Isn’t this just an attack on NZ Super recipients?

Isn’t this just an attack on NZ Super recipients?

Answer

No. The tax-free payment of NZ Super top up over the UBI will be higher than their current level, to ensure that those with a small amount of additional income to supplement NZ Super are not negatively impacted by the change in tax rates from 17.5% to 33%. 50% of NZ Super recipients will either be better off or no worse off with these changes.

The worst situation possible is for someone receiving the NZ Super couple rate and a total taxable income (including NZ Super) of $70,000 per year. They will be $85 a week worse off. This affects less than 10% of current NZ Super recipients and will usually apply to those only recently eligible for superannuation. Even so, they will still see an increase over their take home pay prior to turning 65.

Example 1

Michelle lives alone in her freehold home valued at $850,000. She receives Single Alone NZ Super giving her an after-tax income of $21,380. With the small increase in NZ Super and the property tax ($8,415) Michelle is significantly worse off. However if she defers the property tax until the house is sold her disposable income increases by $806 or 3.8% per annum.

Example 2

John and Sue are both over the age of eligibility and receive the couples rate of NZ Super. They own their $900,000 home freehold and also have a rental property valued at $300,000. The rental property returns $300 per week and expenses cost $100 per week so it returns $10,400 per year which is over the income ($9,000) subject to property tax, so standard income tax on the $10,400 is due. Currently they have a combined after tax income of $41,472. If they defer the property tax then their after tax income is unchanged, and with the property tax their after tax combined income drops by $9,070 to $32,402.

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    • Vanessa Slater
      commented 2020-09-01 14:19:38 +1200
      There are a couple of issues I see with the policy I hope you might be able to clarify. The biggest is that the UBI is $250 a week. Current NZ Super is $423 a week so you are proposing a 39% reduction in the level of NZ Super. On top of that if they live in Auckland they will be hit with an additional RFRM tax bill of over $10,000 per annum. I know that you say that they can roll it over but it still mounts up pretty quickly!

      You mention a ‘top-up’ for superannuants. How exactly will this work?

      The next is the situation of a low-income family with a couple of kids earning $50,000:

      Their current situation is:

      Tax $8,020
      WFF $12,532
      Net Tax -$4,512

      Under UBI it is:

      Tax: $16,500
      UBI Adult: 13,000
      UBI Kids: $4,160
      Net Tax: -$660

      So they are $3,852 worse off.