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Budget 2017 Home Page Budget Speech - Budget 2017

Family Incomes Package

Mr Speaker, it is important that New Zealand families directly share the benefits of strong economic growth. This is the whole point of having a strong, growing economy and a healthy set of Government accounts.

The first and most enduring way we can do that is to ensure that there are job opportunities for all those who want to work.

That is now increasingly the case.

There are more than two and a half million people employed in this country for the first time, and indexes of job vacancies are at near record highs.

Fewer people are reliant on the benefit system. The percentage of people whose income is received through a main benefit has dropped to just 9.6 per cent of the working age population - the lowest level it's been in the March quarter since 1997.

The number of children growing up in a benefit dependent family has dropped by more than 50,000 over the last five years.

However it is also important to ensure that the income tax system works well for New Zealanders and keeps pace with rising incomes.

It is now seven years since we last altered the income tax system. Over that time the average wage has risen from $49,500 to $58,900.

That's good news. But because of that change many more middle income earners are faced with a marginal tax rate of 30 per cent cutting in at just $48,000.

We also have a number of lower income people with young families that are struggling to get ahead.

And we have a system that is becoming too complex. As a result of Working for Families and other changes, it can be very hard for people to work out what they are entitled to, and how the work they do is linked to the income they receive.

If the level of complexity is indicated by the number of businesses advertising to do people's tax returns, then confusion is at near record highs.

Today I am announcing a $2 billion a year Family Incomes Package commencing 1 April next year that will start addressing some of these issues.

The Package will make changes to tax thresholds, Working for Families and the Accommodation Supplement to help Kiwi families get ahead.

It is a first step towards simplifying the income tax system.

The Family Incomes Package is carefully designed to assist low and middle income earners with young families and higher housing costs.

It will benefit 1.3 million working-age families in New Zealand by, on average, $26 per week.

The Package is in four parts.

First, it increases the $14,000 income tax threshold to $22,000, and the $48,000 tax threshold to $52,000.

This change provides a tax reduction of $11 a week to anyone earning more than $22,000 per year, increasing to $20 a week for anyone earning more than $52,000 per year.

A couple with both partners earning the average wage will be $41 a week better off from these threshold changes.

Second, it removes the Independent Earner Tax Credit of up to $10 a week.

The Independent Earner Tax Credit was introduced to provide a tax reduction to lower income people without families. It is only claimed by about one third of eligible recipients during the tax year.

People who lose this Credit will be compensated in full by the lifting of the lowest income tax threshold from $14,000 to $22,000.

The third change is to Family Tax Credits.

Working for Families currently varies the amount each family receives according to the age of their children, with families with children aged 16 to 18 years old receiving a higher rate than those with children aged under 16.

And yet as many parents will tell you, bringing up younger children can be just as expensive as bringing up older children.

I am therefore announcing today that the Government will lift Family Tax Credit rates for young children to those of children aged 16 to 18, also from 1 April next year.

This is a significant change.

The Family Tax Credit rates for the first child aged under 16 will increase by $9 a week, while the rates for each subsequent child increase by either $18 or $27 per week, depending on the age of the child.

At the same time the Government will complete its planned adjustment to Working for Families abatements, with the Family Tax Credit set to abate at 25c in the dollar above an income of $35,000. This will ensure that the Government's extra assistance is targeted at lower income families.

Approximately 310,000 families will benefit from these increases to the Family Tax Credit.

A couple with two children under 13, and one partner working earning $55,000 a year, will gain $41 per week - $20 from the income tax change and $21 from the Working for Families change.

The final part of the Family Incomes Package relates to the Accommodation Supplement, which assists New Zealanders with high housing costs.

The Accommodation Supplement has not been updated since 2005, and is based on 2003 rents.

Today I am announcing that from 1 April next year the maximum Accommodation Supplement rates for a two person household will increase between $25 and $75 a week, while the maximum rates for larger households will increase between $40 and $80 a week.

In addition, changes to the Accommodation Supplement areas will provide further gains for some families.

These are in addition to the tax and Working for Families changes already announced in the Package.

This increase in the Accommodation Supplement is expected to directly benefit around 136,000 low income households around New Zealand. It will also reduce the reliance on Temporary Additional Support that some families currently receive to top up their Accommodation Supplement.

I am also announcing that the Accommodation Benefit, which is paid to eligible Student Allowance recipients who experience housing stress, will also increase by up to $20 per week.

The Family Incomes Package is a coordinated set of measures to lift family incomes and improve the rewards for hard work.

Each element works together.

While lower income families receive a smaller amount from the tax component, they receive relatively more from the Accommodation Supplement and the Family Tax Credit changes. The reverse is true for higher income families.

The Package particularly focuses on assisting low income families with young children and those experiencing high housing costs.

154,000 families in the lowest quintile will benefit by an average of more than $35 a week, or $1,840 per year.

It is expected to lift 20,000 households above the threshold of severe housing stress, and reduce the number of children living in families receiving less than half of the median wage by around 50,000.

There will also be flow-on effects of this package. Around three quarters of a million superannuitants will benefit because of the link between New Zealand Superannuation and after-tax wages. The couple rate for superannuitants will increase by $13 a week on 1 April next year in addition to the normal adjustments because of wage indexation.

A small number of families may face losses from this package because of the complex interactions of our tax and transfer system. The Government has established a transitional fund of $2 million over the next four years for anyone significantly impacted by the changes.

The total cost of this package is $6.5 billion over four years, rising from $604 million in the 2017/18 financial year through to $2 billion in out years.

Mr Speaker, it is always important for politicians to remember that the money they spend each year comes directly from the pockets of hard-working Kiwis.

We spend a lot of time thinking about how we can spend that money. The Families Incomes Package is the first step in allowing Kiwi families to spend more of their own money, to make the decisions that are best for them.

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