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Posted at 10:49AM on 18 Jan 10. Permalink.

And (back on my hobby horse) other countries also have state taxes - for example Oz funds state education/police/etc that we fund through our income taxes using state payroll taxes - in essence your employer pays a 5-6% flat tax on your income before you see it - this is equivalent to a 3-4% increase in personal tax rates (but it's also essentially an increase by 5-6% in actual income - employees are more expensive in Australia than NZ because of this)

(Similarly in California I paid a marginal 10% state income tax - equivalent to a 6-7% increase in my federal rate)

I think you have to include this stuff if you want to compare our tax rates with Australia's in an apples vs. apples sort of way

Posted at 11:19AM on 18 Jan 10. Permalink.

Hmm, yes and no.

Sure, it's a tax burden, but it's not something that comes out of their taxable income, so to compare it with a place that doesn't have payroll tax, you'd need to determine what income would be if the payroll tax was just income tax... and then you're on to purely theoretical territory.

Posted at 11:32AM on 18 Jan 10. Permalink.

Surely the attraction of Australia isn't the tax rates, it's just that incomes are higher? Which is much more of a hard job for the government (or indeed anyone) to do anything about.

I'd love it if we had the first 5 thousand tax free in NZ. It probably wouldn't help beneficiaries much, as their benefit would probably be adjusted to cover, but low income earners on minimum wage or similar would suddenly find an extra $20+/week in their wallet, which would be big.

Posted at 11:43AM on 18 Jan 10. Permalink.

Great post, Keith. Unfortunately most of the debate in this country about tax never goes beyond the simplistic.

They're not taxes on income, but many countries (including Australia) have stamp duties and death duties, and capital gains taxes, whereas we don't. If you look at the overall picture we're not particularly heavily taxed.

Posted at 11:44AM on 18 Jan 10. Permalink.

I agree it's a pain - but IMHO not including education/policing because it comes from a different tax isn't really that different from not including social security taxes - I think the US SS tax is actually harder to include because it stops after you've paid it on the first $90k or so of your income - it only really applies to the poor and middle class.

I think it's pretty easy math to do:

Real Rate = (F + S)/(1+S)

(F=federal rate, S=state rate)

So if you're paying 15% federal tax and 5% fixed state rate - you're really paying 19%, on 45% you're really paying 47% (see how it affects the poor more)

In effect in your graphs it inflates each of the segments by 3-4% (depends on the state and the federal rate) and because it comes out prior to the income rates that are used to determine federal rates it doesn't change how many people are in each wedge

Posted at 12:20PM on 18 Jan 10. Permalink.

New Zealand's tax structure is really not all that far from a flat-tax, proportionately.

I tell people that, and they don't believe me, in part because the debate about this issue has been distorted by a small ideologically-blinded group.

Of course, there is redistribution on the other side of the equation, but tax take is fairly even across sectors.

Posted at 12:25PM on 18 Jan 10. Permalink.

Nice work, Keith -- lovely to see someone touch bases with reality in terms of the tax debate.

And bloody nice graphs, too!

Posted at 12:27PM on 18 Jan 10. Permalink.

Would that small ideologically -blinded group include the nice Dr Brash ?
The use of Trusts at the higher levels would distort the figures as one income becomes one person AND a trust

Posted at 12:31PM on 18 Jan 10. Permalink.

but then so would things like the various tax free allowances in the US system - there you can write off the interest on your mortgage, your rates, cost of registering your car, .... it's also why, when I lived there, I filed a 20-30 page tax return ....

Posted at 12:48PM on 18 Jan 10. Permalink.

Brilliant work, Keith. Look forward to an update when the nex tax system is announced in the May Budget.

Would also be interesting to see the same treatment from the perspective of a small business owner employing staff, including all those costs of doing business that we have so few of compared with other nations. More complex, I know.

Posted at 12:51PM on 18 Jan 10. Permalink.

Would that small ideologically -blinded group include the nice Dr Brash ?

He's one of the dudes handing out blindfolds

Posted at 12:58PM on 18 Jan 10. Permalink.

I love actual facts. Thanks Keith!

Posted at 1:15PM on 18 Jan 10. Permalink.

I love actual facts.

Me too. I'd therefore advise against reading the foolish "tax is theft" blustering on that Kiwibog thread.

Posted at 1:16PM on 18 Jan 10. Permalink.

Something that nobody I've read has commented on about the 2025 taskforce report is that since it proposes to raise our income to the level of Australia by drastically reducing our social spending, unless they plan somehow to force Australia to do the same, it will mean that out of that income we'll have to pay for things that Australians get for free, so in real terms we wouldn't catch up at all. (Quite aside from the broader social ramifications of that particular neoliberal recipe, obviously.)

Posted at 1:29PM on 18 Jan 10. Permalink.

in real terms we wouldn't catch up at all

Depends which "we" they're tinking of - those who can already afford to buy their own health, education and so on?

Posted at 1:41PM on 18 Jan 10. Permalink.

"It's not some kind of tricky accounting. Australia has a tax-free bottom bracket, and at the top end, it goes all the way up to 45% (New Zealand's top rate is 39%). Australia's tax system is simply more progressive."

You've ignored the thresholds that those rates come into force.

Posted at 1:51PM on 18 Jan 10. Permalink.

You've ignored the thresholds that those rates come into force.

...which matters for those on low and middle incomes (hence, they're better off), but matters far less for those on high and very-high incomes - i.e. The highly skilled, highly mobile workers.

For workers at the top end of the income spectrum, effective tax rates are higher in Australia.

Posted at 1:52PM on 18 Jan 10. Permalink.

Guaranteed way to "close the gap with Australia"? Legalising WMD testing in the Ureweras.

Posted at 1:54PM on 18 Jan 10. Permalink.

2025 taskforce report... proposes to raise our income to the level of Australia by drastically reducing our social spending...

The theory is less public spending means more efficient private provision, which is more cost-effective and frees up resources for more profitable activities. Then we'll all be rich!

That's the theory, anyway.

Posted at 1:56PM on 18 Jan 10. Permalink.

Surely the attraction of Australia isn't the tax rates, it's just that incomes are higher? Which is much more of a hard job for the government (or indeed anyone) to do anything about.

In a nutshell: Yes.

I'd love it if we had the first 5 thousand tax free in NZ. It probably wouldn't help beneficiaries much, as their benefit would probably be adjusted to cover, but low income earners on minimum wage or similar would suddenly find an extra $20+/week in their wallet, which would be big.

In a separate nutshell: Been costed. Too expensive. (Because you have to pay every single taxpayer $20+/week.)

Posted at 2:01PM on 18 Jan 10. Permalink.

@ Paul C

the various tax free allowances in the US system - there you can write off the interest on your mortgage, your rates, cost of registering your car, .... it's also why, when I lived there, I filed a 20-30 page tax return ....

Same story in Canada, albeit with different write offs. Home improvement expenses. Public transport passes. University tuition fees. Contributions to a pension plan.

The taxes and "taxes" (levies, fees, etc.) on airline travel are horrendous, though. Your Auckland-Wellington equivalent flights in Canada are C$300 return by the time you add all those.

Posted at 2:07PM on 18 Jan 10. Permalink.

In a separate nutshell: Been costed. Too expensive. (Because you have to pay every single taxpayer $20+/week.)

Obviously you'd want to pair it with the introduction of another tax, so you'd be revenue neutral.

Posted at 2:17PM on 18 Jan 10. Permalink.

Great article. I'm too simple minded to make any actually comment on it, other than i found it really clever and interesting.

Posted at 2:20PM on 18 Jan 10. Permalink.

In a separate nutshell: Been costed. Too expensive. (Because you have to pay every single taxpayer $20+/week.)

Yes, what George said. A percent or two at middle incomes would pay for it I would guess.

Also on my wishlist - income scales that slide up with inflation annually, so we don't have people creeping up the scales as their income goes up as money gets worth less.

Posted at 2:32PM on 18 Jan 10. Permalink.

Obviously you'd want to pair it with the introduction of another tax, so you'd be revenue neutral.

Problem is that the tax free bracket applies to everyone, so to offset it, you'd need to either tax the whole of the middle-class a bit more (which is politically unpopular), or you'd need to take a pretty massive punt at the rich, which is actually quite problematic because they can rearrange their affairs into trusts etc., and because they can just pick up and leave.

It's hard to explain when you have such a massive cost, and *by definition* 50% this tax cut will go to the top 50% of taxpayers, who don't particularly need it, and will barely notice it.

And because it's not the kind of shift that you can let fiscal drag do for you, because it's too damn big.

See what you've done? You've broken the nutshell.

Posted at 2:38PM on 18 Jan 10. Permalink.

See what you've done? You've broken the nutshell.

That's what happens when you bring a hammer to the argument.

The Greens were proposing that their carbon tax could be used to create a tax-offset (I would prefer a simple cheque, actually, for political reasons). I don't think it would generate as much as they've proposed, but there is no reason why such a change couldn't occur. But they have a reason for this tax shifting. Absent that, it's just a complicated and rather pointless shift when you are redistributing to the great majority of low income earners on the after-tax side, as this and the last Government have done.

Posted at 2:51PM on 18 Jan 10. Permalink.

Also on my wishlist - income scales that slide up with inflation annually, so we don't have people creeping up the scales as their income goes up as money gets worth less.

The problem is that fiscal drag (the opposite of what you want - which is when the govt quietly gets more money as inflation pulls people up the tax scales) is alluring to politicians - not only does it quietly help solve their budget woes by bringing in more taxes than inflation alone but it also gives them the chance to win the PR bonus of "lowering taxes" by periodically adjusting for it - if you make it automatic think of what they'll lose!

Posted at 3:10PM on 18 Jan 10. Permalink.

... or you'd need to take a pretty massive punt at the rich, which is actually quite problematic because they can rearrange their affairs into trusts etc.

Uh... they already do that, no?

Posted at 3:54PM on 18 Jan 10. Permalink.

The problem is that fiscal drag (the opposite of what you want - which is when the govt quietly gets more money as inflation pulls people up the tax scales) is alluring to politicians - not only does it quietly help solve their budget woes by bringing in more taxes than inflation alone but it also gives them the chance to win the PR bonus of "lowering taxes" by periodically adjusting for it - if you make it automatic think of what they'll lose!

Yup. But we have a whole government act which is about financial accountability and opening the books and what not... (er, Fiscal Responsibility Act or some such). And then there's this big illusion that some things in government tend to go up with inflation (state sector salaries, benefits, health care and education costs), but tax rates don't.

I'd like to think that it'd be something that a right wing government would support. It would mean that tax rate adjustments were actually honestly that, rather than dealing with drag or bumping it up.

Posted at 4:08PM on 18 Jan 10. Permalink.

I think that the right wing govts like to give us the illusory tax decreases by readjusting the bars and the lefties tend to like the slight increase in money available to spend ... it's sort of a politically neutral rort