The Tax Whinge

I know it is an article of faith on the right that Kiwi workers are overtaxed.

The OECD released some data that contradicts this, but I didn't have time to follow it up at the time.

The material is at http://www.oecd.org/document/17/0,2340,en_2825_495698_38148433_1_1_1_1,00.html

Scroll down the page and have a look at the charts. They show that out of the 30 OECD countries, New Zealand (on 2004/05 data, start of W4F)...

• has a "total tax wedge" of 20.9%. That is the government gets 20.9% of the pay packet of the average single worker. This is the third-lowest in the OECD. By contrast in Australia it's 28.1%, and in the US 28.9%.
• NZ is the only country in the OECD where the whole tax wedge comes from income taxes. Workers and employers don't pay any social security contributions.
• On the "Tax plus worker contributions, less cash benefits" front is sixth in the OECD (that 21% again), but for married one earner family with two kids, NZ's 3% is the fourth lowest in the OECD.

This data is astonishing because it shows two key things:

• New Zealand workers face low income tax burdens compared with other countries in the OECD.
• New Zealand companies get a free ride, making no specific contribution to social security.

And this is the situation that some of the doomsayers argue is leading people to fly off for lower taxes elsewhere.  Classic Tui Billboard there.

Comments

[Nicholas O'Kane]

The article only looks at income tax and social security contributions, not the whole range of taxes that we currently face. Secondly you forget to mention in your post that our tax wedge is increasing. Third, it doesn't make this clear but the report could deduct working for families from the tax bing paid, when it should look at the money that gets taken of you in the first place. A better way to look at the tax burden is taxation as a percentage of GDP.

[plum]

Aren't Kiwis leaving the country because they get paid a hell of a lot more? I know I did. And now that I'm back and hoping in the future to buy a home, I'm appalled at how low our salaries are. Don't get me wrong; I don't think National has much beyond its tax cut mantra, but either Labour sucks, or I've been reading too many rightwing blogs.

Dammit, how could the left fail so utterly to win the media message wars?

[tim barclay]

If the Labour Party was more disciplined in its spending, income tax could be eliminated for possibly those earning under $100,000. The income tax take is about $20b and the spending splurge of the Labour Party has been $20b - for what outcomes I ask. I bet those who are paying income tax could have spent that money more effectively than the Labour Party who never ever asks: is money being applied wisely. It has been the worst Labour Government ever. It reminds me of Harold Wilson - all clever short term politics but no long term results. Just a few private members bills on social reforms.

[Clint]

I guess the second biggest surplus in the world is still not enough for this money grabbing Labourites. That statistic alone makes what you're saying Jordan absolute bullshit.

I find it peculiar that we have a history teacher in charge of our finances. Kinda like our PM lecturing us about child rearing.

[sagenz]

Jordan - I will give you that one. Its a pretty impressive chart and should have gone in your 5 achievements. I assume it must be net of WFF?

commenters points about total tax % of gdp are well made but of more concern is the continuing deterioration in productivity. That is the only thing that can fix low wages in the long run and it is low wages that cause people to leave.

[Mainly Politics]

Nicholas - the study looks at what people are left with in their hands after their income, tax, and support payments are taken into account. It shows quite clearly that we are better off than most other countries.

Plum - Yes, lower salaries are a problem in New Zealand. But salaries have been increasing. Tax cuts may give you more money in the hand in the short term, but they don't increase your salary. I'd rather have a $50 a week pay rise than a $10 a week tax cut.

Clint - What a load of rubbish. The fact that Cullen was a history lecturer makes him no less qualified to be Minister of Finance than Bill Birch (an engineer) or Ruth Richardson (who had little experience outside parliament). Play the ball not the man (have you ever learned how to do that?)

[burt]

Jordan

20.9% of the average single pay packet you say.....

But you said "I face a 49% marginal rate myself, and it doesn't really factor in to decisions about working." in justification of how you have no issue with our *high* tax rates.

see: http://jtc.blogs.com/just_left/2007/01/the_premise_is_.html#comment-28626800

Which version of the truth should I believe?

[Paul]

"Aren't Kiwis leaving the country because they get paid a hell of a lot more?"

So govts are to set wages now - rather Muldoonian of you. Govts are not without blame with regard to low wages but last time I looked, the private sector was free to pay it's workes as it deems.

We'd hate to think that companies were keeping wages low to make govt look bad.

[Gerrit]

What the figures does not show is how much of our after tax pay goes to local government in the way of rates, water, waste water, etc charges. Or Soe's with high electricity charges, etc.

Nor the extra interest we have to pay on Morgages (now nearly 10%) because the "independent" Reserve Bank tries to keep inflation down to the government directives.

As Cullen said in parliament yesterday "you can fiddle figures to produce any answer you want".

"Hon Dr MICHAEL CULLEN: If rail rolling stock is to last 40 years, usually a great deal of work has to be done to it in the interim…. The point I am trying to make is that one can fiddle the figures as much as one likes to produce the answer one wants, but I do not think that is the best way of making rational decisions around these sorts of issues"

[tim barclay]

And do not forget ACC which is a health tax in disguise. So we do have some of our social services paid for by "extra" taxes. I resent every dollar paid to that gigantic whitye elephant.

[kiwi_donkey]

That's right Jordan, the *average* figures are pretty good, because the government had decided to exploit the highest income earners as much as possible. The 39% rate, fiscal drag, ACC increases, state-owner power price increases, rates increases, and increasing users pays have all eaten into their income. Small business owners can avoid these increases through tax planning. Salaried professionals cannot.

So the government is busy sticking it to the very skilled workers it is desperate to attract. The problem is, these workers are welcomed with higher salaries, generous super schemes and better standards of living around the world. While the "average" might be good, it's not very helpful to productivity if we are busy sending some of our most talented people overseas and replacing them with low-skilled migrants.

Whatever did happen to reaching the top half of the OECD? It's been EIGHT YEARS JORDAN. Have we even moved up one place?

[Mainly Politics]

Gerrit - the argument about SOEs is a whole new one and I suspect a complete fabrication. Do you have any evidence AT ALL to suggest that electricity prices are higher because 3 of the major generators are government owned?

Is anyone seriously arguing that it's all the governments fault that we have lower wages and less salary perks than other countries? Could it have anything to do with being a smaller country? Could it have anything to do with the fact that the kiwi govt doesn't actually REQUIRE firms to contribute to super schemes as some others do? As for better standards of living, if you're talking about quality of life we are actually at the top of the OECD on that measure!

[Gerrit]

MP,

No proof at all but without competition we will never find out either.

Did they include 12.5% GST in the equasion?

Not the government fault we dont have higher wages, no. But they could do heaps more to make the New Zelaland worker more productive. Now lets see, Faster capital equipment cost write
off's, better export incentives (support) to combat the high dollar, better targetted techincal and tertiary training for productive jobs, etc, etc.

How about better managing the state assests such as hospitals, roads, etc. to reduce overheads thus less tax.

Or about spending the surplus on new infastructure to make transport of people and goods more efficient.

Or not wasting parliamant time on s59 repeal bill when much more important matters such as public servant efficiencies need to be addressed.

That is where the government needs to focus. Reducing the tax take to a minimum. If it is 20% as you say it is, why not set a target of 15%?

Housing afforability is a nmajor issue. Well reduce the interest rates to a mangageable level!

All that extra interest is flowing through the banks back to the Australian bank shareholders. Smart governmental management, nah! And dont say the Reseve Bank is "independent", it is not.

Like Cullen says, you can make figures paint any picture you like.

[plum]

"So govts are to set wages now - rather Muldoonian of you."

Paul -- I said the wages in NZ are low, and you took that to mean I want the Govt to set higher wages (something I never said)? You need to update the fantasy leftist you've got knocking about in your head.

[kiwi_donkey]

MainlyPolitics. I would put it another way. The electiricty sector was reformed so that prices would increase, thereby justifying the cost of investment in new generation. Most of the benefit from the price increases went into the government's pockets. That is thousands of dollars from almost every home, straight into Government dividends - a tax by any other name.

To maintain equity with taxpayers, the Government should have returned this to us through income tax reductions. That way they would still get their market signals in electricity, but without making us all suffer. Instead, they chose to pocket it to spend on grand schemes.

So Its tax, tax, tax from a very greedy government.

[Tom S]

Wow the bitter anger in these post only goes to reconfirm the massive cognitive dissonace on the right in New Zealand politics. Lets face it, the blogging right exhibits many traits of a quasi-treligious cult - and when confronted with evidence that runs counter to the belief system of these new right cultists they react in a predictable manner. The presentation of contrary evidence creates a disconfirmed expectancy, and this in turn has increased the dissonance between their cognitions, thereby causing most members of the new right blogging cult to seek to lessen the dissonance by rejecting the evidence as false in the most violent manner possible.

[Insolent Prick]

Jordon,

You've missed out some key points.

Income tax rates throughout the OECD is declining over the last ten years, in every country with the exception of New Zealand, which has risen.

Your beloved Government has spent $20 billion more this year than in 1999, for NO extra result. The health system is in a diabolical mess. Education is at an all-time low in public confidence. Policing is a joke in many underprivileged parts of New Zealand. The civil service has ballooned in size, to the point that 62 of New Zealand's hundred largest employers are state-owned. The underclass is growing.

Meanwhile, your government wastes money left, right, and centre, and produces a twelve billion dollar fiscal surplus while saying: "We can't afford tax cuts. Look, taxes are higher in France and Norway. That's why we can't cut taxes here."

Stupid argument from a stupid party, Jordon.

[Aj]

Those stats don't include GST, but most other countries have GST type taxes as well and many at higher rates than NZ

[tim barclay]

But Aj Australia has a LOWER rate of GST with may exemptions.

[Aj]

Tim you tyke. Those teachers you despise didn't give you the gift for understanding the difference between 'all' and 'many and 'most'

The more you post, the more you betray yourself as a leftie planted here to make the right look stupid. Good work.

[Captain Crab]

I dont live in Europe, or Australia. I live in New Zealand. The fact is Labour takes more Tax than it needs to run this country. Simple really, so dont take so much. And maybe start thinking about efficiencies and perhaps reducing costs. You may find the money goes further and you produce more. Labour keeps banging on about increasing productivity and sustainability (guffaw). How about setting an example?

[tim barclay]

Aj Australia has many exemptions on GST as part of the deal to get it past the Democrats in the Senate. We have none or nearly none. Yes I do despise teachers just to remind you. I am proud to say I would go for months without speaking to any of those creatures.

[Aj]

I'd despise teachers that left me with your comprehension levels too Tim.

[Mainly Politics]

Gerrit, some responses to your arguments:

Govt "could do heaps more to make the New Zelaland worker more productive. Now lets see, Faster capital equipment cost write off's, better export incentives (support) to combat the high dollar, better targetted techincal and tertiary training for productive jobs, etc, etc."

- Write-offs for capital equipment were massively changed in Budget 2005. The total cost of these changes was either about the same or more than lowering the company tax rate to 30c in the dollar, yet nobody ever mentions them. Give credit where it is due!
- NZ Trade and Enterprise do offer quite a range of export incentives and support, and Trevor Mallard's most recent review has actually moved funding from domestic programmes to these export ones. National has yet to articulate a clear position on export incentives and support. Katherine Rich was mildly supportive, but she is not the spokesperson anymore (no idea who is).
- Modern Apprenticeships have been a big success, and have been massively expanded (up to 14,000 places). Funding for structured workplace industry training has also increased hugely under Labour. Is this some of the 'waste' the right keep arguing Labour has inflicted on the NZ public?

"How about better managing the state assests such as hospitals, roads, etc. to reduce overheads thus less tax. Or about spending the surplus on new infastructure to make transport of people and goods more efficient."

- A lot of the surplus IS being spent on capital projects like roads. We are spending more on roads than ever before (although if you ask me we could do well to spend a bit more on rail...)
- Labour has also spent a lot on capital investment in hospitals, to bring them up to scratch so that they can be more efficient. Once the capital issues are sorted, I agree the next priority should be to look at workforce productivity in the health sector.

"Reducing the tax take to a minimum. If it is 20% as you say it is, why not set a target of 15%?"

- Why 15%, why not 5% or 30%. You can't just pull figures out of thin air. The tax take should be what the government needs to provide the public services that New Zealanders want, with a surplus leftover to repay debt, cover contingencies, and invest in capital.

"Housing afforability is a nmajor issue. Well reduce the interest rates to a mangageable level! All that extra interest is flowing through the banks back to the Australian bank shareholders. Smart governmental management, nah! And dont say the Reseve Bank is "independent", it is not."

- One way to reduce interest rates (or at least stop them increasing) is for the government to maintain a tight fiscal policy (ie. no tax cuts). National wanted to cut taxes AND continue to increase govt spending by increasing borrowing. This would have led to even higher interest rates!

[burt]

Tim

Aussie may have many exemptions in their GST, however the simple application in our GST system (very few, and very clear, exceptions) is the thing that makes our GST fair and cost efficient. In Aussie you could end up voting for a PM based on a promise to reclassify fast food as a basic food (perhaps 10%) rather than a luxury food (perhaps 20%) vs one promising the opposite. Uneven taxation provides so much scope for distortion and manipulation of the tax base and the polling. Simple flat rates work for almost all other taxes, why do we make such a pudding of income tax and benefits?

[tim barclay]

Burt I think Australia wanted a "clean" GST like NZ but it got put aside in a political deal to get it passed in the Senate. I guess there is a tradeoff in that the compensation required for people on welfare did not need such a top-up with the food exemption. But NZ has a higher rate of GST which means income tax in this country can be correspondingly lower. It is not. The person that runs this blog calls that the "tax winge". I just love the Labour Party when they talk like that and I long for their political destruction. Their arrogance, their conservatism, their addiction to "bossy government" their refusal to take responsibility and to blame others, their avoidance of decisions and the setting up endless inquiries instead. And last but not least their corrupt use of public money in the last election. The worst Labour Government ever with nothing, just nothing to show for it except a $20 billion spending spree for what outsomes I ask.

[Gerrit]

MP,

Your answers sound so logical, but that is not how I see it.

Build all the hospitals and services before sorting out the health mismanagment?? Surely those mismanaged health proffessions will just have you build more and more till we as a nation are bled dry (good pun eh.?). No you sort out the health mismangement first so you get an accurate picture of what building work is actually required.

That is an exact example of where Labour has lost the plot. No management skills anymore.

Like yes we can raise interest rates but oh no, we cant bring em down. Jeez are you saying that is good management?

Good fiscal policy is to run a huge surplus?

Good fiscal policy is to take no more then is required to implement the policies you get elected on. Reducing the tax take to only what ias required. That is sound fiscal policy.

I suppose the WFF benificiary scheme is to return taxes to the workers. But is it not more efficient to have not taken the tax in the first place?

Just more unproductive workers to administer a scheme that is not required. Good management? Nah.

[Mainly Politics]

Gerrit

You seem to be one of the only people in the blogging world that is interested in good debate based on actual argument, rather than insulting your opposition, so well done for that!

A few further points:

1. Labour didn't increase interest rates, the Reserve Bank did. Now in reality, the strong economy is responsible for increasing interest rates, so if Labour is responsible for that, I guess Labour is responsible for increased interest rates. What would you prefer, a return to the boom and bust approach that came before the present Labour government?

2. You have a point on health. The infrastructure was badly run down, but in an ideal world the infrastructure development would have been done in parallel to sorting out the management. It seems we are doing one before the other, but we are making progress (ok, accuse me of being a Labour apologist anytime now...)

3. On your argument of 'taking only what is required', in general I agree, but the notion of a 'surplus' is misleading in that regard. If a large part of what you want to achieve involves capital spending, then a decent surplus is actually a big part of that.

Oh, and just on that last point, if ever the Treasury, Reserve Bank or IRD actually managed to come up with accurate projections, then the surplus may not be that large in the first place...

4. WFF targets tax relief to those who need it most. As a single above average earner I have no problem with paying extra tax to support those who raise kids (the future generation of tax payers and those who will be required to support us in our retirement and pay back any debt we leave behind).

[Spam]

"1. Labour didn't increase interest rates, the Reserve Bank did. Now in reality, the strong economy is responsible for increasing interest rates, so if Labour is responsible for that, I guess Labour is responsible for increased interest rates. What would you prefer, a return to the boom and bust approach that came before the present Labour government?"

Spending by the Labour Government makes up nearly half the economy. This spending will indeed push-up interest rates.

"3. On your argument of 'taking only what is required', in general I agree, but the notion of a 'surplus' is misleading in that regard. If a large part of what you want to achieve involves capital spending, then a decent surplus is actually a big part of that. "

Well, if its being spent, then its not a surplus. And you don't have to pay cash for infrastructure assets.

"4. WFF targets tax relief to those who need it most. As a single above average earner I have no problem with paying extra tax to support those who raise kids (the future generation of tax payers and those who will be required to support us in our retirement and pay back any debt we leave behind). "

People on $100k+ are 'those who need it most?' People on low to middle incomes are being consigned to a dependence on welfare and 60-80% marginal tax rates? I would prefer to let people make their own retirement savings, with the govt. as the backstop; not the solution.

[burt]

Mainly Politics

“Oh, and just on that last point, if ever the Treasury, Reserve Bank or IRD actually managed to come up with accurate projections, then the surplus may not be that large in the first place...”
Not so – If you were more interested in the facts rather than the spin you would have noticed that the IRD estimates have proven to be correct time and time again. Invariably Dr. Ideology poo-poo’s them and the surplus grows… funny how we forget these little details so quickly to defend the fiscally incompetent.

“4. WFF targets tax relief to those who need it most. As a single above average earner I have no problem with paying extra tax to support those who raise kids (the future generation of tax payers and those who will be required to support us in our retirement and pay back any debt we leave behind). “
I would agree with you – up to a point. People who have 6+ children now (as in today) would have had a minimum of 5+ kids when WFF was introduced. (excepting a small number of recent multiple births) People in this situation earning up to $100K+ were quite happy to keep producing more kids before WFF was introduced, they made the decision that their *significant* incomes were sufficient to support their families. Now we are paying tax to support people earning up to 2x the rich bastard threshold simply because they like having a large family. Yes the kids will be tax payers, yes it’s a good thing to support people in need – but how can you justify taxing people with a ‘rich bastard’ tax starting at $60K while paying people to have kids all the way to $120K+

If $60K (of income) is a threshold that justifies paying extra tax, how can two times that threshold be acceptable for receiving benefits? The WFF threshold could be pegged to the ‘rich bastard’ threshold, this would make logical and fiscal sense. However I do appreciate it would be hopeless for encouraging big earners to vote Labour. Introducing a tax free threshold of circa $15K would have achieved the same thing, but in a fair and equitable way that would encourage people to be self sufficient – self sufficient and ‘vote for Labour’ seem to be incompatible these days.

[Gerrit]

MP

Love a good debate.

"3. On your argument of 'taking only what is required', in general I agree, but the notion of a 'surplus' is misleading in that regard. If a large part of what you want to achieve involves capital spending, then a decent surplus is actually a big part of that. "

Disagree as capital works would be beter funded out of borrowing so that one generation doesnt have to pay massive taxes for the next generations benefit. For exaple if a new harbour crossing in Auckland was required (tunnel) you would not wait to raise a surplus from one generation of tax payers to pay for it. You would borrow and srpead the cost over 5 to six generations. That is how large capital works are generally funded (such as the existing Harbour Bridge).