The most intriguing question left after yesterday’s unveiling of the Inland Revenue study of the tax paid by the ultra-wealthy is who refused to respond to the survey,
Nearly 12 per cent (41) of the 352 families with an estimated net worth of at least $20 million did not agree to respond even though the Tax Administration Act makes such surveys compulsory.
The survey started in November 2021, and the questioning was over by May last year.
As early as November 2021, there were reports that high-net-worth individuals were seeking legal advice to avoid having to participate.
At about the same time, substantial donations from some of the country’s wealthiest individuals began to flow to the National Party.
The party got over $1 million in donations last year, mostly from wealthy individuals like rich listers Trevor Farmer and Craig Heatley who donated $100,000 each, and in April last year, New Zealand’s wealthiest individual, Graeme Hart, donated $250,000.
There is speculation that Hart is one of those who did not respond to the survey, but Revenue Minister David Parker told journalists he did not know who had and who hadn’t.
Nevertheless, the huge flow of money going to the National from the ultra-wealthy points to the politics of the IRD report.
Inevitably it pitches the ordinary taxpayer against the very wealthy and National leader Christopher Luxon yesterday defended the ultra-wealthy.
“It’s not the wealthy that are the problem here,” he said.
The IRD study looked at what it called the “economic income” of the 311 families it surveyed.
Like everybody, they paid tax on their incomes.
A former IRD senior official, Robin Oliver, commissioned a study by the Sapere economic consultancy, which found that the rich pay most of the tax collected in New Zealand, and the richer a person is, the more tax they are likely to pay.
Oliver had presented a case against a capital gains tax to NZ First in 2019.
But the IRD study, with its ability to demand information from taxpayers, went one step further.
It added to the definition of economic income of the 311 respondents their income from entities and trusts, capital gains and other financial gains, including gifts and inheritances.
IRD established that the mean or average net wealth of the 311 respondents from 2015 to 2021 was $276 million.
“In total, these 311 people have a collective wealth of $85 billion,” said Parker at the study launch.
That figure, however, may have been an underestimate because the IRD study had to exclude most capital gains on overseas real estate because estimates of the income might be “unreliable”.
Parker said that previously StatsNZ Household Economic Survey had found the highest net worth family was worth only $20 million.
“I was surprised that the average was $256 million,” he said.
“I’ve got some very successful friends; I really like these people; I’m not attacking them.
“Most of them were very surprised that the average in the sample was $256 million.”
The IRD study found that the 311 high net-worth families had paid, on average, 8.9 per cent of their economic income (as distinct from their wages and salaries income) in tax.
Treasury, however, found in a separate study that they have paid slightly more.
The Treasury analysis doesn’t include tax from companies and trusts owned or controlled by individuals.
But it does take account of benefits paid in (they are treated as a negative tax) along with estimated GST payments and local body rates and ACC levies.
Treasury found that the high net worth families paid 9.4 per cent of their economic income in tax, but those whose net worth placed them in the middle of the whole population paid 20.2 per cent of their economic income in tax.
Treasury’s analysis was limited to 2018, whereas IRD’s analysis ran from 2015 – 2021.
The Treasury figure would seem to give the lie to the argument from Opposition Leader Christopher Luxon that the inequity evidenced in the IRD study was simply the product of Labour’s profligate spending, which had led to the asset price inflation that had benefited the high net worth households.
“It’s really grossly unfair that we’ve got a government that has mismanaged the economy so badly that they’ve actually created the asset inflation that we’ve seen that has created the inequality that we see today,” he said.
But the Treasury study shows that inequality existed in 2018, well before Labour and the Reserve Bank began the Covid spend-up.
Parker has long been an advocate of a capital gains tax to address precisely the issues revealed in the IRD report yesterday.
As Labour’s Finance spokesperson, he campaigned on it in 2011.
Then its moment seemed to have arrived in 2019 when the Tax Working Group recommended that one be introduced.
But Prime Minister Jacinda Ardern quickly shot that down.
“Under my leadership, we will no longer campaign for or implement a capital gains tax – not because I don’t believe in it, but because I don’t believe New Zealand does,” she said.
But in fact, Ardern (and Labour) had been blocked from introducing a capital gains tax by their coalition partner, NZ First, who had received a large donation from investment banker Troy Bowker who opposed the tax.
NZ First was also advised by Robin Oliver, the same former IRD official who commissioned the Sapere study, which showed that rich people paid a high proportion of tax.
Despite neither Ardern nor NZ First being in Parliament any longer, Parker was cautious in the extreme yesterday when asked whether Labour might take the IRD study and use it to develop a capital gains tax.
“I’m not here to announce any change in tax policy during a parliamentary term,” he said.
“That is for the cabinet to decide, not for me.
“And in an election, that’s for political parties.
“Those announcements will be made in due course, if at all.”
In 2011, when he proposed a capital gains tax, he said that 50 per cent of the revenue would go to what he called “tax switches”.
In 2010 the National Government raised GST from 12.5 per cent to 15 per cent and compensated people by lowering income tax rates by a small amount, a “tax switch” from income tax to GST.
Parker appeared yesterday to allow that possibility if a capital gains tax was introduced.
“I have previously said that if there were significant changes to the tax system, I would favour a tax switch, whether it would be that tax switch (lowering income tax) or any other tax, I’m not expressing an opinion on, and I’m not expressing an opinion today on any new tax policy,” he said.
However, Parker believes yesterday’s report adds to the debate about fairness in the tax system.
“There has been a sense amongst New Zealanders that some people are better off than them, can effectively structure their affairs in a way that minimizes tax, and they pay a lot less than they do.” Hes aid.
“But we’ve never had good information as to the scale of that, and now we do.”
In a way, Parker has trapped National.
Luxon yesterday was left defending the high net worth individuals.
“This government has pumped up asset values, and the wealthy have done well.”
But then he may have played right into Labour’s hands by arguing for tax reductions.
“What’s clear is that what this report says very clearly is that working New Zealanders need a tax break,” he said.
“That’s what we’ve been talking about for the last year and a half.”
However, Labour now has the opportunity to go into the election delivering tax reductions to middle and lower-income earners, which it pays for by nobbling high-net-worth individuals.
But it will face a very well-financed National Party and its supporters in total opposition.