NZ Taxes Unfair for Families

March 25, 2010 New Zealand Taxation

BeehiveThe New Zealand personal-tax system lacks integrity and is unfair for many New Zealand families, and the upcoming budget promises to address the issue, said Bill English, New Zealand Minister of Finance.

Confirming the Tax Working Group’s analysis of the New Zealand tax system, Bill English delivered a speech on March 23rd calling the taxes burden faced by an average working family “unfair and inequitable.” According to the Minister the root of the problem resides in the current definition of income and the proliferation of differing tax rates, which become apparent when individuals or families with relatively similar incomes have significantly dissimilar tax obligations.

Bill English illustrated an example of taxation inequality by drawing attention to a hypothetical self-employed individual who would typically pay over NZD 27 500 annually in tax. He contrasted this with the situation whereby the self-employed person forms a company which is owned by a separate entity and assigns themselves a salary of NZD 48 000, automatically reducing their tax liability by NZD 3000. The reduced income would then entitle them to a Working for Families benefit, which allows them NZD 8 500 entitlement. Further tax obligation reductions could be achieved by claiming losses from a leveraged property investment. According to Bill English, it is conceivable for an income of NZD 100 000 to face NZD 10 000 in taxes, while a typical earner would exceed NZD 27 500.

Explaining the Government’s dedication to ratifying the misbalance, the Finance Minister said: “In the Budget, the Government will make the tax system fairer by closing this type of loophole. We will make sure that taxable income more accurately reflects true economic income – and that the system is fairer to all taxpayers.”

Photo by Ewan-M