13 June 2024

IRD data confirms fundamental unfairness in NZ tax system: David Parker

For the first time, two separate data sets from the Inland Revenue Department and Treasury have confirmed fundamental unfairness in our tax system and that the wealthier New Zealanders on an average pay under half the rate of tax paid by middle income earners.

This was confirmed by Minister of Revenue David Parker this afternoon while announcing the IRD research results at Wellington, and said “this finding is truly ground-breaking.”

The study looked at the income and tax of people who generally had net worth of more than $50 million, or $20 million if they controlled significant businesses, over the period 1 April 2015 to 31 March 2021, according to the Minister.

“Inland Revenue requested information on 350 high-wealth individuals and their immediate families and trusts…The median wealth (i.e net assets) of the group in 2021 was $106m, with the mean (i.e. average) higher still at $276m. In total, these 311 people (who responded) have collective wealth of $85 billion.

Middle income Kiwis pay double tax rate than wealthiest Kiwis

“The data shows beyond doubt that the wealthiest New Zealanders pay tax on their economic income at a rate well below what most New Zealanders pay on theirs.

“It shows that the effective tax rate paid by middle income New Zealanders is at least double that paid by our wealthiest citizens. This finding is truly ground-breaking.”

The Revenue Minister, however, clarified that his announcement today was not in any way any tax policy.

“I want to be clear today that I am not announcing any new tax policy or tax switch. Labour’s tax policy will be announced before the election.”

Continuing with the findings of IRD’s study, Parker said “We have known that some of the wealthiest New Zealanders don’t pay tax on some of their income, but we have not known how much, nor their effective tax rate overall…

“The data being released today shows that wealth is actually more concentrated than what the Household Economic Survey tells us..

“So today, Inland Revenue is publishing its findings on the effective tax rates for high-wealth individuals. IRD has analysed their various sources of their income and the tax they pay. Most people earn their income from salary and wages, which is all taxable. Their tax is paid largely via income tax and GST.

“For the wealthiest Kiwis, on average, just 7% of their income is taxable as personal income…

“As I said, just 1% of households hold more than a quarter of all the financial assets in New Zealand. If income earned from capital is taxed at a lower rate than the tax people pay on their income from salaries and wages, then that tax advantage will be concentrated at the top end…”

The data provided by Treasury also showed the wealth gap in New Zealand as the top 10% of households by wealth own 60% of all the wealth.

“So the Treasury’s alternative analysis, which sits as a companion to the IRD work, again shows middle new Zealanders paying more than double the rate of tax of the wealthy…

“We now know that wealthier New Zealanders on average pay under half the rate of tax paid by middle income earners…”

The Minister clarified that this report has not been about “attacking the very wealthy,” but reveals a “greater degree of transparency to our tax system.”

So, what happens next?

“The Labour government believes Inland Revenue needs to continue to monitor and report on how the tax system is in fact operating across all strata in society.

“The Government is currently working on introducing a series of tax principles.

David Parker believes that the” “debate around this high wealth report, and the tax principles work adding in the requirement for ongoing public information, will result in a stronger economy, a fairer tax system, and a better New Zealand.”

Meanwhile, NZCTU Economist Craig Renney says the IRD data backs up what most New Zealanders have known for a long time and the data indicates that inequality continues to be a huge issue.

“Most New Zealanders pay tax on every dollar that they earn, whereas the wealthiest are paying no tax on large parts of their economic income. Not only is that unfair, but it also means that the government is potentially missing out on billions of dollars in taxation. That places a greater burden on families who are just trying to get by,”Renney said.

The Green Party has also said the Government must act to tax wealth and create a fair economy, and its revenue spokesperson, Chlöe Swarbrick has called the ‘tax system ‘unfair’. But the “question now is whether the Government will act,” she says.

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