Steven Joyce has hardly thrown fiscal caution to the winds.
It would have been intolerable for the Government to crow about how well the economy is doing and project ever fatter surpluses and falling debt to GDP ratios while doing nothing about the pressure on the finances of lower- and middle-income families.
Both the increases to the income tax thresholds and the changes to Working for Families tax credits are overdue.
The income tax scale was last adjusted in 2010. So we have had seven years of fiscal drag or bracket creep, where as income rises more and more of it will be in the taxpayer’s marginal tax bracket, delivering a slow but relentless increase in the average tax paid on every dollar earned.
To be fair, the government has only just returned to running a surplus. It did have to pay for some expensive unforeseen events, like earthquakes.
Brian goes on to explain that National are not going to give our money back at all. They are no longer Labour-lite, they have replaced Labour proper.
But the increase in the second threshold – from $48,000 to $52,000 – is less than would be needed to compensate for inflation since 2010.
The maximum tax cut under the new scale would be just over $1000 a year.
The changes to Working for Families are a case of good news and bad news. The value of the family tax credit has been raised but so has the rate at which it gets whittled down once family income rises above a pretty modest $35,000.
That abatement rate will add 25 percentage points to the effective marginal tax rates of those receiving the tax credit, up from an already high 22.5 per cent now. Someone on the average wage and eligible for Working for Families would now lose 55c in every additional dollar earned.
WFF should have been rolled back in the same fashion as the tax neutral GST increase was bracketed by an income tax reduction. A brave centre-right government would have done this. WFF is like a cancer on our country. The longer it stays, the harder it will be to get rid of.
– Brian Fallow, NZ Herald
