Revenue Minister David Parker --- on his own on tax policy

It’s an open secret among those close to Labour that Revenue Minister David Parker would prefer the Government focussed on old-time Labour values like fairness and equity rather than identity politics.

He is unashamedly a class politician.

And his past advocacy of measures like capital gains and wealth taxes has made him the odd man out in a Cabinet whose leader pledged during the last election campaign that Labour would not introduce any new taxes this term.

Reading between the lines of Parker’s appearance at the Finance and Expenditure  Committee yesterday, it was clear that he has not changed his views.

I think the major problems and progressivity of the tax system don’t lie where tax bands sit so much as what income we don’t see and don’t know whether it is taxable, which is why my focus has been to try and get better information on that,” he said.

“We very well understand the effect of inflation on tax brackets, and it’s very easy to compute.

“But try as you might, you won’t find decent information in respect to the other issues that we’re inquiring into.”

Parker, last September, had Inland Revenue launch what it called the  “High-wealth Individuals Research Project”, which IRD said was a statistical research project designed to fill a gap in the knowledge of effective tax rates in relation to economic measures of income, particularly for high-wealth individuals.

“For the project, we’ve identified a group of about 400 high-wealth tax resident individuals,” the Department said when it launched the investigation.

The Department estimated it would have a final public report ready by June next year.

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That is likely to be less than four months out from the election.

When the investigation was launched, the Department offered an enigmatic hint as to what the information might be used for.

“Gaining this information will help us assess the fairness of our tax system and allow us to provide more robust advice on future tax policy,” it said.

“The project will not make policy recommendations but may feed into future policy advice.”

There is little doubt about what Parker’s ultimate hope must be; that the IRD study, some time in the future, will stimulate another debate inside his party on how to tax the very wealthy who currently build their wealth on untaxed capital gains.

He believes that the consequence of that is that the wealthy get a free ride on the bavcks of ordinary working New Zealanders.

In a speech last April, he said what was hidden in any debate about tax was that the effective marginal tax rate for middle-income kiwis was generally higher than it was for their wealthier co-citizens.

“Indeed, some of their wealthier Kiwi compatriots pay very low rates of tax on most of their income,” he said.

But that begs the question as to why IRD is bothering with its investigation, given that the Prime Minister has ruled out any new taxes; a matter she is said to be so firm on that she would not agree to Grant Robertson’s unemployment insurance proposal with its levy on workers’ wages until he agreed not to implement it until 2024.

National’s Finance Spokesperson Nicola Willis took up the “why” with Parker at the Committee.

You, specifically in your project on the policy initiative to ensure the tax system is operating fairly, are seeking a better understanding as to the level of capital gains received by high net worth individuals; why is that information relevant when the government has ruled out any form of taxation on capital gains?” she asked.

Parker replied: “Yes, you’re right that we have ruled out a capital gains tax, and we’ve also said that we haven’t got the ministry doing any work on new taxes.

“Nonetheless, the information is highly relevant to tax policy to get an understanding as to whether the tax system is fair.”

Willis: “So when that report comes out next year, would you rule out at that point commencing work to look at further or new taxes?”

Parker: “We’ve got no plan to.”

Willis: “Would you roll it out, Minister?”

Parker:Well, we’ve already ruled out any new taxes during this term of this government.”

Willis: “But you wouldn’t rule out starting work on looking at alternatives.”

Parker: “If you’re trying to say I am planning to get the ministry to do work on a capital gains tax or wealth tax, the answer is no.”

Willis: “I’m just asking, when that result comes in, will you rule out doing further work on other tax options?”

Parker: “I have no plans to commence any work on other taxes because I’m committed to our promise that we will not introduce new taxes in this term of government.”

Parker was careful with his words; he wasn’t planning to do anything during this term of Government.

But that was as far as he was prepared to go.

Answering a question from Green MP about an apparent conflict between him and Robertson over whether the tax system was truly progressive, Parker returned to the issue of the inequity of a system where large capital gains are untaxed.

He agreed that the income tax system was progressive.

“ That doesn’t mean to say that there aren’t holes in the tax system where there is some economic income that is untaxed, And it is not progressive in that regard,” he said.

And challenged on the Government’s move last year to end tax deductibility for property investors on their mortgages, Parker said though it was difficult to identify all the factors that had led to the cooling of the property market, the Reserve Bank had partly contributed it to the reduction in demand from investors the move provoked.

And once again, he hinted at where his own views lay with respect to dealing with property investors.

You can argue that what we did in respect of interest deductibility is an imperfect remedy because of the inability of the country to get to more rational remedies,” he said.

But what may be rational to David Parker and traditional Labour supporters is obviously not so to the current Labour leadership.