Executive Summary
There is evidence to suggest that high marginal and average tax rates hamper New Zealand's economic growth and productivity.
High personal tax rates, and inconsistencies in marginal tax rates across income types and different forms of investment, negatively impact on labour productivity, labour participation, and migration decisions. These disparities also create tax base integrity risks.
To reduce these problems a package of personal tax rate reductions, threshold changes, and the introduction of an Independent Earner Tax Credit is proposed. Given fiscal constraints and the need for short-term stimulus, this will be funded by the repeal of the R&D tax credit and changes to certain features of KiwiSaver.
The overall impact of these changes is forecasted to be positive for economic growth and, in the medium-term, for the government's fiscal position.
