Wellington, 26 April 2023 — The Treasury and Inland Revenue reports on taxation released today support the key conclusions of the Sapere Report
commissioned by OliverShaw and released 18th April. However, the HWIRP does not deliver hard data that can be relied
upon to develop sound tax policy.
“As the Sapere report noted, the methodology adopted by the Inland Revenue’s High Wealth Individual Research Project
(HWIRP) is inconsistent with the Treasury report and best international practice,” said Robin Oliver. “Compared to the
Sapere and Treasury reports it is therefore likely to paint a misleading picture of our tax system making it seem broken
when it is not. In particular, the headline claim of HWIRP: ‘…when personal, company and trustee taxes are included, the
median family in the high-wealth group paid 8.9% of their economic income in tax,’ cannot be relied upon. It is based
on, officials’ assumptions about unrealised capital gains and a tax treatment of the family home that would not be
acceptable to New Zealanders.
“Indeed, all three reports confirm that our tax system is not broken. As Geoff Nightingale of PwC has said, the tax
system raises substantial money to fund government and does so relatively efficiently compared to other comparable
countries.
“All these reports demonstrate that overall, our tax rules are fair in that the rich do pay tax in New Zealand and in
general a person’s tax increases as income increases even if income is more widely defined than it is under our income
tax legislation,” says Oliver.
HWIRP (page 91) shows the 311 high wealth households each paid on average $2.5 million in tax in 2021. The amount paid
by this group increased from, $436 million in 2016 to $764 million in 2021 -- an increase of 75%. The rich pay tax and
they are paying more.”
The Sapere and Treasury reports show that for everyone it is normal for effective tax rates to be less than rates set
out in the income tax law. The Inland Revenue report provides no such context and focuses only on about 400 selected
high wealth households. The Inland Revenue report suggests that on average these high wealth households have effective
tax rates materially lower than the Sapere report’s estimates of 23% to 31%.
The difference results from assumptions and gathering methods used in the HWIRP. The Inland Revenue report:Adopts a selective definition of economic income that seems set up to suggest low effective tax rates for high income
households.Ignores inflation and how this artificially increases the income from capital.Suggests an ideal tax system that takes economic theory to absurd levels – taxing the rental value of owner-occupied
homes, taxing unrealised as well as realised capital gains and taxing companies at such a high rate that investment in
higher productivity would vanish.Is not based on hard data but estimates by officials of how much income assets generate.Unjustifiably mixes economic and legal concepts in calculating effective tax rates.
“For high wealth households, Inland Revenue estimates that 83% of their income has been unrealised capital gains that
are not taxed,” says Oliver. “Including that in income naturally generates a low effective tax rate. However, this is
just officials’ backroom estimates of how much investments have increased in value. It does not measure cash or anything
that these households can spend. No country has a comprehensive tax on unrealised gains because no one would want one.
It is like saying the homeowner in a period of rapidly rising house prices has made huge amounts of income and should
sell their house in order to have the cash to pay a large proportion of the proceeds to the government. Nonsense.”