Fiscal incidence and income inequality by age: Results for New Zealand in tax year 2018/19

In this analytical note we report results of a calculation of the final incomes of individuals in New Zealand in tax year 2018/19. An individual’s final income, like their disposable income, adds any income support payments they receive to their market income (from their wage or salary and investments), while accounting for the direct taxes they pay. However, final incomes go beyond this by incorporating both the value of government spending on social services that individuals receive and the indirect taxes they pay on their consumption. The final income concept thus offers a more comprehensive picture of an individual’s income and living standards than is provided by analyses of their market or disposable income alone. We apply a sharing rule to account for the distribution of disposable incomes and indirect taxes such as goods and services tax (GST) within families and households. Combining these shared incomes and taxes with estimates of in-kind spending on education and health services that individuals receive yields their final incomes. We present results for the average market, disposable, and final incomes of individuals in five-year age groups and quantify the inequality of the distribution of each of these income types in each group by their Gini coefficients. Our analysis also covers the various tax and spending components that contribute to final incomes, and the net fiscal impacts of these components, across the age range. We further consider the distributions of the three income concepts over age groups in four distinct family types. These estimates provide a characterisation of the effects of fiscal policies on the incomes of individuals across the course of their lives.