Status Quo and Problem
The current personal tax settings
As a result of the 2008 Budget, the Income Tax Act 2007 provides for the following personal tax rates and thresholds:
| Marginal rate | 1 October 2008 | 1 April 2010 | 1 April 2011 |
|---|---|---|---|
| 12.5% | Up to $14,000 | up to $17,500 | up to $20,000 |
| 21% | $14,001 to $40,000 | $17,501 to $40,000 | $20,001 to $42,500 |
| 33% | $40,001 to $70,000 | $40,001 to $75,000 | $42,501 to $80,000 |
| 39% | over $70,000 | over $75,000 | over $80,000 |
The current personal tax structure is progressive in nature as it results in an increase in the ratio of tax liability to income as income increases. There is also a targeted social assistance programme where monetary benefits are abated as income rises, leading to high effective marginal tax rates (MTRs) at middle income levels. The existing personal tax system is not generally inflation-indexed and it relies heavily on self-assessment.
