How the government gets its money

Each year the New Zealand Treasury estimates how much it will cost to run government services such as roads, schools, and hospitals. It then prepares a budget for that money.

After the government sets the Budget it uses the tax collected by Inland Revenue to pay for government services. There are many different types of tax. The main ones are income tax and goods and services tax (GST).

Taxes on income and spending

In most cases people are taxed on what they earn. The more you earn the more tax you pay and the more the government receives. In the case of GST, however, you pay tax according to how much you spend.

Other taxes include fringe benefit tax, gift duty, customs duties and taxes on spending such as excise duties on petrol, alcohol and cigarettes.

Both employed and self-employed people pay tax on their income. If you're on a salary or wages the money will be deducted at source – meaning it's taken out of your pay before you see it. Unemployed or retired people also pay tax at source on their benefits and NZ Super.

Self-employed people usually need to put aside money to pay their tax themselves. They may also collect GST on the goods and services they sell and pay it to Inland Revenue.

People are also taxed on their income from investments such as interest earned on bank deposits, dividends from shares and rent from investment properties.

As well as paying taxes to central government, another form of tax is the rates paid to councils for local services. Homeowners and landlords pay this tax. If you are a tenant you will be paying it indirectly through your rent.

Summary

• The government needs money to operate.
• Most of this money comes from various taxes collected by Inland Revenue.
• These taxes are charged on the income and spending of individuals and businesses.