What Is Your Largest Everyday Expense?

Normally when you ask someone “what do you spend the most money on?” they answer with housing? Or maybe their car- but that’s not you because you know that cars are money pits. Anyway.

Some people will answer with groceries being the biggest expense. Why wouldn’t it be food is great.

But the real answer, for the “average” household at least, is taxes.

Many of us don’t even think about how much we pay in taxes because we don’t “see it”. Your income tax is deducted straight out of your salary, GST (goods and service tax) is in the price of everything you buy, the fuel tax is already factored into the price at the petrol station. So we don’t often pay the government?

The list of taxes on fuel is actually quite long. There are 59.52 cents for the National Land Transport Fund, 6 cents for ACC motor vehicle account, 0.66 cents for the Local Authorities Fuel Tax, and 0.3 cents to the Petroleum and Energy Fuels Monitoring Levey. On top of those is the GST.  

At around 2.20 cents per litre, you are paying 33 cents to the government, and 66.5 cents for all the previously mentioned taxes. That’s a tax rate of around 45 per cent.

Are Taxes Bad?

So if you have got to this stage of my rant, you might think that I am against taxes and that we should descent into an anarchist society. And you’d be wrong. I think taxes are important.

Taxes are the price we pay for a civilised society.  And if you pay your taxes proudly, it is a sign that you believe in the country’s capacity to create a flourishing society which gives everyone a fair opportunity.

Now a caveat to the previous line.  Equal opportunity is what every country should strive for. That is not the same as equal outcome.

How do we compare

So how does New Zealand tax rate compared to other nations? The current average income in NZ is $57,217. If you earned this, you would be paying $10,185 in taxes. That is an effective rate of 17.8 %. So how does this compare to other countries?

ContryAverage IncomeTaxesEffective Rate
New Zealand (NZD)$57,217$10,18517.80%
USA (USD)$53,046$10,63020.04%
Australia (AUD)$52,477$8,60216.39%
Canada (CAD)$57,484$12,88322.41%
Germany (Euro)€57,734€12,65421.92%
UK (Pound)£32,112£6,89521.47%

You Spend 35% of Your Time Working for the Government

There is an interesting concept that has been floating around for several years now. It is called Tax freedom day. It is a day of the year where the country has theoretically paid off their tax bill and can keep the rest of their income for themselves.

This is a better comparison than just income tax I did above as it includes all government taxes at all levels.

In New Zealand, that day is the 7th of May. Which means our overall tax burden is 35%. Or to put it another way, you spend the first 127 days of the year working for the government.

Using this measure, how does NZ stack up? We are on the lower end of the spectrum with only Australia and the USA being lower at 28% and 31%. Others are lower, but these are the only two that I mentioned before that are lower. 

Tax Freedom day around the world passive income nz

Clearly, Taxes are an Expense

I like to discuss different ways to save money both in your spending habits and in investing. What I haven’t done is discuss reducing your tax bill. And there is a good reason for that.

I don’t own a business, nor do I own an investment property, I am just a salaried worker. And because of this, there is no way for me to reduce my tax. Businesses and investment properties can claim expenses and interest on their debt (although this may be changing soon). All of which will minimise their tax responsibility.

Is this fair?

Is the current tax scheme fair? Where the interest I earn on money is taxed, the capital gains are taxed. But capital gain on an investment property is not taxed? I don’t think so, but that may be because I am biased. After all, I don’t own a rental.  

Either way, with the tax working group looking into these sorts of things we may see changes soon.

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4 thoughts on “What Is Your Largest Everyday Expense?”

  1. In the US our tax freedom day typically is in April. After April my paycheck goes up considerably as some of the taxes have already been maxed out like social security deductions etc.

    • We only really have a theoretical tax freedom day as we continue to pay taxes through the entire year. It’s all pretty automated so you don’t really notice until you do your tax return at the end of the year

  2. I’ve never thought of this during my Employment as its such a passive process, but it’s worth it for a better and civilised society. however the rate, i’m not so sure of as governments seem to be spending the money on wars that are unnecessary (whole different topic).

    In the UK we get taxed on capital gains on property, of course after a revaluation of purchase price to today’s prices!

    • There are no real capital gains on property here and it is a very controversial topic. I don’t mind paying taxes. It is about the one thing I give back to society that has provided me with so much, that and donating blood. Tax in NZ is not often seen as an expense unless you are self employed. Ever thing is automated that you don’t even notice you have paid it until you look at you pay slip


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