Tax, support systems redistribute incomes

10 July 2013 0 Comments

New Zealand’s tax and income support systems significantly redistribute incomes to households most in need, which was reinforced by the Government’s tax changes in 2010, Finance Minister Bill English says.

“The Government has maintained a redistributive tax and income support system that supports low and middle income families and helps New Zealanders through times of need,” he said in a speech to the Trans-Tasman Business Circle in Wellington today.

“So at any particular time, a large number of households effectively don’t pay tax.

“The amount these households pay in income tax is exceeded by the amount they receive from welfare benefits, Working for Families, paid parental leave and accommodation subsidies. That’s entirely appropriate for those families genuinely in need.

“At the same time, we also expect people to get back into work when they are able to. The Government is supporting them to do that through significant extra investment in welfare reforms.”

Using data from the Household Economic Survey, the Treasury estimates that this year households earning over $150,000 a year – the top 12 per cent of households by income – will pay 46 per cent of income tax.

But when benefit payments, Working for Families, paid parental leave and accommodation support are taken into account, these 12 per cent of households are expected to pay 76 per cent of the net income tax. And that is before New Zealand Superannuation payments are counted.

By contrast, households earning under $60,000 a year – which is half of all households – are expected to pay 11 per cent of income tax.

“When we take income support payments into account, as a group they will actually pay no net income tax at all,” Mr English says.

“That’s because the $2.7 billion of income tax they are expected to pay will be more than offset by the $8.1 billion they will receive in income support.”

Estimates of net income tax paid by household income, before and after Budget 2010, indicate the system has become more progressive over this period, Mr English says.

Households earning less than $60,000 are generally expected to pay less, in percentage terms, towards net tax in 2013/14 than they were paying in 2008/09. 

Conversely, households earning more than $150,000 are generally paying more of the net tax than they were in 2008/09.   

“It’s appropriate to maintain a tax and income support system that helps low and middle income households when they most need it.

“But people who call for even greater transfers to low income families, or who call for the top tax rate to be raised, need to be aware of how redistributive the tax and income support system really is,” Mr English says.

“This also highlights the importance of Government policies to support people out of welfare and into work.”

Net tax paid by households, estimated for the tax year ending 31 March 2014


No of households

Income tax paid

Transfers rec’d

Net tax paid


000

%

$m

%

$m

%

$m

%

$0-$10,000

50

3%

15

0%

343

3%

-329

-2%

$10,001-$20,000

137

8%

238

1%

2,520

24%

-2,282

-15%

$20,001-$30,000

235

14%

386

2%

2,308

22%

-1,923

-13%

$30,001-$40,000

193

12%

545

2%

1,452

14%

-907

-6%

$40,001-$50,000

117

7%

638

3%

876

8%

-238

-2%

$50,001-$60,000

106

6%

835

3%

595

6%

240

2%

$60,001-$70,000

98

6%

988

4%

685

7%

303

2%

$70,001-$80,000

106

6%

1,316

5%

434

4%

882

6%

$80,001-$90,000

83

5%

1,191

5%

308

3%

882

6%

$90,001-$100,000

84

5%

1,398

6%

119

1%

1,279

9%

$100,001-$110,000

72

4%

1,387

5%

161

2%

1,226

8%

$110,001-$120,000

53

3%

1,148

5%

67

1%

1,081

7%

$120,001-$130,000

53

3%

1,301

5%

94

1%

1,207

8%

$130,001-$140,000

45

3%

1,211

5%

122

1%

1,089

7%

$140,001-$150,000

36

2%

1,077

4%

38

0%

1,039

7%

$150,001-$175,000

69

4%

2,360

9%

139

1%

2,221

15%

$175,001-$200,000

53

3%

2,205

9%

90

1%

2,115

14%

$200,001-$225,000

22

1%

1,090

4%

55

1%

1,035

7%

$225,001-$250,000

18

1%

1,015

4%

22

0%

993

7%

$250,001+

46

3%

4,940

20%

13

0%

4,927

33%

Total

1,676

100%

25,283

100%

10,442

100%

14,841

100%

Source: Treasury, calculated from the Household Economic Survey 2010/11.

Note:

  • Income bands are based on total taxable household income including government transfers and NZ Superannuation, before tax.

Gross transfers are all transfers except NZ Superannuation, but including benefits, Working for Families, paid parental leave and accommodation subsidies.

Related document:

Trans Tasman Business Circle speech.pdf (pdf 81.52 KB)


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