11 Dec 2008

English concedes some worse off despite tax cuts

7:19 pm on 11 December 2008

Finance Minister Bill English says some low income workers will be worse off under the National-led Government's tax cut programme compared with Labour's policy.

But Mr English says many people earning between $24,000 and $44,000 will be better off.

Mr English has consistently argued that no one will be worse off, but on Thursday conceded Labour's changes to the lowest marginal tax rate would have done more for some low income workers than National's tax cuts, which were passed into law on Thursday.

Under Labour's plan, the first $20,000 of income eventually would have been taxed at 12.5%. But National will apply that low rate only to the first $14,000 of income.

Mr English says National's tax package was always clearly different to Labour's and this was spelled out during the election campaign.

[audio:http://admin.radionz.co.nz/audio/national/ckpt/2008/12/11/political_report Checkpoint talks with Radio New Zealand's political editor

Tax cuts passed

The tax cut legislation, which also includes changes to the KiwiSaver scheme, passed by 68 votes to 52 under urgency on Thursday morning.

The tax cuts will come into effect on 1 April next year. A person earning the average wage wil be about $47 a week better off by 2011.

The Labour, Green and Progressive parties voted against the legislation.

Labour MP Lianne Dalziel told Parliament it was appalling that the legislation was put through under urgency, with no opportunity for a select committee hearing.

She said the bill also contains significant changes to KiwiSaver, and many sectors in the community, including business, would have liked some form of consultation.

Maori Party MP Te Ururoa Flavell acknowledged the legislation will not help the majority of his constituents, and told Parliament it was difficult to accept those earning under $40,000 will receive no tax cut this year.

However, he defended his party's support of the bill as honouring its confidence and supply agreement with National.

Labour MP Michael Cullen moved an amendment to guarantee low income workers would be no worse off under National's plan than they would have been under Labour's package.

Mr English rejected the amendment, saying it would have cost the Government at least $730 million in lost income over the next five years.

Changes to KiwiSaver

The legislation also makes changes to the KiwiSaver scheme, including dropping the minimum contribution rate for employees from 4% to 2% and capping compulsory employer contributions at 2%.

Anyone in the scheme will also be able get the maximum tax credit of $1040, irrespective of their income.

The taxation legislation includes personal income tax cuts and threshold changes, as well as introducing a new independent earner tax credit for those on low and middle incomes.

It scraps the research and development tax credit, worth about $300 million a year, which will help fund the tax cuts.

Finance Minister Bill English told Parliament on Tuesday that changes to KiwiSaver and abolishing the research and development tax credit will pay for the tax cuts.

Mr English said the Government's tax package will help get New Zealanders through the recession.