The cost of not indexing tax brackets

Stuff reports:

New Zealanders would pay up to almost $6000 less tax a year if tax brackets had been adjusted with inflation, data shows.

That is per year. If tax brackets were automatically indexed every year to inflation, the cumulative impact on someone’s take-home pay would end up being well over $100,000.

The adjustment of the minimum wage in April to $22.70 an hour is equivalent to a salary of about $45,000 a year, meaning even those earning the least are approaching the middle tax band.

If thresholds had moved in line with inflation over that period, the current thresholds would be up to $21,259 at 10.5%, $21,260 to $72,890 at 17.5%, $72,891 to $106,298 at 30% and $106,299 to $199,616 at 33%.

Someone on the minimum wage who works 41 hours a week will now be taxed at the 30% marginal rate.

If tax brackets were inflation indexed then your earnings between $48,000 and $73,000 would be taxed at 17.5% instead of 30%.

An average earner on $60,000 would save just over $2000 in tax. Someone earning between $70,000 would save $3258, or 23%.

This is earners being punished for inflation. The Government inflation indexes welfare payments and Superannuation to ensure their after tax income remains constant, but by not indexing tax brackets it means someone who stays on the same real wage gets less and less in the hand every year. It’s wrong, and all parties in Parliament should be voting to stop it.