Tax relief, but Aussies still earn more

Income differences mean a model family still better off in Australia by $18k pa

We compare a model family’s annual income. One parent works full time in telecommunications (NZ$47,000) and the other parent works part time in retail (NZ$12,800). They have two children, a 4 year old and a 7 year old. With the new tax rates the take home pay will be NZ$56,430 in New Zealand. The same family will be around NZ$7,000 better off with Australian income tax rates and credits, with take home pay of NZ$63,304.

However, average incomes are higher in Australia (Table 1). For our model family, gross income would be around NZ$25,000 more in Australia (at the long run average exchange rate), if we ignore any difference in skill levels or job composition in industries between countries. The take home pay would be NZ$74,897. Under the new income tax rates this is around NZ$18,000 more than disposable income in New Zealand.

Table 1 Annual gross income comparison (March 2010)

Note: (1) Australia is mining only

Source: Statistics NZ, ABS, RBNZ, NZIER

Data reference: Infoshare table: QEX007AA, ABS Catalogue #:6302.0

This Insight was prepared at NZIER by Peter O’Connor, Economist and Shamubeel Eaqub, Principal Economist,

September 2010

For further information please contact NZIER at econ@nzier.org.nz or ph 04 472 1880

Technical annex

The calculator compares New Zealand’s personal tax regime and Working for Families with the equivalent policies in Australia. Australian figures are translated to New Zealand dollar equivalent using purchasing power parity values from the OECD¹.  There is no adjustment for wage differentials or other costs outside of those listed below.

Net income is defined as income net of personal income taxes, low income tax offset, social insurance levies and family tax credits. Other forms of family income assistance (e.g., main welfare benefits and childcare and accommodation assistance) are not included in these figures.

New Zealand net income covers:

•    Individual income tax rates, the independent earners tax credit and the ACC levy
•    Working for Families: family tax credit, in-work tax credit and minimum family tax credits.

Australian net income covers:

•    Individual income tax rates, low income tax offset and Medicare levy
•    Family tax benefits: plan A and B.

Changes since the previous tax calculator:

•    All the rates have been updated to 1 October 2010 levels
•    The input of children has been simplified
•    The independent earners tax credit is now included
•    The Australian family tax benefit part B sets to $0 when income is over $150,000
•    In-work tax credit has been amended.

What makes this calculator different?

•    A direct comparison is made to the main Australian tax and family benefit policies
•    It incorporates the main taxes and benefits influencing the typical household and family combined at annual levels, rather than the difference in policy changes or individually
•    The calculator allows you to set all the variables that impact the final tax amount without making assumptions.

    _{1  The converting value used is a ratio of the Australian value in US dollars to the New Zealand value in US dollars for 2009 (the latest available)}

NZIER Insights are short notes designed to stimulate discussion on topical issues or to illustrate frameworks available for analysing economic problems. They are produced by NZIER as part of its self-funded Public Good research programme.
NZIER is an independent non-profit organisation, founded in 1958, that uses applied economic analysis to provide business and policy advice to clients in the public and private sectors.
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