Tax Working Group Recommends Less Tax for Low Income Earners

The Tax Working Group (TWG) has released a report calling on the government to overhaul its current tax policies.

The report suggests many changes to the current system, but most relevant to students is a recommendation to raise the income tax thresholds. The recommendation would mean low income earners would be more likely to receive reduced tax rates. Currently, the lowest tax rate (10.5%) applies only to those whose income tops out at $14,000 a year. The report suggests three variations of tax reform, which would see the threshold for the 10.5% tax rate increase to $20,000, $22,000 or $30,000, depending on which is chosen. This is likely to have a major effect on students, a demographic whose individual yearly income is liable to range anywhere from $5,000 to $20,000.

The news isn’t all good for students though. The TWG has also recommended the government extend its capital gains tax regime to cover gains and losses from all types of land improvements, shares, intangible property, and business assets ( with the exception of the “family home” and personal use assets like cars and boats). The TWG’s prediction model suggested that these changes are likely to reduce house prices but raise rents – making life even more difficult for students struggling to afford rent in cities like Auckland. This prediction is by no means definitive though, as the TWG have noted that the impact of the capital gains tax is likely to be small. The TWG suggests that outside factors (like the impact of the government’s ongoing KiwiBuild project) have the potential to offset these changes.

Students shouldn’t expect the changes to come any time soon. As the report itself explains, these reforms are just suggestions – none of them are binding unless adopted by parliament. And although former Labour Finance Minister Michael Cullen, who worked on the report, has indicated his old party intends to back all of the reforms (“it is the government’s intention … to implement any policy changes arising from the report before the end of the parliamentary term”), current Finance Minister Grant Robertson has said that it is “highly unlikely all recommendations will need to be implemented”.