What has changed in the last decade on income tax?
Income tax rates in New Zealand are in a constant state of change. These changes occur often and regularly, due to changes to shifting financial climates as well as the changing policies of Governments. Changes to income tax rates are not usually wholesale changes or paradigm shifts, but more small changes from year to year that affect every single wage earner in New Zealand. The changes to income tax also correlate to changes to other taxes and Government schemes, because at the end of the day, tax is the main source of revenue for the NZ Government, and it has to come from one place or another. So in the last decade, how exactly has New Zealand income tax changed?
Income tax in 2002, Ten Years Back
In 2002 the New Zealand income tax rate was different for most people than it is today. For the highest salary earners, a top rate of 39% applied, this is much higher than the highest rate of 33% today. The lower income earners were also paying more tax, and were all grouped into the same tax bracket of $39,000 and under, taxed at a rate of 19.5%. The ten years since has seen lowered rates, as well as more defined tax brackets.
Steadily Increasing from 2003 – 2008
The average income tax that a New Zealander paid increased steadily between 2003 and 2008 from 22.5% – 24.5%. This was the result of small increases across the board over a number of years and income tax rate alterations. The highest and lowest rates throughout this time were 39% and 19.5% respectively.
Establishment of lower tax brackets in 2008
2008 saw the introduction of markedly lower tax rates for the lowest tax bracket and the introduction of new brackets. The lowest rate for earnings under $38,000 pre-2008 was 19.5%, the new tax bracket saw earnings up to $9,500 taxed at 13.75% and earnings up to $14,000 taxed at 16.75%. This resulted in significant tax savings for the lowest income earners and bought New Zealand income tax more in line with Australian rates, which do not tax the initial $6,000 of a person’s income.
Marginal Increases 2010 – 2012, but lower Top Rate
The previous two years have seen only one significant change, accompanied by a few small changes to the New Zealand income tax rate. The biggest change was the introduction of the 33% top rate in October 2010. This was also accompanied by the introduction of a ‘no notification’ rate of 45% for employees who haven’t completed a Tax Code Declaration. Other changes included slight increases between 1%- 1.5% across most other tax brackets.
Summary
The New Zealand income tax rate is in a constant state of change, but for most New Zealanders, the current tax rates and tax brackets put them in a better position than ten years ago, with the average New Zealander paying less income tax.
