The recent election means a capital gains tax and a wealth tax could be back on the table in three years’ time, with Labour tipped to shift to the left and dust off both policies. By doing so it will deprive the Greens and Te Pāti Māori of some oxygen, at least in the area of tax policy.
This has got me thinking about the justification for a wealth tax. Tax is the revenue levied from the citizen in return for protection afforded by the state. That simplistic statement ignores the different types of taxes that are imposed. Many citizens, because of straitened circumstances, pay no income tax at all, yet benefit from state protection.
Other taxes, such as GST, which is expenditure- rather than income-based, have a different logic. Taxes on alcohol and tobacco identify behaviours that have an impact on the health system and should therefore be discouraged, the logic goes.
The capital gains tax allows the state to take a percentage of the difference between a purchase price and sale price. (We currently have one by stealth with the bright-line test applying to the resale of residential property if the property is sold for a gain within 10 years of purchase.) Such profit usually does not derive from the “sweat of the brow”, but from social forces that drove the price up. The argument is that a capital gains tax recovers for society part of the wealth that has been created by society. In addition, there is the argument that it is unfair to tax income from work and not tax accretion in the value of property, but the tax system has never been about fairness.
Similarly with a wealth tax. A proportion of a person’s property over a certain value will be taxed, so as to enable redistribution of wealth that the state cannot otherwise acquire. Proponents of a wealth tax argue that extremes of wealth and poverty are damaging to a harmonious society. It is often argued that the “rich” have “gamed” the tax system and should be obliged to pay tax in another way. Advocates such as former revenue minister David Parker suggest taxes fund a “caring society”, which he claims is a core value of people.
Others, including myself, believe the wealth tax is based on a paradox: no matter how diligently wealthy people may have worked to earn money (which is taxed), every time it is spent on the self rather than on the needy, they are acting immorally. The moral imperative is that those who have money must sacrifice some of it to fulfil the demand for state redistribution.
Under a wealth tax – indeed, any tax system – taxpayers are compelled to finance what is not of value to them on the premise that they have a duty to provide for the public interest. And when the state determines that some project serves the public interest, that decision is enforced by law.
Those whom the collectivist state would rule, they first make dependent. The welfare state reinforces the concept of the helplessness of the individual: people are told they cannot survive unless a paternalistic state takes care of their needs. They come to accept and believe that they are materially and intellectually dependent on the state, which will provide. But that comes at a cost – the sacrifice of the individuality of others.
Then there is envy. There are people who resent the fact that a neighbour has a bigger house or that a co-worker receives a promotion. There is a secret delight or schadenfreude in contemplating the possibility that the neighbour will be unable to meet mortgage repayments or that the co-worker will do badly in his new position and be fired.
It is not that the envy is to want to acquire a better house or a better job; the envious simply want those who have acquired wealth to lose it. “Tax the rich,” they cry.
But a wealth tax will fund more and more dependency on the state and increase individual helplessness. And it was revived during the recent election campaign by the Greens. Isn’t green the colour of envy?
David Harvey is a retired district court judge.
