Labour corrects its indexation mistake

Stuff reports:

Pensioners and those eligible for state benefits will get a boost to their weekly incomes in April when the Government increases main benefits by 7.22% in line with the increased cost of living. …

Benefits are adjusted every year. Last year, main benefits were linked to the average wage when wages were rising faster than inflation. Hipkins said it was a practical solution to ensure those being supported by the Government didn’t fall behind.

“However with global cost of living pressures, Cabinet has this year agreed to provide additional support to this group by increasing main benefits by 7.22% in line with inflation.”

Under National, benefits were linked to the Consumer Price Index (CPI), which measures the changing price of goods and services, and is a measure of inflation.

The CPI rose by 7.22% in the year to December while the net average wage, against which main benefits are indexed, rose by 6.24%.

So if Labour hadn’t change the law, then they wouldn’t need to be fixing it now.

People on benefits should have their benefits adjusted to keep pace with inflation.

Sadly those who are missing out are those on wages. Benefits get index to inflation, but not tax brackets. Here’s an example of how it works.

Say in 2010 you were earning $48,000 a year. Your tax on that is $7,420 leaving you $40,580 a year to live on. Your overall tax rate is 15.5%.

Let’s say since then your income has risen in line with inflation to $63,721. In real terms you are on the exact same income as in 2010. But inflation has pushed your tax up to $12,136, being 19.0% of your income. Your after tax income, in real terms, has dropped from $40,580 to $38,858 so you now have $1,722 less spending power than you did.

If Labour was serious about helping all New Zealanders, they would commit to adjusting income tax threshold for inflation. It is unfair that the higher inflation is, the more revenue the Government gets, and the less disposable income wage earners get.