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Kiwis support a “wealth” tax, but what does that mean?

In brief
  • A recent poll by Newshub suggests a majority of Kiwis want a wealth tax.  
  • Same old story, the poll doesn’t clarify what these people actually support. Is it a comprehensive wealth tax, including the administrative nightmare, or just more tax on the rich?
  • Do they understand wealthy people create economic activity and don’t add costs, so many countries have tax incentives to attract them? 

Polling suggests Kiwis want a wealth tax

A recent Newshub Reid Research poll asked “Would you support the Government introducing a wealth tax?” 53 percent said yes and 35 percent said no. 

That result isn’t surprising, particularly following the recent grooming of the recent High Net Worth IRD report and the open letter by 97 wealthy Kiwis encouraging higher taxes on the wealthy. 

The IRD Report was slanted to greatly understate the taxes paid by the wealthy, but the average Kiwi would have no idea of that since mainstream media ate up the report uncritically.

Regardless of what percentage the wealthy do pay, the total amount paid by them makes up a very significant portion of the Government’s haul from income tax. There is no dispute on this.

A wealth tax is far more extreme than a capital gains tax

Investopedia defines a wealth tax as a tax based on the “net fair market value of all or some of a variety of asset types held by a taxpayer”. If this includes any hard to value assets, such as an interest in a private company, then that is where the fun/administrative nightmare begins. Not only is it a lot of unproductive work, there is inevitably a lot of subjective judgement.

Rather than a complicated wealth tax that historically drives out a lot of rich people, maybe a capital gains tax would satisfy? A capital gains tax could have many subtleties to it, like only including a portion of the gain in income, or excluding your home. Both of these are done in many countries. Also, it could be limited to a lifetime total. At one point that might have been too complicated for NZ’s admirable desire to keep things simple. It could now be done with ease.

Why doesn’t NZ have a capital gains tax already? 

There have been a number of times NZ has studied the question of adding such a tax, with the committee usually being in favour. This includes in 2020 under Labour when Jacinda Ardern famously came out with the commitment that there would be capital gains tax while she was Prime Minister. 

The same arguments arise each time the issue is studied. NZ has always, so far, decided not to add the tax. The wealthy people did not dictate these decisions.

Perhaps the reason for the thumbs down in the past had something to do with the difficulties of adding the tax, which could easily take years. It could also lead to huge errors while the bugs are worked out (there are many situations that are far more complicated than most in the poll would realise). And what about the enormous amount of unproductive work trying to determine starting values?

The wealthy have options

The wealthy have to weigh anything NZ does against their other options. Many of these people already have the right to live in a number of countries, some of which are actually trying to attract them.

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