WELLINGTON: New Zealanders are about to keep more of what they earn as the new government follows through on an election promise to cut taxes.

This comes despite a deepening budget deficit and advice from the Organisation for Economic Co-operation and Development that the measures should be delayed.

From today on, the income thresholds at which higher tax rates kick-in will rise, while New Zealand families with children will also benefit from childcare rebates and tax credits. The government estimates that, on average, households will be better off by NZ$30 a week and those with children by about NZ$40.

“This is a tax programme that’s been designed to support low and middle-income working New Zealanders, those folk that are working incredibly hard but cannot get ahead,” Prime Minister Christopher Luxon said on Monday.

“We are proud to deliver tax relief, and we can do it sensibly and responsibly.”

The back-pocket boost may be welcomed by people struggling to make ends meet during the cost-of-living crisis, but there’s a risk it could fan inflation and keep interest rates high for longer.

The tax package, which includes restoring interest deductibility for residential rental property and is worth NZ$14.7bil over four years, also won’t help the government with its goal of reducing debt and returning the budget to surplus.

The Treasury Department expects to collect billions less in revenue due to the tax cuts and weaker economic growth, it said in the May budget.

 - Bloomberg