It is the centerpiece of National's response to rising costs. But what do the numbers say?
National has repeatedly pointed to income tax cuts as the main response to the rising cost of living.
“Why is this commitment to tax relief so important?” Prime Minister Christopher Luxon said earlier this month.
“Because those Kiwis struggling with the cost of living – what I call the squeezed middle – deserve support.”
The cost of living has risen sharply since the beginning of 2020: between 21.5 percent and 24 percent, depending on household income.
How much damage can the tax cuts announced in Thursday's budget cause these kinds of increases?
The answer depends on a number of factors.
Brad Olsen, CEO of Infometrics, said households' experiences with tax cuts would depend on personal circumstances, just as experiences with inflation varied.
'We saw inflation itself peak and then start to fall again, while at the same time we had interest rates at a much higher level.
“If you're a household that rents, you're going to see much higher rental costs over time. Tax cuts will help with that. If you're a mortgage-paying household, it's going to go in that direction too.
“If you're someone who owns a home outright, you certainly get a lot of free money because you don't have to pay the housing costs. It depends on what your household spends money on.”
In short, there is no one version of the inflation versus tax cuts story. Rather, it's two million different stories: one for every unique household in Aotearoa.
But to help illustrate what things might look like for different people, let's take a closer look at the amounts of some imaginary households.
Households with the lowest incomes
Statisticians divide households into five different income levels.
In the lowest category, imagine a single-parent household with an income from a part-time job of €31,769. Official data suggests this household could have seen spending rise by $1,173 more than income since 2020. It is unlikely that a tax cut will bridge much of this gap.
Before the election, National proposed a change that would be worth $112 a year to this household, but there may be no cuts at all if National is forced to trim its plan.
Manu Johnson Peake, a Northland woman, works part-time and her husband is currently out of work.
“[I’ve] always rented alone, work hard, known for my donations in the community. No more traveling, my focus is on home, family, community.”
She has 'always known' that New Zealand is more expensive than many other countries.
“But it's gotten so bad that people are leaving for a better life in Australia. It's a struggle and I'm tired.”
What about a household with a little more income? In the second income group, imagine a family with two adults and two children. In 2020, they lived on a single after-tax income of $54,000, and now they are on about $65,000 a year – equivalent to the average 24 percent wage increase at the time.
The cost of living would have eaten all that up. That $11,000 raise would be completely offset by increases in their spending just to maintain the same standard of living.
With children at home, the Working for Families credit would help – and it would have increased by about $2,100 over the same period, potentially providing some relief.
The kind of tax cut National was talking about before the election would likely mean another $931 a year for this household.
Middle-income households
This is where Luxon and Finance Minister Nicola Willis have promised the biggest relief.
Before last year's general election, National said it wanted to increase the income level at which the 30 percent tax rate came into effect from $70,000 to $78,100.
Middle income earners could also benefit from the changes National has proposed to lower thresholds. The 10.5 percent income rate could apply to the first $15,600 of income, up from $14,000, and the 17.5 percent rate could go up to $53,500, up from $48,000.
A household with two adults both earning more than $78,100 could qualify for $2,085 per year if these changes are implemented, or $1,861 per year if the bottom tax bracket does not increase, as some have suggested.
A household with two adults earning minimum wage (equal to $48,152 per year) would qualify for a tax cut of $38 if the bottom bracket did not increase, and $262 if it did.
Households with the highest income
Higher-income households have generally experienced higher inflation because they can spend more, exposing more of their income to rising costs. The higher interest rates have also hit homeowners hard.
A single adult with a salary of $105,000 in 2020 would be in the top-earning 20 percent of households. Their expenses increased by $13,000 between 2020 and 2024, but their salaries would have increased by almost $17,000 over that same period. They could get about another $931 a year through tax cuts.
Economist Shamubeel Eaqub said the return of interest deductions on investment properties could have a bigger impact for some higher-income households.
“Those households may receive a larger increase in their take-home pay.”
The dishes
When Chancellor of the Exchequer Nicola Willis gave her pre-Budget speech earlier this month, it was revealed that 17 per cent of people would not qualify for a cut.
A Willis spokesperson said some of these people would be beneficiaries because the benefits are paid after tax, so personal tax changes would not affect them.
“There are also some other people who will not benefit from the tax package simply because their income is too low for the tax relief we offer.”
Brad Olsen said those on the lowest incomes would likely only benefit if a tax-free threshold were introduced, as in Australia.
Most of the benefit from the tax cut would likely be felt by middle-income households, he said. That was also where the biggest impact of the “budget drag” – the inflation that pushed people into higher tax brackets – was felt.
In 2011, the 33 percent tax rate covered 27.3 percent of taxable income, but by 2022 that had risen to 42.7 percent.
National had also proposed changing the way the tax credit for independent earners is applied, expanding the threshold to $70,000 from the current $48,000.
Coalition partner ACT has previously proposed abolishing the 10.5 percent tax rate and introducing an additional tax credit for lower incomes.