Shamubeel is right on tax brackets indexation

Newshub reports:

Leading economist Shamubeel Eaqub believes New Zealand should “absolutely” copy the US in raising the tax brackets to inflation.

“Our political parties want to make it seem like they’re giving you tax cuts by adjusting the brackets, so it feels good,” he told Newshub at 8pm host Rebecca Wright.  

“But the reality is we are paying more taxes, our income is not going as far because of the rising cost of living. CPI is currently about 7 percent and if our index is increased by 7 percent, the average worker at $65,000 would be paying $500 less in tax.” 

National is proposing a similar policy but as a one-off change while Eaqub believes the brackets should be changed consistently. 

I agree 100%. We should not have to persuade politicians to stop our tax going up due to inflation. It should be automatic.

A principled Government would pass a law that states on 1 April every year the brackets for each tax rate get increased by the rate of inflation for the previous calendar year.

This would mean that the Government will only get an increased tax take due to the economy growing, rather than the current situation where the higher inflation goes, the more tax the Government gets.

“I think it’s actually unfair the Government gets the benefit of the rising cost of living through higher taxes. That should always be adjusted over time and what it has become is a cynical political ploy on both sides,” he said.

“They don’t want to do anything during the years between elections and they want to adjust the tax brackets when the election is near because it makes it seem like they’re giving you a great gift, but in reality, all they’re giving you back is the cost of inflation of the last three years.” 

Again absolutely agree.