Taxing Wages 2019

New Zealand (2018-19 Income tax year)

Abstract

This chapter includes data on the income taxes paid by workers, their social security contributions, the family benefits they receive in the form of cash transfers as well as the social security contributions and payroll taxes paid by their employers. Results reported include the marginal and average tax burden for eight different family types.

Methodological information is available for personal income tax systems, compulsory social security contributions to schemes operated within the government sector, universal cash transfers as well as recent changes in the tax/benefit system. The methodology also includes the parameter values and tax equations underlying the data.

 

 

The national currency is the New Zealand dollar (NZD). In 2018, NZD 1.45 was equal to USD 1. In that year the average worker earned NZD 60 360 (Country estimate).

1. Personal Income Tax System

1.1. Central/federal government income taxes

1.1.1. Tax unit

Members of the family are taxed separately.

1.1.2. Tax allowances and tax credits

1.1.2.1. Standard reliefs

None.

1.1.2.2. Main non-standard tax reliefs applicable to an average wage

None.

1.1.3. Schedule

• Rates of income tax for individuals:

  • On so much of the income as does not exceed NZD 14 000: 10.5%;

  • On so much of the income as exceeds NZD 14 000 but does not exceed NZD 48 000: 17.5%;

  • On so much of the income as exceeds NZD 48 000 but does not exceed NZD 70 000: 30%;

  • On so much of the income as exceeds NZD 70 000: 33%.

1.2. State and local income taxes

New Zealand has no state or local income tax.

2. Compulsory Social Security Contributions to Schemes Operated Within the Government Sector

New Zealand has no compulsory social security contributions to schemes operated within the Government sector.

It should be noted that there is an accident compensation scheme administered by the Accident Compensation Corporation for residents and temporary visitors to New Zealand. This scheme is funded in part by premiums paid by employees and employers. For employees, the premium represents 1.21% of their gross earnings. For employers and the self-employed, the premiums are based on a percentage of the total payroll and the applicable rate varies depending upon the associated accident risk (the average rate is 0.72%). This scheme is not considered as a compulsory social security contribution for the purposes of the Report.

3. Universal Cash Transfers

3.1. Amount for marriage

None.

3.2. Amount for children

For all families with children born, or due to be born, on or after 1 July 2018, the Best Start payment provides NZD 60 per week (3 120 per year) for the first year of the child’s life. The Best Start payment continues to provide NZD 3 120 per year for the second and third year of a child’s life, but abates at 21.00 cents in the dollar for every dollar by which a family’s income exceeds the abatement threshold of NZD 79 000. For families receiving paid parental leave, the Best Start payment begins after paid parental leave ends.

For families with children born prior to 1 July 2018, the Parental Tax Credit provides NZD 220 per week for the first ten weeks of each child’s life. The credit abates at 22.50 cents in the dollar for every dollar by which a family’s income exceeds the abatement threshold (NZD 36,350) for payments received prior to 1 July 2018. For payments received from 1 July 2018, the credit abates at 25.00 cents in the dollar for every dollar by which a family’s income exceeds the abatement threshold of NZD 42 700. The payment starts to abate once any Family Tax Credit and In Work Tax Credit has abated to zero. The abatement is based on the combined income of the parents. Instead of Parental Tax Credits some primary carers can qualify for paid parental leave. Paid parental leave is paid directly to the carer and is treated as normal taxable income.

3.3. Family Tax Credit

From 1 July 2018, for an eldest child, the rate of the Family Tax Credit is NZD 5 878 per year. For subsequent children the rate is NZD 4 745. The total credit is abated by 25.00 cents on each dollar earned over NZD 42 700. The abatement is based on the combined income of the parents.

From 1 April 2018 to 30 June 2018, for an eldest child aged 16-18, the rate of the Family Tax Credit is NZD 5 303 per year, while the rate of NZD 4 822 applies if the eldest child is younger than 16. For subsequent children the rate depends on the age of the child; NZD 4 745 per year for 16-18 year-olds, NZD 3 822 per year for 13-15 year-olds and NZD 3 351 per year for children under 13 years of age. The total credit is abated by 22.50 cents on each dollar earned over NZD 36 350. The abatement is based on the combined income of the parents.

3.4. In Work Tax Credit

The In Work Tax Credit is available to families with dependent children who are not receiving an income-tested benefit, veteran’s pension, New Zealand Superannuation or student allowance. The level of assistance it provides is NZD 3 770 per family per year, plus an additional NZD 780 per year for fourth and subsequent children. It is only available to couple families working a total of 30 hours or more per week, or to sole parents working 20 hours or more per week. It is also affected by the abatement regime used with the Family Tax Credit, although it is unaffected until the latter has been abated to zero.

3.5. Minimum Family Tax Credit

The Minimum Family Tax Credit is a scheme that ensures a guaranteed minimum family net income for all full-time earners with dependent children. The guaranteed minimum after-tax income is NZD 26 156 per year plus the Family Tax Credit and In Work Tax Credit.

3.6. Independent Earner Tax Credit

The Independent Earner Tax Credit of NZD 520 is available to individuals with annual net income between NZD 24 000 and NZD 48 000 that do not receive other forms of tax credits or benefits. It is abated by 13 cents on each dollar earned over NZD 44 000.

4. Main Changes in Tax/Benefit Systems Over 2018/19

No changes in tax/benefit systems over 2017/18.

5. Memorandum Items

5.1. Method used to identify AW and to calculate the AW’s gross earnings

The Annual Earnings figure is derived from the Quarterly Employment Survey for those employees in the B-N industry groups. The annual earnings figure for the average worker is the sum of the four quarterly earnings figures, with each quarterly figure calculated by taking the average total weekly earnings and multiplying it by 13 weeks per quarter.

5.2. Employer’s contributions to private pension, health schemes, etc.

No information available.

2018 Parameter values

	Ave_earn	60 360	Country estimate
Income tax schedule	Tax_sch	0.105	14 000
		0.175	48 000
		0.3	70 000
		0.33
Family tax credit	Fam_sup_eld	5 878
	Fam_sup_oth	4 745
	Fam_sup_thrsh	42 700
	Fam_sup_rate	0.25
In-work tax credit	In_work_children123	3 770
	In_work_children4plus	780
Minimum Family Tax Credit	Min_inc	26 156
Independent Earner Tax Credit	IETC	520
	IETC_thrsh1	24 000
	IETC_thrsh2	44 000
	IETC_rate	0.13

2018 Tax equations

The equations for the New Zealand system in 2018 are mostly repeated for each individual of a married couple. But the cash transfer is calculated only once. This is shown by the Range indicator in the table below. The functions which are used in the equations (Taper, MIN, Tax etc) are described in the technical note about tax equations. Variable names are defined in the table of parameters above, within the equations table, or are the standard variables “married” and “children”. A reference to a variable with the affix “_total” indicates the sum of the relevant variable values for the principal and spouse. And the affixes “_princ” and “_spouse” indicate the value for the principal and spouse, respectively. Equations for a single person are as shown for the principal, with “_spouse” values taken as 0.

 

	Line in country table and intermediate steps	Variable name	Range	Equation
1.	Earnings	earn
2.	Allowances	tax_al	B	0
3.	Credits in taxable income	taxbl_cr	B	0
4.	CG taxable income	tax_inc	B	earn
5.	CG tax before credits	CG_tax_excl	B	Tax(tax_inc, Tax_sch)
6.	Tax credits :
	Guaranteed minimum income	GMI	J	(Children>0)*Min_inc
	Independent Earner Tax Credit	IETC_rebate	B	=AND(Children=0,earn>IETC_thrsh1)*Taper(IETC,earn,IETC_thrsh2,IETC_rate)
6.	Tax credits:	tax_cr	B	IETC_rebate
7.	CG tax	CG_tax	B	CG_tax_excl-tax_cr
8.	Local tax	local_tax	B	0
9.	Employees' soc security	SSC	B	0
11.	Cash transfers:
	Family tax credit (unabated)	fam_tax_cr	J	Fam_sup_eld*(Children>0)+ Fam_sup_oth*Positive(Children-1)
	In-work tax credit (unabated)	in_work_tax_cr	J	(Children>0)*(In_work_children123+Positive(Children-3)*In_work_children4plus)
	Tax credits abated	tax_cr_ab	J	Taper(fam_tax_cr+in_work_tax_cr, earn_total, Fam_sup_thrsh1, Fam_sup_rate1)
	Minimum Family tax credit	min_fam_tax_cr	J	Positive(GMI-(earn_total-CG_tax_excl_totall))
	Cash transfers	cash_trans	J	tax_cr_ab + min_fam_tax_cr
13.	Employer's soc security	SSC_empr	B	0

Key to range of equation B calculated separately for both principal earner and spouse P calculated for principal only (value taken as 0 for spouse calculation) J calculated once only on a joint basis.