Income Tax Thresholds Must Rise

Income Tax Thresholds Must Rise

The government's fuel excise tax change sets a precedent which makes it morally bound to index income tax thresholds to inflation, said Charlie Pedersen, Vice President of Federated Farmers of New Zealand (Inc).

Mr Pedersen made the comment when appearing before the Finance and Expenditure Select Committee to speak about the Federation's submission on the Customs and Excise (Motor Spirits) Amendment Bill.

This proposed law change raises the fuel excise used to fund roads by five cents a litre (plus GST) from 1 April 2005. It also gives the government the power to increase the excise by the rate of inflation from April 2006.

"The government wants to inflation-proof the amount of money it collects from drivers of light vehicles. Using that precedent, the government is morally bound to inflation-proof income tax thresholds. That will restore net incomes cut when salaries rise into higher tax brackets.

"For example, the $38,000 income threshold for moving from 19.5 percent to 33 percent tax has not changed for six years.

"A person on income of $38,000 on 1 April 1998 whose salary increased by the rate of inflation (the consumers price index) would be on a salary of $43,017 in the third quarter of this year. That equates to an extra $677 in tax a year due to income inflated above the tax threshold.

"It is time the Government started applying the same principles to both sides of its ledger — not just worrying about where inflation has a negative affect on its income.

"Federated Farmers is not opposed to further increases to the rate of fuel excise to fund roading, so long as the increases are based on sound analysis and public consultation -- rather than using a blunt instrument such as the consumers price index (CPI).

"New Zealand has been under-investing in roading and greater levels of investment are required. However if the Government wants to protect its income from the effects of inflation, then it must similarly protect New Zealand taxpayers from the deleterious effects of inflation on their after-tax incomes," Mr Pedersen said.

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