GST increase vs. Income tax decrease

Earlier, I provided a brief summary of the 2010 New Zealand budget.

Recall the following points (or, if you can't recall, re-read):
• GST up from 12.5% to 15%

• Adjusted income tax rates:
   o $0-$14000 at 10.5% (down from 12.5%)
   o $14001-$48000 at 17.5% (down from 21%)
   o $48001-$70000 at 30% (down from 33%)
   o $70001+ at 33% (down from 38%)

 So how does this even out? I threw everything into a spreadsheet and came up with some basic numbers:

(Click image for full size view)

The left column represents different gross (before tax) incomes, while the column at the top represents different proportions of income spent on GST-inclusive expenses. The purpose of specifying different percentages is that some things you do with your earnings will be GST exempt (mainly rent, mortgage repayments and savings).

You will thus have more effective purchasing power if you fall into at least one of the two following categories:

• You spend 90% or less of your income on GST-inclusive purchases (i.e. at least 20% is spent on other things, such as the aforementioned list of rent/mortgage/savings)
• Your pre-tax income is over $20,000 per annum.

Now anyone working full-time (40 hours/week) will fall into the second category automatically (minimum wage equates to $26,000). Of course if you're a poor student who pays neither rent nor mortgage and spends all your money, then I feel sorry for you. Although you most probably live with family and the difference will amount to perhaps one or two beers a month. You'll survive.


NB: I've tried to make sure the formulas are accurate. If your own calculations don't produce the same result as mine, then please let me know.