The lucky country: Aussie tax system more progressive than NZ’s

Written By: - Date published: 10:25 am, January 21st, 2010 - 57 comments
Categories: im/migration, International, tax, wages - Tags:

It fascinates me that in all this talk about ‘catching up with Australia’ via tax cuts, nobody bothers to look at the Aussie tax system to see what they’re doing.

Keith Ng has a cool interactive graph on the portion of all income earnt by different income groups and the tax they pay. He compares what we have now with Australia, a flat tax, and if income was shared equally. I can’t copy over the interactive part which gives a lot more detail but here are the NZ and Australian graphs side by side – the width of the wedges is their share of earnings, the area of the wedges shows the share of income tax they pay (eg. the bottom 50% have 17% of earnings and pay 12% of tax in NZ, in Aussie they have 25% of earnings and pay 12% of tax):

Keith’s conclusions:

* Rich people have a very big slice mainly because they have a very broad slice. That is, they pay a lot of tax because they make a lot of money. Duh.
* Rich people get taxed more on their income (their slice sticks out more). That’s because we have progressive tax systems. Duh.
* How progressive? At the top end, New Zealand’s tax system is less progressive than Australia. Rich peps in Australia pay more than they do in New Zealand, both proportionally and in absolute terms.
* At the bottom end, New Zealand’s tax system is *far* less progressive than Australia. If you zoom in to the bottom 50% (you need to go to the original graph for that) , you’ll see that Australia curves in very quickly that’s because the first $6,000 of income is tax free, which means that poor pricks pay very little tax.
* On top of this, Australia’s bottom 50% have a bigger share of the total income. This is not a tax issue, nor about the income disparity between New Zealand and Australia. Income is more equitably distributed in Australia, even before tax is taken into account.
* It’s not some kind of tricky accounting. Australia has a tax-free bottom bracket, and at the top end, it goes all the way up to 45% (New Zealand’s top rate is 38%). Australia’s tax system is simply more progressive. This means it’s low income earners who have a tax incentive to move to Australia, and rich peps who don’t.

Add to that the minimum wage in Australia is $14.31. Surprise, surprise, the people going to Aussie are not rich people going to tax advantages. It’s mostly low-income workers in jobs like construction who get better pay and have less tax, as well as professions like medicine that pay a whole lot better. Tax cuts for the rich isn’t going to change that, only higher wages and a fairer tax system will.

ps. Keith, could you email us your source data?

57 comments on “The lucky country: Aussie tax system more progressive than NZ’s ”

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  1. ghostwhowalksnz 1
    21 January 2010 at 10:56 am

    SO we are going to match the Aussie rate of 45% ?

    Yet the clamour for the business tax rate to match 30% is coming for the people who fund National ( & ACT)

  2. BLiP 2
    21 January 2010 at 11:33 am

    Makes me wonder what that tax working group was really doing before sending some minion down to the archives to fish out and dust off the failed 1980’s “chicago” manifesto.

  3. burt 3
    21 January 2010 at 11:44 am

    SO we are going to match the Aussie rate of 45% ?

    Only if we have the same rich prick threshold – theirs is currently over 2x ours. Hard to argue $150K AUD is a good income, easy to see that high school teachers in NZ are not earning that sort of money but our tax system calls them rich.

  4. burt 4
    21 January 2010 at 11:46 am

    A junior Dr in NZ is paying the top threshold, they earn almost twice as much in Aussie but still don’t qualify as rich. Can anyone remind me again why we have such a low perspective of rich in NZ other than to ensure the middle earners shoulder an unreasonable burden of taxaton to keep them poor.

    • Pascal's bookie 4.1
      21 January 2010 at 11:52 am

      So what rate are they paying in Australia?

    • Sam 4.2
      21 January 2010 at 1:43 pm

      So it’s acceptable if you’re a wingnut to blame the system for making you poor, but if you’re not a wingnut then it’s not? Is that like how Garrett says his upbringing made him a bigot, totally at odds to ACT party policy?

      You really need to have a look at the real world, dude, you’re completely deluded.

  5. burt 5
    21 January 2010 at 12:19 pm

    Pascal’s bookie

    Roger Douglas wants to set the rich prick threshold at $31200.

    http://www.rogerdouglas.org.nz/?p=425

    Is it the tax free up to that level that upsets you ? Would you like to keep the status quo where low income earners pay tax from the first dollar they earn or would you rather I didn’t highlight that because the selective representation of what Douglas has written makes a good sound bite against a backdrop of “rich prick” thresholds ?

    • Pascal's bookie 5.1
      21 January 2010 at 12:38 pm

      No burt, just pointing out that if “rick prick thresholds” means anything, (clue: I don’t think it does), then Douglas wants a much lower one.

    • Draco T Bastard 5.2
      21 January 2010 at 12:38 pm

      RDs proposals are exactly the same as they were 30 years ago – become wealthier by being more expensive.

    • felix 5.3
      21 January 2010 at 12:41 pm

      Isn’t “rich prick threshold” just your name for the top threshold, burt?

      If not, then what is it?

  6. burt 6
    21 January 2010 at 12:50 pm

    felix

    Yes I guess calling the threshold applied to the top end of the income scale a rich prick threshold is too confusing for some. Pointing out that high earners in Aussie pay more tax than NZ and low earners pay less is also something that was highly unpopular when Cullen was steering the economy to the rocks. But now it seems to be the rage. It is hard to keep up some times and especially so when the principle of an issue is less important than who said what about it.

    Perhaps you could help me come up with a new name ‘top tax rate threshold’ is just missing that Je ne sais qua.

    • Pascal's bookie 6.1
      21 January 2010 at 12:57 pm

      You mistranslated ‘spin’ there burt.

    • felix 6.2
      21 January 2010 at 1:02 pm

      I don’t know burt, “top tax rate threshold” seems to work for most people.

      “Pointing out that high earners in Aussie pay more tax than NZ and low earners pay less is also something that was highly unpopular when Cullen was steering the economy to the rocks.”

      Strange, I don’t recall you screaming that from the rooftops.

    • Draco T Bastard 6.3
      21 January 2010 at 4:47 pm

      Pointing out that high earners in Aussie pay more tax than NZ and low earners pay less is also something that was highly unpopular when Cullen was steering the economy to the rocks.

      I seem to recal that that was said quite a lot of times – especially on this blog. It was the RWNJs that were trying to say such differences didn’t exist.

  7. tsmithfield 7
    21 January 2010 at 12:53 pm

    If increasing the tax rates on the rich is so cool, why not tax at 100% on the wealthy?

  8. burt 8
    21 January 2010 at 12:58 pm

    Why stop at 100%, if you make it 400% then you will get everyone earnign the same very quickly. The overalls will be made in one size, grey for normal and red for special ocassions (like when standing in bread queues etc).

    The great socialist dream of nobody earning too much and nobody earning too little will never be achieved while people are allowed to keep their own income rather than receive a standard allowance from the glorious state.

  9. tsmithfield 9
    21 January 2010 at 1:07 pm

    felix “If a glass of wine is enjoyable then why not drink it all day?

    If swimming is healthy then why not live in the ocean?”

    You didn’t actually answer the question. Why not tax the wealthy at 100%?

    Answer that, then you may also answer why it is equally stupid to tax the rich at other high rates.

  10. burt 10
    21 January 2010 at 1:08 pm

    felix

    I did a post about it in March 2006, and did reference it a lot around that time.
    http://burtnz.blogspot.com/2006_03_01_archive.html

    Sadly the original stuff links are gone.

    Just popping back to this one. I had hoped that after a whole page of stuff feedback about this there would be some more information put out by the Govt to justify it’s potential caught with a good spin on.

    “Thinking about a move to Australia? Think again, warns Prime Minister Helen Clark.
    Because across the ditch you’ll run into higher taxes, higher property prices, higher unemployment, plus compulsory medicare and superannuation, she said in Palmerston North yesterday. ”

    See stuff : http://www.stuff.co.nz/stuff/0,2106,3597243a10,00.html

    I also borrowed an official avg household income figure of $65,5209 from here.
    http://www.stuff.co.nz/stuff/0,2106,3603795a6160,00.html

    I postulated that as the tax rates had different graduation points and rates, I would need to calculate both the tax on the income as if was earned by a single person as well as splitting the income between two people. To give a fair comparison for the average NZ household income.

    Australian tax rates from here were used:
    http://www.ato.gov.au/individuals/content.asp?doc=/content/12333.htm

    And NZ rates are from here:
    http://www.ird.govt.nz/income-tax-individual/itaxsalaryandwage-incometaxrates.html

    As an Individual an Australian pays $15,516 as tax on a gross income of $65,520.
    An Individual in NZ pays $16,822.80 as tax on a gross income of $65,520.

    The Aussie pays $1,306.80 less tax on an income $65,520

    As an Individual an Australian pays $5,688 as tax on a gross income of $32,760.
    An Individual in NZ pays $6,388.20 as tax on a gross income of $32,760.

    The Aussies pays $698 less tax on an income of $32,760.

    So that was the averages disposed off, how about the lower incomes.

    Lets say Joe earns $18,000 a year.
    In Aussie the tax is $1,800
    In NZ the tax is a whopping $3,510

    The Aussie is paying $1,710 less tax on an income of $18,000.
    In NZ you pay almost twice as much tax when you earn $18,000. a year. It’s just my opinion but I think this a very bad look for a Govt that claims it represents the lower to average income working people of NZ.

    So I also looked at a reasonably large salary.
    Lets say Joe earns $100,000
    Aussie: $30,550
    Kiwi: $30,270

    The Kiwi pays $280 less here on an income of $100,000.

    So the cross over point in the progressive models used is somewhere close below $100,000.

    A quick look at massive income of $280,000
    Aussie: $115,150
    Kiwi: $100,470

    Kiwi pays $14,680 less tax on an income of $280,000. Once again it’s just my opinion but I think this a very bad look for a Govt that claims it represents lower to average income working people of NZ.

    So the truth of the matter would appear to be, that the average Kiwi is better off in Aussie tax wise. Lower income earners are a lot better off in Australia tax wise and high income earners pay more tax in Australia.

    I wonder was she using a large dollop of spin or was she thinking of her own income when she made the statement. Perhaps she thought she was addressing the business round table.

    • snoozer 10.1
      21 January 2010 at 1:13 pm

      your numbers ignore the other taxes aussies pay – complusory super, medicare, stamp duty, capital gains.

      you’re comparing apples with half a banana

      look at the tax wedge to see how much of the money an employer pays for labour gets taken in tax before the employee gets their net income – http://jimdonovan.net.nz/wp-content/uploads/2009/05/oecd-tax-wedge.jpg

      • Zaphod Beeblebrox 10.1.1
        21 January 2010 at 2:06 pm

        You don’t pay the super- your employer does. If you want to you can top it up yourself, you can- tax free. I call that a government gift.

        • snoozer 10.1.1.1
          21 January 2010 at 4:28 pm

          if you imagine the supply and demand graph for labour complusory super is part of the cost the demander pays for labour but it doesn’t get to the supplier. in theory if it weren’t there people would get higher gross wages instead.

          Not that I’m against it, mind. I’m just pointing out the tax situation in Aussie comapred to NZ isn’t how burt imagines it.

    • Zaphod Beeblebrox 10.2
      21 January 2010 at 2:01 pm

      Remember also that in Oz GST is 10% and food attracts no GST. Electricity, Gas, Phones are considerably cheaper over there. If you are poor you are much better off over there

  11. burt 11
    21 January 2010 at 1:16 pm

    snoozer

    Keep up, now Cullen & Clark are not trying to say taxes are higher in Australia there is no need to run that interference. It is OK now to speak the truth about relative income taxes.

    • felix 11.1
      21 January 2010 at 2:03 pm

      I suppose if you’re just going to ignore all the other taxes as snoozer points out you’re doing then you might have a point.

      Meanwhile back in reality…

  12. Sam 12
    21 January 2010 at 1:48 pm

    It’s always amusing to see how the tories cope when presented with actual facts rather than Crosby-Texter spin. Oh so many tears.

  13. tc 13
    21 January 2010 at 1:50 pm

    This whole catching up with Oz is a strawman so the Nat’s can reward their backers (the wealthy) off the back of the everyday low/middle income earners.

    Oz has a CGT on a sliding 7 year basis to ping those caught investing in property to make a buck…..it gets taxed, unlike here where it fuels house prices and those doing it pay no tax.

    Oz has compulsory super (employer and employee contributions) which is Pre tax, can be self managed and allows you to increase the pretax contribution toward retirement so they have an enforced savings regime and a generation now retiring with no State assistance required.

    Oz is a resource economy with enough oil/gas/minerals to export forever with a broad tax system underpinned by these self managed super schemes.

    this was mostly created by the Hawke/Keating admin however unlike here the right in Oz are far more pragmatic and rational so they left it alone knowing it was the way forward unlike the idelogical luddites in NZ’s right wing NACT vehicles.

    Oz is a lucky country indeed, blessed with resources the world demands and visionaries like Keating back in the 80’s who made the hard calls and an opposition not bound by ideology that reverse what the last lot did……simply because they can.

    • Zaphod Beeblebrox 13.1
      21 January 2010 at 2:04 pm

      I remember when CGT was introduced by Keating. A few rich people squealed but no one really cared. Why is itthat its is the first thing rejected by Key?

  14. burt 14
    21 January 2010 at 2:08 pm

    Sam

    It’s always amusing to see how the tories cope when presented with actual facts rather than Crosby-Texter spin. Oh so many tears.

    It is interesting you use the word ‘tory’ in this thread. The post I pasted in before was in response to the labour dim-bulbs talking about Aussie tax cuts in 2006 as “tory tax cuts for their rich’ which when actual facts were applied (IE: actually looking at the rates in use and the nature of the progressive models between Aussie and NZ) showed how Labour in NZ were ‘tory’ compared to the govt in Aussie of that time which was being called a ‘tory’ govt. This thread shows that taxation is more progressive in Aussie and the truth is that it has been that way throughout the entire Labour govt rule of 1999-2008. The whole 9 years of Labour we had a less progressive tax system than Aussie had and the whole time our Labour apologists were calling Aussie a tory govt.

    Needless to say when Labor took over in Aussie the taunts of “tory’ stopped and now that we have a National govt the Labour apologists feel secure enough to actually face the fact that we have a less progressive tax system. It’s not the tories who are running from the facts.

    • Sam 14.1
      22 January 2010 at 10:48 am

      Why yes, I too like to prattle on about completely unrelated things so as to avoid talking about things that make me uncomfortable.

  15. burt 15
    21 January 2010 at 2:21 pm

    felix

    I suppose if you’re just going to ignore all the other taxes as snoozer points out you’re doing then you might have a point.

    Meanwhile back in reality this thread is about income tax thresholds, which I was adressing much to the displeasure of people who still want to believe that NZ isn’t a tory tax model by comparison.

    I’ve said I would rather see flat taxes, but I have also said over and over – if we have a rich threashold then aim it at the rich – not the bulk of tax payers.

  16. roger nome 16
    21 January 2010 at 3:59 pm

    “if we have a rich threashold then aim it at the rich not the bulk of tax payers.”

    Yo Burt – about 80% of tax payers earn below $50,000 in NZ. That’s how unequal the income distribution is. Feel free to plant your face in your hand now.

    Here are the stats:

    http://www.stats.govt.nz/Census/2006CensusHomePage/QuickStats/quickstats-about-a-subject/incomes.aspx

  17. burt 17
    21 January 2010 at 4:01 pm

    Sorry guys it is time you faced the hard cold reality; Clark & Cullen overtaxed low-middle income NZ while giving a free ride to their rich mates. The gullible supporters of their redistribution rhetoric totally ignored the fiscal reality of what was actually occurring, totally ignored who was most hurt by fiscal drag and totally ignored that our Tory neighbours were taxing low income workers less and high income workers more than our socialist and proud of it govt.

    OK, if we can accept that we can then open our minds to how we can improve the tax system rather than just argue for status quo because we were misled by people who we though were telling us the truth.

    What is it going to be; live in the distorted view of the past your previous masters sold you or face the reality that they lied to you and fix it ?

    • snoozer 17.1
      21 January 2010 at 4:26 pm

      “Clark & Cullen overtaxed low-middle income NZ while giving a free ride to their rich mates. ”

      evidence?

      I thought you were crying because Clark and Cullen put the top tax rate up to 39%, hardly a free-ride for the rich (and I can tell you, one thing Labour doesn’t have a lot of is rich mates)

      And clark and Cullen gave low and middle income NZ a 410 a week tax cut by cutting the bottom rate. What did National do? Oh, tax cut for the rich.

      • Herodotus 17.1.1
        21 January 2010 at 5:54 pm

        Tha C&C couple also inferred that a single income family can survive on less money than a doulble income family on the same gross wage
        So for case study a family income $95k with 3 16-18 year olds you are entitled to $55/week FTC and In work $60/week and after tax of $95-20=$75k + benefits
        Single income same family structure
        $95-27.6= $67.4k
        Both get the same WFF, why does it cost less for 1 earner in a family to live than 2?
        Same family but all 3 children are under 12, WFF is $0/week,In work =$42/week but the after tax figures are the same.
        Nice to see what is valued within this society!!

        • Descendant Of Smith 17.1.1.1
          21 January 2010 at 7:13 pm

          That reflects the point I made elsewhere. Once the baby boomers had raised their families and their kids were leaving home and mum could go out to work income splitting was no longer needed.

          I had 3 kids under 5 when that was removed and I know it made life much more difficult at the time – as did the removal of universal family benefit and high mortgage interest rates.

          I’m more than happy for families to have the choice to combine incomes for tax purposes or have them assessed separately depending on whether they have children or not.

          Universal Family Benefit in my view should never have been thrown out, would clearly reduce bureaucracy and avoidance and benefit envy by the better off.

          Income splitting also gives more choice and support for those where only one partner can find work or one partner has to look after children with disabilities for instance. This would more than likely result in a reduction in DPB numbers or at least new cases coming on.

          Socially these options are both more acceptable to the general public as well. I’m sure people hate having to apply for the current forms of assistance through WFF.

          I know there are arguments against both these things but both seem to resolve many of the issues that emotionally people are finding difficult with the current systems.

          • Descendant Of Smith 17.1.1.1.1
            21 January 2010 at 7:17 pm

            Just curious now: Do the well off front up to apply for WFF like normal people or do their accountants send in the forms?

            • Herodotus 17.1.1.1.1.1
              21 January 2010 at 8:30 pm

              Apparently you can apply on line, but some friends I know have been caught out by being eligible when applying but with promotions, bonus, change of jobs exceed the income levels then have to refund the money. No time is a good time to repay an overpayment. What got them was that they were unaware of such things until when the books were balance after the fin year, and many still have from these experiences feel in a similar vein as the free pre school. Oversold and under delivered. My personel feelings for families earning over $80k was that they should not have been eligable and the money to those closer to the poverty line and unable to utilise WFF, but that is a lossing personal oponion !!

              • Descendant Of Smith …
                21 January 2010 at 8:59 pm

                I was just thinking that given you can’t remove emotion from decisions (including political ones) that if we were going to give more to the well off bringing back those two policies would meet that need, simplify things for everyone and probably have some quite good social outcomes.

                There’s also a deep seated emotional attachment to the universal family benefit that we were once proud of. The reduction in bureaucracy for most people would be welcome – maybe a few less public servants even.

                I would think given the reduction in real wages for many people over the last 20 odd years that there might still need to be some targeted assistance at the bottom but this type of policy would take care of that middle group who are more than likely resentful of being made to feel like bludgers by having to apply.

                It’s probably quite easy to consider that tax cuts at the top are attractive as a better option for people when they resent having to put their hands out for WFF even when they are on a good income.

                I do think that is something Labour got wrong – while moving the entitlement thresholds up may have made good fiscal sense and no doubt has plenty of economic and policy analysis behind it it doesn’t resonate at an emotional level.

                People feel much better getting something that everyone is entitled to ( in this instance everyone with kids).

      • burt 17.1.2
        21 January 2010 at 6:02 pm

        snoozer

        Was the bit where I said; ” live in the distorted view of the past your previous masters sold you or face the reality that they lied to you and fix it ?” completely lost on you ?

        Under Labour we ended up with 75% of high school teachers paying the top tax threshold and now we hear that of a selection of the 100 most wealthy people in NZ about half are not paying the top threshold.

        Think carefully then see if you can reconcile the concept of fairness with that situation.

  18. RedLogix 18
    21 January 2010 at 6:53 pm

    now we hear that of a selection of the 100 most wealthy people in NZ about half are not paying the top threshold.

    Invariably because they diverted income to companies or trusts. Is there anything in this report that tackles that issue burt? Or have I missed something?

    • burt 18.1
      21 January 2010 at 7:00 pm

      RedLogix

      You probably only though about the property tax in terms of it being passed on to people paying rent. The reality that some of the most exclusive properties in this country sit quietly empty between visits from the top threshold dodging owners is something to ponder.

      • RedLogix 18.1.1
        21 January 2010 at 7:49 pm

        The reality that some of the most exclusive properties in this country sit quietly empty between visits from the top threshold dodging owners

        Sounds like a certain residence in Dipton…but I digress..in this sort case the rules don’t need changing, merely enforced.

      • burt 18.1.2
        21 January 2010 at 8:03 pm

        That being the case my statement that Labour didn’t take the steps required to address it are even more valid….

        Umm, we had the tools to address that but it wasn’t politically expedient to use them – Perhaps it was not in the public interest to prosecute.

        • RedLogix 18.1.2.1
          21 January 2010 at 8:34 pm

          This is true, but perhaps they already had enough powerful people lined up against them.

          Funny how even mention of a CGT was ‘political suicide’ in Cullen’s time, but somehow it all became acceptable talk once the govt was changed.

          • Zaphod Beeblebrox 18.1.2.1.1
            21 January 2010 at 11:44 pm

            Except for the PM- he’s been treating CGT like it was the plague.

            Did you read Mallard’s blog where he claimed Cullen offered English a CGT if he gave bi-partisan support? Bet English wished he took up the offer now!

  19. Herodotus 19
    21 January 2010 at 8:41 pm

    It was never politicial suicide, there was no conviction on their behalf, just like giving the IRD added resources at an appripiate time to chase those who speculated on property ( in some cases putting the property on the market before completing the S&P agreement to purchase). Sure there was some cases in Queenstown and a few other isolated cases. Now the rush is over the IRD are now becomming over aggressive in their approach to land transactions within the last year, yet they appear gun shy to review anything within the 2002-6 period.

  20. RedLogix 20
    21 January 2010 at 8:50 pm

    Actually it was the National govt of the 90’s that directed IRD to quietly leave the distinction between an investor and a trader deliberately left so unclear that it many people even forgot that the rule existed. (A trader’s capital gain is treated as taxable income, whereas an investor’s isn’t.)

    I believe that it was some years before this massive loophole came to Cullen’s attention, and it was only in Labour’s third term that IRD was directed to aggresively pursue the rorters.

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