Simon Bridges: Tax indexation stops Kiwis going backwards when cost of living rises

Opinion 31/01/2019
Simon Bridges. Photo: Facebook.

By Simon Bridges, National Party leader

OPINION: Tax indexation may not roll off the tongue, but it’s a way to prevent the Government taking more of your hard-earned money without raising a finger.

In the real world, where most New Zealanders live, costs are going up. A dollar spent today doesn’t buy you the same as it did back in the day. But one thing hasn’t changed in almost a decade - and that’s our tax brackets.

As a result, anyone whose pay rises above $70,000 is classed as rich and must pay the top tax rate of 33 percent. The same holds true for the middle rate of 30 percent which kicks in at $48,000.

In reality, the person earning $71k doesn’t feel as wealthy as they did 10 years ago because the cost of everything has gone up in the meantime. As a result, people end up paying more tax despite being worse off.

The current Government has shown poor control of spending, committing billions on wasteful policies like fees-free.

National proposes that the tax thresholds be indexed every three years to keep them in line with inflation. It is a way to prevent bracket creep, or tax by stealth. This is just one facet of what will be National’s tax policy, which we’ll say more about closer to the next election.

National would amend the Income Tax Act to ensure tax thresholds are adjusted for inflation every three years. That’s the term of a Government and we’d make it a requirement that within 12 months of coming to power it would get advice from the Treasury on the size of the adjustment.

Assuming inflation of 2 percent, the cost of the first adjustment would be $650m a year in tax revenue foregone by the Crown.

Is that affordable? A National Government would ensure tax indexation was affordable by managing the books prudently and spending wisely. The current Government has shown poor control of spending, committing billions of dollars on wasteful policies like fees-free.

Tax indexation goes to a core National value, which is that New Zealanders should keep more of what they earn. The $650m would be tax collected by default and most New Zealanders would rather have that money back in their own hands.

The policy doesn’t straightjacket future Governments because the Finance Minister would retain a right of veto and would then have to explain that decision.

Tax indexation offers long-term savings potential for New Zealanders. Someone on the average wage would be $400 a year better off after the first adjustment. The average wage earner would save more than $10,000.

Many New Zealanders would appreciate having that extra money to spend on priorities, especially when they’re having to stretch each dollar tomorrow.

National is committed to helping New Zealanders get ahead and, on top of our pledge to cancel the taxes this Government has imposed and signalled, this is another important step.

Simon Bridges is leader of the National Party.