Do high taxes encourage emigration?

4 Jun

Question 26: One of arguments in favour of tax cuts on incomes is that they are needed to keep people in New Zealand. Do people migrate because of allegedly high tax rates in New Zealand?

There is no evidence to support the claim that people leave New Zealand because of the allegedly higher tax rates.

There is a logical fallacy in the government’s argument when most people come out only marginally ahead when other changes like increases to GST, ACC levies and other consumption taxes are included. The main reason people leave is because there is a large wage gap between New Zealand and Australia and that won’t be closed by fiddling with the tax rates. The Treasury estimates a further real wage decline over the next year of over 3% as a consequence of inflation outstripping wage growth.

The recent history of tax and migration in New Zealand doesn’t support the argument either. As Peter Conway notes in his 2010 paper:

“And we have the evidence of migration rates to Australia post reducing the top tax rate from 66 cents in the dollar and also post increasing the top tax rate to 39 cents in 2000.

“So in the five years following the massive cut in the top tax rate from 66 to 33 cents net migration was -21,500, -13,700, -16,800, -24,400, -1,200, +11,700. This is a loss of 65,900 people.

“In the 5 years following an increase in the top tax rate from 33 cents to 39 cents, net migration was -9,100, -11,400, +28,100, +42,000, +25,700 and +9,300. This is a gain of 84,600 people.

“But hang on, shouldn’t it be the other way around? I am not saying that people left or came here because the top tax rate was reduced or because the top tax rate went up.

“I am just saying that the top tax rate doesn’t look like it is a driver of migration flows.”

(Part of a series of extracts from “Exposing Right Wing Lies” by Mike Treen, Unite National Director)

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