NZ a tax haven for working families

New Zealand wages attract among the lowest net tax burden of all OECD countries, lowest for families on the average wage

27th Mar 13, 9:53am by David Chaston

We don't know how lucky we are.

New Zealand tax wedges are among the lowest in the world - or in the OECD at least.

For families - that is a one earner married couple with two children and earnings at the average wage level - we have the lowest in the OECD.

For single people, only Chile has a lower level in the 34 nation survey.

France and other European countries score the worst.

A 'tax wedge' measures the difference between before-tax and after-tax wages. It measures how much the government receives as a result of taxing the labor force.

New Zealand outcomes benefit from having lower income tax rates, no separate payroll tax or superannuation tax, and adding back the substantial Working for Families benefits.

In the end, New Zealand families on the average wage get back almost as much in benefits as they pay in tax.

This data was released for 2012 by the OECD in an emailed statement.

Over the past two years, income tax burdens have risen in 23 out of 34 countries, largely because a higher proportion of earnings was subject to tax as the value of tax free allowances and tax credits fell relative to earnings. In 2012, only 6 countries had higher statutory income tax rates for workers on average earnings than in 2010, the OECD said.

Australia's rose because of the introduction of a temporary additional levy to finance post-cyclone reconstruction.

New Zealanders who emigrate chasing higher wages should consider the tax impact on gross earnings in other countries in addition to the costs of living there.

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17 Comments

by JimboJones | 27th Mar 13, 10:07am 1364332076

Amazing how we can have low taxes, pretty reasonable social security and healthcare, and a low government deficit compared to other countries. It really irks me when people constantly go on about how bad our government is, how corrupt they are, etc, yet when you compare ours to the rest of the world we look amazing.

What are the other governments doing with their money? The US has higher taxes than us and they don't get healthcare!

by Ralph | 27th Mar 13, 11:03am 1364335401

Blame is cheaper than responsibility.

by steven | 27th Mar 13, 11:18am 1364336314

Agree, NZ Govn isnt doing that badly...however if you look at HC's WFF and if that hadnt been brought in or at least been limited....blame Brash for much of that, Cullen had to counter him in 2005.

When you look at all the deductables Im not sure the US has higher effective taxes. Also in the US if you earn below an admittedly low amount I think you pay no tax? not aware that applies here.

"Doing with their money"? supporting their egos with "there will be no more recessions" deficit spending, and/or pork barrel politics...grossly incompetant IMHO.

regards

by Zoltuger | 27th Mar 13, 10:25am 1364333102

NZ's realtively simple, low rate tax system shines through here. Only downside is the higher than OECD marginal tax rates for those on WFF - 54%+. Every extra dollar you earn, the gummint takes more than half!

by murray86 | 27th Mar 13, 10:26am 1364333176

Is this accurate? does it take into account GST, ACC, Rates etc? All those other little mandated add-ons from various Governments. In the middle of the last Labour Government's term i remember a University based tax expert identifying that the average tax rate in New Zealand when these are all accounted for was 47%.

by Zoltuger | 27th Mar 13, 12:27pm 1364340425

It's personal income plus social security contributions less social assistance. So it doesn't include any of the taxes you listed, nor any taxes that NZ doesn't have (capital gains, stamp duties, land taxes and sales taxes for instance).

As an aside, my marginal tax rate is 50.7% if you include kiwisaver, ACC and student loan compulsory repayments, but before GST and other indirect taxes.

by Ms de Meanour | 27th Mar 13, 1:27pm 1364344026

Would ACC not count as a social security contribution? I would have thought it would be included among payroll taxes, but I'm no tax expert.

GST in New Zealand is also quite low by international standards, according to the very authoritiative source Wikipedia.

by Hevi Groswaite | 27th Mar 13, 10:39am 1364333983

Perhaps people speak from memory, Jimbo.

When compared today, relatively speaking we are doing better than the rest, but when compared to the past the picture changes drastically, at least for me.

As Murray cleverly points out, income is taxed more than once in all countries!

In antiquity 5% was the universal tax taken by feudal lords. Today, GST is 3 times that.

Why do we accept this, and why do we put up with it?

HGW

by steven | 27th Mar 13, 11:23am 1364336609

Because we get public service in return, in effect lower cost and more eglatarian provision, that is our choice.

Not sure on that 5% either, often the local lord could and did take the rump of a farmers/peasants crop....such that they faced starvation.

regards

by Brendon | 27th Mar 13, 10:44am 1364334241

Having recently returned from Finland with my family I can say New Zealand has a relatively attactive package. Primary and secondary education, health and wages (in the hand) are comparable or better.

Transport infrastructure is poor in NZ, both public transport and motorways. NZ houses are poor quality but as expensive as Finland.

Tertiary education and creating a supportive cultural, regulatory and governmental services environment for specialised industry is better in Finland.

Price wise only petrol is a little cheaper in NZ while phone/internet is more expensive. Wheras a decade ago NZ prices were significantly cheaper across the board.

Finland's economy is tied to the euro, which is in continual crisis.

New Zealand has the opportunity to surge ahead if we keep our strengths and work on our weaknesses.

by steven | 27th Mar 13, 11:40am 1364337635

Car insurance? In 1995 when I came here my car insurance was going up to 1500sterling per year, here same car was <$400NZ (32x12=$390)

Thats was just one car as well, the other was 650sterling v $25 amonth out here (I imported them both) So $1300NZ v $300NZ

All with full no claims (60%), and when I came to NZ they would only give me 50% no claims in the first year.

House contents? Our flat contents insurance was 800sterling, more than we judged the contents was worth so we didnt, here I was paying about $23NZ a month..about $32 today.

So $3kNZ v $400NZ

$1600NZ v $280NZ

Train pass? until recently (5 years ago) I was paying $45 a month, so $540NZ a year in the UK 900sterling for an annual pass = $1800NZ. Today I pay $1230 for monthly passes, could do 3monthly and save a few %.

2600+1300+1300+1000=$6200 post tax saved (roughly).

I have a harder time comparing salary, but on a 2:1 exchange basis I earn here today roughly what a friend was earning a few years ago, no idea what her salary is these days mind.

Granted food used to be way cheap in NZ, ditto housing...it was a lot cheaper to come here to live and buy...not now...

Internet, I pay $200NZ a month for 150gb, but the UFB prices are $200 for 1TB or $120 for 200~250gb plan incl a phone, that will be a big price dropper in the next year or 2. I'll be so glad to tell Clear to pee off.

regards

by Matt in Auck | 27th Mar 13, 11:38am 1364337488

well, if NZ's tax wedge was higher then there would hardly be anyone left in the country, given wages are so much higher generally in Australia, and a number of key consumables like fuel are significantly lower in Aus.

by Brendon | 27th Mar 13, 11:43am 1364337810

I know families who went to Australia after the Christchurch earthquakes and have since returned because the grass is not always greener on the other side.

by Matt in Auck | 27th Mar 13, 7:29pm 1364365757

of course the grass isn't always greener here in Aus. It is very dependent on individual cases.

However on average there is definitely more opportunity to get ahead here, especially if you live outside of Sydney and Melbourne - in Brisbane, Adelaide or Perth.

In Auckland there's no way in hell I could have afforded to live in Grey Lynn. Here in Adelaide, I can comfortably afford to buy (in fact I built new - total just over 400K including land) in a suburb similar in ambience and location (relative to CBD).

I still like Auckland, but it is ridiculously overpriced and I want a life, rather than becoming a mortgage slave to a mediocre property and sitting in traffic for nearly an hour and a half a day.

Brisbane, Adelaide and Perth are all as nice as Auckland in their own ways and certainly more affordable overall.

But each to their own.

by Brendon | 27th Mar 13, 10:49pm 1364377785

Hi Matt

I am glad your move to Adelaide is working out. We are planning on building too in Canterbury.

My opinion is that New Zealand and Canterbury in particular would benefit from something like state government. If you study your history, Christchurch and Adelaide were settled by the same people and with only a short time gap between settlements. So why the difference now in economic prospects?

The obvious difference is that in Canterbury provincial government was abolished in 1876 while South Australia become a constitutional state of Australia in 1902?

Regards Brendon

by Matt in Auck | 27th Mar 13, 11:42am 1364337778

Yesterday it was reported that average incomes in Aus and NZ are:

* NZ $48,600 (average income) NZ $61,000 (average fulltime)

* Aust $61,400 (average income) Aust $75,700 (average fulltime)

Can someone please advise whether the Australian figure includes or excludes employer supernannuation contributions

by Matt in Auck | 27th Mar 13, 7:18pm 1364365111

DAVID / GARETH no answers to my question?

If super isn't included, you can add on at least 9% (some people get more than 9%) to the $75,700, that equals over 82K, or effectively more than a third more in Aus than NZ. Wipes out the minor tax advantage in NZ

I consider my income here in Aus to include the 9% on top which you don't get in NZ