Budget: What's in it for you

Finance Minister Bill English is promising no dramatics in his second Budget. Photo / NZ Herald

Income tax cuts for everyone will be announced in next week's Budget.

They will take effect in October and cost about $2.3 billion a year.

Finance Minister Bill English is promising no dramatics in his second Budget.

"There'll be a few unexpected twists in it but the broad picture has been pretty well articulated," he told the Weekend Herald.

The cuts are likely to reduce personal tax rates from 38c, 33c, 21c and 12.5c in the dollar to 33c, 19c and 10c.

This would give someone on $50,000 - just above the average wage - an extra $20 a week in the hand.

But the Budget will also increase GST from 12.5 to 15 per cent, and once this rise is taken into account, the net benefit will be only $6.

Net gains for people in the $48,000-to-$70,000 tax bracket will be minimal because the 33c tax rate on income in that range is not expected to be cut to offset the GST price rises.

It would still meet the test set by Prime Minister John Key of not making people worse off.

But about 400,000 people are in that tax bracket, so the small gains may present a political problem.

Mr English said at the weekend that he expected the focus on Budget day to be on people's cash positions.

"But that is not the purpose of it - to make them a bit better or worse off in cash terms, although of course that is important," he said.

"The point of the tax package is whether four or five years down the track we can influence the choices that people make.

"What we want to do is tilt the economy. It's not shock treatment. It's changing the choices that peoplehave and changing the way theythink about those choices."

The increase in GST will be accompanied by compensation for superannuitants, beneficiaries and people getting Working for Families payments.

Mr Key last week repeated his promise that no one would be worse off because of the changes and said "the vast bulk" would be better off.

The tax cuts will be largely funded by increasing GST and reducing tax breaks that encourage property speculation.

The aim is to encourage savings and investment and discourage consumption and property speculators.

The tax package is also intended to remove some of the distortions in the tax system by aligning the top rate with the trust rate.

The present diversity of rates encourages people to shelter income in trusts, companies and portfolio investment entities to cut their tax liability or reduce income for the purposes of receiving Working for Families payments, calculating child support and making student loan repayments.

The company tax rate of 30c is not expected to be cut in the Budget.

The tax allowance for depreciation on buildings is expected to be removed, but the Government is not expected to set up a capital gains test on short-term property sales, such as those within two years of purchase.