Top tax rate threshold should be raised - economist

A leading economist says that applying New Zealand's top tax rate to earnings over $70,000 means that middle-class Kiwis are hurting and the income threshold should be increased.

Speaking to The AM Show on Monday, Cameron Bagrie of Bagrie Economics said that taking $0.33c in the dollar from income over $70,000 is "just ridiculous."  

He also said that proposed tax cuts, along with spending on infrastructure and other projects is likely to leave little "wiggle room" and will require trade-offs and increase debt.

"If you earn $70,000, you hit the top marginal tax rate - it should be a six-figure number," Bagrie said.

"There's a big number of people who we're starting to refer to as 'middle-income poor': there's a bit of money coming in the door but it's going out the door in the form of rates, food, electricity and housing.

"Let's get that figure up to something quasi-reasonable," Bagrie added.

Following the show, Bagrie said that people can fall into "tax bracket creep", where wages and inflation go up, they jump into a higher tax bracket and are no better off. 

"At the very minimum, [the top tax rate] should be indexed," Bagrie said.

The Labour Government has got provisions at $2.5 billion, net debt is low and projections show a surplus - but tackling the infrastructure deficit and pumping more money into other sectors on top of tax cuts is likely to be a "tall list." 

"The real issue is that if you allocate a fair bit of that kitty towards tax cuts, you're going to leave yourself little wriggle room for other discretionary spending," Bagrie said.

It's important to strike the right balance: passing on tax cuts and tackling the infrastructure deficit is likely to add to New Zealand's account deficit.

"We want to put more money in peoples' pockets: it raises the returns to work and we want people to keep more of their hard-earned money for themselves," Bagrie said.

"Infrastructure are long-term assets that span generations - they shouldn't be cash flow funded, they should be debt funded. 

"Whether we debt fund all of that isn't the issue: what we want to see is quality spend," Bagrie said.

Bagrie predicts Government borrowing to billow out by $20 billion in the next six years.

"Government borrowing is going to go from $56 billion to $76 billion: no illusions - we're putting this stuff on the credit card," Bagrie said.

"Moving tax rates around is reasonably expensive and you probably need to do it over multiple years to put a material amount of money into peoples' pockets," he added.

Statistics New Zealand data* shows that the average Kiwi wage is $1192 per week ($61,984 per year) - around $8000 below the income for which the top tax rate currently kicks in.

National leader Simon Bridges announced the party's proposed economic plan on Monday. The party said that details of its tax relief package will be announced later this year.

 *2019 household survey.