Not comparing apples with apples

The Herald reports:

The average New Zealand earner’s total tax burden is second-lowest in the OECD when superannuation and other compulsory taxes are counted, according to a new report.

This is not a measure of the overall level of taxation in the economy. It is a measure of the difference between gross pay and net pay. There is a huge difference.

The report also said that New Zealand had the smallest tax wedge for  one-earner married couples with two children earning the average wage, at 0.6 per cent.

The OECD report includes welfare payments made through the IRD (working for families) as negative tax.

This does not mean NZ has low levels of tax. It means we have high levels of welfare delivered to families with children.

Many countries had lower tax rates than New Zealand, but had compulsory superannuation and social security payments that increased their tax wedges.

Indeed, so again not apples and apples. KiwiSaver is near de facto compulsory but not included. The Australian compulsory super is included as part of the “tax wedge” even though the amount deducted goes to you personally, not the Government.

The other aspect not included in the tax wedge is indirect taxes such as GST are not included in the tax wedge:

Green Party co-leader Dr Russel Norman said the report showed the Government was misleading people that New Zealand had high taxes, to justify tax cuts for the highest-earners.

This just shows Russel is trying to misled people, or does not understand what a tax wedge is. It is purely a measure of how much the Govt takes out of your pay. It is NOT a measure of the overall level of taxation in the economy.

Again for those who are really really stupid, the tax wedge:

  1. does not include indirect taxes (those with GST are shown to be lower)
  2. includes deductions made by the Govt, even though they are going to your own personal super account (ie those without compulsory super are shown to be lower)
  3. includes welfare payments made through tax system (tax wedge would be much higher if they were done through WINZ)

So if anyone carries on claiming that a low tax wedge means a low level of overall taxation, they are lying.

The better measure to use is the OECD study of the ratio of overall tax revenue to GDP. Now this does have us (thankfully) in the lower half of the OECD, but not second to bottom.  In 2007 tax was 35.7% of GDP and the OECD average was 35.8%.  Note however that amongst OECD pacific countries the average is 30.4%. Australia is 30.8%.

Again comparisons can be difficult as state government revenue should be featured also.

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