Analytical note

Fiscal incidence in New Zealand: The effects of taxes and benefits on household incomes in tax year 2018/19 (AN 24/01)

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Extract from paper#

Executive Summary#

Analyses of the distributional impact of taxation and government spending typically focus on individuals’ and households’ disposable income – the income they receive “in the hand” after accounting for the transfers they receive from the government, minus the income taxes they pay. A broader perspective is given by fiscal incidence studies, which also consider the taxes households pay on their consumption and the government expenditure on the in-kind benefits they receive, to estimate their so-called final income.

In this analytical note we report results for fiscal incidence in the 2018/19 tax year. We augment results for household disposable income produced by the Treasury’s TAWA model with estimates of the consumption taxes that households pay and the cost to the government of the education and health services that they receive. Our analysis broadly follows the approach of previous Treasury publications (Crawford and Johnston, 2004; Aziz et al., 2012).

We present results for the distributions of household market, disposable, and final income – and the components of income support, income and consumption taxes, and in-kind benefit spending by which they are related – over deciles of household equivalised disposable income. We also estimate the corresponding distribution of the net fiscal impact, which is the net effect of these four classes of taxation and spending. We estimate Gini coefficients and Lorenz curves corresponding to various definitions of household income. Finally, identifying retired households based on the retirement status of their members and the primary sources of their income, we contrast the distribution of net fiscal impact for these households to that for the complementary set of non-retired households.