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From STUFF 11/5/08. Bold highlighting is mine.
Lower-paid earners are tipped to receive lump sum payments of up to $1000 as part of this month's election year Budget.
Top tax expert John Shewan said a cash "social dividend" payout in the May 22 Budget would be the "wild card " that would allow the government to reach taxpayers most under pressure from rising fuel and food prices.
The payout, which could be worth $500, $750 or $1000, could be paid as soon as October this year based on income to March 2008, or in April next year.
Shewan can't say what income level might qualify for a payment, but 47 per cent of taxpayers over 15 earn a taxable income of $20,000 or less many of them beneficiaries or superannuitants.
The government is also likely to want to change tax thresholds to target other income earners.
"A social dividend is the one major possibility that has not been ruled out," says Shewan.
"It's a cash payout to a particular group of taxpayers determined by reference to their income for the last year. It's not what I would call good tax policy, but it does pinpoint relief at a particular group," said Shewan, chairman of PriceWaterhouseCooper.
Shewan said Finance Minister Michael Cullen had limited options for reaching his stated goal of helping lower income earners, having last week ruled out the introduction of a tax-free threshold at the bottom of the income scale.
Cullen also ruled out abolishing GST on food in his speech last week. He said those at the bottom of the income ladder were his top priority in his Budget, but that "all taxpayers" would benefit. Cullen also said he would not spend recklessly on tax cuts for upper and upper-middle income groups in the package.
He said his Budget would need to demonstrate "that the Labour-led government is serious about managing the harsh edges of economic pressure points, even though we cannot pretend to compensate for them completely".
But he warned against hyped up expectations of the financial plan, saying it would not be a "big-bang Budget".
Asked to comment on a "social dividend" payment in the Budget, a spokesman for Cullen said the minister had "decided not to rule anything in or out until Budget day" apart from those policies ruled out in last week's speech.
Shewan said many in the lowest income-earning group effectively paid little tax already, so cutting tax rates would give them little extra in the pocket.
Either Working for Families tax credits could be boosted, or a cash payment could go to individuals so that single and childless people could benefit too.
Shewan said the cash payment could be one-off or a rolling payment.
In the United States, the federal government is currently using similar cash payments to taxpayers as part of a $168 billion plan to stimulate the economy, the second time it has done so.
Payments started going out on Friday to American taxpayers, with $600 for individuals and up to $1200 for couples, with an additional $300 per child for families. The payments are reduced or not available at all for higher earners.
Fifty-nine percent of New Zealand taxpayers have a taxable income of $30,000 or less, according to projections to June 2008.
Shewan said with an overall purse of $1.8b to $2.8b, the government could afford to deliver a social dividend, move tax bands upwards and cut the middle tax rate from 33c to 30c. He expected the middle tax band, which currently starts at $38,000, could be moved upwards to $45,000 or $50,000, and that the top tax band could be moved from $60,000 to $80,000.
The government has not said how much it will spend on tax relief, although speculation has centred on a $2b package.
If the top tax threshold were moved from $60,000 to $80,000, 248,000 taxpayers who earn between those amounts would stay in the middle tax bracket.
Another 200,000 taxpayers who earn more than $80,000 would benefit by not having to pay an extra 6c in income tax between $60,000 and $80,000, amounting to a $1200 cut each in their tax bill.
Prime Minister Helen Clark has said Labour was looking at its overall "social wage'' to help families under pressure.
These policies included Working for Families, the cost of childcare and doctors' fees.
PRE-BUDGET TAX
Current effective tax rates (with low-income rebate)
15c per $1 on income up to $9500
21c per $1 between $9500-$38,000
33c per $1 between $38,000 and $60,000
39c per $1 over $60,000
Top tax expert John Shewan said a cash "social dividend" payout in the May 22 Budget would be the "wild card " that would allow the government to reach taxpayers most under pressure from rising fuel and food prices.
The payout, which could be worth $500, $750 or $1000, could be paid as soon as October this year based on income to March 2008, or in April next year.
Shewan can't say what income level might qualify for a payment, but 47 per cent of taxpayers over 15 earn a taxable income of $20,000 or less many of them beneficiaries or superannuitants.
The government is also likely to want to change tax thresholds to target other income earners.
"A social dividend is the one major possibility that has not been ruled out," says Shewan.
"It's a cash payout to a particular group of taxpayers determined by reference to their income for the last year. It's not what I would call good tax policy, but it does pinpoint relief at a particular group," said Shewan, chairman of PriceWaterhouseCooper.
Shewan said Finance Minister Michael Cullen had limited options for reaching his stated goal of helping lower income earners, having last week ruled out the introduction of a tax-free threshold at the bottom of the income scale.
Cullen also ruled out abolishing GST on food in his speech last week. He said those at the bottom of the income ladder were his top priority in his Budget, but that "all taxpayers" would benefit. Cullen also said he would not spend recklessly on tax cuts for upper and upper-middle income groups in the package.
He said his Budget would need to demonstrate "that the Labour-led government is serious about managing the harsh edges of economic pressure points, even though we cannot pretend to compensate for them completely".
But he warned against hyped up expectations of the financial plan, saying it would not be a "big-bang Budget".
Asked to comment on a "social dividend" payment in the Budget, a spokesman for Cullen said the minister had "decided not to rule anything in or out until Budget day" apart from those policies ruled out in last week's speech.
Shewan said many in the lowest income-earning group effectively paid little tax already, so cutting tax rates would give them little extra in the pocket.
Either Working for Families tax credits could be boosted, or a cash payment could go to individuals so that single and childless people could benefit too.
Shewan said the cash payment could be one-off or a rolling payment.
In the United States, the federal government is currently using similar cash payments to taxpayers as part of a $168 billion plan to stimulate the economy, the second time it has done so.
Payments started going out on Friday to American taxpayers, with $600 for individuals and up to $1200 for couples, with an additional $300 per child for families. The payments are reduced or not available at all for higher earners.
Fifty-nine percent of New Zealand taxpayers have a taxable income of $30,000 or less, according to projections to June 2008.
Shewan said with an overall purse of $1.8b to $2.8b, the government could afford to deliver a social dividend, move tax bands upwards and cut the middle tax rate from 33c to 30c. He expected the middle tax band, which currently starts at $38,000, could be moved upwards to $45,000 or $50,000, and that the top tax band could be moved from $60,000 to $80,000.
The government has not said how much it will spend on tax relief, although speculation has centred on a $2b package.
If the top tax threshold were moved from $60,000 to $80,000, 248,000 taxpayers who earn between those amounts would stay in the middle tax bracket.
Another 200,000 taxpayers who earn more than $80,000 would benefit by not having to pay an extra 6c in income tax between $60,000 and $80,000, amounting to a $1200 cut each in their tax bill.
Prime Minister Helen Clark has said Labour was looking at its overall "social wage'' to help families under pressure.
These policies included Working for Families, the cost of childcare and doctors' fees.
PRE-BUDGET TAX
Current effective tax rates (with low-income rebate)
15c per $1 on income up to $9500
21c per $1 between $9500-$38,000
33c per $1 between $38,000 and $60,000
39c per $1 over $60,000
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