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Inland Revenue

Tax Policy

PUBLISHED 10 March 2005

NZ 'tax wedge' low: OECD

The tax burden on the average New Zealand production worker remains low by developed world standards, according to the latest edition of the OECD's annual 'Taxing wages'. The OECD's analysis is based on the concept of the 'tax wedge', the net taxation of the average production worker expressed as a proportion of earnings. For more information see the government's media statement 'OECD report welcomed', and the OECD's media statement, 'Tax wedge on employee earnings rose slightly in OECD countries in 2004'.

Hon Dr Michael Cullen
Minister of Finance


OECD report welcomed

Finance Minister Michael Cullen today welcomed an OECD report showing the net tax paid by the average New Zealand production worker is low by developed world standards.

The table shows the tax wedge [the share of total labour costs taken in tax and social security contributions less any cash benefits received] paid by a single process worker in the manufacturing sector in New Zealand is 20.7 per cent – lower than in all other OECD countries except Korea and Mexico.

For the single income married couple with two children, New Zealand currently ranks tenth lowest.

"But Inland Revenue calculates that the Working for Families package, when fully implemented and on the basis of current entitlements in other countries, will reduce this from around 20 per cent currently to just 12.3 per cent by 2008.

"This would put us fourth lowest in the OECD, behind Ireland, Luxembourg and Iceland and provides a further indication of the size of the benefits to be delivered through the Working for Families initiative," Dr Cullen said.

The OECD calculations are based on a wage assumption of $41,778.

Contact: Patricia Herbert [press secretary] 04-471-9412 or 021-270-9013. E-mail [email protected]