Benjamin Franklin once said there are two certainties in life – death and taxes! What isn’t so certain is what type or how much those taxes will be.
The Inland Revenue Department (IRD) collects over 80% of the government revenue, with just under half of that coming from individual income taxes. The current income tax rate in New Zealand ranges from 10.5% for lower incomes to 33% for the higher incomes – but has it always been this way?
The IRD was formed in 1878 as the Land Tax Department, eventually merging with the Stamp Duties Department to become The Inland Revenue Department in 1952.
New Zealanders used to receive all of the money that they earned, calculated their own taxes, and paid the entire tax amount to the IRD the following tax year. In 1958, pay as you earn (PAYE) was introduced and is still present today. In this system, employers deduct the employee’s tax from their wages, and pay it to the IRD on behalf of the employee, whilst paying the remaining wages directly to the employee. In recent years Inland Revenue also took over the collection of Student loans in New Zealand – these are also dealt with by employers, alongside the Kiwisaver scheme and the PAYE system.
Throughout the late 1950s to 1970s, various ideas were considered to make income tax help pay for the country’s debt. In the 1980s, major tax reforms were introduced, with large reductions to the highest-earner’s tax rates. Since then, tax rates have fluctuated regularly, and a number of additional taxes have been introduced. Accident Compensation (ACC) has been paid by employers for every person they employ since 1974. Goods and Services Tax (GST) was introduced in 1986. This is currently 15% of all sales and services, and adds significantly to the living costs of people, particularly lower income earners as it is not discriminate; everyone pays the same amount of GST.
If you would like to know more about how New Zealand income tax rates affect you, contact your local tax agent or Inland Revenue for further information.
