We’re on the money
You might be surprised to learn that New Zealand’s tax system is working harder than you think.
Casting an eagle eye over the tax system
We know the tax system is undeniably complex, but is it fair?
To find out we commissioned Sapere Research Group to investigate the current landscape with a focus on the wealthy sector to determine whether current policies are working the way they should be.
Key findings from the report
The good news is, it’s working, and it’s fair.
Progressive Income Contributions
Don’t be fooled, high-wealth individuals ARE paying their fair share, with tax payments increasing as their income grows.
Lower Effective Tax Rates
Most individuals pay less than the statutory tax rates due to deductions, exemptions and other contributing factors.
Disparities in Tax Rates
Singles paying rent and low-income earners face some of the highest tax rates in the system.
Tax Policy Impact
Government tax policies encourage high-wealth individuals to invest in low-taxed activities, such as investment in business, as well as buying and building homes.
Holistic Tax Consideration
To evaluate income tax requires considering benefits like Working for Families, which can greatly impact effective tax rates and overall tax burden.
Data Challenges in Tax Policy
Inland Revenue lacks hard data on individual economic income, making it difficult to develop targeted, equitable, and effective tax policies.
Take a deep dive
To better understand the current tax system and all its complexities, simply download the full Sapere Report and join the conversation.
Meet the Taxpayers
Let’s take a closer look at who's contributing what.
Average Effective tax rates imposed on the net real economic incomes of illustrative households
The tax system is less likely to favour single people on lower incomes at the expense of those on higher incomes
Makes up X% of NZ total tax contributions
Benefits:
Proportion of net real economic income earned
Wage and salaries:
100%
Retained earnings of company:
0%
Income from PIE:
0%
Non-taxable income:
0%
Effective tax rates imposed on net real economic income (AETR)
First few dollars:
<-100%
$48,000:
28%
$500,000:
NA
$1.4m:
NA
Proportion of net real economic income earned
Wage and salaries:
100%
Retained earnings of company:
0%
Income from PIE:
0%
Non-taxable income:
0%
Effective tax rates imposed on net real economic income (AETR)
First few dollars:
<-100%
$48,000:
26%
$500,000:
NA
$1.4m:
NA
Proportion of net real economic income earned
Wage and salaries:
100%
Retained earnings of company:
0%
Income from PIE:
0%
Non-taxable income:
0%
Effective tax rates imposed on net real economic income (AETR)
First few dollars:
<-100%
$48,000:
26%
$500,000:
NA
$1.4m:
NA
Likewise, the tax system is less likely to favour married couples with children at the expense of single people.
Makes up X% of NZ total tax contributions
Benefits:
Proportion of net real economic income earned
Wage and salaries:
90%
Retained earnings of company:
0%
Income from PIE:
0%
Non-taxable income:
10%
Effective tax rates imposed on net real economic income (AETR)
First few dollars:
13%
$48,000:
24%
$500,000:
46%
$1.4m:
NA
Proportion of net real economic income earned
Wage and salaries:
48%
Retained earnings of company:
0%
Income from PIE:
32%
Non-taxable income:
20%
Effective tax rates imposed on net real economic income (AETR)
First few dollars:
<-100%
$48,000:
-16%
$500,000:
29%
$1.4m:
NA
Proportion of net real economic income earned
Wage and salaries:
0%
Retained earnings of company:
0%
Income from PIE:
80%
Non-taxable income:
20%
Effective tax rates imposed on net real economic income (AETR)
First few dollars:
<-100%
$48,000:
-71%
$500,000:
6%
$1.4m:
NA
Rest assured that those who fall into the top tier are paying their fair share of a progressive tax system designed to support those who need it most.
Makes up X% of NZ total tax contributions
Benefits:
Proportion of net real economic income earned
Wage and salaries:
48%
Retained earnings of company:
0%
Income from PIE:
32%
Non-taxable income:
20%
Effective tax rates imposed on net real economic income (AETR)
First few dollars:
9.5%
$48,000:
10%
$500,000:
23%
$1.4m:
29%
Proportion of net real economic income earned
Wage and salaries:
48%
Retained earnings of company:
19.2%
Income from PIE:
12.8%
Non-taxable income:
20%
Effective tax rates imposed on net real economic income (AETR)
First few dollars:
13%
$48,000:
14%
$500,000:
25%
$1.4m:
31%
Proportion of net real economic income earned
Wage and salaries:
0%
Retained earnings of company:
0%
Income from PIE:
80%
Non-taxable income:
20%
Effective tax rates imposed on net real economic income (AETR)
First few dollars:
<-100%
$48,000:
-70%
$500,000:
6%
$1.4m:
12%
In the media
FAQs
Leading tax consultancy OliverShaw commissioned Australasian consulting firm, Sapere Research Group, to prepare a report on the effective rates of tax that New Zealand’s tax and benefit systems impose on the incomes of its residents.
It is impossible to try to estimate the effective tax rates faced by individuals and households across New Zealand. Rather, the Sapere Report uses detailed statistical data to identify groups of taxpayers and welfare beneficiaries with similar levels and types of wealth and economic income that are reasonably “illustrative” of the general population of taxpayers and welfare recipients. Tax applying to those types and levels of wealth and income assuming a consistent rate of return is then calculated to produce effective tax rates. This approach is consistent with the approach that is used by the OECD in its “Taxing Wages” reports to estimate the taxes paid on wages in OECD countries as well as other international effective tax rate studies.
The key findings of the report are that the wealthy pay most of the tax collected in New Zealand and the wealthier a person is, the more tax they are likely to pay. The report also found that average effective tax rates increase as the net real economic incomes of households increase.
Yes, the Sapere Report showed there are apparent inequalities and inconsistencies in the treatment of different types of taxpayers.
Single employee renting households face some of the highest average effective tax rates because they do not qualify for benefits and do not get the benefit of tax-free home ownership.
Yes, these apparent inconsistencies are most often the result of deliberate and long-standing policy decisions made by successive governments.
The Sapere Study identified a number of caveats that apply to any consideration of effective tax rates, including those of Inland Revenue’s High Wealth Individuals Research Project (HWIRP). Some of the caveats include the fact that we cannot sensibly consider income tax without taking into account Working for Families because it is delivered through the tax system reducing the tax payable by lower income working families, and the concept of economic income has limited practical application for taxation purposes.
Inland Revenue had been asked by government to calculate effective tax rates of high wealth individuals. Looking at the proposed methodology, we were concerned that it could easily be interpreted to produce a misleading picture of the fairness of our tax rules. We were particularly concerned that a consistent methodology be used to measure effective tax rates at all income levels and that effective tax rates be measured in accordance with accepted international best practice. Australasian Sapere Research Group confirmed our concerns so we asked them to conduct a substantial piece of work calculating the average effective tax rates in New Zealand.
The Sapere Report addresses the question of who pays what proportion of tax and where does the burden fall.
The wealthy pay most of the tax collected in New Zealand. The IRD’s own data, from 2021 shows that most (68.5%) of the income tax revenue raised by government from individuals in the 2021 income year was paid by the 21.2% of taxpayers in the two top income tax brackets (i.e. those with taxable incomes between $70,001 and $180,000, and those with taxable incomes greater than $180,000 per annum).
Tax rules are the product of policy conclusions as to what is reasonable, workable, efficient, and equitable. When it comes to considering whom to tax, on what basis and at what rate, trade-offs have to be made between taxing all income at the same rate and other policy concerns such as providing assistance to lower income families and encouraging investment. Inequities are usually the result of deliberate and considered government policy.
Low-income earners receive cash benefits greater than the tax they pay and thus tend to have negative effective average tax rates -- often in excess of 300%.
The government’s ability to reduce the differences in the effective marginal tax rates is significantly constrained by; a lack of extensive information required to estimate the nature and extent of the unintended effects that the income tax and benefit systems have on both economic efficiency and distributional equity); conflicting objectives such as the inherent conflict between the equity and efficiency objectives of the tax and benefit systems; unavoidable economic costs such as the adverse effects of an income tax on work, saving and investment decisions, and the administrative and compliance costs arising from the operation of the tax and benefit systems; and legislative constraints.