Well-off New Zealanders are paying less tax than their peers in nine similar OECD nations, new research shows.
New Zealand had the lowest income tax rate, did not systematically tax capital gains, and did not have any other types of wealth taxes, the Victoria University study commissioned by Tax Justice Aotearoa found.
The group’s chair Glenn Barclay said the analysis countered claims that the wealthy would take their money offshore if capital gains were taxed in Aotearoa.
The study looked at how much tax someone earning five times the average New Zealand wage – around $330,000 – would pay in nine comparable nations. The countries chosen included English-speaking nations with similar political systems including Australia, Canada, the US, the United Kingdom, and five European countries.
Using 2023 OECD data it found someone on a $330,000 income that was wholly taxed as a conventional salary, would pay income tax of $108,000, or 33 percent. This was the lowest income tax rate of all the comparable nations, which had rates ranging from 37 percent to 55 percent, said Victoria University senior research associate Max Rashbrooke, who carried out the analysis.
New Zealand and Belgium were the only two nations that did not have a capital gains tax, though Belgium had other wealth taxes, which New Zealand did not.
Rashbrooke said he found the results striking.
“It’s no surprise that Denmark and Norway and Germany, places like that, tax high earners much more rigorously than we do. But I was quite taken aback by how much more tax New Zealand high earners would pay in the other English speaking countries, in Australia and Britain and America.”
Using OECD modelling, if a New Zealander made half their $330,000 income from capital gains, they would pay just $45,000 or 14 percent tax in New Zealand, the analysis showed.
In comparison, that same person would pay another $41,000 in Spain; another $50,000 if taxed at Australian rates, or an extra $98,000 in Denmark.
“In other words, this research shows that a well-off New Zealander would pay roughly twice as much tax, or far more than that, if faced with the tax rates that are applied to high earners in other countries,” Barclay said.
The wealth exodus argument
After ditching a proposed wealth tax at the last election, Labour is in renewed discussion about the idea.
Billionaire Mainfreight co-founder Bruce Plested said he supported the idea if governments used the increased revenue wisely.
But Rod Duke, the majority shareholder and managing director of Briscoe Group, said it would cause money to leave New Zealand.
“Look, money seems to navigate to the place that’s easiest to make extra money and so if New Zealand were to introduce an additional or a modified tax system that was prohibitive and made investment more difficult or less lucrative, then the money would disappear.”
Commerce Minister Andrew Bayly raised similar concerns.
Barclay said the new research challenged that argument.
“This work suggests this is because most would end up paying more tax in other comparable jurisdictions, were they to leave. In fact they could easily end up paying twice as much.
“I wouldn’t say that no one might leave, but I think it’s unlikely that you’d have a mass exodus,” said Barclay.
Tax consultant Terry Baucher said the super wealthy were more likely to take their money and run elsewhere.
“We’re talking about people with $100 million or more. They’ll probably be able to go anywhere they want.
“But for the modestly wealthy, so to speak, below that level, it’s harder for them to go to a tax haven. You may be hopping out of the pan into the fire. America, for example, has a capital gains tax, an estate tax and a gift tax.”
Diversifying investment
Arguments that capital gains stifled innovation were also flawed, Baucher said.
“America has had capital gains tax since 1913 and estate taxes have been around for equally long, so they don’t stifle innovation in that way.”
He said the issue with innovation in New Zealand was that more money was invested in property over businesses.
“It goes into land, bigger houses and baches and property which is largely unproductive.”
New Zealand used to gather a lot of revenue from wealth taxes, Baucher said.
“Up until 1949 and the election of the first National government, wealth taxes in the form of estate and gift duties and land taxes were actually quite a significant revenue raiser for the governments. Back then, they were roughly worth 5 percent of the total tax take.”
These taxes were gradually wound down over time, he said.
Now, New Zealand was bucking an international trend among developed countries where taxes were increasing, said Baucher.
“Everyone now is looking at the baby boomers, that huge generation that’s all aging and asking ‘How do we pay for their pensions and the related health costs?’ And coming on top of that is climate change. So how are we going to pay for that?”
In 2019, the Tax Working Group concluded there was a “clear weakness” in Aotearoa’s tax system due to the “inconsistent treatment of capital gains”.
But executive director of the Taxpayers’ Union Jordan Williams said there were other areas in the tax system that needed addressing before a capital gains tax was introduced.
“The problem is that we’ve got an economy that’s under-capitalised, with too much money going into housing.
“Any capital gains tax that’s been proposed to date, of course, rightly excludes the family home. A CGT would likely make the housing problem worse and starve our economy of what it actually needs for growth and, frankly, more productivity and higher wages.”
“The tax on company profits, for example, the ability to get capital in and out of the New Zealand economy, that is where we do pretty poorly.
“We’ve got one of the highest company taxes in the world. That means for the rest of the world, investing in New Zealand at a 28% company tax rate is pretty unattractive.”
Clarification: The tax rates used for the study, which are cited in this story, are ‘effective’ tax rates. They represent the total amount of tax someone pays as a percentage of their total income in each country. These effective tax rates are based on a standard set of OECD assumptions.
