Also increased would be accommodation supplements to help families, Finance Minister Steven Joyce said yesterday when he released Budget 2017 — his first Budget.
The changes take effect on April 1 next year.
The package would benefit about 1.3 million families in New Zealand by an average of $26 a week.
"The measures in this Budget are expected to lift 20,000 households above the threshold for severe housing stress and reduce the number of children living in families receiving less than half of the median income by around 50,000."
The changes meant a couple with two children under 12 and one partner earning $55,000 would gain $41 a week plus any increase to their accommodation supplement.
The tax threshold change provided a tax reduction of $10.77 a week to anyone earning more than $22,000 a year, increasing to $20.39 a week for anyone earning more than $52,000 a year.
Mr Joyce said people who lost the independent earner tax credit would be compensated in full by lifting the lowest income tax threshold.
"The family incomes package will also help lower-income families with young children meet their living costs through changes to the family tax credit, and it will improve the incomes for those with higher housing costs."
Some of the biggest gains in the package were for people on lower incomes with young children.
Family tax credit rates increased $9.25 a week for the first child under 16, while credits for subsequent children increased by either $17.75 or $26.81 a week, depending on the age of the child. The package would have flow-on effects. About 750,000 superannuitants would benefit because of the link between New Zealand Superannuation and after-tax wages. The couple rate for superannuitants would increase $13.12 a week, in addition to the normal adjustments.
Crowe Howarth Australasia tax advisory managing partner Scott Mason said Mr Joyce and Prime Minister Bill English had evaluated their options with regard to the remaining discretionary income after New Zealanders had covered the mortgage, food and other necessities, and made decisions on behalf of the whole family.
They wanted to keep chipping away at historic credit card debt as they had concerns about future interest rate rises and the impact on overall household debt.
Instead of buying "shiny toys" for some families, Messrs Joyce and English decided to create fairness and self-determination by increasing incomes for all New Zealanders so they could make their own choices, he said.
The NZ Property Investors’ Federation congratulated the Salvation Army for its advocacy work leading to the accommodation allowance being increased for low-income families.
An increase of $40 to $80 per week for large families and $25 to $75 for two-person families would go a long way in helping their quality of life, federation executive officer Andrew King said.
"This increase, combined with changes to income tax thresholds and family assistance measures, will hopefully mean a decline in overcrowding and missed rental payments for struggling low-income families," Mr King said.
Many would believe an increase in the accommodation supplement would just line landlords’ pockets, but that was not how the system worked.
The accommodation supplement was paid directly to tenants. Landlords usually had no idea whether their tenants received the allowance, he said.
