‘I enjoy anything with an analytical element’

Award-winning economist Norman Gemmell likes to contribute to important issues untarnished by entrenched views.

Professor Norman Gemmell, Chair in Public Finance
Professor Norman Gemmell, Chair in Public Finance

Professor Norman Gemmell has a question for you.

Suppose you earn $75,000 a year. Under the current New Zealand tax regime, you would pay $15,670—or about 21 percent—in income tax, but for every dollar you earn over $70,000 you would pay 33 cents, taking home just 67 cents.

Now imagine this top tax rate were almost doubled to 60c in the dollar. If you keep earning $75,000, you would pay an extra $1,350 in tax, raising your average tax rate by less than two cents to 23 percent.

But for every dollar you earn over $70,000, you now only get to take home 40 cents. Would you work overtime if you got to keep just 40 cents of every dollar earned instead of 67 cents? And, of course, if earning more also meant losing payments like family tax credits, you could end up effectively with less than 40 cents per dollar.

Scenarios such as this—and the ways they might play out—are at the heart of a research project being led by Professor Gemmell, inaugural Chair in Public Finance in the School of Accounting and Commercial Law at Victoria Business School (VBS).

The project, which received $600,000 over three years in the Ministry of Business, Innovation and Employment’s 2016 Endeavour Fund investment round, aims to develop tools to analyse how people behave in response to tax and welfare changes and thereby help policy advisers take these effects into account to more accurately predict government revenue.

It is an international collaboration that involves tax and computer-modelling experts from New Zealand, Australia and the United Kingdom, including Professor Gemmell’s VBS colleague Professor John Creedy. The tools it aims to develop would be used in all three countries.

The project is one of Professor Gemmell’s many strands of work as Chair in Public Finance, a position established in 2011 to build expertise in public finance and promote research, debate, policy analysis and advice on public finance matters.

The Chair is currently sponsored by Victoria University, Inland Revenue, the Ministry of Education, the Treasury and the New Zealand Productivity Commission.

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In a nutshell

My research matters because … Taxes affect everyone and research can help politicians design them in helpful, rather than harmful, ways.

One of the inspirations for my research has been … Watching politicians make some dumb, but avoidable, mistakes in setting taxes.

The best thing about my job is … Being able to work on the research topics I think are most valuable.

My career highlight so far has been … Helping design and deliver the major 2010 budget tax reforms, and winning the New Zealand Economist of the Year award in 2012.

My advice to aspiring researchers is … Persevere—good research takes time and care.