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Finance Minister Michael Cullen and Revenue Minister Peter Dunne announced on Tuesday that the cabinet has agreed to a new, bottom secondary tax rate of 12.5%.
The decision flows from the major package of personal tax cuts announced in the 2008 budget earlier this year.
"Today's announcement ensures that those with second incomes do not have too much tax deducted from their pay packet," Cullen said.
"Secondary tax rates are not intended to tax income earned from two or more jobs more heavily than the same income derived from a single job. Rather they seek to ensure taxpayers do not inadvertently end up with a tax bill at the end of the tax year," Dunne added.
The ministers went on to point out, however, that reductions to the secondary tax codes are not actually tax cuts, and that tax obligations remain the same. The decision to lower the secondary tax rates is driven by the logic that it reduces the chances that a person will be over-taxed in the course of the year.
A secondary tax code is the rate that is applied to withhold tax from a person's employment income that he or she earns from a second job. Income from a person's main job has tax withheld using the progressive income tax rates and thresholds. A secondary tax code reflects the tax rate that people face on the last dollar of their total income.
The 12.5% secondary tax rate is taking effect from April 1, 2010 in order to coincide with the increase to NZD17,500 of the income threshold at which the 21% tax rate starts applying. This, according to the government, reduces the likelihood that low income people will face tax bills due to having too little tax withheld on their secondary income.
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