How does New Zealand’s tax bill compare to other countries? – Stuff

Tax has been in the news in recent weeks whether its the UK Government removing its top tax rate of 45% and then changing its mind, or National and Act renewing their call for tax cuts after it was revealed that the Government books were in better shape than predicted.

But how much tax do we really pay? And how does that compare to other countries around the world?

When it comes to personal income tax, New Zealand has a marginal tax system.

It works like this: The first $14,000 is taxed at a rate of 10%. Money you earn between $14,000 and $48,000 a year is taxed at a rate of 17.5%. Between $48,000 and $70,000 you pay 30%. Between $70,000 and $180,000 you are taxed 33% and every dollar you earn over $180,000 in a year is taxed at 39%. (If you earn $72,000 a year, you dont pay 33% on the whole lot just the bit over $70,000.)

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We also pay GST on pretty much everything. We pay tax on capital gains only in some circumstances such as when a residential investment property is sold within the timeframe set out by the bright-line test rules or when someone is buying things with the intent of selling them for a profit. We dont pay inheritance tax or stamp duties.

In income tax terms, New Zealand is taxed relatively lightly, according to OECD data.

If you combined all the tax a worker paid and any social security contributions they made, then subtracted government assistance like Working for Families, a single worker in New Zealand on an average income had a tax wedge of 19.4% in 2021. That was second-to-lowest in the OECD, ahead of only Colombia and Chile.

If it were a person who had a partner and children, they would have a tax wedge of just 6.5% on an average income. That was still second-lowest.

Deloitte tax partner Robyn Walker said the absence of social security contributions from income made New Zealand look lightly taxed.

If you look at the wedge graphs the actual proportion of tax that is going on the individual is probably slightly on the higher end.

I take all those tax wedges with a grain of salt, but it is indicative in terms of New Zealand being fairly lightly taxed when it comes to individuals.

She said it would always come down to a combination of the tax thresholds and tax rates applied. Other countries had higher top tax rates such as Australias 47%, Frances 55% and the UKs 45% but they usually only applied on high levels of income.

Tax expert Terry Baucher said, on a percentage of GDP basis, the countrys income tax take was below average. Including local authority rates, New Zealand was at 32% or maybe 33% but the OECD average is about 34%, he said.

Where we have an issue is at the lower end. The non-indexation of thresholds has really frankly come back and bit both parties.

He said, if income tax thresholds had moved with inflation and incomes as ACC levies had since 2010, they would need to be 24% higher.

Working for Families thresholds had also not been adjusted, so now someone who was working a 40-hour week on the minimum wage would have some of their credits clawed back.

Kathryn George/Stuff

In income tax terms, New Zealand is taxed relatively lightly, according to OECD data.

Someone earning $50,000 a year would have a marginal tax rate of 57% when the effect of the 30% tax rate and 27% Working for Families clawback were combined. Thats where all the pain is happening, I think.

Baucher said more attention should have been paid to how the thresholds worked when they were last adjusted in 2010. This will become a political headache for both parties in different ways.

Walker said the way that tax credits were structured through Working for Families was designed to help people with children. One of the risks we have is when we put up taxes and use the social system to give stuff back to those people we think should get credits back if youre a single individual in New Zealand and you dont have children youre more likely to start feeling a little bit hard done by.

Inland Revenue data shows that in the 2020/2021 tax year, there are just over 1.076 million taxpayers earning up to $10,000 a year. They paid tax of $156.1 million, or 0.34% of the total take.

The 1.024 million earning between $40,000 and $70,000 a year paid $9.567 billion or 20.6%. The 14,460 taxpayers earning over $500,000 a year paid $5.4b in tax.

Then there is GST.

New Zealands GST bill is higher than comparable taxes in most other countries. GST is applied to almost everything that is paid for in New Zealand, whereas other countries have exemptions for things such as food.

As a percentage of total revenue, we had the second-highest GST (or equivalent) bill in the world in 2018.

Of the Governments total tax take of $93.8b in the 2021 tax year, $26b was GST compared to $44.8b in income tax. Walker said this was also a tax on consumption by individuals in New Zealand and needed to be overlaid on the personal tax picture.

When you start doing international comparisons, you get into a bit of dangerous territory because its not always clear what is being taxed and what public services are provided in return, Walker said. If we look at the OECD reports on personal taxation, its clear that New Zealand is one of the lighter taxed countries when it comes to direct taxation on individuals. However, that is only part of the picture, as when you overlay indirect taxes and in particular GST, its possible that New Zealanders are paying a higher total amount of tax.

The corporate tax rate of 28% is just under Australias but ahead of the UK and US.

Walker said that was high in OECD terms, but corporate tax was largely a withholding tax on shareholder income. In theory, ultimately everything should in due course go out to taxpayers as a dividend and then be taxed at their marginal tax rate.

Walker said it seemed likely that tax would become an election issue in 2023.

Overall tax is complicated as there are a number of moving parts to the tax system. There seems to be a growing discontent about how taxes are being levied in New Zealand and whether there is unfairness in the system.

It would seem timely for there to be a review of personal taxation however, this wont be straightforward as our tax system is entangled with our social system due to Working For Families and other subsidies and a review of tax cant be done in isolation.

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How does New Zealand's tax bill compare to other countries? - Stuff