New Zealand government announces income tax cuts in budget

May 20, 2010, 5:06 GMT

Wellington - New Zealand's centre-right government cut personal taxes across the board to compensate for raising the comprehensive goods and services tax (GST) in its annual budget announced in parliament Thursday.

The GST is to rise from 12.5 per cent to 15 per cent on October 1, but Finance Minister Bill English said nobody would be worse off because of income tax cuts and increased welfare benefits to compensate.

The cuts include a simultaneous 5-percentage-point fall to 33 per cent in the top rate of income tax for people earning 70,000 New Zealand dollars (47,600 US dollars) or more a year and a 2-percentage-point reduction in company tax to 28 per cent from next April.

The universal state pension for those over 65 is to be increased by just more than 2 per cent on October 1 to offset the expected rise in retail prices because of the higher GST rate. Other welfare payments would rise by a similar amount.

'This is the most significant tax reform package in New Zealand for nearly 25 years,' English told parliament. 'For ordinary New Zealanders, it will reward effort, encourage savings and help families get ahead.'

He said a worker on the average annual wage of about 50,000 New Zealand dollars with an average rent or mortgage would be more than 15 dollars a week better off. A typical family with two children and a household income of 76,000 dollars would have an extra 25 dollars a week.

These figures were challenged by the leader of the opposition Labour Party, Phil Goff, who rejected English's claim that the new tax package was 'fairer' for everybody.

Noting that the highest paid earners would get the biggest tax cuts, Goff said, 'He has rewarded the most wealthy at the expensive of middle- and low-income New Zealanders.'

Hone Harawira, a member of parliament with the Maori Party, which supports the conservative National Party-led government, broke ranks with his colleagues, saying 'GST hits poor people the hardest because nearly all of their money is spent on things that you pay it on - food, petrol, electricity.'

Harawira said his party was committed to voting with the government for the budget but he had to speak out against the increased GST.

The budget was presented as Prime Minister John Key's government is halfway through its three-year term in office. It must seek another term at a general election by November next year.