Several media outlets have reported that the OECD found NZ has the second lowest level of taxation in the OECD. This is incorrect, as media have not understood the difference between tax wedge and tax.
The OECD did report that for a family with kids, the tax wedge is the second lowest. What the tax wedge is, is the difference between gross and net pay. Here is what it includes and does not include:
- GST – not included. We pay a high proportion of tax through GST as it has few exemptions. GST brings in $19b and income tax $32b.
- ACC levy – not included
- WFF Tax Credits – included as a negative tax even though they are actually a welfare payment delivered through the IRD.
- KiwiSaver – not included as not compulsory while most other countries have compulsory savings and this is included in the tax wedge
So for a family with two kids, the tax wedge or difference between gross and net pay is very small because includes a welfare payment (which is funded by tax from others) and we don’t have compulsory superannuation (which is not a tax as it is money that stays owned by you).
The Taxpayers’ Union points out the better measure of tax burden is total government outlays as a percentage of GDP – NZ is at 39.1% which is around the OECD average of 40%.