Friday, October 30, 2009

The long term outlook

Treasury yesterday released a report into the long-term outlook for New Zealand. The NZ Herald has a summary here. However, it provides an excellent overview of current spending in each major area. But for starters this is a summary of how tax is raised and who pays it.

The tax system
Total tax revenue is the product of what is taxed (the tax base) and the rate at which taxes are levied on that base. New Zealand's main taxes are:
■ personal income tax, levied using a progressive rate structure (raised $28.5 billion in 2009,53% of the tax take)
■ GST, levied at 12.5% on virtually all domestic consumption (raised $11.6 billion in 2009,21% of the tax take)
■ company tax, levied at a flat rate of 30% (raised $9.3 billion in 2009, 17% of the tax take), and
■ a range of excises on petroleum, tobacco and alcoholic products, some tariffs on imports,road-user charges and stamp duties (raised $4.8 billion in 2009, 9% of the tax take).

Issues with the tax system include:
Households (with children) in the bottom half of the income distribution effectively pay no income tax or receive tax credits, because of the interaction with the income support system.
■ The top 10% of income earners (those earning more than $70,000) pay more than 40% of all income tax revenues and about 20% of GST revenue.

Half the country is free-loading. That's great. Very sustainable.

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