United Future tax policy

NZPA reports on United Future’s tax policy released at their conference today. It is:

• Income up to $12,000 taxed at 10 percent;
• Income between $12,001 and $38,000 taxed at 20 percent; and
• Income above $38,000 taxed at 30 percent.

They also advocate income splitting but that won’t be happening and has been analysed before. Let us first look at the cost of what United Future is proposing:

1. Move bottom threshold from $9,500 to $12,000 is $135 million
2. Move lowest 15% rate from 15% to 10% is $1,125 million
3. Move 21% rate to 20% is $405 million
4. Move 33% rate to 30% is $420 million
5. Move 39% rate to 30% is $1,485 million

That is a total annual cost of $3.57 billion according to the Treasury ready reckoner. The NZIER calculator has it as $3.8 billion so that is close enough.

What will it mean for different people. Well let us look at a low income earner on $30,000, an average earner on $50,000 a higher income earner on $70,000 and a rich prick on $100,000.

1. On $30,000 your tax drops from $5,730 to $4,800 – a $930 or 16.2% reduction
2. On $50,000 your tax drops from $11,370 to $10,000 – a $1,370 or 12.0% reduction
3. On $70,000 your tax drops from $18,570 to $16,000 – a $2,570 or 13.8% reduction
4. On $100,000 your tax drops from $30,270 to $25,000 – a $5,270 or 17.4% reduction

I quite like the simplicity of just three rates of 10%, 20% and 30%. Not so sure about the levels they cut in at.