The bracket creep ‘stealth tax’

Increasing tax through inflation and a creep up the tax brackets has long been a bone of contention, with successive governments largely letting it happen to presumably get more tax without having to announce tax increases, It hasn’t just happened.

This week National pledged to adjust the brackets for inflation every three years – see National announces policy to address tax bracket creep.

How much more tax do we pay? Tax brackets were last adjusted in 2010 – so according to a NZ Herald calculator:

  • if you earn $30,000 bracket creep would have cost you about $86 per year
  • if you earn $50,000 bracket creep would have cost you about $336 per year
  • if you earn $70,000 bracket creep would have cost you about $614 per year
  • if you earn $70,000 bracket creep would have cost you about $799 per year

NZ Herald:  The $1.7bn ‘stealth’ tax grab – work out how much ‘extra’ tax you have been paying?

Wage and salary earners paid out $1.7 billion in “stealth” tax last year after inflation increases pushed workers and their pay packets into higher tax brackets, according to advice to the Tax Working Group.

Officials have warned the public could see the money as having come through a stealth tax and Government may want to change it as a “value judgment”.

They have also said if the Government did change tax rates it would increase transparency and account for inflation but money would need to be found to pay for public services.

The extra tax was scooped up after the former government left tax brackets largely unchanged during its time in office, with the highest tax bracket fixed to kick in at $70,000.

I have seen criticism of this Herald article as a promotion of National’s policy, but bracket creep has been grizzled about for a long time – Michael Cullen was slammed for allowing it and that contributed to Labour losing the 2008 election.

National under John Key allowed it while they ran Government but they did adjust thresholds in 2010 and also legislated to adjust them again in 2018, but those were overturned before they happened by the incoming Labour led government.

Tax, especially increasing tax, is always a contentious issue.