May 19, 2010 11:00am by David Farrar

MPs and tax changes

MPs are set for tax cuts of at least $57 a week in tomorrow’s Budget, but some with investment properties could be hit in the pocket by other tax changes.

The latest register of MPs’ pecuniary interests, issued yesterday, reveals 71 of Parliament’s 122 MPs have a concern in more than one property, including several who have investment properties.

Tomorrow’s Budget is expected to lower the top income tax rate from 38 to 33 cents in the dollar, bringing the lowest-paid backbench MP a tax break of $57 a week.

Some will be clawed back through the rise in GST, but Finance Minister Bill English is also expected to curb the ability to offset losses and depreciation from investment properties against other tax.

I’ve done a quick calculation of what the assumed changes will mean for an MP who has one (many have more than one) investment property.

If the improvements are valued at $200,000, then they will be claiming $4,000 depreciation which reduces their tax burden by $1,520 or $29 a week.

So that tax break is down to $28 a week. But what about GST. The TWG estimated GST on average is 5% of income for top decile earners, so for salary of $130,000 it is $6,500. If GST increases by 20% (from 12.5% to 15%) the extra GST will be $1,300 or $25 a week.

So an MP who has one investment property is projected to be just $3 a week better off, or $150 a year.

Remember that tomorrow, as some claim Government MPs are motivated by self interest in supporting a tax reform package.