New research has given insight into how much wealthy New Zealanders pay in tax. Photo / 123RF
New Zealanders have been given a stark reminder that the tax system is not as equitable as it seems on the surface.
An Inland Revenue Department (IRD) study released this week found that the wealthiest New Zealanders pay tax at half the rate of ordinary Kiwis.
“The inequity is so stark that New Zealand’s wealthiest families are paying a lower rate of tax than supermarket cashiers do,” Max Rashbrooke, an economist and researcher at Victoria University of Wellington, tells The Front Page podcast.
Looking at all sources of income for the 311 families surveyed, the report found that they paid a median effective tax rate of 8.9 per cent. The reason for this is that large parts of these people’s income are taxed lightly or not taxed at all.
This is the key distinction the report draws between the wealthy and everyone else. For most people their total income, something called an “economic income” is more or less the income they get from their jobs and whatever they earn from the rising value of their home. For the ultra-wealthy, the income they earn from a job comprises less than 10 per cent of their total incomes.
So what can be done to rectify this inequity?
“The report is very careful not to propose any solutions,” says Rashbrooke.
“It’s strictly a bit of information gathering and has no policy in it whatsoever. What the report does is make clear how little some of the wealthiest New Zealanders are paying and sets the stage for debate about exactly what the solutions might be.”
This has again raised the spectre of a capital gains tax, but Rashbrooke says it could still prove challenging to find the political will to make it happen.
“This report will fuel calls for a capital gains tax because of the extent of the disparity, however, the Labour government tried to introduce a capital gains tax in the previous term and that went extremely badly.
“They’re still scarred by that experience. So whether they really want to go to that, even with these new numbers is at this point in time an open question.”
Tax experts have long called for Aotearoa to follow in the footsteps of other OECD countries with the introduction of capital gains tax, but Rashbrooke says this issue always sparks a sharp emotional response.
“Some people might say ‘Wouldn’t it be lovely if we could just hand tax policy over to the experts?’ but the reality is that tax is extremely political. There’s no single number where you can say ‘That’s the right amount tax’ or ‘That’s exactly the right tax rate.’ Fundamentally, it’s about values and it’s about judgment. It’s about saying how much some people should contribute.”
In the coming weeks and months, that discussion will ramp up as the country starts to come to terms with the reality of the numbers in this report.
So how likely is it that we’ll see change? Do any political parties have the stomach to drive this forward? And what should we make of the efforts by lobby groups to counter this narrative?
Listen to the full episode of The Front Page to hear more from Rashbrooke on these issues.
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