Hon Bill English
Minister of Finance
23 March 2010
Media Statement
Current tax system unfair for many NZ families
The current tax system is unfair and inequitable for many hard-working New Zealand families and the Government will
address this in the Budget, Finance Minister Bill English said today.
Mr English highlighted in Parliament how the current system can allow a household earning $100,000 a year, with two
dependent children, to reduce the tax they pay from $27,500 a year to less than $10,000 a year.
“In reviewing the Tax Working Group’s recommendations, the Government acknowledges the system needs to be fair and have
integrity,” he said. “This is most apparently not the case at present, where highly uneven tax rates apply between
taxpayers with similar incomes.”
Mr English said a self-employed person earning $100,000 a year would normally pay income tax of more than $27,500 a year
on the top marginal tax rate of 38 per cent
But, in certain situations, the current system allowed them to significantly reduce their tax bill by, for example:
• Forming a company owned by another entity (on the current 30 per cent company tax rate), paying themselves a
$48,000 salary and reducing their tax bill by $3000.
• Qualifying for Working for Families on this reduced salary with two dependent children, they would receive an
extra entitlement of almost $8500 a year.
• Using an interest in a leveraged property investment producing, say, tax losses of $20,000 a year, their
personal taxable income is further reduced to $28,000.
“At this point, the total tax paid, on income of $100,000, has fallen below $10, 000,” Mr English said. “In other words,
the effective income tax rate is less than 10 per cent – or lower than the lowest personal income tax rate.
“The example is not uncommon. The Tax Working Group found that 10,000 households were reporting investment losses while
also claiming Working for Families credits. We are aware of tax advisers actively marketing schemes similar to this.
“The current system lacks fairness and integrity because of the way income is defined and because different tax rates
have proliferated.
“In the Budget, the Government will make the tax system fairer by closing this type of loophole. We will make sure that
taxable income more accurately reflects true economic income – and that the system is fairer to all taxpayers.”
ENDS