Sunday, 25 August 2013

Middle NZ paying for everyone else?

Brian Bruce has a new doco on its way, this time claiming that "middle New Zealand" is paying for everyone else. While I don't argue with Brian's main contention - that there is a growing gap between the richest and poorest New Zealanders - the contention that middle New Zealand is paying for everyone else is wrong.

This is because we've got a progressive income tax system which means the more you earn, the more tax you pay. As a result, the overwhelming majority of the income tax take comes from the "top 10%" of households. Here's Finance Minister Bill English explaining this fact in 2011:
Hon BILL ENGLISH: Our tax and transfer system is highly redistributive, and the number of people paying income tax is surprisingly small. The lowest-income 43 percent of households currently receive more in income support than they pay in income tax. The 1.3 million households with incomes under $110,000 a year collectively pay no net tax—that is, their total income support payments match their combined income tax. The top 10 percent of households contribute over 70 percent of income tax, net of transfers—over 70 percent of income tax, net of transfers. This system is highly redistributive and we believe it is fair.
Now, we could argue that the wealthy have a large proportion of their income which is untaxed due to New Zealand not having a capital gains tax, for example. But that's not what Brian is saying. He says the wealthy get away with $5 billion in tax evasion. In fact, this is the total figure for all New Zealanders - from a study by Victoria University academic Dr Lisa Marriot - and is mainly due to the so-called "shadow economy" - i.e. people doing cash jobs. Hardly the wealthy forcing costs on middle New Zealand (if anything, mates rates are probably more common among those of us who are actually mates with tradies).

So I don't hold out much hope for Brian's documentary. The gap between rich and poor is a problem, don't get me wrong - but mainly because the rich are getting richer faster than the poor are.