"May 1 marks Tax Freedom Day in New Zealand", according to the executive director of the New Zealand Business
Roundtable, Roger Kerr. "It represents the day in the year when the average New Zealander stops working for the central
government and starts working for themselves."
Mr Kerr said that the calculation of Tax Freedom Day was based on central government expenditure, which currently
amounts to 33 percent of gross domestic product (GDP). Government spending is the best measure of the tax burden because
almost all government spending ultimately has to be financed from present or deferred taxation (borrowing).
The measure is therefore a more accurate representation of Tax Freedom Day than calculations based on current taxation
or income tax alone.
Indeed it understates the true tax burden because it leaves out or underestimates elements of government spending such
as local government and ACC. Total government spending in New Zealand, as measured by the OECD, is projected to be
almost 40 percent of GDP in 2002. On this basis, Tax Freedom Day would fall on 27 May.
This broader measure underscores the extent to which New Zealand is still a highly taxed country. Compared with New
Zealand, Tax Freedom Day on this measure comes more than a month earlier in Ireland (24 April) and the United States (25
April), three weeks sooner in Australia (2 May) and over a week earlier for the OECD as a whole (19 May). A number of
Asian and other countries have levels of government spending, and hence tax burdens, that are well below the OECD
average.
The government lifted its long-term spending objective from under 30 percent to 35 percent of GDP in the 2000 Budget
Policy Statement. Tax Freedom Day will arrive 18 days later as a result. The Local Government Bill will also lead to
higher spending by councils and further delay Tax Freedom Day over the medium term.
These calculations are of interest because of economic evidence that, beyond a certain point, government spending and
taxation harm economic growth. No country has sustained per capita growth rates of 4 percent or more a year with general
government spending equal to 40 percent or more of GDP. Accordingly this ratio must be reduced if New Zealand is to
regain its place in the top half of the OECD income rankings.
Ends