Wealthy New Zealanders pay much lower tax rates than other earners: Report

Wellington : New Zealand’s tax department revealed on Wednesday a large differential between the tax rates ordinary citizens pay on their full income compared with the super-wealthy.

The research by the Inland Revenue Department (IRD) provides hard data showing that the wealthiest New Zealanders pay tax at much less than half the rate of other Kiwis, said Revenue Minister David Parker.

The data, based on full income information from 311 of New Zealand’s wealthiest citizens, shows that the average person in this group pays an effective tax rate of just 8.9 per cent tax on their economic income from all sources, including capital gains on investments, reports Xinhua news agency.

“In contrast, most New Zealanders pay tax at more than twice that rate. For example, someone earning an annual salary of NZ$80,000 ($49,165), with no other income, pays 22 per cent tax on that income, excluding GST (goods and services tax),” Parker said.

The difference is mainly because the very wealthy earn only a small portion of their income from wages and salaries, unlike most New Zealanders, said the Minister.

The differential is even larger when GST is included: for the wealthiest, their effective tax rate rises to 9.5 per cent, but for the person on an NZ$80,000 salary, it goes up to around 28 or 29 per cent. That is because wealthy New Zealanders spend a much smaller portion of their income each year, compared with other earners, he said.

The High Wealth Individuals Research Project uses real data, unlike other overseas studies which draw on surveys or scenarios, Parker said, adding last year the government changed the law to enable IRD to require high-wealth individuals to provide their earnings data, in order to do this work.

“To be clear, this work is not about chasing tax avoiders, nor is it about attacking the rich,” the Minister said, adding the survey will enable future discussions on tax policy to be based on solid evidence.

A new Treasury report also released on Wednesday used scenarios to show that effective tax rates paid by middle-class New Zealanders (including GST) are between 6.8 and 10.8 percentage points higher than for the wealthiest people.