The Tax Working Group (TWG) used an unreliable survey by the Department of Statistics as the basis for its argument that the majority of the proposed capital gains tax (CGT) will be paid by the top 20 per cent of households measured by wealth.
Repeatedly, since the final report was published, Sir Michael Cullen has quoted the "statistic" to the media that 82 per cent of the assets that will be subject to CGT are owned by the top 20 per cent of New Zealand households measured by net worth.
He goes on to state (as factual) the second 20 per cent of wealthy households will be responsible for another 11 per cent , then only 4 per cent for "middle" New Zealand.
In reality, this information is based on what most reasonable people would describe as little more than guess work.
It has been used for political purposes to argue that the majority of the public have nothing to worry about, and it will be mostly the "rich" that will pay CGT.
If it is correct (which it isn't), it's a very good argument for Labour and the Greens who desperately want to see a comprehensive CGT implemented.
The problem for those wanting CGT is that the data is completely unreliable and should never have been used. We need to know why public officials used it in the first place when they knew, or ought to have known, it was dodgy statistics.
The statistic was derived by manipulating data collected from the July 2015 Household Economic Survey (HES).
The HES is conducted every year by the Department of Statistics to try to estimate where the wealth of New Zealand households is invested.
It was done by conducting interviews of 8000 households, out of approximately 1.7 million households, in New Zealand. That's only 0.47 per cent of households — s a ridiculously low sample size.
The other reason it is unreliable is most of the information provided is unverifiable. The Department of Statistics asks all sorts of questions about the assets and liabilities of each household and records the answers given. People can guess, underestimate or overestimate or not even volunteer information.
Lifestyle block owners are among those who will pay more under the proposed capital gains tax. Photo / 123RF
As you can imagine, it's an extremely invasive and intrusive process that attempts to delve into the most personal financial information of New Zealand homes.
By the Department of Statistics own admission, it contains data that is so unreliable they cautioned against its use.
According to the Department of Statistics website people "should take care when interpreting income, expenditure, or wealth estimates with sampling errors greater than 20 per cent. They are less statistically reliable than estimates with sampling errors less than or equal to 20 per cent".
There are 50 individual categories of data collected in this survey (or data cells). Of the 50 cells, 20 of them are considered by Department of Statistics to have a sampling errors of between 20 per cent and 50 per cent.
Another five are so unreliable the Department of Statistics has blanked them out as it would be irresponsible to even publish them.
Some of the categories that were blanked out or "suppressed" as significantly unreliable were important assets for the CGT debate, such as business ownership and share investments.
To put this another way, 50 per cent of the survey results are considered unreliable by the Department of Statistics who published them.
It beggars belief that Treasury decided to use this information in its report to the TWG.
Senior Treasury officials who wrote this report to the TWG obviously knew the information couldn't be safely relied upon.
Hidden in the fine print of the Treasury report, it states "care should be taken when interpreting wealth estimates because the confidence intervals around any point estimates vary widely".
In layman's terms, this is like Treasury saying to the TWG: "You probably shouldn't be using this information as we really don't know if it's accurate and some of it's completely unreliable."
This raises some very serious questions about the probity of the process that need answering by Finance Minister Grant Robertson, and the TWG chair Michael Cullen (who is still on the Government pay roll). Hopefully he's still being paid to answer the question of why the TWG used this data.
Did the TWG specifically request Treasury to dig up statistics to support the political argument that only the top households would pay CGT? Did the TWG know the data they were using was largely unreliable? Treasury obviously had concerns about using it and told the TWG in its report. So why did the TWG use that data? Does the Finance Minister now accept this data is unreliable and shouldn't have been used for political purposes to justify Labour's proposed CGT?
The reality is, we don't have enough reliable information to draw any conclusions at all about which households will pay the most from the proposed CGT.
We do know, however, that there are hundreds of thousands of farmers, business owners, lifestyle block owners, bach owners and sharemarket investors who will pay a lot more tax if Labour are successful in implementing CGT.
There are an awful lot of hardworking ordinary Kiwis who don't consider themselves wealthy who will pay CGT if Labour are successful in convincing Winston Peters to support it.
For Labour to use these dodgy statistics to mislead the public would be to underestimate the intelligence of the voting public of New Zealand.
The CGT debate has a long way to go. But Labour need to come clean and be honest about the many hundreds of thousands of middle income Kiwis who will pay CGT. They also need to answer some serious questions about how, and why, the HES was used to support the main argument on fairness by the TWG.
This proposal is the most significant tax reform in many years in New Zealand and we deserve better than public officials using dubious and unreliable data to support a preconceived political agenda.
- Troy Bowker is executive chairman of Caniwi Capital, a privately owned investment firm.
