to develop NZ's arts and culture and preserve the country's heritage.
