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Population Ageing and Taxation in New Zealand

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  • John Creedy, Jamas Enright, Norman Gemmell & Angela Mellish

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.

Suggested Citation

  • John Creedy, Jamas Enright, Norman Gemmell & Angela Mellish, 2009. "Population Ageing and Taxation in New Zealand," Department of Economics - Working Papers Series 1078, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:1078
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    References listed on IDEAS

    as
    1. Lixin Cai & John Creedy & Guyonne Kalb, 2006. "Accounting For Population Ageing In Tax Microsimulation Modelling By Survey Reweighting," Australian Economic Papers, Wiley Blackwell, vol. 45(1), pages 18-37, March.
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    7. Richard Disney, 1996. "Can We Afford to Grow Older?," MIT Press Books, The MIT Press, edition 1, volume 1, number 026204157x, December.
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    10. John Creedy (ed.), 2007. "New Developments in the Economics of Population Ageing," Books, Edward Elgar Publishing, number 12568.
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    Cited by:

    1. Robert A Buckle & Amy A Cruickshank, 2013. "The Requirements for Long-Run Fiscal Sustainability," Treasury Working Paper Series 13/20, New Zealand Treasury.
    2. Cylus, Jonathan & Williams, Gemma & Carrino, Ludovico & Roubal, Tomas & Barber, Sarah, 2022. "Population ageing and health financing: A method for forecasting two sides of the same coin," Health Policy, Elsevier, vol. 126(12), pages 1226-1232.
    3. Prammer, Doris, 2019. "How does population ageing impact on personal income taxes and social security contributions?," The Journal of the Economics of Ageing, Elsevier, vol. 14(C).
    4. Omar A Aziz & Christopher Ball & John Creedy & Jesse Eedrah, 2013. "The Distributional Impact of Population Ageing," Treasury Working Paper Series 13/13, New Zealand Treasury.

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