Our tax brackets have stayed the same while incomes rose, so we end up paying more.

New Zealand's top tax bracket not only kicks in at too low a level, but low and middle-income earners are being taxed at too high a rate, one tax adviser says.

Commentators have said that $70,000 is no longer an appropriate threshold for the country's top tax bracket, of 33 per cent.

Australia's top rate, of 45 per cent, is applied to earnings over $180,000 a year.

The tax brackets have been the same since 2008, when the top rung was adjusted up from $60,000.

Back then, median earnings were $730 a week or just under $38,000 a year.

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Now, the median is $52,000.

"I don't think too many people would consider $70,000 to be high-paying," Kiwibank chief economist Jarrod Kerr said. "I don't know the appropriate level it should go to but it should be at least six digits, not five."

By 2017, someone earning twice the average wage was paying $1130 more in tax each year than they would have been if the tax brackets were adjusted up to keep pace with inflation.

But specialist tax adviser Terry Baucher said there were issues for people earning less, too.

Unlike Australia, where annual income up to $18,200 a year is tax-free, New Zealanders pay tax from their first dollar earned. A rate of 10.5 per cent applies to earnings up to $14,000 a year.

The next tax bracket is 17.5 per cent for income between $14,000 and $48,000 and 30 per cent between $48,000 and $70,000.

"Most people fixate on the threshold at which the 33 per cent kicks in," Baucher said.

"The problem as I see it is the way our tax rates are structured, as 17.5 per cent, 30 per cent then 33 per cent. Going from 30 per cent to 33 per cent isn't that big a jump but it's a big jump from 17.5 per cent to 30 per cent and that happens on average earnings."

In October 2010, someone earning the average wage had a marginal tax rate of 17.5 per cent. By April 2018, that average wage-earner was well into the 30 per cent bracket.

Many of those workers were also getting Working for Families credits, Baucher said, which dropped as pay rose. That meant some could end up with a 100 per cent effective tax rate on some of their earnings.

"The Government has for a long time let it slide because it's a nice way of raising money without anyone catching on but the rate structure needs to change."

A more appropriate structure would be 17.5 per cent, 25 per cent and 33 per cent, he said.

People would have to earn more than $145,000 a year in New Zealand before they paid less tax here than they did in Australia, he said.

"Because although our top tax rate is quite low by international standards it applies from a low level and we don't have any exemption, we collect quite a lot of tax that way."



