Source: Radio New Zealand
A paper written by a Treasury principal adviser has found that people born elsewhere are becoming increasingly important for the country’s tax base. RNZ
People who were born overseas and migrated to New Zealand are paying an increasing share of the country’s tax, a new paper shows.
The paper, published by Treasury to support its long-term fiscal statement, but not necessarily reflecting the view of Treasury overall, was written by principal adviser Tim Hughes.
It finds that, in aggregate, people born elsewhere are becoming increasingly important for the country’s tax base.
“Foreign-born people made up 24 percent of the population in 2000, also paying 24 percent of individual tax on market income,” Hughes noted.
“Since then, the foreign-born’s share of the population has grown, and their share of tax paid has grown even faster. In the tax year ending March 2024, the foreign-born made up 32 percent of the population, and paid 38 percent of the tax.”
He said that was partly due to the fact that they tended to be younger than the population born in New Zealand.
“However, age composition alone does not explain all the difference, and there is also substantial variation in the amount of tax paid by different migrants.”
He said it showed the growing importance of migration policy settings for the country’s fiscal sustainability.
Treasury has been warning about the increasing pressure that an ageing population will put on the tax system, through higher health and pension costs.
Murat Ungor, a senior lecturer in the Otago University department of economics, said the paper followed on from Hughes’ earlier work that showed up to 30 percent of people born in New Zealand were living overseas by the time they were 30.
He said it had been identified that New Zealand had a productivity problem, and relying on migration to help fill tax gaps created vulnerabilities.
“Treasury research highlights a key tension. New Zealand invests heavily in human capital, yet a significant share of that investment leaves the country through emigration.
“Previous Treasury research shows that New Zealand loses approximately $4 billion in public investment in human capital each year through emigration, with 25 percent to 30 percent of each birth cohort living overseas by age 30. That is a substantial drain on the taxpayer investment that raised those New Zealanders.”
He said the issue was not immigration itself but structural reliance on it.
“When fiscal sustainability depends on a steady inflow of skilled migrants, the country becomes exposed to global competition for talent, policy volatility, and domestic pressures on housing and infrastructure.”
Migration would remain part of the solution, particularly in addressing short-term labour shortages, he said.
“However, relying on population growth as the default economic lever is inherently risky. So, is it a problem that New Zealand increasingly depends on inward migration to support its tax base?
“Yes, not because migration is undesirable, but because over-reliance on any single lever creates vulnerability.
“The larger challenge is to build a more productive and resilient economy. That means prioritising long-term productivity growth, with automation and innovation at its core.”
Another option would be to pursue productivity advances through automation, he said.
“If New Zealand accelerates the adoption of artificial intelligence, robotics, and process automation across sectors such as agriculture, logistics, finance, and public services, it can increase output per capita without needing rapid population expansion. A sustained lift in productivity would materially strengthen the country’s fiscal position. Automation is one pathway to achieving this.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
