Friday, August 19, 2011

National MP says tax burden is fair

National MP Michael Woodhouse has sent this e-mail, presumably in response to our post on US investor Warren Buffett's comments.  Our comment in turn is that taxes and their levels is really a separate issue to the amount the Government dishes out in welfare benefits and who to.  We readily agree that for too many people the welfare state has changed from its intended safety net role into a hammock.  But the subject of our post concerned what are bad taxes and what are less bad taxes, and who pays them.  


an interesting exchange in Parliament on Friday
Michael Woodhouse: Which groups now pay most of the tax collected by the Government?
Hon BILL ENGLISH: Our tax and transfer system is highly redistributive, and the number of people paying income tax is surprisingly small. The lowest-income 43 percent of households currently receive more in income support than they pay in income tax. The 1.3 million households with incomes under $110,000 a year collectively pay no net tax—that is, their total income support payments match their combined income tax. The top 10 percent of households contribute over 70 percent of income tax, net of transfers. This system is highly redistributive and we believe it is fair.
I asked the Minister’s office for the data that answer was based on, and the table below sets it out.

This data deserves a wider audience. The gross transfers includes Working for Families, Accommodation Supplement, and other benefits. It does not include NZ Superannuation . I suspect if you included that it would be even more dramatic.

So what does it tell us?

It tells us that overall households with income of $50,000 or below pay no net tax at all. Not only do they pay no net tax, they receive around $4.40 in benefits for every $1 of tax they pay. So they pay $1.7b in tax and receive $7.7b in welfare (and this excludes superannuation).

So that is 44% of households are net tax recipients. Now let us look at the households with income of over $150,000. We don’t know if this is one person earning say $150,000 or two people earning say $ 75,000 each but we do know it includes everyone earning at least $150,000.

So 10% of households have an income of $150,000 or greater. And those 10% fund 71% of net taxation. If we go slightly further down to households with an income of $120,000 or greater – which is 17% of households.

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