Is Revenue Minister David Parker’s plan to gather tax data on the wealthy just more procrastination by this Labour government on making the tax system fairer? Or is it recognition the public debate needs a long-term frame to get a capital gains, or wealth tax, over the line?
Hosted by Child Poverty Action Group, the Institute for Governance and Policy Studies of the Victoria University of Wellington, and Tax Justice Aotearoa on Tuesday, Parker was at pains to point out that his government is not remotely considering any tax that might address the inequality and unfairness of the current system identified by its 2019 Tax Working Group.
He even seemed proud to point out that not only does Aotearoa not have a high tax regime by OECD standards, but that the total tax-take as a proportion of GDP at 32% is indistinguishable from its neo-liberalist National Party opponents.
“We have got no secret plan to introduce a capital gains tax, a wealth tax, a deemed income tax, nor others,” he said in his speech.
He said IRD is not even doing any policy work to develop such taxes.
While he claimed “it’s not true that we have failed to deliver” a fairer system, he blamed the inherited housing crisis and the pandemic for failure to address such things as a lack of an inheritance tax or gift duties.
On the question of why they failed to address the TWG’s basic requirement to enact a capital gains tax, Parker said: “We couldn’t get the parliamentary votes to get it across the line, that’s why it failed.”
Asked if he agreed with Prime Minister Jacinda Ardern’s promise of no CGT under her watch, he said they would adhere to that.
In spite of the lack of action over addressing tax fairness, Parker says he is a big fan of the work of local researcher and writer on economic inequality, Max Rashbrooke, as well as French economist Thomas Piketty, author of Wealth in the Twenty-first Century, documenting wealth concentration.
“An important objective of taxes is to redistribute income, as well as the cost of public services, on a socially acceptable basis,” Parker said.
Despite its thumping 2020 election win, because of the government’s perceived failure to get sufficient political support to radically change the tax system, or its lack of will, Parker has turned attention to data gaps IRD collects about different groups pay, in particular, the very wealthy.
Piketty’s research suggests the less information that is collected on tax, the more inequality a country will have, says Parker.
Parker’s plan, according to PWC Partner and former TWG member, Geoff Nightingale, is a very long-term one to set the framework for a future debate on tax where there will be an inescapable imperative to impose more tax on the wealthy because they will be exposed as not paying their fair share.
“It’s attempting to frame a narrative that would perhaps build a political mandate for these kind of things (wealth or capital gains tax),” Nightingale told RNZ.
Parker said he was shocked to learn that Statistics NZ’s Household Economic Survey has, because of the loose way it questions interviewees, has never found anyone in Aotearoa with wealth over $20 million.
“How come in a country with billionaires, our data set, for policy purposes, effectively ignores the wealthiest?… It beggars belief that we currently do not know what rate of tax is paid by the top cohort in New Zealand on their economic income.”
Rough measures of wealth suggests that two thirds of financial assets in Aotearoa are owned by just 5 percent.
It is really opaque who pays what tax, Parker said.
To address that, since last year’s budget, IRD has been given the power and funds to collect information, to research tax paid by the wealthiest, relative to their income.
There is strict security on the information collected and it cannot be used to target individuals.
“Until we have a more accurate picture about how much tax the very wealthy pay, relative to their full ‘economic income’, we can’t honestly say that our tax system is fair. I think the gap will shock some people, but whether my instincts are right or wrong will be proven by the data,” he said.
A second information gap, which IRD is working on, is the amount of GST each cohort pays relative to income. Parker says this is important, because GST is a regressive tax and in Aotearoa, a high proportion of tax is gathered by GST relative to other countries.
Aligned to this work, Parker intends to pass a Tax Principles Act this term, which will lay out principles that underly our tax system. It would work similarly to the Fiscal Responsibility Act, now part of the Public Finance Act.
Parker said the main settled principles are:
Officials would be required to report on whether these principles are being adhered to, in particular, whether the rich are being taxed enough, or poorer cohorts are paying too much tax relative to income.
Economist Geoff Bertram, of Victoria’s Institute of Governance and Policy Studies pointed out the principles approach is only a cross section sample and, because of the lack of inheritance and gift taxes, fails to capture information on wealth transfer.
Asked what Labour will actually do when, if as he suspects, the data shows the wealthy are not paying their fair whack, Parker was extremely cagey for fear of provoking a Muldoon-style dancing Cossacks fear-campaign.
“Let’s wait and see. I didn’t want to have it misrepresented that we are planning six or seven taxes. We’re not.”
Simon Louisson, a former journalist, reported for The Wall Street Journal, AP Dow Jones Newswires, New Zealand Press Association and Reuters and also worked as a political and media adviser to the Green Party.
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