Economic weather report: Why NZ's tax system is broken and unfair

Watch on our video page here. Watch on YouTube here. Bernard Hickey delivers an economic weather report in association with BNZ on how New Zealand's tax system is broken and unfair. It needs reforming, which the Tax Working Group highlighted in its report this week. It's worth looking at how broken and unfair it has become, in particular how the tax burden is increasingly borne by income and corporate tax payers, particularly those on high incomes without children or the cleverness to avoid taxes through vehicles such as family trusts and LAQCs. Here's a few facts on the tax system.

* There was NZ$213 billion invested in residential rentals in 2008 and they generated losses for tax purposes of NZ$500 million. That reduced tax receipts by between NZ$150 million and NZ$200 million. * Losses reported to the IRD from Loss Attributing Qualifying Companies (LAQCs) more than tripled to NZ$2.258 billion in the 5 years to 2008. These vehicles are often used by professionals earning salaries to buy rental properties and offset the losses from these highly geared properties to reduce their regular taxable income. About NZ$800 million of those losses are directly related to rental property investments, the IRD estimates There's more detail on that here. * The amount of income declared by trustees of family trusts more than quintupled to NZ$10 billion between 2001 and 2008 as many wealthier New Zealanders set up family trusts to shelter assets there on a 33% rate so they didn't have to pay the 39% top personal tax rate introduced in 2000 (and since cut to 38%). There's more detail on that here. * Less than half of New Zealand's top 100 income earners actually pay the top personal income tax rate. * PAYE taxpayers without children who have not been clever enough to set up a family trust or LAQC that invests in rental property are paying massively high and unfair tax rates. The top 10% of PAYE taxpayers now pay a net 76% of tax, once the effects of various benefit payments and Working for Families are taken into account. * The percentage of taxpayers on the highest income tax rate of 38% has risen to 9% from 5% when the rate was imposed in 2000, and is expected to be over 25% within a couple of decades. * Taxpayers in New Zealand will pay more income tax on average than those on equivalent salaries in Australia until they get to a threshold of NZ$240,000. * New Zealand has the highest rate of graduates who are living and working overseas in the developed world. OECD figures show 24.2% of New Zealand-born graduates now work in other OECD countries. Here's the link to the research. It shows that there are 166,854 New Zealand born graduates working overseas. To show how much of an issue this is, Australia has 116,513 graduates working overseas and its overall population is 5 times larger than ours. Around 3% of Australian-born graduates work overseas.