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Total Lifetime Tax A briefing paper on the total cost of taxes, and how long they take to pay.

This research paper estimates the total amount of tax paid by different households over a typical lifetime. The estimates include direct and indirect taxes. Calculations are based on the current tax levels applied to a standard working life of 44 years (age 21-65) and a standard retired life of 15 years (life expectancy approximately 80). Households are broken down by income decile (where households are split into ten groups ranging from lowest to highest income) to assess which groups are most heavily burdened by tax.

KEY FINDINGS • The average household will pay $1.48 million in tax over a typical lifetime (at 2016 prices). • The average household has a gross income (wages/salary plus investments plus government transfers) of $98,818. • At this income it will take them approximately 15 years to pay the average household’s lifetime tax bill. This is the lowest of any group across the income spectrum. • Over the average lifetime, approximately $826,000 is paid in income tax (56% of the total tax bill), $375,000 in GST, $121,000 in council rates, and $40,000 in petrol taxes. • The average top decile household will pay $3.67 million in tax over a typical lifetime. • The average top decile household has a gross income of $180,200. • At this income it will take approximately 20.4 years to pay the lifetime tax bill. This is the longest of any group. • Over the average lifetime, approximately $2.4 million is paid in income tax (65% of total tax), $832,000 in GST, $176,000 in council rates, and $83,000 in petrol taxes. • The average bottom decile household will pay $438,825 in tax over a typical lifetime. • The average bottom decile household has a gross income of $23,800 (see methodology for notes on income estimation). • At this income it will take approximately 18.4 years to pay the lifetime tax bill. This is the second longest of any group. • Over the average lifetime, approximately $148,000 is paid in income tax (34% of total tax), $162,000 in GST, $73,000 in council rates, and $16,000 in petrol taxes. • The time to pay the lifetime tax roughly follows an inverted bell curve. It is highest at the ends of the income spectrum, and lowest in the middle.

METHODOLOGY AND SOURCES • Household Income decile data is from Household Economic Survey 2016, Statistics New Zealand.

• Average bottom decile income is likely overestimated, and average top decile likely underestimated due to nature of reporting.

• Retirement Income is linearly interpolated from quintile data for over 65 year olds.

• Income includes government transfers. This includes working for families tax credits.

• Expenditure data is from 2013 and 2016 Household Economic Survey. Where data is missing for 2016, we have inflated 2013 figures forward at the average growth rate from 2013-2016 for the average household (data is complete for average household in 2016).

• Tax rates are from various sources. Most of which is publically available from IRD/Customs New Zealand/New Zealand Transport (i.e. GST, Fire Levy, Alcohol Excise Tax, Petrol Excise etc.)

• We have assumed a 44 Year working life (i.e. age 21-65), and 15 year retired life (based on an average life expectancy of approximately 80).

• Due to lack of specific household expenditure data for retired households, we have assumed the same proportions of income on expenditure types as is spent prior to retirement.

• We have accounted for savings depletion (or dissaving) at an annual rate of 5%. Therefore with a retired life of 15 years, households consume approximately 54% of life savings ( = 1 – 0.9515 ).

$5,787

$8,663

$381,187

Annual Indirect Taxes

Annual Total Tax

Total Working Life Tax

$1,449

$2,394

$3,842

$53,795

$438,82

Annual Direct Taxes

Annual Indirect Taxes

Annual Total Tax

Total Retired Life Tax

Total Lifetime Tax

Retired Life

$2,876

Annual Direct Taxes

Working Life

$510,388

$74,859

$5,347

$3,091

$2,256

$430,183

$9,777

$6,080

$3,697

$671,138

$102,536

$7,324

$4,043

$3,281

$561,278

$12,756

$7,436

$5,320

$852,34

$117,160

$8,369

$4,605

$3,764

$726,814

$16,519

$8,879

$7,639

$1,055,31

$142,966

$10,212

$5,592

$4,620

$1,096,778

$24,927

$11,813

$13,113

$1,282,196

$173,056

$12,361

$6,383

$5,978

$17,182

$1,616,556

$231,350

$16,525

$8,763

$7,762

$1,368,681

$31,106

$13,924

Household Income Decile

$902,134

$20,503

$10,283

$10,220

Household Income Decile

$2,029,516

$313,769

$22,412

$11,534

$10,878

$1,693,335

$38,485

$15,199

$23,285

$2,673,755

$356,729

$25,481

$12,754

$12,727

$2,291,545

$52,081

$17,942

$34,139

$3,672,461

$839,644

$59,975

$22,127

$37,848

$2,772,842

$63,019

$21,712

$41,307

$1,478,977

$156,211

$11,158

$6,360

$4,798

Average

$1,311,608

$29,809

$12,667

$17,142

Average

$438,825

18.44

Total Lifetime Tax

Years to Pay Lifetime Tax

$148,288.15

$162,388.07

$20,210.96

$16,202.02

$8,764.47

$6,265.80

$3,380.04

$73,325.20

$438,825

Personal Income Tax

GST

ACC

Petrol Excise

Tobacco

Fire Levy

Alcohol Excise

Local Rates

Total

17.16

$510,388

$29,750

$510,388

$65,655.20

$3,309.52

$6,265.80

$9,040.83

$19,450.54

$25,263.70

$184,910.88

$196,491.76

Total Tax by Type

$23,800

Annual Income 2016 NZD

$671,138

$82,836.00

$4,919.71

$6,265.80

$10,012.82

$24,355.96

$35,326.30

$224,107.90

$283,313.45

16.13

$671,138

$41,599

$852,342

$78,234.00

$7,643.56

$6,265.80

$22,492.65

$32,897.50

$46,578.20

$265,656.93

$392,573.85

15.54

$852,342

$54,850

15.03

$1,282,196

$85,300

$1,055,311

$86,210.80

$6,132.61

$6,265.80

$20,949.05

$35,617.61

$59,103.90

$322,035.46

$1,282,196

$86,210.80

$9,500.28

$6,265.80

$24,158.30

$44,691.08

$72,436.34

$372,275.28

$666,658.11

$1,616,556

$110,141.20

$10,830.32

$6,265.80

$22,409.04

$49,588.24

$87,169.96

$457,711.35

$872,439.94

15.75

$1,616,556

$102,650

Household Income Decile

$518,995.63

15.16

$1,055,311

$69,600

Household Income Decile

$2,029,516

$120,572.40

$14,118.57

$6,265.80

$30,242.71

$55,009.00

$105,427.76

$510,152.83

$1,187,727.02

16.35

$2,029,516

$124,150

$2,673,755

$130,083.20

$16,064.83

$6,265.80

$20,419.42

$67,285.98

$134,513.28

$606,110.67

$1,693,011.89

16.88

$2,673,755

$158,400

$3,672,461

$176,103.20

$22,316.62

$6,265.80

$14,988.73

$82,912.28

$153,025.84

$831,636.54

$2,385,212.13

20.38

$3,672,461

$180,200

$1,478,977

$121,186.00

$9,065.33

$6,265.80

$17,145.29

$39,979.56

$83,916.25

$375,200.11

$826,218.52

Average

14.97

$1,478,977

$98,818

Average