Population Ageing and Taxation in New Zealand

John Creedy, Jamas Enright, Norman Gemmell & Angela Mellish
Authors registered in the RePEc Author Service: Norman Gemmell and John Creedy

No 1078, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: This paper considers the implications for personal income tax and Goods and Services Tax (GST) revenues of population ageing in New Zealand. It considers‘pure’ ageing effects; that is, population size is held constant but its age distribution changes over the next 40 years. It might be expected that an increase in the share of pensioners would reduce aggregate incomes while increasing the proportion consumed. However, with age-earnings profiles having a peak in the 45-54 age range, and the expected average age of the population over the next 40 years transiting this age range, younger individuals with increasing incomes are expected to approximately counteract the declining incomes of older individuals. But ageing is expected to increase the dependence of income tax and GST revenues on pension choices. Without changes in New Zealand Superannuation (NZS) settings, its cost is expected approximately to double over the next 40 years, with most of this occurring over the next 20 years. Changes to NZS rates have a non-trivial effect on the share of income tax and GST contributed from NZS incomes.

Pages: 33 pages
Date: 2009
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Related works:
Journal Article: Population ageing and taxation in New Zealand (2010)
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