Many people feel that, following the prime minister’s decision not to implement a capital gains tax while in power, there is no longer any prospect of taxing wealth in New Zealand. I beg to differ.
While a capital gains tax is clearly off the table, the government has not ruled out other forms of wealth taxation, including taxes on land, inheritances, the income from wealth or indeed wealth itself.
In this recent piece for the Spinoff, I’ve run the rule over the various different options, and taken some guesses as to which is most likely.
I would add now that my own preferred option is a direct wealth tax. In essence, households would be asked to pay an annual levy of roughly 1% on all of their wealth over $1 million.
The advantages of this tax are as follows. It is simple to describe, as you can see from the above sentence. It starts off with all wealth, so there is a much larger base of wealth to tax than is the case with, say, a land tax. But by exempting the first $1 million of wealth for a couple ($500,000 per individual), you would target only the wealthiest fifth of the country. That would make it much more acceptable to average New Zealanders, who felt (albeit incorrectly) that a capital gains tax would hit them hard. Rough estimates suggest that, even with the $1 million exemption, an annual levy of 1% could raise in the order of $6 billion. And you would want to think about making the tax progressive, so that people with fortunes of, say, over $10 million paid 2%, and so on.
No tax is perfect, of course. Some very wealthy people might leave the country in protest, although the evidence suggests such flights are far less common than is often believed. People might also try to evade the tax by locating their assets in tax havens, but with increasing exchanges of tax information between countries, I think the net is closing on that kind of behaviour.
People would also have to get their assets valued every year, potentially creating significant administration costs. But minor assets (microwaves, paintings done by friends, and so on) with minimal value could be exempted, massively reducing the burden. Many assets – such as cash in the bank, shares and property – have readily available valuations anyway. The main issue would be privately held companies, the value of which is not immediately apparent. But tax departments have many standard rules for valuing such assets, for instance by looking at their projected profits and rolling them up into an expected value.
We can expect to see much more debate on wealth taxation options in coming months – but for the moment, this is my brief take on the best way forward.