Christopher Luxon says low- and middle-income Kiwis get ‘emphasis’ of tax package, Treasury figures say the opposite

A Treasury analysis of the Government’s tax cuts has found that the 20 per cent of households with the lowest incomes will see their weekly incomes increase by just $13 a week on average, which is just a third of the increase that the top 20 per cent of households will receive.

That figure includes all of the tax credit initiatives the Government added to the plan to increase the size of the income boost received by lower-income households.

Auckland University Professor Susan St John, an economist who researches child poverty, said she was concerned that the poorest households receive so little from the package.

She was particularly concerned that the Treasury analysis showed 55 per cent of the cost of the scheme flowed to the top 40 per cent of households, while considerably less than 10 per cent flowed to the bottom 20 per cent of households.

The 55 per cent figure includes all income-lifting measures directed at low and middle-income households, like expanding full eligibility to the $10-a-week Independent-Earner Tax Credit (IETC) all the way up to people earning $66,000 a year, and a $25 a week increase to the In-Work Tax Credit (IWTC), a payment made to low- and middle-income families with children who are in work, and the FamilyBoost childcare tax credit.

The Treasury figures, included in a Regulatory Impact Statement, do not include the cost of reinstating interest deductability for residential landlords.

St John said that if you included this, and assumed that the main beneficiaries of the change were the top 40 per cent of households, then about 64 per cent of the cost of the scheme flows to the top 40 per cent of households, while the bottom 20 per cent get just 5.4 per cent.

About 130,000 households receive nothing from the package and 8000 are slightly worse off.

Prime Minister Christopher Luxon said he believed the Government had “designed a system incredibly well to put more emphasis on low- and middle-income New Zealanders”.

Luxon cited the fact that the benefits of the income tax cuts were capped at $78,100, after which earning more money will not increase the size of a person’s income tax cut.

“I think we have designed a really good tax package, and when you take a step back and look at what we achieved in that Budget of making sure we cut wasteful spending and we had a disciplined operating allowance and we delivered tax relief, and we laid out the conditions for future growth in infrastructure, I think we achieved a lot in a short period of time. There’s more to do, [I] get it, but this is going to make a difference for New Zealanders,” Luxon said.

St John backed one of the Government’s tax cut changes, saying it was “important”. This was the decision to lift the $48,000 threshold to $53,501. Income earned below this threshold is taxed at a relatively low 17.5 per cent, while income earned above it is taxed at 30 per cent.

If left unchanged, this year’s minimum wage rise would mean someone earning the minimum wage would have a small amount of their income taxed at 30 per cent – something unthinkable when the tax brackets were set in 2010.

“Having done that, if you look at the overall impact of changing all the thresholds and seeing where the benefit has gone, you have to ask what is the priority here? It is clearly not to address family poverty,” St John said.

“It is quite astounding to see that bottom quintile would get so little.”

Labour’s finance spokeswoman Barbara Edmonds said the analysis was “not surprising”.

“Those on lower wages always fare worse under a National Government and this Budget is no different. Low income Kiwis include seniors, who get a measly few dollars a week from the tax changes,” Edmonds said.

“More households lose money in this Budget than get the $250 a week National promised the average family during the campaign.”

One of the reasons low-income households get so little is the tax credits chosen by the Government to help low-income households. These only go to working households.

The first credit, the IETC, goes to people who do not receive Working for Families and so does not boost the incomes of households with children. The second tax credit, the IWTC is a key Working for Families tax credit. The Government’s $25 a week increase will go to 8 per cent of all households and 25 per cent of all households with children – about $16,000 in total.

The problem is that the Government has not touched the family tax credit (FTC), a Working for Families tax credit that goes to households on a benefit as well as those who work.

St John argues the Government should have cut the IWTC by $25 a week and increased the FTC by $25 a week, leaving no household worse off but increasing some low-income families’ incomes by $25 a week. The other reason is that many people in the bottom quintile receive main benefits, which are not adjusted by the package.

Treasury had some positive things to say about the FamilyBoost tax credit, saying the “majority” of households to benefit from the policy “are in the bottom half of the equivalised income distribution, and the lowest earning households gain by the most on average”.

Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.