National Finance Minister Nicola Willis and incoming Prime Minister Christopher Luxon. Photo: Nick Monro / RNZ
National has repeatedly pointed to income tax cuts as its key response to the rising cost of living.
"Why is that commitment to tax relief so important?" said Prime Minister Christopher Luxon 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 gone up a lot - between 21.5 percent and 24 percent since early 2020, depending on household income.
How much of a dent could the tax cuts to be announced in Thursday's Budget really make into those sorts of increases?
The answer depends on a range of factors.
Brad Olsen, Infometrics chief executive, said household experiences of tax cuts would depend on personal circumstances, in much the same way the experience of inflation had varied.
"Inflation itself we saw peak and start to come down, at the same time we have had interest rates at a much higher level," Olsen said.
"If you're a household that rents, you're seeing much higher renting costs over time. Tax cuts will help towards that. If you're a mortgage-paying household, again it will go towards that.
Tax cuts expected in budget, but may not be enough for some
"If you're someone who owns a house outright, you get a bunch of free money for not having to pay any of those housing costs, at least. It depends on what your household is spending money on."
In short: there is no one version of an inflation vs tax cuts story. Rather, it's more like two million different stories - one for each unique household in Aotearoa.
But to help illustrate how things might look for different people, let's take a closer look at the sums through some imaginary households.
Lowest income households
Statisticians divide households up into five different income levels.
In the lowest bracket, imagine a single parent household with income from a part-time job of $31,769. Official data suggests this household could have seen expenses go up by $1173 more than income since 2020. This is unlikely to be bridged much by any tax cut. Prior to the election, National suggested a change which would be worth $112 a year to this household, but it's possible there will be no cut at all if National is forced to trim its plan.
Northland woman Manu Johnson Peake works part-time, and her husband is not currently in work.
"[I've] always only rented, work hard, am known for my giving in the community. Don't travel any more, my focus is home, family, community."
She's "always known" New Zealand is more expensive than many other countries.
"But it's got 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 bit more income? In the second income bracket, imagine a family of two adults and two children. In 2020, they were living on an after-tax single income of $54,000, and they're now on about $65,000 a year - consistent with the average wage increase of 24 percent over that time. The cost of living would have swallowed all of that. That $11,000 increase in wages would be completely cancelled out by increases to their expenses, just to maintain the same standard of living.
With kids at home, the Working for Families credit would help - and it would have increased by about $2100 over the same period, potentially offering some relief.
The kind of tax cut National was talking about prior to the election would probably mean about another $931 per year for this household.
Middle income households
This is where Luxon and Finance Minister Nicola Willis have promised the greatest relief.
Before the election, National said it wanted to move the income level at which the 30 percent tax rate took effect from $70,000 to $78,100.
Middle income earners might also benefit from changes National has suggested at 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 kick in at $53,500 up from $48,000.
A household with two adults both earning over $78,100 could qualify for $2085 a year if those changes are applied, or $1861 a year if the bottom tax bracket does not increase, as some have suggested might be a possibility.
A household with two adults earning minimum wage (equivalent to $48,152 a year) would qualify for a $38 tax cut if the bottom bracket did not increase, and $262 if it did.
Highest income households
Higher-income households have generally experienced higher inflation, because they are able to spend more - so more of their income is exposed to rising costs. Higher interest rates have also hit home-owning households hard.
A single adult on a $105,000 salary in 2020 would be considered among the top-earning 20 percent of households. Their expenses increased by $13,000 between 2020 and 2024, but their salary would have gone up nearly $17,000 over that same period. They could get a further boost of about $931 per year from tax cuts.
Economist Shamubeel Eaqub said the return of interest deductibility on investment properties could provide a bigger impact for some higher-income households.
"Those households may be getting a bigger increase in their take-home pay."
The wash up
When Finance Minister Nicola Willis gave her pre-Budget speech earlier in the month it was revealed that 17 percent of people would not qualify for a cut.
A spokesperson for Willis said some of those people would be beneficiaries, because benefits are paid net-of-tax, so personal income tax changes do not affect them.
"There are also some other people who will not benefit from the tax package, simply because their incomes are too low for the tax relief we are providing."
Brad Olsen said the lowest-income earners would probably only ever benefit if a tax-free threshold was introduced, as in Australia.
Most of the tax cut benefit was likely to be felt by middle-income households, he said. That was also where the largest impact of "fiscal drag" - inflation pushing people into higher tax brackets - was being felt.
In 2011, the 33 percent tax rate had covered 27.3 percent of taxable income but by 2022 that had risen to 42.7 percent.
National had also proposed changing how the independent earner tax credit applies and extending the threshold to $70,000 rather than the current $48,000.
Its coalition partner ACT has previously proposed getting rid of the 10.5 percent tax rate and introducing an extra tax credit for lower-income earners.