New Zealand Tax Burden Under Scrutiny: How Much Do Kiwis Pay?
Experts Weigh In on Tax Reform Amidst Growing Public Service Demands
New Zealand’s tax settings are facing a critical review, with calls for reform from various bodies, including Inland Revenue and accounting organizations. The debate intensifies as the nation grapples with an aging population and the potential need for increased government revenue.
Understanding the Average Kiwi’s Tax Bill
Infometrics has calculated that a typical household, comprised of two median-income earners each earning $72,900 before tax, faces an annual tax burden of approximately $39,800. This figure, excluding Working for Families credits, comprises around $14,100 each in income tax and $11,600 in Goods and Services Tax (GST). Local government rates add an estimated $3800 to this annual bill.
Brad Olsen, Chief Executive of Infometrics, highlighted that the vast majority of tax revenue—over 90%—flows to the central government. He noted that while rates notices are a direct and visible reminder of local government charges, central government taxes are often less apparent.
“For income taxes, PAYE workers never see their income tax as their employer withholds the tax and pays it to IRD. For GST, you don’t directly tally up your GST and pay it to the government — it’s all part of your daily spending. The difference in how you pay — and how noticeable that payment demand is or not — does behaviourally contribute to how we talk about these various increases.”
—Brad Olsen, Chief Executive
Olsen pointed out that for every dollar of additional rates paid in the last three years, household taxes have increased by $3.23, underscoring the significant impact of central government taxation, despite its lower perceived visibility.
International Comparisons: New Zealand’s Tax Position
Despite the perception of high taxation, New Zealand ranks surprisingly low internationally when tax burdens are measured against Gross Domestic Product (GDP). In 2023, New Zealand’s tax-to-GDP ratio stood at 34%, just slightly above the OECD average of 33.9%.
Shamubeel Eaqub, Chief Economist at the New Zealand Institute of Economic Research, commented on this perspective.
“There is no right or wrong number when it comes to taxes. If we want less public service, we pay less tax, if we want more public services, we pay more.”
—Shamubeel Eaqub, Chief Economist
On an income tax wedge basis—total tax as a percentage of labor costs—New Zealand was the third-lowest in 2024 among comparable nations, behind only Chile and Colombia. However, countries like France (44% of GDP), Denmark (43.4%), and Italy (42.8%) have significantly higher tax-to-GDP ratios.
Shifting the Tax Conversation
Craig Renney, Policy Director and Economist at the Council of Trade Unions, argues that New Zealand’s tax system is skewed towards income tax and GST, lacking taxes on capital or social security contributions, which are common in other developed economies. He advocates for a shift in public discourse away from viewing tax changes as a zero-sum game between “winners and losers.”
“We have big areas where we don’t have any tax. There are no capital taxes, no social security taxes. It means New Zealand’s taxation structure looks very different to the majority of developed economies around the Western world. We tend to over-emphasise GST and PAYE. Labour is a smaller share of tax in other jurisdictions.”
—Craig Renney, Policy Director and Economist
Eric Crampton, Chief Economist at NZ Initiative, suggests that reducing the government’s deficit should prioritize spending cuts over tax increases, unless there’s clear evidence of value from current expenditure. He posits that an increase in GST, coupled with adjustments to income tax thresholds, could be a viable option, provided lower-income households are protected.
For context, as of early 2024, the average effective corporate tax rate across OECD countries was around 21.3%. New Zealand’s corporate tax rate of 28% is indeed among the higher end of developed nations. (Source: OECD Tax Database).
