Revenue Minister David Parker during his speech on the high-wealth Individuals research at Victoria University in Wellington. Photo / Mark Mitchell
OPINION
For a whole day or two last month, sanity prevailed. We discovered the wealthiest among us pay, on average, less than 10 per cent tax on their income, while the rest of us pay more than 20 per cent. There was widespread shock.
The data came from a
There are no ifs, buts or extenuating circumstances about this. It’s wrong. Equity should be a fundamental premise of any tax system: everybody should pay their fair share.
That doesn’t happen in this country because, unlike most others in the OECD, we allow many sources of wealth, especially property, to be tax-free.
In a similar vein, last year economic issues writer Max Rashbrooke calculated that if we had a tax system similar to those in Austria and Germany, we would have between $20 billion and $30b a year more revenue available for public spending.
Just imagine what that money could do right now for our hospitals. For transport infrastructure. For schools and police resources and climate resilience. For the social programmes our splintered society desperately needs.
We have underfunded these things for decades, because we’ve bought the line that middle New Zealand needs tax relief. But that’s a smokescreen. The real tax relief has been channelled to the wealthiest.
The direct consequence is that middle New Zealand, along with the lowest-income households, has missed out.
We had a day or two of clarity about this, but then the conversation changed.
Tax lawyers and accountants muttered away in interviews about how it’s not as simple as it sounds. But while they were experts, they were hardly impartial: They make their living by helping other people pay an unconscionably small amount of tax.
And then the National Party and Act swung into action.
National Party leader Christopher Luxon, his deputy Nicola Willis and Act leader David Seymour all couched the report as an attack on middle New Zealand.
Seymour said wanting the uber-rich to pay their fair share was “just tall poppy syndrome”, which is something said by scoundrels everywhere when they’re called out for outrageous behaviour.
Luxon said he agreed with the IRD that the tax system is “broadly fair”, but it was a distortion of what the IRD actually said. The report reveals the limited contributions of the very rich are an egregious breach of the “broad fairness” of our tax system.
Willis took on the main attack role. “Labour,” she said, “can’t wait to grab at the hard-won gains of every Kiwi who has built a business or invested their savings and prepared for their retirement.”
Again, it is the undertaxing of the super-rich that grabs at those gains, not more equitable taxation.
She added that Labour is “secretly planning to introduce a capital gains tax” and called on Prime Minister Chris Hipkins to rule it out. “That he won’t tells you everything you need to know.”
Actually, everything we need to know is that National and Act are paid, very well, to block equitable taxes.
Last year, National received over $5 million in declared donations, over half of that from wealthy donors. Act got more than $2 million, nearly all from wealthy donors. These sums were records for a non-election year and we can be sure they will be much higher this year.
Is this money anything more than payment for services rendered on tax policy? If so, let’s hear the donors call for equitable tax reform.
Some people say both sides in politics receive payments like this, but it’s not true. Labour’s equivalent kitty from big donations last year was a mere $150,000 and its total was under half a million.
As for the Greens, they do sometimes have large donors, but you could hardly argue they are trying to buy tax relief for themselves. The Greens have consistently advocated for a wealth tax.
National, in contrast, only recently abandoned its plan, under public pressure, to remove the 39 per cent marginal tax rate for people earning over $180,000 a year.
The party still says it will change the “bright line test”. This refers to a tax on property speculation, paid on income from property sold within a specified period of it being bought. National set the line at two years, Labour increased it to 10 and National promises to reset it at two.
How is it that Nicola Willis and co can argue a wealth tax is an attack on middle New Zealand? The answer is that it could be. You could design taxes on capital gains, inheritance, land, or wealth and income in any or all its forms that kick in relatively low and don’t have high marginal rates.
But no one who advocates for more equitable tax has ever suggested that.
Last election, for example, the Greens proposed a wealth tax of 1 per cent on net wealth over $1m and 2 per cent on net wealth over $2m. This excluded the value of assets covered by a mortgage and applied to each individual.
A couple owning a house would pay the tax on the mortgage-free component of its value, if it was over $2m. People with valuable assets but little income, such as some retirees, would be able to defer the tax until the assets were sold.
The wealth tax was also complemented by adjustments to family benefits and a guaranteed minimum income (GMI) for students and everyone not in full-time paid work, set at the level of superannuation.
It’s deeply hypocritical to suggest any of this is an attack on “the hard-won gains of every Kiwi”. On the contrary, the Greens’ policy would have required the top 6 per cent of taxpayers to pay more, taking some of the pressure off “every Kiwi” and providing us all with more infrastructure and services.
The Greens have not yet announced their 2023 tax policy.
The arguments for a more equitable tax system are pretty clear.
Tax inequity reinforces privilege, because it makes untaxed assets more valuable. Those who already own them are better placed to buy more, and so the wealth gap widens.
It distorts the economy, because wealth invested in non-productive assets is wealth not available to help the economy develop.
Some say wealthy people have worked hard and shouldn’t be punished for it. Try telling that to the low-paid shift worker who doesn’t see her kids much, or the couple trying desperately to save for a mortgage deposit.
Lots of people work hard, especially if they’re among the working poor, and some very wealthy people hardly work at all.
Some say the wealthy will leave if they’re taxed more. And where will they go? Not Australia: They already have a capital gains tax.
Some say the wealthy already pay enough and taxing them more is just “the politics of envy”.
But tax is a contribution we make for a well-functioning society. And while we all benefit from that, the wealthy benefit the most. Their wealth allows them to buy the things that make this true.
And one more thing: Ram raids.
Mostly, crimes of violence against shopkeepers appear to be committed by people who do not feel included in society. They see themselves as outsiders.
The problem is complex and requires short-term and long-term solutions. But the policing, security support, ongoing social work, capacity of the justice system and wider social initiatives it requires, especially in housing and education, are all underfunded. Over time, this compounds the problem.
Ram raids are one of the terrible outcomes we get when we don’t have enough tax revenue, because the people at the supposed “top” of society are paying at half the rate of the rest of us. And it’s middle New Zealand – in this case, shopkeepers – who pay the price.
On top of that, what’s the difference? Ram raids are a gesture that says, “We don’t care a damn about you.” So is resisting equitable tax reform.
Demand for bonds may well stay strong, but there's a catch.