New Zealanders earning just salary and wages are taxed on their full income but we have several situations where you can earn income from gains on assets and not be taxed at all. –Michael Cullen

An opinion piece by Roger Childs

Two of the big problems faced by the current Labour government are increasing poverty and an ever-widening income gap. The answers may well include :

  • taxing the rich more on the upper levels of their income
  • a capital gains tax 
  • raising the minimum wage to the level of the living wage. 

The National Party, ACT and the Taxpayers Union would cry “Foul!” and point out that the government had ruled out raising taxes before the election. However, during Lockdown and beyond, former National Party Finance Minister, Bill English, and some economists suggested that a capital gains tax might well be needed. 

One of the under-rated qualities of leadership is to admit that you previously got it wrong, but given changing circumstances, policies previously rejected may be needed.

Labour campaigned in 2017 on the need for a Tax Working Group to come up with proposals to make the tax system fairer and close the widening income disparities. Unfortunately Coalition partner New Zealand First gave the very sensible Cullen Committee proposals the thumbs down and the prime minister foolishly said that there would be no capital gains tax on her watch.

What did the Cullen Committee suggest? A capital gains tax and more

All members of the Group agree that more income from capital gains should be taxed from the sale of residential rental properties. The majority of us on the Group, by a margin of 8-3, support going further and broadening that approach to include all land and buildings, business assets, intangible property and shares. –Michael Cullen

Wage and salary earners are taxed are on everything they earn, but rich people who have more than one property, and typically shares, garner a great deal of unearned increment. That situation is fundamentally unfair. 

Cullen also commented that nobody wants extra taxes but the government must have sufficient income to pay for educational and health facilities, infrastructure, benefits, public servant salaries, conservation initiatives etc …

The mega rich Graeme Hart who made $3.4 billion last year.

A capital gains tax, and perhaps taxing the rich more on the upper levels of their income, would increase the overall take for the government. The committee estimated that a levy on capital gains could earn $5 billion in the first five years of operation. 

In the last 12 months house prices have risen 20% and, if you look at it from the situation of people with more than one property, that constitutes massive capital gains which are untaxed on realisation from sale.  

Do other OECD countries have such a tax? Yes – the USA, Denmark, France, Finland, Ireland, Sweden, UK, Italy, Germany, Austria, Israel, Australia, Chile, Japan and at least 10 other nations. Why not New Zealand? 

The people who make untaxed capital gains are usually in the higher income brackets and should be taxed on their “unearned increment”. 

Other suggestions from the Cullen group

Another recommendation made by the Cullen committee was to increase the amount people could earn on the lowest tax rate of 10.5%. This would apply to lower, middle and income earners and would help to start closing the income gap.

There were other suggestions.

  • Inland Revenue’s crackdown on the hidden economy could be strengthened with the introduction of stricter reporting requirements.
  • A single Government debt collection agency should be established to achieve economies of scale and fairer outcomes for New Zealanders who owe money to the Government.
  • A taxpayer advocacy service should be established to help small taxpayers in dispute with Inland Revenue.
  • Regular reviews should be conducted of the charitable sector to ensure the tax concessions enjoyed by the businesses they run are being put towards the intended social outcomes. It is interesting that many iwi trusts have charitable status and are earning massive profits from business interests.

Taxing the rich more to help the poor

Argentina’s Senate in 2020 approved what’s being called a “millionaire’s tax” — a one-off levy on around 12,000 of the richest citizens that will raise $3.7 billion to help the government respond to the coronavirus crisis and buoy the country’s economy. Some New Zealand millionaire suggested last year that the government should tax them more.

In New Zealand and overseas the richest citizens made big money during the Covid-19 crisis to draw further away from the pack. Number one in our country, Graeme Hart, is estimated to be worth $12.8 billion and made about $3.4 billion in 2020.

Garnering more tax from the rich would mean that raising the minimum wage to equal the “living wage” could be paid for and help narrow the income gap. On a 40 hour week, people on the living wage would earn a little under $46,000 a year. 

Many carers looking after the elderly relatives of the rich in rest homes, would welcome this improvement in their income.