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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. That's the conclusion of Mac Mckenna's latest report - updating the "Lifetime Tax paper we released in the week prior to Budget 2017.
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
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.
As Steven Joyce prepares to deliver his first budget on Thursday, the Taxpayers’ Union can reveal that the average household pays $1.48 million in tax over a lifetime - equivalent to 15 years of earnings.
In a paper published today, the Taxpayers’ Union reveals:
This new analysis shows just how heavy the burden of taxation falls on each and every family across New Zealand, pushing up the cost of living.
Cutting down wasteful spending is key to reducing the average household’s lifetime tax bill. Corporate welfare, whereby the Government ‘pick winners’ with grants, costs taxpayers $1.3 billion per year and is a good example where money could be saved.
Kiwi’s tax bills are too high – and growing because the Government has not adjusted income tax thresholds to match wage inflation. Lower taxes don’t mean cuts to services, they mean a focus on cutting out wasteful spending. We hope Thursday’s Budget indicates renewed fiscal discipline, rather than loosening of the purse strings now that there are surpluses.
New Zealanders will have to pay an extra 40% in their insurance fire levy from July despite the key selling point of the Government’s amalgamation of fire services being ‘efficiency’ - according to a new report we've published today.
The Government's reform package will result in an immediate cost increase of $80 million for little or no increase in services, despite claims by Peter Dunne, who has driven the reform, that the amalgamations will save money.
Total fire services costs will shoot up by $80 million per year despite efficiency being the key promise by Mr Dunne of these reforms. What is worse, the Government has increased the economic burden on New Zealanders without any comparable increase in the level of service.
According to the Government's own figures, efficiency gains years down the track will not even recoup 12% of the forecast increase in costs due to the amalgamations.
Despite rhetoric by politicians that these reforms are about saving money, according to official estimates, the emperor has no clothes. The costs are forecast to skyrocket.
The Fire and Emergency New Zealand Bill is in the final stages of passing in Parliament and will centralise both urban and rural fire services under the funding of the insurance levy on 1 July 2017.
Currently, only New Zealand First are blowing the whistle on this issue. The question is, why haven’t the other parties done their homework and held Peter Dunne to account for what appears to be an enormous own goal? His reform, which he’s sold on the basis of ‘efficiency’ will, in fact, cost New Zealanders’ hundreds of millions over the next few years alone.
New Zealanders currently pay less than a third of the cost of Tasmania - which has a similar fire climate to New Zealand - where rural and urban fire services are centralised. Tasmanians pay $293 per person compared to only $86 in New Zealand. Despite that, the Government is adopting the Tasmanian business model.
Not only are the costs going up, but the reforms will mean insurance holders are unfairly targeted to fund the fire service. For example, foresters, who seldom insure, will now pay 38% less in protection whilst Mum and Dad households are paying 40% higher levies on their insurance. How is that fair?
The changes do nothing to incentivise self-insurance and actually rewards those who opt out of insurance altogether.
Read (or download) the report below.
The Government’s failure to index tax brackets to inflation since 2010 now costs the average Kiwi income earner almost $500 each year according to a new report released today by the Taxpayers’ Union. The report, "5 Options for Tax Relief in 2017", models five options to deliver meaningful tax relief packages which could be part of Budget 2017 with fiscal implications of $3 billion or less.
The National Government likes to talk the talk on lower taxes, but this report shows very clearly that they are simply not walking the walk. Because tax thresholds have not been adjusted with inflation, the average Kiwi worker is now paying $483 more per year in tax than in 2010.
By 2020, Government surpluses expected to be $8.5 billion per year. With Bill English having pumped $10.36 billion into new spending, and only $415 million allocated for tax relief in that time, if now isn’t time for meaningful tax relief it never will be.
In addition to modeling various options for tax relief to compensate New Zealand families who are paying more, the report calls for tax thresholds indexed to inflation going forward. That would prevent Wellington increasing the average tax rate paid by New Zealanders every year, raising extra revenue for the Government, in real terms, without the transparency of actually raising taxes.
If we instead indexed thresholds to the growth in average earnings, dating back to 2010, the average earner would save $1,350 each year, or $26 each week.
With the Government set to make a decision on Budget 2017 and its tax relief package in the coming weeks, we hope this report gives taxpayers assistance in understanding what is realistic for Budget 2017.
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