Revealed: No change in the rich’s income share under National

New data from the IRD shows that the share of taxable income going to the richest New Zealanders has not changed under National. However, that share is still very large, indicating significant income imbalances.

The IRD data shows that the richest tenth of taxpayers got one-third of all taxable income in both 2008 and 2014. Within that, the richest 1%, about 34,000 people, got over 8% of taxable income.

In contrast, the poorest tenth got just 0.4%.

The income shares are broadly the same in 2014 as they were in 2008. This would suggest that pre-tax inequality has not increased under National. However, the following must be taken into account:

    • taxes and welfare payments make a big difference to final levels of post-tax or disposable income inequality, which is the most important measure, and that appears to be rising under National; and
    • these figures exclude capital gains, which are not reported to the IRD because they are not taxed, and so the figures – in all likelihood – dramatically underestimate the amounts and shares of income going to the richest New Zealanders.

The graph below has more detail. The poorest tenth is decile 1 and the richest decile 10. The 1% are labelled as such.

% of income going to decile/percentile
Year 1 2 3 4 5 6 7 8 9 10 1%
2008 0.3 2.0 4.5 3.3 6.1 8.8 10.8 12.9 18.0 33.3 9.0
2014 0.4 2.1 4.7 3.5 5.9 8.2 10.6 13.4 17.6 33.6 8.4

 

Tax paid

The table below shows the share of income tax paid by the different deciles. It shows those shares have been stable 2008-14. The shares of tax paid by the richest 10% and 1% are large, as would be expected in a system in which they earn a disproportionately large share of income and taxes are modestly progressive (increasing with income). (The apparent change in shares for deciles 3-6 are largely an artefact of the calculation method and probably not significant.)

% of tax paid by decile/percentile
Year 1 2 3 4 5 6 7 8 9 10 1%
2008 0.1 1.1 1.5 3.9 3.6 7.2 8.4 12.3 17.4 44.5 13.1
2014 0.2 1.1 2.8 2.2 4 5.8 8 11.9 18.3 45.7 13.7

However, it is important to note that these figures are for income tax only, and do not include GST for instance, so they exaggerate the share of total tax paid by the richest New Zealanders. It is incorrect to say that the richest tenth pay 45% of all taxes.

The stability of tax paid seems surprising, given that the 2010 tax changes cut rates for the richest New Zealanders most dramatically. However, moves to crack down on tax avoidance, such as through loss-attributing qualifying companies, may have had some effect on the richest New Zealanders.

 

How much does it take to be in the 10%?

The table below shows how much you need to earn, pre-tax, to be in each decile or tenth of taxpayers. The top of decile 5, which is the middle of New Zealand, earns $28,000. To be in the richest tenth you need to have more than the top of decile 9, which is $81,000. To be in the richest 1% you need at least $205,000 a year.

Top of decile/percentile ($)
Year 1 2 3 4 5 6 7 8 9 1%
2008 3000 10000 14000 17000 23000 32000 40000 50000 67000 165000
2014 5000 12000 17000 21000 28000 38000 48000 61000 81000 205000

 

Sources

These figures come from the IRD and can be found at http://www.ird.govt.nz/aboutir/external-stats/revenue-refunds/income-distrib-individual-customers/income-distrib-individ-customers.html.

I thank CTU economist Bill Rosenberg for checking my calculations (and for doing the earlier work that inspired this piece of analysis), although any mistakes remain my responsibility. The 2014 data are provisional at this stage, though any changes are extremely unlikely to alter the high-level figures quoted above.

1 Comment Permalink
One comment on “Revealed: No change in the rich’s income share under National
  1. This data, like a lot of inequality data needs to really be considered in real, individual terms.

    Consider a woman married to a wealthy husband. She has near zero taxable income, perhaps just a couple of hundred dollars from interest payments on a deposit account.

    By IRD’s figures, she is in the bottom 10% of income earners, earning only a tiny fraction of a percent of total income earned. In real terms, she is living a very comfortable life in a nice big house and eating well. This kneejerk reaction to this data completely ignores the reality of these people.

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