Fact check: How do New Zealand’s personal tax rates really compare?

Those in favour of hiking personal taxes will typically state that New Zealand’s personal tax rates are relatively low compared with other countries. Don’t fall into the trap of comparing countries’ headline income tax rates.

New Zealand is a relatively high taxing country if you compare ‘effective income tax rates’ and taxes paid at a household level. Our net (after tax) wage levels are also one of the lowest in the OECD!

New Zealand’s top personal tax rate is 33%, which kicks in at taxable income over NZ$70,000.  That headline rate appears low compared with many countries- e.g. In the UK the marginal rate is 40% (income over £50,000) and 45% (over £150,000)[1]. But the average person and household in UK pays a lower effective tax rate than in New Zealand.

If a single person (no children) earned the average wage of NZ$62,000 (2019), they paid $11,700 tax with an effective tax rate of 18.8%. That ranks New Zealand 10th highest in OECD[2] and well above the OECD average. The tax rate paid by a single person earning 167% of the average wage (NZ$103,000) was 12th highest in OECD rankings (still in the highest third).

More so, New Zealand’s income taxes are worse for a household (married couple with 2 children). See the table below as to how New Zealand’s effective rates rank among OECD countries:

Household status Ranking (highest)
Married couple; 1 earner on 100% of average wage; 2 children 6th
Married couple; 2 earners (100% and 67% of average wage); 2 children 7th
Married couple; 2 earners (100% and 100% of average wage); 2 children 9th

It’s true that Australia does tax people higher than New Zealand. But its average wage is also much higher (A$87,900). In fact, the average Australian’s net pay packet is 31% higher than the average New Zealander’s and is significantly more than a New Zealander’s gross pay[3].

Note that New Zealand’s average gross wage (single person) ranks only 22nd highest in OECD. Our net pay ranks us in the bottom six![4]

For some time there has been an acknowledgement that New Zealand’s focus should be on increasing income, however, little has been achieved.  Growing income requires New Zealand Inc to make a step change in creating more value from its resources  and improving productivity.  Any future government will do best if it supports businesses to achieve productivity gains, leading to paying workers more, rather than sending New Zealand further up the rankings as a high taxing country.

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