Analysis by Household
Having examined the characteristics of low-income individuals, it is also of interest to consider the extent to which the taxable incomes of heads of households might be considered a good measure of economic wellbeing. As with the analysis of individuals, if there are many heads of households for whom low taxable income may not reflect low economic wellbeing, income tax may be a poorly targeted redistributive instrument. This includes those receiving the majority of income from NZS, Core Benefit or from self-employment income; heads of households under 23 years or in receipt of student allowances; and those receiving a majority of their income from non-taxable sources. Remaining heads of household are those deriving income predominantly from wages and salaries, and would thus benefit most from reforms to income tax rates and thresholds.
Figure 9 shows the frequency distribution histogram of household heads at different taxable income levels. The ‘lighter’ bar component shows the numbers for whom it is estimated that taxable income is a good measure of economic wellbeing. That is, it excludes only those in receipt of income from NZS, Core Benefits, and so on (as mentioned in the previous paragraph). The large majority of heads of household, up to 650,000, earn between $20,000 and $70,000. For most of them, and those higher up the income scale, taxable incomes are generally a good measure of economic income.
By contrast, there are perhaps only about 60,000 heads of households with taxable incomes below $20,000 for whom this is a reasonable measure of their economic income. Personal income tax reforms, such as a tax-free zone, seeking to increase low household incomes would therefore be poorly targeted at this income range, and to a lesser extent, for those up to $30,000. Rather, most households affected would be in the $30,000 - $70,000 range.
- Figure 9 - Heads of Households' Taxable Income
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