A National Government would link income tax brackets to inflation, ensuring income taxes are adjusted every three years in line with the cost of living and allowing New Zealanders to keep more of what they earn.
Indexing tax thresholds would mean that every three years the tax thresholds would increase automatically to keep them in line with inflation (CPI).
The changes would make a real difference. Assuming inflation of 2 per cent, 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.
Incomes only rise in real terms when wage growth is higher than inflation. Tax indexation addresses what is known as ‘bracket creep’ where people move into higher tax brackets without a ‘real’ rise in incomes.