The capital gains tax proposal might have been axed by Jacinda Ardern, but debate continues about the vastly unequal sharing of wealth in this country, and how our tax system might better deal with this problem.
The burgeoning wealth of a small slice of society was highlighted this week with the frontpage story in Monday's New Zealand Herald, showing the number of "High Wealth Individuals" continues to escalate – see Luke Kirkness' NZ's super-rich and the tax man: 350 people. Each worth $50m plus. And a fight over $85.8m (paywalled).
The main point of the story was that "The number of super-rich earners on the New Zealand taxman's radar has skyrocketed in the past five years with 350 people now worth more than $50 million". The number of IRD-categorised "High Wealth Individuals" was apparently up by 75 per cent from 2013. The article quoted Victoria University of Wellington wealth researcher Max Rashbrooke saying "You'd expect some increase [of HWIs] over time with inflation but a 75 per cent increase over five years, that is massively above inflation".
I'm also quoted in the story saying: "It suggests under the current Labour-led Government the wealthy continue to do quite well and they haven't experienced any kind of great wealth loss… Despite complaints about business confidence or a supposed reduction in confidence in the economy, clearly, those at the top end are doing incredibly well". Furthermore, "We've got a Government that doesn't seem to have any kind of agenda to increase taxation on the wealthy".
The issue was dealt with in more detail in Frances Cook's 20-minute podcast discussion with Herald journalists Matt Nippert and Liam Dann – see: The Front Page podcast: Why increasing numbers of super rich leads to a tax problem (paywalled). In this, they discuss why wealth has been booming in New Zealand, and the problem of how to tax it.
Another reaction was published in the Spinoff by Alex Braae, who suggests the solution isn't all that difficult – the state could just confiscate the wealth of the rich over a certain threshold – see: Don't eat the rich. Just set hard limits on their greed. He points to the fact that we have a minimum wage and a benefit system to stop impoverishment, and asks: "Why aren't there upper limits placed on the level of wealth a person can attain as well?".
Braae argues that the current tax system is poorly designed for redistribution: "being rich is self-fulfilling. Wealth doesn't really get taxed in any meaningful way in New Zealand, which means that it can snowball dramatically. And inheritances don't in effect get seriously taxed either, which means that extreme wealth can now be locked up for generations"
New Zealand is also well placed to leverage the ultra-rich, Braae says, because they badly want to live here at the moment, given the turmoil in the world: "With much of the rest of the world looking increasingly unstable, and climate change promising huge and global disruptions, the world's super-rich are already looking to New Zealand as a bunker to ride out the storm. Right now, we as a country have enormous leverage".
Similarly, back in May Fran O'Sullivan reported on wealthy international investors who had made New Zealand home, challenging them to assist their country: "The mega-rich who have invested in luxury property here to ride out the Apocalypse face a choice — do they up sticks in the wake of the terror attack or come out from their boltholes and use their international pull to assist New Zealand?" – see: Mega-rich investors must stand up for NZ.
Today, it's reported that one mega-rich individual who has adopted New Zealand as home, has continued his philanthropic endeavours, funding "two-year internships, initially for undergraduate medical students, and fellowships for three early-career researchers" at the Liggins Institute – see Phil Taylor's New Zealand's benefactor Julian Robertson shows the love through $2.7 million gift.
And for an update on some of the other mega-rich, see: Forbes rich list: Graeme Hart, Richard Chandler and Peter Thiel wave Kiwi flag. According to this, the three richest New Zealanders have global wealth ranking of 158th, 715th, and 916th, with estimated wealth of $13.4b, $4.5b, and $3.7b.
There has also recently been a renewed focus on the mega-high salaries of executives. See, for example, Newshub's video: Are huge CEO salaries justified?.
Also, for an excellent discussion of the high pay of CEOs in the public sector, see Dominic Harris' Cream at the top for public sector chief executives. And for a counter to this, see Martin van Beynen's Why the fuss over a mere $495,000 pay packet?.
Wealth taxes debate
Recently the Prime Minister has stated that despite ruling out her party introducing a capital gains tax as long as she remains leader, she still believes in the need for such a policy – see: Jacinda Ardern still wants a capital gains tax, despite ruling it out forever.
Debate is certainly still going on about the need for major tax reform, especially in terms of establishing some sort of new tax on wealth. Wealth researcher Max Rashbrooke has played a very useful role in laying out clearly some of the other wealth tax alternatives to a capital gains tax, including "including taxes on land, inheritances, the income from wealth or indeed wealth itself" – see: Rating the odds of a wealth tax in New Zealand anytime soon.
Rashbrooke himself favours the type of wealth tax advocated by "Capital in the 21st Century" author Thomas Piketty – a wealth tax in which everyone pays a certain levy on wealth that is over a certain threshold. And Rashbrooke has written this week on what this might mean, calculating that "an annual levy of 1% could raise in the order of $6 billion" – see: Wealth taxes.
Here's his basic explanation of the advantages of this Piketty tax: "In essence, households would be asked to pay an annual levy of roughly 1% on all of their wealth over $1 million. The advantages of this tax are as follows. It is simple to describe, as you can see from the above sentence. It starts off with all wealth, so there is a much larger base of wealth to tax than is the case with, say, a land tax. But by exempting the first $1 million of wealth for a couple ($500,000 per individual), you would target only the wealthiest fifth of the country. That would make it much more acceptable to average New Zealanders".
For some other interesting proposals for tax reform in the wake of the doomed Tax Working Group report, it's interesting to read a blog post by one of the advisers to that working group, Andrea Black: Tax and politics. Amongst her proposals for a way ahead is that everyone's tax records should be made public.
For an even more radical follow up, some of Black's "younger friends" have evaluated her wealth tax proposals, adding in some more – see: Tax and politics (2). The preference here is for a land tax (as proposed in "National's tax working group") and an inheritance tax ("on all estates over $500,000").
Of course, there is still debate as to whether the current tax system needs reforming, and whether the rich are already paying enough tax. Last week, the CEO of Deloitte New Zealand penned an opinion piece in which he argued that: "NZ already has a very progressive tax system. A small group pay the vast majority of all income tax. A large group pay very little and in fact are paid through transfers" – see Thomas Pippos' An inconvenient truth about tax in New Zealand.
In rebuttal to this, Victoria University of Wellington's Michael Fletcher wrote yesterday that although "Pippos's hope that better-than-forecast economic growth may result in taxation being 'left off the agenda for a little while yet' may work for him and his clients… it is not in the best interests of the rest of New Zealand" – see: New Zealand's tax system is actually a step behind.
Fletcher argues that Pippos has very selectively used data in his arguments that the rich are already highly-taxed, and points instead to the conclusion of the recent Tax Working Group report which said: "Overall, relative to other OECD countries, the tax system is not particularly progressive." Fletcher himself asserts that "it is clear the overall trend has been towards a substantial concentration of wealth and rising inequality."
Similarly, business journalist Rebecca Stevenson explored this topic in June, suggesting that New Zealand's tax system lacks progressivity: "This Government talks a lot about fairness. Is it fair individual taxpayers are carrying the tax burden for the nation? For contrast, look across the ditch. Australia's top rate, of 45 per cent, is applied to earnings over $180,000 a year" – see Individuals are carrying the tax burden.
She also suggests that corporates are being under-taxed: "For the 2019 financial year wage earners and individuals will pay an estimated $37.4b in tax, growing to more than $40b in 2020. Corporate tax is expected to close in on $15b in 2019, and then is forecast to fall back, to about $14.5b in 2020. Less. Tax. From corporates. Let that sink in. Of course, most of us individuals earning a wage can't structure our affairs to maximise tax efficiencies in the myriad ways businesses stocked with clever accounting departments and external consultants can."
Capitalists reforming capitalism?
Are we now witnessing a return to the nineteenth century practice of progressive business owners attempting to ameliorate some of the harsh social conditions faced by their employees? There are numerous examples of so-called humanitarian English businesspeople in the earlier days of capitalism attempting to set up utopian and fair-minded villages for their workers.
Frank Greenall reports on the re-emergence of this type of "conscious capitalism" in New Zealand, with the announcement this week that a bed manufacturer is replacing it's Auckland factory with a new factory and town in the Waikato, which would involve affordable new housing for its workers – see: Sleepyhead's workers' village – When wasn't enhancing the health and wealth of your workforce not great for business? (paywalled).
Here's the details: "It wants to relocate to a 176ha rural site just north of Huntly. Here, the company will triple its manufacturing space to 100,000sqm, creating up to 1500 new jobs. But that's only part of the master plan. Over the next decade, it also intends to develop a mixed-use community with 1100 new homes for their employees and families – a projected community of about 3000."
Company director Craig Turner is quoted: "Our dream is to provide an opportunity for people who work for us and others in the community to be able to get into their own home, to have equity in something as they work. Currently that is incredibly hard to do – if not impossible".
Greenall explains the historic parallels: "in 1893, the Cadbury family – of chocolate fame – acquired land to set up a model workers' village at Bourneville, Birmingham, to help 'alleviate the evils of modern, more cramped living conditions'. Workers' health and fitness were deemed essential, and all manner of recreation and sporting activity was encouraged. The Bourneville village became a template for many others."
The major transport company Mainfreight has also been in the news for its recent annual report which argued that businesses needed to start sharing their profits with their employees – see Chris Hutching's Mainfreight founder says bonuses help solve inequality and social unrest. Mainfreight, itself, shares some of its profits with its workers – the latest annual report says it gave away $27 million.
Citing the new film adaptation of Piketty's Capital in the 21st Century, Mainfreight founder Bruce Plested "said that sharing profits amongst the people who helped create them should be an essential part of capitalism". Plested also said: "It is a basic premise of capitalism to have the lowest possible input costs, but there is no particular premise that the enterprise, if successful, must hold on to all the profits. This may be a flaw in the interpretation of the capitalist model that is contributing to inequality".
Finally, business journalist Maria Slade has been interviewing New Zealand business leaders about the problems of iniquitous wealth, capitalism, and what they are going to do about it, and she's been receiving some interesting answers – see: The crisis in capitalism: NZ CEOs respond to the worldwide loss of faith. This is what she has been asking them: "Are they aware that four decades of privatisation, deregulation, lower taxes for business and more power for employers and shareholders have not produced widely shared prosperity, but instead created wage stagnation, growing inequality, banking crises, the convulsions of populism and the impending climate catastrophe?"