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"National's proposed tax bribe, if the details leaked to the Dominion are correct, would exacerbate New Zealand's growing income inequality by again providing greatest benefit to those on above-average incomes," Labour finance spokesperson Michael Cullen said today.

"It would also inevitably lead to a further decline in the quality of social provision because it would reduce the revenue available to the state for spending on health, education, superannuation, infrastructure, welfare, police and other vital services."

The Dominion today reported "Government sources" as saying that the tax cut programme to be unveiled by Treasurer Bill English at the National Party conference next weekend will raise the threshold at which the 33c tax rate applies from $38,000 to $45,000.

"The information supplied to the Dominion suggests that the Government plans to reshuffle existing tax scales rather than the introduce a new tax step.

"The most likely configuration under that scenario would be to raise the threshold for the 33c rate from $38,000 to $45,000 and to raise from $9,500 to $11,250 the amount covered by the 15 percent low income earner rebate.

"For the worker on the average wage, that would mean a measly $2.02 a week. That won't even buy a loaf of sliced white bread at today's supermarket prices," Dr Cullen said.

"For the single superannuitant it would mean another 72c a week, and for married couples a pathetic 60c a week - enough to buy a packet of chewing gum and get 10c change. And, of course, they would only get these increases if, by the next April 1 adjustment, superannuation had sunk below 60 percent of the average take home ordinary time wage.

"National last year reduced the wage floor from 65 percent to 60 percent as part of its vindicative "Policies for Progress" package.

"As usual with National, those at the top of the income scale will get the biggest benefit. In this case, another $18 a week, according to our calculations. But to get that, you will have to be among the 12 percent of taxpayers who pay tax on above $45,000 a year.

"And the price in poorer services, a declining education system, long waiting lists for surgery and rising crime will be paid by everyone," Dr Cullen said.

Potential Personal Income Tax Scale Change Effects

Current Scale Potential Scale
Tax Rate* Tax Rate*
(Gross Income $) (Gross Income $)
0 - 9,500 15% 0 - 11,250 15%
9,500 - 38,000 21% 11,250 - 45,000 21%
38,000+ 33% 45,000+ 33%

*The above rates result from the interaction between the statutory tax rates and the Low Income Rebate.
The calculations assume that these rates remain unchanged.

Increase in Net Income for gross income earned between 5,000 and 40,000

Annual Gross Income ($) 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000
Current Scale Net ($) 81.73 162.88 238.85 314.81 390.77 466.73 542.69 614.04
New Scale Net ($) 81.73 163.46 240.87 316.83 392.79 468.75 544.71 620.67
Increase in Net Income ($) 0.00 0.58 2.02 2.02 2.02 2.02 2.02 6.63

Increase in Net Income for income earned between 38,000 and 46,000

Annual Gross Income ($) 38,000 39,000 40,000 41,000 42,000 43,000 44,000 45,000 46,000
Current Scale Net ($) 588.27 601.15 614.04 626.92 639.81 652.69 665.58 678.46 691.35
New Scale Net ($) 590.29 603.46 620.67 635.87 651.06 666.25 681.44 696.63 709.52
Increase in Net Income ($) 2.02 2.31 6.63 8.94 11.25 13.56 15.87 18.17 18.17

According to the Treasury's Taxmod data, prepared for the Budget Economic and Fiscal Update, only about 12 per cent of taxpayers, those earning over $45,000,
will enjoy the full benefits of the changes.

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