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Average Marginal Income Tax Rates for New Zealand, 1907-2009 WP 12/04

5.2  Relationships between Exemptions, Non-Filed Incomes and AMTRs

The calculated AMTRs incorporate estimates of the amount of income exempt from tax, including income which was not required to be filed with the tax department, and its impact on the effective marginal tax rate faced by individuals. Non-filer income is effectively treated as being 'taxed' at a zero tax rate in our calculations, and this has a significant impact in lowering the AMTRs. For exempt income we have sought to capture the impact of exemptions in moving people to lower marginal tax brackets as discussed above. This had a smaller, but nevertheless noticeable impact, especially where it moves some taxpayers into a tax-free income bracket.

Figure 6 shows how the proportions of exempt and non-filer income changes over the 1907 to 1982 period. (This is not readily calculated for the post-1982 IRD dataset). During the early part of the 20th century, we estimate that a large proportion of income was not filed. In 1907, approximately 89% of income was not filed because it fell under the £300 filing limit. This proportion reduced steadily throughout the first half of the century, and by 1958 when the PAYE system was introduced it was close to zero. As described above, there were a number of tax exemptions available. The proportion of income which was exempt from tax is shown in red in Figure 6. By 1980 income exempt from tax represented only around 5% of gross assessable income.

Figure 6 - Proportions of taxed, exempt and non-filed income, 1907 - 1983
Figure 6 - Proportions of taxed, exempt and non-filed income, 1907 - 1983   .
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