The 2017 election is heating up, and with it, we are starting to see the political parties making proposals for tax changes. The 2017 budget released by the current government at the end of May is intended to give more to families and adjusts the existing tax brackets for low and middle earners.
What do the numbers look like?
A Boost For Families
The Government’s Family Incomes package, as the name suggests, aims to make life easier for families. There are a range of changes aimed at lower income families and those experiencing difficulties with high housing costs.
These changes include:
Family Tax Credit
The maximum credit for the first child under 16 increases by $9 a week, and for each subsequent child under 16 by between $18 and $27 a week. The abatement rate is increased to 25 per cent, and reduces the abatement threshold to $35,000.
The accommodation supplement maximum payment rates for a two person household will increase between $25 and $75 a week. For larger households, the increase will be between $40 and $80 a week.
How are families better off?
The Government estimates that 1,340,000 families in New Zealand will be $26 per week better off, on average, from 1 April 2018. Around 750,000 superannuants and around 41,000 students will also benefit from the package (source: Family Incomes Package 2017)
In terms of tax changes, the government will make changes to tax thresholds and the Independent Earner Tax Credit.
From 1 April 2018, the $14,000 income tax threshold will increase to $22,000, and the $48,000 threshold to $52,000. The Independent Earner Tax Credit will be discontinued. The government is making these changes to reward low and middle-income earners and claims that the changes will boost long-run economic performance.
What are the tax brackets in New Zealand?
The current tax brackets are:
|$14,001 – $48,000||17.5%|
|$48,001 – $70,000||30%|
The new tax brackets, from April 2018, will be:
|$22,001 – $52,000||17.5%|
|$52,001 – $70,000||30%|
The Independent Earner Tax Credit is being discontinued
The Independent Earner Tax Credit is an entitlement for individuals who earn between $24,000 and $48,000 (after expenses and losses) a year.
If you currently receive this tax credit you will be fully compensated by the increase in the $14,000 tax threshold. Only 32 per cent of eligible recipients claim this benefit during the year that they are eligible, so removing the tax credit will help simplify the system. Individuals will not have to file a tax return at year-end or use a different tax code to claim the tax credit.
The total cost of these changes is estimated to be $603m in 2017/18 and $2.075b in 2018/19.
At Smart Payroll, we constantly update our systems to handle any changes in the tax system. Any of the changes from the Budget 2017 announcement are prone to change with the upcoming election, but we’ll be sure to have any relevant changes prepared within our payroll system. We help thousands of small and medium business employers across New Zealand and Australia so they never have to worry about Payroll and HR stress and hassles!