Tag Archives: family tax credits

Important to mention tax credits when discussing the working poor? @JordNZ

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Data extracted on 08 Apr 2017 01:20 UTC (GMT) from OECD.Stat.

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So New Zealanders do not pay much income tax @TaxpayersUnion

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Data extracted on 08 Apr 2017 01:20 UTC (GMT) from OECD.Stat

How much is Working for Families per year?

The last Labour Government so hated tax cuts that it would not call its family tax credit a family tax credit. For those on the minimum wage, it could increase your income by 1/3rd. Oddly enough, because of abatement rates of 22.5% after $36,000, two minimum wage earners do not get much at all.

working for families

Effective marginal tax rates on single and dual earner families in the USA, Britain, France, Germany, Canada, Italy, Sweden, Denmark, Australia and New Zealand

Some countries including New Zealand and Australia do not give ordinary families much of an incentive to earn more. Effective marginal tax rates on low income families is one of the few times that the Left discovers supply-side economics.

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Source: Taxing Wages 2015 – OECD 2015.

New Zealand 2000, 2007 and 2014 all-in average personal income tax rates at average wage by family type

In work tax credits for families in Working For Families certainly makes a difference to the after-tax, after government transfers living standards of the family on an average wage.

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Data extracted on 25 Jan 2016 01:07 UTC (GMT) from OECD.Stat.

@arindube Paul Krugman on the minimum/living wage in 1998

Utopia - you are standing in it!

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The great divergence in average and marginal tax rates in New Zealand since 2000

21% would have been a good guess of the average and marginal tax rates of the New Zealand single earner or couple including with children and even a second earner in 2001. New Zealand average and marginal tax rates have been on a wild ride since the year 2000.

Sources: OECD StatExtract and OECD Taxing Wages.

As the above chart shows, while the average tax rate of a single earner with no children is pretty much unchanged at about 20%, he now faces a marginal tax rate of 30% or more rather than 21% in 2001.

For a married couple with one income, as the above chart shows, their average tax rate has been about zero for a good 10 years now but their net marginal tax rate is a good 50% or more because of abatement rates on family tax credits, which is a skewed incentive situation. A large income effect from the family tax credit encourages the consumption of leisure but a high marginal tax rate discourages working more.

Sources: OECD StatExtract and OECD Taxing Wages.

For two earner couples, their average tax rates have fallen because of family tax credits but their marginal tax rates have gone through the roof as the above chart shows. A tax system that discourages quite severely any further work or investment in human capital by average earners may have adverse effects on the long-term trend growth rate of New Zealand.

Director’s Law in New Zealand?

One group with negative net tax liability is low- to middle-income households with dependent children. For example, single-earner families with two children can earn up to around $60,000 pa before they pay any net tax.

Around half of all households with children receive more in welfare benefits and tax credits than they pay in income tax.

Bryan Perry (2015, p. 41)

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@metiria @NZGreens 20,000 drop in children in hardship in 2014

The material hardship measure shows a falling child material hardship rate using a threshold equivalent to the ‘standard’ EU level, down from a peak of 21% immediately after the GFC to 14% in 2014.

Using the more severe threshold, there was a slight rise through the GFC to 10% and a small fall to 8%, the level it was at before the GFC.

Bryan Perry (2015, p. 7, Key Findings)

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Source: Bryan Perry, Household Incomes in New Zealand: trends in indicators of inequality and hardship 1982 to 2014 – Ministry of Social Development, Wellington (August 2015), p. 133.

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Source: Bryan Perry, Household Incomes in New Zealand: trends in indicators of inequality and hardship 1982 to 2014 – Ministry of Social Development, Wellington (August 2015), p. 133.

The minimum wage and escaping poverty across the OECD area