Budget 2017 announced today by the Minister of Finance delivered four key changes in the tax area which were mainly focused on tax cuts for working families and called the Family Incomes Package.
The fact the budget contains some modest tax cuts, and that they are targeted at middle income New Zealand is not surprising. 2017 is an election year and middle income New Zealand makes up a large percentage of the votes.
The first change will be enjoyed by all individuals earning over $14,000, with two thresholds being increased. The 10.5% tax bracket on income from $0 to $14,000 will be increased to $20,000 and 17.5% tax bracket currently on income from $14,001 to $48,000 moves to $20,001 to $52,000, giving a $10 - $20 per week increase in after tax income to anyone earning in excess of the thresholds.
However, the second change will take most of this away for some by removing the Independent Earner Tax Credit – a tax credit introduced by the incoming National Government which targeted people earning between $24,000 and $48,000 who did not have children or receive government benefits. Possibly a bitter pill to swallow for child free ‘middle’ income workers.
Family Tax Credit will be getting a boost with children aged under 16 being paid at the same rate as children aged 16-18, with the first child being paid $101.98 a week and all subsequent children at $91.25 a week, which will make the calculation of Working for Families somewhat easier.
However, Working for Families will abate faster by increasing the abatement rate from 22.5 cents to 25 cents at an earlier income threshold of $35,000 from $36,360 per year – thereby targeting the benefit to lower income families.
Also included in Budget 2017 which may be of more interest to business is a discussion document announcing proposals to improve the tax treatment of feasibility expenditure, in response to the narrowing of deductibility created by the Trustpower decision.
Increases to the Accommodation supplement give the biggest boost to lower income families especially in higher rental areas.
In the tax area Budget 2017 is feeling a bit ‘give and take’ so whether this package will be enough to win the race later in the year, time will tell!