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Even something with the mathematical precision of taxes has become largely emotional

In brief
  • Labour tried politicising tax analysis by causing the IRD to release a blatantly misleading report.
  • The media pushed the Government’s IRD report as proof the rich aren’t paying their “fair” share. 
  • The contrasting OliverShaw report was ignored. 
  • Both reports use different assumptions so they’re not directly comparable, but the IRD report is certainly better for the left to campaign on.

The High Wealth Individuals Research Project

In April of this year, the IRD released a report called The High Wealth Individuals Research Project. The topline was simple. The rich aren’t paying their “fair” share.

“Fair” is a meaningless word in this context so let’s get to the numbers they try to use to support that label.

The shortcomings of the IRD report are numerous, so the stated 9.1% effective tax is meaningless, albeit great for the left to rally around. It can easily be shown, applying simple arithmetic to the actual numbers in the report, that the percentage would be well over 20% for real income (but including actual capital gains) of the sort that is normally subject to tax. One would expect this calculation would also be supplied.

Even something with the mathematical precision of taxes has become largely emotional - Centrist
Was PM Hipkins trying to politicise tax policy? Image by NZ Labour Party

It’s not hard to understand the plumbing 

It is important to note that the IRD report, in addition to using fictional unrealised gains, did the following: 

  1. Ignored a number of taxes paid by the rich including overseas taxes or taxes on PIE (Portfolio Investment Entities) accounts.
  1. The average age of those quizzed for the IRD report was 67 – an age past the point most are earning more highly taxed employment income. 
  1. The value of the government benefits received by the “average” Kiwi,   such as medical coverage and schooling, is much more significant as a percentage than it is for the wealthy person. Factoring in these benefits would greatly reduce the net tax paid by the average.

The combination of the above would increase the tax of the rich and decrease the tax of the average, by several percentage points. Is it too much to suggest the report chose not to use those numbers because the answer would not be emotive enough for campaign purposes?  

Simple is good, but not at the expense of truth 

The idea that wealthy Kiwis are paying a far lower tax percentage than the middle income earner has been drilled into the conscience of many by mainstream media coverage of the report. There was little, if any, questioning of the Government’s narrative, even though it was quite straightforward to do so (albeit time consuming due to the length of the reports). It almost seems as if there is a mainstream media view that Kiwis can’t understand any more than the very basics and it’s better to be simple than correct.

The report’s narrative was recently echoed in Te Pāti Māori’s stratospheric call for a wealth tax with a top rate of 8%. 

OliverShaw Sapere Research report

The OliverShaw Sapere Research report was released just a few days prior to the IRD report. That report found low income earners may sometimes receive benefits in excess of taxes paid by more than 300%. They concluded  the rich pay most of the tax collected in New Zealand and the richer a person is, the more tax they are likely to pay, with 30% being their estimate for their definition of richest. 

Rather than try to rationalise one report against the other, the OSS report was largely dismissed. Unfortunately, both are based on academic economic analysis (like you should rent your house from yourself) instead of the real world tax analysis that is more meaningful to most. Further, both have different slants so are not easy to equate to each other. For instance, one report suggests you should only be taxed on a gain that is in excess of the rate of inflation.

Both reports can be criticised for various reasons, however, the media, as a whole, chose to amplify the conclusions and narrative of the report that favoured the Government’s narrative and mostly ignore the other. 

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