Net taxpayers

There was an interesting exchange in Parliament yesterday:

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—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. As far as I know it is the first comprehensive compilation of net tax, by income brackets.

The gross transfers includes Working for families, Accom Supplement, other benefits etc. It does not include NZ Super though. 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.  And Labour’s tax policy is geared towards having them become larger recipients. Yes Labour’s tax policy announced in January even includes an increase in the level of benefit payments for all beneficiaries.

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 $80,000 each but we do know it includes be definition everyone earning at least $150,000. Household income is used as welfare payments are normally made on a household basis.

So 10% of households have an income of $150,000 or greater. And those 10% fund 71% of net taxation. And these are the households that Labour are saying are not doing their fair share and must pay more.

If we go slightly further down to households with an income of $120,000 or greater – which is 17% of households. Well those 17% of households are paying 97% of net taxation.

Yet Labour seems to think this is not enough. Their tax policy (I don’t mean CGT, but their income tax policy) is that 97% is not enough. Those rich pricks have to be screwed over until they are paying over 100% of net taxation.

So the next time someone talks to you about fairness and tax, use the table above. 10% of households pay 71% of net (income) taxation and 17% pay 97% of net (income) taxation.