Official advice from Treasury and the Inland Revenue Department recommended the Government delay its tax cuts until October.
Advice included that some employees could continue to have wages calculated under current thresholds after July 31 as payroll providers update their systems.
The regulatory impact statement — a document that summarises impact analysis and advice relating to a regulatory proposal — offered four recommendations for the Government to deliver its tax cuts.
It asked the Government to consider cost-saving alternatives to the plan to support a return to surplus and delay the implementation of the plan until October 1 to reduce cost and make it easier for Inland Revenue to process.
It also recommended the Government not to proceed with a proposed expansion to the independent earner tax credit (IETC), where eligible individuals could get up to $20 a fortnight taken off their taxes.
Currently, the IETC was available to those earning between $24,000 and $48,000 annually, but the Government has announced an extension to the upper limit from July 31 — now $70,000.
Preventing tax changes flowing through to student allowances was another suggestion by officials.
"Alignment with the benefit system is a principle of the student support system, and since main benefits will not increase from the tax changes, the same approach should be taken for student allowance," the document said.
Cabinet ministers chose to progress National's tax plan rather than ACT's.
However, the document warned this would involve a "large reduction" in Crown revenue of around $10.3b over the forecast period.
"This cost could be reduced by around $1-2 billion through the cost-saving variations suggested by officials," the statement read.
The document also said the personal income tax adjustments being announced in late May for July 31 allowed just two months for third parties such as payroll software and service providers to implement changes.
"Ideally, payroll software providers would be given three months’ notice of upcoming changes."
This could mean some employees have their tax calculated under current thresholds rather than the updated rates after July 31.
"There are likely to be some exceptions and some incorrect calculations, but these are able to be corrected in subsequent pay runs or as part of the end of year tax assessment process completed by Inland Revenue."
Changes to personal income tax thresholds increased net incomes for 1.83m households by an average of $25 a week.
However, these changes would also reduce net income for 9000 households by an average of $1 a week.
This was due to "unintended interaction" between the adjustments to personal income tax thresholds and how part-year benefit payments are calculated.
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