Net tax in NZ

July 10th, 2013 at 12:30 pm by David Farrar

net tax small

 

This is a fascinating table from a speech by bill English today showing how highly re-distributive the NZ and system is. Basically what this shows is that the top 5% of households pay 47% of in New Zealand. Households up to $60,000 income receive more in welfare on average than they pay in tax, Yes, they are effectively paying no tax.

Now I’m not complaining about this too much. I’m happy to some extent to help working lower income families when they have kids to look after. But when political parties complain that we need to hike taxes on rich pricks, then bear in mind that our tax and welfare system is already highly highly re-distributive. The debate should be on how we allow Kiwis to keep more of their income, not how to take more off them.

Bill English noted:

Estimates of net income tax paid by household income, before and after Budget 2010, indicate the system has become more progressive over this period, Mr English says.

Households earning less than $60,000 are generally expected to pay less, in percentage terms, towards net tax in 2013/14 than they were paying in 2008/09. 

Conversely, households earning more than $150,000 are generally paying more of the net tax than they were in 2008/09.   

“It’s appropriate to maintain a tax and income support system that helps low and middle income households when they most need it.

“But people who call for even greater transfers to low income families, or who call for the top tax rate to be raised, need to be aware of how redistributive the tax and income support system really is,” Mr English says.

Income tax rates should be lowered, not increased.

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48 Responses to “Net tax in NZ”

  1. Graeme Edgeler (3,289 comments) says:

    Households up to $60,000 income receive more in welfare on average than they pay in tax, Yes, they are effectively paying no tax.

    Collectively. Many will pay more in tax than they receive in welfare. Households without kids, for example.

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  2. seanmaitland (501 comments) says:

    When Labour and the Greens eventually get in and inevitably raise personal taxes again, I am going to get my overseas employer to income split my salary and most of it paid into my rental property company, and only pay the company tax rate on it, and just pay myself about 40k a year, so I’ll end up reducing my effective tax rate.

    Already about 10 cents of every dollar I earn goes to social welfare and social security – thats far too much as it is.

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  3. Scott Chris (6,153 comments) says:

    Net tax bollocks.

    Income tax comprises less than half of crown revenue.

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  4. SPC (5,643 comments) says:

    There are many singles paying tax on incomes below $60,000 – some young, some post divorce, and also older couples sans children in the home under 18.

    The real question is course the ability to totally avoid tax on most income by making it in the form of capital gain. Some (those with savings and or access to leveraged finance) can make more money this way than they pay in tax on their taxable income.

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  5. Tom Jackson (2,553 comments) says:

    Your error is to equate what people receive from the market with some sort of moral entitlement. That is a circle that cannot be squared, since your own salary depends as much on what others do as what you do. Such is the nature of markets and how they conflict with ordinary notions of moral desert. Attempts to locate an entitlement via work inevitably lead to Marx’s labour theory of value.

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  6. Zebulon (115 comments) says:

    The top 5% that pays most of the tax is largely comprised of high salary earners and these people are often highly mobile. Tax them too much and they will leave for countries with more sympathetic tax rates. If they go so does New Zealand’s whole tax base. We would be left with the real “rich pricks” (wealthy people who can afford complicated schemes to hide their income generating assets and who actually pay little tax) and the lower income earners who take more than they give.

    We need to encourage high salary earners to migrate here by lowering income tax and by increasing the level at which the marginal tax rates increase. We should also have zero income tax on low income earners up to a certain level, and the same top rate for trusts, companies and individuals. We could pay for this through a small increase in GST.

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  7. seanmaitland (501 comments) says:

    What I would love to see is some figures on how much money is wasted taxing lower income earners and then redistributing tax back to them. The amount of money wasted that could be spent on net gains somewhere in the economy must be significant.

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  8. Dean Papa (784 comments) says:

    I’m guessing none of those households on less then $50,000 qualify for the $1000 a week allowance for living in their own homes?

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  9. dime (9,980 comments) says:

    Being part of the 5%, has Dime ever received a simple “thank you”?

    Nup.

    Dime just cops shit for being a rich prick and gets told he isnt paying his “fair share”.

    On what planet does this equate to FAIR?

    On the bright side, if Dimes new venture pays off he will be in the top 3%.. then i can look forward to an even bigger “fuck you”

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  10. hamish_nzl (21 comments) says:

    We have a highly skewed income distribution, so this is exactly what you’d expect. “top 5% of households pay 47% of net tax” is not redistributive. Correct for relative income first.

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  11. RRM (9,933 comments) says:

    I love tables like this!

    Creates an illusion that average families like the RRMs actually AREN’T paying a f*ckload of tax, so that all the Ayn Rands / Cactus Kates etc and everyone in the 5% can get off on the idea that they’re somehow carrying everyone else and they are long-suffering heroes.

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  12. dime (9,980 comments) says:

    RRM – we certainly seem to be doing our bit.

    or do you think we should pay even more?

    Its not the honest people who work for a living that give us the shits. its the hundreds of thousands who are on welfare.

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  13. dishy (248 comments) says:

    Dime, it’s even worse than it’s painted above.

    Not only do rich pricks get called pricks, and abused for not paying enough tax, and abused for contributing to the gap between the rich and the poor (I’m yet to fully understand why the gap matters so much if the poor can still support themselves with the welfare system) the rich also get no acknowledgement for actually consuming less of the income tax take. For example, the rich are more likely to use private health and schooling.

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  14. dime (9,980 comments) says:

    dishy – true that!

    i just hope we can get one more term under national. i can have my house paid off by the time the greens come along. course, they may fuck me with a “wealth tax”

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  15. flipper (4,084 comments) says:

    It would help some folk if they read what DPF said, and what was presented in the table.
    The table deals with “household” income, not individual taxpayers. There will be variations, but the trend is clear to anyone with half a brain.

    As for other taxes that one idiot referred to, I say it is he who is talking bollocks. If I save I pay no additional tax on that money, except as it may arise from investment income.

    If I spend, I pay GST. But that is my choice, so to introduce that “other taxes” herring is simply RED.

    And as for a CGT – CRAP.

    If I trade in shares or real-estate as a “business”, I expect to be taxed on capital gains. Bob Jones is.
    If I do not trade as a business, then i do not expect to be taxed on any capital gain. The whole point about the CGT being advocated by false prophets is to provide a bigger pool of cash to indulge untrustworthy bureaucrats and politicians.

    Oh, in passing, I wonder of the rapacious Local Government orgs that fleece ratepayers through capital valuation will appreciate a CGT ??? I doubt it. But then I suspect they have not thought it through.

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  16. dime (9,980 comments) says:

    flipper – yes we know its for households… im a household of one.

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  17. ross69 (3,652 comments) says:

    Its not the honest people who work for a living that give us the shits. its the hundreds of thousands who are on welfare.

    Well, more than half a million are receiving superannuation. I didn’t realise they gave you the shits.

    But the government is trying to “save” money here. Didn’t John Key say he’d resign if there were any changes to superannuation? Just another one of his lies…

    http://www.stuff.co.nz/dominion-post/news/8898559/Net-widens-on-double-dip-pensioners

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  18. ross69 (3,652 comments) says:

    “National will retain all the superannuation entitlements and eligibility rules that our senior citizens currently enjoy. We will keep this pledge and I will resign as Prime Minister, and as a member of our Parliament, rather than break it.” ~ John Key

    http://www.johnkey.co.nz/archives/498-NEWS-Economic-plan-Superannuitants-get-a-boost.html

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  19. dime (9,980 comments) says:

    “Well, more than half a million are receiving superannuation. I didn’t realise they gave you the shits.”

    yeah they do actually. not all. but the double dippers do!

    or the parents of recent kiwis who get to come over and retire on our DIME. on this DIME!

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  20. flipper (4,084 comments) says:

    Dime..
    Please do not be pedantic. I acknowledged that.

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  21. Bill Courtney (161 comments) says:

    Yes, but the real question is: is it still enough to live off?

    Let’s concentrate on the first 3 rows, i.e. the 25% of households with income less than $30,000.

    The “net tax paid” of -$4.534 billion for this combined group gives us an average redistribution of $10,744 per household, when spread over a total of 422,000 households. This won’t be the actual figure but gives us an indication of how little impact all this may have.

    If we assume that each household has income at the top of their respective bands – which they obviously won’t – then this group has combined gross income of $10.29 billion, or an average of $24,383. So the redistribution would give them an average in the hand income of $35,127, or $675 per week.

    Try living in South Auckland and raising a family of 3 or 4 kids on that amount and you will understand the real problem. How much is the rent? Food of $300+ – easy. Add in power, gas, transport, etc. and it won’t go very far!

    The real story behind these numbers is the high proportion of households with very low income – before or after net transfers. But, we do now live in one of the most unequal countries in the world, don’t we?

    What was the title of Roger Douglas’s book: “Toward Prosperity.” Yeah Right!

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  22. PaulL (5,987 comments) says:

    Wow, lefties out in force on this. My observations:
    1. the table says net tax. It doesn’t say net income tax. Does it include GST already?
    2. the point being made is that the system is already highly redistributive. It is, that’s a fact. There’s a different question as to whether some would like it to be more redistributive still
    3. I’m not sure what hamish_nzl is suggesting above, but it seems like he’s saying that it’s not redistributive because we should correct for relative income….I think that’s saying that until all the rich people give up all their income above the median, we’re not redistributing enough. That’s a rather bizarre statement, I wonder how many on the left agree with it?
    4. RRM – nobody’s saying that taxes on the middle aren’t too high. They are. But that’s a different discussion than whether taxes on the top end are high enough. The bottom line is that NZers like to vote for more govt services, but aren’t so keen on paying the taxes that fund it – so they’re always looking for “someone else” who should pay those taxes. Big surprise there.
    5. Bottom line, there’s only so much tax you can take before people get annoyed. Sure, deducting at source and other hidden ways to pluck the goose without too much hissing make it easier to take more, but ultimately we get to a point where people say “screw that, I’m not playing any more”. Penalising the wealth creators is not the way to a successful economy

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  23. dime (9,980 comments) says:

    “$675 per week.

    Try living in South Auckland and raising a family of 3 or 4 kids on that amount and you will understand the real problem. ”

    why did they go and have 3 or 4 kids? morons.

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  24. queenstfarmer (782 comments) says:

    @ross69, you haven’t said what change to superannuation entitlements and eligibility rules John Key has allegedly made. Enlighten me.

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  25. Scott Chris (6,153 comments) says:

    1. the table says net tax. It doesn’t say net income tax. Does it include GST already?

    No. See column 2 of the table. Anyone with more than half a brain can see that the post heading ‘Net Tax in NZ’ is deliberately inaccurate and misleading.

    Still, David Farrar isn’t seeking to inform, only to pander to the converted and to sway the waverers.

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  26. laworder (292 comments) says:

    I’d be curious to see a breakdown for those that are single and those with family/ dependents. I probably pay a lot more in tax than I receive in services etc, and although I dont begrudge that I’d like a little more say in where/how it is spent. For instance, I would like to see less spent enabling addictions and more on curing them, more on needy kids and less on dropkick “parents”

    Regards
    Peter J
    see http://www.sensiblesentencing.org.nz

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  27. Weihana (4,557 comments) says:

    Zebulon (6) Says:
    July 10th, 2013 at 12:54 pm

    The top 5% that pays most of the tax is largely comprised of high salary earners and these people are often highly mobile. Tax them too much and they will leave for countries with more sympathetic tax rates. If they go so does New Zealand’s whole tax base.

    This is both fact and fallacy.

    While New Zealand must have regard for opportunities abroad, the fact is that people do not generate their wealth in a vacuum. People who are rich are often there because they have great and wonderful ideas that enrich us all. But their riches require consumers as much as consumers require those great innovators. Yes, rich people are mobile. But the consumer demand that their wealth may depend on is not necessarily mobile. If I run a chain of successful retail outlets I can not simply up and move that to another continent. And if I could it would likely still make financial sense to do both.

    Further if high salary earners leave then the demand for those skills goes up, which means their salaries go up which attracts more of them back.

    The problem with these debates is people take extreme views. They either take the John Galt approach where if we are mean to them they will run away to the mountains. Or they take the “rich pricks” approach and anyone who is rich is inherently evil.

    A more balanced attitude is that those who are successful should be rewarded (more than others) for that success and their contribution. But they should also give back to the society on which that success was built.

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  28. Weihana (4,557 comments) says:

    Scott Chris (5,027) Says:
    July 10th, 2013 at 12:48 pm

    Net tax bollocks.

    Income tax comprises less than half of crown revenue.

    Scott Chris is obviously correct. Total tax revenue for the 2011/2012 financial year was 55.1 billion.

    http://www.treasury.govt.nz/government/revenue

    The total given in the table is 26.2 billion.

    Which makes the whole premise of “net tax” fallacious.

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  29. tvb (4,430 comments) says:

    It goes further than this for higher incomes. They generally pay into health insurance (except the very wealthy who can afford to self insure) and pay for private education and generally do not rely on the taxpayer for anything.

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  30. leftyliberal (651 comments) says:

    How many of those < 30k households are superannuitants? The HES includes this as an alternate line – has this been taken into account. I'd also note that in terms of government benefits, superannuation is almost half the total (10.9B), and with an aging population this proportion may increase in the future. This includes all those currently in the 250k+ bracket.

    I also note how absurd the effective "net" marginal rates are: compare the 90-100k group with the 100-110k group. Less people in the latter, receiving 50% more benefits. Similarly the 140-150k group appears to be getting shafted compared to the 150-175k and 130-140k groups. This is likely due to WFF.

    I suspect this doesn't include GST, though it would be possible to estimate from the HES. Anyone have a link to how Treasury put this together? The problem with GST is that those in the lower groups will be spending almost everything they receive, whilst many in the higher groups, while they will spend more, won't be spending everything they earn in NZ, thus will be contributing less (percentage-wise) than those in the lower groups. Given that GST is almost as much revenue as income tax (22.8B in GST, 24.1B in income tax) this is essential for a balanced discussion.

    Am more than happy to look into the way Treasury put this together and see whether the above isses can be teased out if the data are available.

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  31. leftyliberal (651 comments) says:

    @tvb: Except for the 25 years they spend as superannuitants, right? Lucky they don’t rely on the taxpayer for that, or for the roads they use, or the infrastructure without which they wouldn’t be as well off as they are.

    What an absurd statement.

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  32. Tom Jackson (2,553 comments) says:

    2. the point being made is that the system is already highly redistributive. It is, that’s a fact. There’s a different question as to whether some would like it to be more redistributive still

    The market is redistributive. Thats what it does. The difference is whether it is compulsory or not. The reason for compulsory redistribution is market failure, not inequality. Even if we were all equally wealthy, we would still have a tax system.

    The welfare state is a win win for all. Poor people get to eat, and the wealthy don’t end up hanging from lamp posts. It’s the cheapest way of making society liveable for all.

    No one on this board appears to understand the welfare state, and the result that most comments aimed at it miss the mark.

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  33. Kea (12,841 comments) says:

    why did they go and have 3 or 4 kids? morons.

    dime, because we paid them to have kids. That does not make the recipient a moron…

    Feminists have fooled us into paying women to do what they would do anyway. We accept it as normal, but it is really rather bizarre.

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  34. PaulL (5,987 comments) says:

    @Tom, your understanding of the welfare state as being what the exploiters amongst us pay so as to avoid lynching doesn’t match my understanding.

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  35. Colville (2,272 comments) says:

    leftyliberal.
    Speaking of absurd statements.
    Add GST into the mix and the higher end will pay far more as a percentage of total.
    the “poor’ have half their income go to rent and escape GST.

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  36. Colville (2,272 comments) says:

    Tom Jackson @ 3.34.

    With the tax I pay I can employ a private security force to protect me in my estate, its a risk I am willing to take ** :-)

    ** laws around carrying pistols, use of same, self defence, tresspass and abililty to protect property with use of deadly force would need to be changed first tho. Oh and need to legalise ownership and use of fully automatic belt fed weapons by trained personal.

    Note to self. Having fun toys like that around would be a challenge in self control when on the piss with the lads.

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  37. leftyliberal (651 comments) says:

    @Colville: Fair point regarding rent not attracting GST. Nonetheless, with GST being almost the same income to the government as income tax, it’s somewhat silly to ignore it when one makes statements such as “Households up to $60,000 income receive more in welfare on average than they pay in tax, Yes, they are effectively paying no tax.”

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  38. wreck1080 (3,923 comments) says:

    So many freeloaders in this country.

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  39. Weihana (4,557 comments) says:

    Kea (5,850) Says:
    July 10th, 2013 at 3:39 pm

    dime, because we paid them to have kids. That does not make the recipient a moron…

    Perhaps not a moron but the decision to have more kids than one can afford is still an irrational one (assuming it was a conscious decision rather than a set of unfortunate circumstances). Contrary to popular opinion (at Kiwiblog at least) having three kids and sitting on welfare is no fairy tale.

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  40. Kea (12,841 comments) says:

    Contrary to popular opinion (at Kiwiblog at least) having three kids and sitting on welfare is no fairy tale.

    Good. Then by removing the welfare it is win/win. The world does not owe you a favour for getting laid ladies.

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  41. dime (9,980 comments) says:

    “having three kids and sitting on welfare is no fairy tale.”

    cept for those cold winter mornings when you get to stay in bed and send the kids off to school to get their free breaky

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  42. Manolo (13,837 comments) says:

    The welfare state is a win win for all. Poor people get to eat, and the wealthy don’t end up hanging from lamp posts. It’s the cheapest way of making society liveable for all.

    Unadulterated socialist crap and the words of one who enjoys keeping the poor down via handouts.

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  43. kiwigunner (230 comments) says:

    50% of all household earn less than $60k p.a. Which is why home ownership is so hard, kids are going hungry and all social indicators are showing signs that we are in trouble. But that is ok, 47% of tax is paid by 5% of folk.

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  44. PaulL (5,987 comments) says:

    @kiwigunner: yep. And those who are focusing on how to tax those higher up the scale are on the wrong track – the question is how we create an economy with well paying jobs for those nearer the bottom. Part of the answer is that we need capital investment to increase productivity – at a minimum to Australian levels. But taxing those who are wealthy isn’t a great story for increasing capital investment. Another part of the answer is that we need better education and skills delivery to people so they are more employable. Any initiatives out there that might improve education for the long tail?

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  45. nickb (3,687 comments) says:

    cept for those cold winter mornings when you get to stay in bed and send the kids off to school to get their free breaky

    Almost spilt my Steinlager (no, not pure, nancy boys) at that one

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  46. Fentex (986 comments) says:

    the top 5% of households pay 47% of net tax

    Income tax only, with GST making up a substantial part of NZ taxes and being a regressive tax, the numbers for net taxation will be substantially different.

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  47. ross69 (3,652 comments) says:

    @ross69, you haven’t said what change to superannuation entitlements and eligibility rules John Key has allegedly made.

    I suggest you read the article I linked to.

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  48. ross69 (3,652 comments) says:

    So many freeloaders in this country.

    You referring to rich pricks not paying their fair share of tax?

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