A top French economist admired by Revenue Minister David Parker is calling for New Zealand to introduce a wealth and inheritance tax off the back of IRD's latest research.
The report released on Wednesday showed the wealthiest New Zealanders pay an effective tax rate that's less than half of that of middle New Zealand. The key reason is that much of their wealth is tied up in assets, for which increases in value are mostly not taxed.
While Parker said the research highlighted a "fundamental unfairness" and that he had the courage to fix the system, Labour's yet to announce any new steps to address the issue. It's promising its tax policy will be clear to Kiwis prior to the October election.
Economist Thomas Piketty, well-known for his book Capital in the Twenty-First Century, told AM the finding that the tax system "is so regressive at the top" was "depressing". But he also said he wasn't surprised given similar issues in the likes of the United States and France.
Piketty said the answer to the issue is clear: "a progressive wealth tax at the top".
"This is simply a question of common sense: both wealth and income are valuable indicators of the ability to pay tax, and if you only use one of them (say, income), then you run the risk of being manipulated by taxpayers minimising this indicator," he said.
"In any case you miss a lot of valuable information about the taxpayer's ability to contribute to the public good."
The IRD research looked at the actual economic income (meaning everything from salary to property) of 311 of New Zealand's wealthiest families, rather than just creating scenarios. It found these families' mean estimated net worth in 2021 was $276 million.
Only a small fraction of their income comes from the likes of salaries or wages (7 percent), meaning most of their wealth comes from capital gains, which are mostly not taxed.
Piketty said New Zealand should also add an inheritance tax, but that shouldn't be instead of the wealth tax.
A wealth tax was proposed by the Green Party at the 2020 election. The proposal was for a 1 percent wealth tax on individuals' net worth over $1 million. The party said this would only affect 6 percent of Kiwis and would only apply to assets over the $1 million threshold.
Parker is a big fan of Piketty, often referencing him in his speeches - including in one on Wednesday announcing the results of IRD's report.
The minister was asked on AM on Thursday morning whether he agreed with Piketty's assessment.
"I think he has written some of the most important economic analysis of the problems of the world in the last couple of decades," he said.
"What his book said is that survey measures of wealth and income distribution don't cut it because they never capture the people at the top. He is right.
"In New Zealand, the survey measures of wealth have only ever found two people with assets more than $20 million, one of $20 million and one of $35 million I think. We are in a country with billionaires. Those surveys are just so far out from the truth at the top end. That is what we have proven in this study based on actual facts."
The report led to the Green Party renewing its call for politicians to tax wealth.
"New Zealanders have long felt what has today been confirmed by Government research: our tax system is unfair. The wealthiest pay less than half the effective tax of the average family," said Green Party revenue spokesperson Chlöe Swarbrick.
"Rules put in place by successive Governments privilege wealth hoarding. Not only are these rules unfair, they're counterproductive and starve our health, education, transport and social services. They privatise profit and socialise cost.
She said wealth could be fairly taxed through either a capital gains tax or a wealth tax.
"The only barrier to a fair tax system, well-funded public services and ensuring everyone has what they need to survive is political willpower," Swarbrick said.
"Let's be clear: to allow millionaires to continue to not pay their fair share after this explosive evidence is a political choice. Poverty is a political choice."
Parker repeatedly refused to say on Wednesday what Labour might do in response to the report, noting that the party would release its tax policy closer to the election.
"We have made it clear that we are not making significant tax changes today," he said.
"Of course, during a term of Government, those decisions are for Cabinet and at election time they are for political parties. The electorate will know the answer to that question, what's our future tax policy, by the time we get to the election."
