Taxing the wealthy? Why you should be careful what you wish for - Heather du Plessis-Allan

Revenue Minister David Parker during his speech on the High-Wealth Individuals research at Victoria University in Wellington. Photo / Mark Mitchell

Opinion

Be careful what you wish for.

There will almost certainly be some appetite right now for whacking the uber-rich with a great big tax.

To many voters it will seem unfair that the wealthy pay a tax rate of only 8.9 per cent, half the rate of the rest of us.

That is the point of those headlines: to make us angry. That’s why Revenue Minister David Parker commissioned the IRD research into the 350 wealthiest Kiwis.

He has long suspected they weren’t paying enough tax. The research proved they weren’t paying enough tax.

Even though, on average, they’re each paying $2.5m in tax a year.

And it all depends on what you’re taxing. And what Parker may well be hoping is that you don’t realise that he’s counting imaginary money. It’s what the accountants call unrealised gains.

When IRD counted up the annual economic income of these 350 rich Kiwis, they didn’t just count the usual stuff we all already pay tax on: the salaries, wages, dividends, interest. They also counted the stuff none of us pay tax on: the increase in the value of your rental property.

Stop and think about that for just a minute. If you own a rental property, remember how fast it shot up in value during 2021. Now imagine paying tax on that. You haven’t sold the house. You still own it. You don’t have any extra money in your hand. But at the end of the year, you’re forced to pay tax on the difference between what it was worth at the start of the year and what it was worth at the end.

That’s what Parker is counting on here. His sleight-of-hand working.

But it’ll probably do the trick nicely. It could stoke the fires of envy.

And that might be the exact point of this research: to fly a kite and see if there is a mood to tax the rich pricks.

And then, if Labour’s focus groups and polling over the next few weeks tells them that Kiwis want that, build it into Labour’s tax policy for the 2023 election.

But be careful what you wish for.

Because what is rich? $276m may sound rich to you. But you may sound rich to someone else. Aucklanders have become used to the idea of owning properties worth $1m, but there are parts of the country where that still sounds extravagant. Remember it was only last election when the Green Party proposed a wealth tax on any assets over $1m.

It all depends on where Labour draws the line. Does Labour use the study of 350 wealthy Kiwis to ping only 350 wealthy Kiwis? Or does it use the study to ping 350,000 “wealthy” Kiwis?

If Labour decides on a tax at the next election, it could be either a wealth tax or a capital gains tax.

Either could be designed so they hit only the wealthy. But either could also be allowed to hit a lot more taxpayers, especially the CGT, which works better if it hits all significant New Zealand assets. Assets like beach houses, rental properties and KiwiSaver accounts.

So be careful what you wish for. Because it’s possible the mood to tax could get away on us. Especially if Labour proposes a tax switch. In that case, Labour would propose to the wealthy, then use that money to give tax cuts to the average Kiwi worker. That - by Parker’s definition - is someone earning $80,000 and less.

I’m happy to tax the rich to give money back to average Kiwis. We all are. Until we find out we are the rich.

So, until you see the exact detail of Labour’s tax plan, be careful what you wish for.

Heather du Plessis-Allan Drive, Newstalk ZB, 4pm-7pm, weekdays.