A report prepared on behalf of the Government says high wealth families pay a median effective tax rate of just 8.9%, as they earn significant income from untaxed capital gains.
The High-Wealth Individuals Research Project was conducted by Inland Revenue to fill a data gap in tax records and was released on Wednesday morning.
Revenue Minister David Parker said there was accurate data on the wealth of more than 90% of New Zealand’s population from household surveys, but little information on the total income of the wealthiest families and the taxes they paid.
IRD was given the funding and legal powers in 2021 to compel high wealth individuals to respond to a survey of their income and taxes in order to fill this knowledge gap. Parker said the study found high-wealth individuals collected roughly 80% of their income from capital gains and were paying half the tax rate of middle-income New Zealanders.
Parker said the report was not about chasing tax avoiders or 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”.
Parker said the survey data would enable future discussions on tax policy to be based on solid evidence.
"Later this year, we intend to introduce a Tax Principles Bill to ensure that information like this continues to be transparently collected and reported on," said Parker.
"I want to be clear today that I am not announcing any new tax policy or tax switch. Labour’s tax policy will be announced before the election," Parker said.
"I repeat again today that I have never favoured taxing the family home, either by way of capital gains or imputed rents. High rates of home ownership are a cornerstone of a fair society."
Un-taxable income
The report investigated how much tax a group of high-wealth families pay relative to their ‘economic income’, which is a measure that includes anything that increases one’s ability to consume goods or services.
It drew on tax administration data, public records, and specifically-collected survey data from over 300 families with an average net worth of $276 million, between the years 2015 and 2021.
For comparison, Statistics NZ estimates the starting point for the wealthiest 1% of households, or top 19,000, to be $7.6 million. The group in this survey are what might be thought of as the ‘ultra-wealthy’.
The median effective tax rate for high-wealth families assessed in the project was approximately 30%, when based on their taxable income of $268,000 for individuals.
New Zealand has a progressive income tax system, so a person with a taxable income of $50,000 would pay 16% in tax, while someone with $100,000 would pay 24%. However, when you calculate the median effective tax rate of high-wealth families using economic income - which includes capital gains and property ownership benefits - it plunges to just 8.9%.
The median rate was 9.5% when goods and services tax (GST) was included in the analysis, but lost another 0.3% when including government transfers such as superannuation.
IRD concluded that income from superannuation and home ownership had “minimal impact” on the effective tax rates paid by high-wealth families.
The main source of untaxed income was capital gains. The top 2% wealthiest households own 25% of New Zealand’s total net worth and financial assets, according to the Household Economic Survey 2018.
Capital gains accrued to these assets make up a much larger chunk of the wealthiest New Zealanders’ total income, which reduces their effective tax rate relative to a regular household that earns most of its income in wages and salary.
The report notes that capital gains are volatile, which means the effective tax rate of high-wealth families can vary from year to year. Effective tax rates can be negative when there are capital losses.
Market distortion
IRD said failing to tax forms of income earned predominantly by those who are better off was likely to make the tax system less progressive and impose other economic costs by influencing the pattern of investment throughout the economy.
Having untaxed types of income encourages people to invest in assets that earn that income, until the return is equal to the post-tax return on other income streams - such as wages.
“In effect, individuals will bid up the price of these assets, lowering the return from the asset until the post-tax return equals that of taxed investments. The lower return derived from the asset is a cost from the tax system that is not captured in average effective tax rates,” IRD said.
This was particularly relevant to liquid assets not dependent on the skill of their owner for returns. Much of the economic income in this project came from business entities the owners controlled, which may mean returns are more related to performance than tax rates.
Families in the research project had a median economic income of approximately $8 million in 2018 and paid about $642,000 in tax. Almost 70% of this income was earned through trusts, either as trustee income or capital gains on assets held by these trusts.
The year ending March 2021 was a banner year for these 300 families, who collectively earned $14.6 billion of economic income as asset values exploded. Much of these capital gains may have reversed in the recent market correction, which could have an impact on the effective tax rates paid by these families.
The project period saw house and share prices increase at much higher rates than the historical long-term averages.
This may mean the effective tax rate estimates in the report were lower than they would be when asset price growth was occuring at a more normal rate.
When capital gains from all sources were reduced by 20%, the effective tax rate increased to 11.7% (excluding GST) which was still a lower rate than paid on taxable income.
IRD said the measures in the report “remain informative” despite market conditions in the 2020 and 2021 years creating a “higher level of economic income” than normal. (There's a useful IRD summary here)
Room for dissent
Last week, tax consultancy firm OliverShaw released a report it commissioned which gave a differing view to that of Inland Revenue’s report.
It found that high-wealth individuals pay more tax on average and represent a higher proportion of the total tax take than “may previously have been thought”.
The key findings from that report, prepared by Sapere Research Group, were that the rich pay most of the tax collected in New Zealand. It did find that effective tax rates were generally lower than statutory rates, but also that effective rates increased as the net real economic incomes of households increased.
“As a result of deliberate government policies, households of single employees renting face some of the highest average effective tax rates, and some of the highest marginal tax rates apply to some of the lowest income earners,” it said.
OliverShaw principal, Robin Oliver said wealthier people generally derive a greater share of their income from sources other than wages and were encouraged to take advantage of the different tax rates payable on income from companies, trusts, and property.
“High income earners are behaving in ways that economists advising the government predicted, in the process meeting those policy objectives which governments favour highly: saving for retirement, protecting assets, investing in businesses, creating jobs, developing commercial and residential property,” he said, in a press release last Tuesday.
Taxpayers’ Union spokesperson, Jordan Williams said the report concludes that high net wealth families are only paying 9% of their economic income in tax but mostly in unrealised capital gains.
"No one in the world taxes that, and it is disinformation to encourage comparisons to those primarily earning PAYE income”.
He criticized the report for ignoring the risky nature of capital gains, which tax settings needed to account for in order to attract capital investments.
197 Comments
"I repeat again today that I have never favoured taxing the family home, either by way of capital gains or imputed rents. High rates of home ownership are a cornerstone of a fair society."
One reason our home ownership rates aren't higher is because it's much easier for existing owners to buy a second home than it is for renters to buy a first... because the existing owners have the enormous advantage of paying zero tax on both the capital gains and the yield of their largest investment. Meanwhile renters pay the marginal rate on their pitiful savings returns, which are already below inflation...
Yes you do.
Home owner has $500k in the home and has cap gains and the 'income' return on the $500k is not taxed (the 'return' is accommodation).
Renter with $500k has to pay rent paid from taxable income and the interest return on the $500k is taxed as well.
Of course we could start a bank that provides rent free accommodation instead of interest and not charge that as income. Would that be okay a it's exactly the same thing we allow home owners to do?
Unfairness of the tax system toward homeowners verse renters is real.
amazing how the use of logic can end in nonsense..
Lets "monetize " everything and tax everything...
Helping a mate build a fence.... Lets tax his free labour ,as a fencing contractor pays tax when he builds a fence.
Lets tax a "stay at home mum"..... The household has a tax free benifit, while other households have to engage childcare, cleaners, taxi drivers etc..etc..
Why cant politicians just talk straight and simply say they want to tax Capital..... tax supposed wealth.
AND...as the guy with the meatpie example in an a comment showed... most Capital gains are a function of Monetary inflation.... ie illusionary
In my view it would be a "crime" to tax inflationary gains ..... just as it is a crime/unfair that savers are not allowed a depreciation allowance on the inflationary devaluation of money...
unfairness of the tax system toward homeowners vs renters is NOT real.
If there is an unfairness ... it is in the nature of our Fait Monetary system... that transfers wealth from savers to Borrowers..... and favours Capital over Labour. eg. Asset prices go up faster than wage rates.. ( especially in a period of Globalization )
just my view...
Helping a mate build a fence.... Lets tax his free labour ,as a fencing contractor pays tax when he builds a fence.
Yes, this would fall into the same bucket as taxing imputed rents. However it is not proposed because the administration overhead would not be worth the value returned.
However the topic under discussion is housing. Everyone has to live somewhere, and houses should primarily be a form of shelter, not a form of investment.
Any sort of move that increases taxation on assets / property, which allows tax rates to be reduced on productive enterprises and activity (ie, income tax and labour) should be welcomed, as this will incentivise people to be productive with their investments instead of rent-seeking.
Quote the part where I suggested living in your own home was rent seeking.
You'll note that I said houses should be viewed as shelter and not an investment, and that properly taxing assets / property will ensure people invest their money in productive enterprises and not rent-seeking behaviour.
No, it will encourage money to flow where the returns are best after tax. Which is why all this money ended up in property when credit was freed up post-Covid.
It's somewhat sending mixed messages to try and get people out of treating property as their default investment scheme by taxing it as an income-generating asset. If anything, you're legitimising that mentality. And to make matters worse, you're going to be slugging home owners who are facing huge downwards pressure on values anyway. Good luck convincing someone who bought in 2021 after years of plundering the market for older Kiwis that they should pay ground rent to the government for their own home.
I'd rather we focused on making other investments more attractive (e.g. zero-rated RWT thresholds) than rewriting the tax code to reward abstract arguments that should remain on the fringes of academic tax debate.
No, it will encourage money to flow where the returns are best after tax.
Property is used as an investment for 4 main reasons in NZ:
1. It's tax advantaged (or it was, until Labour remove mortgage interest deductibility)
2. It's generally low risk - when a company goes bust your shares go to $0. That generally doesn't happen with housing.
3. Banks well readily lend on property and you can leverage the loan to make capital gains. It's very hard to get a business loan from banks in NZ, but comparatively much easier to get a mortgage. Even business loans generally have to be secured against a property if the business is new.
4. It is always in demand.
Those positives are *so* positive compared to the alternatives for investment, especially for the kiwi battler mums and dads who have been able to leverage existing unrealised capital in their owner-occupied house as a deposit for another property (see #3) that regulatory levers are required to really crush speculative interest in an asset class that should primarily be for providing shelter not investment returns.
It's somewhat sending mixed messages to try and get people out of treating property as their default investment scheme by taxing it as an income-generating asset
Er, no. Rental income has always been taxable and that didn't stop anyone. In fact the "taxable" nature of it was just another tax advantage and driver of investment - a loophole National closed by ring fencing losses from rentals so they can't reduce tax burdens from other incomes.
Ludicrous BS. The tax take on a percentage of free labour is Zero.
Unrealised capital is used as leverage on revolving credit, granting real buying power and is therefore untaxed income.
It's hilarious watching working simps working mental backflips to justify their brainwashing though.
Funny how those who don't understand taxation and income resort to fluff.
This is about tax distribution/who pays, not more tax.
Renters are hard done by, they are taxed on their savings and accommodation. Homeowners savings are in the home and the return is untaxed.
Sit down, breathe and work through it. You can do it.
Nonsense..
Why are u conflating tax on savings vs living in ones own house. (AND savers pay tax on REAL income...not an imaginary, beneficial income )
The ONLY choice is renting vs owning....as we all need shelter.
You bring the idea of tax on savings to justify the nonsense idea of taxing imaginary income (imputed income).
OF course ...anything can be taxed by the powers that be...
But why use a dumb argument to try make it a "fair " thing.
Happy for family home to be taxed, but all expenses relating to the house can therefore be claimed. This includes capital expenditure such as new kitchen etc. Of course a tax will be on equity, so people will be incentivised to borrow against equity to consume which will lead to inflation.
I support a land tax ....BUT... only under a stable monetary system.
If Money supply doubles.... then , for the sake of argument, land values double.
Taxing inflationary value gains would undermine the whole principle of the Henry george style of Land tax. ( Natural resourse tax )
In my view it is i Monetary inflation , that drives malinvestment and excessive speculation.
In my view the modern Fiat Monetary system is the major facillitator of the division of wealth.
NZ had $85 billion in broad money in 1985..... Today it is touching $400 billion..... Pretty HIGH levels of money supply growth.
This whole report is nonsense. Why did they focus on "economic income". Why not simply report that these 300 families paid "x" on Income, and in addition "sold x" amount of Capital that resulted in "y of Income" that was not taxed, and input what that tax could have been if NZ has a Tax Regime like most other countries that taxes Capital Gains. So far instance. An 85 year old owns land or rental property for 40 years, and sells it. The Capital Gain might be $2.5million-but no tax is paid because he beat the bright line test by a mile. Any other country would have taxed that "Capital Gain Income" and produced $500,000 or more of tax. Multiply lost opportunities for New Zealand across decades and hundreds of thousands of Landlords alone and you would be talking about a Tsunami of tax that could have come into the IRD coffers without any real sacrifice to those who enjoyed the returns.
A home owner also has a mortgage they can't walk away from. Price that in. Then price in having to pay for and also spend time on your own maintenance and repairs. And then there's the mortgage interest - not deductible either. If you want to start dreaming up costs to justify dipping into the pockets of someone who simply happens to own a family home. One home. Never meant to generate an economic return. Taxing it as if it is generating one is absurd. You might as well tax anyone who buys their own food - I mean technically, they enjoy food certainty without resorting to emergency food grants. It's the same stupid argument.
It's only unfair if you decide you want to stretch the boundaries on what is sensible. Otherwise it's just an excuse to tax home owners for not renting homes because you think there's a big fat gain there that you want a piece of. Well that's going to rule out any house bought in the last year. So what's your justification now?
What capital gain?
If I bought a house in Auckland 20 years ago for the equivalent of 250,000 steak & cheese pies (@$1.50 per pie) and today it is still worth 250,000 of the same steak & cheese pies (@$5.50 per pie), have I really made a capital gain?
Maybe I have made a nominal capital gain, but certainly not a real one.
Hilarious! Are steak pies what we measure house values in as well as their affordability?
No. We measure it usually in median multiples of income or average house value vs average household income.
In the year 2000 the average Auckland household income was ~$60k, the average house was $240k. That's 4x.
Today the average Auckland household income is ~$146, the average house is $1000. That's 6.8x.
The good thing is, that figure of 6.8x is dropping fast, not long ago that was 8-9x.
This is a good point, they should remove inflation. Currently the theory is that it’s too hard to remove inflation as it keeps changing so we assume it doesn’t exist. I would think a better idea is to assume inflation runs at 2% as the RBNZ is required to achieve. It’s not perfect but 2% will be closer over the long term than 0%.
Parkers sales pitch to smooth the transition to a CGT.
Just another avenue to get ahead in life for the hard workers shut down.
Remember, all the poor people who. Brought cheap houses 10 years ago will lose up to 39% gain they made.
And these winkers want to stuff around with the super... Just to make more people poorer and miserable.
Short term gains for maximum long term pain!
As John Key once pointed out, if you have to pay tax on $100k you make one way, it's fair to pay tax on $100k you make another way. Only entrenched entitlement mentality in voters has stood in the way.
But people are sick of property speculators bludging off productive society.
Change the word sick to jealous.
Property speculation is hard work and you have to risk big money for a potential gain / potential loss. Then there's the makeover and sale process...
It's not like bludging govèrment employees who in between plannng meétings, Maori morning greètings, Hui's, staff leaving afternoon teas, staff junkets... manage to get in a couple of minutes of productive mismanagement a week.
Property Speculation may ŵelĺ be NZ biggest employer/ industry and the reason Unemployment is so low and cafes etc have good levels of custom
Regardless of all you just said, speculation is economically inefficient. A country cannot thrive on speculation. A country cannot get ahead on speculation. Taking on increasingly high levels of debt in order to fuel further speculation is just a stupid and insane way to operate an economy regardless of the sugar-high effects you've mentioned above.
We should have been investing in infrastructure, productive businesses, and Enterprises that generate real value rather than a house of cards built on debt.
Instead, we have record-high levels of debt, crumbling infrastructure, and a trade deficit that would make Greece blush. NZ's declining productivity is the direct result of 20 years of misallocation of capital into speculation rather than productivity and we will pay for it one way or another.
But it has!... our economy has greatly benefited from speculation.
Ask the poor Otara dude that worked his ass off, saved, and brought a 200k house 20 years ago.
He speculated and lifted himself out of poverty and you want the useless government to take 39% of his capital gain away.? On top of his Income tax, GST, petrol tax, rates?
Nice guy!
Mate, if you don't see the negative implications of a country spending more than it earns I don't even know what to say. Just because you have benefitted from speculation doesn't mean it's actually helped the country. We could have been a Switzerland of the Pacific, invested in our future rather than borrowing against it.
Yeah sure, speculation has temporarily given us a sense of wealth and riches, but none of it was earned. Do you see the mess we are in now? Do you see how absolutely screwed we are? Our current account deficit is over $30 Billion and probably rising from old mates like you continuing to spend spend spend from your taxpayer-funded super. This isn't because of a single government doing a bad job it's because of mindsets like yours that think we can just borrow our way to prosperity without putting any work in. 20 Years of consecutive government, Left and Right that have taken the easy path and encouraged speculation over hard work.
Borrowing money is not a sustainable path to prosperity and that is all speculation is. Borrowing against the future to live in the now. An incredibly selfish and myopic way to run a country into the ground.
And this dear fellow Kiwi's is why Australia suddenly offered up citizenship to New Zealanders. Not having a capital gains tax is pretty much the only reason why rich people are still living here. Take it away, and they'll be heading offshore in droves. I know I will be.
Someone should do the math and figure out how many Uber drivers NZ will have to import to make up the tax paid by just one person on that list who leaves the country. With 1% paying 25% of the tax base, an exodus of wealthy people to Australia or Singapore (or anywhere really) will totally destroy New Zealand. Where will the Labour Govt find that 25% of taxes from those who are left?
Hmm, the wealthy families will leave New Zealand anyway. The crime rate is so high right now, the dairy shops will probably disappear in foreseeable future, more businesses will be moving out from New Zealand due to ram raids. If they stay, where are they going to spend their money on luxury products and holidays? Going for multiple day hikes in South Island? Wait for their home to be broken into?
No Federal or State CGT on the family home in Oz, no Federal stamp duty & recently some states are looking at eliminating stamp duty on the family home (it's a ticket clipping rort significantly restricting labour flexibility).
https://www.realestate.com.au/home-loans/guides/how-to-avoid-stamp-duty
We all know what would happen, the family home would be partitioned off into segments which would all be labelled as businesses held in trusts, which would all charge each other cancelling amounts etc etc etc whatever the accountant says is possible to pay the least tax possible. But don't just think it is property speculators that are doing this. Businesses do this all day long, I know someone who has their home as a business, land owned by trust leasing to the company which owns the house, and the house has every room declared as a business use. By the time the company 'leases' the land use form the trust, and the business claims expenses there is next to no tax at all. We can debate all day what is good or bad, most will speak based on their own unconscious bias for what benefits them, but at the end off the day we shouldn't allow one form of income less tax than another on a matter of principal, or as we have seen everyone will flock to it in droves.
People who think Australia is highly taxed dont understand (a) how salary packaging works there, (b) how self managed super funds operate (especially in relation to property investments), (c) dont realise there are Govt incentives like FHB grants available and stamp duty reductions, (d) that you can claim an awful lot of stuff back on your tax return, and (e) you can claim franking credits and property income losses against your personal income tax from employment and get the cash handed back to you.
I have a Aussie mate who makes millions every year in Australia from a business and a large property portfolio, and he pays virtually no tax. Its all funnelled through a self managed super account for him, his wife and two children.
KW. At the end of the day the Tax Man cometh. Same is true in the US as the Baby Boomers there all invested in Retirement Schemes that meant for 40 to 50 years all their contributions went in "untaxed", and there 50 years of growth was untaxed, but now in 2021 the Biden Administration couldn't figure out where an additional $800 million over estimates arrived from. In my mind quite simple. I have loads for friends now retired and now withdrawing those funds and paying 25% to 35% tax to the Federal Government and 8% tax to the State Government-(If they were only on the Super there income would be so low that no tax would be paid). Their long term investments drove the American economy for years, and now their retirement income is benefiting them as they at last enjoy their returns, as does the Government whose Tax coffers are finally getting their due--I expect the same will be true of your Aussie mate some day in the future.
Good riddance!! NZ doesn't need entitle fat rich leeches that don't want to contribute to society.
By taxing assets, the govt can make sure that corrupted greedy people who move overseas into a tax heaven to game the system still pay up if they have any interest in this country.
If they are smart they follow the IRS and make every kiwi pay their tax no matter where they earn income.
Sadly, this country doesn't have the power to force this change onto foreign countries.
Yip! get rid of the rich pricks that have businesses that employ poor kiwis.
How dare they make money and know how to avoid what we all want to avoid... tax greed.
But let's keep the costly people that get payed to pay no taxes, get fee accommodation, health, ...
Yip the dole bludgers. Keep them!
We might get better businesses in if we encourage an environment that is beneficial for productive enterprises rather than speculative ones. The majority of untaxed capital gains in this country have been reaping the benefit from skyrocketing land values rather than any actual productive business.
I'm not actually a huge fan of a blanket capital gains tax, I think a land value tax would be more efficient and carry less deadweight loss.
That's a bit extreme. I think no one wants to tax more on rich, but what we want here is a fair tax system for everyone. It cannot be fair if one group of people only get taxed on small percentage (especially they have much higher incomes) and other groups of people pays bigger percentage of tax. It's just not sustainable. When the gap of income inequity increases, you will have higher crime rate. And the middle-class people will be the one that suffers. Why? People are on low income willing to do crimes won't get the proper punishment as it should, wealthy people will use tax loophole to pay less tax to increase their incomes gains. Middle class? More taxes, higher cost of livings, small businesses and property are badly affected by crimes. What will happen then? Middle class starts to leave the country. The wealthy group won't get enough people to provide services for them and start to leave too. This is how a country get destroyed and starts living in poverty.
"Much of the economic income in this project came from business entities the owners controlled, which may mean returns are more related to performance than tax rates".
Lots of comments here reflect people prejudices rather than facts - which is a problem when tax policy and personal interest is involved
Rich people didnt get rich from buying residential property. Take a look at the Rich List - they got rich from owning businesses, commercial property, financial investments, or inheriting business empires. Only the middle class who's only asset is their home and an investment property will be tied to NZ. And there is nothing stopping them from packing up and moving to Australia either.
Correct me if I am wrong but the majority of this wealth is tied up in land holdings. I would assume that capital flight is more of an issue in countries where wealth is distributed into more liquid assets like shares. Hard to untether yourself from New Zealand when you are so heavily invested into something as inherently imovable as land.
We already have a CGT.? It's called the bright line test.
It's fair an protect the family home that you live in
https://www.ird.govt.nz/property/buying-and-selling-residential-propert…
Not only that, but have IRD add up -or estimate-how much Capital Gain accrued or the last 20 years from sales of Investment Properties that were not taxed.Throw that number out there. Hundreds of thousands of Kiwi's own an investment property and if only at the time of sale was it taxed for its gain just imagine how much additional tax there would be --and would have been. Easy peasy, and none of this other "economic gain" nonsense that is being floated.
Australia didn't open that up to suck in the capital-rich. They are gunning for workers. They already have all the capital they could ever need what they are desperate for is people to actually do the work. The wealthy in New Zealand would be small-fry in an economy as strong as Australia.
Australia has been more punishing on capital anyway so what would be the advantage of moving there? Unless you are a property speculator, but for property speculators, you are burdened with the fact that property cannot be easily divested or moved from the country. And if they do leave nothing has really been lost as the land and the property on it will remain in the country.
If productive businesses leave that is bad, but land is unique in the fact it can never leave the country.
A good percentage of labour voters are as thick as pig shit. Green voters are just deranged. Once these twats get a CGT in this country will descend into a third world shit hole very quickly…..it’s well on its way now. What’s the point of working here if there’s nothing to aspire to? Or is it just a distraction to take peoples eyes off co-governance, corrupt mps and general lack of ability in government?
That seems pretty extreme. Every other country in the OECD has a capital gains tax. UK does, Australia does, Canada does, the United States does. Can you explain what is so unique about New Zealand that will trigger a societal collapse if they were to bring in a capital gains tax?
I don't even particularly want a capital gains tax, I think a Land Value tax would be far more efficient and doesn't carry the deadweight loss we would get with a capital gains tax, but even then your argument doesn't seem to be based in any kind of reality.
If you have to pay a CGT you might as well move to a country with better weather, better beaches, more advanced culture, less crime, and where you can pop over to another country for a weekend away. NZ has very few advantages over the rest of the western world, so watch what happens when it gives up the one it does. NZ will become more like Samoa/Fiji economically than it will become Australia/Canada/UK.
I don't think it's as simple as you are making it out to be. People who have been here their whole lives aren't likely to uproot themselves and move away. Those locations have always had massive economic advantages over New Zealand. Older generation New Zealanders are typically quite settled in and unlikely to uproot it all for very marginal gains in other economies with the exact same tax structures.
Many have worked in those countries and yet returned to New Zealand because of its intangible qualities that aren't likely to be going away, e.g the weather (Australia doesn't have better weather it's just hot, UK & Canada also don't have better weather fight me), natural environment, family, culture (some people like New Zealand's culture). A capital gains tax isn't going to cause this massive seismic shift.
I would concede that a wealth tax might have that effect, but that isn't what's being proposed, and even then that happened in France where it is much easier to move without completely uprooting your life and isolating yourself from your friends and family.
The bigger risk is actually us losing all of our younger workers, which are the ones getting most pressed to leave in the current environment due to not being able to afford incredibly fundamental things like housing and food. If we lose even more of our educated workers we are screwed and we need to bring in policy that actually makes New Zealand more affordable, and one aspect of that is reducing the cost of housing.
You're right. That's part of why I don't particularly like a capital gains tax. It's full of loopholes and complexity. A land value tax would have a similar effect without all the deadweight losses we would see with a capital gains tax as well as reducing the complexity in the tax system.
But if that is not on offer some kind of tax on capital, even one with offsets and deductions would be better than our current system where the burden is far too heavily slanted toward income earners. Can you explain to me how is fair that an income earner can pay up to 39% of their income in tax whilst someone getting income from capital gains pays zero?
Looking at the comments from Taxpayer Union, I guess they run out of excuse when a tax is introduced on CPI-adjusted capital gains of an asset at the point of sale.
tax settings needed to account for in order to attract capital investments
This would mean our tax regime is helping NZ attract massive capital investments from abroad. However, non-financial services FDI stock in NZ has not barely moved since the GFC.
FYI financial services FDI grew almost entirely because NZ subsidiaries retain a portion of their beefy after-tax profits before writing dividend cheques to the Aussie parents.
Some points from the 1%
2.4% of people earning more than $180,000 a year paid 26.6% of all tax. Those earning $180,000 to $300,000 constituted less than 2 percent of taxpayers, but paid 9.3 per cent of income tax.
"What they show is that it is only when we get to around the top 50 per cent of households is there any net income tax paid. Below that income level no net tax is paid, as those households receive more in transfers than they pay in tax."
The tax regime in this country is certainly regressive the wealthy are paying far too much.
I agree, those on high incomes should be paying less tax, everyone on income should be paying less tax. What people are arguing for is a shifting of the tax burden off of income earners and onto the "wealthy", eg speculators and rent-seekers who aren't positively contributing to the wider economy.
Of course all most folk will take away from this taxation debate is the Herald's byline..."ultra wealthy paying tax at half the effective rate of ordinary kiwis"....ie let's screw the rich pricks.
It might pay to consider not what they should be paying but what they currently do pay. Those in the $70k-$180k income bracket (18.8% of population)are paying 40% of total (presumably income) tax. Those in $180k+ bracket (2.4% of population) are paying 26.6% of total tax....according to a recent study.
But let's not allow facts to get in the way of our emotions!
A poor attempt to demonise the rich. Labour play to a voter base that is blue collar. They will lap-up anything that targets those at the other end of the spectrum. I wonder how much tax is paid indirectly by the wealthy eg Mr(s) Richpants own ABC engineering, a start up from 1995. Currently they employ 43 staff who collectively pay $722,000 in PAYE.Their GST obligations are $X and company tax $Y. Oh,and they pay tax on their salaries alongside GST on their new Pauanui beach house. Christ I hate lefties and social do gooders. Are these turkeys trying to steal some of the Greens ammunition?
Fair is treating all income equally. "Capital gains" is just another name for "gain on sale of asset". For any other business other than property investment/speculation "gain on sale of asset" is treated as taxable income. Just look up the financial report of any company registered on the NZX they will all have a "gain on sale of asset" figure under other income. This is taxable. Treating capital gains as tax exempt is just a graft.
Depends on your definition of "fair". Someone earning $50,000 might pay a 20% effective tax rate, but that's only $10,000 added to the collective pool of tax funds. Someone earning $10,000,000 (including capital gains) might "only" pay 10% tax, but that adds $1,000,000 to the collective tax pool. By one form of logic the person paying $1m is basically a thieving tax cheat (based on only paying 10%), but by another logic we should all be greatful that the person is so benevolent. If these two people went out for dinner and the bill came to $200, shouldn't person A be happy if person B paid $190 of the bill? Wouldn't person A be considered rude if he/she demanded to pay only $5 instead of the remaining $10? Yet somehow, interpose a government in the middle of the transaction, and suddenly it is reasonable/logical and "fair" that person A demands that person B pay more?
The problem is people use those unrealized capital gains to leverage them into material assets. We've seen this with housing where people have used capital gains in the form of equity to buy more property which has pushed others out of the market who don't have that advantage. It's making society more unequal and wrecking social cohesion as people are less invested in their own communities. It's clear something has to change or else we are going to end up with more crime and even more brain drain.
I'm not sure if a capital gains tax is the best way to fix this but it's clear that a lot of New Zealanders aren't satisfied with the status quo. Personally I would be more keen for a land value tax as that wouldn't discourage productive enterprises.
I would assume that you would have to apply a wealth test component to any tax. The way to beat it (as done overseas) is to borrow against the asset. I buy a house and pay it off, I then borrow against that asset and use that money to consume - driving up inflation but better than paying tax on a non income producing asset. Alternatively I borrow and buy art, or another asset that falls outside the tax. The way to stop people speculating in housing is to have low inflation so savings maintain value, and increase interest rates thus reducing credit expansion and the growth in house prices.
Or bring in a land value tax, capital gains aren't the enemy the issue has been how speculation has been rewarded over productive investment. We need to form a tax system that guides capital towards productive investments over zero sum speculation that drags us all down.
Because a LVT targets only the value of the land itself, it cannot be avoided by borrowing against the land or investing in non-taxable assets. Land is a finite resource, so its value is not subject to the same fluctuations and market manipulations that other assets, such as stocks or art, are. This makes it a more stable and reliable source of revenue for governments.
A LVT can also help to curb speculation in the housing market by discouraging land banking, where developers purchase land and hold onto it without developing it in the hopes of selling it at a higher price in the future. Because an LVT increases the cost of holding onto land without using it productively, it incentivizes developers to either sell the land or develop it in a timely manner, which can increase the supply of housing and help to moderate housing prices.
We already value the land through council valuations. Ideally, the land value tax would be set in a way that you predetermine how much is needed through a budget and then collect the revenue through an evenly distributed land value tax. This way you take the individual land values out of the equation.
And having a land value tax would incentivize voters to vote for policies that maintain stable land values rather than what we have currently where the externalities of increasing land values are hidden. With a land value tax, the negative externalities are more equally distributed and visible which would encourage better policy making than what we currently have.
Rates are a property tax not a land tax.
Most taxes distort economic decisions and discourage beneficial economic activity.[14] For example, property taxes discourage construction, maintenance, and repair because taxes increase with improvements.
You're missing my point that we need to be shifting tax revenue from relying solely upon income earners to a more diverse range of sources. Especially if the demographic crunch starts to bite and we have less and less workers for each retiree. I am not advocating for more tax, I am advocating for shifting how it is collected in the first place. The majority of New Zealander's who earn an income would benefit from this change.
Nah this is the revolt from the middle who are sick of being taxed to hell and back whilst those who sit idly by reap the rewards of speculation and tax-free capital gains. No point getting mad at the poor not much to be gained there.
The majority of wealth in this country is not tied up in entities like "ABC Engineering". It's tied up in land. Good luck taking land with you if you try to leave the country. Bring in a land value tax and take the burden off people who actually work for a living.
https://www.treasury.govt.nz/publications/an/an-21-01-html
Over the last couple of decades, total housing wealth has increased much more than non-housing wealth. Between 2000 and 2013, housing's share of total wealth increased from 38% to 57%,
It is true. And thats not even the most recent data. We have overinvested in real estate at the expense of the real economy. That list of individuals is problematic but they aren't holding us back and killing our productivity in the same way that the overspeculation in property has.
Just in time for them to campaign on it for an election.
Here's a suggestion, drop the top tax tier idea for all gains. It was bloody stupid and killed the initiative. Have 2-3 tiers based on how long you've owned the asset to acknowledge inflation and call it a day.
More than 10 years, 15%, 5-10 years, 25%, under 5 years, 35%. All assets. Inheritances taxed at 15% to close that loophole.
Counterpoint: Your mum is dead. The state has done literally nothing to justify helping itself to a share of that property, while there's a high chance that property was paid for with after-tax earnings.
Someone already paid tax.
People really do seem to want to bend over backwards to give their stuff to the government, or at least ignore the carve-outs like rollover relief or thresholds that stop these taxes being applied to people who aren't plutocrats.
Because that wealth has already been taxed? When you inherit the house you are not inheriting money until you sell the house.
I am in favour of a CGT as long as it is CPI adjusted over the timeline of ownership, this will ensure capital is able to be secured and not deflated.
If you make a profit during the year then you should be taxed on it, even if that profit has not been converted into money. The reverse of how businesses apply depreciation on an asset before it is sold. Apply that logic to family homes too and reduce income tax significantly.
So I have to pay tax on the result of RBNZ and Labour Government stimulus, on something I have no intention of selling and don't particularly care about the "value" of?
Good luck selling that to Jonny Public, Mr Parker. All I ask is that Chippy is on stage with you when you read your speech to the judges.
In years with capital losses, effective tax rates on economic income will be greater than 100% - it doesn't seem like this has been considered at all.
Further, there seems to be appetite for taxing unrealised capital gains from some people. Given that investments ranging from equities to housing has been down in FY23, I wonder if those people arguing this would consider it fair to allow rebates for unrealised capital losses.
I'd love to see it applied to 2nd+ homes. Assume any investment property, holiday homes etc earn 5% of their value each year, significant reduction in tax compliance for investors and no added inventive to load up on debt to reduce taxes. Those wanting to own more than 1 home for their own use pay for the privilege of buying up a scarce resource.
Were the Morgans included as one of the high net worth families. Because Gareth made his monster capital gains firstly from his trademe shares and then from GMI which later got sold to kiwibank.
The trading in shares by big corporates incl the sell off of my food bag needs taxing. Many of the companies are foreign owned.
I think this makes it pretty clear that the "rich" are not income earners. Even those in the top tax bracket aren't what I would call rich. If you have to get up every day and go to work you are not rich.
No amount of fiddling with the tax brackets will amount to anything. We desperately need to widen our tax base and take the burden off of income earners who are the ones bearing the brunt of the cost of living crisis whilst having to fund the country.
Buy a home for 1m, 130k gst
Pay rates insurance maintenance 15k, 2k gst
Buy a car 80k, 11k gst, and an ebike
Fancy jewellery and hairdos and clothes for the wife another 80k and 11k gst
Send kids to private school for boarding 2 x 40k, 11k gst
Have a boat and bach. Multiply some of the above again. Any money spent on a rental there is no gst deduction
Do a property development in the city, pay massive gst and council DCs and income tax
Usually the rich have smaller households than poor households so less food gst.
Yet as a proportion of income all that GST is still less than the proportion that someone on a low income is having to spend on stuff they genuinely need to survive, especially when there is no money left after buying necessities.
Unless the person on a high income is spending way beyond their means in which case it would be fairly simple to cut back on those expenses and pay less on GST.
Not sure what point you are making other than wealthy people can spend a lot of money. The argument isn't about the quantity of tax it is about the proportion.
People on low incomes pay a far higher proportion of their income on GST than those on high incomes through the fact they are needing to spend on necessities rather than luxuries.
You can only cut so much out of your food and power budget. Those on higher incomes have a much greater capacity to save and avoid GST.
The article even mentions GST as Redcows pointed out.
Not true, in any given year compare any high income individual who builds a house new with any low income individual and you will find the high income individual paid more gst as a proportion of income.
Eg. Bob makes 150,000 a year, he builds a 1,000,000 dollar house using a mortgage from the bank. He effectively pays 100% of his income in gst on the build alone assuming he does not need to eat.
Available after tax income also mean that people n higher tax brackets can physically never pay as much gst on spending from raw income. If you earn $100 and pay 50% tax you can only spend $50 making your effective gst rate 7.5% whilst someone who earns $10 and pays 0% tax will have an effective gst rate of 15%
That's an anecdote though. That's hardly a case that can be applied to the majority of high-income earners. And it's not like you personally paid that all at once, I would assume the bank paid it up front and then you will pay it off over a longer period of time. Are you taking in to account all the years you haven't built a house so have had a much smaller percentage of your income spent on GST?
It doesn't change the fact that low income earners typically spend a higher proportion of their income on GST than those on higher incomes.
A cracking debate on getting those with money to pay more tax - I am not in the 1% but they cant just tax them....debate on tax is fine.
That said can we next move to what value we get from the record level tax income the government curently gets and how we get the bottom 50% to actually pay tax.
Government Income
https://tradingeconomics.com/new-zealand/government-revenues#:~:text=Go….
50% little or no tax
https://www.stuff.co.nz/business/opinion-analysis/114628351/an-inconven…
You'd think that Jordan Williams, representing the "Taxpayers' Union", would be advocating for a fair tax system - i.e. representing the interests of taxpayers, particularly those who pay the highest proportion of their total income on tax. It seems he's advocating for non-taxpayers with statements like that.
Let me get this straight, the current government is out of ideas, made significant economical mistakes in the past few years an now they think CGT is the silver bullet ?
How about the wealthy kiwis who have no significant investments in property ?
CGT is an election issue, much like three waters and Labour was burned by this a year ago.
They have a very short memory.
The Lolly scramble cost too much, time to plug the hole, what a "policy". Sigh.
Wealthy people should not be punished because they achieved something with their life, rather then being hypnotized by TV.
Most of them worked extremely hard to get where they are and they already pay more tax than most.
Labour is fishing to divide and concur, rather then lead this country.
Any government that wants me to pay taxes on unrealized capital gains (of assets that I have no intention of selling) should also be prepared to reimburse me or grant me tax credits if these taxed assets suffer capital losses in a recession or other market downturn.
That would be logical, but we have a govt and a finance system that is slowly going broke, income as a source of tax has been sucked dry, realised capital gains have run their course, so all that is left are unrealised gains and wealth. They don't want to tax them, and we can all agree if you like that it makes no sense, but what else of substance is left? We have piled all our borrowed chips on land and it's all that is left in the trough.
As far as I can see there isn't any official policy on a capital gains tax. I would assume it would just be done in the same way the bright-line capital gains tax is done where you only pay once the asset has been sold. Taxing unrealized capital gains seems administratively difficult.
I don't think a capital gains tax is a great policy. A land value tax seems like a much more equitable and predictable way of generating revenue and shifting the burden off of income earners.
This is Robin hood socialist thinking...
Labour is a joke and the reason they are the top 2% is because they added far more value to others than a standalone paye earner, creating businesses, real estate, jobs and serving many people....
And possibly employ a lot of PAYE earners....they also take the risks that PAYE earners don't....
The numbers are also wrong they Tax rate may be 16 to 25% of income, but you pay GST on everything you buy and also some costs are basically taxes as well.... PAYE money is 50-60% money as the govt takes 40-50% directly or indirectly through consumption
Finally some hard data to base any discussions about defining the word ‘fair’ when it comes to our current tax system. I think most kiwis will read the story and think that 9% seems low compared to what the average kiwi pays. I am certainly shocked by the low number. Seems that they have an advantage over the average kiwi which seems to go against everyone getting an equal fair go in this country and paying their fair share towards running the country.
No time to wade through 163 comments but likely none contain a debate about how much MORE tax the other taxpayers would have to pay if these 300 HNWI decided enough was enough and decamped their taxes to another country that welcomed the billions of tax dollars they currently pay. Respect the fact they pay a significant $ amount of taxes that other taxpayers don't have to pay.
They compared high wealth families income that included unrealised capital gains versus ordinary wealth kiwis that excluded unrealised capital gains. No surprise it looks like the ultra rich pay lower percentage of tax. If they compared on the same basis then it would look like I only paid 9 percent too because I have a home that's worth 3 times what I paid for it 12 years ago.
Once again the MSM have failed the public by swallowing Comrade Parker's taxation propaganda! IRD have created a fiction. As other commentors have said they have used a scenario ( unrealised capital gains) that doesn't exist in real life. Why didn't anyone in the MSM ask Parker to provide the ACTUAL tax paid as a percentage by the high net worth group? We know why, it will show that this group pays a lot of tax!
Parker's beat-up on high earners is just a continuation of Cullen's "Rich Prick" fantasy! And we all know who the "prick" was!
Nothing is what it seems....the tax calculation for the "rich "was made on the basis of including untaxed capital gains. But then comparison with the so called rest of the population excluded any untaxed capital gains. It's an irrelevant comparison with the entire thing put together to fan the flames of envy.
Capital gain is not "Gain" unless it's sold.
I'd support a CGT on all assets sale with a lower tax rates than income tax.
I'd also keep a close eyes on the total tax against GDP, I have a feeling that the government tax more and more in the name of "fairness". It's a bad idea that create a new tax but not reducing other taxes, hence kiwis as a whole pay more tax in the end.
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