Thursday, February 11, 2010

Some facts on income distribution in New Zealand

Yesterday in a post about the ODT's airbrushing the many out of the discussion on tax policy, I said this:

The ODT can get away with this because the facts on income distribution in New Zealand aren't widely known. As a result, most people can think of themselves as "middle income earners" when they are anything but. Maybe that's something we on the left need to do something about.
The Standard has followed up on the same point, with a useful graph, reproduced below:

The scale isn't the best, but you can at least see roughly where you stand. Here's some rough deciles (using the IRD's 2008 income distribution data [XLS]; differences in decile size are due to the data being banded. Spikes around deciles 3 and 4 make this rather difficult, but the decile 4-5 boundary is in about the right place overall):

Decile# of peopleIncome range
1350,720Under $3,000
2355,940$3,000 - $10,000
3402,040$10,000 - $14,000
4236,130$14,000 - $17,000
5357,060$17,000 - $23,000
6360,680$23,000 - $32,000
7338,530$32,000 - $40,000
8325,230$40,000 - $50,000
9353,430$50,000 - $67,000
10335,070Over $67,000
Top 5%168,140Over $87,000
Top 1%33,940Over $165,000

So, the median income is around the decile 5 boundary of $23,000 a year. But the median income for wage and salary earners for that year was $729 a week, or $37,908 a year, putting a median wage earner squarely in decile 7. MPs BTW earn $131,000 a year plus expenses (and more if they have a select committee chair or a party position), putting them in the top 1.7% of income earners; Cabinet Ministers earn $243,700, placing them in the top 0.4%.

Comparing this distribution to the tax scale, of the 3,414,830 taxpayers:

  • 1,108,700 of them (32.5%) have incomes less than $14,000 a year, and so pay only the bottom tax rate of 12.5%;
  • A further 1,562,360 (45.8%) have incomes between $14,000 and $48,000, and so pay the lower middle tax rate of 21% on some of their income;
  • 447,130 (13.1%) have incomes between $48,000 and $70,000, and so pay the middle rate of 33% on some of their income;
  • Only 296,640 (8.7%) have incomes over $70,000 and so pay the top tax rate.

So, 78% of us don't even pay the middle tax rate, and the top tax rate is utterly irrelevant to 91% of the population. Remember that next time the government or the media talk about "middle-income" tax cuts - they're not talking about you, or most of New Zealand. Instead, they're only talking about themselves.