By Craig Elliffe*
If nothing else, the Inland Revenue study of the tax rates paid by the wealthiest New Zealanders should put to rest the notion we have a progressive tax system. We don’t.
A progressive system is one where higher earners pay more as their income grows. The report, commissioned by Minister of Revenue and Attorney-General David Parker, has revealed the country’s wealthiest are paying a median effective tax rate of 9.5% (including GST).
This is less than half the tax paid by middle income earners at 22%, or nearly 30% if you include GST. But while many commentators have asked how such a low tax rate is possible, the real question should be what happens next?
Will the government change the tax code to include a robust capital gains tax? In a hotly contested election year, is there much political will to target the core source of income for New Zealand’s richest people?
Whatever the answers, we should first recognise just how important this report is. The now decommissioned Tax Working Group, of which I was a member, called for this study to be completed. It is satisfying to see the country now has better information on which to base its tax decisions.
New Zealand’s 1%
Inland Revenue surveyed the incomes of 311 households since 2021 for its study. The average net wealth of each household was NZ$276 million and collectively this group owns around $85 billion worth of assets.
Another way to describe this is that the richest 1% owns about a quarter of the country’s financial assets.
According to Inland Revenue, those surveyed are meeting all their income tax obligations. There was no evidence of any wrongdoing.
But only 7% of their overall economic income is taxed in their personal name. The other 93% comes from investment returns, most of which would be untaxed. These households also use entities, trusts and companies, which are taxed at a lower rate than individuals.
Based on the fact that 93% of the increase in their wealth is from an untaxable source, it’s no wonder they pay tax at such a low rate. In fact it’s surprising they are paying as much tax as they are.
Capital gains tax back in spotlight after tax reports on New Zealand's wealthiest released https://t.co/niD4YwIGUB
— RNZ News (@rnz_news) April 26, 2023
Big change unlikely
Thanks to the information contained in Inland Revenue’s study, our unease over how we tax people (and whether the system is truly progressive) is more than just a feeling. The report provides hard, factual information illustrating the consequences of current tax policy.
Ahead of the report’s release, however, Prime Minister Chris Hipkins refused to be drawn on Labour’s tax policy and whether there would be any changes. Revenue Minister Parker only hinted at possible tweaks.
With a budget and an election on the horizon, it’s unlikely this government will be making significant changes to the tax code. In the current political environment, it’s very difficult to persuade a majority that new taxes are a good idea.
But it’s quite possible there may be a tax reduction for lower and middle income earners, combined with additional taxation on capital in some way.
Who pays the bills?
Despite it being an obvious target, however, we shouldn’t expect a robust capital gains tax. The previous Labour government ruled this out and it’s unlikely to gain traction now.
With just six months until the general election, too, there isn’t time for the requisite legislation to be written and consulted on.
Most New Zealanders don’t really need to think about tax at all – more than half don’t even file tax returns. But even this group should benefit from being aware of the Inland Revenue findings and be better informed during the subsequent debates on tax policy.
Because behind all these questions about who pays what tax rate lie significant considerations. New Zealand’s infrastructure spending is increasing and many social services need greater investment. How we pay for it will determine whether we keep up or fall behind.
How much money the government earns from taxation, who pays and how much they pay is a political conversation we can’t put off forever.
*Craig Elliffe, Professor of Law, University of Auckland. This article is republished from The Conversation under a Creative Commons license. Read the original article.
106 Comments
Wouldn't a capital gains tax that accurately captures the type of 'gain' in the report that drove that figure down to the headline figure also have to capture unrealised capital gains?
Hell of a jump for a country where we can't even get the basics like indexing the handful of personal income tax brackets we already have to make. Not really one I'm sure you can realistically trust our authorities to make in an effective way. And that's before you touch the sides on the tax treatment of Kiwisaver, RWT Thresholds, the issues with the TWG CGT report that made it totally impractical, etc. There's plenty of stuff we could actually be doing if we wanted to change our tax system for the better, but they don't come with the 'Eat the Rich' vibe of an effective marginal tax rate that includes unrealised gains. It does get the focus nicely off the booming government tax take, though.
I wouldn't have thought so everything should be proportionate? Say the collective income pool is $100m, with $20m of tax. Those services require $20m. Inflation hits 10%.
Now those services cost $22m. Income is $110m with $22m of tax assuming all brackets are indexed.
If not indexed, someone on $48k pays $7420 in tax (15% effective). + 10% = $52.8k with $8860 in tax (17% effective). So not indexing does result in surplus tax take.
So successive finance ministers have been fleecing us.
Successive finance ministers have used the money available to them to meet the demands of the public, who want improved and better services over time, without having to explicitly raise tax.
National refused to support Michel Cullen's proposal to index tax thresholds to inflation in 2005. When National next got into power they also did not implement the policy, instead they chose to reduce the rates and move thresholds and increase GST.
To a degree at least bracket creep isn't funding improved services, it's funding the same old super + healthcare but to a larger number of retirees. The unavoidable problem is that demographic change means that, in order to sustain the same level of service, we need to collect more tax, from a shrinking working age population. If starting from scratch then it would be obvious that the best solution is to tax asset holders more, but we aren't starting from scratch and that solution is understandably seen as very unfair by people who worked hard to accrue assets under the expectation they would remain tax free. Still, I think the asset taxes would be preferable to the societal collapse we are going to encounter if we maintain our present course.
Well said. This is my main issue with taxing incomes is that we are going to have an incresingly small supply of them as the demographic crunch hits. Realistically we can't afford to not be taxing assets as the costs are going to become to much to onto income earners.
We are basically having a situation where there are to many people who have "worked" opposed to those who are "working". Unfortunatley an economy cannot sustain itself purely upon past work and we are going to need to shift how revenue is collected if want to have any hope in maintaining our living standards as well as economic growth.
Land tax is effectively a wealth tax, and we already have land tax in rates which are supposed to be for services that you cannot opt out of and may not use and based on value do not reflect actual use of services. Its a lousy unfair tax with no real accountability of councils who misuse rate income on what they see as necessary but ratepayers don't - Cycle Lanes and Bridges come to mind whilst road and sewage remain on a back burner.
A land tax is very different from a wealth tax. Going to copy this since I have already touched on it below -
Council rates are not a land tax though. Council rates are a property tax which discourages construction, maintenance, and repair because taxes increase with improvements. A simple tax on the unimproved value of the land is potentially the least worse form of tax as it doesn't carry with it any deadweight losses we see with other forms of tax.
For example, a GST discourages consumption and increases the cost of living. Income taxes discourage work since what's the point of putting extra work in if 39% of your paycheck gets taxed away? Capital gains taxes can discourage investment. A wealth tax can cause capital flight. Every tax is inherently problematic but ultimately we need revenue, a better way of getting revenue in the future could be phasing in a land value tax to take pressure off incomes.
Define what you mean by "government inflation".
Healthcare is a significant part of the government's budget - I believe it eats up about 1/3rd of it in total. Inflation in healthcare is well-known to be ahead of general CPI inflation.
And you also need to factor in population aging - the health budget needs to go up more each year, beyond inflation, just to keep providing the same (low) level of service to the increased number of people requiring those services.
If incomes increase 10% the tax increase will be higher than 10% as people move to higher brackets. Adjusting the brackets would set the tax increase to be 10%. Not indexing the brackets is effectively a tax increase. It isn’t quite as simple as that though as incomes don’t increase evenly. If inflation is 10% and incomes increase less than that then the tax take in real terms will be less. Flatter tax rates help minimise bracket creep. The jump from 17.5% to 30% creates the bulk of the issue.
"At the end of the day" (to quote our Lord and Saviour John Key), productive work is one of the worst things to tax, and when income tax was brought in for the first time (not here) it was only supposed to be a temporary measure. It penalises those who work, and discourages people from productive enterprises. It has more negative externalities than - for example - a tax on unimproved land value that recognises the betterment that society delivers to land through no effort of the landowner.
The tax system absolutely needs more balance. The status quo has been discouraging investment into productive enterprises and incentivising lazy land speculation, and we are lagging other countries on productivity - which ultimately means living standards. We cannot continue to fake our way by living beyond our means simply by passing ever larger debt to following generations. We need to reward those who are value creators, not the value takers.
Lazy Land Speculation -exactly. Talk about low hanging fruit! Here are two examples: 3.5ha of land purchased for $350,000 in 2003 and no improvements to it, and now in 2022 sells for $2,400,000. 1977 block of land with sea side bach, and then adjacent property bought in 1985--total basis $75,000. Sells in 2021 for $2,900,000. Neither sale invoked any tax-neither was a primary homestead. So first of all how about Treasury releasing total annual revenue gained from the Bright Line Test, and then review how much added revenue the country could be enjoying if every non primary home property sold was subject to a Bright Line test-no matter how long it had been held. I would guess over the past 23 years NZ has passed up an opportunity -that no other country would/or does-to collect Billions upon Billions of taxation. And not only from the 1% and 2% top households, but from plenty of others down the income scale who collectively have gained mightily-without the country sharing in their "economic income"
Sigh...They compared high wealth families income that included unrealised capital gains versus ordinary wealth kiwis that excluded unrealised capital gains.
You don't have to be a law professor to know that this is a self serving comparison of apples and oranges.
Edit: The Sapere report was conclusive on one thing, the rich pay a higher percentage of income tax on their taxable income that anyone else does.
The thing is, those unrealised capital gains are often used as leverage - surely at that point they should be considered realised, and thus taxable?
Note that I'm not in favour of a CGT, and if there is one, capital loss should be allowed also. But the whole thing is a complicated mess with the potential for many loopholes. Hence why I am pro the much simple FTT (and get rid of all other taxes).
At the very least, our tax regime should be flat. 'Progressive' is a punishment for earning more.
No, because GST is a tax on consumption. It's considered unfair because lower households consume all of their income, whereas higher income households do not, so proportionately pay less of their income on GST.
If most of the rich pay less tax as a percentage due to various loopholes allowing them to structure their affairs that way, yet pay most of the countries tax, then that indicates that getting rid of the loopholes would allow a much lower tax percentage to be charged to all. The high earners would barely feel the increase, yet it would make a huge difference to those lower down.
I am, of course, ignoring that half the population pay zero net tax while consuming disproportionate tax-payer funded resources atm...
What if it was built over 30 years ago? Most people aren't actually living in new builds typically. Even if they are paying GST on the new build that cost isn't all up front for them personally, instead the cost will be spread out over the loan period. You could even say the same thing about renters paying GST through renting a new build or something, quite a lot more nuance to it than you are making out.
Yes Kiwis are stupid. Basically any significant tax change means they are looking for MORE MONEY in total in the pot or else it would be a simple and straight forward tweak to the existing tax brackets so you could quickly work it out instead of them trying to sneak something past you.
The other thing about GST is that tourists pay it. It spreads the tax base. It is also hard to avoid. The more you spend, the more you pay. I don’t see it as a tax on the poor. It more punishing to people in the middle as they will spend more of their income and less as a percentage on things that are exempt (rent /mortgage etc)
Absolutely kiwikids. The learned professor may be good at numbers but a fail on logic. He reinforces the report's, and Herald's "takeaway" (for the average reader who doesn't want to wade through the detail) that...'rich pricks are screwing the system's.
In the real world of who pays what, those earning more than $180k of taxable income, in fact collectively only 2.4% of the population, pay 26.6% of the total tax.
Just under 2% of the population earn more than $180k a year - a total of $40 billion per year (about a fifth of total taxable income). That's an average of $500,000 each.
What this means is that 2% of the population get to consume 20% of our natural, physical and manufactured / imported resources. Most of the income at the top end is unearned rentier income - dividends, money made off inherited money / land etc. It is incredible that as a society we put up with it.
Remember too, that for someone to earn more than $180k there's likely someone else that needs to be paid ~$50k. Maybe if we started valuing lower income people's work a little more by paying them better (instead of using minimum wage as a target), then this whole issue of net vs non-net taxpayers that people keep bringing up might start to disappear.
What ? Are you serious? Some people plan for their future and for their families future from a young age, work hard and succeed and leave something for their kids to build on. You are saying this is a bad thing and society should not put up with it ? What you are referring to above is the result of good planning and basic mathematics in action.
I don't really have any issue with it on a personal level but you can see how it can get out of control over a long enough timescale. Take the UK or India for instance, where people are divided into classes by the circumstances of their birth. Once wealth is built up enough it becomes self-sustaining regardless of the merit behind it and reduces social mobility and cohesion.
It's fair enough if you save up for your kids, but at what point does it become problematic? Do we return to a feudal system where a select few own everything and rent it out to the lower classes whose parents weren't able to pass down wealth and property? It doesn't happen overnight but we are seeing this kind of thing starting to take route where your lot in life is not determined by merit but by how wealthy your parents are.
When working hard is no longer correlated to higher incomes the disassociation of effort and reward makes society as a whole more fragile.
I am in that bracket and I would be willing to bet I consume a good deal less of all our resources then the people at the other end of the economic spectrum reliant on every service under the sun.
At the top end (well beyond my pay scale) they certainly do get a good deal of income from their capital - are you suggesting that we ask them to return their capital to the state as taxes - aka communism? If so then ok, but it's a failed ideology.
What this means is that 2% of the population get to consume 20% of our natural, physical and manufactured / imported resources
Thats like saying I s##t 4 time more than my neighbour because I have more toilets!
The high earners may feed themselves well, but mostly they invest - create jobs for others. They tend to be smart people.
That's incorrect. They did a point in time analysis so they had to look unrealised gains. The methodology was solid. That does not mean of course that any resulting tax policy changes would target unrealised gains - the tax working group recommended taxing at the point the gain was realised (for eg).
It is worth looking at the income tax distribution data on the IRD website. Someone earning $100k a year pays about 25% in tax. Someone earning $300k a year pays about 30% in tax. Cry me a river if that 30% becomes 35%.
No but the people who now suddenly find their family home having to generate an economic return unpalatable may simply move to a place where everyday home-owners don't pay the tab for years of poor allocation and zoning by councils and rip-shit-or-bust investment from property flippers to whom the capital gain on a negatively geared asset was supposedly only ever incidental.
Could also mean voters would finally be encouraged to do something about the issue you stated here
home-owners don't pay the tab for years of poor allocation and zoning by councils and rip-shit-or-bust investment from property flippers
If we are being realistic everyday homeowners are just as responsible for the zoning laws as they voted for the politicians that put them in place. Our current system has encouraged this as there has been very little in the way of negative externalities for homeowners when their house prices skyrocket. In fact, the current system encourages less housing to be built as homeowners benefit from a limited supply. If we had a policy that tried to stop this voters might actually be encouraged to support development and more homes being built in their community in order to moderate housing prices and keep it affordable for all.
The current system takes all of the negative externalities and dumps them on everyone but the homeowners/landlords. It's killing our productivity and hurting the economy, we should encourage productive businesses not speculation on housing.
Maybe we could have a different rate of LVT for owner-occupiers vs investors? Have it set at 0.75 percent for investors to start off with and half that for owner-occupiers to encourage homeownership?
The people that own it do. Every individual is utilizing land in some way so everyone pays either directly or indirectly. And if they can't afford to hold on they have the option to either sell or defer the payment. It would encourage investment into other areas of the economy that would increase productivity instead of the status quo where the tax incentives direct everyone to invest in real estate.
Council rates are not a land tax though. Council rates are a property tax which discourages construction, maintenance, and repair because taxes increase with improvements. A simple tax on the unimproved value of the land is potentially the least worse form of tax as it doesn't carry with it any deadweight losses we see with other forms of tax.
For example, a GST discourages consumption and increases the cost of living. Income taxes discourage work since what's the point of putting extra work in if 39% of your paycheck gets taxed away? Capital gains taxes can discourage investment. A wealth tax can cause capital flight. Every tax is inherently problematic but ultimately we need revenue, a better way of getting revenue in the future could be phasing in a land value tax to take pressure off incomes.
I am not advocating for a tax grab or tax cut, just a tax switch to share the tax burden more evenly between all groups.
We've seen this kind of analysis before, and it barely ever takes into account a) the rates at which different rates kick in at, and b) your ability to make ends meet on that kind of income. "Rate lower = bad" and not much more thinking juice expended is how you end up with minimum wage earners knocking on the door of a 30% tax threshold and still be able to sleep at night, but it's the only way.
There is a difference between the rate being lower and it kicking in at a much lower level.
Canada’s top tax rate is 33% equivalent to the 2nd highest band we have but theirs kicks in at 221,708 Canadian dollars (approx 270,000 NZD).
germany’s top tax band only kicks in at about 500,000 NZD. France’s at 300,000 NZD. All this to say our top tax band kicks in at the lowest level of all the countries you listed with a rate that is higher than some but lower than others.
There's a lot more to that story in Oz
https://www.kiwiblog.co.nz/2023/04/everyone_earning_under_300k_pays_les…
https://www.abc.net.au/news/2023-04-28/stage-three-tax-cuts-to-scale/10…
My top tax rate is now 39%. This was higher than friends domiciled in Switzerland including a pilot from Helvitica, several software programmers and an HR Manager. In contrast I pay less than my colleagues in Germany in the same industry and at comparable levels of seniority.
by ACB | 28th Apr 23, 9:02am
"Just have to remember NZ is not a prison. If the top end get taxed too much (relative to other jurisdictions) then they can easily up sticks and leave. Then who pays for the remainder of us?"
Yes, exactly. I believe that many wealthy Kiwis already have plans in place to move their holdings out of NZ, should Labour be re-elected and impose some form of wealth tax. Let's face it, Labour and Greens have been hinting at this for a couple of years now, and this latest little drama is a very obvious ploy to manipulate public opinion into supporting such a tax.
Personal example: While I'd not consider myself particularly wealthy, by NZ standards my net worth is in the upper 3%. I've been in Australia for several months now, and spent the last year or so arranging my affairs so that I can fairly easily transfer my investments (mostly liquid) over here in October.
The methodology is anything but solid.
Apply the same methodology ( including unrealized capital gains ) to just about any property owner ( mortgaged or not ) in Auckland and Wellington over the last year and a half and you will find that they had a very high effective tax rate , in many cases over 100%. Conclusion - they are due for a massive tax cut . Are you happy with it ?
The comparator used in the report and media for the 9% vs 22% effective tax rate is clearly stated as someone earning $80,000 with no other income (earned or capital). There are other examples used in the report - have you read it?
Nobody sensible is suggesting taxing unrealised gains - this works well in other countries when you tax the gains at realisation (as the tax working gorup recommended).
Yes , they restricted their comparison to an artificially narrow base case - cherry picking like that pretty much guarantees you can manufacture any conclusion you wish to arrive to .
So the "finding" only holds for a very narrow case , yet according to you should result in wholesale change of tax rules for everyone , including the vast majority for who the finding would NOT hold for ? Logical.
On another note - if what you are advocating for is a CGT on realized gains - should this not be supported by a comparison based on .. yes - realized gains - and not some other arbitrary and irrelevant measure ?
Taxing unrealised capital gains is a very slippery slope. Especially bad for people who build businesses where their wealth is tied to the business. Elon musk is an example. He would lose control of the business due to having to sell shares to pay the taxes. Sam Morgan would be an NZ example. It went from being worth nothing to being worth millions. If he had to sell shares to pay the gains trade me may not have been as successful and will don’t have created the jobs etc. If you don’t tax unrealised capital gains then you don’t collect much revenue as people who are wealthy just won’t sell. You end up targeting the slightly rich who may not be able to afford to keep everything.
Yes, rather than comparing the ultra wealthy effective tax rate to the PAYE bands, they should have done it by wealth/income decile.
The middle class, particularly the upper middle class, also benefits to a lesser extent from the tax treatment of certain assets. That drags their effective average tax rates down a bit albeit not to the same extent.
The poorest sods are the non property owning workers earning slightly above average wages.
Implementing a CGT is not complicated - lots of countries do it. The challenge is getting the legislation done well in a reasonable amount of time. You would presumably be looking at 2025 or 2026.
I would go to the election with a commitment to a new top rate of tax (45% or 50% above around $300k) and a policy of aligning the rate for Trusts with the rates for income. A new higher rate would enable us to have tax free earnings for the first $20k or so of earnings (allowing for some savings on welfare). Then I would open a Land Tax vs CGT discussion before pushing on with one of them at pace (I would prefer Land Tax everytime).
It wouldn't. You have to give that $20K tax free to everyone up to a certain age. That costs a huge amount of money. TB put a $14K bracket at a cost of almost $5B. So you're going to have to recover that tax from an increasingly smaller and more agile group of taxpayers, and you're not doing a whole heap about the minimum wage nuzzling the underside of the 30% threshold, which is patently absurd.
On the other hand Jfoe, here is a simple system, what about a modest, flat rate poll tax on every citizen. Pretty straight forward with monthly auto payment or deduction from any welfare payment. This would get right back to the basic reason for taxation whereby everyone has a stake in meeting the costs of a functioning government. This allied with a low income tax, perhaps at a flat rate, and of course a consumption tax, aka GST would be just the ticket.
If you want riots in the street you bring in a poll tax. People struggling to survive as is and you bring that in. Taxing someone for simply existing is about as regressive as it gets, same with GST.
If you want simple and fair you bring in a Land Value tax, we all use it and have a choice in how much you wish to hold. If you want people to have buy-in to their communities, you make housing more affordable.
This would still miss capital gains at the time of sale. I think JFoe is looking to close this loophole.
I also think we need a capital gains tax, BUT - I think it should be indexed to inflation from the time the asset was purchased. This way the asset can be sold for the same cost (in earned labour) in inflation adjusted terms, but any excess could be taxed at their PAYE rate.
There is still an absence of data, because we haven't been informed what the companies, trusts etc own that is giving them such high capital gains. I strongly suspect it is not shareholdings in competitive industries. I think the capital gains comes from investments from parts of the economy with monopoly characteristics, such as property.
The oversized capital gains come from interest rates being forced down to stop the economy falling over. We are seeing what happens to those capital gains when interest rates rise again.
In a stable interest rate environment, any capital gains are usually just keeping up with inflation so the gains are in fact just a feel good illusion.
There is no way in hell Labour will make any meaningful changes to our tax system. Hipkins had made this just as clear as Arden did, albeit without the "not on my watch" drama. Given the findings in this report, there can only be two explanations for this:
- Labour do not care about equality in this country, despite all the rhetoric to the contrary
- Labour are in the back pockets of the wealthy
I think they are stuck in the headlights and dont have the skills to know what to do
National appear much the same
And we should also be looking at other parts of the revenue equation and especially what is charged for the use of public good assets e.g
Gas/mineral royalties, fishing quota, film making grants, water rights etc. In to many instances significant rights/opportunities have been granted to individual/families without the appropriate fee being charged - and we are still doing it with lots of the money flowing to the top 5% (including to the top few within maoridom)
I'm not sure National are equally stuck in the headlights. Labour at least in name pretends to represent the working classes. But National keeps announcing policies that are giving the middle finger to productive working Kiwis, telling them that they should be the ones who pay the taxes so that property speculators do not have to.
I suspect that Labour might be being a bit more strategic than you let on.
For Labour to remain in power it is starting to look likely that a combo of Greens and Te Pati Maori will be required. If you look at the policy position that all these leftish parties carry then there are plenty of juicy tax morsels for Labour to nibble on.
I suspect that Labour won't offer up anything overly interesting in order to hoover as much of the centre ground as possible then in the horse trading after the election and allow the minor parties to have "their way" on a tax policy that aligns to where Labour really wants to go. Politically this allows the minor party to take the heat not Labour.
Who knows - they could also just be planning a rerun of Key's "do nothing stay" in power we shall see!
Laws and rules are only as effective as the ability to monitor them are. My key question would be how will they monitor any changes? Trusts were under the microscope in the last few years however I don't see anecdotally any major shift in the way these are being used, especially in relation to property. If the tax on trusts is 33% and an individual is a high income earner, of course they will own houses under a trust or a company for that matter as it is advantageous to do so.
How then do we consider changes to have income from non-productive assets shifted to personal tax-liable income to be taxed at the effective rate? Some will call blasphemy, but it's a necessary line of discussion if we are to change peoples motivations and behaviors away from housing speculation.
A lot of talk on fairness in taxation. Personally I don't actually think marginally increasing taxation is fair. A flat income tax strikes me as perfectly fair. Richer people still pay more, but I don't see a good reason why they should have to pay proportionally more as their income increases.
The duality of 'fairness' is that some people close to nothing if not negative nothing, some with household incomes that are exactly the same as others get to keep more of their money due to who earns what (even though everything is measured in household incomes) and a child can be a cash-gathering unit for parents while another family with a child the exact same age, height and weight get no assistance whatsoever.
But no, the highest priority is apparently unrealised capital gains.
Trying to grok this. Are you highlighting the situation of two parents working for $50K pa each, paying less tax as a household than one parent earning $100K and the other $0? I recall that United Future had a policy of taxing household income rather than individual income. I thought it was a good idea, but with the increasing proliferation of broken (sorry, "split" or "modern") families, that option seems extremely complicated to administer. A flat income tax solves this problem automatically with literally no additional bureaucracy.
My point is there is very little that is 'fair' about our current tax system and people who fall back on such a thing should be instantly distrusted unless they're prepared to quantify what 'fair' is. There's a high chance they've confused as a label for 'people I don't like'.
Probably fairest IMO is flat tax, that kicks in after a tax free threshold, which would need to be large. IMO a 25k tax free threshold, then a 30% tax on all income over is about right. That threshold should be indexed to inflation. And add in an LVT to make it even fairer.
There's only one party talking about a tax free threshold to bring us into line with most of the rest of the developed world. The same party is the only one promoting an LVT. Vote accordingly.
People need their first $50k more than they need their second. I agree with a flat tax though, I reckon the first $xxk tax free and then flat tax from there.
Index the tax free bracket with inflation. If people don't receive a payrise, then at least they're compensated slightly through less tax.
The IRD report disingenuously uses unrealised capital gains to find precisely the answer that the writers have been instructed to find by the politicians - that is, the "rich pricks" are somehow not paying their fair share. This obviously panders to the populist tall-poppy attitude of many Kiwis.
Given that wealthy Kiwis pay most of the taxes in NZ, the government and IRD would be wise not to alienate them further and trigger massive capital flight.
The next question to ask is how much tax would these people pay if they relocated to Australia, Singapore or the US? Because if the answer is "the same" then it will be cheaper for IRD to simply buy these people a one way ticket to those countries than it will be to implement a tax regime that drives them offshore anyway.
There seems to have been a dearth of discussion around Kiwisaver. Each time someone switches provider or plan, any capital gain is realised. Equally, at 65, if you close up your Kiwisaver account to apply it to some other investment, there is realised capital gain. Likewise with drawing money to buy a house or for emergencies. Many Kiwisaver plans, particularly the more aggressive ones, are in growth rather than dividend producing, investments. There are over 3 million Kiwisaver account holders. Do we think they might rebel at having to cough over 20% of their capital growth? Or would there be an unprincipled exemption for Kiwisaver as there is for the family home? Would that then lead to people investing more into their Kiwisaver, as will inevitably happen with the family home? Would that take funds away from businesses and other forms of assets? And what would the Bill of Rights think about an exemption granted to those under 65 which is unavailable to those over that age?
eh. I am +65 and have left my funds in Kiwisaver with no need for them yet. Any withdrawal is tax free. The only component within any Kiwisaver fund that has certain shares in it, mostly overseas companies, with some Oz shares are taxed every year on unrealised capital gains or the 5% div rule, whichever is the higher. If you withdraw +65 then those that would have been normally taxed on unrealised gains are still taxed on unrealised gains. Its not new.
Its the whole unrealised gains tax that sticks in my craw.
The majority of Kiwis, >90% are totally unaware of this and a few commentators on interest.
Given I can't get a pension because I'm under 65, my response would have to be 'suck it up'. There's no assurance a pension will even exist when I retire. We give people free money in this country for turning a certain age and they still find a way that they're the victim, despite the enormous grift their generation has perpetrated on those who followed.
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