Figures released by the Inland Revenue Department this week suggest the average New Zealand dairy farmer pays little more in income tax each year to the government than someone on the unemployment benefit.

The IRD figures showed that in 2009, the average dairy farmer paid just $1,508 in tax.

That compares to an unemployed beneficiary over 25 who paid $1229 that year and someone on the average wage in New Zealand who pays the government just over $8000.

In fact, the 17,244 dairy farms in the IRD’s figures paid just $26 million in tax in 2009.

Half reported a loss for the year while 2635 farms reported a trading income of between $1 and $20,000.

The government responded to the news by attacking the Dominion Post article which originally published the findings, saying it had misinterpreted the data.

Finance Minister Bill English says the newspaper portrayed the $500,000 average payout to dairy farmers that year as income – not total their total operating revenue from business expenses must be paid.

And Federated Farmers says it is highly unfair to single out 2009 because that was a very tough season for farmers climatically and that in future years they will likely pay a lot more. 

But according to some, these arguments don’t address the elephant in the room. 

Economic commentator Bernard Hickey says New Zealand operates a perverse tax system whereby farmers, and many other businesses, benefit by taking on debt and PAYE earners and consumers pay a grossly disproportionate amount of tax.

 “I mean farmers have high costs because they choose to take on a lot of debt. And many farmers deliberately run to make either no cash profits or small cash profits because they’re farming for tax free capital gains.

“And that’s what happens when you have no capital gains tax people are incentivized to take on debt to push up land prices and the end result is they don’t pay much tax.”

Mr Hickey says there’s no two ways about it – New Zealand’s tax system is fundamentally flawed and farmers simply aren’t paying their fair share of tax.

 “I mean when you’ve got a pensioner couple paying 10 times more tax than a farmer whose earning half a million dollars in income it’s wrong – it’s just plain wrong.

“Why is the burden of taxation falling most heavily on PAYE tax payers and consumers through GST and people who are running businesses for capital gain don’t pay any tax?”

At Fonterra’s interim results announcement in March, Fonterra bosses Andrew Ferrier, Henry van der Hayden and Jonathon Mason were asked how Fonterra manages to pay so little tax itself.  

The IRD says Fonterra – which singlehandedly generates 20 percent of New Zealand’s export returns and seven percent of our GDP has in the last three years received $28 million from the government in tax credits – an effective tax rate of minus 1.5 percent. 

Mr Hickey argues New Zealand has a culture of tax avoidance where companies and wealthy individuals do everything they can to minimize the amount of tax they pay – and it is crippling the country’s economy.

In the same 2009 financial year multi-billion dollar internet giant Google’s New Zealand arm paid just $7726 in tax – that’s less tax than what a single construction worker paid to the government that year.