Are Kiwis paying the highest sales tax in the world?

The sales tax increase back in late 2010 outraged many Kiwis, making our already highly-priced goods and services even more expensive. But how does this increase actually affect us? Compared to the rest of the world, is a 15% sales tax considered too high or low? And how much does it really matter when taking other factors like income tax into consideration?

Sales tax was first introduced to New Zealand in 1986, which was 10% at that time. In July 1989 the government decided to increase it to 12.5%. This policy was met with negativity from the majority of the population, and after-effects showed exactly why. Household spending dropped, along with overall sales in the nation. The rise in 2010 to 15% however, was accompanied with a reduction in income tax. So while making products and services more expensive, the average citizen would also have more money to spend. Despite the anxiety that came along with the rise, New Zealand adapted to the policy well. After the negative growth rate in GDP (a measure of all goods and services sold in New Zealand) during the quarter the policy was implemented, New Zealand has been experiencing positive growth rates ever since. So while people still argue whether or not this policy change was favourable, the true answer is ambiguous according to the data.

New Zealand’s 15% sales tax rate sits in the middle of countries with similar socio-economic levels. Australia and Japan both pay lower tax rates, each paying 10% and 5% respectively. UK citizens pay higher taxes of 20%, along with Spanish and Argentine citizens at 21% and 18%. Although not all countries use the same sales tax method, they still provide a decent estimate. (New Zealand uses GST whilst Spain and Argentina use another method known as ‘value added tax’). Using these estimates, New Zealand’s sales tax lies quite close to the world average, being slightly lower.

Other factors should also be considered when comparing sales tax. Although New Zealand has a moderate sales tax, it has one of the world’s lowest personal incomes tax rates at 20.5% on average workers. Japan has a contrastingly low sales tax at 5%, but has personal income tax rates at an average of around 27%. Wealthy European countries such as Belgium and Germany have income tax rates at over 40% on average workers! So although some countries may have seemingly low sales tax, it could be the income tax digging into their citizen’s pockets.

Although we do pay quite a bit of GST, remember that we have one of the lowest income tax rates around the world. Think of the poor Germans, who pay around double the amount in income tax. It’s great to be a Kiwi!


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