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Tax reforms proportionately fair, says English

Contributor:
Fuseworks Media
Fuseworks Media
Bill English
Bill English

Wellington, Sept 30 NZPA - When tax reforms are fully implemented, all income groups will broadly receive about the same proportionate increase in disposable income, says Finance Minister Bill English.

The reforms, which start tomorrow with across the board income tax cuts and an increase in GST from 12.5 to 15 percent, will leave almost all wage earners with extra money in the pocket, but have been criticised as unfair as high earners get the lion's share of the freed-up money and lower earners have already been grappling with a string of cost of living increases.

Labour leader Phil Goff has rubbished suggestions the cuts are proportionately fair and said it was a "sad irony" that the low income workers who have been scrambling to get shops ready for the overnight changes in prices would get the least from the changes.

"Low-paid workers will increasingly feel the effects of not only supermarket prices increases, but also increases in power, petrol, child-care and rent."

Those who needed extra money the least were getting most of the spoils, he said. "How is that fair?"

The Government's taxguide.govt.nz calculator shows that from October 1 a $30,000 wage equates to a net weekly gain of $5.29 after GST and income tax cuts are considered, while someone on $120,000 will be $52.78 better off.

"At all taxable income levels, the personal tax cuts will more than offset the rise in GST," Mr English said. "When other tax base broadening measures such as tighter property investment rules are taken into account, low, middle and high income groups broadly receive about the same proportionate increase in disposable income."

He said New Zealanders would benefit immediately, and even more over time from the lift in growth and jobs the package would create.

"As well as improving the incentives to work, the package tilts the economy towards savings, investment and exports and away from the unsustainable borrowing, consumption and over investment in housing of the past decade."

Those getting government support in the form of benefits or superannuation will also be compensated for the rise in GST, and from the start of the 2011/2012 income year tax measures designed to make it less attractive to invest in property will be implemented and company tax will be reduced.

Deloitte managing tax partner Thomas Pippos said the reforms were a step in the right direction, but an increase in productivity was needed to achieve material real wage growth, and that was not solvable by tax cuts alone.

Mr Pippos said he expected there would be different reactions for different products in terms of the approach taken to the GST increase by retailers.

"In some situations the price consumers are currently paying may be the top pricing point -- and they will not be willing to pay more, regardless of whether GST has increased," he said.

For example, if the price of a latte broke $5 it could change buyer behaviour and make people more tempted to use the office coffee machine.

Retailers were likely to focus on maintaining and increasing demand for their product rather than looking to immediately recover the increase, Mr Pippos said.

The New Zealand Institute of Economic Research (NZIER) also said the reforms were a step in the right direction, but needed to be seen as part of a broader package of policies to stimulate and support productivity growth.

David Kneebone, manager for Retirement Commission website sorted.org.nz, said for some people the increases might only work to cancel out recent price increases, but for others it could present an opportunity to add more to mortgage payments, pay off high interest debt or look at a savings regime like KiwiSaver.

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