Factsheet: Tax in Aotearoa

What is tax and what is it for?

Tax is money we collectively contribute to pay for the things that support our society. Tax is a tool the government can use to shape the economy and build the kind of society we want to live in. The main purposes of taxes include:

  • Revenue raising: To fund on public infrastructure and services (e.g., hospitals, schools, roads, public transport). Taxes are the main way that the government raises revenue. About two-thirds of the government's revenue comes from tax.
  • Redistributing income and reducing wealth inequality (e.g., income support, including pensions).
  • Repricing: Incentivising or disincentivising certain behaviours or actions (e.g., taxing tobacco to disincentivise smoking).
  • Representation: Taxation strengthens accountability between governments and the people. When governments rely on taxes to fund public services, citizens have a strong interest in how that money is raised and spent.

Decisions about who or what is taxed, how much, and what our tax revenue is spent on, affect both the economy and the fairness of society. These are political choices about the kind of society New Zealanders want to build.

Did you know? New Zealand collects around 33% of GDP in tax, compared with an OECD average of around 34-35%, and considerably less than countries such as Denmark, France and Finland.

Where does our tax come from? Who pays it?

Governments can raise tax revenue in different ways, including taxing income, spending, property, business profits, and wealth. 
Most tax revenue in New Zealand comes from:

  • Income tax
  • Goods and services tax (GST)
  • Corporate tax

Last year, the government collected just over $116 billion in taxes. About half of that came from income tax and a quarter came from GST. The rest comes from corporate tax and a range of other smaller taxes. This is illustrated in the chart below.

pie graph of tax revenue

Read more about the main types of taxes...

Income tax applies to wages and salaries, income from self-employment, and income from investments. People who earn more generally pay income tax at a higher rate than people who earn less. Economists call this kind of tax a progressive tax. 
This helps to reduce income inequality while ensuring everyone contributes to funding our public services.

Marginal vs Effective Tax rates

The government calculates the tax on a person's income using a tool called marginal tax rates. Marginal tax rates are not the same as the amount of income tax you pay, rather, it is the tax rate that applies to the next dollar earned at different levels of income. 


Marginal tax rates for different annual incomes are shown in the table below.

For each dollar of income Marginal tax rate
$0 - $15,600 10.5%
$15,601 - $53,500 17.5%
$53,501 - $78,100 30%
$78,101 - $180,000 33%
Income over $180,000 39%


For example, if you earned $70,000 in wages this year, this means your marginal tax rate is 30%. However, you will not pay 30% tax on your whole income, only on the part of your income that was above $53,500. The first $53,500 would still be taxed at the lower rates of 10.5% and 17.5%, as shown in the diagram below. Your effective (or average) tax rate across your whole income will be much lower than 30%, in this example 18.9%.

GST is a flat rate tax of 15% that is added to the price of most goods and services when you buy them. Everyone pays GST at the same rate when purchasing goods and services, no matter how much they earn. However, because people who earn less spend more of their income on essential goods and services, they end up paying a greater proportion of their income in GST than people who earn more. Economists call this kind of tax a regressive tax. 

Companies pay corporate tax on the profits they earn. This provides an important source of government revenue. The standard corporate tax rate that applies to most companies is 28%.

What is our tax spent on?

The government spends the tax revenue that it collects on public services and infrastructure.
In 2025, core government expenditure totalled approximately $142 billion. Social security, superannuation, health and education make up the largest areas of government spending.

How does our tax system compare internationally?

Looking at how New Zealand compares with other developed countries helps us understand the strengths and weaknesses of our tax system. In particular, the Organisation for Economic Co-operation and Development (OECD) collects and publishes internationally comparable data on the revenue and expenditure of its member countries, which include 38 high income countries with advanced economies.

How much tax do we collect compared to other countries?

As a share of the economy (GDP), New Zealand collects less tax than the OECD average and significantly less than many of the countries we like to compare ourselves with.
Tax as a % of GDP 2024

 

What is different about how we structure our tax system?

Compared with most OECD countries, New Zealand relies more heavily on personal income tax and GST.

On average across the OECD, personal income taxes accounted for 24% of total tax revenue in 2023. In New Zealand, the OECD estimates personal income taxes accounted for almost 42% of total tax revenue.1 This reflects New Zealand's greater reliance on income tax to fund government spending. Most OECD countries instead raise a significant share of revenue through separate social security contributions. A larger share of New Zealand's personal income tax revenue comes from salaries and wages than most OECD countries.

On average across the OECD, taxes on goods and services accounted for 21% of total tax revenue. In most countries this is represented by a “Value Added Tax” (VAT) which is analogous to GST and accounts for 25% of tax revenue in New Zealand.

One important reason why other countries rely less on personal income tax and GST is that they make greater use of taxes on wealth or capital gains. For example, out of the 38 OECD member countries, 31 (81.5%) have explicit, comprehensive CGT regimes. This includes countries NZ typically compares itself to such as Australia, Canada, the UK and Ireland. Among the remaining countries that do not have a comprehensive CGT, New Zealand has one of the most limited regimes for taxing capital gains, primarily through the two-year “bright-line” test for residential property.

Further information on OECD country capital gains tax approaches is available in Tax Justice Aotearoa’s report on Capital Gains Taxation in OECD and Comparable Nations.

Footnotes
1. The OECD classifies tax revenues differently from Inland Revenue. The OECD measure of personal income tax excludes and includes some revenue categories differently from Inland Revenue's "Individuals tax" category, so the figures are not directly comparable.