(7 minute read – NZ tax)
Its the age-old question that everyone of working age asks at some point:
‘How much am I paying in taxes?’
Its a good question. In this article we’re going to take a look at the taxes that affect an average individual working in Aotearoa New Zealand. We’re also going to run some calculations to see what percentage of their income goes towards taxes. This article is going to be divided into 3 sections:
- Income taxes
- GST (The ‘T’ Stands for Tax – so no, I’m not going to write ‘GST taxes’)
- PIE taxes
We will talk about the taxes paid in each section and use and example of a median wage earner in NZ to calculate their overall tax take. That should help you, dear reader, work out how much taxes you are actually paying. Note that we won’t be discussing company tax because we’re focusing on the individual here.
Income tax in NZ
Income tax is pretty simple. The first thing you need to know is that personal income tax here in Aotearoa NZ is paid on a progressive basis. The current tax brackets (from 1 April 2025 onwards)* is as follows:
*If you are in FY2024, we have a combined tax bracket rate for the transition. You can read more about it here.
A progressive tax rate means that you pay taxes at different rates for each income level you are at. In short, this means that if you are making $190,000 a year before tax you are NOT paying tax at 39% on all your income. 39% only affects the additional $10,000 that you earn over $180,000.
NZ tax for high income earners
Everyone pays taxes at 10.5% on the first $15,600 they earn. Then each income level you are at will pay taxes at the appropriate tax rate. So the effective average tax rate for an individual earning $190,000 will be 27%. See example below:
Notice how each income level is taxed separately. They only pay $1,638 on the first $15,600, $6,632.5 on the next $37,900 and so on and so forth. At the highest tax bracket, on the remaining $10,000, they would be paying $3,900. The average tax rate, taken as the total tax to pay divided by taxable income is 28%.
NZ tax for median wage earners
Let’s take a look at average tax rates for a median wage earner in Aotearoa NZ. As per Stats NZ, median wage in 2023 was $1,273 a week (source). This works out to $66,196 a year. Plugging this into the calculator, we can see that the average tax rate for the median wage is 18%:
NZ tax for minimum wage earners
The lower your annual income, the less tax you pay. So for an individual on minimum wage ($23.15 an hour as of 2024) working 8 hours a day, 5 days a week – they would be making $48,152 a year. Resulting in an average tax pay of 15%.
You will notice that due to their lower amounts, minimum wage earners only pay taxes within within the first two brackets. The median wage earner pays taxes within the first three brackets. The high income earner pays taxes across all brackets.
How much do you need to make to hit an average tax rate of 39%?
Good question. To hit the average tax rate of 39%, an individual would need to make about $15,000,000 a year in income. So really, if someone is complaining about paying taxes at 39% of their income, you can ask them if they are actually making $15 million a year (they’re probably not!):
To be fair, most individuals who are making very high income will have accountants to assist them with tax planning, thus reducing their overall tax rate. Legally, of course.
Please note that all these calculations don’t take into account ACC (Accident Compensation Corporation) levies. So that will bump up your percentage points by another 1.6% to your average tax rate.
Goods and Services Taxes (GST)
Let’s talk about GST. GST is a tax on the consumer. This means that you only incur GST if you are purchasing products from a GST-registered business. Most products and services are GST taxable, the main exceptions being residential rent, interest expense and finance costs. All businesses in Aotearoa that make more than $60,000 a year in sales on GST taxable activities must register for GST. This means that most businesses in Aotearoa will include GST in their prices.
Which means that it is really, REALLY hard to escape not paying GST in NZ! Fortunately, if you are a GST-registered business, you can claim GST expenses against your GST income collections. So this basically eliminates GST for your business (you still need to pay up the GST collected from your customers!). However, the average individual in NZ isn’t GST registered. Even if you are GST registered as an individual, you can’t claim your daily spending as GST expenses to offset your GST income. This is because only business (either sole trader or company) spending can be claimed as GST expenses.
Armed with this knowledge, let’s run some numbers!
How much GST are you paying as a proportion of your income?
GST is 15% of a product/service’s sales price. A $100 phone will cost $115 with GST ($100 X 15% + ($100)). Based on stats NZ, a single person household spends an average of $808 a week (source) as of 2023. We’re going to assume that the amount given here includes GST (because let’s face it, who of us is going to report the GST exclusive figure of our expenditure to the government).
It is important to note that a big chunk of this $808 will be rent/mortgage. According to the same Stats NZ report, housing costs make up 25% of weekly expenses. Rent and mortgage repayment isn’t liable for GST, but we can safely assume that the remaining 75% (made up of food, transport and other items) is. This means that $606 worth of spending is GST inclusive. This equals to GST payments of $79 a week.
Assuming that weekly spending is consistent throughout the year, this amounts to ($79 X 52 weeks) $4,108 spent on GST for the average one person household. Let’s assume this one-person makes the median annual wage of $66,196. $4,108 divided by $66,196 equals 6.2% of your total income.
So for a median wage earner, in a single person household, they would be paying about 6.2% of their total annual income as GST. This is assuming that all non-housing cost sources of expenditure have GST on them. Note that spending on foreign companies typically does not have GST on it. So the overall proportion of GST paid is likely to be lower than this.
More spending = more GST paid
Naturally, the more that you spend on things, the more GST that you are paying. Households that spend more may find that a higher proportion of their income is going towards paying for GST. This would increase the overall proportion of taxes that they pay.
Some folks use this as an argument that rich people (who spend more) pay more taxes through GST. While that statement is true, lots of wealthy individuals often funnel their larger purchases through GST registered organisations, who can claim back the GST. Whereas less wealthy individuals often don’t have a choice but to still spend GST on buying groceries, power, cars and other items through their personal (non-GST registered) names.
PIE tax
PIE (Portfolio Investment Entity) tax is the tax that you pay on any gains on investments made from any Portfolio Investment Entity. The easiest example of a PIE is your Kiwisaver. Other examples include other NZ based managed funds, like investments made into funds like Superlife or InvestNow.
Basically you pay a flat tax rate on any gains made on the investment. This flat tax rate is known as the PIR (Prescribed Investor Rate). The PIR is determined by your annual income including your PIE income at the end of the financial year as follows:
| PIR | Income Level |
| 10.5% | $14,000 or less |
| 17.5% | $48,000 or less and more than $14,000 |
| 28% | more than $48,000 |
You will have to tell your investment provider what your PIR is at the end of every financial year based on your annual income. In most cases, if you are making more than $48,000 a year, your PIR should be 28%. Note that if you don’t report your PIR, you will automatically be placed at 28%, regardless of your actual income.
Tax impact on the median wage earner
The impact of PIE tax depends on how much earnings you are receiving from PIE. If, for example you made $1,000 from PIE as a median wage earner making $66,192 a year, you would be paying 28% of that income as tax ($1,000 X 28% = $280).
Adding PIE income of $1,000 to $66,192 we get a total annualised income of $67,192. $280 represents 0.4% of that income.
What about withholding tax on interest and dividends?
Interest and dividend income is rolled into your income figure in the first section. So there’s no need to calculate it separately. Withholding tax is simply tax deducted at source. If your tax payable figure works out to be lower by the end of the financial year, you’ll simply get refunded the difference.
How much tax is the median wage earner paying in NZ?
Based on our rough calculations, the median wage earner is paying:
- 18% of income as income tax
- 6.2% of income as GST
- 1.6% of income as ACC
- 0.4% of income as PIE tax (assuming a PIE income of $1,000 a year)
Adding these all up, we get 26.2% in total. In other words, an individual making $66,192 a year will be paying taxes of about $17,432 a year in taxes.
Naturally, the more income you make and the more money you spend, this proportion could be much, much higher. The reason why we’ve gone with median wage is to try and capture what the average kiwi wage earner is paying in terms of taxes.
Do wealthier individuals actually pay less taxes?
Yes, according to IRD, that seems to be the case. But this is primarily due to two things:
- Wealthy individuals make most of their income from capital gains (sales of shares and property) which with the current tax rules we have are effectively tax-free gains.
- Wealthy individuals are recipients of ‘indirect’ income from their trading entities, these may be associated companies or trusts, so income is taxed differently in these entities.
Its worth pointing out that the IRD report also includes non-cash income, like increases in values of shares, properties and businesses owned as income. In reality, these increases in value are just ‘paper figures’ that don’t necessarily reflect the saleable cash value of said assets.
How much tax are you paying?
That’s up to you to work out dear reader! As a starting point you will need:
- Your previous year’s tax return
- A list of all your GST related spending
- Your most recent tax statement from your PIE (they send this out around July of each year)
That should give you the information that you need to work out how much taxes you are actually paying. Note that knowing how much tax you’re paying won’t actually help your financial position if you are a salaried employee. But if you are a business owner, it can give you a starting point with which you can talk to your accountant about tax planning.
Whatever it is, knowledge is power! And if you don’t like the way tax laws work, well, that’s what elections are for right?
Stay positive!