A new book has found total tax rates on the incomes of rich New Zealanders are now the lowest in the developed world.
New Zealand's top tax "wedge" of 33% on incomes above $70,000 is lower than all 27 other high-income nations in the Organisation for Economic Co-operation and Development, after including social security and payroll taxes which do not exist in this country.
Rich New Zealanders also escape without paying tax on capital gains that would be taxed in most other countries.
On the other hand, New Zealand has the world's most comprehensive goods and services tax (GST), taxing 98% of potentially taxable consumer spending compared with a developed-world average of 59%.
New Zealand is one of only five high-income OECD nations that have no exemptions for food - a key factor in our high food prices.
The book's author, Prof Rob Salmond, a New Zealand-born political scientist at the University of Michigan, says New Zealand has a tax system of extremes.
"We charge less tax than any comparable country on high incomes, dividends and capital gains," he says.
"Our GST, however, is bigger than most, both as a proportion of taxes and as a proportion of the economy as a whole."
A structural shift in the tax and welfare system has been a major driver of the widening gap between rich and poor in Auckland. Suburbs whose average incomes were mostly within 10% of each other in 1986, now have average incomes that vary up to three-fold.
The top income tax rate on the rich was halved in two steps between 1986 and 1988 from 66% to 33%.
The bottom income tax rate has been roughly halved too, from 20% to 10.5%. But that has been effectively outweighed at low incomes by GST, which came in at 10% in October 1986 and is now 15%.
Those on a lower-income spend a greater proportion of gross incomes on items attracting GST than higher-earning people do, according to a Statistics NZ survey.
Dr Salmond says the total tax rate, combining income tax and GST, is actually about 29% on those with the lowest incomes.
- Simon Collins
