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Copeland: Bring fiscal creep to an end

Copeland: Bring fiscal creep to an end

United Future revenue spokesman Gordon Copeland has again challenged the Government to relax the income tax bands to take into account cumulative inflation since they were established in April 2000.

In debating the annual tax bill read in Parliament for a second time yesterday, he outlined the simple economic formula involved: "All taxpayers will know that if inflation goes up by 4% they will need to have an increase in their pay packet of at least 4% in order to maintain purchasing power parity and a consistent standard of living.

"However, in a progressive income tax system, as their salary or wages move, because of inflation, into a higher tax bracket they will move up from say a 19.5% tax rate to a 33% tax rate, thus losing part of the increase in their pay packet through increased taxation.

"This used to be referred to as 'fiscal drag' and is now more typically referred to as 'bracket creep' but I think we could better refer to it as 'fiscal creep'. Such fiscal creep, which reaps extra revenue for the Government, is not an honest straightforward tax increase brought before Parliament for an open debate, but it is a tax increase nevertheless.

It is these economic fundamentals which lead United Future to the strong conviction that the tax bands reaffirmed in this bill at their April 2000 levels should have been adjusted at 1 April 2003 as follows:

* The 15% low income rebate level from $9,500 - $10,500

* The 19.5% rate from $38,000 to $42,000.

* The 33% rate from $60,000 to $65,000

* The 39% rate from above $60,000 to above $65,000.

The Government's failure to make these adjustments results in the over-taxation of New Zealanders by the following amounts:

For those earning between $25,000 and $35,000 - $60 per annum. For those earning between $38,000 and $42,000 - $300 per annum. For those earning between $42,000 and $60,000 - $600 per annum. For those earning over $65,000 - $900 per annum.

"These figures may seem modest but as we have 2.7 million taxpayers in this country, they represent an over-taxation of some $450 million per annum. These are funds which, through fiscal creep, the Government is gathering into its coffers but which correctly belong in the pockets and purses of taxpayers and their families.

"This is wrong in principle and United Future will continue to challenge the Government's inaction in this regard and ensure that it is brought to the attention of the electorate until a firm policy commitment is made to eliminate fiscal creep from the New Zealand tax system once and for all.

"Simply stated fiscal creep is unprincipled and unjust," Mr Copeland said.

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