The Package will make changes to tax thresholds, Working for Families and the Accommodation Supplement to help Kiwi families get ahead. It is a first step towards simplifying the income tax system.
The Family Incomes Package is carefully designed to assist low and middle income earners with young families and higher housing costs.
It will benefit 1.3 million working-age families in New Zealand by, on average, $26 per week.
There have been no changes in tax rates, but the thresholds where the progressive tax rates kick in will increase from 1 April 2018. The changes are intended to correct, or at least mitigate, the effects of "fiscal drag". Fiscal drag is the effect of rising wages pushing people into a higher tax bracket.
The tax rate changes are combined with a simplification to, and increased funding of, Working for Families. The Independent Earner Tax Credit, which less than a third of eligible people actually claim during the year, is being scrapped. The Family Tax Credit is being aligned so that it is the same no matter how old a taxpayer's children are (up to 18 years of age).
The final component of the Family Incomes Package sees an increase to the Accommodation Supplement.
The following elements make up the Package:
- Increasing the bottom two income tax thresholds:
- From $14,000 to $22,000; and
- From $48,000 to $52,000.
- Discontinuing the Independent Earner Tax Credit (IETC).
- Family Tax Credit (FTC):
- Increasing payment rates for children aged under 16, so that they align with the rates for children aged 16 to 18 years; and
- Increasing the abatement rate from 22.5 cents to 25 cents in the dollar and decreasing the abatement threshold from $36,350 a year to $35,000 a year.
- Housing costs:
- Increasing the maximum Accommodation Supplement (AS) payments and updating locations of Accommodation Supplement areas to reflect increases in housing costs; and
- Increasing the weekly payments of Accommodation Benefit for eligible Student Allowance recipients by up to $20.
Superannuitants will gain from the tax threshold increases and some will also gain from the Accommodation Supplement increases.
For further information and analysis of the budget go to the 2017 CCH Budget Report