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

5.5 The Effect of Family Tax Credits, Benefits and ACC

Family tax credits (FTC) and various other social welfare benefits have operated via the tax system in New Zealand since at least the 1970s. These have often involved the withdrawal of transfers/benefits in association with increases in individual or family income levels, thereby affecting EMTRs of the income tax-transfer system as a whole.[20] Systematically incorporating these withdrawal/abatement effects in our AMTR calculations is beyond the scope of our analysis. Indeed it is hard to find suitable descriptions of the system, and relevant data, on an annual basis that would allow us to include its AMTR impact.

Table 5 - EMTRjs for family tax credits, welfare benefits and ACC
WFF & Benefit ACC
EMTRjs Income share EMTRjs Income share
0% 90.60% 0% 16.60%
20% 8.30% 1.30% 83.40%
30% 0.07%
70%+ 1.03%
AMTRs: 1.7% (WFF) 0.7% (Benefits) 1.1% (ACC)

However, for 2008, Inland Revenue has examined the effect on individual taxpayers' EMTRjs, and the aggregate AMTR, of the combined FTC, Benefit and ACC (Accident Compensation Corporation) systems. Calculating the income-weighted AMTR for income taxes, FTC, ACC and Benefits combined yields an AMTR of 34.7% compared to 31.3% for income tax only. That is, at the aggregate level the impact of the FTC, welfare benefits and ACC on the AMTR is around 3 percentage points. Table 5 reports the EMTRjs for the three components and a decomposition of the combined AMTR.

The table shows EMTRjs for FTC and benefits of 0%, 20%, 30%, and 70% and above, with taxpayers facing 0% accounting for the lion's share of total income but with around 8% of taxpayers by income-share facing 20% EMTRjs (in addition to their income tax MTRj). For ACC, most taxpayers (who account for over 80% of total income) faced the 1.3% levy in 2008. The final row of Table 5 shows the contributions to the AMTR, with FTC adding the largest element to the overall AMTR (1.7%) with a combined 3.4 percentage points added to the AMTR for income taxes.

Notes

  • [20]For a description of the system as it operated up to 1999, see Leibschutz (1999).
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