Budget 2017: Tax and benefits package targets low to middle income families
The Budget's $2 billion a year package of tax and accommodation benefit changes is skewed deliberately towards the lowest income families and areas where rents are highest in an election year pitch by the government to be seen to respond to concerns about social inequality.
"The measures in this Budget are expected to lift 20,000 households above the threshold for severe housing stress and reduce the number of children living in families receiving less than half the median income by around 50,000," said Finance Minister Steven Joyce.
The interaction of the changes will differ from household to household, but the overall effect would be felt by 1.34 million families by an average of $26 per week, according to Budget documents.
While there are no changes to the current four-step personal income rates, the amount of money that people will be able to earn in the bottom three thresholds increases.
From April 1 next year, the 10.5 percent tax rate will apply on all income up to $22,000, instead of the current $14,000 threshold. The 17.5 percent rate will apply between $22,000 and $52,000, instead of $48,000 at present, and the 30 percent tax rate will apply on a narrower income band up to $70,000, after which the 33 percent rate will apply as at present.
The lowest income threshold tax change is worth $10.77 a week to anyone earning more than $22,000 a year, rising to $20.38 a week for anyone earning more than $52,000 a year.
While the Budget had no specific news for pensioners, retired people will benefit from the income tax threshold changes.
Joyce said he would like to move on the top tax rate threshold at some time in the future but the Budget documents make no comment on the future for the corporate tax rate, currently set at 28 percent.
Tax treatment of savings, however, was on his radar for attention at some stage in the future.
On the Working for Families front, the Family Tax Credit is simplified from four child age bands to two, with the eldest child eligible for $5,303 of credits annually, irrespective of age, effectively bringing children under 16, currently receiving $4,822 in credits to the 16 to 18 year old rate.
Subsequent children will all be eligible for $4,745, the current 16 to 18 year old rate, instead of rates that were as low as $3,351 for children under 12 years of age.
An estimated 310,000 families will benefit from the changes.
However, there is a sting in the tail for families earning incomes towards the top of the WFF income scale. WFF credits will start abating once income exceeds $35,000 a year instead of $36,500 and the rate of abatement will increase from 22.5 cents in the dollar to 25 cents.
The move "now targets assistance toward lower income families with children," Budget documents say.
The Accommodation Supplement for two person households will increase between $25 and $75 a week, depending on whether they live in a high-rent area, while larger households will gain between $40 and $80 a week, depending on where they live.
"The make-up of the four Accommodation Supplements will be updated so families in areas where housing costs have increased the most will receive further gains," the Budget says.
Some 136,000 households are estimated to benefit from these changes by an average of $36 a week.
Some 41,000 students in high rent areas who are eligible for the Accommodation Benefit of $40 a week will be able to claim up to $60 a week.
There will be overs and unders for some low income families and renters. For example, the increased Accommodation Supplement may cut entitlement for people in hardship who get Temporary Additional Support payments.
Single, childless earners are least advantaged as a group by the tax changes because of the abolition of the Independent Earner Tax Credit, although the change to the bottom tax rate income threshold will fully compensate them for this change.