Prime Minister Chris Hipkins has confirmed the Government was looking at a wealth tax or a capital gains tax (CGT) in Budget 2023, but he killed the idea.
“While work was already under way on a potential wealth tax and CGT as part of a tax switch in the Budget, I ultimately made the call not to proceed with it. We simply didn’t have a mandate to implement those tax changes,” Hipkins said.
“Instead we have moved to address inequity in our tax system by increasing the top trust tax rate to match the 39 per cent top income tax rate. This will help prevent trusts being used as a tax shelter and ensures the ultra wealthy pay their fair share. It also aligns with the increase to the top tax rate we implemented at the start of the term.”
Budget documents revealed that from August 2022, ministers received hundreds of pages of briefings on tax increases. The first was a windfall tax on profits in 2022, but this idea did not progress. A tax on banks was also considered.
Eventually, in 2023, the Government seized on the idea of a “tax switch”, slapping on a wealth tax of up to $10.6 billion over the four-year forecast period in order to fund income tax cuts. The wealth tax would have levied a 1.5 per cent tax on wealth over $5 million.
These income tax cuts would have been delivered by a tax-free threshold, which would have meant people paying no tax on the first $7000 to $10,000 of their income. A tax-free threshold of $10,000 would have saved anyone earning above that threshold $1,050 in tax.
Someone would need to earn more than $100,000 under National’s current tax policy to save the same amount of money.
Unlike National’s tax plan, it would have meant people on lower incomes usually getting the same level of tax cut as people on higher incomes.
Treasury estimates reckoned the wealth tax would have hit about 25,000 people - the top 0.5 per cent of New Zealanders. Their total wealth reckoned to be $300b, or 26 per cent of the total wealth held by New Zealanders.
Treasury warned there was “high uncertainty” in those numbers.
Three tax packages were explored, each with a combination of these policies. These were being explored as late as April 4 2023, but appear to have been killed that week before the Budget went to Cabinet on April 11.
Hipkins drew a line in the sand, confirming he would rule out either tax under his leadership.
“I’m confirming today that under a Government I lead there will be no wealth or capital gains tax after the election. End of story,” Hipkins said.
The rule-out comes as Budget documents released today are expected to show Labour considered new taxes this term.
National’s finance spokeswoman Nicola Willis has repeatedly pressed Finance Minister Grant Robertson to front up with details of the tax.
On TVNZ’s Q+A and later in Question Time, Willis alluded to knowledge of a tax policy taken to Cabinet, but not implemented.
Over multiple questions, Willis pressed Robertson to divulge details of the tax.
Last month, Willis asked Robertson in the House: “What advice, if any, has he had about the impact a new asset tax, such as, for example, a wealth tax, would have on the New Zealand economy, particularly in light of economic recession and the cost-of-living crisis?”
Robertson responded, saying, “the Government, as all Governments do, seeks and receives a range of policy advice on New Zealand’s current tax settings”, and pointing to the largely unimplemented proposals of the Tax Working Group from Labour’s first term.
Willis’ questions suggested Robertson and Labour might have been using Treasury and IRD officials to work up a tax idea, using taxpayer-funded government resources. That tax would not be implemented by this Government but taken to the election as Labour party tax policy - breaking the wall between public officials and their work for the Government, and party staff and their campaigning work for the party.
Robertson said he “reject[ed] the connection” Willis was making in her question.
National, Greens and Act react
National leader Christopher Luxon claimed victory.
“As National has been saying for months, Labour has been cooking up both a wealth tax and a capital gains tax – and now has cynically tried to rule them out to protect their position in the polls,” Luxon said.
Luxon said the “Coalition of Chaos” was “plainly divided on tax”.
“The chaos has come before the coalition. There is division within the parties on the Left, and between them on this core aspect of economic policy,” he said.
The Green Party, which is taking a wealth tax to the election this year, said Hipkins’ decision to rule one out showed the Greens were the only party that would achieve “progressive change.
Co-leader James Shaw said party leaders, like Hipkins, did not get to dictate what policies did and did not get over the line after an election.
“Political leaders don’t get to decide what will and won’t happen after the election. That’s the job of the New Zealand public. Nothing Labour says now will stop the Green Party from fighting for a fairer tax system.
“Polling shows the majority of New Zealanders support a wealth tax. Our plan will cut taxes and make 95 percent of New Zealanders better off by asking the wealthiest 0.7 percent to pay their fair share.
Act leader David Seymour essentially agreed with Shaw, arguing that Labour’s coalition partners would force a capital gains tax on Hipkins.
“Under a Labour-Green-Māori Govt, the Greens and Māori Party would team up with Labour’s Capital Gains Caucus to force Hipkins to introduce a Capital Gains Tax,” Seymour said.
“Hipkins is taking credit for ruling out a Capital Gains Tax and Wealth Tax under his leadership, but Grant Robertson and David Parker have made it clear they desperate [SIC] want a Capital Gains Tax. With potential coalition partners The Māori Party and Greens also calling for one they will team up and force one on New Zealanders,” he said in a statement.
Thomas Coughlan is deputy political editor of the New Zealand Herald, which he joined in 2021. He previously worked for Stuff and Newsroom in their Press Gallery offices in Wellington. He started in the Press Gallery in 2018.