So then, other than creating a big vacuum for people to fill with speculation, what now?
The research reveals the wealthiest New Zealanders pay tax at around half the rate of ordinary people.
The median wealthy family the Inland Revenue surveyed paid 9.4 per cent tax on all their income - including that which they don’t need to pay tax on.
The comparable rate for a “middle wealth” New Zealander was 20.2 per cent, according to separate research done by the Treasury.
Experts can debate the ins and outs of how the research was conducted and what its limitations were. But the disparity clearly isn’t a great look, and makes your average hardworking Kiwi feel like they’re being duped.
But here’s the thing, the reports don’t point to an obvious solution.
Rather, their complexity highlights just how difficult getting the uber rich to pay more tax would be.
Firstly, you can only tax income you can measure.
It took Inland Revenue two years, $3 million and special legal powers to figure out how much income 311 very wealthy families received and how much tax they paid.
The data gathering required to accurately figure out what everyone else (including other super-rich families who refused to partake in the Inland Revenue survey) receives - taxable and not - would be onerous.
Sure, you don’t need to get it completely right, but it’s the uber rich who have more options when it comes to figuring out (legal) ways of reducing their tax bills. So, accurately identifying the income that should be taxed is key.
The Inland Revenue concluded the main source of untaxed income among its pool of high-wealth families was capital gains - both accrued and realised.
“Easy,” one might say. “Get rid of the bright-line test and introduce a capital gains tax.”
Sure, this might simplify the tax system, but a large chunk of the capital gains enjoyed by the wealthy are unrealised.
So a capital gains tax on realised gains - ie the gains received when you come to sell an asset - would only go so far towards taxing the rich more (assuming this is the goal).
Taxing unrealised gains brings up a bunch of logistical challenges around valuing assets that are part of volatile markets, while keeping the process efficient.
It’s also worth noting Inland Revenue found 19 per cent of the uber rich’s taxable and non-taxable incomes came from property - a decent, but not massive, portion.
Meanwhile a whopping 51 per cent came from business entities - including companies that aren’t listed.
A relatively small portion - 7 per cent - was attributed to “personal taxable income”.
This suggests targeting the uber rich by introducing a new top income tax bracket with a higher rate would have limited effectiveness. The really wealthy don’t earn much from salaries and wages.
Of course, this is a very loose assessment, aimed at highlighting challenges, rather than arguing for nothing to be done.
While the work of Inland Revenue and the Treasury might lead a “regular Kiwi” to believe the wealthiest families should pay more tax, the average person won’t want to get caught up in tax change they’re unequipped to side-step like the rich can.
Inland Revenue has provided the country with a great resource. But figuring out what to do with it is difficult and very much up for debate.