National is promising short-term income tax relief as we face a recession, and the aim of it is to keep thousands of dollars in the pockets of middle-income earners.
By lifting the current tax thresholds, National wants to leave Kiwis with more money in their bank accounts so they might spend more, saying it would help stimulate the economy and keep businesses afloat during the recession.
The policy is aimed at keeping more money in the pockets of middle-income earners, meaning part-time workers and those on low incomes won't benefit as much from the stimulus package.
Here's how it works
The income of New Zealanders is currently taxed by the Government at different percentage levels, which are often referred to as income tax brackets, and National wants to change those brackets for 16 months.
The way it currently works is every dollar you earn up to $14k is taxed at 10.5 percent and every dollar between $14k and $48k at 17.5 percent. The next bracket is $48k to $70k at 30 percent, and every dollar above $70k at 33 percent.
National plans to raise those brackets, so every dollar you earn up to $20k would be taxed at 10.5 percent, and $20k to $64k at 17.5 percent. The 30 percent bracket would include every dollar between $64k to $90k, and every dollar above $90k would be taxed at 33 percent.
How much would you save?
If you're earning $30k a year, National's policy won't mean as much to you as it would to someone earning $90k, and National says that's because it wants to target middle-income earners who may be more likely to spend-up.
If you're on $30k a year, National's policy would put $560 in your back pocket over the 16-month period for which it's proposed. But if you're on $90k a year, you'd pocket $4026 over that same period.
National's policy explains: "Middle-income earners receive the largest benefit as a proportion of their income. As a proportion of income, the largest benefit is for someone on the average income of $64,000. There are no further tax savings for incomes over $90,000."
The policy is expected to cost $4.7 billion over the 16-month period and National plans to pay for it by reducing Government debt by suspending Super Fund contributions, and axing policies like KiwiBuild and the first year of free university.
Government contributions to the Super Fund were suspended by the previous National-led Government between 2009 and 2017, but they were resumed under the current Government at a cost of $7.7 billion over five years.
How does National's tax policy compare?
Labour announced its tax policy last week, proposing a new top tax rate of 39 percent on income earned above $180,000, which would raise about $500 million a year - about the cost of building a new hospital.
Labour's finance spokesperson Grant Robertson said National's policy will lead to "harsh cuts to public services" and said it "beggars belief" that National plans to use the Government's COVID-19 fund to pay for its policies.
"We carefully put aside $14 billion to look after New Zealanders' health and wellbeing and now National wants to put that at risk."
The Greens have proposed two new top income tax brackets set at 37 percent on income over $100,000 and 42 percent on income over $150,000. They also want a wealth tax for those with a net-worth over $1 million.
ACT leader David Seymour says the country would be $76 billion better off by the end of the decade if he controlled the purse strings, but it would come with big cuts to benefits, Working for Families, education spending and KiwiSaver subsidies.
Seymour said National is trying to eat their cake and have it too by proposing tax cuts.
"Hard-working Kiwis don't need tax-cuts yo-yoing like we have seen with lockdowns. They deserve certainty," he said on Friday.
"Most households budget down to the last cent. Is National telling parents that after 16 months they'll have to cancel swimming lessons for their children when their tax cut is taken away?"
National's Paul Goldsmith said on Friday he has ditched the goal of 30 percent debt to GDP in about 10 years, a decision he made after viewing the Government's books on Wednesday.
Goldsmith said National now plans to get debt to 35 percent of GDP by 2034, compared to Labour which by that time will get debt to 48 percent of GDP.
