Taxes on employment in New Zealand are well below the global average – boosting prospects for job creation and real income growth.  The costs of social security and other “taxes” on employment are rising fastest in the Netherlands and China. 

The average extra cost to New Zealand’s businesses in social security and other so-called employment “taxes” now accounts for just 4.5% of an employee’s annual salary, according to a new study by UHY, the international accounting and consultancy network.

UHY says that businesses in New Zealand are now paying an average of USD1,341 per year in employment “taxes” – on top of employees’ wages – for an employee earning USD30,000*.

This is well below the global average of USD6,141 or 20.5% of salary. New Zealand now has some of the lowest employment costs amongst the western economies. These employment “taxes” are worth less than a third of employment costs in Australia, where an employee earning USD30,000 costs 15% of their salary.

UHY says that such proportionately low levels of employment costs could help boost job creation and real income growth.

UHY says there has been a global decline of under a tenth since 2012 in the amount that businesses have to pay in additional employment “taxes” on top of employees’ wages, from 21.6% of an employee’s salary to 20.5%. However it says that the global average still remains persistently high, with many countries seeing double-digit percentage increases since 2012.

For example, according to UHY, employers in the Netherlands, China, Israel and France have had to bear substantial increases in the employment costs they pay for each employee in the last three years (see table below)**.

Comments Tim Livingstone, Director of UHY Haines Norton (Auckland) Ltd, a member of UHY: “By keeping a lid on employment-related taxes, New Zealand is helping to bolster competitiveness and underpin much-needed growth.”

“At a time when the global economy is only gradually returning to health and the recovery is still very fragile, ensuring that revenue-raising policies don’t disincentivise job creation and stifle income levels is more vital than ever.”

China has seen one of the largest increases of any country in the study: the amount of ‘tax’ and social security payments paid by employers has increased by almost a third since 2012* from 31.6% to 42%. Chinese employers are now paying an average of USD12,518 per year in employment costs for an employee earning USD30,000, equating to 42% of an employee’s salary.

UHY studied data in 29 countries across its international network, calculating the value of payments companies have to make, such as social security contributions, on top of the gross salary they pay to individual employees (see table below).

Brazil still has the highest taxes and compulsory insurance costs for employers of any country in the study at 71.4% of a USD30,000 salary. At USD21,408 in payments on top of salary, this is almost 16 times higher than New Zealand, where firms pay just 4.5% extra (USD1,108).

Increased prevalence of targeted incentives to tackle unemployment

UHY adds that many countries seek to tackle unemployment and minimise its impact on their welfare budgets by incentivising employers to create new jobs. These are often targeted at specific groups such as the unemployed, or those starting their first jobs.

Tim Livingstone explains: “Governments recognise the logic of reducing employment taxes, but many fear that across-the-board cuts cannot be afforded, particularly given the costs associated with ageing populations.”

“Increasingly we are seeing targeted measures as a compromise. For example, employers in New Zealand do not have to pay the KiwiSaver contribution if an employee is a KiwiSaver member and is aged under 18, or aged over 65, who has been a contributing member for more than 5 years. In the UK, since 2015, employers pay less National Insurance for employees aged under 21.”

“However, too many exemptions can lead to an overly complex tax code.”

Tax, social security and other payments made by businesses on top of gross salaries by USD and payments as % of gross salary 2015 – ranked by percentage change since 2012:

UHY Employment on Taxes pic

 

* Based on a gross annual salary of USD30,000

** The other salary brackets examined at (USD15,000, USD30,000, USD75,000 and USD300,000) can be consulted in the supporting report

*** Based on figures for Shanghai as a representative city of Chinese costs

**** Including levies

***** Unranked as 2012 data available

Read the full report here.