Lobbyists kick into gear ahead of public finding out how much tax the rich really pay

Revenue Minister David Parker. Photo / Mark Mitchell

Those wary of Labour’s approach towards tax are gearing up for a battle ahead of knowing whether the Government will unveil any changes in the May Budget, or what tax policies the party will take to the October election.

Chartered Accountants Australia New Zealand (CAANZ) is seeking to provide context around research Inland Revenue is due to publish on Wednesday on the amount of tax the ultra-wealthy pay on all their income, including that which isn’t taxable.

Specifically, the research focuses on around 400 “high-wealth” families, worth at least $20 million.

When Revenue Minister David Parker asked the tax department to do the work, he said it was about “improving the evidence base about how the current tax system actually operates”.

“The information will inform future tax policy advice and so it may feed into future tax policy development,” he said in a speech delivered a year ago.

CAANZ New Zealand tax lead John Cuthbertson worried Inland Revenue’s findings could be “beat up” to give the impression certain groups aren’t paying their fair share of tax.

Ultimately, he feared the report’s findings could prompt a “knee-jerk reaction” from politicians.

“Ad hoc change undermines both the integrity and coherence of our tax system,” he wrote in an article published on CAANZ’s website and sent to its members and the Herald.

“There is no better example of this than the much-maligned and very complex bright line and interest limitation rules for residential property.”

Specifically, Cuthbertson believed it could be easy for people to “get lost in the hype of the moment” and compare the rate of tax the ultra-rich pay on all their income (taxable and non-taxable), to the rate of tax everyone pays on their taxable income only.

Those who fell into this trap could be led to conclude the rich don’t pay enough tax.

Cuthbertson also worried Inland Revenue’s research could be misinterpreted when read alongside research the Treasury is due to release at the same time, which looks at how much tax all New Zealanders pay on their taxable and non-taxable incomes.

He supported officials taking a more holistic view of the tax system but noted the Treasury and Inland Revenue used different “base years” in their research.

“The 2021 year [used by Inland Revenue] reflected very high capital appreciation for residential housing as the ‘golden summer years’ came to an end,” Cuthbertson said.

“From the 2022 tax year there has been a significant reduction in residential property capital appreciation, partially unwinding unrealised capital gains attributed to the prior year(s).”

Cuthbertson’s commentary came as a small tax advisory firm, OliverShaw, released a 220-page report it paid Sapere Research Group to do on the effective tax rates imposed on the incomes of all New Zealanders – not just the wealthy.

The firm’s directors, Robin Oliver and Mike Shaw, likewise worried Inland Revenue and the Treasury used different methodologies, which could produce a “misleading and confusing picture of our tax system”.

The research concluded wealthy people pay more tax than you think, and childless renters are actually among the most hard done by when it comes to taxation.

Parker will respond to the Inland Revenue and Treasury research in a speech on Wednesday. Prime Minister Chris Hipkins will deliver his first pre-Budget speech the following day.

Parker will likely also provide an update on work that’s been under way to put high-level tax principles in legislation.

These would require tax officials to formally report on how the tax system is performing in relation to a set of principles.

When Parker last year announced plans to create the principles, he said that if standards for the reporting of public finances, climate and child poverty were set in legislation, so too should standards for tax.

He said it was important for voters to be able to assess political parties’ tax policies against key principles, as debate around tax is “easily side-tracked by opinion and conjecture”.