Who will a wealth tax catch?

Islay Aitchison. Photo / supplied

While Labour has tried to rule out the Green Party's 'wealth tax' policy, James Shaw has described those efforts as "not credible," so at least according to the Green Party, an asset tax is on the table this election.

The Greens have claimed that only the wealthiest six per cent of New Zealanders would be hit by the tax, but is that accurate? Any individual with nett assets exceeding $1 million would be hit by the tax. While that sounds like a lot of money, many New Zealanders will exceed that in their lifetimes. According to REINZ, the median house price in Auckland was $950,000 in August. In other words, an individual with even modest retirement savings and a mortgage-free home in Auckland should expect to be paying the wealth tax by the time they retire.

At minimum, census data suggest approximately 45 per cent of Aucklanders - that's 15 per cent of the country's population - own their own home. Once mortgage-free, most of those households would find themselves liable for the tax. Many home owners and entrepreneurs outside Auckland would be affected by the tax as well.

Official statistics indicate far more than six per cent of New Zealanders would be affected. Analysis of Stats NZ nett wealth data by Eric Crampton, of the New Zealand Initiative, suggests 20 per cent of 66- to 69-year-olds have nett wealth exceeding $1 million. Our own analysis of Household Economic Survey data indicates 21.6 per cent of households had nett wealth exceeding $1 million as of 2018.

While the Green Party's threshold is higher for couples, it would fall again for a retiree once his or her partner passes away. Many would find themselves burdened by the tax even if they had previously fallen below the threshold while their partners were alive.

Even the $1 million threshold is something of a false promise. Due to the effect of inflation, the thresholds would effectively become lower over time, pulling New Zealanders who are less wealthy into the scope of the tax.

Most importantly, a wealth tax wouldn't just tax our homes and retirement savings. It would punish the economy just as we are recovering from Covid-19. We all rely on strong levels of investment and economic growth to provide good jobs and wages. A tax on assets would punish productive investment and keep Kiwi workers in low-wage jobs, with very little hope of a better standard of living.

The Green Party's claim that only a small number of New Zealanders would be affected by their plan to tax wealth is unfair and inaccurate. Many households would be affected by the tax once they pay off their mortgage and retire, or after their partner passes away. Many more households would be affected by the lower rates of investment and comparatively lower incomes it would cause.