Editorial: Revenue Minister David Parker takes on 1 per cent

Revenue Minister David Parker won $5 million from Cabinet for a project to improve IRD's understanding of wealth. Photo / Mark Mitchell

EDITORIAL:

Inland Revenue has now written to hundreds of New Zealanders it has identified as being worth at least $20 million (and in many cases far more) telling them they will need to provide it far more information about their wealth than before.

It is part of an attempt to fill gaps in New Zealand's understanding of how wealth is accumulating, something highlighted in the work of the Sir Michael Cullen-led tax working group.

Clearly it has caught the attention of Revenue Minister David Parker. He won $5 million from Cabinet to set up a team for a project to improve IRD's understanding of wealth "to ensure that future tax policy advice is based on reliable evidence".

That sounds innocuous and, at a principle level, the venture seems admirable. Whatever your position on New Zealand's existing tax settings, it seems fair ground for the IRD to have a reasonable picture of how and where capital is quietly accumulating.

But in executing the project IRD runs the risk of a major headache, which could turn into farce. It clearly hasn't quite worked out precisely what it wants to know, but has to push ahead. It has already promised to deliver its findings by July 2023, which just happens to be about the time of the next election.

Early signs are not good. Of the 405 identified some have already been struck off after quickly convincing the IRD they are not, in fact, wealthy. IRD has been vague about whether others in the group have been ruled out for different reasons. Around half do not appear to have responded at all.

Some are clearly mulling a legal challenge to test IRD's rights to use the powers to demand the information, which were granted to the department without warning or discussion in December.

As well as delivering a new top tax threshold of 39c in the dollar for those earning over $180,000, legislation passed under urgency contained a surprise move to give IRD power to gather information to develop policy.

Deputy leader of the House Michael Wood said the changes were a "clarification" in IRD's powers. That might be true on a technical level.

But several hundred of the best-resourced people in this country have just received letters which they consider a severe intrusion. They are in a position to fight back.

As Revenue Minister Parker might see a showdown as part of the process. He would clearly prefer a tax system which captured those accumulating wealth outside their taxable income and having a fight with the 1 per cent might help the case.

As Attorney-General, Parker should see the showdown quite differently. Some laws - including some tax laws - demand urgent fixes to avoid unintended consequences.

But giving the IRD powers to look around for vague policy reasons is not one of them. Governments of both sides have generally agreed to more carefully develop tax policy using principles agreed with the legal and accountancy professions.

If these powers get tested in court on such an obviously political issue, and struck down, Parker will not only have his fingers on another misstep in Labour's effort to improve tax policy in New Zealand, he will be directly tied to an example of poor process.