Robert MacCulloch: How did the wealthiest 300 Kiwi families each make $50 million in 2021 when our economy busted?

The Inland Revenue Department's "High Wealth Individuals Research Report" states that "The Project population’s annual economic income varied over the Project period from $1 billion in 2017 to $14.6 billion 2021". Hold on. It was 2017 when Labour came to power and between that year and March 2021 the economic income of the wealthiest 300 families rose 15 times. Most remarkably, each family made $50 million, on average, over a period of time during which Stats NZ says "Average annual GDP declined 2.3 percent". I doubt there is any other five year period in our history in which that has ever happened.

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The IRD defines economic income as: "the sum of annual net income (base income); realized capital gains; accrued capital gains (for assets not sold); non-taxed distributions from companies & trading trusts; Trustee taxable income (& capital gains on assets in trusts); Taxable income of land-rich entities (this replaces distributions from those entities & is in addition to capital gains on real property) & Imputed rental on owner-occupied housing".

The IRD report confirms that during the 2021 financial year, Labour presided over what appears to be the biggest ever rise in inequality in our history - at least between the top 0.001% & the rest. What was the reason? My hunch is that it was a combination of the poorly designed wage subsidy scheme & Reserve Bank's $50 billion money printing program.

How much was paid in wage subsidy in the year ended March 2021? The Auditor General states: "Between March & December 2020, the Government paid businesses more than $13 billion through the Wage Subsidy Scheme as part of its response to Covid-19". I have no issue with the wealthiest 300 families in NZ and don't believe any more capital & wealth taxes should be introduced than we already have. However, the way our Finance Minister structured the wage subsidy scheme meant it was a gift of public money to large firms. The scheme only had to add a clause like, "should the firm receiving these funds report a profit at the end of the year not materially different from last year's, then these funds must be refunded". In such a case the taxpayer would have been saved $15 billion.

The upshot is that David Parker's IRD "High Wealth Individuals" report's main finding has little to do with the desirability or otherwise of capital taxes - indeed the report does not say a thing about the optimality of our tax system. Instead it stands as official confirmation that our Labour government - a government that stood for equity more than anything else - has delivered more unequal outcomes than any other.

Sources:
https://oag.parliament.nz/2021/wage-subsidy/overview.htm

https://www.stats.govt.nz/information-releases/gross-domestic-product-march-2021-quarter#:~:text=Economic%20activity%2C%20as%20measured%20by,in%20the%20December%202020%20quarter.

https://www.ird.govt.nz/-/media/project/ir/home/documents/about-us/high-wealth-research-project/hwi-research-project/final-report-april-2023/report-high-wealth-individuals-research-project.pdf?modified=20230423203807

Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.