New Zealanders are paying nearly five percent more tax than last year despite personal income tax cuts. Photo: RNZ
New Zealanders are paying nearly five percent more tax than last year despite personal income tax cuts, and a tax adviser says poor economic conditions are to blame.
Friday 16 May marks Tax Freedom Day - the date that, hypothetically at least, workers have paid their tax bill for the year and can pocket the rest of their earnings.
Calculations by accounting and business advisory firm Baker Tilly Staples Rodway found the overall tax people were paying increased by 4.66 percent on the previous tax year.
That's despite the near $15 billion tax cut package unveiled by the government during last year's Budget.
Meanwhile local government taxes jumped nearly 11 percent, marking the third consecutive year of increases of more than 10 percent, said head of taxation services Mike Rudd. "This has effectively added the extra day's worth of tax on to the calculation."
He said it could reflect the current government shift towards decentralising and handing more responsibilities to local government.
Rudd said it was clear "economic heavy weather" had "more than cancelled out" the impact of the government's tax cuts and cuts to public sector spending.
"The whole issue of inflation makes it hard to get ahead, so the economy is growing in a number sense, and the tax take is growing in a number sense, but a lot of that is being eaten away by inflation. It's not genuine growth [so] that is part of the problem. Part of the solution is to get inflation under control and get real growth back, so the economy is actually growing in real terms, not just nominal terms."
Baker Tilly's calculations found that, despite high-profile cuts to public service spending, most New Zealanders were only "saving" one day of tax on core services this year. Even though the rate of inflation has slowed, core Crown expenses rose from $139 billion to an estimated $144.6bn, and the government's new operating spending had added three days to the public's tax burden.
So was it worth all the public sector cuts and job losses? "That's the $64,000 question," Rudd said.
"It's a long-term process that has to work its way through. Providing the services can still be performed by the government in the way tax payers and citizens expect, but in a more efficient way and costing less, then ideally there should be a flow through so the whole country benefits in the end. But the process of getting there is going to be a bit painful, by the looks of things."
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