On income tax rates, The Treasury has a fascinating paper from September 2012 looking at ways in which an "Average Marginal Tax Rate" (AMTR) could be calculated for New Zealand's personal income taxes. AMTRs come from a paper by Robert Barro and Chaipat Sahasakul at Harvard University 1983. They are:
..income-weighted average of individual-level marginal tax rates, having first accounted for various factors that allow effective, rather than statutory, marginal tax rates to be estimated.The critical part of this definition is that the average is an income-weighted average, not simply an average across all taxpayers of the percentage of the all the income tax collected.
Here's what New Zealand's top effective marginal tax rates looked like from 1907-2009:
|Top marginal tax rates, 1907-2009|
This is where income distribution data comes in. Treasury uses the New Zealand Official Year Book (NZOYB) data up until the early 80s, and IRD data from then on. The factors they look at are:
- how income is distributed across the tax brackets/rates for which we have tax schedule information;
- how exemptions against tax are distributed across income levels and tax brackets; and
- how far NZOYB income distribution data, generally only available for tax filers until the PAYE regime from 1958, can be supplemented to capture non-filers’ incomes.
|New Zealand's Average Marginal Tax Rates (AMTR) 1907-2009 Source: |
Clearly, the income tax rates people actually pay today are not substantially greater than they were in the 1960s. So it is a myth that when John Key was growing up people paid more income tax. We should bear this in mind whenever it's claimed that a higher rate of income tax means lower inequality and a better welfare state.