Why New Zealand can’t have a fairer tax system
The policy question of the week in New Zealand politics is about tax reform. In particular, the perennial question has been raised about how the country can create a better tax system, especially one that is fairer or more progressive.
The issue has been kicked off by Labour leader Chris Hipkins, who has given numerous media interviews stating that the party is reconsidering its policies on tax and is considering the types of taxes he ruled out last year when he was prime minister – such as a wealth tax. Instantly, a debate has sprung up, but mostly, it’s been dominated by the opponents of change, who are successfully raising all the scare arguments against creating a more progressive tax system.
NZ’s backwardness on tax embedded by vested interests
Tax reform is frequently discussed in New Zealand – particularly by the political left – but it is rarely implemented in New Zealand, and usually by the political right. Attempts to make the tax system more progressive, to ameliorate economic inequality, never seem to get beyond the initial debates.
This means that we have a tax system that is much more rightwing and rich-friendly than in most countries. This is a point made well this week by former tax policy manager in the Treasury, Kathy Spencer, in her opinion piece titled “The tax debate that won’t die – why we finally need a capital gains tax”. She explains: “The Labour Party has been trying to broaden the taxation of capital gains since 1967. There have been multiple expert committees, and a range of proposals, but none has made it to the implementation stage.”
Spencer points out that New Zealand has become an outlier on progressive tax: “While we have procrastinated, other countries have long since moved ahead, making us an outlier in the OECD. Capital gains have been taxed in the UK since 1965, in Canada since 1972, and in Australia since 1985.”
Similarly, this week, tax experts from Victoria University of Wellington, Jonathan Barrett and Lisa Marriott, put out an article explaining various tax options, also drawing attention to how this country is falling behind the tax reforms of other similar countries: “Even the United Kingdom, where Conservative governments have held power for 32 years since 1979, has a more progressive income tax system than New Zealand, including a comprehensive CGT and an inheritance tax with a standard rate of 40%.”
This leads them to ask: “If taxes on wealth are an obvious policy choice for other OECD counties, why we don’t have them? And why has there been so little serious debate about moving away from our reliance on personal income tax and GST?”
The answer is: that vested interests have successfully blocked progressive reforms. The business community and the wealthy have been able to dominate the tax debate, leading to tax policy settings that suit them. Partly, this is just a matter of self-interest: those that changes to tax law might significantly disadvantage are those who have been highly motivated to participate in the debate and win it.
In contrast, those interested in a fairer or more progressive system have been less organised and effective. Partly, this is due to the unhealthy state of the political parties and organisations of the left in recent decades. From Labour to the Greens to the unions, there’s now much less emphasis on fighting economic inequality than there used to be. The priority has shifted towards non-economic issues. Hence, when the wealthy focus on implementing tax policies that suit them, the left often retreats into identity politics, foreign policy, or culture wars.
Individuals and institutions representing the wealthy seem much more organised and effective in progressing their interests. As Michael Cullen explained when his Tax Working Group espoused reform, those protecting the status quo were likely to put up a strong fight: “Any tax system creates large vested interests that will oppose change. Any change to a tax system is easily misrepresented as a tax grab, an ideological lurch, unfair, unworkable or all of these.”
Cullen was proven to be correct. His Tax Working Group handed Prime Minister Jacinda Ardern a recommendation to bring in a capital gains tax in 2018, and a public debate began. Strangely the Labour Government decided not to participate in any of the public debate, perhaps wary not to use up their political capital.
Other parties like the Greens or even the unions were hardly present either. The result was that the opponents of a capital gains tax had the public debate almost to themselves. And then Ardern famously concluded that debate by saying that the public had spoken and that she would never allow a capital gains tax. And, of course, her successor Chris Hipkins made a similar “captain’s call” about a year ago, saying there would be no wealth tax under his leadership.
The 2024 tax debate is once again being dominated by vested interests
Hipkins has now U-turned, putting tax reform back on the public agenda. And instantly there has been a rush to kill it off. First, this involved journalists and opinion leaders pooh-poohing it. The Sunday Star Times’ Andrea Vance was the most scathing, saying that Labour and Hipkins were making a big mistake in being “sucked back into the capital gains tax doom loop” that they would inevitably lose.
Vance lampooned the Labour leader for even raising the issue: “Hipkins has blown the dust from David Parker’s copy of Piketty and is breathing new life into Labour’s least popular and most divisive policy.” She suggested that Hipkins should have stayed true to his big call last year to rule out radical tax reform: “Hipkins’ instincts were correct. The party has struggled to defend capital gains or wealth taxes because for purely political reasons, they are indefensible.”
But haven’t various opinion polls showed that the public are actually favourable to capital gains and wealth taxes? Vance frames this as wrong: “The polls might show support for the broad idea of taxing excess profits and capital gains, but when you dig into detail on asset classes, like shares and property, that diminishes.”
The 2024 argument against progressive taxes is that the proceeds will be “squandered”
The opponents of tax reform in 2024 appear to be uniting around the argument that any new progressive tax would simply lead to governments wasting more money. In her column warning against Labour adopting such taxes, Andrea Vance suggests that the public will oppose them because of “the prevailing narrative that in government the party wasted and mismanaged vast amounts of public money.”
This line was also reiterated by Rich Lister Bruce Plested, who on Monday was reported by RNZ saying that tax reform would be opposed by the wealthy due to the proceeds being “squandered” by big-spending politicians. Plested, who is worth an estimated $1.3 billion, suggested that although he wasn’t opposed to a wealth tax, the problem was first having “a good enough government” for spending the money wisely.
The problems of the tax take being squandered has been taken up again today by the NZ Initiative, arguing against tax reform. The Initiative’s senior fellow Bryce Wilkinson has an opinion piece in the Herald saying that the last Labour Government’s big-spending is an integrity issue:
“The quality of government spending is extraordinarily low. Spending programmes commonly lack a clear over-riding objective. That accountability problem is aggravated by resistance to proper measurement of results in relation to intentions. This lack of transparency breeds waste and surely fosters corruption. The Auditor-General has repeatedly warned the public about these matters.”
Other strong messages against reform are coming from those representing the wealthy. For example, Robin Oliver from the tax consultancy firm OliverShaw, is also interviewed today in the Herald’s Frontpage series, saying that a wealth tax would be a “total disaster” and “would put us in the realm of Zimbabwe and Venezuela”.
Oliver also condemns the idea that the richest 2 per cent can be made to pay more tax: “That’s not realistic. It’s not credible. If you squeeze those people too much, they’ll just leave. That’s your highly skilled people. That’s your surgeons, that’s your doctors”. According to the Herald story, “Oliver fears a capital gains tax would undermine productivity and investment and he would prefer to see the tax take on GST increased.”
Notably, Oliver’s firm OliverShaw commissioned a report from Sapere Research Group, which claimed to show that the wealthy already pay their fair share of tax. This was published, strategically, just before the then Minister of Revenue David Parker was releasing landmark IRD research showing the extent to which the wealth of the ultra-rich had skyrocketed in recent years. This showed that the richest 311 families have a combined wealth of $85 billion, and own a quarter of the country’s assets. Oliver warned that such research could produce a “misleading and confusing picture of our tax system”.
Vested interests will continue to dominate the tax debate
When politicians and progressives are unwilling to participate in the debate on taxes, they simply hand over the ground to those with a greater interest in dominating the discourse. In what is effectively a tax debate void, the wealthy and those who represent them can win the debate by default, blocking any reform of taxation.
Last year, Economist Shamubeel Eaqub wrote about this, saying that well-meaning research and academic tax reports wouldn’t cut it against the onslaught from vested interests: “The very wealthy will inevitably mount a strong and co-ordinated opposition, using a wide array of organisations and people. They can afford to do it, and it would be a small cost relative to taxes they may have to pay.”
We see this happening again in 2024. Groups and politicians representing the interests of the wealthy are mobilising.
More attention needs to be paid to some of the groups that are lobbying over this behind the scenes, too. In this regard, BusinessDesk journalist Murray Jones wrote an excellent article last year about the “Corporate Taxpayers Group”, which entirely flies under the radar, but is essentially the new “Business Roundtable”, lobbying government on behalf of fifty big corporates.
Jones carried out research about the Corporate Taxpayers Group, and found that in 2022, for example, the group had held forty meetings with IRD to discuss tax policy, as well as talking to select committees and other policy-makers. Although the lobby group is very secretive, it has a huge corporate membership – Jones found that it included “Fonterra, Air New Zealand, SkyCity, Todd Corporation and the big four banks” and that “the group’s members turned over more than $77 billion annually in NZ, paid about $2.3b in income tax, and employed more than 100,000 New Zealanders.”
With this heft, the Corporate Taxpayers Group can get regular meetings with many important public servants. Jones got hold of their “Statement of Purpose”, which says the group focuses on “issues having relevance to Member enterprises” and to “provide a collective means for communicating with government ministers, finance and expenditure select committee, Inland Revenue, Treasury, Crown Law and other government bodies with regard to taxation matters affecting members”.
Murray Jones’ investigation into the Corporate Taxpayers Group shows examples of how influential the lobbyists have been on tax policy. The best example is during Covid, when the businesses helped the Government create schemes to assist the private sector: “Already close, the relationship between the IRD and large stakeholders reached a new level during the early stages of the covid-19 pandemic. In a dizzying six-week period, all hands were on deck to devise new policy to protect businesses from the incoming fallout.”
Time to call out the vested interests in the tax debate
The Labour Party and Chris Hipkins should be congratulated for raising tax reform again in 2024. But there’s a need to scrutinise the whole debate that is now occurring.
Some in Labour say that Hipkins is just raising the wealth and CGT ideas out of intra-party necessity – to satisfy the activists, and once polling has been done, and journalists briefed that tax reform is a bad idea, then he will be able to credibly say that he tried, but the results were negative.
Regardless of what Labour is doing, scepticism needs to be applied to those that are attempting to shutdown their debate on wealth, land, or capital gains taxes. Straight out of the gate, critics have already been attempting to scare the public off the idea of reform. But it’s time to label those critics of reform as simply vested interests defenders of a fiscal status quo that simply isn’t in the wider public interest.
Dr Bryce Edwards
Political Analyst in Residence, Director of the Democracy Project, School of Government, Victoria University of Wellington
Key Sources
Jonathan Barrett and Lisa Marriott (The Conversation): Labour is talking about a wealth tax again – what are its options and what might work?
Dan Brunskill (Interest): Labour promises to tax capital
Thomas Coughlan (Herald): National teases Labour over tax divisions, while referencing tax as ‘comfort food’ for the party (paywalled)
Thomas Coughlan (Herald): Tax debate opportunity for Labour members to be ‘very explicit’ to leadership - former president
Corin Dann and Anusha Bradley (RNZ): Billionaire Mainfreight co-founder Bruce Plested backs wealth tax - with a catch
Peter Dunne (Newsroom): Higher taxes and higher borrowing plans will sink Labour in 2026 (paywalled)
Murray Jones (BusinessDesk): The $17,000 club: bargain lobbying fee or good corporate citizenship? (paywalled)
Susie Nordqvist (Herald): Labour looks at wealth, capital gains taxes - are either right for New Zealand?
Kathy Spencer (The Post): The tax debate that won’t die – why we finally need a capital gains tax (paywalled)
Chris Trotter (Interest): Looking for Labour’s vital signs
Bryce Wilkinson (Herald): Spending cuts versus wealth taxes (paywalled)
Well ... your argument about "vested interests" seems to have been supported by some of the comments here in opposition to any wealth or capital gains tax! 😮 Obviously if the current coalition are being truthful and there is not enough tax income to adequately support our Health, Education, Welfare etc. budgets, something has to change. About time everyone put the good of the people over their own selfish need for more & more $$$ in their personal grasp. I'm not convinced about the argument for losing significant investors - a significant number are here for more than the tax system surely, and what about the thousands of potential workers who are fleeing overseas for work right now? Human capital flight is much more consequential to our future IMHO 🤷🏾♀️
You make the mistake of assuming that Labour is anything other than a soft centrist party, hog-tied by the expediency of attempting to draw voters across from the right who for the most part are self-centered and change allegiances based on what any particular government is offering them as the plat du jour. The 2nd Ardern administration offered safety from a pandemic and was successful on those terms alone, whilst the troika under National promised tax cuts. The problem for the left in New Zealand is two fold firstly we dont have Compulsory voting. Secondly and of much more concern is that our media, across every platform is driven by right wing interests. It is virtually impossible to generate sustained positive news copy for anything that is remotely seen as socialist. Even when policies such as raising personal tax threshold for high earners to something comparable with Scandinavian or some European countries and introducing a CGTwould benefit the majority of Kiwi citizens.
I cannot think of any mass publication, TV news channel, or radio program in New Zealand that consistently provides a daily narrative that challenges the existing orthodoxy. We currently have the most appalling right-wing government lead by two outlier Parties introducing some of the most rabidly dangerous and destablising agendas with huge fiscal and social implications that if the Left was in power and had introduced them would have the likes of Tova O'Brian, Heather Du Plessis Allan, The Platform, Barry Soper, Jenna Lynch, NewsZB et al climbing up the wall with outrage and indignation. The fact that a character such as David Seymour has the gall to lecture the public on issues of democracy and can get away with this, with barely a murmur from the media, tells me everything I need to know about the crooked nature of constructed consent in Aotearoa.