Tax Freedom Day falls later as Kiwis pay more tax

Tax Freedom Day falls later as Kiwis pay more tax

Staples Rodway says tax system needs to be more responsive to economic growth

This year’s Tax Freedom Day - the notional day of the year when New Zealand taxpayers stop paying tax and start earning for themselves – is May 7th, two days later than 2014 and four days later than 2013.

National accounting firm Staples Rodway, which is behind the Tax Freedom Day calculations, says while Kiwi companies and individuals are paying more tax, it’s not necessarily all bad news.

Staples Rodway Auckland Managing Director David Searle says: “The key driver of the growing tax take in recent years has been New Zealand’s post-global financial crisis economic recovery. As the economy has recovered, companies are growing and paying more tax, and people are spending more and therefore paying more GST.”

Mr Searle also pointed to ‘bracket creep’, which occurs when workers move into a higher tax bracket as their wages grow, as a reason for people paying more tax.

“The individual tax bands and rates have been unchanged, but people on average have been earning more as the economy has picked up steam. Let’s say a person earning $48,000 in 2011 received the average wage increase of seven per cent over the following three year period. Despite the fact that they have only kept pace with the average wage increase, every extra dollar they earned was taxed at 30 per cent rather than the 17.5 per cent that applied in the lower band.”

Mr Searle says bracket creep was a real issue for the Inland Revenue Department: “New Zealand’s tax system needs to be more dynamic; it needs to respond to economic growth. To arrest bracket creep, the Government needs to review the tax bands annually so workers are only taxed at higher rates when their real wages increase.”

Staples Rodway’s calculations show Tax Freedom Day has been getting later since 2012. Despite company and individual tax rates being reduced in the 2010-12 income years, Tax Freedom Day has slowly been getting later as the total amount of tax paid has increased.

Other contributing factors to the increasing tax take include local body taxes increasing at a faster rate than income taxes; companies and other entities using up losses incurred during the global financial crisis and moving into tax-paying positions; and loopholes related to income from some personal businesses and working for families tax credits being closed.

Staples Rodway has also identified this year’s Tax Freedom Days for Australia -11 April – and the US – 24 April. Tax Freedom Day for the UK fell on 28 May in 2014 – 2015 figures are not yet available.

“We are consistently three-four weeks later than Australia, and two-four weeks ahead of the UK. Americans have been steadily paying more taxes and their Tax Freedom Day this year is 15 days later than it was in 2010,” says Mr Searle.

“The general trend is that New Zealand is maintaining its position relative to these other markets, and that’s mainly because they’re not doing as well as us. But by reviewing our tax bands regularly and adjusting them for economic growth, we have a real opportunity to become more competitive with Australia and the US.”

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