Fiscal Drag and Trans-Tasman Income Differentials

1. Fiscal Drag and Trans-Tasman Income Differentials June 2007

2. Structure • Strengths/weaknesses of comparative approaches • Migration, SEM and the gap in gross wages • Personal income tax policy • Family and employment tax credits • Superannuation contributions and other policies

3. Strengths/weaknesses of comparative approaches • A comparative approach • provides a deeper understanding of situations, options and constraints • illustrates positive and negative lessons • But is limited by variations in demographic, economic and institutional constraints

4. Migration, SEM and the gap in gross incomes • Increasing flows of permanent and temporary migration and recruitment of skilled migrants by governments • 151,000 PLT movements in 2006, compared to 133,000 in 1996 • over the last decade PLT represented approximately 30 percent of population growth • most year-to-year variation in departures to Australia

5. Migration, SEM and the gap in gross incomes

6. Personal income tax

7. Fiscal drag and net income differentials

8. Fiscal drag and net income differentials

9. Working for Families

10. Superannuation contributions and other policies • KiwiSaver/Superannuation Guarantee • Childcare and OSCAR/Child Benefit • Accommodation Supplement and Income Related Rentals/Private Rent Assistance and Home Purchase Assistance • Other taxes and levies (e.g., payroll tax)

11. Conclusion • The increasing income differential between NZ-AU is a source of pressure on the income tax base • Incomes in New Zealand need to grow at a rate faster than the recent past • Need to create an environment that • rewards productive activities • attracts and retains skilled workers in increasingly competitive and global labour markets