Tax brackets unadjusted for ‘too long’

Tax brackets have not changed in more than a decade and the current high-inflation environment means action is needed urgently, one tax commentator says.

New Zealand’s marginal tax rate system means that higher rates of tax are applied as someone earns more income.

It works like this: The first $14,000 is taxed at a rate of 10%. Money you earn between $14,000 and $48,000 a year is taxed at a rate of 17.5%. Between $48,000 and $70,000, you pay 30%. Between $70,000 and $180,000 you are taxed 33% and every dollar you earn over $180,000 in a year is taxed at 39%. (If you earn $72,000 a year, you don’t pay 33% on the whole lot – just the bit over $70,000.)

But those rates were set in 2010. Back then, the median income of New Zealand earners was $777 a week or just over $40,000 a year, according to Stats NZ.

Now, it is $1189 a week or $61,828.

Taxpayers’ average individual tax bill has increased from $8887 a year in the 2016-17 year to $10,044 in the 2020-21 year.

With inflation at more than 7% a year, some workers are now getting pay rises that will push them up the tax brackets more quickly.

Stats NZ data showed median weekly earnings from salaries and wages increased 8.8% in the year to the June quarter, the biggest jump since records began.

Tax expert Terry Baucher said 12 years was too long to leave the tax brackets as they were. ‘‘We are talking about the longest period in the last 30 years without adjustments to tax thresholds.’’

Baucher said the Government’s reluctance to move the thresholds was ‘‘plain cynicism’’.

‘‘It’s not transparent. If we’re talking about taxation by stealth, we need to ... say: Why are we not adjusting the tax thresholds on a more regular basis? It doesn’t have to be every year . . . But we do adjust ACC thresholds every year and we do increase NZ Super every year. What makes tax different?

‘‘If it was a low-inflation environment, then limiting changes to every three years I have no issue with. But now we’re in a higher inflation period, and it might be temporary, but 10 years without doing anything in relation to it – that’s far too long.’’

Finance Minister Grant Robertson said there were no plans for change. ‘‘The Government has no plans to review the tax thresholds.

‘‘Our focus since coming into government is on supporting New Zealanders by investing in underresourced public services such as health, housing and education, addressing the challenges of climate change and Covid and helping deal with cost of living pressures,’’ he said.

‘‘All political parties will have tax policies for the next election that will be discussed at the time.’’