Labour's upper tax rate can not be compared with Aussie's top tax rate

[donna]

The Greens won't be happy - they believe a wealth tax should be applied to income much less than Labour's new 39% tax rate on individual income over $180K.

I wonder how many in Government are getting $180K+?

It's not going to full the coffers though so what's the bet it's just the start of things to come.

Don't be fooled by the rhetoric that our tax rates are better than those in Aussie - see this article on Stuff that explains their tax regime for individuals is more attractive...

Australians earning over $90,000 currently pay 37 cents of tax in every dollar earned above that level
But he neglected to mention two things about the Aussies. One: that the first A$18,200 ($19,840) of every Australian?s personal income is tax-free

The 2024 tax cuts, which Australian Prime Minister Scott Morrison took to the 2019 federal election will see all Australians who earn up between $45,000 and $200,000 will pay a maximum income tax rate of 30 per cent.

Of course 2024 is still a long way off and anything can happen - like COVID, but if that is rolled out, Kiwis may be seeing the grass as a lot greener across the ditch. A brain drain is the last thing we will need as we recover and rebuild. Innovation will be key to new earnings opportunities and new jobs here in NZ, so we need the smart minds to stay here.

cheers,

Donna

[Sanya]

[...]

I wonder how many in Government are getting $180K+?

Newshub reports 1000 civil servants earn more than $180k per year.


Labours pledge to raise tax on earnings over $180k comes as no surprise to me. I called the 39% tax tier some time back.

The move costs Labour nothing politically as it impacts only two per cent of earners in New Zealand. Further, most astute kiwi’s would recognise that Labours $50 billion COVID-19 Response and Recovery Fund (CRRF) – was ultimately going to be paid for by raising taxes.

What is surprising is Labour’s promise of no new taxes or any further increases to income tax if it wins another term. This is Labours attempt to create a feeling of confidence, certainty and stability for the next term – but will they stick to it and what happens if Labour needs the Greens for confidence and supply in the next term?

Pragmatically, the forecasted $550 million of extra tax revenue generated is a drop in the budget to what the Government has spent this year on wage subsidies and other COVID response measures. So, realists here (there are a few) will instinctively understand that more tax is coming, if not in the next term, certainly shortly thereafter.


What’s missing from Labours story so far is the plan for economic growth. You can’t as Judith Collins points out “tax your way out of an economic recession - you've got to grow your way out.”


One other observation in closing, in light of a probable Labour win at the forthcoming election, it may now be beneficial for larger scale professional property investors to consider (if they haven’t already) changing the structure of ownership. 28% flat income tax for companies (for example) now looks more attractive in light of a 39% top income tax tier. Labour will continue its crack down on trusts – particularly where trusts are used to channel income or avoid tax.

[donna]

Is a levy a tax? It may not be called a tax but if it's generating revenue for the IRD - it's a tax. What out a lot of new 'levies'.

Plus the Capital Gains Tax is already in and they can make changes to that! Maybe the 5 years becomes 10 years and they go hunting for rentals sold within the last year or two that were held for less than 10 years.

cheers,

Donna

[Perry]

Is a levy a tax? It may not be called a tax but if it's generating revenue for the IRD - it's a tax.

As you say, the name is irrelevant.

If it's something a NZr is forced to pay via statute, it's a tax. Excise, duty, cost-recovery, levy, tariff, surcharge. It matters not where it goes to in the end. E.g. Statute-enforced fire service levies on insurance premiums.

[Sanya]

Is a levy a tax? It may not be called a tax but if it's generating revenue for the IRD - it's a tax. What out a lot of new 'levies'.

Plus the Capital Gains Tax is already in and they can make changes to that! Maybe the 5 years becomes 10 years and they go hunting for rentals sold within the last year or two that were held for less than 10 years.

cheers,

Donna

Your point that the Labour Government’s claim that it won’t introduce new taxes – doesn’t mean they won’t increase existing taxes – is well made Donna.

The bottom line is this. Grant Robertson has indicated he wants to allocate more money to health, social services and other needy sectors as part the Governments “well-being” budget. Furthermore, there are on-going and unbudgeted costs related to COVID-19 management as well.

There is no way that a $550 million increase in tax take (some think that’s optimistic BTW) can cover the increase in spending AND service the Government’s ballooning COVID-19 debt.

Contextually, it needs to be remembered that the present economic downturn translates to less tax take for Government.


New taxes masquerading as levies are being introduced all the time. For example, as of the 1^st September 2020, a new Insolvency Practitioner Levy became effective. The Insolvency Practitioners Regulation Act 2019 requires insolvency practitioners in New Zealand to be licensed and to help defray some of the regulatory costs all registered companies in New Zealand must pay the new levy as part of their annual return fees.

Cynically, one might observe that part of Labours growth plan for New Zealand is to tax solvent companies to pay for a regulatory regime to manage the increasing mass of insolvent ones.

Further, from 1^st of October 2020 Kiwis will have to pay more to use their phones when travelling because the Government has decided to add 15 GST on the cost of overseas roaming charges. So you use your phone in a foreign country and still pay NZ consumption tax.

Look out for a new Digital Service tax in 2021-22 too.

[Anthonyacat]

The 2024 tax cuts, which Australian Prime Minister Scott Morrison took to the 2019 federal election will see all Australians who earn up between $45,000 and $200,000 will pay a maximum income tax rate of 30 per cent.

The way that is phrased, suggests that the 30 percent is an average tax rate. Under Labours new 39% tax policy someone in New Zealand would only be taxed at 29.06% on a salary of $200,000. Under the current regime, it's 28.46%.

Under the current system, to be taxed at an average of 30%, you'd need to earn over $300k (at $300k, the rate is 29.97%) while under the new tax regime someone earning $300k would be taxed at 32.37%, and someone earning $220k would have the 30% average rate.

[Perry]

Please clarify / confirm.

As I understand it, NZ has a 'graduated' tax rate.

To partly illustrate (only) . . .

Under Labour's proposal (if able to legislate) the 39% would apply only to each income dollar of and from $180.001.00 upwards.

Tax on income below that would remain the same.

Or am I missing something? (again?)

[Anthonyacat]

You understand perfectly. And as such, the average tax rate you pay across all your income will always be lower than your marginal tax rate.

If you earn $15,000 you pay 10.5% on the first $14k ($1,470) and 17.5% on the next $1k ($175). Total tax $1,645, being an average tax rate of 10.97% - even though this person thinks that they are taxed at 17.5%.

[Perry]

Thanks. I was beginning to think I'd lost my last few remaining marbles.

Why-oh-why is that so hard for the great unwashed to comprehend. Anthony?

(Brain-dead media excused, for obvious reasons.)