UPDATED Saturday 15 May 2010: Looks like I may have to eat my hat on this one, if this report suggesting compensatory income-tax cuts across the board “so no-one is worse off” is correct. I shall take it as a valuable lesson in the perils of speculative punditry!
ORIGINAL POST FOLLOWS
First of all, apologies for my long silence here: I haven’t had anything to say, so didn’t. I realise this is against the prevailing ethos of blogging. Thankfully David has had things to say!
Minister of Finance, Bill English, seems to have been signaling two things in the run up to this year’s budget: a rise in GST to 15%, and a fall in the top income tax rate from 38% to 33%. What will this all mean for wage and salary earners, when we combine both effects (Results calculated using information from IRD340-2011) ?
In short, the vast majority of us can expect to pay more tax, the poorest income earners will face the highest proportionate increases in effective tax rates, while the rich will pay less tax. Social disparities will be further widened, and the consumption cascade further fuelled. It is further proof, should you still need any, that National is not about fairness or sustainability.
According to my calculations*, a worker on the minimum wage of $12.75 per hour, who works 40 hours per week can expect to be worse off by $10.39 per week, while a worker who earns $65 per hour ($135,200 per annum) will be $16.21 a week better off. The vast majority of wage earn will be worse off: even a worker on $52,000 p/a will be worse off by $18.28 per week. The full table is available from the link below, and shows effective tax rates before and after the likely changes, as well as the weekly $ change, for a range of income levels.
* Assumes: GST rising from 12.5% to 15%; a drop in top income tax rate from 38% to 33%; no other changes in tax bands; all income is spent within the tax year. Uses for simplicity tax code M and no Kiwisaver.
The only non-regressive tax change National appears to be contemplating is – very long overdue – changes to tax rules around investing in property, but it is worth noting that English has suggested these are likely to be introduced gradually.