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

Appendix 2: Income Distribution Data

The income distribution data used in this paper have been sourced from hard copies of various editions of the NZ Official Yearbooks and related Statistics New Zealand publications. Available income and tax data vary in quality and coverage over the period of the personal income tax. There is no income data prior to 1907; thereafter we describe the available data according to different sub-periods.

Data in this period are only available for the 1907, 1910, 1912, 1915, 1917, 1920, and 1922-24 income years. The data represent assessable income gathered from tax assessments filed with Inland Revenue. The 1915 and 1923 NZOYBs provide a decomposition of total income (for 1907, 1910, 1912, 1915, 1917, 1920) by salaried persons, persons and firms, registered companies, non-resident traders and professional men. We have combined income distribution data for those groups excluding registered companies to measure personal income.

As noted in the NZOYBs of the early 1920s: “No complete statistics of annual income are available for New Zealand, nor has any official investigation of the total income of the Domain been attempted” (NZOYB, 1925, p.699). Nevertheless, income data based on tax returns filed with Inland Revenue were published in the NZOYB. These return data, particularly in the early 20th century, understate total income because, for many income earners, low income exemptions meant that many taxpayers were excluded from filing tax returns. We have addressed this issue by attempting to estimate non-filer income using long-term labour market data, census data on income and aggregate national income statistics; see below and Appendix 4 for details.

From 1925 the NZOYB decomposes income into four taxpayer classes (and 10 different sources of income): Class I. Persons and firms (ie, individuals); Class II. Companies; Class III. Agents of debenture holders; and Class IV. Non-resident traders. Importantly, data on the distribution of Class I gross assessable income, by income class size, is available, including similar distributions of earned income and exemptions. Earned income below a given threshold (£2000 in 1929), was taxed at a lower rate compared to unearned income through the first half of the 20th century. In addition, certain income was exempt from tax depending on a taxpayer's circumstances. Data on tax exemptions distributed by size of income, first appeared in the NZOYB in this period; they are described further in Appendix 3.

Data are not available over these two years and it was noted that ‘reasons of economy' prevented the data from being collected. We have filled in the missing total and earned income distributions by applying linear interpolation to the income share of each income bracket from the years either side of the missing observations.

The data discussed above for 1925-1931 are available throughout most of this period. Changes to tax laws in the early 1930s meant individuals with incomes above £200 (formerly £300) were required to file tax returns. As a result it is expected that the NZOYB data would capture a larger number of individuals who formerly were not captured. However, a large increase in assessable income of low income taxpayers, that might have been expected, did not eventuate; it may be that the depression pushed many below the £200 income level. From 1935 the recorded income of low income taxpayers did start to rise significantly.[21]

Data are not available - the NZOYB was not compiled because of labour shortages in WWII. We have again applied linear interpolation of income shares to estimate the missing years.

Individual taxpayer data are available through this period. From 1949 the compilation of statistics was changed from a population of income assessments to a 10% sample, but a full enumeration of assessments for incomes above £2,500. Certain types of non-assessable (and hence non-taxable) income, such as war pensions and social security benefits, were not captured in the NZOYB income data. All individuals whose income exceeded £200 were required to file a tax return. Our estimates of non-filer income suggests that by the early 1950s only a small proportion of total taxable income was not being captured by income filed with Inland Revenue; the introduction of Pay-As-You-Earn (PAYE) source-based taxation in 1958 rendered the filer/non-filer distinction redundant for our purposes.[22]

Previously discussed income data are available throughout this period (except data for 1962 were never published - we have again applied linear interpolation). Also, in 1967 New Zealand implemented a decimal (Dollar) currency system (set at $2 = £1), but income data presented in decimal form are available in the NZOYB from 1962.[23]

Notes

  • [21]From 1938, individual and company tax data are presented in separate subsections within the NZOYB. As a result, any indirect capture of company income in previous data (for instance through exemptions) is eliminated, though this is not expected to be significant.
  • [22]The PAYE system, introduced on 1 April 1958, led to a disruption in the collection of 1958 income year data. Taxpayers solely earning salary and wage income did not have to furnish a tax return for income under £1,040. As a result, income data for the 1958 income year may under represent low income earners.
  • [23]The Report on Income and Income Tax was not produced for the 1975 and 1977 years. For those years we have used provisional income tax data (salary and wage, self-employed persons and investment income) available from the NZOYBs.
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