National unveil tax policy

Here is how to calculate your tax: Let's say your gross income is $16,000 annually. Under Labour presently (and next year), you would pay the first $14,000 at a rate of 12.5% and the rest ($14,001 - $16,000) at a rate of 21%. Add the two figures together and you get your income tax for the year.

You should notice three things from the table:

1) The threshold for the 12.5% tax rate increases eventually to $20,000 under Labour but stays the same under National. Remember that increasing the thresholds mean that you can earn more before you enter a higher tax bracket, which in turn means you pay less tax.

2) National plans to lower the 21% tax bracket to 20% in 2011, which benefits people earning over $14,000. However, if you earn under $20,000, then you are better off under Labour as all your income is taxed at only 12.5% that year.

3) If you earn less than $14,000 annually ($270 a week) and continue to in the next three years, you are neither worse nor better off under either proposal as the 12.5% rate remains unchanged throughout.

The average 20-24 year-old receives gross income from wages and salaries of $19,552 annually, or $376 a week. An average person in this age group would undoubtedly be better off under Labour (assuming their income doesn't change), as in 2010 the threshold for the lowest rate is greater than National's (meaning more of your income is taxed at the lowest rate). It gets better in 2011 as all of that person's income falls under the lowest tax rate.

Keep in mind that chances are, most of you reading this will earn more in the next few years, which can alter which package is better for you. Also, note that if you have children, then the Working for Families package provides significant tax-credits.

It's not all bad news for National, as a surprise addition to the announcement included a new "Independent Earner Rebate". If you earn between $24,000 and $48,000, and you do not receive benefits or Working for Families payments (i.e. you don't have dependent children), then you will receive a rebate of up to $10 a week from 1 April next year, which then increases to $15 in 2010.

KiwiSaver

It's a mixed bag when it comes to KiwiSaver. Those who haven't joined the scheme because they can't afford 4% of their gross income per week benefit as National will lower the minimum contribution to 2% instead, meaning it is more affordable (you can still contribute 4% if you wish). This will hopefully attract more people into the scheme who were previously turned off at the prospect of contributing 4%.

The good news ends there, as National will also lower the amount the government has to contribute into your KiwiSaver fund. At the moment, the government matches your contributions dollar by dollar up until $1040 (they call it the "tax-credit"). Most students would not receive this full amount, however, as you would have to contribute about $20 a week (meaning your weekly gross income is $500 - well above the average for a 20-24 year old). Right now, the government contributes the same amount as you do, effectively doubling your fund.

Under National's KiwiSaver plan, existing members would lose out, as the government would only contribute 2% of your gross income, instead of the 4% currently. This means that even if you continue to contribute 4% of your gross income into your fund, the government would only contribute 2%, instead of the matching 4% they contribute currently. The government's contribution would effectively be half of what you contribute.

For those who aren't in KiwiSaver but wanting to join, this change does not affect you (unless you want to contribute 4%) because National would still match your contributions dollar by dollar up until $1040 as you would only contribute 2% of your gross earnings.

Keep in mind that all the other KiwiSaver incentives remain unchanged, including the $1000 government kick-start, as well as the ability to withdrawal your funds to buy your first home, so it is definitely still worthwhile to join.

To see National's full tax package, including the more substantial cuts to middle and higher income earners, head over to their website at www.national.org.nz and click on ‘Finance and Taxation' under their policies. There is also a nifty Excel-based calculator to compare the two parties' tax packages at www.nzier.org.nz.