Labour’s shonky evidence for a tax grab
The Herald reports:
Revenue Minister David Parker was quick to pour cold water on the idea he was buttering up the electorate for a capital gains tax, after the release of two reports that showed the ultra-wealthy were paying tax at half the effective rate of ordinary Kiwis.
National and Act were quick to say the reports – which showed 311 of New Zealand’s wealthiest paid 9.4 per cent of their total incomes in tax, versus an average tax rate of 20.2 per cent paid by middle-income Kiwis – showed Labour was readying the electorate for more taxes and, perhaps, a capital gains tax.
The reports compare apples and pears. They compare actual income of middle-income earners to unrealised hypothetical capital gains of wealthy New Zealanders. Presumably this means the Government is planning to try again with a Capital Gains Tax, but not just on realised gains but on unrealised gains – which would be I think unique in the world.
The research also ignores the effect of inflation on assets. So if an asset increased by 7% and inflation is 7% it is worth no more in real terms, but Parker seems to think it should be taxed.
The funny thing with the millions spent on this, is that the underlying reality was already well known – wealthier people are more likely to gain their wealth from capital than from labour. Rod Drury, for example, didn’t get wealthy from paying himself a big CEO salary – he got wealthy because he invented an amazing product that has attracted millions of customers.
One thing the research did so, was highly progressive our tax system really is. If you take into account income tax, GST and transfers, the net effective tax rate for each income decile is:
- Decile 1: -52%
- Decile 2: -55%
- Decile 3: -36%
- Decile 4: -2%
- Decile 5: 6%
- Decile 6: 18%
- Decile 7: 21%
- Decile 8: 23%
- Decile 9: 26%
- Decile 10: 29%
So the bottom 40% of income earners receive more in transfers than they pay in tax. Even those in the 5th decile only pay an effective tax rate of 6%, because the vast vast bulk of tax is paid by those in the top deciles.