Salaries nudge up just 1.3% over the year to September 2010
Average earnings continue to increase slowly after stalling earlier in the year, however the year-on-year increase is the slowest for over 15 years.
Statistics New Zealand's Quarterly Employment Survey shows a slight increase in total average weekly earnings (including overtime and benefits) over the last three months, making a yearly gain of just 1.3% - the lowest annual increase in average total hourly earnings since the June 1994 year.
Average weekly earnings were up to $972.69 from $965.28 three months earlier.
Salaries are likely to struggle to keep up with inflation over the next reporting period as GST increased to 15% in October, however income tax cuts which also came into effect in October give all workers a boost in take-home pay to compensate.
Salaries edge up in June - back to September 2009 levels
Total average weekly earnings(*) according to the Quarterly Employment Survey (QES) were $965.28 as of June 2010. Average earnings for men were $1063.08 per week, and for women $858.85 per week.
*Total earnings include overtime and benefits
Effective tax rates in NZ, Aus and the UK
With the New Zealand Government's announcement of income tax cuts in the May 2010 Budget, how do New Zealand's income tax rates stack up against those of countries our young emmigrees flock to? (Namely Australia and the UK).
In two words, "surprisingly well".
When looking at headline tax rates a person earning the average wage in New Zealand will have an effective income tax liability of just 16%, compared with 18% for average wage earners in the UK and 20% in Australia (as of 1 October 2010 once the new NZ tax rates come into effect).
Actual gross rates will vary depending on an individual's situation as extra tax and insurances are applied (ACC in NZ, Medicare in Aus, etc.) and certain rebates or benefits may be claimed (working for families in NZ, accommodation allowances in Aus, etc.)
| Avg. Salary | Tax Rate | |
|---|---|---|
| New Zealand | NZD 49875 | 16.00% |
| Australia | AUD 67116 | 20.39% |
| United Kingom | GBP 25428 | 18.08% |
In local currency terms New Zealand's new tax rates really shine against the competition, with effective rates coming in lower for all incomes over $44000/annum.
When comparing salaries converted into NZD the picture isn't quite so clear, though the New Zealand tax rates do come in lower for higher salaries of around $150,000 and over. However conversion into NZD is fairly meaningless without considering the relative cost of living in each country.
With large fluctuations in currency exchange rates over the last year it is hard to get a meaningful perception of relative purchasing power between the countries.
Until some official PPP figures are released we'll confine this analysis to the headline figures above and a comparison of tax rates at multiples of the average wage in each country.
| @ Avg. Wage | @ Twice Avg. Wage | @ Thrice Avg. Wage | |
|---|---|---|---|
| New Zealand | 16.00% | 23.90% | 26.93% |
| Australia | 20.39% | 28.02% | 31.86% |
| United Kingom | 18.08% | 24.33% | 29.55% |
Again the NZ income tax rates come out on top - lower for a range of comparable income levels.
Although tax isn't everything, would-be economic migrants may wish to re-evaluate their decisions based on the 2010 budget announcements.
Average earnings figures were sourced from Statistics New Zealand, Australian Bureau of Statistics and the Office for National Statistics UK.
Lower Income tax rates in 2010 Budget
Calculate your take-home pay for different salaries.
Finance Minister Bill English has delivered substantial income tax rate cuts in the 2010 Budget, while simultaneously increasing value-added tax and making it more difficult for wealthier individuals to manipulate their tax position.
Income tax rates are dropping across the board meaning that the extra after-tax income should more than offset the higher GST rates for the majority of wage earners. The new income tax rates will come into effect in October 2010.
Tax thresholds are being kept at present levels of $14000, $48000 and $70000 so many people will have their incomes creep into higher tax brackets. (Though given that wage inflation has been low over the last year this is unlikely to be of major concern).
Tax rates effective as of 1 October 2010:
(excluding ACC and rebates)
| old rate | new rate | on annual earnings |
|---|---|---|
| 12.5% | 10.5% | up to $14,000 |
| 21.0% | 17.5% | between $14,001 and $48,000 |
| 33.0% | 30.0% | between $48,001 and $70,000 |
| 38.0% | 33.0% | over $70,000 |
For example, a specialist earning $100,000 per annum would pay tax as follows:
| 14000 * 0.105 | = | $1470 |
| (48000-14000) * 0.175 | = | $5950 |
| (70000-48000) * 0.30 | = | $6600 |
| (100000-70000) * 0.33 | = | $9900 |
| $23920 |
Thus making a total tax bill of $23,920 or an effective income tax rate of 23.9%. This is substantially lower than the comparable effective rate of 27.6% payable on 2009 tax rates.
In addition to income tax rates, a number of other tax changes were announced in the budget, including a drop in the company tax rate to 28% for the 2011/2012 year, tightening of tax on property investment and a raise in the GST rate from 12.5% to 15%.
The 2010 Budget was all about rebalancing of the tax base - lowering income tax to promote higher productivity, increasing consumption taxes to encourage savings, and hitting unproductive income such as returns from property investment.
All and all, a win for wage and salary earners across the income spectrum.
1.1% drop in unemployment - are salaries set to improve?
Only two days ago we showed how average wages have flat-lined over the last few months. But today there was a surprise drop in the unemployment rate from 7.1% to 6.0%, possibly indicating that salaries will again start to increase.
The Household Labour Force Survey released by Statistics New Zealand today showed that unemployment dropped by 25,000 over the March 2010 quarter while employment grew by 22,000 people, giving a net seasonally adjusted drop in the unemployment rate of 1.1%.
Will salaries increase?
Indications so far are that Consumer Price Inflation remains subdued, and although the unemployment rate has improved, at 6% it is still high compared with rates of recent years (prior to 2009). Therefore there may still be a little slack to pick up in the labour market before strong wage competition starts to kick in.
It's also too soon to tell whether the March unemployment rate is an anomaly, but the large drop does give weight to the idea that the market has reached its turning point. Further support for rising wages comes with the Reserve Bank's recent indication that OCR increases are on the cards, perhaps as soon as next month.
The time may be near to ask your boss for a long overdue pay-rise.
Average wages in 2010 are going nowhere
If you got a pay rise after Christmas then count yourself lucky; Figures released by Statistics New Zealand this week show that average hourly earnings over the last few months have remained stubornly static.
Although average earnings (including overtime) have increased year-on-year by around 2% since March 2009, much of that gain occured during the first half of 2009, and the year-on-year average earnings growth compares poorly with recent prior years of 5.3% to March 2009 and 4.6% to March 2008.
According to the Quarterly Employment Survey (QES), average weekly earnings in New Zealand were $959.13 as of March 2010. This is composed of average earnings of $1050.53 for men and $857.73 for women. These numbers reflect the total average earnings, i.e. wage or salary plus overtime pay and benefits.
Expect a lower salary payment in April
Back in December the Government announced an increase in ACC levies which are due to take effect as of next week.
Employees' levies will increase from $1.70 per $100 of earnings to $2.00 per $100 of liable earnings, capped at a maximum of $2,200.36 per year (earners' levy is only charged on the first $110,018 of earnings).
These ACC levy increases follow on the back of substantial increases incurred last year - the earners' levies are up over 40% since March 2009.
Who pays ACC earners' levy? Pretty much everyone who earns income from a salary, wage or self-employment income. Non-labour income such as rents and royalties are exempt.
Minimum wage to increase $0.25c
After much speculation and debate the Government has announced a small increase in the minimum wage, to come into effect on 1 April 2010.
The standard (adult) minimum wage will increase 25 cents to $12.75 per hour. That's equivalent to $102 for a standard 8 hour day, or $26,520 per year.
The new entrants minimum wage will increase 20 cents to $10.20 per hour ($81.60 per day, or $21,216 per year).
According to the Beehive website,
"The Government is focused on the need to find a balance between protecting jobs and ensuring a fair wage."
"We do not want to see workers priced out of the market, but we are confident that a 25c increase, in line with inflation, will not overly harm or discourage businesses from taking on new staff."
There have been calls by Unite to increase the minimum wage to $15 per hour, a 20% increase on the current minimum wage, but these calls have been rejected by the Goverment as unreasonable in the current challenging economic climate.