Monday, April 22, 2024

New paper on effects of tax, benefits on household incomes

The Treasury has published a new Analytical Note by Tod Wright and Hien Nguyen, Fiscal incidence in New Zealand: The effects of taxes and benefits on household incomes in tax year 2018/19.

Analyses of the distributional impact of taxation and government spending typically focus on individuals’ and households’ disposable incomes – the incomes they receive ‘in the hand’ after accounting for the income transfers they receive from the government, minus the income taxes they pay.

In the Analytical Note, the authors provide a more comprehensive account of the effect of government policies on household incomes by including the taxes households pay on their consumption and the government expenditure on the in-kind health and education benefits they receive, to estimate their so-called final incomes, the Treasury said in a statement.

They report distributional results for household incomes, the taxation and spending components that contribute to them, and the net fiscal impact of government spending and taxation on households.

Key findings for the 2018/19 tax year include:

  • The inclusion of consumption taxes and government spending in-kind in the modelling of household incomes increases the ‘equalising effect’ of government policies.
  • New Zealand Superannuation spending, and in-kind health and education spending, broadly decline with increasing household income decile, but remain significant even at the top of the household income distribution.
  • The average net fiscal impact on retired households is positive in all but the highest income decile, highlighting that they typically receive more in government services than they contribute in taxes.

These findings reinforce the importance of considering likely increases in demand for resources as the population ages, particularly for retirement benefits and healthcare, when looking forward, the Treasury said.

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