Wednesday, April 26, 2023

Point of Order: IRD Minister’s tax report shows (no surprises) the benefits of getting much of your wealth from capital gains

We have waited patiently to post this ministerial press statement and some of the reaction, because the announcement was under embargo until 12.30pm and it was not then posted promptly on the Beehive website.

At first blush, the statement gives good cause for wealthier New Zealanders to brace to have more of their money taken from them by a government with an increasing debt to settle and an inclination to show “fairness” in its tax policies.

It has been posted on the government’s official website along with an announcement that primary care providers are being given a $44 million funding boost.

This is not intended to improve health services generally, let’s be clear. The spending is unabashedly discriminatory, designed

“ to deliver high quality services focussed on benefitting Māori and Pacific populations”.

Another announcement – this one designed to promote discriminatory policies in the child-welfare domain – has the whiff of government spending about it. But there are no dollar signs in the press statement from Kelvin Davis.

As Minister of Children, Davis has announced the launch of “a new iwi-led plan to transform the way tamariki and whānau in Te Matau a Māui (Hawkes Bay) are supported”.

Latest from the Beehive

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.

Changes are being made to First Home Grants and Loans to help get more people into home ownership, says the Housing Minister, Dr Megan Woods.

Primary care providers will receive a $44 million funding boost to deliver high quality services focussed on benefitting Māori and Pacific populations.

A new iwi-led plan to transform the way tamariki and whānau in Te Matau a Māui (Hawkes Bay) are supported was officially launched at Waipatu Marae today by Minister for Children Kelvin Davis.

The statement on the taxing of wealthier New Zealanders was triggered by the release of Inland Revenue research which reveals – perhaps it is better to say it affirms – there is a large differential between the tax rates ordinary citizens pay on their full income compared with the super-wealthy.

But now we have some hard data.

Reports have been published by the Treasury, too.

The Treasury published three papers today on its research into the effective tax rate of all New Zealanders across the income and wealth distributions. Tax and Transfer Progressivity in New Zealand: Part 1 Methodology (AN 23/02) This note uses scenario … More >>

The IRD study looked at the income and tax of people who generally had net worth of more than $50 million, or $20 million if they controlled significant businesses, from 1 April 2015 to 31 March 2021.

Inland Revenue requested information on 350 high-wealth individuals and their immediate families and trusts. Of those, 311 responded.

The median “wealth” (or net assets) of the group in 2021 was $106m, with the mean higher still at $276m.

In total, these 311 people have collective wealth of $85 billion.

“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,” Parker says.

The data, based on full income information from the 311 people who responded to the request for data, 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.

Most New Zealanders pay tax at more than twice that rate.

Parker gave the example of someone earning a salary of $80,000, with no other income. In that case, 22% tax is paid on income, excluding GST.

Parker explains:

“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 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, Parker says.

The Government changed the law last year to enable IRD to require high-wealth individuals to provide their earnings data, in order to dig out the data to do the research and demonstrate why those individuals should be thumped more heavily.

But Parker emphasised:

“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, the Government intends to introduce a Tax Principles Bill to ensure that information like this continues to be transparently collected and reported on, Parker said.

The 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.

The Scoop website has posted these responses –

New reports from IRD and the Treasury conclude the obvious: Labour’s economic mismanagement has hurt everyday New Zealanders while the rich have got richer, National’s Finance spokesperson Nicola Willis says. Today the IRD has released a research project … More >>

Long awaited High Wealth Individual Research released by Minister David Parker’s office today shows, again, the Government must act to tax wealth and create a fair economy. “New Zealanders have long felt what has today been confirmed by Government … More >>

“The Government will try and leverage whatever comes out of the IRD’s tax study into a reason to take more money from Kiwis. No one has ever taxed their way to prosperity though, the Government needs to cut its own waste before it looks for more revenue, … More >>

The very wealthiest are not paying their fair share in tax, according to two separate data sets from the Inland Revenue Department and Treasury, says the New Zealand Council of Trade Unions. Released today, the data indicates that inequality continues to … More >>

The Treasury and Inland Revenue reports on taxation released today support the key conclusions of the Sapere Report commissioned by OliverShaw and released 18th April. However, the HWIRP does not deliver hard data that can be … More >>

The Government has wasted $5 million dollars, abused the information gathering powers of the IRD, and politicised officials, for the sake of a report that tells us nothing we don’t already know, says the Taxpayers’ Union . Responding to the High Wealth … More >>

In its statement, the Taxpayers Union was dismissive, accusing the Government of wasting $5 million, abusing the information gathering powers of the IRD, and politicising officials,

“… for the sake of a report that tells us nothing we don’t already know.”

Union spokesman Jordan Williams said:

“There’s nothing new in here. The report confirms that we have a highly progressive income tax system, compliance is good, and those who can afford to pay a lot more do so. Thanks for the newsflash, Captain Obvious.

“It also confirms that the wealthy obtain most of their economic income from capital gains that are not taxed. A fifth-form economics student could have told David Parker that.”

Williams said the report fundamentally concludes that high net wealth families are only paying 9% of their economic income in tax.

“But the report shows that most of that economic income is unrealised capital gains. No one in the world taxes that, and it is disinformation to encourage comparisons to those primarily earning PAYE income.

“The report totally ignores the risky nature of capital gains. The short point is that investing in a business is more risky than turning up to a job and demands appropriate returns to encourage much needed investment. Tax rates need to reflect that, as well as the fact that New Zealand, like all countries, compete for capital.

“Everyone supports evidence-based public policy. This report is policy looking for evidence and its timing is clearly designed to stoke resentment and justify an envy tax that will make New Zealand poorer.”

In a speech which David Parker delivered this afternoon, he insisted:

“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.

“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.”

Parker said that until now, we have had to rely on the Household Economic Survey for information on the incomes of the wealthiest New Zealanders.

That survey provides comprehensive information for most of the population, but is not accurate at the top end, he said.

“Last year I noted that the Household Economic Survey had surveyed just one household with wealth greater than $20 million. They’ve now found two.

“That’s right. The NBR rich list has been a better data set than the official statistics when it comes to high wealth. We have been similarly in the dark about their economic income.

” Why, in a country with billionaires, has the data set we have used for policy purposes effectively ignored the wealthiest? It’s not out by a factor of ten – that would be huge in itself. But that maximum is out by a factor of hundreds.”

Despite their limitations, household surveys have told us that wealth is unevenly distributed in New Zealand, Parker noted.

According to the Household Economic Survey, the top decile – that is, the top 10 percent of households – holds 63 per cent of household net worth (excluding owner-occupied housing). That is more than the other nine deciles combined.

Parker also noted a massive difference even between decile 10 and decile 9.

Further down the tree it’s even more apparent: 50 per cent of the population combined hold only 7 percent of net worth outside the family home.

In another contrast, the top 1 per cent of households hold more than a quarter of all the financial assets in New Zealand.

This means that most income from investments is earned by a small segment of the community.

New Zealand is not the only country doing work in this area, Parker said

“The increasing concentration of wealth and the lower rates of tax paid by the very wealthy is of concern in many countries.”

He referenced an OECD’s Centre for Tax Policy project that looks at stylised effective tax rates under different compositions of labour and capital incomes.

Point of Order is a blog focused on politics and the economy run by veteran newspaper reporters Bob Edlin and Ian Templeton


Peter Ness said...

If minister Parker wants to be a Pikety wannabe then he should do it on his own time and pay for it himself. Wasting taxpayers $ to state the bleeding obvious.
And the result of all this poking into other people’s affairs is? Nothing!
If you’re that rich, you can employ a whole army of tax accountants who can outsmart any govt official to minimise tax paid. And that is the whole point, they aren’t doing anything wrong or illegal.

Unknown said...

Were our Maori incorpations in they have chatible satsis how much income tax do they pay? B M