Economist Cameron Bagrie warns tax-free threshold would be 'off the chart expensive'

An independent economist is warning introducing a tax-free threshold would cost the country billions of dollars. 

It comes after Newshub revealed the vast majority of Kiwis want tax relief for every single New Zealander. 

The latest Newshub-Reid Research poll found more than eight in 10 voters - 84.5 percent - support a tax-free threshold compared to 9.1 percent who didn't and 6.4 percent who didn't know. 

The way income tax currently works is, each dollar you earn up to $14,000 is taxed at 10.5 percent, and then each dollar you earn between $14,000 and $48,000 is taxed at 17.5 percent. These are known as 'tax brackets'. 

The next bracket is $48,000-$70,000, taxed at 30 percent. The next is $70,000-$180,000, taxed at 33 percent. Each dollar earned above $180,000 is taxed at 39 percent. 

Independent economist Cameron Bagrie told AM on Tuesday if the Government implemented a tax-free threshold for the opening 'tax bracket' it would be "off the chart expensive".

"There are about 800,000 people captured within that tax bracket, but of course, everybody, all taxpayers are caught within that in regard to paying a little bit of tax," Bagrie told AM co-host Ryan Bridge. 

"If you wanted to make that tax-free, for instance, the cost would be in excess of $5 billion. So that sort of tax relief is pretty expensive. In fact, it's not just pretty expensive, it's off the charts expensive."

Bagrie said if the Government is looking to provide tax relief, he would recommend shifting the tax thresholds to inflation. 

"We go back to the term I throw around that I call tax thievery when those tax thresholds are not actually inflation-adjusted from year to year because it gives the Government an additional $500 to $600 million every year," he said. 

"It doesn't matter whether you look at history or you look at the future that tax thievery or the non-indexation of those tax thresholds, it gets the taxpayer an awful lot of money out of ordinary taxpayers' pockets every year." 

He said the tax policy, which would affect inflation the least, is the one he "wouldn't want to touch". 

"Well, unfortunately, it will be the one that I wouldn't want to touch and it will actually be cutting the top marginal tax rates would actually have the least inflationary impact. Why? Because odds are people are going to save a bit of that as opposed to spend it," Bagrie said. 

Bagrie said cutting the top bracket would be "counterproductive" to what he thinks the country should be doing. 

"I think there are a lot bigger priorities out there in regard to supporting education, police law and order, defence infrastructure spending," he told AM. 

"But if you look at it through an outright lens in regard to what will be the least inflationary impact, it will be cutting those tax rates at levels where people are going to save as opposed to spending. I just don't think that's economically sensible at the moment."   

Watch the full interview with Cameron Bagrie above.