Wage earners will receive their first tax cuts from this week. Photo / NZME
About 3.5 million Kiwis will begin receiving their first tax cuts this week ranging from $4 to $40 a fortnight.
For an individual earning an average annual income of $78,000 that will mean about $20 a week.
And while many have sniffed at the size and impact those tax cuts will have amid rising costs elsewhere, the Herald has spoken to two financial experts about where that extra money could be put to make it go further.
Who gets how much will vary based on their level of income with middle-income earners the biggest benefactors of the tax changes.
More than 1.6 million wage earners will get annual tax cuts of between $701-$1043, based on 2022 Inland Revenue income tax data.
The maximum for a single person will be a tax cut of $20 a week, which includes those earning $78,000 or more annually.
However, for nearly 1.7 million Kiwis, they’ll receive between just $101-$200 a year. At the lower end, that’s a measly $1.94 a week.
A single person receiving NZ Super (on tax code M) will be just $2.15 a week better off under the new tax thresholds, while a couple will gain an extra $4.31 a week.
The money is coming from changes to the personal income tax (PIT) thresholds which have been adjusted for the first since 2010 and were announced as part of Finance Minister Nicola Willis’ $14.7 billion tax package in May’s Budget.
According to the Herald’s tax cut calculator that means someone earning $78,000 will see their annual taxes decrease from $16,660 to $15,621.
There are also a range of changes to benefits that will put more in the pocket of those on low incomes with children.
Craig Coupland, founder and director of WealthHealth, said while the tax cuts may not make a lot of difference to people’s pay, they could have some longer-term benefits.
“If you’ve been managing without that extra $20, if you can pop that away and do something smart with it before you get used to having [it] in your hand, then that’s a great thing to do for some people,” he said.
“It does really depend on where people are in their stage of life, what their mortgage balance is, what they are earning, what their KiwiSaver balance might be.”
He said the tax cuts will still be welcomed by most households, especially those doing it tough.
“In real dollar terms [people] are going backwards ... unless you’ve had some salary income increases to offset [rising costs], then it’s been tough.”
One such use for that extra money coming from the Government is to put it into your KiwiSaver, Coupland said.
A 40-year-old with an income of $78,000 who is currently investing 3% of their income in a growth fund and already has $35,000 in their fund, would have $384,436 at 65, based on the Sorted KiwiSaver calculator.
Topping it up an extra $20 a week would result in a total of $431,181 at 65 - an extra $46,745 at retirement.
“A lot of people don’t realise just a small amount can actually make a large difference over the longer term.”
For those with a mortgage, putting in an extra $20 could save a homeowner thousands of dollars in interest repayments.
Coupland said for someone with a $500,000 loan amount and 20 years remaining on their loan term with an interest rate of around 6.50%, “you’re going to be able to pay your loan off about a year earlier”.
“That’s going to save you about $21,000 worth of interest over that whole loan term compared to just paying your minimum repayments,” he said.
“Obviously it’s going to be different from one person to another.”
He said people should check their home loan terms first, to make sure they are able to make extra repayments without penalties.
Tom Hartmann, personal finance lead at Sorted, said for those carrying some debt on their credit card or high-interest consumer loans, paying it off usually wins out.
“If you carry that high-interest debt that makes it become a priority,” he said.
“Let’s say a credit card on 20% interest, if you are going to carry that and not pay it off right away essentially you’ve given that card company the right to charge you 20% on everything you buy for as long as you carry that balance ... most often you wouldn’t do that.
“If you have emergency savings already then funnel that extra money from the tax cut towards that highest interest debt.”
The extra money can also be used to start an emergency savings fund, for those without one.
Research from Kiwibank this year found one in three New Zealanders would not have enough money in their account to cover an unexpected $500 bill.
Hartmann said one of the smartest things you can do is to build resiliency.
“Many of us live on the edge and we’re only one [expense] happening from tipping us into crisis borrowing, loading up on debt,” he said.
“Living with a tight budget makes it harder to make good decisions. If we’re preoccupied with money worries we’re more likely, research shows, to be more impulsive … and even get into deeper money trouble.
“It’s sort of like the equivalent of walking around without a good night’s sleep.
“The fact that it’s [an emergency fund] there is actually going to boost your wellbeing and free up your mental bandwidth to think clearly.”
There are many charities in New Zealand doing wonderful work for both locals and those overseas.
Starship and Koru Care, to name just a couple, provide support for sick children in New Zealand. KidsCan supports children in poverty and CanTeen support youths suffering from cancer.
There are also many families doing it tough at the moment, whether it be struggling to put food on the table or provide warm clothing for young ones. Consider donating to the Salvation Army or a local city mission.
The Women’s Refuge also provides a safe place for women and children who are victims of domestic violence.
Yesterday a new campaign was launched called Give your tax cut to Gaza. The money will help deliver food and water to families in the devastated Gaza Strip.
All proceeds from the campaign will go directly to ReliefAid, a New Zealand charity that delivers aid to families on the ground in Gaza, Ukraine, Syria, and Afghanistan.
Campaign organiser Hayden Eastmond-Mein said he found what’s been happening in Gaza truly appalling.
“I know times are tough for lots of people in New Zealand right now, but with everyone about to get a bit more money in their pockets, I think it’s a good time to encourage those who can afford it to give to those in desperate need. And there’s no more desperate need than in Gaza right now.”
Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sports. He reports on topics including retail, small business, the workplace and macroeconomics.
OPINION: There are rules and restrictions on what you can take your money out for.