Taxes? What Taxes?
An OECD report shows that New Zealand has almost the lowest “Tax wedge” (Individual tax as a percentage of labour costs) in the OECD. Enter Russell Norman attempting to claim that “the report showed the Government was misleading people that New Zealand had high taxes, to justify tax cuts for the highest-earners”. Unfortunately, the Herald headline “NZ earners’ tax burden second-lowest in OECD” is just complete nonsense.
Occasionally the OECD produces some worthwhile statistics, but these are not they.
”Firstly, even a cursory glance at the data presented would tell you that this is income tax only and does not include any consumption taxes. It is therefore completely stupid to suggest that New Zealanders have a low tax burden when there is no consumption tax data. Worse, New Zealand’s GST is very broad-based, meaning our consumption tax burden is likely to be substantial. This is why National can contemplate reasonable income tax reductions with only a relatively small rise in GST.
The second thing is that employer social security contributions are included in the income tax total, despite the fact that this is not part of an individual’s wage. When one removes the employer contributions the differences in taxation become much less pronounced:
It should be noted that some social security contributions represent enforced savings by the taxed individuals concerned. i.e. it is their money at the end of the day. Calling these contributions “tax” is stretching the definition somewhat.
Thirdly, the average wage is calculated by most countries excluding the employer’s social security contributions, thereby reducing the average wage and artificially increasing the tax wedge.
Finally, the OECD report uses very blunt statistics and does not address the most important issue of marginal rates and thresholds. Nor does it address the matter of company tax and it’s relation to the highest individual tax rate. New Zealand’s large difference between these two rates produces some very odd incentives. Currently every dollar we earn over 70,000 is effectively taxed at 50.5% (38 + 12.5). Buying petrol or alcohol pushes that to about 85%. I seem to recall in the Old Testament that Pharaoh only asked for 20% of the produce from his slaves…
I’m sure we will see plenty of mileage made out of these statistics by the economically illiterate, but the simple fact of the matter is that they are virtually meaningless. Occasionally the OECD produces some worthwhile statistics, but these are not they.
Related posts:
- OECD Health “Healthcare NZ’s ‘biggest threat’ – OECD” blares the headline, which...
- Equals Zero “For you will have the poor with you always” Jesus...
- Equal Blights I have noticed that the subject of inequality has been...
- The Worm in the Apple Readers of MacDoctor will know that I always find virus...
- Unequal Data I see that question time was filled with references to...
5 Comments
Leave A ReplyOne Trackback/Ping
- Taxes not low when Tax Freedom Day’s in May « Homepaddock — YplGwG rvsirvbpnvjp
May 13 10 10:00 am
Thanks MacDoctor for being on the ball.
Yes mileage will be made out of this and the MSM will not correct the meaningless OECD report.
May 13 10 4:14 pm
Oh I think they are quite adequate (even though they are wrong – where is NZ’s 1% ACC social welfare tax?)
The problem is the sample bias – the only Asian economy listed is S. Korea.
In NZ we don’t have to compete with high taxing Germany, Belgium & Denmark.
(This data doesn’t even list the “flat 15%” tax rate countries like Estonia, Latvia, Solvenia,
etc, which typically have zero (or only 10%) corporation tax and no more than
15% flat income taxes – often much less)
We have to compete against Singapore, Hong Kong, Vietnam, Chile.
We’re talking zero consumption taxes and very low income taxes, and of course zero social welfare taxes or benefits.
New Zealands tax and benefit regimes are far, far, more generous that these places
The is the target to which we must aim.
May 13 10 11:20 pm
Just to stir the pot a bit, I’ll dispute your maths.
“Every” dollar over $70K is taxed at 38%, leaving $0.62 in hand. If and when that dollar is spent, then one-ninth of the price is the GST component, i.e. an additional $0.62/9 = $0.06888…, leaving $0.55111… for an effective tax take of 44.888…%
Of course, the take is “only” 38% until the dollar is spent.
And again slightly off topic:
In the 90′s we were running healthy surpluses with a 33% top rate, and the extra 5 (previously 6) % haven’t improved our public services one iota. I don’t think improving public services was ever really the plan. Remember Michael Cullen in 1999 complaining that “rich” people “weren’t paying enough tax”.
($60,000 was “rich”? We’ve run out of tall poppies to cut down and have got stuck into the medium-sized ones.)
How about we just put taxes and government programmes back to where they were in 1999?
May 14 10 12:21 am
How about we just put taxes and government programmes back to where they were in 1999?
Excellent plan – because we’d have to cut benefits and civil service salaries back to 1999 levels too!
May 14 10 12:29 am
Your maths does not really blunt the point that we are charged a great deal more tax than we think.
I remember Michael Cullen’s envy tax very well, being one of it’s recipients (still am). You don’t even mention the fact that Mr. “We’ve spent it all” Cullen presided over massive surpluses without once reversing what was clearly a completely unnecessary increase in the top tax rate. That fact alone screamed out that the hike was never intended to improve services but was motivated entirely by envy and meanness.
How people can praise the previous government, considering their petty-minded mean-spirited administration, is utterly beyond me.