National-led Government would link income tax to inflation - Simon Bridges

Simon Bridges says taxpayers would save $650 million a year if National is elected in 2020, by linking income tax to inflation. 

The National leader made the announcement during his State of the Nation speech in Christchurch on Wednesday, declaring New Zealanders should keep more of what they earn. 

"New Zealanders' incomes are struggling to keep up with the rising cost of living because this Government is imposing more red tape and taxes," he said. 

"Over the next four years, New Zealanders will be paying almost $10,000 more per household in tax than they would have been under National. The Government is taking more than it needs, only to waste billions on bad spending."

This rise in tax is because of inflation. Under National's model, you wouldn't move into higher tax brackets when your income isn't keeping up with the rising cost of living.

Mr Bridges said National would amend the Income Tax Act so that tax thresholds are adjusted every three years to keep tax in line with the cost of living. The Treasury would advise the Government now how much it should be adjusted for inflation. 

"This would prevent New Zealanders from moving into higher tax brackets even when their income isn't keeping up with the rising cost of living," he said. 

"We will include a veto clause so the Government of the day can withhold the changes in the rare circumstances there is good reason to. But it will have to explain that decision to New Zealanders."

Linking income tax to inflation would bring huge benefits, according to Mr Bridges. 

He said the first adjustment would prevent Kiwis from paying an extra $650 million a year in tax, based on the Treasury's 'Aggregate Personal Income Tax Revenues Estimate Tool' for 2018/2019. 

"Assuming inflation of 2 percent, someone on the average wage would be $430 a year better off after the first adjustment, $900 after the second and $1,400 after the third," Mr Bridges said. 

"A family with two earners - for example, one earning $80,000 and the other $40,000 - would be $600 better off a year after the first adjustment, about $1,300 after the second and $1,900 by the third."

Mr Bridges' comments come as the Government grapples with the possibility of introducing a capital gains tax, which the Tax Working Group is expected to recommend in February. 

It would be controversial for Prime Minister Jacinda Ardern, who scrapped Labour's capital gains policy a week before the 2017 election in the face of immense criticism and attack ads from National. 

As for the high cost of living, last week Statistics New Zealand said the Consumer Price Index (CPI) - which measures changes in the day-to-day cost of living - was up 1.9 percent over the past 12 months.