Tax Changes Fiscally Neutral – But Will It Damage Growth?
May 10th, 2010
The Govt is insisting its tax package will be fiscally “neutral,” and at the same time, taxpayers will be better off, even after GST is lifted to 15%. A Sunday Star-Times report at the weekend speculated the new tax levels could be set at 10c, 19c and 33c, without any movement in the thresholds. This would mean someone on $40,000 a year would be $326 a year better off. Dropping the 38c rate to 33c would cost $500m, 21c to 19c around $780m and 12.5c to 10c, $820m, with total foregone revenue amounting to $2.1bn.
Given the Govt is also committed to compensating pensioners and other low-income groups, it will need more revenue from sources other than just the GST increase. Trans-Tasman has previously indicated extra revenue might be derived from depreciation regime changes, ring-fencing tax losses from income, and changes to “thin capitalisation” rules. Some tax authorities believe on this basis the new tax rates could be set at 30c at the top, 17c at the mid-rate and 11c for the lowest. But the question still to be answered: If the Govt tightens the noose on income from property, how hard will it hit the housing and construction sectors, delivering another blow to the fragile economic recovery?
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Duncan Cotterill