Have you ever wondered where your income tax goes?
Each year the Government taxes our 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 is important for all New Zealanders to get an idea of how the Government spends our money.
Our ‘Income Tax Tracker’ is therefore a good guide that looks at how much people pay as income tax and then tracks Government expenditure spend those taxes on, using the Government’s Budget information.
We have done this for an individual earning the median income, and for a household earning the median household income.
We have also created ‘Income Tax Trackers’ for an individual on the minimum wage, and a high-income household.
An example
For example, we found for the March 2013 year that a median individual income earner, who has an income of $30,500 will pay $4357.50 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 to get an idea of the Government’s priorities, at least as measured by spending.
The Government produces lot of information on its spending already, but usually it is in a form that most of us find hard to relate.
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 are used to seeing in our daily lives.
The significance
It is important to know how the Government is spending our money and the choices it makes for us.
For example, we must have a full national debate about superannuation when this is one of the largest spending items.
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% of spending is allocated to health programmes and services? We believe that discussions on these are important, especially 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 important in a democracy, so that we can form better opinions of the way the Government is doing its job.
The Method
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).
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.
Other taxes
Our calculations only apply to income tax, while every one of us pays other taxes too, like GST. The information that would be needed to track those taxes is not readily available. This means that the ‘Income Tax Tracker’ does not track all government spending. It also means that the ‘Tracker’ does not give a taxpayer’s total tax burden (the amount of all taxes you pay), just his or her income tax burden.
We have not included details on government spending but listed most of the main categories from the government accounts.
Our ‘Income Tax Tracker’ does not measure ‘value for money’ or the effectiveness of government spending. It does not tell you what you are getting from the Government.
However, it is a tool to help New Zealanders understand where their income tax goes, so that we can have better information about our Government and our national priorities.
Editor’s Note: The above is just a ‘curtain raiser.’ For details and examples of the ‘Income Tax Tracker,’ visit www.maxim.org.nz
