Josie Pagani: Hard work means nothing with NZ taxes

Labour Party leader David Cunliffe. Photo / Mark Mitchell

If you earn $70,000 a year in wages, you pay tax on every dollar you earn.

If you earn $70,000 because the value of your investment increases by that amount then, unless you are a trader, you don't pay any tax at all.

This is a subsidy for the top 10 per cent of New Zealanders who own 50 per cent of the wealth.

There's nothing wrong with people making a few dollars and doing well, but a dollar earned one way should be taxed the same as a dollar earned another way.

There is no rational reason we tax wages and the stuff we buy in shops but not the wealth that comes from owning assets that grow in value.

Remember when National told us we couldn't exempt GST on things everyday people buy, like food, because that would be a distortion? Now they tell us that stuff wealthier people buy, like assets that grow in value, can be exempt from tax because that distortion doesn't matter so much.

Last week, John Key felt he had a zinger because David Cunliffe was shaky describing when a capital gains tax would apply to a family home inherited after a parent dies. It is revealing that the Prime Minister's point was not a principled objection to the tax.

To see how trivial his question is, answer me this: when does income tax apply to rents earned from an investment property you inherit from your parents when they die? The day they die? Two weeks later? A year later? I bet virtually no one other than a tax accountant knows the answer, yet it is logically the same as the capital gains one Mr Key asked. It doesn't stop income tax from working okay.

If the rate of return from capital exceeds the economy's rate of growth then people who own stuff are not just getting richer, they must be getting proportionately richer at the expense of everyone else.

So you can never catch up by working hard.

This inequality means the game is stacked against you. If you don't own assets you can't avoid tax by converting your income to tax-free capital gain.

That's why so many Kiwi families feel like we work hard and can't get ahead. And that is the system National is defending.

Getting rich isn't the problem. Not getting rid of a flaw in the system where some get rich and pay no taxes while everyone else does - that's the problem.

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