Gav's Blog

I haven’t done some political blogging for a while, but figured I’d briefly wade in with a couple of comments re: Michael Cullen’s Budget.

One particular comment I’d like to raise and highlight as a point of difference that National could make. In Cullen’s Budget speech he stated that the structure of the income tax system would be simplified.

This programme consists of a combination of a cut in the bottom rate of income tax, threshold changes, a simplification of the structure of the income tax system, a bringing forward of indexation of Working for Families and a forecast second round of such indexation.

In theory the current personal tax system has three rates: 19.5 per cent up to $38,000, 33 per cent from $38,001 to $60,000, and 39 per cent above $60,000 a year.

In practice, the operation of the Low Income Rebate for earned income creates an effective four-step scale with the bottom step split into two: 15 per cent up to $9500 a year and 21 per cent from $9501 to $38,000.

At the completion of the Budget 2008 tax-cut programme the rates will be 12.5 per cent on the first $20,000 of income, 21 per cent from $20,001 to $42,500, 33 per cent from $42,501 to $80,000, and 39 per cent above $80,000.

Call me blind, but aren’t we starting with a four-tier system and ending with a four-tier system? What is simple about that? If Cullen was serious about simplifying the income tax system he would look at removing one, and ideally two of the tiers. This would create a far simpler two-tier structure. Why not have a lower tax bracket for all income up to say $20k-$30k, and a higher rate for everything over that bracket?

For a while I was keen on a single income tax rate, but I have come to recognise that there does need to be some break given to lower income earners to recognise that tax can be more significant.

A simple two-tier income tax system would achieve true simplification. One has to wonder if Cullen only wants to keep complexity in the tax system to make juggling the numbers easier.

An email I sent to the IRD today…

I visited the IRD website this afternoon to use the PAYE 2009 calculator but found that it was not yet obviously* available. After calling the IRD call centre I was informed that the calculator was going to be made available on 1 April. The only solution was to use the pdf 2009 tables or the printed table that the business has already received.

As a business that pays employees monthly in advance, it would be nice to have the calculator made available in advance of 1 April so that I can calculate using the new tables those payments for the month of April that go out on 1 April in late March. The tool is particularly useful in that it can also be used to produce pdf’s that I can email to employees to show them how their monthly salary payments are going to change in the new tax year.

It is useful to be able to use the calculator in March in advance of the changes to payments made on 1 April, and to me it seems a poor decision to leave the roll-out of the PAYE 2009 calculator until the period has actually started. Many organisations need to utilise the tool IN ADVANCE of the new tax period starting.

* Upon further digging, it appears that the PAYE 2009 calculator is available, but it is not obviously linked. One has to select the PAYE 2008 calculator, and then select for the 1 April 2008 – 31 March 2009 period. Unfortunately your call centre staff were not aware of this solution when I called.

Can I suggest that in future that the new years PAYE calculator is clearly rolled out on your website at sometime in the first couple of weeks of March, and linked as the others on this page.

So one can do the calculations, but the tool isn’t clearly and obviously linked on their website. It is a little thing, but it is important to make these tools easily accessible and in a timely manner. It took me 30 minutes by the time I had surfed the website, called the IRD call centre, and eventually found the tool that should have been easily linked in the first place. Their call centre staff should at least have been able to point me to the work-around I found.