Public Address | Cafe | OnPoint: Sneaky brackets

Kyle Matthews

Tue, 27 May 2008 14:41:38 +1200

Contra the previous post, wage growth is usually stronger than inflation so adjusting the thresholds for inflation alone wouldn't stop the tax-to-gdp ratio rising over time.

While it wouldn't be perfect, it'd be a lot better than the silly system we have now.

Christopher Worthington

Tue, 27 May 2008 14:14:01 +1200

I believe the US adjusts tax thresholds for inflation automatically.

New Zealand, and I suspect most countries, makes long-term fiscal projections on the assumption that the tax-to-gdp ratio will remain constant, which implies threshold adjustments or tax cuts at some point. If we value fiscal transparency, there is no reason…

Steve Withers

Tue, 27 May 2008 13:06:05 +1200

I first heard about fiscal drag in the early 1970s in Canada. It isn't an ideological issue. Every government either allows it to happen or plans on it. The answer would be to index tax brackets based on some independent assessment of wage rises over time. Can't use price inflation…

Kumara Republic

Mon, 26 May 2008 23:44:49 +1200

and a pool of money they've been forcing their citizens to save that's available to invest in their economy (we're late to that game – hopefully Kiwisaver will put us in play too – but it will take a while for that to bloom)

I hope those whingeing about KiwiSaver…

Paul Campbell

Mon, 26 May 2008 22:48:00 +1200

well that I agree with – it does depress reported gross incomes (but not net if the Aussie tax rates end up being slightly higher – and from my cack of the envelope analysis today I think they slightly are – and certainly will be after Labour's [or the Nat's]…

rodgerd

Mon, 26 May 2008 20:58:54 +1200

while I agree that it's nominally a tax on the employer think of it this way – if you quit your job at employer A and are not replaced and take up a job at employer B at the same salary – employer A will pay an amount less proportional…

Christopher Worthington

Mon, 26 May 2008 18:18:02 +1200

I'm going to make the quibble that around 24% of taxpayers (or 33% of Keith's 71%) pay most of their tax on their benefits or their super, so I always find that "who pays tax" table quite misleading.

Of that 24%, the beneficiaries get no benefit from the tax cuts,…

Paul Williams

Mon, 26 May 2008 17:37:09 +1200

I think we're getting stuck in the weeds here, my point was just to say that treating state-based payroll tax the same as federal income taxes may not be the optimal representation. The point made in the original piece stands.

I bet there's an industry somewhere there converting executive perks…

Paul Campbell

Mon, 26 May 2008 17:24:34 +1200

while I agree that it's nominally a tax on the employer think of it this way – if you quit your job at employer A and are not replaced and take up a job at employer B at the same salary – employer A will pay an amount less proportional…

Paul Williams

Mon, 26 May 2008 16:48:04 +1200

So is PAYE. Sorry, I don't buy your argument. It's a tax directly related to income.

Don't want to split hairs Don, but PAYE is paid by employers on-behalf of employees as a percentage of their gross salary. Payroll tax is not. It's an amount calculated on the total cost…

Kyle Matthews

Mon, 26 May 2008 16:47:39 +1200

Re the payroll tax, I agree it should be considered when calculating total tax take, but it's paid by employers, not employees,
So is PAYE.

I'm no expert on taxes, but isn't PAYE paid by employees, but collected by law by employers?

I know that when I look at my…

Kyle Matthews

Mon, 26 May 2008 16:45:24 +1200

and ain't it a hassle. i've a bunch of money in an aussie super fund i can't touch until i retire...

A relative of mine retired from his job in NZ, and went to work in Australia for five years.

He got a substantial super payout from his retirement, but…

Don Christie

Mon, 26 May 2008 16:21:28 +1200

Re the payroll tax, I agree it should be considered when calculating total tax take, but it's paid by employers, not employees,

So is PAYE. Sorry, I don't buy your argument. It's a tax directly related to income. End of story. They just called it something different to look good…

Keith Ng

Mon, 26 May 2008 16:16:43 +1200

If you mean income-tax payers, then surely having no taxable income, they are not paying tax, and are not 7% of the people paying tax...
If it means other taxes, I'm surprised only it's only 7%.... GST catches anyone who purchases, no matter how they came by the money to…

Paul Campbell

Mon, 26 May 2008 16:05:01 +1200

Paul – I think that if you are going to be intellectually honest (ha! when did we start demanding that of our politicians ....) and you make a statement like "Australian taxes are lower than NZ ones" you have to compare the same things – you can't leave out the…

Paul Williams

Mon, 26 May 2008 15:54:42 +1200

and ain't it a hassle. i've a bunch of money in an aussie super fund i can't touch until i retire...

Che, I kinda feel the same but the logic's pretty reasonable. Kiwi's have pretty seamless labour market access in Australia and can up-sticks and leave easily too so the…

Che Tibby

Mon, 26 May 2008 15:35:18 +1200

Sofie, Australian super contributions made by kiwis are payable to the payer once they've reached the age at which the benefit is payable. They're not forfieted but they're not, currently, portable.

and ain't it a hassle. i've a bunch of money in an aussie super fund i can't touch until…

FletcherB

Mon, 26 May 2008 13:26:21 +1200

I'm having trouble with one of your statements....

7% of tax-payers have zero taxable income...

If you mean income-tax payers, then surely having no taxable income, they are not paying tax, and are not 7% of the people paying tax...

If it means other taxes, I'm surprised only it's only…

Paul Williams

Mon, 26 May 2008 13:18:09 +1200

Sofie, Australian super contributions made by kiwis are payable to the payer once they've reached the age at which the benefit is payable. They're not forfieted but they're not, currently, portable.

Unlike tax residents from other countries, eg. UK, kiwis are treated as if they are Australians and their super…

Rich of Observationz

Mon, 26 May 2008 13:07:54 +1200

Quoted in Keith's NZ article:

the attraction of bigger cities and better weather and beaches

All highly subjective. In how many Australian cities can you live in the CBD and be 15 minutes from the bush? (Maybe Canberra??)

"Better weather" depends on one appreciating 40 degree+ conditions, coupled with alternating…

Keith Ng

Mon, 26 May 2008 12:38:58 +1200

Party votes, Angus.

Keith Ng

Mon, 26 May 2008 12:38:33 +1200

Yup, my numbers were purely looking at Federal rates. There's a more comprehensive tax comparison on NZIER's website.

In the meantime, check out my HoS column on the Aus-NZ wage gap:

http://www.publicaddress.net/default,5004.sm

Angus Robertson

Mon, 26 May 2008 12:30:01 +1200

For the political market is it based on percentage seats or percentage of party vote?

Paul Campbell

Mon, 26 May 2008 12:10:32 +1200

Couldn't figure out how to download Keith's underlying spread sheet – but I crunched some numbers for some other ways of looking at the Aussie taxes – below 'Fed:' is the base rate, the second includes the 1.5% medicare (since our taxes also include healthcare – I'm assuming that this…

Danielle

Mon, 26 May 2008 11:26:40 +1200

However if I die my (American) wife can claim it ..... let's not give her any ideas ....

I think she can actually claim a proportion of it even if you don't die, as soon as she turns 62. But the Social Security site has various rather impenetrable rules. I…

Samuel Scott

Mon, 26 May 2008 11:19:55 +1200

great post! i'm more confused than before i read it, but at least I feel informed an confused.

Paul Campbell

Mon, 26 May 2008 11:07:55 +1200

As I understand it it's a bit more like kiwisaver so I'd guess no.

On the other hand the 6% US Social Security I paid into for 20 years is basically lost to me unless some day I move back there. However if I die my (American) wife can claim…

Sofie Bribiesca

Mon, 26 May 2008 11:02:48 +1200

Also, Aussie has a 9% compulsory super contribution. This isn't entirely tax, but it locks up a proportion of an employees "total employment costs" until retirement.

So what happens if that kiwi comes home after say 15 yrs?Is that forfeited funds.

Paul Campbell

Mon, 26 May 2008 10:58:49 +1200

how you probably ought to represent it is probably less than that simple – to compare apples and apples probably you inflate people's income by the payroll tax amount which actually reduces the percentage of Federal tax that's paid (because it's a tax on the net after payroll tax)

Also…

Rich of Observationz

Mon, 26 May 2008 10:54:20 +1200

Also, Aussie has a 9% compulsory super contribution. This isn't entirely tax, but it locks up a proportion of an employees "total employment costs" until retirement. Australians don't AFAIK get any super funded out of general taxation (as we do).

They also pay a 1.5% medicare levy.

Susan Snowdon

Mon, 26 May 2008 10:32:07 +1200

Is it possible for you to re-do your graph so the Australian state taxes are included with the federal taxes? I know they vary from state to state but some sort of 'average' number? I'm always hearing how taxes are lower in Aus but I've never seen an accurate comparison.

Damian Christie

Mon, 26 May 2008 10:06:28 +1200

If fiscal drag is a policy, I guess the only problem is perhaps its lack of transparency? i.e. By not announcing 'tax hikes', the tax rate effectively goes up each year. Having said that, the media have been banging on about it for a few years now, so it's hardly…

Gareth Ward

Mon, 26 May 2008 09:31:05 +1200

Excellent post, thanks. At the very least it allows for a factual argument around what direction real average tax rates should be moving without the partisan hyperbole... Not that I am overly optimistic that will happen

Paul Campbell

Mon, 26 May 2008 08:57:48 +1200

(6% NSW, WA 5.5%, QLD 4.75%, Tas 5.25%)

Paul Campbell

Mon, 26 May 2008 08:49:17 +1200

one comment – the Australian tax rates you show are only the federal rates – as I understand it Aussie state taxes are paid as a payroll tax (your employer pays it at a fixed rate on their payroll effectively lowering you gross pay by that amount) – for example…

Paul Campbell

Mon, 26 May 2008 08:41:02 +1200

great post – I particularly like the graph, it explains a lot without much cruft.

"Fiscal drag" is nothing new – I remember people moaning about Muldoon relying on it to make his budget .... it's something that almost every western government (left or right, National or Labour) has depended…

Public Address

Mon, 26 May 2008 08:41:02 +1200

Discussion from blog post.