TVNZ interview on Fiscal Drag
Terry Baucher interviewed on Breakfast on 1
Summary of points made by Terry during this 5 minute interview [link to watch].
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The trouble with Fiscal Drag as you cross a tax bracket and it’s not adjusted for inflation and so reduces your take home pay.
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All the tax brackets need to move up as they haven’t changed since 2010. On an inflationary basis the top tax bracket should be nearer $80,000.
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The real painpoint is below $48k – it’s a very big jump up in percentage tax payable.
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The government is setting up a big problem for themselves as they will have to deal with this in the future.
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Historically as brackets increase – average earnings always keep ahead of tax brackets – but we’re running surpluses and so this is a good time to adjust it.
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I think that NZ rely a lot on the taxation of labour for tax receipts and the taxation of capital is haphazard. This would re-balance the way the tax take comes into the Treasury.
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The interaction between tax and social policy is also important – Working For Families Credits get abated at 25% and so effectively it jumps to 42% for some groups of people. Who are being taxed at 100% at the margin when ACC and other taxes are added up.
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The big change from 1 April 2019 the new IRD system will give more real-time accuracy about people’s earnings it will adjust your PAYE rate during the year.