Are you one of the 83% of New Zealanders over the age of 15 that’s just been promised a tax cut in the Budget? Wondering what to do with the little extra cash in your pocket? Then this is the guide for you.
The extent of the Government’s long-promised tax relief was finally revealed yesterday, with Finance Minister Nicola Willis announcing average income households will get a tax cut of up to $102 a fortnight from the end of July.
Families with young children are set to benefit the most from the Government’s tax package, with an additional boost of up to $150 a fortnight through the previously announced FamilyBoost early childhood education payment.
Working-age New Zealanders will get $32 a fortnight on average.
So, what to do with that money? Here are a few ideas.
The inevitable spend
1News Political Editor Maiki Sherman and 1News reporters share their thoughts fresh from the Budget lock-up.
The Budget isn’t all tax cuts, of course.
Some government revenue gathering is also in the mix, so your tax cut could go towards one of these items:
Prescription fees – the previous government scrapped the $5 prescription charge last year, but yesterday’s Budget confirmed the charge will be back from July 15.
Prescriptions will continue to be free for those with Community Services Cards, people under 14, and people aged 65 and over. This will be welcome news for superannuitants, who stand to gain just $9 a fortnight in the coming tax cuts.
Topping up public transport cards – last year’s Labour Budget included free public transport fares for children under 13 and half-price fares for people aged 13 to 24. The coalition government has already ended the funding for those free or cheap fares.
Your car rego – the amount you need to pay to register your vehicle is due to go up by $25 in January next year and by another $25 in 2026. The Government proposed the “small adjustment” to the fee earlier this year to help cover the cost of its land transport plans.
Rising power bills – New Zealanders found out this week their power bills will likely rise by an average of $15 a month from April next year, thanks to a Commerce Commission proposal to increase the revenue limits for Transpower and local lines companies.
Power bills would also increase by an average of $5 a month for each of the following four years – meaning bills could be $35 more a month by 2030.
The sensible spend (or save)
Chances are many tax cuts will be going towards paying down debt, such as mortgage repayments or the credit card balance.
Other people’s tax cuts will likely be immediately swallowed by other household bills.
But if you’re in the fortunate position of not needing the extra money to get by each week, there is the opportunity to save it or invest it.
Single adults on an annual salary of $55,000 stand to gain $1320 over the course of a year, for example, which could be saved towards a holiday or some other big expense.
Others may want to invest the extra money or put it towards retirement.
As Te Kahukura Boynton (or the Māori Millionaire as she’s known on TikTok) has pointed out before, opening KiwiSaver as a young person, and contributing even $2 or $5 a week to start with can make a big difference come retirement time.
The frivolous spend?
There will be those who are willing and able to spend their incoming tax relief on something a little more frivolous – although there are financial experts who argue that small treats that make life a little more bearable shouldn’t be classed as frivolous.
Those treats might include:
Olive oil – global prices for this kitchen staple have skyrocketed in recent times. The cheapest one-litre bottle I could find online today was $16.99, with most prices hovering around the $20 mark. So, go on and treat yourself to a big bottle of the good stuff – and then stretch it out for as long as possible.
An extra coffee – ditch the terrible coffee in the office kitchen one extra time a week and savour the real deal. Keep your fingers crossed your local barista doesn’t charge too much for non-dairy milk.
Movie ticket (but likely no cinema snacks) – Nicola Willis said last year that a family’s fortnightly tax relief could mean “instead of movie night being DVDs and Tip Top at home, we might go out to the movies”.
With movie ticket prices upwards of $25 (and nearly $20 for children in many places), some families might have to choose which children get to go to the movies. Popcorn or ice cream is also probably off the menu.
Smashed avocado on toast – Be the cliche! Embrace it! But also, maybe wait until avocado season rolls around again.