Tax burden falling on minority
A range of credits and benefits leaves few people actually paying. By Susan Edmunds.
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.
Thousands more are neutral contributors, or are close to it.
Households earning less than $50,000 receive more in credits than they pay in direct income tax by about a third.
By comparison, the top 3 per cent of individual income earners, who each earn more than $150,000 a year, pay 24 per cent of all tax received.
Mark Keating, a senior lecturer in tax at the University of Auckland Business School, said the idea of ‘‘net tax’’ – the amount paid after credits and benefits were deducted – was hard for some people to understand.
‘‘If you are working and earn $1000 a week but have four children, you might pay $200 a week in tax but get back $300.
‘‘They are net receiving. It’s quite a strange system. It’s not common overseas because it’s quite bureaucratic.’’
Peter Vial, New Zealand tax leader at Chartered Accountants Australia and New Zealand, said some people would be surprised to find they were not paying more than they received.
‘‘It’s not a calculation they would do automatically. In an ideal world it would be good if there was more knowledge about the interaction between the tax and benefit systems.’’
Many were unaware how dependent New Zealand was on a small group of high-earning, salaried individuals to pay a large chunk of the tax, he said.
‘‘We never talk about that. It’s always a risk to our tax base because people are mobile and can move. But New Zealanders want a progressive tax system, the more you earn the more you pay.’’
In the year to March 2014, there were 361,200 families receiving Working for Families tax credits, and the average tax credit received was $6720 per family, or about $130 per week.
Other households received benefits including NZ Super, accommodation supplement, sole parent support and jobseeker support.
Even at higher income levels, tax credits can be substantial. If a family earning $60,00 has one income earner and two children they would pay about $11,020 in tax each year and get a tax credit of $6720.
If there were two earners who split the $60,000 they would pay $8540 between them and get a credit of $6720.
Gareth Kiernan, an economist at Infometrics, said the data showed that New Zealand did not have the same issues that had driven protests such as the Occupy Wall St movement, which rallied against a rich ‘‘top 1 per cent’’.
‘‘New Zealand’s income distribution is nowhere near as skewed as in other parts of the world. The rhetoric that surrounded that was irrelevant, from my point of view, for New Zealand.You could have people arguing that income distribution should be more even than it is, but it’s certainly not 99 per cent versus 1 per cent in New Zealand.’’
But Susan St John, associate professor at the University of Auckland Business School, said the calculation of net tax was not helpful.
‘‘We are all in a negative position when you look at what the state provides. If you have an individual on a given income with no children and someone else with the same income and multiple children, they are not in the same position to pay tax. This gives some degree of horizontal equity.’’
Deborah Russell, a senior lecturer in Massey University’s accounting school, said it would be better to think of the tax credits as payments to children, rather than their parents.
‘‘Everyone regards superannuation as an entitlement – they think older people are entitled to support because they cannot work any more. But why not apply the same thinking to children as well? They can’t go out and earn money. Children do not choose their parents. They are not possessions or commodity items. We need to think in terms of supporting vulnerable citizens – the sick, elderly and children.’’
It’s quite a strange system. It’s not common overseas because it’s quite bureaucratic.