Cook Islands MP Warns of Increased Tax Burden Despite Minimum Wage Rise

A Cook Islands Member of Parliament has raised concerns over the government's failure to adjust the tax-free threshold in line with a recent minimum wage increase, potentially leading to higher taxes for low-wage workers.

The minimum wage in the Cook Islands increased from NZ$9.50 to NZ$10 (approximately US$6) on July 1. While this is a modest rise, it has sparked debate over whether the government has adequately addressed the financial needs of workers, especially given the rising cost of living on the islands.

Currently, the tax system in Rarotonga allows for a zero percent tax rate on income up to NZ$16,500 per year. However, with the wage increase, more workers are now earning above this threshold, which could mean they pay more in taxes despite the higher income.

Opposition leader Teariki Heather criticized the government, stating that failing to adjust the tax-free threshold undermines the intended benefit of the minimum wage increase. "You can't increase the threshold when the minimum wage increases, because then the government doesn't get any benefit from it, no tax," he said.

Prime Minister Mark Brown responded to the issue in Parliament, stating that he would look into the matter. He emphasized that the government never intended to increase the tax burden on workers and suggested that the tax-free threshold should be adjusted if necessary.

However, more than two weeks have passed without any official announcement on changes to the tax threshold. Heather argued that the minimum wage increase is insufficient in the face of rising living costs. "There's not enough money to go around... and I still believe the minimum wage is too low. It should be at $12 to $12.50, most private businesses actually say more than that, around $15. Across the board, it still won't benefit the families. Everything now has increased," he said.

On the other hand, the Cook Islands Chamber of Commerce director, Steve Anderson, expressed satisfaction with the wage increase. He noted that only 2.5% of private sector employees earn the current minimum wage, with 52% earning above NZ$12.50 per hour. "A 'little and often' approach is seen as achieving incremental gains for employees. This avoids unnecessary inflationary pressures or a drain on the tax-take," he said.

Anderson also mentioned that the government has assured businesses that the tax-free threshold will be increased soon, though no official details have been released yet.

As the debate continues, the impact of the wage increase on workers and the broader economy remains a topic of discussion. Many argue that while the change is a step in the right direction, it falls short of addressing the true financial challenges faced by low-wage earners in the Cook Islands.