Tuesday, July 25, 2023

Christie: Why Wealth Taxes Won’t Work

At the 2020 election the Greens proposed a wealth tax. I remember being horrified that, if Labour needed the Greens to govern, they might make the introduction of a wealth tax one of their bottom lines. While we had often discussed a capital gains tax, this was the first time a wealth tax had ever been mentioned. But once the election was over, Labour did not need the Greens to govern, so that was – as they say – that.

As it turns out, it wasn’t.

Fast forward to 2023 – and another election – and Hipkins has just ruled out the introduction of a CGT and a wealth tax at this election. Those of us who know a little bit about tax were dumbfounded. The Government has been working behind the scenes to radically reform our tax system without any consultation. And now they were ruling it out when, as far as the electorate was concerned, it was never actually ruled in!

Co-governance, Three Waters… having a parliamentary majority does not, in a so-called democratic country, give the government free rein to ride roughshod over the people. Trouble is, it seems that Hipkins and his merry band of thieves never got that particular memo. Roughshod it is.

Not surprisingly, our left-wing media criticised the government for not going hard on all those ‘rich pricks’, never mentioning the fact that it is our democratic right to be consulted on these issues before legislation is passed.

Admittedly, the proposed wealth tax would only apply to aggregated assets over $5 million, with an exemption for the family home, which is a huge improvement on the Greens’ proposal in 2020. Back then, the threshold was to be $1 million – about the cost of an average Auckland house – and there was no exemption for the family home. So an elderly widow, living in her home of the last 40 years, with a value of $1.4 million, would have found herself paying wealth tax on $400,000 every year. It wasn’t her fault that house prices had gone through the proverbial roof: a lack of housing supply, plus extremely low interest rates (not to mention a government that would happily find any excuse to splash the cash), had brought about this situation. But as they say: tough. Even if she had no income other than a pension, she would have been classed as a ‘rich bitch’ in the eyes of the Greens.

And that is my main objection to wealth taxes. When you study Taxation 101, one of the first things you learn is that taxation has to be fair. Those who earn more should pay more. But a tax applied to the value of aggregated assets, some of which are not revenue bearing, can never be seen as fair. Tax is paid out of income. Non-income-bearing assets produce no income, but they are still caught by wealth taxes.

Examples of non-income-bearing assets? A holiday home. A piece of land that you are going to do something with one day. A Maserati. A Colin McCahon painting. Jewellery. First edition books. Antique furniture. That race car that you have been restoring for the last 10 years. Et al. They all add up.

Wealth taxes around the world have had mixed results. In 1995, twelve OECD countries applied wealth taxes, but by 2021, only five of those countries still applied them. This was put down to the difficulties and costs associated with both design and enforcement. Iceland, Denmark, Germany, Finland, Luxembourg and Sweden have all abandoned wealth taxes in recent years.

In fact, among the only countries that persist with wealth taxes are basket cases such as Columbia and Argentina – hardly bastions of great economic success. Argentina has gone broke in the last few decades more times than I can count, and its current S&P rating is CCC-, compared to New Zealand’s AA+. Argentina needs to gather every peso it can get hold of in taxation. There really is no reason for New Zealand to go down the same road.

Speaking of which – why are we going down the same road? We need to understand that overall, the tax take here has increased substantially over the last few years. That happens when you increase minimum wages every year. Sure – higher wages are a good thing, so long as they are aligned with productivity. But higher minimum wages bring in more tax revenue, whether they are aligned with productivity or not. And as other wages increase, workers are driven into higher tax brackets, which the current government has not adjusted. Government revenues were $14.2 billion in 2022, compared to less than $10 billion when they took office. What are they doing with all that extra money? And more importantly – if they do implement a wealth tax, what are they going to do with the extra cash?

I think we all know the answer to that. They are going to ‘solve poverty’. And solving poverty in New Zealand would be a wonderful thing. But the government has enough money to do that anyway if only they didn’t splash taxpayers’ money around like there is no tomorrow.

Solving poverty is not about paying beneficiaries lots of money. The only way that people can move forward is if they have education and employment. There is no other way. Bill English introduced a programme, identifying families that needed wrap-around care, to give them structure, particularly for their children, and a better life. It was a game-changer.

But guess what? As soon as Jacinda became Prime Minister, the programmes targeting high-risk families were rejected. Apparently, it is better to pay people lots of money in benefits than to give them an opportunity in life. Personally, I disagree.

This Government does not need to introduce a wealth tax. Wealth taxes run the considerable risk of driving wealthy people offshore, and many wealthy people run businesses, create jobs, run altruistic programmes, and generally make the country a much better place. They don’t just sit on piles of gold all day, as David Parker and Grant Robertson seem to think.

No. This is nothing more than an envy tax. With a government that has a 100 per cent record of never producing anything that it says it will, we know that any revenue gathered in wealth tax will simply be wasted. It won’t solve poverty, but it will be a kick in the teeth for all those ‘rich pricks’ – and that is what it is all about.

The ghost of Michael Cullen, it seems, is alive and well.

Christie, considers to be a Kiwi through and through and believes the only way ahead in life is through education and hard work. This article was first published HERE

1 comment:

Anonymous said...

Citizens are being robbed of their ability to climb the social ladder through constant financial repression and tax increases. Of course, we are always told that all spending increases will be paid by “the rich”, the modern cornucopia myth that is supposed to cover all the government imbalances and finance every entitlement plan forever. Obviously, those who are fooled by the promise of eternal government free money paid by “the rich” face the harsh reality of paying for the government’s “generosity” multiple times over in lower real wages, lower disposable income, and higher inflation.