Tax system more progressive

The left keep criticising the changes National made to the tax system for doing more for the rich at the expense of the poor.

They’re wrong.

The 2010 changes made the tax system more progressive. Lower income earners are paying less and higher earners are paying more.

Lower income households are paying a smaller proportion of net income tax than they did in 2008, indicating that the tax system has become more progressive since the Government’s tax changes in 2010, Finance Minister Bill English says.

“This should contribute to improvements in income equality in New Zealand, contrary to the Opposition’s completely false claims that lower income households were disadvantaged by the tax changes,” he says.

“Estimates of net income tax, as paid by income bands, indicate the tax system has become more progressive since 2010.”

In particular:

  • Households earning less than $60,000 a year, which total around half of all households, are generally expected to pay less in percentage terms towards total net tax in 2013/14 than they were paying in 2008/09.
  • Conversely, households earning more than $150,000 a year – that is, the top 12 per cent of households by income – are generally expected to pay more of the total net tax than they were paying in 2008/09.
  • And only 6 per cent of individual taxpayers earn over $100,000 a year, yet they pay 37 per cent of total income tax. This has increased from the 2010/11 tax year, when those taxpayers paid 29 per cent of total income tax.

Mr English says this raises questions about Opposition calls for the top tax rate to be increased.

“They need to explain to New Zealanders why that should happen when higher-income households are already paying a larger share of total net tax, since the Government’s tax changes three years ago.

“At any particular time, a large number of households effectively don’t pay tax.

“The income tax paid by these households is exceeded by the amount they receive from welfare benefits, Working for Families, paid parental leave and accommodation subsidies. That’s entirely appropriate for those families genuinely in need.

“But we also expect people to get back into work when they are able to. The Government is supporting them to do that through significant extra investment in welfare reforms.”

Using data from the Household Economic Survey, the Treasury earlier this year estimated that this year households earning over $150,000 a year – the top 12 per cent of households by income – will pay 46 per cent of income tax.

But when benefit payments, Working for Families, paid parental leave and accommodation support are taken into account, these 12 per cent of households are expected to pay 76 per cent of the net income tax. And that is before New Zealand Superannuation payments are counted.

By contrast, households earning under $60,000 a year – which is half of all households – are expected to pay 11 per cent of income tax.

“When we take income support payments into account, as a group they will actually pay no net income tax at all,” Mr English says.

“That’s because the $2.7 billion of income tax they are expected to pay will be more than offset by the $8.1 billion they will receive in income support.

“It’s appropriate to maintain a tax and income support system that helps low and middle income households when they most need it.

“But people who call for even greater transfers to low income families, or who call for the top tax rate to be raised, need to be aware of how redistributive the tax and income support system really is,” Mr English says.

This is not a system which favours the rich at the expense of the poor.

The changes also support the contention that lower tax rates can increase the tax take:

Hon BILL ENGLISH: The tax package in 2010 reduced tax on work and savings, and increased taxes on consumption and property speculation. In particular, it reduced the top tax rate from 39c to 33c and closed the loopholes that had been left wide open by the gap between the top tax rate and the company tax rate, which allowed high income earners to avoid paying 39c in the dollar. Now that we have cut the top tax rate to 33c, higher income earners are paying proportionately more tax than they did when the rate was higher.

Labour and the Green Party are both determined to increase the top tax rate not for sound economic reasons, simply for political ones.

It won’t increase the tax take, it might well reduce it.

But socking the so-called rich fits their socialist world-view better than sound, evidence based policy which backs lower tax rates.

One Response to Tax system more progressive

  1. Paranormal says:

    “Progressive” is another example of the lefts hijacking of language. What they mean when they say “progressive” is ‘punitive’.

    Like

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