On New Zealand’s Timid Reluctance To Tax The Rich

“Let me tell you about the very rich. They are different from you and me. They possess and enjoy early, and it does something to them, makes them soft where we are hard, and cynical where we are trustful, in a way that, unless you were born rich, it is very difficult to understand. They think, deep in their hearts, that they are better than we are...” – F. Scott Fitzgerald

In one respect at least, New Zealand appears to be the Monaco of the South Pacific. Our wealthy pay low income taxes, face no significant tax on their capital gains, and there is no wealth tax at all. If you were rich, why live anywhere else?

Evidently, the cashed-up members of our tycoon sector have been bluffing. New Zealand’s well-to-do wouldn’t up stakes and shift to another developed country if the Luxon government ever did bring itself to tax wealth as fairly and thoroughly as they do in Australia, Canada, the US, the UK and a number of European countries. In those countries, our fleeing wealthy asylum seekers would still be worse off, tax-wise.

The evidence is contained in a Victoria University study commissioned by Tax Justice Aotearoa. It found that in nine other major developed countries, those earning five times the average wage – in NZ, about $330,000 - would face significantly higher taxes on their income, their capital gains and their wealth. On income alone they would be taxed at 33%. In comparable OECD countries, the headline rates range between 37% and 55%.

In addition, while New Zealand (and Belgium) lack a capital gains tax, in those other OECD countries the tax on capital gains ranged between 17% and 42%. For those earning half their income from salary and half from capital gains, the tax rate in New Zealand was again, significantly lower.

So much for the recent whining about how New Zealand suffers from a culture where we don’t sufficiently respect and admire the wealthy for their achievements. Hello? Perhaps if they didn’t free load on the rest of us and paid their fair share of tax into the same revenue pool that provides the public services they use, and builds the roads down which they drive their SUVs...maybe there would be more to admire and less to resent.

This latest Victoria University study confirms the even more compelling work done last year by IRD at the direction of the Revenue Minister David Parker. The IRD’s analysis of 311 of the country’s wealthiest families had found that they were paying an effective tax rate of 9.4% – which is less than half the 20.2 % rate being paid by the average New Zealander.

In response, then-revenue minister David Parker led the design of a wealth tax requiring couples with more than $10 million in assets to pay an annual levy of 1.5 percent. It was estimated to raise $3.8b in revenue that could have funded income tax cuts for almost everyone, including a 0 percent rate for income under $10,000.

Unfortunately, Labour’s right wing faction led by Chris Hipkins scrapped the wealth tax proposal, leaving Parker with little option but to resign as Revenue Minister. (Hipkins has since kicked the wealth tax can down the road until 2026 at the earliest.) On economic policy, will Labour ever again get to look and act like a genuine centre left party? Not on Hipkins’ watch, evidently.

The road tax revolt

Imposing a new tax on the rich is currently a political no go zone for National and Labour alike. Imposing a new transport tax though on ordinary New Zealanders – in the shape of road tolls – seems quite OK. Interestingly, Waka Kotahi has listed (on this page) where the current toll roads are in New Zealand and with each one, they identify a non-toll alternative route.

Currently, a grassroots revolt is erupting over the proposal to whack a sizeable toll onto the new highway linking Hawkes Bay with the Manawatu and the Wairarapa. This road will replace the Manawatu Gorge route that was closed in 2017. A new road has since been built.

Alas, the new road runs up, over and through some very expensive and difficult terrain. Inevitably, costs have risen since the scheme was first launched. A road toll has been suddenly introduced into the cost equation, with a one way route of $4.30 per car being proposed. Yet as Tararua mayor Tracey Collis has pointed out, people on the minimum wage who travel daily to and from Palmerston North for work would be unable to afford the added weekly cost, given the ongoing cost-of-living crisis.

The two alternatives to the toll road being proposed have constant slips occurring on them. As Collis says: “They are not viable alternate roads.” Reportedly, the levels of anger among locals is rising. Besides the ripples from this particular project, it also puts a question mark over the political viability of using road tolls as a revenue measure to help fund National’s roads of national significance.

Local resentment at this proliferating form of road tax could easily turn into a significant political liability, even in the centre-right’s rural heartland, and around the Auckland region.

Names, names

Amid the reporting on Israel’s latest murderous attempt to plunge the Middle East into a regional war, the media seems to find it obligatory to refer to Hezbollah as “a terrorist group based in Lebanon backed by Iran” and to the Houthis as a “an Iran-backed militant group based in Yemen.”

In reality, the Houthis are the de facto government of Yemen.They control the capital city Sanaa, almost the entirety of what used to be North Yemen, and most of the coastal strip adjoining the Red Sea. Some 70% of Yemen’s population live in areas governed by the Houthis. Moreover, Iran has little or no control over what the Houthis choose to do with the weapons supplied to them by Iran – originally, to help them to resist their Saudi-backed opponents in Yemen’s decade-long civil war.

The media’s decision to tack the disparaging tag “ Iran backed” to both groups not only reflects a US/Israeli bias. It also minimises and obscures the very real autonomy that both Hezbollah and the Houthis have within Lebanon and Yemen respectively.

One can only look forward to the day when for balance, we hear Israel being referred to by our media as a “US-backed militant regime and illegal occupation force” and to Donald Trump as “the leader of the Republican Party, an extremist organisation based in the US, and backed by Israel.”

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