How long will the NZ people have to suffer? The time for capital tax is now!
The time for capital tax is now!
Figures handed over to journalists by the IRD last week showed that between 2009 and 2011 fewer than half of a sample of New Zealand’s ‘super rich’ were paying the top individual tax rate of 33 percent. With wealth of over $50 million you’d expect these people to be earning a whole lot more than the $70,001 per annum needed to breach the top tax threshold. If you haven’t got your calculator handy, $70,001 is a paltry 0.1% return on $50 million of assets – are our super rich really that lousy at making money?
What could be behind the figures? Let’s start with the ‘we’re innocent’ explanation. The super rich may declare more income to the IRD than $70,001 but it may be declared via the super rich’s family trust. Family trusts pay 33% tax on their income and any tax paid here won’t be included in the IRD’s personal tax data set. That’s one explanation of the data Revenue Minister Peter Dunne pointed to.
However, only recently has declaring income via a family trust been an innocent tax arrangement. Prior to 2011, the top individual tax rate was 38% while income declared in a trust was taxed at 33%. So until 2011 the super rich were ‘minimising’ tax by receiving income through their trusts.
What else could be behind the apparent paltry tax-collect from the super rich? There are plenty of legal loopholes to avoid paying tax altogether. For example, if the super rich receive their income as capital gains made from selling shares purchased for the ‘long term’, the gains will be entirely tax free for most investors. Similarly, selling property for more than you bought it generates tax free income for all but legally recognised property developers. Complex international arrangements are yet another mainstay of ‘tax planning’.
Perhaps it is no coincidence that last week the IRD also announced it’s ‘compliance focus’ for the coming year. Limited to working in a system with gaping legal loopholes the IRD’s compliance focus is inevitably pathetic – chasing the misguided few who try to break the law. People who make false claims for Child Support or Working for Families and businesses which don’t declare every dollar are examples. None of this is going to address what really counts – namely the fact that our tax system is a huge contributing factor to growing inequality in New Zealand.
And if the tax system’s role in making New Zealand more unequal isn’t of any interest to you, maybe you’re interested in the fact that $423 million a year is spent by IRD just telling people about the complex rules and chasing up the losers who try to break the rules. A further $249 million a year is spent on administering the loophole-riddled system and designing new ways to tweak it. That’s $672 million a year on a leaky sieve.
As long as we persist with a tax system which focuses on income and ignores wealth itself our tax system will cause growing inequality in New Zealand and will itself be a huge drain on New Zealander’s resources.
http://garethsworld.com/blog/tax-and-welfare/the-time-for-capital-tax-is-now/
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