Election 2023 editorial: A wealth of talk about tax

Revenue Minister David Parker during his speech on high-wealth individuals research at Victoria University in Wellington. Photo / Mark Mitchell

EDITORIAL

Former revenue minister David Parker clearly believes in his heart that the wealthiest New Zealanders are not paying their fair share of tax, and he wanted a debate about whether that is fair.

He got that debate - in the public realm, at least - but any hopes to shake his party leadership’s reluctance were dashed in the transition from Jacinda Ardern to an even more centrist Chris Hipkins.

Last year, after receiving reports he requested from IRD that confirmed existing data on how much tax was paid by the very wealthy was incredibly patchy, Parker secured $5 million in the budget for officials to collect more data from wealthy New Zealanders.

One issue with the data is that wealthy people earn a large amount of their income in areas either taxed lightly or not taxed at all. This makes the very wealthy different from most New Zealanders who earn most of their income from ordinary wages and salaries, and are heavily taxed by comparison.

One of the IRD papers that kicked off Parker’s research estimated that the wealthiest New Zealanders paid 12 per cent of their total income in tax on average, meaning a lower rate than average income earners.

Illustration / Rod Emmerson

The same research found 42 per cent of that group paid tax at a lower rate than any income or salary earner paid on their earnings.

Undeterred by the gaping hole in solid facts, Parker pressed on with seeking public discourse on the issue. Effectively, he wanted pressure brought to bear to get his desire for “fairer” taxation over the line.

It is clear that officials, under Parker’s determined exhortations, have been directed to find a way to get revenue from some type of wealth tax or capital gains tax.

As Thomas Coughlan pointed out two weeks ago, the challenging politics of wealth taxes was always evident.

“On paper, they look brilliant. A tax cut for four million people, paid for by taxing 25,000 - a number so small they could barely win an electorate seat, let alone cross the 5 per cent threshold and enter Parliament.”

But one core sector in the sights for the added taxation is the politically challenging farming sector, representing about a third of all fortunes over $5m. Hitting farmers for “doing well” would be electoral dynamite in the hands of a National Party Opposition.

Alternatively, exempting the agricultural sector would shift the burden onto the finance, professional services and real estate sectors - almost as unlikely to take the policy benignly.

As Coughlan also pointed out, the wealth tax policy is also said to have focus-grouped very poorly. A form of wealth tax may have delivered tax cuts but would not entice voters.

A policy that is likely to spark a critical firestorm while failing to inspire an apathetic electorate is a dead duck to a party running, at best, neck-and-neck in the polls. Its sole hopes lie as a minor party condition for a coalition.

Parker’s conversation was worth having but the last word was never going to go in his favour.