Tax threshold changes reduce lifetime tax by $80k / 10 months

By   /  June 11, 2017  /  Comments Off on Tax threshold changes reduce lifetime tax by $80k / 10 months

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MIL OSI New Zealand

Source: Taxpayers Union – Press Release/Statement:

Headline: EMBARGED: Tax threshold changes reduce lifetime tax by $80k / 10 months

Tax threshold changes reduce lifetime tax by $80k /10 months

EMBARGOED UNTIL 5AM, MONDAY 12 JUNE 2017

The tax threshold changes in last month’s budget will see the largest relative tax savings go to those who already shoulder the smallest relative burden: middle-income earners, according to a report released on Monday by the New Zealand Taxpayers’ Union.

The income tax thresholds in Budget 2017 will see Kiwis in an average household save $80,000 in tax over a typical lifetime, equivalent to 0.80 years of their earnings.

Income earners in the lowest decile of households save $16,000 (0.70 years) while those at the top will pay $120,000 less (only 0.66 years). Top earners now spend 20 years of work paying tax, two years more than any other group.

The report’s author, Mac Mckenna, an economist at the Taxpayers’ Union, says, “These findings cast the light on many of the myths surrounding who receives the most from the planned tax changes.  We hope it provides for a more informed debate from politicians and those pushing their own agenda.”

The changes announced in Budget 2017 only partially compensate for the increases in average incomes (pushing workers into higher tax brackets) since 2010. The top threshold remains unchanged so a growing proportion of earners are moving into top income brackets despite not being relatively better off.

Unfortunately, future inflation will offset tax relief because of the Governments failure to announce periodic inflation adjustments to tax thresholds. Even with the changes coming into effect on 1 April next year, Treasury estimates that by 2021 New Zealanders will have paid an extra $1 billion in tax because of fiscal creep (or $200 million a year).

“It’s time the Government finally indexes tax brackets to inflation and protects New Zealanders from paying higher tax rates without seeing real increases in income,” says Mr McKenna.

The report, `Lifetime Tax: Post-Budget Update’ is available at www.taxpayers.org.nz/lifetime_tax_update

Key findings:

  • The average household saves $80,000 in tax over their lifetime from Budget 2017 threshold changes.
  • Total lifetime tax for the average household is equivalent to 14.2 years of income. The savings equate to a reduction of 0.8 years.
  • Households in the bottom decile will save $16,000 in tax over their lifetime from Budget 2017 threshold changes – a saving of 0.7 years. They now spend 17.7 years paying tax.
  • Households in the top decile will save $120,000 in tax over their lifetime from Budget 2017 threshold changes – a saving of 0.66 years. They now spend 19.7 years paying tax, the longest of any group by two years.
  • Due to insufficient data available from Government, these results do not account for Working For Families, Independent Earner Tax Credit, or Accommodation Supplements changes. Including these additional policy changes would only further emphasise our point: top income earners receive disproportionately less from Budget 2017 than other income groups.

How Budget 2017 impacts householders’ Lifetime Tax (household earning deciles)

ENDS

ENQUIRIES:

Jordan Williams
021 762 543
 

NOTES TO EDITORS:

The New Zealand Taxpayers’ Union is an independent and membership-driven activist group, dedicated to being the voice for Kiwi taxpayers in the corridors of power.

The Taxpayers’ Union operates a 24-hour media line for comment on taxpayer issues. Representatives are available on (04) 282 0302.

High-resolution images and logos are available on request or online at http://www.taxpayers.org.nz/resources

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