OnPoint: Sneaky brackets
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great post - I particularly like the graph, it explains a lot without much cruft.
"Fiscal drag" is nothing new - I remember people moaning about Muldoon relying on it to make his budget .... it's something that almost every western government (left or right, National or Labour) has depended on to quietly up their tax rates, make the budget balance more easily, or so that they can periodically announce a 'tax decrease' - if they didn't all depend on it someone would have passed a law linking tax brackets to an inflation index
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one comment - the Australian tax rates you show are only the federal rates - as I understand it Aussie state taxes are paid as a payroll tax (your employer pays it at a fixed rate on their payroll effectively lowering you gross pay by that amount) - for example in Victoria you would have already paid ~5% before your gross was calculated (and before the federal tax was taken out)
Comparing Aussie federal tax rates (or US ones for that matter) with NZ ones is comparing apples and oranges
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(6% NSW, WA 5.5%, QLD 4.75%, Tas 5.25%)
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Excellent post, thanks. At the very least it allows for a factual argument around what direction real average tax rates should be moving without the partisan hyperbole... Not that I am overly optimistic that will happen
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If fiscal drag is a policy, I guess the only problem is perhaps its lack of transparency? i.e. By not announcing 'tax hikes', the tax rate effectively goes up each year. Having said that, the media have been banging on about it for a few years now, so it's hardly a state secret.
How long has fiscal drag been a stated policy though? Because when the top tax rate of 39% was introduced, didn't Cullen say at the time it was only ever intended to cover the top 5% of earners. And it's now somewhere around 14%? (Top of my head here, feel free to correct me...)
Oh, and political stock market game = great. I'm banking on the stubborn stupidity of the far right bloggers to sell the left cheap and cling to those "Roger Douglas for PM" futures.
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Is it possible for you to re-do your graph so the Australian state taxes are included with the federal taxes? I know they vary from state to state but some sort of 'average' number? I'm always hearing how taxes are lower in Aus but I've never seen an accurate comparison.
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Also, Aussie has a 9% compulsory super contribution. This isn't entirely tax, but it locks up a proportion of an employees "total employment costs" until retirement. Australians don't AFAIK get any super funded out of general taxation (as we do).
They also pay a 1.5% medicare levy.
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how you probably ought to represent it is probably less than that simple - to compare apples and apples probably you inflate people's income by the payroll tax amount which actually reduces the percentage of Federal tax that's paid (because it's a tax on the net after payroll tax)
Also Aussie states only tax payrolls above some limit (say $500k) so very small businesses don't pay it - probably you should deflate the N% by some factor to that that into account
But I agree the "Aussie taxes are so much lower" meme is a bit of a crock because you aren't comparing the same things (when I lived in the US I paid a 33% marginal tax rate - lower than NZ's 39% you might think until you add in the California 10% state tax and 6% Social Security tax - gotta fund those wars ....)
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Also, Aussie has a 9% compulsory super contribution. This isn't entirely tax, but it locks up a proportion of an employees "total employment costs" until retirement.
So what happens if that kiwi comes home after say 15 yrs?Is that forfeited funds.
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As I understand it it's a bit more like kiwisaver so I'd guess no.
On the other hand the 6% US Social Security I paid into for 20 years is basically lost to me unless some day I move back there. However if I die my (American) wife can claim it ..... let's not give her any ideas ....
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great post! i'm more confused than before i read it, but at least I feel informed an confused.
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However if I die my (American) wife can claim it ..... let's not give her any ideas ....
I think she can actually claim a proportion of it even if you don't die, as soon as she turns 62. But the Social Security site has various rather impenetrable rules. I think the main idea is to just keep bugging them until they give in and send you a cheque!
This post has made me feel mentally enriched. I mean, I don't understand a damn thing in it, but I feel as though reading it has made me cleverer in some indefinable way.
(6th form maths mark: 38%.)
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Couldn't figure out how to download Keith's underlying spread sheet - but I crunched some numbers for some other ways of looking at the Aussie taxes - below 'Fed:' is the base rate, the second includes the 1.5% medicare (since our taxes also include healthcare - I'm assuming that this is a flat tax) then on top of that I've tried to factor in state taxes (assuming everyone pays it - as mentioned above that's not true) - the numbers I get are:
Fed: 12.3 30 40
With medicare 1.5%:13.8 31.5 41.5
NSW (6%): 19.1 35.8 45.2
Vic (5%): 18.2 35.1 44.6mentally plugging the Vic numbers into Keith's graph shows higher taxes than the current scheme (Keith's blue line) at almost all points except maybe a tiny bit around $30-40k - taxes there are higher than both Labour and National's schemes
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For the political market is it based on percentage seats or percentage of party vote?
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Yup, my numbers were purely looking at Federal rates. There's a more comprehensive tax comparison on NZIER's website.
In the meantime, check out my HoS column on the Aus-NZ wage gap:
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Party votes, Angus.
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Quoted in Keith's NZ article:
the attraction of bigger cities and better weather and beaches
All highly subjective. In how many Australian cities can you live in the CBD and be 15 minutes from the bush? (Maybe Canberra??)
"Better weather" depends on one appreciating 40 degree+ conditions, coupled with alternating drought and torrential rain. (Maybe Melbourne doesn't have that, but I don't think their weather's much sunnier than here?)
Beaches. I'm yet to find a better beach than Piha. The Aussies might have warm water, but half the time it's so full of human-hostile nasties you can't go in. Plus on the (deeply average) city beaches, they're rioting half the time. They own us on reefs though, at the moment, though they're busily f...g them up.
For me, I know I could make a bit more money in Australia. But I could make a whole heap more money in London or New York. Living in NZ is a lifestyle decision, I like it here enough to justify the money I'm losing.
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Sofie, Australian super contributions made by kiwis are payable to the payer once they've reached the age at which the benefit is payable. They're not forfieted but they're not, currently, portable.
Unlike tax residents from other countries, eg. UK, kiwis are treated as if they are Australians and their super contributions held until they'd be otherwise payable. The portability arrangements for other foriegn nationals reflect the fact that they tend not to bounce to-and-fro the lucky country whereas we kiwis do. I understand there is some discussion regarding a portability arrangement now that Labour has set up kiwi-saver.
Re the payroll tax, I agree it should be considered when calculating total tax take, but it's paid by employers, not employees, and while it almost certainly is a factor in what employers pay as a salary, it's not in fact otherwise payable to employees were it not paid as a tax.
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I'm having trouble with one of your statements....
7% of tax-payers have zero taxable income...
If you mean income-tax payers, then surely having no taxable income, they are not paying tax, and are not 7% of the people paying tax...
If it means other taxes, I'm surprised only it's only 7%.... GST catches anyone who purchases, no matter how they came by the money to purchase with.
Call me confused.
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Sofie, Australian super contributions made by kiwis are payable to the payer once they've reached the age at which the benefit is payable. They're not forfieted but they're not, currently, portable.
and ain't it a hassle. i've a bunch of money in an aussie super fund i can't touch until i retire...
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and ain't it a hassle. i've a bunch of money in an aussie super fund i can't touch until i retire...
Che, I kinda feel the same but the logic's pretty reasonable. Kiwi's have pretty seamless labour market access in Australia and can up-sticks and leave easily too so the transaction volume and costs could be significant. I suspect there's more kiwis working in the eastern states than there is Western Australians.
That said, I've heard mention of new arrangements allowing kiwis greater portability now that kiwisavers gone large. It'd seriously piss me off if my super here couldn't be shifted to a comparable scheme in NZ and I wonder what the transaction costs are if large number of payments are being made back to NZ now?
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Paul - I think that if you are going to be intellectually honest (ha! when did we start demanding that of our politicians ....) and you make a statement like "Australian taxes are lower than NZ ones" you have to compare the same things - you can't leave out the cost of funding Aussie state govt if that pays for stuff that's funded in NZ by income tax (same with health if it's done with an extra tax)
On the other hand I'm well aware that anything you do in this area is going to be an approximation because stuff doesn't always work the same - I think you do your best to get things as close as you can and explain where the differences are
At least it's relatively easy for NZ vs Oz - try doing the US where not only are there 50 different states with 50 different ways of raising funds (Alaska taxes oil, makes a profit and pays some of it a rebate to its citizens, Nevada gambling and prostitution, California its citizens etc) but there are so many different tax writeoffs you can't blindly compare tax tables (all your mortgage interest for example, your ACC payments, registering your car .....)
I agree that if your boss stopped paying state payroll tax you might not see that as a pay increase - but there's a reason that's an ongoing argument between unions and bosses in Oz whenever the state changes the rates - exactly that
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If you mean income-tax payers, then surely having no taxable income, they are not paying tax, and are not 7% of the people paying tax...
If it means other taxes, I'm surprised only it's only 7%.... GST catches anyone who purchases, no matter how they came by the money to purchase with.
I think it's people who are registered for taxes, but have no taxable income. For example, I'm a freelancer, and if my (perfectly legitimate and receipted) expenses exceed my income, then I have no taxable income, but I still have to file my tax return, etc. I think that might catch also people who are unemployed, or are otherwise registered taxpayers with no actual income.
It's no biggie, but I thought it was important not to add an extra 7% to the number of people benefiting from the tax cut.
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Re the payroll tax, I agree it should be considered when calculating total tax take, but it's paid by employers, not employees,
So is PAYE. Sorry, I don't buy your argument. It's a tax directly related to income. End of story. They just called it something different to look good to idiot kiwis.
Aussie total tax take seems higher than NZ. But they get a hell of a lot back in benefits. The middle class "welfare" is pretty good over there. There does not seem to be the same screeching about benefits for kids etc. we have here.
The main concern for folks in Aussie right now is that large swathes of youngsters are leaving school with next to no education to go and work in the mines and earn a truckload of money.
The analysis is that this does not bode well for the future, particularly when the day comes the Chinese economy is *not* growing at double digits.
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and ain't it a hassle. i've a bunch of money in an aussie super fund i can't touch until i retire...
A relative of mine retired from his job in NZ, and went to work in Australia for five years.
He got a substantial super payout from his retirement, but was unable to draw it down. If he did, as soon as he arrived in Australia they would tax it at whatever percent (I think it was 30something %).
He left the super in NZ, went without five years of interest on the principal, and collected it when he got back.
Made no sense to me, as he'd already paid tax on it here in NZ. Wonder if it works the same the other way.
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