Plea made for automatic income tax indexation

Press, 16 May 1985, Page 23

Plea made for automatic income tax indexation

PA Auckland Automatic indexation of income tax was needed to ensure that inflation did not erode the value of tax cuts planned by the Government, according to the president of the Society of Accountants, Mr Rex Anderson. He told 60 members of the Bankers' Institute in Auckland that the public would be naive to allow the goods and services tax to come into effect without a guarantee that associated income tax cuts would apply. Without indexation, he said, inflation would erode the benefits of the change by moving up people’s incomes into higher tax brackets.

Mr Anderson said he favoured the principle of GST because it would allow income tax cuts.

“I am issuing what I see as a necessary warning to

alert everyone to the fact that, if we embrace the goods and services tax with the idea of personal tax reductions, we must be aware that it could be negated in a few years by inflation."

Accordingly, he urged the full annual indexation of income levels at which each tax rate or rebate took effect. This could mean, for example, that the top cut-off point for the standard 33 per cent tax rate, which was an annual income of $25,000 in 1984-85, should be raised for 1985-86 by the rate of inflation during 198485 — that is, by 13.4 per cent — to $28,350. Similarly, the cut-off point for the next rate, 45.1 i>er cent, would be raised from $30,000 to $34,020.

“Nothing could simpler,” he said.