Extra fox

Let’s talk about tax.

Or more particularly let’s talk about secondary tax.

Early on in my mothering life as a good middle class parent your correspondent – or probs a family member as I was pretty much exhausted for the first couple of years with each baby – bought Dr Seuss’ ABC. 

Aunt Abigail’s Alligator A – A – A

All the letters had rhymes with words that started with the ‘profiled’ letter. The exception – pun coming – was the letter X. Because I guess xylophone and xenophophia were outside the target range for preschoolers – the rhyme became X is very useful for words like ax (with no fricken e) and extra fox. 

Now while I was still 5 plus years away from discovering tax, Mr your correpondent and I always read that as extra tax. Coz I mean what is an extra fox for goodness sake? Aunt Abigail’s Alligator now that makes sense but  – Dude really  – an extra fox? What’s that about?

Now amonst the Precariat secondary tax is very much considered to be an extra tax. And according to the Council of Trade Unions the Labour party has promised – as they did last election – to repeal it on coming to government.

Thing is they haven’t actually promised that. They have said in the detail of recommendation S8 that the Government as part of Inland Revenue’s business transformation should look to remove secondary tax. These are subtle but important distinctions which we will come back to. Lucky for them Labour actually has someone on their team that gets tax.

So what is secondary tax?

Well it is the tax deducted on second jobs. It is a function of having the progressive tax scale that the left loves so much. 

First jobs get code M which I guess stands for main job. It takes the pay and multiplies it by the number of pay periods to get an annual amount ; calculates the tax and then divides that by the number of pay periods to get the tax for the income in the period. While it is relatively simple it does mean those with lumpy pays – overtime; seasonal workers – are overtaxed as a high pay is assumed to be a high annual income.

Second jobs however people have to choose a flat rate  – secondary tax – based on how much they earn from other jobs. And there is a view  – clearly shared by the CTU – that this overtaxes their income. Now it is true that it taxes second jobs more than first jobs but this is really just to reflect that extra income means higher tax. 

Coz remember how progressive taxation means the more income you earn the proportionally greater tax you pay? Yeah well this is how it is implemented for those with second jobs und the current PAYE system.

Now I fully get that as it is a flat rate and if you don’t earn as much as you thought you will be over taxed. But that is a function of our PAYE system being inherently middle class. As it works beautifully for those on stable incomes ie salaries.

Everyone else with unstable incomes – even if it is only from one job – runs the risk of being overtaxed and then yes needing the claim a refund. And then yes if you go to those refund companies they’ll take a cut. There is an IRD option but they don’t have the marketing budget of the refund firms so it is less well known.

The real issue though is the changing face of employment and precarious work – something the Labour Party is at least acknowledging and trying to address. Yeah I am not sure about the training levy either – but at least they are trying.

So yeah trying to get BT to address lumpy incomes is a good idea. So good that Hon Mike may have his officials on it already.

Just repealing secondary tax though is a really dumb idea. 

Unless you are happy with undertaxation and people needing to file and/or becoming non-compliant with all the associated risks. Alternatively it is an argument for widening the bottom bands. But rich people will get that benefit too. So   Labour Party  – trying to get technology to solve it is the right direction.

Real issue though is the numbers outside the withholding systems coz they’re not employees.

Namaste

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7 responses

  1. This issue comes up all the time in welfare debates. Agree totally with idea that secondary tax is a logical approach and end of year square ups deals with the overpayment if any. One of the worst things was to remove the obligation of people to complete their own tax return. This has been facilitated by taxing all income at source and use of tools such as secondary tax and PIE rates to mimic the actual tax rate of the individual. It is convenient to IR but bad for us as people in my view. It reinforces the view that most people cant deal with tax.

    Liked by 1 person

    1. I have a feeling that the government is looking at bringing back the requirement with BT for everyone to interface with the tax system. I’ll see if I can find the link.

      Liked by 1 person

    2. http://taxpolicy.ird.govt.nz/sites/default/files/2015-dd-mts-1-tax-administration.pdf page 32 is the proposal to bring everyone back into the tax system through online filing.

      Liked by 1 person

      1. Yeah… nah. On-line filing is a barrier for many people, not least because of bloody passwords. It needs to be optional. That is, you have to do a tax return, but paper should be fine, as should on-line filing. That means that IRD will have to spend a fair amount of time and effort getting all the wretched bits of paper sorted out, but I think they should be funded for this.

        Liked by 1 person

      2. It means running two systems though. In which case you might as well not have bothered getting a new one.

        Liked by 1 person

  2. I think we really do need to do something about the way that secondary tax operates, given the number of people who have portfolios of jobs rather than one employer, and the way that we have disconnected so many people from the tax system by not doing annual tax returns anymore. But I’m pretty sure that the solution has to be technological, not just getting rid of secondary tax.

    It’s complicated.

    I wrote a piece for Public Address about secondary tax a few years ago: Why we can’t just fix secondary tax

    Liked by 1 person

    1. Completely agree. Please post your link. Cheers

      Liked by 1 person

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