NZ’s New Individual Tax Rates – What You Need to Know

Understanding New Zealand’s Tax System

First, lets do a brief overview:

• New Zealand has a progressive tax system for individuals. This means that the more you earn, the higher the tax rate applied to your additional income. This system is designed to distribute the tax burden fairly based on earnings.
• There are five tax brackets, with each successive bracket applying a higher tax rate – starting from 10.5% as the lowest to 39% as the highest. The current tax thresholds have remained unchanged since 2010, except for the addition of a new top bracket in 2021.

As wages have grown over time, people have paid more of their incomes in tax at higher rates.

And some would argue that this is unfair…

Because for 14 years, taxpayers have gradually paid more in tax due to inflation alone.

The Problem With the Current Tax System

Without regular adjustments to tax thresholds, the tax system has failed to keep up with wage growth, leading to what is known as “bracket creep”.

• This occurs when rising wages push taxpayers into higher tax brackets, increasing their tax burden – even when their real purchasing power has not significantly improved.
• Since 2010, bracket creep has caused taxpayers to pay higher effective tax rates over time, as more of their income has been taxed at higher rates.

For the tax system to be equitable, it needs to be responsive to economic changes.

This issue has made the tax system less equitable over time, as this has not happened for 14 years.

Government Changes to Individual Income Tax Thresholds

In 2024, the New Zealand Government (thankfully) adjusted the individual income tax thresholds. These updates aimed to address the bracket creep, to ensure tax rates better reflect wage growth that had occurred over time.

These changes mean that more income will now be taxed at lower rates, slightly reducing the overall tax burdens for individuals earning over $14,000 per annum.

So What Are The Changes?

Here’s a comparison table to show you how the old and the new tax brackets.

Who Is Affected by This Change?

Since individual income tax is paid based on annual earnings, the updated tax thresholds impact all income earners in New Zealand. Anyone earning over $14,000 will see some reduction in their tax liability due to the new thresholds.

And this is Good News…!

What This Means for You

With the new brackets, you will take home more of your earnings, as a greater portion of your income will be taxed at lower rates.

Let’s break it down with a specific example:

For a single person in work earning $80,000 annually, with no dependents or partner and not on super, you will save $1,042.50 in taxes.

Bear in mind that this is not going to drastically change your disposable income overnight…

But I’d take this any day over no change at all.

My Thoughts

The changes do offer some tax relief after years of rising wages and stagnant tax brackets.

While this marks a shift in New Zealand’s tax system after years of rising wages and stagnant tax brackets, I personally think that this is a bit too little, and too late.

To create a fairer tax system, tax thresholds should be automatically indexed to keep up with inflation and prevent bracket creep from eroding incomes again.

It’s surprising that it has taken so long for these adjustments to happen. Politicians are largely to blame for the delay:

• In 2008, Labour legislated for tax threshold indexation, but this was repealed by National after the subsequent election.
• In 2017, National enacted tax band adjustments, only for them to be reversed by the following Labour Government.

These back-and-forth changes have left taxpayers stuck with outdated thresholds for far too long.

What do you think?

Will the upcoming 2025 Government Budget addresses this? Or will we find ourselves in the same situation years down the line?

Should tax thresholds be adjusted automatically? Share your thoughts below!

– Baqir Hussain, FCCA

Director, Finex Chartered Certified Accountants