Tax policy is in the news again.
All eyes are on the Labour Party and there is a lot of discussion on what it will do next year if it regains power.
The party’s policy platform, decided on through a rigorous process of vetting and endorsement is reasonably clear. It says this about tax:
Labour is committed to a fair, progressive, and transparent taxation system that promotes social equity, sustainability, and long-term economic growth.
And also this:
Labour will continue to use and improve the income tax system as a vital tool to provide all New Zealanders with adequate resources, and to reduce income inequality. Labour supports a tax system that promotes an economy based on productive enterprise rather than speculation, that ensures greater fairness and looks closely at targeting untaxed wealth in the wider economy.
And also this:
Being a parent is an expensive business. We will use tax and benefit systems to support families facing the costs of raising children.
Those general statements heavily point the introduction of a capital gains tax or wealth tax, or so you would think.
And there has been quite a bit of work in the background on how unfair the tax system is and what can be done about it.
The basic problem is that over the past 40 years the wealthy have done very well in Aotearoa New Zealand and elsewhere. And this a problem that is now attacking the foundations of our society. There is plenty of wealth to share around. But it is being hoarded by the few to the detriment of the many.
Labour Minister David Parker realises this. He had IRD conduct a deep dive into the extent of the problem and produced a report that had some jaw dropping conclusions.
From the Beehive website:
Inland Revenue research released today reveals a large differential between the tax rates ordinary New Zealanders pay on their full income compared with the super-wealthy, Revenue Minister David Parker says.
“This internationally ground-breaking research provides hard data showing that the wealthiest New Zealanders pay tax at much less than half the rate of other Kiwis,” David Parker said.
“The data, based on full income information from 311 of our wealthiest citizens, shows that the average person in this group pays an effective tax rate of just 8.9% tax on their economic income – that is, income from all sources, including capital gains on investments.
“In contrast, most New Zealanders pay tax at more than twice that rate. For example, someone earning a salary of $80,000, with no other income, pays 22% tax on that income, excluding GST.
“The difference is mainly because the very wealthy earn only a small portion of their income from wages and salaries, unlike most New Zealanders.
“The differential is even larger when GST is included: for the wealthiest, their effective tax rate rises to 9.5%, but for the person on an $80,000 salary, it goes up to around 28 or 29%. That is because wealthy New Zealanders spend a much smaller portion of their income each year, compared with other earners.”
The High Wealth Individuals Research Project is internationally significant because it uses real data, unlike other overseas studies which draw on surveys or scenarios, David Parker says.
“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,” David Parker says.
“To be clear, this work is not about chasing tax avoiders, nor is it 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.
“The excellent work in this survey will 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.”
Today’s IRD report release is accompanied by a new Treasury report setting out effective average tax rates across the population. It uses scenarios to show that effective tax rates paid by middle New Zealanders (including GST) are between 6.8 and 10.8 percentage points higher than for the wealthiest people.
When I wrote about the report a few months ago I said that the question is what the Government will do with the report. Jacinda Ardern had ruled out a Capital Gains Tax while she was Prime Minister. To the best of my knowledge Chris Hipkins has not announced his position although given his Blairite approach to politics I do not anticipate anything radical.
Well today we learned what Hipkins will do with the report.
Labour will not propose a wealth tax or a capital gains tax at the election, Labour leader Chris Hipkins said on Wednesday.
“I’m confirming today that under a Government I lead there will be no wealth or capital gains tax after the election. End of story.”
He said “now is simply not the time for a big shake-up of our tax system”.
I am not so sure it is the end of the story. As pointed out by Grant Robertson the Labour Party has an election manifesto process requires a degree of agreement between caucus and the party council.
We’re at the very sharp end of that process now.”
Time will tell if Hipkins’ statement was well sourced or premature.
The Greens and Te Pāti Māori must be grinning from ear to ear. There must be more than a few lefties thinking about throwing their support behind either or both of these parties.
Maybe this is a great example of five dimensional chess. Maybe Labour will eat into National’s support while ceding support on the left to the Greens and Te Pāti Māori. Maybe the left’s vote will grow.
But if this happens if the left wins then their hands in terms of any negotiation will be strengthened.
All eyes will be on the next poll. And results will be interpreted either as an elegant example of five dimensional chess. Or the sort of political triangulation that saps the energy and passion out of progressive activists.