Calls to increase the taxation of the wealthy have resurfaced in New Zealand after a report by the country’s tax department found that the wealthiest Kiwis paid less effective tax than most others.
Inland Revenue (IRD) conducted a two-year investigation into how much tax the wealthy people in New Zealand pay based on the full income information of the 311 wealthiest individuals in the country.
Factoring in GST (15 percent), the percent of tax paid rises to 9.5 percent, which is still less than the lowest statutory tax bracket of 10.5 percent for those earning under $14,000 (US$8,600).
This was because high-wealth individuals derive a significant portion of their income from investment returns, with about 80 percent from capital gains, the study found.
New Zealand does not have a capital gains tax.
“The results of a Treasury study of the effective tax rates paid across the full income and wealth distribution, based on a similar concept of income ... shows the effective tax rate paid by middle income New Zealanders is at least double that paid by the wealthier New Zealanders in this Inland Revenue study,” the report said.
Revenue Minister David Parker said the findings are significant because they are based entirely on real data rather than surveys or assumptions.
“In 2020, the government changed the law to enable IRD to require high-wealth individuals to provide their earnings data, in order to do this work,” he said.
Parker said the research was not about “chasing tax avoiders” nor about “attacking the rich.”
“Wealthy New Zealanders are usually hard-working and creative people who comply with current rules. They have assisted IRD with this inquiry, and I am grateful for that,” he said.
Tax System Working Hard, Report Says
It comes after a separate report (pdf) by Sapare Research Group, commissioned by tax consultancy firm OliverShaw, found that high-income New Zealanders are paying their fair share of tax.In the 2021 financial year, 68.5 percent of total income tax revenue raised by the government was paid by the top 21 percent earners.
Broken down further, the top 2.4 percent of taxpayers (taxable income exceeds $180,000 a year) paid 26.6 percent of tax.
The report noted that high-income individuals tend to have greater flexibility in structuring their income to minimise tax because they largely earn from savings and investments—there is a greater incentive to invest where marginal tax rates are low.
On the other end of the scale, low-income individuals tend to have a negative effective tax rate because they receive more social welfare benefits compared to tax paid.
It said that if the government wanted to align effective and statutory tax rates, it would need to implement a capital gains tax, increase company tax to 39 percent, and remove the Working for Families credit payments, among other policies.
Capital Gains Tax Seems Unlikely In Near Future
The report by IRD has launched discussion around capital gains tax back into the spotlight.Former Prime Minister Jacinda Ardern vowed that under her leadership, Labour would never impose a capital gains tax.
Current Prime Minister Chris Hipkins committed to maintaining the status quo ahead of this year’s general election in October.
“We’re not going to rock the boat by introducing major new taxes like a wealth tax or capital gains tax or a new cyclone levy in the Budget. I’ve made that absolutely clear today,” he said in his pre-budget speech on April 27.
However, Chlöe Swarbrick, revenue spokesperson for the left-wing Green party, said the report illustrated that the tax system was unfair and allowed “privilege wealth hoarding.”
“The only barrier to a fair tax system, well-funded public services and ensuring everyone has what they need to survive is political willpower,” she said. “Let’s be clear: to allow millionaires to continue to not pay their fair share after this explosive evidence is a political choice. Poverty is a political choice.”
But the centre-right National Party and the classical-liberal ACT Party are both opposed to introducing a capital gains tax.
National’s finance spokesperson, Nicola Willis, accused Labour of allowing the rich to get richer through economic mismanagement.
“The government’s decision to embark on a money-printing, borrowing, and spending frenzy has led to massive capital gains for some, at the expense of everyday workers,” she said.
Willis said the solution to New Zealand’s economic issues was not more taxes.
“The solution is a government that will bring spending under control and demand more accountability from agencies, including the Reserve Bank, and that will allow lower- and middle-income earners to keep more of what they earn,” she said.
Meanwhile, ACT party leader David Seymour said it wasn’t possible to tax a country into prosperity.
“We tell kids to listen to their teacher, work hard, get good grades so they can get good jobs, save their money and invest wisely,” he said.
“Labour says if you do all that, we’ll tax you harder. It is a tall poppy syndrome in the tax code.”
Agreeing with the Nationals, Seymour said the issue was “wasteful government spending.”
“New Zealand is not a wealthy country which is why our health and education systems are failing, and our infrastructure is breaking. Taking more money from New Zealanders for the government to waste isn’t going to make the country any wealthier,” he said.
“A capital gains tax won’t address any of the issues in New Zealand’s society. It will make people less aspirational and less likely to invest in an economy that needs to grow.”
