Tax Justice Aotearoa have just published my paper on the case for a net wealth tax in New Zealand. Below is a brief summary of the proposal.
A wealth tax would be a small annual levy, perhaps 1% or 2%, paid by individuals on the wealth they have above a certain threshold, perhaps $1 million or $2 million.
In New Zealand, we pay tax on our income (salaries and wages) to fund public services we all rely on, and to help those less fortunate than us. Unlike other developed countries, we don’t ask for the same contribution from people with wealth (assets such as shares and business investments).
But those assets are, just like incomes, generated partly thanks to public infrastructure like roads, broadband, schools and the justice system. Wealthy people often work hard, but they don’t get rich alone. So it’s fair to ask them to pay back into the pot. Yet many wealthy people find ways to pay very little income tax. That’s why every other developed country taxes wealth in some kind of systematic way – and why a wealth tax would make our system fairer.
A wealth tax would be levied on net wealth – that is, the value of people’s assets once their debts have been subtracted.
Such a tax would be highly redistributive. Levied at 1% on wealth over $1 million, it would affect only the wealthiest fifth of the country. And it would generate around $6 billion a year. Even a more modest version, starting for instance at $2 million, would generate billions of dollars a year to fund public services, help those who are struggling get back on their feet, and protect the environment.
There are other ways to tax wealth, and they have their merits, but in general they are either too complicated, generate little revenue, or fail to address the real drivers of wealth inequality.
Just as the income tax system works mostly through employers reporting our incomes directly to Inland Revenue, a wealth tax would rely on banks and other companies automatically reporting the value of the assets people hold with them. This would make the annual valuation process simpler, and evasion harder. Other assets have regular valuations (houses) or insurance valuations (valuables). Small household items would not need to be valued. And the growing trend for countries to swap tax information would hinder efforts to evade the tax by parking wealth offshore.
A wealth tax would fill a major gap in New Zealand’s tax system, thus enhancing fairness, and bring us into line with other developed countries. It would also generate much-needed revenue for tackling pressing social and environmental problems.