Blog powered by Typepad

News orgs

« Tax wedges on employee earnings rose slightly in OECD countries in 2004 | Main | The myth of Sweden »

Mar 12, 2005



Sage, that was Simon that posted that table, as much as I would like to take the credit.

Antarctic Lemur

Nice find, whoever Simon is. Will put it up on Labour Scandals as well. Might try and find the original OECD report.

Antarctic Lemur

I have found the report if you want it. Its around 2Mb in size so you'll need a Gmail account or similar for me to email it to you.

It makes for very interesting reading.

email me at


All it shows is that our tax base is biased such that it targets income and profits rather than unearned gain - that is there is no capital gains tax, no death duties, no payroll tax, etc. It's an internationally well-known characteristic of our tax system, and is actually a fairly major flaw.

The proper figure to look at in deciding whether a country is highly taxed or not is the proportion of GDP collected in tax revenue. This looks at the total tax burden payed in New Zealand as a fraction of total income earned in New Zealand. Any other measure is only a partial look at the picture and is potentially misleading.

It is, however, important to know the composition. We could have lower income tax rates - for individuals and for corporations - if we had reasonable taxes on unearned income. Those rates are presently zero. No party seems willing to address this.


Only one party would look at it Jordan, yours!


jordan - Tax on value added is more important than tax on headline GDP. An example to prove my point. The table below shows 3 countries with same GDP. Materials add nothing to GDP on their own. It is the fruit of labour(whether worker and/or entrepreneur) that transforms them. Country A & B have identical Tax % on GDP so you would say they are even. however B has a far higher value added. NZ is like country A. It has low value added and a high Tax on Value added. That needs to change if New Zealand is to develop.

GDP 100 100 100
Revenue 100 100 100
Imported Mat 60 40 20
Labour 30 50 70
Tax on Labour % 50% 30% 30%
Labour tax 15 15 21
Profit 10 10 10
Tax on Profit% 30% 30% 30%
Tax 3 3 3
Value Add 40 60 80
Tax on Value Add 18 18 24
Tax on Val Add %45.0% 30.0% 30.0%
Tax on GDP% 18.0% 18.0% 24.0%

Politics aside that is New Zealand's problem. Other countries may have higher headline rates but there are so many tax exemptions that the tax on value added is lower. This is not an argument for tax exemptions. Better to drop the headline rates and spending to a point where our tax on added value is lower or comparable.
The problems are only partly caused by labours 39% rate and refusal to cut taxes. They are also caused by low depreciation rates (about half of Australia) meaning NZ profits are higher and reinvestment is lower so long term value added is lower.

Added Value is used in business to assess true returns. it is equally valid to assess the bite the government takes out of the productivity of the people. New Zealand is the second highest in the GDP.

The tax on added value deals with the issue of capital taxes. Capital must be paid for and interest costs reduce profit. New Zealand has a capital shortage and high taxes on capital only make it more difficult for investment decisions to favour new zealand

The comments to this entry are closed.