I hate to bore people with a rant about tax, government assistance and all that, but… well actually that’s not quite true, I don’t hate doing this at all.

As there are several possible forks in my professional future, I’m in the process of weighing up the relative benefits of various career choices. One of those benefits, obviously is how financially well off my family will be in each scenario.

It’s a sobering reminder of how positively evil New Zealand’s heavily tiered tax system and family assistance programme is. Don’t get me wrong, I don’t mind receiving family assistance. I look at as (extremely inefficient) tax compensation. But consider the following:

• An individual who earns up to $38,000 per year pays 19.5% tax.
• An individual who earns from $38,001 to $60,000 per year pays 33% tax on the income in that bracket. That’s a leap of 13.5%
• An individual who earns above $60,000 pays 39% tax on the income above that level

That looks bad enough.

Add to this the fact that the more a family earns, the less family assistance they get from the IRD (American readers: that’s like the IRS here in New Zealand). On its own that makes sense if you buy into the whole welfare approach and you don’t – as I do – regard that money as an immediate refund for high tax. But look at the absolutely insane consequence of all this.

Take a family earning a salary of $35,000. Assume that the wage earner in this case has a student loan and makes the minimum repayments (automatically deducted from wages). Assumes also that the family has four children and receives the family assistance to which they are legally entitled. Because we currently live in Dunedin, I calculated this on the basis of a family that lives in Dunedin and pays the same that we pay in rent, $265 per week, which is pretty cheap. They also, like most New Zealand families, receive an accommodation supplement, which varies according to income and accommodation costs.

Got all that? OK. Taking tax plus all of the above into account, this family has a net income of $908 per week.

Now, consider a family where the sole wage earner earns $45,000. That’s $10,000 more than the previous family – $192 extra per week before tax. Taking tax plus all of the above into account, this family has a net income of $933.71 per week.

No, that’s not a mistake. If you doubt it, I’ll happily send you the calculations. Look into it for yourself if you doubt it. Think about that. Earn an extra $192, get an extra $25.71

Ah, the incentive to get ahead.

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