Damien Grant: What Labour's wealth tax plan tells us about our leaders

Sometimes by design, but usually by accident, we reveal ourselves. This week we gained a glimpse into the thinking of several of our senior political leaders, thanks to the release of a delightful Treasury document commissioned by Messrs Robertson and Parker on a wealth tax.

The idea was that by taxing the wealth of the rich, the working poor could get a tax-break. It sounds wonderful, but you do not need a 37-page Treasury report to tell you that taxing wealth will have perverse economic impacts that will, in short order, mean that there will be fewer jobs available for the working poor.

The report is punchy. If a wealth tax was introduced, “expect some reduction in investment in entrepreneurship and innovation”; and on the risks of human flight, “there is a real risk that the number of people who leave is higher than estimated, resulting in less revenue collected from the wealth tax than we have forecast and larger economic costs”.

The civil servants knew what they were doing. It is a report designed to put a stake through the heart of David Parker’s ambitions. But why was this report commissioned at all?

Jacinda Ardern ruled out a capital gains tax and Labour had been re-elected on this explicit pledge. Did Robertson, Parker and possibly Hipkins believe that a change in leader meant that this promise could be discarded?

And not just that. They were planning to introduce this massive structural change in our tax system without consultation. Without going to the public in an election. Without even the charade of a select committee scrutiny. This was a Budget matter. The first you or I would have known about it was after the media were released from the Budget lock-up.

Hipkins, now on manoeuvres in Scandinavia, is taking the high moral ground. “We simply didn’t have a mandate to implement those tax changes.”

Which is true, but his Government didn’t have the mandate to introduce this scheme before the report was commissioned.

So, why commission it?

In addition to revealing the cavalier approach to governance and a post-modernist approach to election promises, the consideration of a wealth tax reveals something else. Let’s take a step back. To 2017.

When Bill English was relieved of the responsibilities of office, the state’s revenue was $77 billion. Five years later, the state is taking in $113 billion and is forecast in fiscal year 2024 to bring in $126 billion, rising to $151 billion within two years.

We should give some allowance for inflation, an expanded budget for sausage rolls and Treasury reports, but in nominal terms this Government will, if re-elected, have doubled the tax take in eight years.

It isn’t as bad in real terms, thanks to the recklessness of their other policies that have resulted in the value of our currency being debased, but that isn’t much in terms of mitigation.

This massive increase in revenue has not been achieved off the back of economic growth, but thanks primarily to fiscal drag.

The last time the tax brackets were adjusted was in 2010 when the median wage was around $40,000. It is now closer to $55,000. Most of this increase is due to inflation, and it means we are all paying a substantially higher portion of our income to Wellington.

And yet, incredibly, it is not enough. It is never enough. The rapacious need for cash and the inability or unwillingness to restrain spending resulted in this administration looking at the fixed assets of elderly Kiwis with covetous envy.

Under the most aggressive proposal, if you own more than $3m in net assets you would have to pay 2% of this extra value each year. It does not matter if you have no income. It does not matter if you stopped working a decade ago and are pottering about in god’s waiting room. You must surrender 2% of your assets every year until either you die or your wealth falls to an acceptable level.

There were less egregious settings, with thresholds up to $10m and taxation rates at 1%, but consider for a moment the mindset of a politician who would contemplate that this is an acceptable means of raising cash.

It appears that the entire exercise was abandoned because it was too much work to do in too little time, but be clear-eyed about what has been revealed.

A wealth tax is far more pernicious than a capital gains tax. With capital gains you have to pay a percentage of the increase in the value of your asset. Under a wealth tax, merely owning an asset of value will result in a fine equal to a percentage of the value of that asset.

And Labour thinks this is fine. It was only dropped because it wasn’t politically possible right now.

The Green Party are openly campaigning on a policy of a 2.5% wealth tax on assets over $2m, and Te Pāti Māori are excited about a bit of post-colonial redistribution.

It does not matter that, as the Treasury report makes clear, a wealth tax will erode the tax base, impose negative impacts on social cohesion, have a very high compliance cost, and drive the wealthy and innovative offshore.

There is a popular electoral base for what can be described as an envy tax. This isn’t about paying for more health care or extra pay for teachers, but the pleasure of bringing down a peg those who have worked harder, who have achieved more, who have paid taxes on their income to acquire assets over a lifetime.

We reveal ourselves when we clamour for a policy that achieves nothing other than the satisfaction of beggaring our neighbour, and politicians who stoke this desire, and pander to it, reveal themselves to be unworthy of elected office......The full article is published HERE

Damien Grant is an Auckland business owner, a member of the Taxpayers’ Union and a regular opinion contributor for Stuff, writing from a libertarian perspective