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Executive Summary

Minister's Executive Summary - Budget 2010
6   |   MINISTER’S EXECUTIVE SUMMARY 
Reform of the Tax System 
The overall objectives of Budget 2010 tax reform are to: 
•
  lift economic growth by improving incentives to work, save and invest, 
•
  improve the fairness, coherence and integrity of the tax system by reducing 
opportunities to avoid tax (and/or unduly gain access to social assistance), and 
•
  have a tax system that supports New Zealand’s competitiveness globally in a 
sustainable manner. 
A fair and efficient tax system is one of the Government’s six key drivers of economic 
growth.  The Government agrees with the Tax Working Group that shifting the tax burden 
to less mobile and less growth-damaging bases, reducing income tax rates and removing 
tax preferences is necessary to create a fairer, more sustainable tax system that is less 
damaging to growth. 
Taxes are pervasive and they affect a myriad of business and personal decisions.  
New Zealand needs a tax system that helps us shift away from borrowing and 
consumption towards saving and productive investment. 
Personal taxes affect incentives to work and to up-skill.  They also affect people’s 
decisions to stay and work in New Zealand or to work abroad, and the incentives for 
skilled foreigners to come to New Zealand.  Around 17% of skilled New Zealanders now 
live abroad, the third highest percentage in the OECD.  Given our highly mobile and 
skilled labour force, reducing personal tax rates is important for growth.  A more 
competitive tax structure will help New Zealand to maintain its tax base; enhance our 
skills, knowledge bases and productivity potential; and so improve our living standards. 
The cornerstone of the tax reform package is a $4.5 billion per annum reduction in income 
tax rates, funded by an increase in GST and income tax base-broadening and integrity 
measures.  This is expected to increase the growth potential of the New Zealand economy 
by improving the overall efficiency of the tax system.   
From 1 October 2010, all personal income tax rates will decrease.  The new tax rates will be: 
•
  10.5% on income to $14,000 (down from 12.5%) 
•
  17.5% on income between $14,001 and $48,000 (down from 21%) 
•
  30% on income between $48,001 and $70,000 (down from 33%), and 
•
  33% on income over $70,000 (down from 38%).   
The rate of GST will rise to 15% at the same time. 
The Government has made it clear that it would not increase the rate of GST unless it 
would benefit the New Zealand economy in the long term and unless it saw the vast bulk 
of New Zealanders better off.  The reductions in income tax rates more than compensate 
earners at all levels of taxable income for the increase in GST.  For 250,000 workers 
earning around or just below the average income, namely between $40,000 and $48,000, 
their top income tax rate will have almost halved in 18 months, dropping from 33% down 
to 17.5%.   
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