Who pays tax, who pays the most tax and who doesn’t pay tax?

By   /   May 21, 2014  /   8 Comments

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Before the budget disappears from the radar it’s worth considering the debate which has just begun on tax cuts and the inevitable misinformation the government will put out during the election campaign.

Before the budget disappears from the radar it’s worth considering the debate which has just begun on tax cuts and the inevitable misinformation the government will put out during the election campaign.

Last Saturday on The Nation TV3 reporter Lisa Owen and Finance Minister Bill English played tag on one of the government’s myths.

Owen gave Bill English a patsy question to the effect that the middle class pay most tax but don’t get much benefit from it so with talk of tax cuts wouldn’t it make sense to ease the burden on the middle class? English chimed in with National’s line agreeing that the middle class pay most tax and provide the funding to support families on low incomes and yes he agreed the middle class deserve a tax break.

However even a back-of-an-envelope calculation shows this for the myth it is.

 

Screen Shot 2014-05-21 at 2.38.01 pm

 

What the table shows is that low and middle income families and beneficiaries are paying a big proportion of their incomes in tax – in fact it’s an almost flat rate of tax from their incomes – while the real bludgers are in the top 10% of income earners. In fact the closer one gets to the top the less tax is paid.

Some reading this will claim that Working for Families and other benefits should be included in a table like this because they argue this reduces the amount of tax families on low incomes pay relative to others but this argument doesn’t hold water. Working for Families is a subsidy on low wages paid by employers and is therefore corporate welfare – not social welfare.

It’s disappointing to see journalists showing such a poor grasp of the basic issues around tax and allowing National to drive a wedge low and middle income families. This has always been an important tactic for the right wing to retain power but their mantra is rubbish. It is low and middle income families which shoulder the bulk of the tax burden while a tiny elite at the top are creaming it at our expense.

Council of Trade Unions economist Bill Rosenberg described it quite well two years ago:

“…the rich list represents about 0.01% of households who own 5-10% of all household wealth. This is roughly equivalent to what the bottom 50% of the population own. Yet the bottom 50% are more likely to be paying tax on every dollar they earn while some of our richest individuals are ducking on paying tax.”

“According to information released to us last month by IRD, 50% of the wealthiest kiwis dodge their tax responsibilities.”

“In annual samples of 184 ‘high wealth individuals’ between 2009 and 2011, IRD found that only 49.5% of them reported personal incomes of more than $70,000 (the top tax bracket). This indicates that some of our wealthiest individuals are skirting on their tax contribution.”

Bill Rosenberg said this is a worldwide issue that needs addressing, and the tax changes of 2010 which lowered income tax rates for these wealthy individuals don’t appear to have made any inroads into it. “Governments worldwide lose more than $3.1 trillion in annual revenue because of tax evasion, according to a report published in November last year by the Tax Justice Network. Just a few days ago the same organisation released further research showing that between US$21 trillion and US$32 trillion had been hidden in secret tax havens by the global super-rich.”

Let’s have more honesty and critical thinking on this issue from politicians and journalists (I’m not holding my breath).

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8 Comments

  1. Michal says:

    Key and his mates could never own up to this, they would twist it round, it would never be their problem or responsibility. Shame they are not all at the Spirit Level lectures at the Fisher and Paykel Centre this week. It should be compulsory for all politicians and aspiring politicians.

  2. Murray Simmonds says:

    “Working for Families is a subsidy on low wages paid by employers and is therefore corporate welfare – not social welfare.”

    Excellent insight, thank you Mr Minto – I hadn’t thought of it that way before – but you are right.

    “Governments worldwide lose more than $3.1 trillion in annual revenue because of tax evasion . . . ”

    And that is PRECISELY why Governments World-wide subscribe to outdated economic theory that incorrectly emphasises the importance of “Growth” and “GDP” as the “be-all and end-all” of economic policy. They do so, because those at the top of the income heap continuously lobby them to do so.

    For an excellent (though lengthy) critique (and refutation) of GDP as a measure of the “Economic wealth and success of a nation’s economy” see:

    http://www.theatlantic.com/past/politics/ecbig/gdp.htm

    If you have the patience to read it carefully you will see EXACTLY why our government keeps pushing, as an election issue, the erroneous idea that GDP is important.

  3. Neil Kirkland says:

    My guess would be that most television journos are in the ‘Highest Income’ range but that given the number who are on the verge of, or who have moved into, the top 0.01% range, they have very little incentive to see this change. Those that would like to investigate this issue probably fall foul of editorial policy imposed by corporate or government media owners …

  4. countryboy says:

    Great Post John Minto . The cunning sociopathic neoliberal has no shame . Only their mental illness keeps them company . [ Other ] humans are seen only as a resource .

  5. The Lone Haranguer says:

    In annual samples of 184 ‘high wealth individuals’ between 2009 and 2011, IRD found that only 49.5% of them reported personal incomes of more than $70,000 (the top tax bracket). This indicates that some of our wealthiest individuals are skirting on their tax contribution.”

    Not necessarily. Their other income will have been taxed at either the Trust rate or the Companies tax rate.

    The avoidance of tax in NZ included such fine ideas as “salary sacrifice” where highly paid individuals put the bulk of their income into their super schemes and paid tax on “about $70,000” in their own names.

    The way to avoid the problem is to have the company, trust and individual top tax rate at the same amount.

    I would suggest that high net worth/high income tax payers DO pay more GST than shown in those figures as they do spend their money – some on investments and making more money and some on otyher essentials like luxury yachts etc. and other items of conspicuous consumption.

  6. Ben Smith says:

    Your table seems to show the exact opposite of what you say it does. Reading that table, the middle income group are paying as much % tax as anyone else, including the top 10% of income earners and paying more % tax than most people, so haven’t you just agreed with Bill English that the middle class pays the most tax? Of course it would be very reasonable to say that even though the middle class pay more tax, people at the bottom still need the tax breaks more because they’re struggling the most, but that’s not what you’ve said.

    Also seems strange to say that WFF is not social welfare. If WFF isn’t, then what is? Would it be proper “social welfare” if the WFF credit was paid to everyone with children regardless of employment status?

  7. Pat says:

    Your analysis is straight-out wrong. The top 10% wage and salary earners pay the most tax by a country mile. 38% of their wages is what carries the whole system. Any assessment of what proportion of GST they pay must be speculative. It depends on what they spend. If they spend most of their wage then again they will pay at or near the GST rate. When you add working for families, which is paid for by the Govt, not employers its worse. The point Rosenburg was making was not about the top 10% wage earners but those who don’t pay income tax, and I agree with him. The bottom line is that those who earn high wages or salaries carry the system. You have moaned about jornos not getting your their facts straight when your analysis is far worse.

  8. Rob says:

    “while the real bludgers are in the top 10% of income earners. In fact the closer one gets to the top the less tax is paid.”

    While, from your graphic, the first sentence is correct; don’t try to overstate falsely, such as you do in the second sentence.

    The middle and top [salary/wage] earners do pay the most % tax, it is only when you get to the last 0.01% that the tax ‘bludging’ occurs.

    GST is the tricky one, and probably reflects upon the comparative property (or large asset) ownership of those as financial wealth increases.