The proposed Income Tax (Adjustment of Taxable Income Ranges) Amendment bill seems likely to fail following reports that the Labour Party would not support it. Deputy Prime Minister, Grant Robertson, stated that it was not on the agenda. With Labour already the majority in parliament, a lack of support here does not bode well.
Currently at its first reading, the bill seeks to have income tax brackets reviewed every three years, ensuring they are in line with inflation figures. Proposed by former National Party leader and current Tauranga MP, Hon Simon Bridges, it is hoped that this legislation would help resolve the problem of “bracket creep “that has seen people gradually find themselves falling under higher tax brackets.
This is not the first time this change has been proposed. In 2019, Bridges announced another variation that promised to index tax thresholds to inflation and prevent earners from being pushed into higher tax brackets. While campaigning, he told audiences that with a National government, the Income Tax Act would be adjusted on a three yearly schedule, making adjustments in line with the cost of living. Bridges made similar allusions in 2020 on a tax cut package that would be of benefit to those earning about the average wage.
According to the New Zealand Taxpayer’s Union, the problem of bracket creep is caused by taxpayers experiencing a rise in nominal incomes, but not real incomes. Due to income tax thresholds being fixed, taxpayers thus end up paying more in income taxes, without the benefit of a corresponding increase to their real income.
The Union has described bracket creep as the “under-arm bowling of our tax system” and a stealthy, dishonest tax hike. It has expressed strong support for this bill, indicating that Labour had no reason to block it as they have already introduced new taxes on housing and should therefore not need additional revenue.
The bill proposes that Treasury will review and recommend amendments to the tax brackets, pending approval from ministers. Bridges estimates that such a move could cost the government as much as $650 million in tax revenues a year. It is this potential loss that experts predict will get the bill vetoed.
Bridges however still feels this is the right move to allow taxpayers to also keep up with the rising cost of expenses as rent, utilities, and petrol. He also pointed out that the proposed bill did give the government an out if indexation proved too costly. It only requires the government to explain why they could not approve the Treasury’s recommendation.