Rich-poor gap basically same after Budget, English claims

Bill English said other measures in the Budget would make people save more and strive to earn more. Photo / Marty Melville

A Budget that delivers thousands a week in tax cuts to the super wealthy and a few dollars to those on the minimum wage will leave the gap between rich and poor "about the same", Finance Minister Bill English said yesterday.

Labour and the Greens have strongly criticised the Budget for delivering windfalls in real terms to high earners while leaving lower-income earners with small gains to cope and facing a spike in the inflation rate next year to 5.9 per cent.

Speaking on TVNZ's Q+A , Mr English said that overall, the Budget would have no significant impact on the rich-poor gap.

"We've achieved a shift in our tax system without making that problem significantly worse in a static sense."

He said other measures in the Budget would make people save more and strive to earn more, as people would keep a greater share of their income.

Last week's tax package will give across-the-board cuts and reduce the thresholds when higher income taxes apply. A chief executive on $5 million a year will get $4800 extra a week, while a minimum wage earner will be $6.36 better off.

But looked at proportionally, Treasury numbers show that household income across the board will rise by between 0.4 and 0.7 per cent of their current levels, taking into account tax cuts, GST, and other measures such as increases in benefits.

Prime Minister John Key has said those on higher incomes contribute greatly to the economy and need incentives not to take their skills and experience overseas.

Mr English rejected keeping the high tax rate of 38c for incomes higher than $100,000, which Labour has said it will look at.

"We've gone for a comprehensive tax package, we've decided to close as many of the loopholes as we can at the top end."

He said people such as Trade Me founder Sam Morgan, who infamously said he pays virtually no tax, can now focus on investing in economic growth and new jobs, rather than trying to dodge the tax system.

The highest income tax rate will be aligned with the trust rate at 33c, meaning there will no longer be a benefit for those hiding their incomes in trusts. But some business analysts have said the drop in the company tax rate to 28c will mean a new tax dodge will emerge as people hide their incomes in firms.

Mr English also said the Government had not considered state asset sales. He floated the idea on Friday at a post-Budget function by saying there would be strong interest in shares in Kiwibank, but yesterday moved to calm speculation about the issue.