Polity by Rob Salmond

25

English canards

No, this post isn’t about either Brexit or the soccer. It’s about Finance Minister Bill English, who’s continuing his decade-long quest to spread lies about tax to trick New Zealand’s well-off into feeling overly sorry for themselves.

Here’s a Stuff article from the weekend, fed by English:

More than one in four households are contributing nothing to New Zealand's tax take.

A table from Finance Minister Bill English's office shows 663,000 households - or 40 per cent - receive more in tax credits and other benefits than they pay in tax….

By comparison, the top 3 per cent of individual income earners, earning more than $150,000 a year, pay 24 per cent of all tax received.

Those figures are pure bullshit, and English has form peddling them on unsuspecting journalists. Here’s why it’s nonsense:

 

GST is excluded completely

The most obvious screw up in English’s “net tax” figures is they completely exclude GST.

That’s $19 billion of tax payments he’s ignoring, and those tax payments are distributed very differently from the income tax he has included. That’s, you know, important.

Once you correct this error*, the net tax payments by the highest earning 10% of households drops to from 56% to 41%.

 

The idea of “per cent” is misused

If families earning over $175,000 a year (the top 10%, apprxoimately) pay 41% of the net tax, how much net tax do the families earning between $40,000 and $175,000 pay? Couldn’t be more than 59%, right? Because you can’t contribute more than 100% of net tax, right?

Wrong.

According to English’s own table, families earning $40,000 - $175,000 pay 70% of net tax. That means all families earning over $40,000 together pay 111% of the net tax. 111%!

Confused? It’s deliberate.

Bill English wants you to hear “top earners pay 56% of net tax” and interpret it as “top earners pay $5.60 of every $10 that goes into the tax system.”

In fact, that isn’t true. It’s complicated not only by GST as I mentioned above, which turns the 56% into 41%. It’s also complicated by the fact that more than 100% of the next tax has to go into the system, to allow the total to come down to 100% after net transfers go out the other way.

In fact, top earners pay net $4.10 of every net $11.10 that goes into the tax system from New Zealand families, from income tax and GST combined. From that $11.10, about $1.10 goes to cover the net tax shortfall of the lowest income families, and $10 goes on other stuff.

That $4.10 out of each incoming $11.10 is 37% of the total incoming net tax. That's how much the top decile actually pays. Not the 56% English claimed.

 

How much is 37%?

That 37% of the incoming net tax is paid by a group of people who earn 30% of the income in New Zealand (from English’s table) and hold 60% of the wealth (according to Statistics New Zealand).

That’s not all that progressive, really.

Which is no great surprise, given New Zealand’s tax policy. New Zealand has one of the lowest income tax wedges on high earners in the OECD (see my 2011 book on this topic). And we are one of the countries most heavily reliant on one of the least progressive types of taxes around – a comprehensive, flat, consumption tax.

Add those elements together, and you get a lower burden on high income folk here, compared to just about every other developed country. And no amount of Randian chicanery from Bill English’s office can mask that fact.

 

* I used the GST exposure figures from the Tax Working Group’s (2010) report, applied by household decile, to estimate GST payments. 

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