Inland Revenue made the headlines end of April 2023 with the release of its report on the amount of tax paid by our high-wealth individuals (HWIs). The findings were that HWIs’ overall effective tax rate when taking into account all sources of income, including unrealised capital gains, is 8.9%. The Treasury simultaneously released a number of reports which investigated the progressivity of New Zealand’s tax system. The Treasury found, using information from the Household Economic Survey, that an average middle-income New Zealander has an effective tax rate of more than double the HWI rate, at 20.2%.
When comparing these numbers at face value, it is no wonder the difference caused a reaction. However, without a comprehensive capital gains tax regime to tax the gains on sale of land and shares, the rate of 8.9% is not particularly surprising.
How do our tax rates compare to the rest of the world? Unfortunately, no other country has recently undertaken a similar exercise on the effective tax rate of HWIs, but it is possible to compare our other tax rates against the world’s heavy hitters:
- Ivory Coast’s highest personal income tax rate (i.e. tax on an individual’s salary and wages) is an eye watering 60%. New Zealand’s top personal marginal tax rate increased from 33% to 39% from 1 April 2021.
- The highest corporate tax rate goes to Puerto Rico, at 37.5% – higher than New Zealand’s corporate tax rate of 28%.
- The highest sales tax is in Bhutan, at 50%. Our equivalent tax, GST, pales in comparison at 15%.
- Denmark has the highest capital gains tax at a rate of 42%. At this point in time, New Zealand does not have a broad-based capital gains tax.