National announces policy to address tax bracket creep

The last two governments and their finance ministers persistently refused to address tax bracket creep, which is seen as tax increases by stealth – as inflation increases incomes it pushes more income into higher tax brackets.

The incoming Labour led government actually did something, but that was negative – they scrapped catch up tax cuts put in place by National.

Today Simon Bridges announced that a future National government led by him would legislate to raise tax brackets in line with inflation every three years.

National would introduce rolling tax relief

A National Government would link income tax brackets to inflation, ensuring income taxes are adjusted every three years in line with the cost of living and allowing New Zealanders to keep more of what they earn, National Leader Simon Bridges says.

“New Zealanders’ incomes are struggling to keep up with the rising cost of living because this Government is imposing more red tape and taxes,” Mr Bridges said in his State of the Nation speech in Christchurch today.

“Over the next four years, New Zealanders will be paying almost $10,000 more per household in tax than they would have been under National. The Government is taking more than it needs, only to waste billions on bad spending.

“On top of that, by 2022 New Zealanders on the average wage will move into the top tax bracket. That’s not right or fair. So in our first term National will fix that by indexing tax thresholds to inflation.

“We will amend the Income Tax Act so tax thresholds are adjusted every three years in line with the cost of living. That will mean that within a year after every election, Treasury will advise the Government on how much the thresholds should be adjusted for inflation.

“This would prevent New Zealanders from moving into higher tax brackets even when their income isn’t keeping up with the rising cost of living. It would ensure New Zealanders keep more of what they earn to stay on top of rising costs of living such as higher prices for necessities like petrol, rent and electricity.

“We will include a veto clause so the Government of the day can withhold the changes in the rare circumstances there is good reason to. But it will have to explain that decision to New Zealanders.

“The changes would make a real difference. Assuming inflation of 2 per cent, someone on the average wage would be $430 a year better off after the first adjustment, $900 after the second and $1,400 after the third.

“We will also do more on tax – but add no new taxes – and I’ll continue talking about our plans between now and next year’s election.

“National is committed to helping New Zealanders get ahead. This step means that as well as cancelling new taxes this Government has piled on, we won’t allow future governments to use inflation as an annual tax increase by stealth.”

In response Minister of Finance trotted out the overused and irrelevant ‘they didn’t do it in their nine years in office’.

But this is a smart move by National. Not only does it allow them to campaign on not raising taxes or allowing taxes to rise ‘by stealth’, they can compare this with what is predicted to be some sort of capital gains tax that will tax inflation affected increases in value of assets.

Of course Labour can come up with a competing policy, but that could be some time away as they ponder the Tax Working Group recommendations.

This looks a bit corny though:

 

Seymour highlights tax bracket creep

ACT MP David Seymour has highlighted the problem for taxpayers caused by bracket creep. If PAYE brackets aren’t adjusted then inflation means taxpayers gradually pay more tax relative to their income.

Michael Cullen failing to address bracket creep for nearly all of the three terms under Helen Clark was a significant factor in voters getting fed up with Labour.

Stuff reports in Politics briefs: March 20, 2015

ACT revives ‘bracket creep’ campaign

They were last seen in Michael Cullen’s “chewing gum tax cut” Budget – and later dumped – but ACT has revived calls for tax thresholds to be indexed to inflation. Leader David Seymour says average households are more than $1000 worse off in tax payments since 2010 because of “bracket creep”. Had thresholds been linked to inflation, the top 33 cent rate would now cut in at $73,571, not $70,000.

If Bill English ignores bracket creep voters may get fed up with his tax grabbing too.

Seymour’s press release: Time to end stealth tax increases

ACT Leader David Seymour has today called for an end to the stealth increase of tax rates through bracket creep.

“Each year, inflation pushes a larger proportion of New Zealanders’ incomes into higher tax brackets, regardless of whether they’ve had an increase in real earnings,” said Mr Seymour.

“Tax brackets should be adjusted for inflation.

“Even with low inflation this stealth tax of ‘bracket creep’ means that the average household is $1036 worse off since the tax changes of October 2010. An individual taxpayer on the average income is $648 worse off.

Mr Seymour’s focus on bracket creep comes after the Minister of Finance stated low inflation ‘makes it more challenging for the Government because higher inflation pushes up the tax base and enables us to collect more tax in a growing economy’.

“If the government wants to increase taxes, it should do so openly. This is a basic principle of transparency, and honesty in taxation.

“I propose tying tax brackets to the Consumer Price Index, meaning tax brackets would rise with inflation, stopping stealth tax increases and ensuring government revenue collection is open and transparent.

“The best time to act is now – current low inflation means a switch to inflation adjusted tax brackets would have relatively little effect on government forecasts.”