Tax cuts bring mixed fortunes

Vanessa Goodson, 18, a sales consultant for Vodafone, and Caitlin Adams, 18, a travel agent for Qantas, see some advantages to the changes. Photo / Glenn Jeffrey

Billions of dollars are being redirected into the pockets of New Zealanders. The Weekend Herald looks at how far the money will go for some people:

The young worker
Vanessa Goodson's paycheck will have $10 more a week when she becomes eligible for an independent earner's allowance on Wednesday.

That is almost enough to cover the $500 a year extra she has worked out she is paying in living costs after rises in the price of fuel and basic food items.

However, as a KiwiSaver member Ms Goodson will lose the $40 fee subsidy the Government pays to her account each year.

The 18-year-old sales representative lives at home with her family to save money. Although her $30,000 salary does not qualify her for a tax cut, as a non-beneficiary without children earning between $24,000 and $44,000 she can receive the independent earner's allowance. It could go towards bus fares.

Ms Goodson is repaying a student loan, and starting Wednesday she will receive a 10 per cent top up on any voluntary repayments totalling $500 a year or more. But with her living costs up from this time last year, she did not think that would make her pay back her loan any faster. "I'll just keep chugging along paying the minimum."

Under changes to KiwiSaver rules, Ms Goodson will lose the extra 2 per cent of her pay her employer would have been obliged to put in her KiwiSaver account by 2011. However that will not affect her on Wednesday, when her employer's compulsory KiwiSaver contribution will rise from 1 to 2 per cent just as it would have under the old rules.

Businessman
Clothing wholesaler John Heskett, 57, won't get a tax cut on Wednesday - the company tax rate he pays through his business will not change. But he said his business would benefit from the boost to other people's take-home pay.

"I'm in a business that sells to consumers and we rely on people having at least some disposable income. I feel better off because the people who need a tax break will get it."

Mr Heskett, who lives with his wife and three children aged 8, 14 and 17, will pay more in ACC levies from Wednesday.

He estimates his company of jeans makers, which employs six staff, will pay about $50 a year more when the change takes effect.

"Because we're a small employer it's not a lot of money [extra]."

Mr Heskett said he was concerned about rising ACC costs, but on balance the $1500 he paid annually in ACC levies was a "pretty cheap" price for the medical insurance it provided.

The Government says the average levy for employers will increase from $1.26 to $1.31 per $100 of payroll, excluding GST, on Wednesday.

The levies paid by employees will rise from $1.40 to $1.70 (including GST) per $100 of liable earnings.

The KiwiSaver convert
Caitlin Adams quit KiwiSaver after three months last year but says she will "definitely" rejoin once she can contribute as little as 2 per cent of her pay. The 18-year-old said she pulled out of KiwiSaver, which until Wednesday requires employees to put in 4 per cent of their pay, after three months because: "I thought at this stage of my life I don't really need to be in it."

Ms Adams said it was not the requirement to contribute 4 per cent of her pay that put her off.

She did not really understand KiwiSaver and had been told joining it was a waste of time.

"I thought it would be a lot easier to do it [contribute] when I earn more and I really didn't understand a lot of the schemes."

Ms Adams said she had recently started to think joining KiwiSaver might be a good idea after all and the option of a 2 per cent minimum payment meant it was more a question of "why not?" than "why do it?"

Ms Adams, a travel agent whose $35,000 salary qualifies her for a $10 independent earner's allowance on Wednesday, said she did not think the extra $10 a week would make any difference to her.

The family
A family with two wage earners each earning the average wage of $48,500 will have $36.92 a week more to play with on Wednesday.

Take away the extra ACC levy they will pay - $5.60 between them - and they will be left with $31.92 a week.