National leader Christopher Luxon's $18,000 income tax reduction if he becomes Prime Minister

If he became Prime Minister, National leader Christopher Luxon would receive an $18,000 income tax reduction from his proposed tax changes. 

That's if you apply National's proposed tax bracket changes and remove the top tax bracket introduced by Labour in 2020. Luxon would get significantly less if you only apply the tax bracket changes and keep the top tax bracket: $1042. 

In his first major speech as National leader earlier this month, Luxon proposed raising income tax thresholds to help Kiwis deal with the "cost of living crisis". 

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' and illustrate New Zealand's progressive tax system. If you earn $70,001, your entire salary isn't taxed at 33 percent - only the $1 is. 

The third bracket is $48,000 to $70,000, taxed at 30 percent. The next is $70,000 to $180,000, taxed at 33 percent. Each dollar earned above $180,000 is taxed at 39 percent - the final bracket introduced by Labour after the 2020 election. 

National plans to scrap the 39 percent top tax bracket, and lift the other brackets by just over 11.5 percent to match the 11.5 percent increase in the cost of living over the last four years. 

For example, the 10.5 percent tax rate would be applied to each dollar earned up to $15,600, instead of $14,000. 

National's proposed income tax bracket changes.
National's proposed income tax bracket changes. Photo credit: Supplied

The most typical salary in New Zealand is about $55,000, according to the Average Salary Survey. Those earning $55,000 would save about $800 a year if National's tax changes were applied but someone earning $45,000 would only get about $112. 

The Prime Minister's annual salary is set at $471,049. If you apply Luxon's proposed tax bracket changes and remove the top tax bracket Labour introduced, the Prime Minister would save about $18,500 in income tax.  

Luxon has argued that, given Finance Minister Grant Robertson has given himself a record $6 billion in new money to spend in Budget 2022, Kiwis struggling with the rising cost of living deserve to spend some of it themselves. 

He estimates his tax policy will cost $1.7 billion. 

Robertson has accused National of not getting its costing right, questioning whether it has run the numbers beyond this year.

But National Party deputy leader Nicola Willis has denied it.

"We released on Sunday a fully costed plan to adjust tax thresholds. The costing for that is $1.7 billion. If Grant Robertson were to take up our suggestion in this Budget, he would still have $4.3 billion left in his operating allowance to spend," Willis said last week.

"I think that he's jumped the shark a bit. Saying 'fiscal hole' has become a phrase that gets bandied about. There is no hole here. We've costed the policy very clearly."

The Government has been under pressure to admit that three-decade-high consumer prices is a "cost of living crisis", with the price of fruit and vegetables up 15 percent annually, rents up 6 percent, and a warning that unleaded petrol could hit $4 per litre. 

On top of supply chain issues caused by COVID-19, the United States has banned Russian oil imports in response to the Ukraine invasion, prompting President Joe Biden to warn that gas prices are likely to keep rising. 

Prime Minister Jacinda Ardern said last week she was "deeply concerned" because it would "inevitably have a knock-on effect on energy prices around the world and New Zealand will not be immune to that". 

She hopes increases to the benefit, minimum wage and Family Tax Credits in April, and the Winter Energy Payment in May, will ease cost of living pressures.