A colleague recently sent me an article by a former Secretary of the Treasury on the problems in the tax system and recommendations for change.
Peter Nicholl with a caricature of him as Bosnian Central Bank governor. Photo: Mary Anne Gill
Among other things, he wanted “a tax system that does not disadvantage younger people who are in the work force”. He said the “lazy reliance on bracket creep to bring the budget back to anything approaching balance is doing enormous damage to younger people in particular”.
The thing I found sad and worrying about these comments was that the person was actualy talking about the Australian income tax sytstem. But the New Zealand income tax system is even more biased against young and low-paid workers.
The tax brackets in New Zealand were introduced in 2010. Since then our average income has risen by over 70 per cent while the tax brackets stayed the same. It’s a great system for the Government as their tax take rises steadily without them appearing to increase taxes. But that is exactly what the government is doing. The Australian commentator called it a ‘lazy system’. You could also call it a sneaky and underhand way of raising taxes.
The Australian system also has an initial income tranche on which the tax rate is zero – up to $18,200. We used to have a zero tax income tranche too – I am not sure when it disappeared.
Someone working part-time in Australia, possibly while studying, and earning up to $18,200 would pay no income tax. Someone doing the same thing in here would pay just over $2000. Someone earning $50,000 a year here would pay around $7650 in tax while the person earning the same amount in Australia would pay just over $6000.
It seems we have sleep-walked into a situation where young people earn lower incomes in New Zealand than in Australia but pay higher taxes on that income. It should not surprise us that many young people are crossing the Tasman.
Two other features of our tax system also make it more regressive than the Australian system, penalising young people further. We raise around 30 per cent of our tax revenue from GST. In Australia, GST is about 12 per cent of tax revenue. GST is a regressive tax as low-income people typically spend a larger proportion of their income on consumption.
We are also is one of the few OECD countries that does not have a capital gains tax. Australia’s capital gains taxes are not heavy – I think they raise just under 10 per cent of the Federal Government’s revenue. The hesitation and nervousness amongst politicians here to even discuss this issue can only be described as an abdication of responsibility. There have been recent surveys where a majority of respondents supported some form of capital gains tax as most taxpayers can see that the problems we have with infrastructure investment and superannuation entitlemnents which will sink the current tax system unless the tax base is broadened. The leadership on this issue is coming from the people, not from the politicians.
Peter Nicholl
