February 18, 2022 11:00am by David Farrar

Minimum wage workers close to being taxed at third highest bracket

Minimum wage workers working more than 43 hours a week are shifting into the third-highest tax bracket, and one tax expert says it highlights the problems with New Zealand’s system.
The Government announced last week that the minimum wage would increase to $21.20 an hour from April 1.
For people working a 40-hour week, that equates to $44,096 a year. But if they worked 43 hours a week at minimum wage, they would get to the top of the 17.5 per cent tax bracket, and any extra income would be taxed at 30 per cent.

This is what happens when you don’t index tax brackets to inflation. Here’s the average tax rate for someone on the minimum wage over the last decade.

2010: 13.8%
2014: 14.2%
2017: 14.5%
2020: 15.0%
2022: 15.3%

So a fulltime minimum wage earner is paying 1.5% more in tax than a decade ago due to the failure to index tax brackets to either inflation or wages.