back

Maxim Institute's Income Tax Tracker 28-05-12

Ever wondered where your income tax goes? We’ve put together an Income Tax Tracker to help you find out.

Each year the Government taxes New Zealanders’ incomes. It spends those taxes on services and programmes that are intended to help New Zealand, like schools, police and social welfare benefits. We think it’s important for all New Zealanders to get an idea of what the Government spends our money on, and how much it spends where. That’s where our Income Tax Tracker comes in.

What is the Income Tax Tracker?

Our Income Tax Tracker looks at how much someone will pay in income tax and then tracks what the Government will spend those taxes on, using the Government’s Budget information. We’ve done this for an individual earning the median income, and for a household earning the median household income.[1] We’ve also created Income Tax Trackers for an individual on the minimum wage, and a high-income household.

For example, we found for the March 2013 year that a median individual income earner, who has an income of $30,500 will pay $4,357.50 in income tax. Out of that tax, the Government will spend $622.07 on New Zealand Superannuation, $177.61 on primary schools, and $86.62 on the police.

Not only does the Income Tax Tracker give an idea of where our taxes are going, it also gives us a sense of proportion. In other words, it lets us see what the Government spends a lot on, and what it spends a little on. This gives us some idea of the Government’s priorities—at least as measured by spending—and therefore New Zealand’s priorities.

The Government produces quite a lot of information on its spending already, but usually it’s in a form that most of us find hard to relate to. Figures in tens of millions, hundreds of millions or even billions are difficult to relate to our everyday experience. The Income Tax Tracker takes those figures and puts them into the sort of numbers we’re used to seeing in our daily lives.

Get Tracking!

Minimum wage earner
Median individual income earner
Median income household
High income household

Why is this important?

It’s important to know how the Government is spending our money, and what sorts of choices it’s making for us. We hope that the information in our Income Tax Tracker will spark some valuable conversations about this.

For example, can we afford not to have a full national debate about superannuation when this is one of the largest spending items in the Tracker? Does it challenge our assumptions to find that more of our income taxes are spent on the Family Tax Credit than on the Domestic Purposes Benefit? What should we make of the fact that 21 percent of spending is allocated to health programmes and services? We believe these sorts of conversations are especially important in today’s economy, where Governments have limited choices about their spending.

Having a better view of the Government’s taxing and spending choices also helps us to challenge or applaud the Government for the decisions it makes. This is very important in a democracy, so that we can form better opinions of the way the Government is doing its job.

How does it work?

The Income Tax Tracker contains numerous items that will be familiar to New Zealanders. Each item has a dollar figure next to it that represents how much of that taxpayer’s or household’s income tax has been spent on that item. In addition, we also provide the percentage of tax spent on that item. These items and our calculations are based on the spending categories provided by the Government in the Budget Economic and Fiscal Update (BEFU). This is one of the main Budget documents.[2]

These dollar figures have been calculated by multiplying the percentage of the New Zealand Government’s budgeted spending on a particular item by the amount of income tax that a New Zealander or a New Zealand household expects to pay.[3]

We want to point out that our calculations only apply to income tax. Of course, every one of us pays other taxes too, like GST. The information that would be needed to track those taxes isn’t readily available. This means that the Income Tax Tracker doesn’t track all government spending, only spending from income tax. It also means that the Income Tax Tracker doesn’t give a taxpayer’s total tax burden (the amount of all taxes you pay), just his or her income tax burden.

Please see below for more information about the way the Income Tax Tracker has been designed (for example, to read about why we haven’t included GST or excise taxes).

We also haven’t included all of the possible detail on government spending in the Income Tax Tracker. Instead, we’ve included most of the main categories from the government accounts and particular items of interest from most categories.

Lastly, the Income Tax Tracker doesn’t measure “value for money,” or the effectiveness of government spending. It doesn’t tell you what you’re getting from the Government.

Instead, it is a tool to help New Zealanders understand where their income tax goes, so we can have better information about our Government and our national priorities.

Methods and Sources

NOTES

[1] We have used median incomes rather than average incomes because median incomes are more representative of what a “typical” New Zealander or New Zealand household earns.
[2] The New Zealand Treasury, 2012 Budget Economic and Fiscal Update (New Zealand Treasury, 2012), http://www.treasury.govt.nz/budget/forecasts/befu2012. (accessed 25 May 2012).
[3] The method used here is the same as that adopted by the think tank Third Way in its United States’ taxpayer receipt. David Kendall and Jim Kessler, A Taxpayer Receipt (Third Way, 2010), http://content.thirdway.org/publications/335/Third_Way_Idea_Brief_-_A_Taxpayer_Receipt.pdf. (accessed 7 May 2012).