Bridges’ bill to fix ‘fiscal drag’ woes
National leader Simon Bridges has put a bill in the member’s ballot to automatically index income tax brackets to inflation, ending ‘‘bracket creep’’.
If pulled from the ballot, the bill would have close-to-zero chance of passing into law, but would force the Government parties to vote against an effective tax cut.
Bridges said in January that his party would campaign on the tax indexation policy.
Currently, income tax brackets changes requires a law change. When these brackets are not changed but inflation drives wages up more and more people find themselves in the top tax bracket, a term called ‘‘bracket creep’’ or ‘‘fiscal drag’’ as it allows governments to slowly collect more money without having to explicitly raise taxes.
The last time the tax brackets changed was in 2011, when 11 per cent of earners made more than $70,000, paying the top tax rate of 33 per cent on the income over $70,000. By 2016, 17 per cent of earners were in a similar position.
Under National’s proposed bill, every tax bracket would change automatically based on inflation every three years.
The changes would be effected by an order of the Executive Council, meaning the Government of the day would have a chance to veto it if necessary.
‘‘The absence of periodic adjustments to the tax thresholds is effectively a tax increase by stealth.
‘‘This bill will require governments to either adjust the thresholds, or explain why they have not done so, if it wishes to increase taxes on New Zealanders,’’ the bill’s preamble reads.
Bridges said he was putting the bill in the member’s ballot now because Kiwis shouldn’t have to wait until National next becomes government.
‘‘At the start of this year, I pledged that National would campaign on tax indexation, meaning income taxes would be adjusted every three years in line with the cost of living,’’ Bridges said.
‘‘I’ve drafted this bill to go into the ballot now because I believe Kiwis deserve a fairer tax system and they shouldn’t have to wait.
‘‘If my bill is drawn from the ballot and we assume 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 $1400 after the third.’’
Bridges says the policy would cost about $650 million in its first year, but Finance Minister Grant Robertson has questioned that in the past.
‘‘National has got some serious explaining to do about how they’re going to afford their tax promises,’’ Robertson said.
‘‘Simon Bridges seems to have found Steven Joyce’s fiscal hole in his backyard.’’
Robertson said the change would require serious cuts to services while not delivering much extra money to Kiwis week to week.