The Government is increasing privacy for taxpayers in a move being criticised as shielding the rich and powerful.
One of the provisions in its omnibus Taxation Bill, introduced last week, is to repeal section 17GB of the Tax Administration Act, which was used in recent years to investigate how much tax the rich pay.
The resulting Inland Revenue Department report, ordered under the previous Government, showed that 311 of the wealthiest Kiwis and their close relatives had a combined family wealth of $86 billion but paid on average only half the tax (9.4%) of ordinary Kiwis.
A just-released regulatory impact statement (RIS) reveals the IRD wanted to keep this investigative tool, which enables the IRD commissioner to require a person to provide tax information for the purposes of improving the tax system.
Ditching the provision could impact the “quality of future policy advice”, the RIS said.
“The minister [Revenue Minister Simon Watts] has given greater weight to taxpayer privacy, while officials have given greater weight to information sufficiency.”
Tax Justice Aotearoa said the Government was putting a blindfold on the IRD.
“This repeal is a fundamental blow to transparency in our tax system and shields the rich and powerful from legitimate scrutiny,” spokesman Glenn Barclay said.
“Ignoring the evidence is one thing, but this measure is essentially outlawing crucial evidence from even being collected in the first place.”
The Taxpayers’ Union claimed a victory, however, referring to the clause as the “Nosey Parker” clause, a reference to former Labour Minister David Parker, who requested the report.
“David Parker’s snoopers’ charter is headed for the scrapheap, and good riddance. Taxpayers have a right to privacy, regardless of how little the former Labour Revenue Minister may have respected that,” spokesman James Ross said.
Currently, the only legal restriction on the use of the information is that it cannot be used as evidence in proceedings against the person supplying it. But it was unclear whether this applied only to civil proceedings, criminal ones, debt collection, or all of the above.
Nor was it clear whether the information could be used to bring proceedings against a third party, such as a company, connected to the individual.
But the IRD wanted to keep the power, given its benefits in improving the quality of its advice and the potential side-benefit of improving compliance with tax rules.
The department proposed clarifying the law to mean that any information gathered could only be used for policy development and could only be disclosed in a way that did not identify any individual, such as in aggregate form.
This would improve privacy while making it clear the IRD could not act on any information that revealed non-compliance.
“Inland Revenue considers this option provides a reasonable balance between protecting taxpayer privacy while maintaining the ability to gather information to support quality policy advice,” the RIS said.
Watts disagreed, saying the provision was an invasive overreach.
“Labour never substantiated why IRD needed these additional powers, such as invasive details of people’s relationships, especially since it already has extensive powers to request taxpayer-relevant information. We believe this was an unnecessary overreach and was seen by some as a politicisation of IRD.”
The bill that would axe the provision is expected to be passed into law in the coming months.
The IRD will still have a “general” information-gathering power, but this is thought to exclude information for policy development, which would have to be provided voluntarily.
The RIS notes that a court could rule such information to be within the ambit of “general information”.
“The impact of repeal will therefore depend on legal interpretation.”
The only time section 17GB has been used was to investigate the amount of tax paid by the country’s wealthiest people.
The 2023 IRD report found that the median effective tax rate paid by a sample of 311 wealthy New Zealanders was 9.4%. This is less than half the 20.2% paid by the “middle-wealth” Kiwi, according to Treasury.
The main difference is the treatment of capital gains on investments. Those 311 earners made $818,446 in capital gains on property in 2018 alone, compared to the middle 10% of New Zealanders, who made just $6996.
The IRD was careful to use best-practice models for collecting, using and disclosing information, in consultation with the Privacy Commissioner. Many of the practices weren’t required, though, but were at the IRD’s discretion.
“Data obtained was carefully ring-fenced and was not able to be used for any purpose except in relation to the project. Collected data was destroyed on project completion,“ the RIS said.
The report took two years and followed the 2019 tax working group advice on the lack of information about the impact of current tax settings.
Following the report, the previous Government worked on a wealth tax that was ultimately rejected by Labour leader Chris Hipkins.
After Labour’s weak election 2023 result, Hipkins said every tax option was back on the table and he has recently been under pressure over what tax policy – thought to be leaning towards a capital gains tax – the party will take into next year’s election.
He has said the party’s tax plan will be revealed before the end of the year.
The Government has questioned Labour’s credentials in helping Kiwis with the cost of living when it has released no tax policy.
Prime Minister Christopher Luxon has been on the back foot over the cost of living, with the recent Ipsos poll showing voters increasingly trusting Labour more than National to tackle the issue.
Derek Cheng is a senior journalist who started at the Herald in 2004. He has worked several stints in the press gallery team and is a former deputy political editor.