Fact sheet on Tax Relief For Individuals & Families in New Zealand
Changes to tax rates and Working for Families
The government is introducing a $10.6 billion programme of tax cuts from 1 October 2008, with further changes scheduled to take effect from 1 April 2010 and 1 April 2011:
Table 1
| NEW RATES | |||
|---|---|---|---|
| Current rates | From 1 October 2008 | From 1 April 2010 | From 1 April 2011 |
| 15% to $9,500 | 12.5% to $14,000 | 12.5% to $17,500 | 12.5% to $20,000 |
| 21% to $38,000 | 21% to $40,000 | 21% to $40,000 | 21% to $42,500 |
| 33% to $60,000 | 33% to $70,000 | 33% to $75,000 | 33% to $80,000 |
| 39% over $60,000 | 39% over $70,000 | 39% over $75,000 | 39% over $80,000 |
In addition, the Working for Families Family Tax Credit and the income threshold will increase from 1 October 2008 to take account of inflation, costing $1.1 billion over four years:
Table 2
| Weekly rate | Current weekly rates | NEW weekly rates from 1 October 2008 |
|---|---|---|
| First child if under 16 | $82.00 | $86.29 |
| First child if 16 or over | $95.00 | $99.96 |
| Subsequent child rate if under 13 | $57.00 | $59.98 |
| Subsequent child rate if 13 to 15 | $65.00 | $68.40 |
| Subsequent child rate if 16 or over | $85.00 | $89.44 |
| Income threshold | $35,000 | $36,827 |
Who will benefit
All workers will pay less tax as a result of the changes. In particular, the personal tax cuts benefit:
- People on low incomes, mainly part-time workers, and those earning around the minimum wage.
- People on the average wage, and families getting additional support from the Working for Families changes.
- Nearly 300,000 taxpayers who, from 1 April 2011, are projected to no longer face the highest tax rate of 39%.
- Beneficiaries who are in part-time work and Superannuitants.
The table below shows how the tax cuts will affect after-tax income:
Table 3
| Weekly after-tax income increase above current ($) | ||||
|---|---|---|---|---|
| Current annual taxable income ($) | 1 Oct 2008 | 1 April 2010 | 1 April 2011 | Annual increase ($) 1 April 2011 |
| 20,000 | 12 | 18 | 22 | 1,130 |
| 30,000 | 12 | 18 | 22 | 1,130 |
| 40,000 | 16 | 22 | 26 | 1,370 |
| 50,000 | 16 | 22 | 32 | 1,670 |
| 60,000 | 16 | 22 | 32 | 1,670 |
| 70,000 | 28 | 34 | 44 | 2,270 |
| 80,000 and above | 28 | 39 | 55 | 2,870 |
| The after-tax incomes calculated in this table exclude the ACC levy. | ||||
In addition, the changes to Working for Families will give more money in the hand each week to Working for Families recipients.
Table 4
| Weekly gain from tax cuts and Working for Families indexation | ||
|---|---|---|
| From 1 Oct 2008 | From 1 April 2011 | |
| Two earner family with two children under 13 earning $45,000 and $20,000 | $42.76 | $84.55 |
| One earner family with two children under 13 earning $45,000 | $30.83 | $62.82 |
| Two earner family with one child under 13 both earning $20,000 | $35.16 | $67.76 |
| One earner family with one child under 13 earning $45,000 | $27.85 | $56.42 |
| One earner family with one child under 13 earning $35,000 | $16.21 | $30.94 |
Why are we doing it?
1. To provide timely tax relief for taxpayers
The tax cuts, along with the changes to Working for Families, will provide timely relief to households with stretched budgets due to recent cost increases.
All workers will benefit from these tax cuts, which will see a new low rate of 12.5% for workers on modest incomes and will raise tax thresholds for workers on middle and higher incomes.
2. To build on previous tax relief
In the last four Budgets, this government has reduced taxes benefiting a wide range of New Zealanders. By 2011, this tax relief will total $4.6bn a year (excluding Working for Families indexation), which has included support for:
- businesses through the Business Tax Reform package
- families through the introduction of Working for Families
- savers and investors through the introduction of KiwiSaver and the introduction of the capped tax rate for portfolio investment entities.
3. To simplify the tax system
New Zealand’s tax system is relatively simple and straightforward compared to other countries, and these changes continue that approach. Most taxpayers don’t need to do anything to benefit from these tax cuts.
