How much tax do we pay?

The average wage earning or small business person pays quite a lot of tax.

Damien Grant at Stuff: The National Government a Labour PM would be proud to lead

In my small business, for every dollar that comes in almost half of it goes out in tax: GST, PAYE, FBT, ACC and in the event there is anything left over, income tax comes clobbers a third.

So, I was pleased to see John Key elected. National has a set of principles. These include limited government and personal responsibility. They have had nine years to implement their principles. How have they done?

When Bill English became minister of finance government spending was $60 billion. It is now $80b. Sovereign debt was a mere $10b when National took office. It is now $60b. In nine years of relatively unfettered power, National has failed to roll back a single penny of the welfare state, failed to confront the disaster of the Resource Management Act, unwind restrictive building regulations or do anything consistent with their stated principles.

This is a centre-left government Norman Kirk would have been proud to lead.

So how much tax do we actually pay? PAYE has different rates of tax at different thresholds, plus there is ACC Earner Levy. And we get taxed on interest earned or gains in investments – including on our Kiwisaver. And on top of that we get taxed on all the goods and services we pay for.

PAYE has different rates of tax.

  • Income up to $14000, taxed at 10.5%
  • Income over $14000 and up to $48000, taxed at 17.5%
  • Income over $48000 and up to $70000, taxed at 30%
  • Remaining income over $70000, taxed at 33%

Plus the current ACC Earner levy is 1.39% on top of that, up to earnings of $126,286.

Payroll tax:

TaxIncome

Payroll tax plus GST on quarter of income:

TaxIncomeQuarterGST

Payroll tax plus GST on half income:

TaxIncomeGSTHalf

Payroll tax plus GST on all income:

TaxIncomeGSTAll

 

Seymour highlights tax bracket creep

ACT MP David Seymour has highlighted the problem for taxpayers caused by bracket creep. If PAYE brackets aren’t adjusted then inflation means taxpayers gradually pay more tax relative to their income.

Michael Cullen failing to address bracket creep for nearly all of the three terms under Helen Clark was a significant factor in voters getting fed up with Labour.

Stuff reports in Politics briefs: March 20, 2015

ACT revives ‘bracket creep’ campaign

They were last seen in Michael Cullen’s “chewing gum tax cut” Budget – and later dumped – but ACT has revived calls for tax thresholds to be indexed to inflation. Leader David Seymour says average households are more than $1000 worse off in tax payments since 2010 because of “bracket creep”. Had thresholds been linked to inflation, the top 33 cent rate would now cut in at $73,571, not $70,000.

If Bill English ignores bracket creep voters may get fed up with his tax grabbing too.

Seymour’s press release: Time to end stealth tax increases

ACT Leader David Seymour has today called for an end to the stealth increase of tax rates through bracket creep.

“Each year, inflation pushes a larger proportion of New Zealanders’ incomes into higher tax brackets, regardless of whether they’ve had an increase in real earnings,” said Mr Seymour.

“Tax brackets should be adjusted for inflation.

“Even with low inflation this stealth tax of ‘bracket creep’ means that the average household is $1036 worse off since the tax changes of October 2010. An individual taxpayer on the average income is $648 worse off.

Mr Seymour’s focus on bracket creep comes after the Minister of Finance stated low inflation ‘makes it more challenging for the Government because higher inflation pushes up the tax base and enables us to collect more tax in a growing economy’.

“If the government wants to increase taxes, it should do so openly. This is a basic principle of transparency, and honesty in taxation.

“I propose tying tax brackets to the Consumer Price Index, meaning tax brackets would rise with inflation, stopping stealth tax increases and ensuring government revenue collection is open and transparent.

“The best time to act is now – current low inflation means a switch to inflation adjusted tax brackets would have relatively little effect on government forecasts.”

More, lower taxes?

The biggest problems with taxes:

  • rate too high
  • too many rates
  • too many  exemptions
  • too complex

More tax types
I think we need a range of taxes, if you narrow it to too few it allows to much advantage to some and disadvantage to others.

Keep it simple
Simple, universal, minimal or no exemptions. Flat rates.

Keep it Low
The lower each tax rate, the less likely people will try and avoid that tax.

GST, PAYE, CGT,  company tax, land tax and transaction tax, fuel tax, and alcohol and tobacco excise tax – reach as wide as possible, as low as possible (except for tobacco and maybe alcohol), and as low administration as possible.

I’m just plucking numbers out of the air, but starting with GST as it is here’s a stab:

  • GST 15% on everything
  • PAYE first 15k tax free, 15% thereafter
  • Company tax 15% on everything
  • CGT 15% on everything
  • Land tax 1% per year on everything perhaps with a tax free threshold
  • Transaction tax 0.1% on everything
  • Fuel tax to cover wider costs
  • Alcohol, tobacco and gambling at levels to discourage overuse

They would need balancing and adjusting to ensure sufficient revenue.

In addition the whole benefit system should be simplified, and a priority should be put on controlling government spending and encouraging business development, employment and productivity.


Simple, comprehensive, low.