Bridges proposes end to ‘bracket creep’

National leader Simon Bridges has announced his party will link income tax brackets to inflation if it wins power at the next election, a change he says would reduce the tax take by about $650 million a year.

Speaking to a crowd in Christchurch in a "State of the Nation" address, Bridges said the change would help Kiwis' incomes to keep pace with the rising cost of living under a Government he claimed was "imposing more red tape and taxes".

The policy would put an end to what is commonly known as "bracket creep", where inflation pushes incomes up into a higher tax bracket without a real increase in spending power.

In his speech, Bridges said a New Zealander on the average wage was expected to move into the country's top tax bracket by 2022 if nothing changed.

"That’s not fair, and it’s not right," he said.

If National won power at the next election, Bridges said it would amend the Income Tax Act so thresholds were adjusted every three years in line with the cost of living, with the Treasury to advise the Government on the appropriate changes within a year after each election.

Based on inflation of two percent, he estimated a worker on the average wage would save $430 a year in tax after the first change, $900 better off after the second adjustment, and $1400 after the third.

End to 'tax increases by stealth'

Speaking to media after his speech, Bridges said the policy was not a tax cut but instead about “stopping tax increases by stealth”.

“Treasury itself has made quite clear if you don’t do something like this, what happens is tax as a proportion of GDP of our economy just keeps growing and people just can’t keep up with all of the costs.”

The largest benefits of ending bracket creep would go to those earning between $50,000 and $75,000 a year, he said.

“They’re not rich, they’re people who are mechanics, who are teachers, who are nurses, who do all manner of things, and it’s wrong to think as they earn more but cost of living goes up higher, that they slip into the top tax rate.”

National would reveal its full tax package closer to the election, when it had a chance to “see where the economy is and what the lay of the land is”.

Bridges did not specify where he would make spending cuts to account for the $650 million in tax that would be foregone due to the policy change, but suggested there were a number of initiatives which could be scrapped.

“If you stop the waste, whether it’s $2.8 billion in fees-free [tertiary education], whether it’s Shane Jones’ slush [provincial growth] fund, there is money there.”

“This should be good, enduring policy...when you look at it and you look what’s happened, where the numbers of people in the top tax bracket have now doubled from 300-something thousand to 600,000 in there, every government should be seeking to do this.”

National finance spokeswoman Amy Adams said the tax legislation would include a government veto, allowing finance ministers to suspend bracket changes in exceptional circumstances such as deflation or a major economic crisis.

The bracket adjustment would be based on figures from the previous three years, but would not be applied retrospectively to people's taxes.

Asked why the previous National government had not moved to stop bracket creep despite calls to do so, Bridges cited the fiscal conditions at the time due to the global financial crisis and the Canterbury earthquakes.

While the Tax Working Group’s interim report raised concerns about the compliance costs for individuals and businesses of annual changes to tax rates and thresholds, Bridges believed any costs would be “very minimal”.

Bridges said he was not worried about the Government adopting National’s policy as part of its own tax reforms, saying he would welcome it opting to support his plans.

“This should be good, enduring policy...when you look at it and you look what’s happened, where the numbers of people in the top tax bracket have now doubled from 300-something thousand to 600,000 in there, every government should be seeking to do this.”

Govt: National's 'reckless, empty promise'

Finance Minister Grant Robertson appeared to pour cold water on the idea, saying National’s tax proposal would not be affordable given its other policy plans without “massive cuts to core areas like health, housing and education”.

Robertson also questioned the value of the tax change, saying it would be worth $8 a week to the average earner in 2021, and $1 a week to someone receiving $40,000 a year.

"For the cuts to services that would be needed to pay for it, this is small change.

“Simon Bridges needs to front up on how he is going to pay for his tax changes, otherwise it is just a reckless, empty promise,” he said.

ACT leader David Seymour, who repeatedly pushed National to end bracket creep during its last term of government, told Newsroom he was happy with the news of Bridges’ plans.

“I think success in politics is having your ideas gradually accepted, and I’m very pleased to see after years of recalcitrance the National Party now accepts that indexing tax brackets to inflation is the fair thing to do.”

However, he did not accept Bridges’ reasoning for not making the change while National was in government, saying it could have cut back on the billions it had spent on corporate welfare as “Shane Jones before we had Shane Jones” and the Labour policies it had previously criticised.

“The answer of a real free market leader is not, ‘Oh we taxed people more because we needed the money’, the answer is what is the principle here, and the principle is that people shouldn’t be stealthily pushed into higher tax brackets because that’s dishonest.”

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