KEY POINTS:
How big is the income gap for New Zealand and Australian workers _ how long is a piece of string?
The widening take-home-pay gap between workers in equivalent jobs in New Zealand and Australia is a political sore point and something of an election issue. But getting a
handle on the size of the gap is tricky.
Variables include what job you're in, tax thresholds, whether it's a single or dual income earning household, the number of children, family benefit thresholds, Kiwisaver contributions, ACC levies here and Medicare levies there.
What's more important _ pay rates or incomes? It's apparent that Australian pay rates tend to be higher for the same job _ from just 5 per cent to 30 or 40 per cent depending on the occupation. But factor in Australia's generally higher cost of living _ for housing, food and even vehicles _ and maybe we're not so badly off here.
Tax rates are significantly influenced by income levels and dependent children. It appears that Australia is more generous in supporting older children still at home, particularly tertiary students.
Weekend Herald calculations using the respective tax departments' website calculators found a pay gap of 14.5 per cent for an average income-earning couple with two teenagers.
The Labour Government cites an OECD report from last year measuring the average wage (after tax) in NZ at 26 per cent lower than Australia's. The gap is growing, according to the OECD. Allowing for inflation, the average wage rose 11 per cent in NZ between 2000 and 2006 and by 18 per cent across the Tasman _ but the NZ figure excludes tax credits for qualifying households with children.
Prime Minister Helen Clark says the gap is no worse than in the 1990s when it "blew out" from 19 to 28 per cent after National introduced the Employment Contracts Act and the national award system crumbled. National claims the after-tax wage gap has risen to 38 per cent under Labour. It arrives at this figure using a complex formula to adjust for cost of living and exchange rate differences, which have widened in the past year.
But differences in the way the two countries' statistics departments calculate average earnings make an apples-with-apples comparison very difficult. New Zealand's figure includes full-time and part-time workers and those aged 15 years and over _ both of which drag the average down. National compares that figure with the average for Australians in full-time work only, and aged 21 and over. Their formula makes some allowance for the age discrepancy but the part-time worker factor is unresolved. Over to the experts.
Consultants NZIER produced a post-Budget 2008 model for a dual-income household with one child, earning a combined $65,000. With taxes and levies deducted and family benefits added, the Australian household in 2007/08 had $6361 more in the hand, an income gap of 11.3 per cent.
The big culprit here was tax rates. The New Zealand primary income earner paid an average 20.1 per cent in tax and the secondary earner 16.6 per cent; the Australian main income earner paid 14.4 per cent, the secondary earner 3.9 per cent.
However, tax changes introduced in the Budget will see the gap narrow by $1055 this year, to $5306.
A new NZIER discussion paper When will New Zealand catch up with Australia? claims the income gap in Queensland and NSW (where two-thirds of Kiwis have settled) is 25 to 28 per cent _ and widening.
If incomes in the two countries continue to rise at current rates, it will take 140 years to close the income gap with Australia, says the report. That's because New Zealand's average income annual growth has averaged 2.02 per cent a year this decade and Australia's 1.81 per cent. If New Zealand's growth rate doubled, the income gap would disappear in 13 years.
