22 March 2016

The tax paid on New Zealand's highest incomes

As top incomes have risen, the rate of tax levied on those incomes has fallen. In the 1980s, the top tax rate was cut from 60 percent to 33 percent (the tax cut offset somewhat by the closing of a number of tax loopholes and the introduction of a fringe benefit tax); after rising to 39 percent, the top rate is now once again at 33 percent. Income from capital gains (earned from selling assets such as property or shares) has remained almost entirely untaxed.

New Zealand does not have a strongly progressive tax system ('progressive' means that people pay proportionately more tax as their income increases). People on lower incomes pay nearly 30 percent of their income in tax (in part because GST affects a larger proportion of their income); middle-income earners pay less tax, at around 25 percent; and people earning $150,000 a year pay around 34 percent. If untaxed income from capital gains were taken into account, the actual tax rate of New Zealand's highest earners would reduce further - possibly to a point where it would fall below that of the lowest-paid New Zealanders.  Most countries in the developed world tax capital gains; at present, New Zealand largely does not. The tax paid on New Zealand's highest incomes is currently less than in almost any other developed country.

- Max Rashbrooke, The Inequality Debate: An Introduction, Bridget Williams Books, Wellington, 2014, p.65-6.
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