MINISTER’S EXECUTIVE SUMMARY | 7
The tax reform package also contains measures to compensate vulnerable individuals for
the increase in the rate of GST. Recipients of New Zealand Superannuation, Veterans
Pensions, main working age benefits, Student Allowances, some Working for Families tax
credits (WFF), some Government Superannuation and National Provident Fund payments,
and some of the main supplementary benefits, will receive additional financial support.
How the tax package affects people…
The tax changes will affect different people in different ways, depending on their source of
income, how much they earn and how they spend their money. Some examples are
included below:
A married couple both work. They jointly earn around the average household wage of
$76,000 - one earning $50,000 a year and the other earning $26,000. They have two children
under the age of 13 and also receive Working for Families. The family pays $300 a week in
mortgage repayments which do not incur GST. Under Budget 2010 changes, they get a
household tax cut of $45.85 a week and pay an extra $21.14 in GST to buy the same goods
and services as before. Overall they are $24.71 a week, or $1,284.92 a year, better off.
A retired couple receive New Zealand Superannuation. They own their own home. Under
Budget 2010 changes, they get a tax cut of $11.52 a week, plus an additional $10.12
increase in their NZ Super and pay $10.87 extra in GST to buy the same goods and services
as before. Overall they are $10.77 a week, or $560.04 a year, better off.
A single person earns $50,000 a year – about the average full-time wage. He pays $120 a
week rent towards the flat he lives in and is saving $50 a week towards a deposit on his first
home. Under Budget 2010 changes, he gets a tax cut of $29.42 and pays $13.51 more in
GST to buy the same goods and services as before. Overall he is $15.91 a week, or
$827.32 a year, better off.
A high-income couple each earn $150,000 a year and have investment properties. They
now own ten properties with a combined market value of about $6.5 million. Rents of these
properties provide a return of $769.23 a week over and above interest and maintenance
costs. They do not currently pay any tax on this additional income, as they are able to claim
the same amount in depreciation. Under Budget 2010 changes, they get a combined
personal tax cut of $235.76 a week. But because they can no longer claim depreciation on
their houses, their tax increases by $253.84 a week. In addition they pay $89.39 more each
week in GST if they continue to spend all of their after-tax income. Overall they are $107.47
a week, or $5,588.44 a year worse off.
Full details of the tax package can be found at www.taxguide.govt.nz
Examples assume that income after tax, housing costs and savings are spent on goods and
services that attract GST, and that retailers increase prices for the full GST rise.
Economies are increasingly open, taxes influence global investment decisions and
statutory company tax rates have been declining globally. Therefore the company tax rate
will be reduced from 30% to 28% from the 2011/12 income year. A reduced company tax
rate will make it more attractive for businesses to locate and invest in New Zealand and
reduce incentives for multinational firms to stream profits away from New Zealand.
