13 May 2010

NZ has lowest tax in developed world, says OECD

5:59 am on 13 May 2010

New Zealand's tax on a single income family earning the average wage is the lowest in the developed world.

The Organisation for Economic Co-operation and Development says the tax liability on a single income family with two children is just 0.6% in New Zealand.

The average tax for single income families for all 30 OECD countries is 26%.

For an average income earner with no family the tax wedge in New Zealand is 18.4%, well below the OECD average of 36.4%.

In calculating the tax wedge the OECD measures not just tax rates, but also compulsory contributions to such things as social security and superannuation.

Only Mexico has a lower tax wedge.

In its 2009 report released on Wednesday, the OECD says some of the biggest falls in the tax wedge were recorded in New Zealand, even though it already imposed relatively low taxes on incomes.

Further cuts not needed, say Greens

Green Party co-leader Russel Norman says the report proves tax in New Zealand does not need to be cut any further.

Dr Norman says the problem in New Zealand is that the Government only looks at headline tax rates.

"They never take into account the fact that in other countries, employers and employees pay compulsory levies for social security and compulsory levies for superannuation.

"And once you take those into account, as the OECD has done in this report, it shows just how low taxes are in New Zealand compared to other countries."

Dr Norman says for the Government to cut taxes in the Budget on 20 May would be irresponsible.

However the ACT party says the report makes a case for cutting the top rate of income tax.

Revenue spokesperson Sir Roger Douglas says making cuts could lead to greater productivity and increase the average worker's wages.