By request
May 21st, 2010 at 12:07 pm by David Farrar
A reader requested this graph. It shows the average tax rate (including low income rebate and independent earner tax credit) at each $10,000 band for April 2008 and October 2010.
A full time worker (without children) earning a bit over the minimum wage at $15/hr has had, over 2.5 years, their average tax rate drop from 19.1% to 12.5%.
A full time worker earning the average wage at almost $25/hr has had their average tax rate drop from 22.7% to 16.0%.
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May 21st, 2010 at 12:26 pm
“You’re better off with Labour!”
Vote:May 21st, 2010 at 12:36 pm
… while your kids are better off with Aussie accents.
Vote:May 21st, 2010 at 12:36 pm
Uh oh, is that a marginal effective tax rate exceeding 100% between $25,000 and $35,000 for the blue line?
Poverty trap, anyone?
Vote:May 21st, 2010 at 12:39 pm
It shows the average tax rate (including low income rebate and independent earner tax credit . . .
But not, say, consumption tax or ACC levies . . .
Vote:May 21st, 2010 at 12:40 pm
You might be better off explaining why this is a good thing. A graph is not an economic plan. If you read the Treasury papers you see that this plan is a recipe for more debt (current account is going up not down). We will still be investment, technology, productivity and people skills poor.
Vote:May 21st, 2010 at 12:44 pm
….or ETS created cost increases over time, as required in order to ‘change energy usage’
Vote:May 21st, 2010 at 12:47 pm
He wasn’t asked for an economic plan, he was asked for a graph which he provided.
No?
Vote:May 21st, 2010 at 1:35 pm
Implicit in all of this analysis though is that the price of goods and services will increase by the same amount as the increase in GST. But this won’t be the case as businesses will use this as an opportunity to “readjust” their pricing.
In particular for smaller value items, the minimum price increase is likely to be 10c, since this is the smallest cash denomination.
Vote:May 21st, 2010 at 1:42 pm
ITS NOT FAIR wahhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh
Vote:May 21st, 2010 at 1:59 pm
Danyl Mclauchlan: But not, say, consumption tax or ACC levies . . .
Then save instead of spend your money. While you are at it: sell you car and you wont have to pay the licensing (therefore ACC) costs – come on be a good greenie and chuck away the emission generating earth killing death machine and use public transport.
Vote:May 21st, 2010 at 2:16 pm
Yeah dime, lets go back to labour who averaged one new or increased tax every month. Then everything would be “fair” and we could vote ourselves wealthy by standing on a bucket and pulling on the handel.
Fiar is the most filthy four letter word in the English language. It should be erased.
Vote:May 21st, 2010 at 2:50 pm
I too hate the word “fiar” Murray it is the scuorge of decent poeple everywhere….
Vote:May 21st, 2010 at 3:14 pm
I would be interested in the same graph including consumption tax on some reasonable assumptions (perhaps assuming that consumption is approx 60% of income when poor (other 40% is rent), about 60% when middle income (30% rent, 10% savings), and about 50% when upper income (25% rent, 25% savings) or something like that?
I suspect it would still show lower tax. And, of course, if we’re trying to show incentives to work harder, or incentives to save, then consumption taxes are irrelevant.
On ACC, hard to argue that as a tax increase, and definitely not one created by National since Labour had essentially also agreed to move to full funding, and Labour were the party that created most of the rorts that resulted in driving up the costs. But I guess some on the left will never see that.
Vote:May 21st, 2010 at 3:15 pm
BTW, in my experience your kids are better off with French accents. So many options to pick up members of the opposite sex (or, even, members of the same sex if you’re that way inclined). Irish works quite well too.
Vote:May 21st, 2010 at 3:17 pm
Ben, I don’t think that’s a marginal effective tax rate greater than 100%. It just says net tax as percentage is slightly lower at 30,000 than at 25,000. Doesn’t mean gross tax is lower (which would be a significant poverty trap). Remember that the overall tax rate here is around 12%, so dropping to 11% doesn’t exactly create a poverty trap.
Vote:May 21st, 2010 at 3:20 pm
@PaulL-I too like the French tongue…oops didn’t a guy get in trouble for showing a co-worker bat research in this area?
Vote:May 21st, 2010 at 3:36 pm
murray – yep! whenever i hear the word “fair”, I automatically know its anything but.
Vote:May 21st, 2010 at 3:38 pm
CJD forcing me to spell you way stifles my creativity.
But just out of interest why did you chose that version and not the alternate spelling I used before it?
Vote:May 21st, 2010 at 4:12 pm
The Labour Party took high taxes and high spending to its limit in NZ. The end result was a speculative boom in property, wasteful spending, and a recession. It ultimately failed. It is time to give a different approach a go. We can assess the new approach in 10 years time and see what state the economy is in. Next year I would like to see some adjustment in the tax thresholds say about a 5% uplift.
Vote:May 21st, 2010 at 5:18 pm
“while your kids are better off with Aussie (and English) accents.”
Mine are. That’s for sure. And I’m talking young aspiring professionals, not school-age children,
Vote:May 21st, 2010 at 5:24 pm
@Manolo – We have two kids at uni. Both doing double degrees (law, science, commerce), one is on a full scholarship. Their post-graduation plans do not involve NZ. I’m encouraging them to do masters… if only selfishly to spend another year or so with them.
Vote:May 21st, 2010 at 5:29 pm
Labour significantly blurred the lines between taxes and welfare and targeted where it was collected and redistributed. The great untangling cannot happen immediately, but it must happen. The basic two party structure that hasn’t quite been bred out of NZ politics serves us poorly with the constant turn about in ideology.
We are probably about to have ACC opened up to competition again next year or the year after. Then some time Later Labour will roll it back to state monopoly, haven’t we been here before. How is this sort of bollox serving the people of NZ?
Look at the graphs above, next time Labour get to print one of these their line will be lower at the start and much higher at the end, what will have been changed only to be changed again between now and then?
Vote:May 21st, 2010 at 5:38 pm
“..Fiar is the most filthy four letter word in the English language. It should be erased…”
another ‘classic’ from our muzza…eh..?
phil(whoar.co.nz)
Vote:May 21st, 2010 at 8:59 pm
That’s a stunning graph.
To those whining about the impact on the poor – all countries are in a bidding war for talent. If you don’t have earners, you don’t have welfare. End of. Lifestyle and a few other things help attract / retain earners but with headline salaries so low in NZ, the tax take has to be low too.
As an aside – NZ has to get a stronger message across that there’s no CGT, no stamp duties, no national insurance, no death duties, no levies on this that and the next thing, and so on.
And for those STILL going on and on about how it’s all better in Aussie – piss off. Really. Just go. You’ll not be missed. If you don’t like it here, move over and make room for people who do. People from India, Scotland, the USA, Canada, China, Vietnam, wherever.
Vote:May 21st, 2010 at 9:49 pm
I have a handy little hint for anyone who wants to outwit the GST increase…not many people have thought of it……when the tax cuts come in and you get your extra 20 or 40 $$ a week, leave it in the bank and reduce your discretionary spend by 2.5% and you will end up paying the same amount of GST as now plus keep the tax cuts.
Leave in the bank – save it over several years – buy a house that attracts no GST and voila you turn your tax cut into a property GST free. (May need a wee top up from regular savings lol)
Does this seem too simple? Am I smoking up a pipe dream or is this too simple??
Vote:May 21st, 2010 at 10:58 pm
Jims_whare
<sarcasm>But but KiwiSaver might give me a loan to buy a house, why would I save for it myself. Hell I suppose I could put part of that extra $120 in WFF aside as well but I gotta pay off the new 56″ tele first. Just upgraded the 16GB touch to a 32 as well so got to get the credit card down then I might save for a house, 2.5% you say?. </sarcasm>
Vote:May 21st, 2010 at 11:38 pm
fiar fiar pants
Vote:on fire; gotta luv muz,
he’s such a trier
May 22nd, 2010 at 5:58 am
Be fascinating to overlay the UK tax burden on the same graph, after their emergency budget. In order to compare the prior tax burden to the one envisaged.
Not forgetting that VAT/(GST) looks almost certain to rise to 20%, and NI/ACC) will remain on the employees side at a maximum of 12%.
So the top marginal rate is 40%, PLUS 12% and 5% extra consumption tax on just about everything.
CGT likely to go from a 10% effective payable tax as was 2 years ago with qualifying taper relief, through the current 18%, to the proposed and likely 40% with only £2m of entrepreneurs relief.
Inheritance tax threshhold to start at £1m, and still be the full 40% payable in cash, within 21 days of death certificate issue.
Local council tax/rates to be capped but average £1500 per household.
Petrol at £1.30 a liter. 98 Ron Diesel is more expensive.
Showroom tax of £1000 per new car with a decent engine, will remain.
Oh, and Tax on all trust income to remain at 50% from the first penny in unearned or earned income.
Gordon Brown also had a HiPs premium tax planned. ( Extra 4% local/central tax on the £1000 levy to assess your house for sale)
Vote:May 22nd, 2010 at 7:31 am
Ben, No, doesn’t look to me like a marginal rate of 100% between $25,000 and $30,000.
It shows the average tax rate does not increase from just over 12%. As the average doesn’t change the marginal rate is around the 12% mark.
Vote:May 22nd, 2010 at 7:55 am
The Labour Party will be looking at the gap in those curves and will be imagining how they could spend that money better. The will see it as a lost political opportunity the get people dependent on the state for part of their living standards.
Vote:May 22nd, 2010 at 8:02 am
Oops, yes – this is a chart of tax, not post-tax incomes. My mistake. Thanks.
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