{"id":614682,"date":"2026-09-28T21:20:14","date_gmt":"2026-09-28T21:20:14","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/614682\/"},"modified":"2026-09-28T21:20:14","modified_gmt":"2026-09-28T21:20:14","slug":"is-now-the-time-to-move-tax-brackets","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/614682\/","title":{"rendered":"Is now the time to move tax brackets?"},"content":{"rendered":"

What\u2019s the issue?<\/p>\n

Fiscal drag, or bracket creep, refers to the way that, if tax brackets don\u2019t move, rising incomes can push people into higher tax rates, even if the increases are only keeping pace with inflation.<\/p>\n

Advice given to Willis by Inland Revenue said that in March 2010, the average amount of income tax paid on every dollar was 21.4c. That fell to 18.9c in the 2011\/12 year, when tax brackets were adjusted, then crept up to 22.6c in 2023\/24 before dropping to 22.3 in 2024\/25.<\/p>\n

An analytical note for Treasury in October last year by Shane Domican and Sijin Zhang said that fiscal drag on New Zealanders had been \u201csignificant\u201d.<\/p>\n

\u201cFrom 2011 to 2023, fiscal drag led to personal tax revenues rising by 1.6% of GDP. The distributional impact of fiscal drag is uneven and the full impact on New Zealanders depends on how the revenue is used. However, in the future, if fiscal drag continues, it\u2019s likely to increasingly impact lower-income individuals.\u201d<\/p>\n

They said that if inflation was running at 2% and real wage growth at 1%, personal tax revenue could rise by 2.1% of GDP between 2025 and 2038. If tax bands were indexed to inflation, that would fall to 0.9%.<\/p>\n

They said fiscal drag had had the biggest impact on people earning around $70,000 in 2025.<\/p>\n

\u201cThe total distributional impact on New Zealanders<\/a> will also depend on how the revenue is used. For example, if used to fund broadly provided public services, the distributional impact is likely to be overall redistributive, with lower income earners benefiting and higher income earners having a net cost.\u201d<\/p>\n

Tax expert Terry Baucher said he thought there should be regular threshold adjustments.<\/p>\n

\u201cThere are a lot of unintended consequences and then you get to a point where you simply can\u2019t catch up, and you\u2019ve basically baked in tax increases permanently, which is what happened between 2010 and 2024.<\/p>\n

\u201cIt\u2019s not transparent. In America, the tax thresholds there are adjusted for inflation every year and in Britain, for the personal tax allowance, which is tax-free, they are required to pass an amendment if they are not increasing it by the rate of inflation.\u201d<\/p>\n

Kelly Eckhold, chief economist at Westpac, agreed it would be desirable to tackle fiscal drag.<\/p>\n

\u201cThe adjustment in tax brackets<\/a> that was done a couple of years ago was estimated to have reduced maybe a third of the accumulated bracket creep that occurred up to that point. There\u2019s obviously some more that could be done.\u201d<\/p>\n

Fiscal drag was pro-cyclical, he said, and the government brought in more tax during times when the economy was improving.<\/p>\n

Deloitte tax partner Robyn Walker pointed out the Greens, Te P\u0101ti M\u0101ori, and New Zealand First were already proposing personal tax rate and threshold changes. Opportunity also proposed to change personal taxes as part of its tax reset.<\/p>\n

\u201cFrom a tax perspective, it is compelling to consider whether bracket creep should be addressed as part of an election policy, but it\u2019s also worth considering what the most fiscally responsible thing to do [is]. Some will hold the sentiment that the better answer is to take the benefit of fiscal drag and to apply this to the repayment of debt. This has the benefit of reducing future interest costs therefore providing the option of tax rate or threshold reductions in the future.<\/p>\n

\u201cA compromise could be a commitment to tax reductions if core Crown debt falls below a specified level of GDP \u2013 currently 41.3%. The right answer is all about trade-offs and priorities.<\/p>\n

\u201cIt may be difficult for any modest threshold adjustments to compete with the larger reductions which are being proposed for low- and middle-income earners by other political parties.\u201d<\/p>\n

But the problem is the cost of moving tax brackets.<\/p>\n

Brad Olsen, principal economist at Infometrics, said while the Government was borrowing to pay for spending, it was not appropriate to move the tax brackets.<\/p>\n

\u201cThe concept of trying to reduce fiscal drag \u2013 absolutely, huge fan. Definitely keen. Practically, the challenge, we saw this when the Government introduced the last set of tax cuts and changes to adjust for some level of fiscal drag was that it was a fairly limited amount per person but because it\u2019s across everyone it starts to add up quite a lot in terms of the fiscal position.\u201d<\/p>\n

He said until the Government could get out of deficit, it would be irresponsible to offer tax cuts.<\/p>\n

\u201cA treat for the current set of taxpayers who have to pay a little bit less but it also means that future generations would have to pay more and more debt, that is simply not a reasonable position for any government to think about.\u201d<\/p>\n

Eckhold said while Willis indicated there could be good news in the update today, the forecasts were finalised at the end of August, before long-term interest rates lifted and fuel prices increased again. He agreed the cost of any adjustment could be prohibitive.<\/p>\n","protected":false},"excerpt":{"rendered":"What\u2019s the issue? Fiscal drag, or bracket creep, refers to the way that, if tax brackets don\u2019t move,…\n","protected":false},"author":2,"featured_media":614683,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[302862,138,813,185,2683,111,139,425,69,812,7496,223,2044,61],"class_list":["post-614682","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-brackets","tag-business","tag-edmunds","tag-is","tag-move","tag-new-zealand","tag-newzealand","tag-now","tag-nz","tag-susan","tag-tax","tag-the","tag-time","tag-to"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/614682","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=614682"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/614682\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/614683"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=614682"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=614682"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=614682"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}