Wage packets about to become fatter

IETC* - A new $10 tax credit for workers earning $24,000 to $44,000 who do not get benefits, Working for Families or superannuation. This group do not benefit from the changes to the income tax thresholds. It phases out from $44,000 to $48,000.

About 1.4 million New Zealanders will get extra cash from tomorrow when the tax cuts come into effect - a package the Prime Minister says is "focused fairly and squarely on middle New Zealanders".

The Government hopes people will either spend or pay off debt with the tax cuts. However, it has been criticised for giving greater benefit to those who earn more and are less likely to spend the money.

Yesterday, John Key said he believed the tax cuts were well designed to encourage spending by targeting middle New Zealand.

While the top rate of 39 per cent would drop to 38 per cent - a benefit to those on higher incomes - he said overall they were fair.

About 280,000 people earning between $50,000 and $70,000 would get just under $20 a week - and Mr Key said the "vast bulk" of people would notice the difference.

A further 630,000 workers on lower wages would get the new independent earner's credit - costing about $235 million of the $1 billion cost of the tax cut package.

Recently, Mr Key called for those who did not want to spend their cuts and had low debt levels to instead donate it to charity to help them cope with a drop in corporate donations in the recession.

He was unable to confirm that the next two years of cuts would go ahead, repeating that it was his "preference" for that to happen but the Government had to ensure they were "affordable in light of the economic conditions we might face in 2010 and 2011".
Under the changes, the threshold before the 33 per cent rate begins rises from $40,000 to $48,000.

From tomorrow, workers can also choose to reduce their KiwiSaver contributions to 2 per cent.

Benefits, superannuation and student loans will also increase by 3.4 per cent, in line with the cost of living.