this benefit. Land taxes can also seem unfair because they apply to only one component of wealth, and relatively asset rich but low-income groups may struggle to pay.38 Capital gains taxes, which Prime Minister Jacinda Ardern ruled out, have additional problems as typically implemented. To avoid difficulties in paying a large annual tax bill on property for those who do not necessarily have high incomes, such as the retired, taxes on homes and rental properties are often deferred until the point of sale. This can encourage lock-in and limit people’s mobility, which can be particularly problematic during a recession and recovery when people may need to relocate for new jobs. For similar reasons, capital gains taxes also often exclude the family home, which can distort investment decisions and excludes a large part of the tax base.39 Wealth taxes go further, covering a much wider set of assets. The Greens, for instance, are proposing an ongoing 1% tax on net assets over $1 million and a 2% tax on net assets over $2m. Unfortunately, as well as generating little revenue and being costly to administer, such taxes typically provoke
emigration; disincentivise work and saving; and stifle investment in education and skills, capital, enterprise and innovation. For these reasons, few countries now have annual wealth taxes, and the 2017 Tax Working Group (TWG) recommended against them for precisely these reasons.40 Such taxes are often proposed for their apparent benefits in reducing inequality, but proponents seldom offer much information about current wealth inequality or what the optimal level might be. For instance, the Greens say only 6% of Kiwis would be subject to its new wealth tax. But this misses an important point about wealth distribution: wealth is different from income – it takes much longer to accumulate. Most 25-year-olds will have little wealth, but most 65-year-olds would have built some sort of nest egg before retiring. A look at the data on wealth from the Household Economic Survey (HES) confirms this point (Figure 2). In fact, at any one point in time, 8% of Kiwis would be subject to the wealth tax. However, many more would be hit by the tax at some point during their lives – most likely when
Figure 2: Proportion of individuals subject to the Green Party’s wealth tax proposal, by age 70+
15.8%
66–69
21.8%
65
17.8%
60–64
18.1%
55–59
13.4%
45–54 15–44
9.8% 1.5%
0%
5%
10%
Source: Household Economic Survey and Statistics New Zealand.
18 ROADMAP FOR RECOVERY
15%
20%
25%
