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New Zealand’s top earners will pay nearly 25 percent of all income taxes the government receives at the maximum tax rate proposed by Labor.
Labor campaigned on a new top tax rate of 39 percent for people who earn more than $ 180,000. He said this would raise an additional $ 550 million a year and affect only the top 2 percent of the earners.
Today, 3 percent of wage earners who receive more than $ 150,000 a year in income pay 23.5 percent of all income taxes, or $ 8.67 billion out of $ 36.85 billion. .
The NZ Initiative’s chief economist, Eric Crampton, said it would rise to 24.7 percent if the government could claim the $ 550 million in additional taxes.
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“However, income tax is only part of the general government tax collection. GST, corporation tax, and excise duties are also important. Focusing solely on income tax would exaggerate the share of total income paid by top earners.
“On the other hand, the government provides a lot of revenue transfers, some of which are revenue-targeted, some of which are universal.”
He said 2010 data showed that the bottom 40 percent of households each received about $ 20,000 more in services than they paid in taxes, while the top 10 percent of households paid about $ 50,000 more in taxes on what they received in services and transfers.
Crampton said that low-income people had been hit hardest by the Covid-19 job losses, which could further skew the tax bill towards higher incomes.
But he said some higher-earners would also restructure their affairs to take full advantage of lower corporate and trust tax rates, to lower their overall tax bills when faced with a new higher rate. Most companies pay a flat rate of 28 percent.
Infometrics’ chief forecaster Gareth Kiernan said there had been a “marked increase” in the number of people earning exactly $ 60,000 a year between 1999 and 2001, when Labor introduced a 39% tax rate for income above of that level.
“So with that income, there was a definite change in behavior when the tax rate was changed, because people had an incentive to divert money through trusts to earn income above that level, remembering that the fiduciary tax rate was stayed at 33 percent.
Kirk Hargreaves / Things
The government is unlikely to get the $ 550 million it hopes to raise from a new top tax rate, commentators say.
“It is also interesting, but perhaps not surprising, that [data shows] there is still a peak of $ 70,000 in 2018. When a trust or family business exists, there is an incentive to divide income among beneficiaries up to this level because the marginal tax rate is lower than for income earned above $ 70,000 ”.
He said he would expect similar behavior with a new top tax rate of $ 180,000.
“However, tax evasion may not be as marked as previous peaks indicated because there are fewer people earning income far above the income spectrum, so incentives for income splitting are possibly less pronounced. given a smaller proportion of people with high incomes “The money will be subject to the tax rate of 39 percent.”
He said that a capital gains tax, a land tax or a wealth tax would have been preferable to a new top income tax rate.
“There are significant equity problems that are being created by the increasing inability to pay for homes, and all of these present possible ways to begin to remedy the situation.
“I understand that each of them has its difficulties or shortcomings, but they still represent a step in the right direction towards restoring a more equitable society, particularly when combined with other tax changes, such as adjustments to income tax thresholds. , which means that it could be introduced in a fiscally neutral way, which would put wage earners and other low-income people, who generally have less capacity to apply tax evasion measures, better off. ”
