Ben Thomas: Parker's wealthy Kiwis tax stunt a kite-flying exercise

Wednesday, 26 April 2023

Revenue Minister David Parker delivers a speech about the tax that wealthy people pay compared to everyone else.

Ben Thomas is a public relations consultant and political commentator who has worked for the National Party. He is a regular contributor to Stuff.

OPINION: The Government this week unleashed a torrent of resentment and envy from ordinary Kiwi battlers who feel unfairly hard done by, compared with the success of richer New Zealanders living lives they can only dream about.

But enough about the relaxation of citizenship rules for Kiwis working in Australia, although we’ll return to it later.

Instead, we refer to Wednesday’s kite-flying exercise by Revenue Minister David Parker, to test public sentiment on increasing the share of tax paid by wealthy people, following the release of Inland Revenue’s much-anticipated High Wealth Individuals research project.

Once all sources of income are taken into account, the wealthiest Kiwis are taxed at a rate of 8.9%, according to a separate report from Inland Revenue released earlier this year. (Video first published April 26, 2023)

The research unsurprisingly showed the wealthiest sliver of New Zealanders pay a smaller percentage of their total earnings in tax than middle income working stiffs, writes Ben Thomas.

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To the surprise of exactly no-one, the research purported to show that the wealthiest sliver of New Zealanders, based on a survey of 311 families worth more than $50 million, pays a smaller percentage of total earnings in tax than middle-income working stiffs. (There are some quibbles about the methodology Inland Revenue used to reach this conclusion, we’ll return to that later too.)

The Government, Parker was at pains to make clear, was not announcing any specific tax changes to address what (he was also at pains to emphasise) any reasonable person, and not only a Labour minister who has previously sought out new taxes in all corners of the economy, could plainly see was a monstrous injustice.

There was such a wide range of policy that wasn’t being considered as a result of the report that Parker was moved to mention, in particular, that it definitely didn’t have any consequences for taxation of family homes. “High rates of home ownership are a cornerstone of a fair society,” he said, mysteriously.

Ben Thomas: “The most depressing finding of the report is that, individual fairness aside, our domestic One Percent are not sitting on an Alladin’s cave that can be cracked open.”

This seeming non-sequitur in his prepared remarks was, of course, a necessary disclaimer following both Parker’s trouble tidying up Kiwisaver fees tax treatment last year, and Labour’s continuing travails with the idea of a capital gains tax.

The disclaimer was also necessary because Parker does not want any concrete proposals around how to reform the tax system to muddy the debate on the much more urgent matter of whether middle-income earners are mad at wealthy individuals after hearing about this report.

The Beehive will be carefully looking at any changes in public sentiment on this score, which could determine whether the report is simply fodder for Parker’s proposed legislation on “taxation principles”, which is intended to gently guide tax policy towards social democratic ideals over time, or whether Labour will campaign this year on some kind of tax aimed at very high earners. With the nitroglycerine-like sensitivity of capital gains taxes in the past, the Government wants to be able to bail out at any point.

It has picked its time well, with families struggling with the cost of living, and the middle class’s rising house prices behind them, replaced by refixed mortgages and tumbling paper values. The “middle earners” identified by IRD and Parker are indeed hurting.

National leaped on the report to note that, first, the wealth of the ultra-rich was inflated mostly through the inflationary environment of the post-Covid world of free or cheap money (the methodology adopted by Inland Revenue which counted unrealised – or paper - capital gains through revaluations of property or business interests the same as cash in the hand, saw their earnings balloon).

The rich, in that respect, are just like us – or at least those who owned a house (or more than one) in the booming property market of the past 10 years: their wealth was inflated by the low interest rate environment.

The idea of becoming well-off simply through working for income is as foreign to the middle classes as it is to Parker’s imagined super-rich. It is foreign, specifically, in the sense that it’s seen as something that can only really be achieved overseas – in particular in Australia.

The notion of a flood of New Zealanders leaving for brighter prospects across the ditch was seen as a fait accompli once relaxed citizenship rules were announced over the weekend: the possibility of New Zealand competing on pay or prospects never even arose.

And why would it? Look at the state of our ultra-rich. The 311 IRD families paid $764 million in tax in 2021, a bumper year up 75% from 2016. Double it and you have barely paid the superannuation of 65-year-olds who themselves earn $100,000 or more per year. Double it again and you have 5-10% of the cost of light rail in Auckland.

The most depressing finding of the report is that, individual fairness aside, our domestic One Percent are not sitting on an Aladdin’s cave that can be cracked open to fund vastly improved social services or make our middle classes rich $20 at a time though tax breaks and transfer credits.

Offering a vision for a richer New Zealand, not just more redistribution, remains a much tougher job for the two major parties this year. Many New Zealanders will be voting with their feet.