A capital gains conundrum for the country and for Labour

A109 Light Utility Helicopter flight with mayor Gisborne City from the air in November 2023.

Opinion

News that the uber wealthy in New Zealand pay a lot less tax as a proportion of their incomes than middle-income earners do will come as no surprise to anyone; the only question is what the Labour Government will do about it.

A Treasury report after a study of 311 people shows that the wealthiest paid only 9.4 percent in tax on their total incomes compared with an average 20.2 percent from middle-income New Zealanders.

However, the top 2 percent of earners do pay 26 percent of the total income tax return, which National Party leader Christopher Luxon says is fair.

These 311 people who have a net worth of more than $50 million made more than $14 billion between them in 2021, largely thanks to capital gains on properties and other investments which are mostly untaxed in New Zealand.

The figures being compared also included wages and salaries, benefit transfers and GST paid.

Revenue Minister David Parker was quick to say the report was not about chasing tax avoiders or “attacking the rich”, and that wealthy New Zealanders were usually hard working and creative people who comply with the current rules.

The Government has said it will introduce a Tax Principles Bill this year to ensure information like this continues to be transparently collected and reported on.

Parker avoided the elephant in the room by refusing to comment directly on the possibility of a capital gains tax, saying Labour would save any tax policy announcements for the upcoming election campaign. He did say, however, that he did not favour taxing the family home through a capital gains tax or imputed rents, and he was a “defender” of GST.

The Treasury report does say that New Zealand is a more unequal society than the UK and it is harder for average earners to reach a higher wealth decile through ordinary earnings alone.

Prime Minister Chris Hipkins is expected to hose down speculation that Labour will create new taxes when he delivers the traditional pre-Budget speech to the Employers and Manufacturers Association in Auckland today. He has already said the Government is focused on fiscal constraint for the 2023 Budget to be delivered on May 18.

That hasn’t stopped Luxon and ACT from saying Labour is preparing for a tax grab and putting the blame for the country’s situation on excessive spending by the Government.

The Greens’ Chloe Swarbrick said taxing the rich more would create a fairer economy.