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Mr Costello wants your workers

Mr Costello wants your workers

Perhaps the most enlightening comment on last month’s Budget came from outside the country.

Australian Commonwealth Treasurer Peter Costello confirmed what many of us on this side of the Tasman have long suspected — his country is once again deliberately wooing skilled New Zealanders. In his budget, Costello slashed income tax rates for middle- and high-income earners.

This is in stark contrast to the grudging conceded, but completely petty, tax adjustments scheduled for all New Zealanders.

On ABC Radio Mr Costello nailed the issue when he said, “Kiwis on average wages in New Zealand would pay a lot less tax in Australia.”

He went on to say, "And if there are Kiwis who have skills and who want to come to Australia as skilled immigrants of course they would be welcome in Australia. If they can play rugby union they will be doubly welcome."

What Mr Costello could have said, but didn’t, is that New Zealanders on above-average salaries, that is, many people currently working in IT, would do even better.

This should send a shudder down the spine of any New Zealand business owner or manager who employs or would like to employ skilled people. We’re already facing a severe shortage of suitably qualified and experience staff in just about every imaginable field. This can only get worse.

And it’s not just a matter of poaching our brainiest workers. Australia now looks a much more attractive destination for skilled workers planning to emigrate from elsewhere in the world. We’re going to find it harder to persuade them to move here.

For the record, a Kiwi earning $75,000 would get to take home $1,047 a week. An Australian earning exactly the same money, that’s A$62,500 at the time of writing, would take home A$1,000 a week, that’s $1,200 in local currency. Higher paid workers do much better.

That’s only part of the story. Australians don’t generally earn the same wages as their Kiwi counterparts. Most jobs pay better on the other side of the Tasman. It varies from job to job, as a rule of thumb; Australians already earn something like 33% more than their New Zealand counterparts in after-tax dollars. This gap will increase when Australia’s latest tax cuts kick in.

While the New Zealand government points to its ‘Working for Families’ handouts as a socially responsible alternative to cutting taxes, it actually compounds the skilled worker problem.

Someone on a modest income might not only lose 39% of any additional income to income tax when they work longer hours, take on new responsibilities or gain additional skills, but they can also lose their handouts at a rate of around 32 cents in the dollar.

In other words, their effective marginal tax rate can reach more than 70 cents in the dollar. That’s not the kind of incentive to help build a viable modern economy. Until we fix this problem, our information economy businesses are going to be battling the Australians with both hands tied behind their backs.