Budget 2012: 'Paper boy tax' on small earnings stuns Labour

Labour leader David Shearer. Photo / Mark Mitchell

The Government has been accused of penny-pinching from kids to make ends meet after it cut children's tax credits in Budget 2012.

Revenue Minister Peter Dunne announced yesterday that school-aged children would no longer get a tax refund if they earned wages for part-time work.

Labour Party leader David Shearer said of the tax change: "This is the nickel and diming of this Budget where you don't really take on the big issues but you end up taxing paper boys and paper girls."

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"Picking the pockets of paper boys and paper girls is petty. It's not really addressing the big issues," he said.

Under the changes, young people who earned cash-in-hand for babysitting or lawn-mowing would not have to file a tax return at the end of the year.

But children earning under $2340 who paid tax to their employers could no longer claim it back.

Treasury officials said the changes would make the Government $14 million a year over the next four years.

Most of the tax changes were aimed at higher earners who structured their finances to pay less tax.

The alteration of the active income of children's tax was one of three changes to tax credits which were expected to affect 173,000 people and save $117 million in four years.

At present, children earning up to $2340 were entitled to a tax credit, and could claim their earnings back at the end of the year.

But Mr Dunne said this tax credit was being scrapped because it had created too much paperwork for employers.

He told Parliament: "It is not a significant measure, it is removing something that has become completely outdated."

The tax credit for children was created to save employers the trouble of withholding tax from young employers who earned a small amount.

Mr Dunne said most employers of paper boys and girls or similar jobs now included all their employees on their PAYE system. Therefore the tax credit was mostly used by kids filing tax returns at the end of the year.

Inland Revenue documents showed that 68,600 New Zealand children received an "active income" tax credit. They claimed back an average of $245 a year.

Children who earned more than $2340 would still be able to get a tax refund.

The changes to children's tax credits would take place in the 2012/13 tax year.

Mr Dunne also announced the repeal of the childcare and housekeeper tax credit and the income under $9880 tax credit.

The childcare and housekeeper tax credit was scrapped because the Government felt it had been superseded by schemes such as Working for Families.

Mr Dunne said the tax credit had been poorly targeted because wealthy families which had no need for childcare had the same access to the tax credit as poorer families.

Only 11 per cent of people who claimed the credit were from the poorest third of households.

As expected, people who claimed tax deduction for renting out their bach or boat despite mostly using it privately would face tighter tax rules.