June 4, 2023

Hipkins won’t say if he’s asked officials to consider adjusting tax thresholds to inflation

He wouldn't speculate on tax policy.

The Prime Minister won’t say whether he’s asked officials to consider adjusting tax thresholds to inflation to assist New Zealanders during the cost of living crisis.

But Chris Hipkins has made the point that as costs for households soar, so does the cost of delivering services, like education and healthcare.

“That has an impact on us and we have to get that revenue from somewhere in order to be able to provide those public services.”

Core Crown tax revenue in the year to June 30, 2022 was $108.5 billion, the first time it was above $100 billion and up from $98 billion the year prior. 

At December’s Half Year Economic and Fiscal Update (HYEFU), it was projected that core Crown tax revenue would hit $118.1 billion by the end of June 2023 and continue rising to $149.1 billion by 2027.

Asked on AM on Monday, Hipkins couldn’t say how much of the increase was down to people moving into higher tax brackets or GST.

“I think it is important to note the Government’s revenue growth overall in the five years we have been in Government includes more people paying tax, salaries going up, and it’s not just inflationary pressure or bracket creep that is contributing to that,” he said.

“That is actually probably the minority of the increase in revenue.”

In the year to June 2022, source deductions – which is mainly income tax – increased by $4.3 billion or 11.2 percent. The Treasury said $3.3 billion of this was down to wage increases and growth in employment. 

“In addition, additional tax as individuals moved into higher tax brackets and the impact of the first full year of the 39 percent personal income tax rate for income over $180,000 per year also contributed to this increase.”

The rest of the increase was mainly powered by a large jump in corporate tax revenue ($4.1 billion or 26.2 percent), while GST was up $0.6 billion (2.2 percent).

In January, the Treasury said core Crown tax revenue in the five months to the end of November 2022 was about $45.4 billion, with source deduction up $2.4 billion (14.4 percent) “owing to a stronger labour market, characterised by strong wage growth”. GST was up $1.7 billion (17.1 percent).

AM host Ryan Bridge asked Hipkins whether he had asked officials or ministers to look at adjusting tax brackets.

“I am not going to make up tax policy here right now. Of course, tax policy is something we look at regularly,” Hipkins replied.

“I would also note that as household costs have gone up, so too have the Government’s costs gone up. It costs more to educate a child now than it did five years ago, it costs more for us to provide the health services we provided five years ago. 

“We have to make sure we are continuing to deliver the public services New Zealanders want as well. That has an impact on us and we have to get that revenue from somewhere in order to be able to provide those public services.”

Asked again if he made such a request, Hipkins said it wasn’t usual practice to comment.

“As you know, we don’t publicly comment on things that may or may not be under consideration in the Budget. Never have and don’t intend to start doing that now. People will know exactly what our tax policy is well in advance of the election though.”

As inflation rises and wage growth is also up, people are shifting into higher tax brackets and are therefore paying more tax. But due to that inflation, they aren’t necessarily any better off in real terms.

In New Zealand, every dollar a Kiwi earns up to $14,000 is taxed at 10.5 percent, each dollar earned between $14,000 and $48,000 is taxed at 17.5 percent, between $48,000 and $70,000 it is taxed at a 30 percent rate, and between $70,000 and $180,000 it is taxed at 33 percent. 

After the 2020 election, the Government also introduced a new tax rate of 39 percent for income above $180,000.

Indexing tax thresholds to inflation is a National Party policy but it’s received some criticism for benefitting those on higher incomes more than the lowest earners.

At HYEFU in December, the Treasury said source deductions were forecast to grow at an average of $3.9 billion per year due to wage growth, fiscal drag and employment growth.  

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