The Government’s orchestrated release of two reports on who-pays-how-much-tax is a low point for New Zealand’s attitudes and values. There’s a choice between seeking to be an achieving society, or one that hunts down success and punishes it. The first gets wealthier over time by encouraging creativity, the second shrinks people and makes them hide their light under a bushel. David Seymour made these points in his debate with Chloe Swarbrick on Newshub Nation on Saturday.

Nobody can be against acquiring more information for better informed decisions. It doesn’t work when the motivation was political from the start, and the results don’t stand up to any kind of scrutiny. This week Free Press digs into the three reports and their findings. What do they really tell us, and what does their production and promotion say about this Government?

The first report, released the week before last, was commissioned by tax accountants Oliver Shaw from the economists at Sapere. It does two things. First it analyses how much taxable income different people earn and how much tax they pay. Then it calculates how much tax would be paid by a number of imaginary households, with different combinations of taxable income and untaxed capital gains.

On taxable income, Sapere breaks up the amount of tax paid by people on different incomes, and the rates paid. The amount paid by higher earners is staggering. 21 per cent of taxpayers earn over $70,000, and pay 68 per cent of tax. People on higher incomes don’t just pay more tax because they earn more, the percentage tax they pay is much higher.

The imaginary households pay different percentages of their income depending on where they get their income from. A retired couple with mainly investment income pays less than a couple with mainly taxable earnings, but overall people who earn more pay more, and pay a higher percentage of their income in tax.

The Treasury report echoes these findings. It calculates what different households with different incomes paid in tax during 2021, and finds that those who earned more paid more, and paid a higher percentage of their income in tax, with minor exceptions. It also shows that a third of people paid negative tax. That is, a third of people get more from the Government in tax credits and benefits than they paid in tax.

That’s two reports saying the tax system is basically fair, if anything a small number of people get disproportionately fleeced. They pay far more tax in dollar terms, and higher effective rates on their taxes.

The third report is the doozy. That’s IRD’s report, based on an invasive survey sent to 400 ‘High Wealth Individuals’ (ACT has suggested it should have been sent to gang members who really need to explain their income). This was a pet project of David Parker who seems obsessed with the idea that someone, somewhere, is just doing too well and it’s not fair.

The IRD was given $5 million of taxpayer money to produce a report with the most extraordinary methodology. It asked those people how much their assets had increased in recent years, then suggested paper gains should be included in their income.

With this inflated income, the report claimed that tax paid was only 8.9 per cent of their ‘economic income.’ Compared with someone earning $80,000 and paying income tax on it, who pays about 22 per cent of their income in tax, and David Parker pushed the headline that the super wealthy pay half the tax rate of everyone else.

What’s wrong with that? For one thing, the first two reports show that high income taxpayers pay far more in dollar terms than low income taxpayers, in fact they pay nearly all of it. More importantly, nobody takes seriously the idea that paper gains are income.

In 2021, the median house price rose $135,000. If that paper gain was taken as income, the median person would have had to pay around $45,000 to the IRD on their ‘economic income.’ Sadly for homeowners, the median price then dropped $110,000 in 2022. 

Should the median homeowner get $37,000 back from the IRD to make up for their loss? Would anyone say they paid a lower tax rate in 2021 because they didn’t get taxed on their rising house prices? Would we say they paid a higher rate in 2022 because they paid all their tax on taxable income but weren’t compensated for their paper losses? Of course not, taxing paper gains has never been taken seriously until David Parker wanted to attack a small number of wealthy New Zealanders and make out that they’re ripping everyone off.

Some people might say, ‘sure, but that’s a red herring.’ The question is, should investors pay tax on capital gains when they sell?’

Perhaps not. The Sapere report makes another interesting point that is often missed. Actual payments of money to IRD are not the only way that taxes reduce an investors’ wealth. Sometimes people who don’t appear to pay tax still find their assets are worth less because when they sell them the buyer needs to pay tax on any future earnings from the asset.

For example shares in a company are valued on future earnings, but those earnings are taxed. When a share price goes up because a company’s future earnings are expected to rise, so do the taxes any buyer will have to pay on those earnings. Capital gains are already reduced by future taxes on earnings, so there is no such thing as tax free capital gains when income is taxed.

Altogether we have had three big tax reports in two weeks. Two say that people pay more tax as their incomes increase, and the system is basically fair. The third is a politically motivated doozy, using calculations nobody took seriously until David Parker went on his ‘rich hunt.’

The headlines have ignored that fact, and the left have made a meal of the idea that all our problems are caused by ‘the rich’ not paying their share. The Greens’ Chloe Swarbrick even said taxing capital would ‘end poverty.’ In reality what’s needed is not more money thrown at every problem, Labour has tried that, but better use of record government spending today.

In the end it’s attitudes and values that matter to a country’s success in the long term. When the Government uses taxpayer money to fund politically motivated surveys based on bogus assumptions, we have a problem. Witch hunts, pile-ons, and telling people their problems are caused by the success of people who pay far more than their share of government revenue won’t help New Zealand’s culture one bit. The last week has been a very ugly episode of tall poppy syndrome on steroids, and that’s another reason why New Zealand needs real change this October.

Press Contact

[email protected]