National's Tax Cuts and their Impact on my Tax Bill

Sigh. I'd MUCH rather my taxes stayed the same and the government made investments in universal dental care for under 30's, science and research, public transport, climate change initiatives, mental health support, etc.

But I guess if this is happening anyway, we may as well run the numbers.

Coinciding with my 0.5 FTE job starting on 1 July, the tax cuts will increase my take-home income. 

Currently, the first $14K of income is taxed at 10.5%. From $14,001 to $48K, your tax is 17.5%. Above $48K, it is 30%. It goes higher but I don't make enough to care about the 33 and 39% tax brackets... 

In the new plan, the first $15,600 of income is taxed at 10.5%. From $15,601 to $53,500, the tax rate is 17.5%. This actually makes a big difference for me in particular. The jump from $48K to $53,500 is important.

I'll be making ~$47,490.50 in the next year from my job, with more $$ expected from interest earnings (maybe $5-$6K?) and PIE (Kiwisaver retirement) investment growth (maybe another $1K, depending on the market?). Let's call it ~$53,500, because this is convenient (you'll see why later).

For my salary, the tax changes and my salary increase doesn't affect my tax bracket at all. I still earn less than $48K, which is the current 17.5% tax bracket maximum.

However, there is another few pieces to the puzzle: one is the Independent Earner tax credit. Since I currently make less than $48K, I get $520 off of my tax bill every year - that is essentially the Independent Earner tax credit. The amount of the credit starts decreasing once you earn $44K. At my new salary, I'd exceed the $44K threshold where that credit starts to diminish. Add my interest and investment income to the mix, and I'd lose the $20 per week tax credit completely.

Under the new plan, the Independent Earner tax credit has been extended to $70K, with the credit starting to diminish at $66K. I'm well within that range now, even with increased salary, a well-performing high yield savings account and CD ladder (6.3% p.a.), and a healthy retirement investment account (now at ~$94K!).

With the current set up, I'd be paying $8025 in taxes over the next year on my salary. My monthly take home from my job (after 3% Kiwisaver) would be $3071.11, for a $38,041.32 total take home annually.

The new figures comparatively - I'll pay $565 less in tax on my salary: 

 

But wait! The tax savings doesn't stop there. With my new 0.5 FTE salary nearing the $48K cutoff point for the 17.5% bracket, my interest and retirement investment earnings would have pushed taxes on those earnings into the 30% bracket. The new cutoff point for the 17.5% bracket is now $53,500, meaning that I get to keep my tax rate at 17.5% for those earnings. 

With the new tax rules, I stay in the 17.5% tax bracket completely - it has been extended to $53,500 from $48K. Interestingly that that new $53,500 figure is approximately what I will likely earn between salary, interest, and investments this year. 

I think it is highly likely that I'll earn another $6009 from interest and investments in 2024-25. My old tax bill on that money would have been close to $1800, because I'd be paying 30% in taxes on most of those earnings, because it would be on top of a nearly $48K salary. Under the new system, I'd pay the 17.5% tax rate: ~$1050 - a tax savings of nearly $800. 

Even if I go over the $53,500 mark, I'll keep my prescribed investor rate (PIR) at 17.5% - I'd rather pay whatever minimal tax I'd owe at the end of the year rather than be taxed at 30% for going over by a few hundred or so and giving the government a free loan.

Come my first full paychecks and the enactment of this policy on 1 July, we'll see what the numbers ACTUALLY are (payroll where I work NEVER EVER matches the numbers in my contract and the PAYE calculator), so I'll update this then.

A Dramatic Shift in Goals

I give up. I don't think I'll ever buy a house here in New Zealand. Well, not in the next 20 years at least.

I think I had held onto some hope that I'd eventually be able to buy an apartment in my current complex, which is pretty perfect for me in almost every way: location, floor plan, space, potential to rent out, etc. With the discovery that there are major issues with how it is built, and the realization that EVERY apartment complex that I seem to like/favor was built in the dreaded NZ 1990 - 2004 'leaky house' time frame, I no longer trust anything out there. 

(Apparently from about 1990 to 2004, many buildings were built with some sort of untreated or terribly treated timber that rots from the inside out. Kiwis have termed these buildings 'leaky homes.' The floor plans of these apartments are more American than those built before that time period or recently, so I naturally gravitate to them when I see them up for rent.)

But not only can I not get a loan from the bank based on my current and likely future income, I'm just not willing to gamble what is essentially my entire life savings on a crappily-built home. Even inspections - which are a joke here - do not pick up on whether the place is a leaky home, so there is no way to know if your investment is secure. Bollocks, I say!

Even the complexes that have undergone a recladding, as they call it, to fix the leakiness, are suspect. The owners of several complexes have forked out for a recladding, gotten a certificate that they meet all standards from the council, and THEN found issues with the recladding and needed another go-round. Sometimes TWICE. The companies that built the homes and do the recladding just...go out of business, so they are not liable to fix their mistakes. The government used to help with the recladding costs, but do not anymore - it would be too expensive to help everyone. I guess house insurance doesn't cover it either? In any case, each go-round is hundreds of thousands to millions of dollars. That's just crazy. Add in routine upgrades like painting and new carpet, maintenance, increasing rates, and HOAs, and I've just come to the conclusion that it's actually safer and more cost efficient to rent. 

Plus my BFF here in NZ has said that over the next few years, she and her husband are building their lowest floor of their house into a granny flat and that I'm welcome to rent it at whatever I can afford. They live way out west, but I may take them up on their offer if it comes down to it. It's in my back pocket at least.

Then, what to do with that nearly $60K I have saved in cash for a down payment? I need to find another purpose for it. Investments are the best home for it in the long-term, but with all of the US-NZ tax implications to wade through and CD rates so high right now, I'm happy for it to stay there until they go down. That gives me some time to think, finish the PhD, and then make some decisions.

I still may buy a house, but I'd do it once I have a suitable nest egg of retirement funds - enough to live off of - built up *in addition to* enough to buy a place in cash. Maybe in a retirement complex? 

I just don't see how it makes sense or is even feasible to buy a house in the next decade or so.

So I give up. I have bigger fish to fry in the meantime.