National, Greens and NZ First all agree on inflation adjusting tax brackets

NewstalkZB reports:

New Zealand First is promising to adjust income tax brackets to inflation, as well as offering tax incentives.

This means National, Greens and NZ First have all come out in favour of indexing tax brackets to inflation. We only need Labour, Maori Party and ACT to agree to have it unamious.

Doing so will be a simple to legislate. Basically all you need is a bill along the lines of:

• The Chief Statistician will sign a certificate by 31 January every year stating what the inflation rate was for the last calendar year
• The Commissioner of Inland Revenue will by 28 February every year apply that inflation rate to the existing thresholds and publish a statement saying what the new thresholds for each bracket will be, from 1 April.

If in 2010 you were earning $55,000 a year, then your tax would have been $9,520 or 17.3% effective rate.

If your income had stayed the same in real term, it would be $74,713 today and your tax would be $15,575 or 20.8% effective tax rate. So you have had a 3.5% increase in tax, purely due to inflation.

If the law required the brackets to move with inflation, then your tax bill today would be $12,925 only and you would be $2,650 a year better off.

Benefits get increased in line with inflation, and it is mad that tax brackets do not. You get penalised for earning income, and the higher inflation is, the worse off you are and the better off the Government is.

So pressure Labour, Act and the Maori Party to join National, Greens and NZ First in supporting this.