IRD report reveals ‘fundamental unfairness’ of how the wealthy are taxed

The numbers shared are stark, but the government’s next steps are anything but clear.

Mōrena and welcome to The Bulletin for Thursday, April 27 by Catherine McGregor. Presented in partnership with Z Energy.

In today’s edition: Hawke’s Bay residents told to expect many more aftershocks; DOC suspends Great Walks bookings to Jun; Wellington Council considers 30km/h speed limit for nearly all city streets. But first, will this alarming report prompt decisive action on tax?

A wealth gap reality check

Nearly everyone was expecting Wednesday’s taxation report to produce some striking headlines. Few would have guessed its findings would be quite so stunning. IRD’s two-year High-Wealth Individuals Research Project has revealed that the median effective tax rate paid by New Zealand’s richest individuals is just 8.9%, compared to an effective tax rate of 22% for someone earning $80,000 a year with no other income. As The Spinoff’s Duncan Greive explains, “the low tax rates paid are achieved because this group earns just 7% of its income through wages, with a further 10% taxed at a similar rate through trust income”. That means simply increasing taxes on high incomes, for example with the relatively new 39% tax bracket, can only do so much. For the ultra-rich who were the subject of IRD’s survey, tax-free property often underpins much of their wealth. A remarkable graph in Madeleine Chapman’s analysis for The Spinoff demonstrates the enormous size of their property holdings, with the average capital gain on residential property for this group dwarfing even that of the top 10%. 

Will strong words turn into action?

In his speech yesterday, revenue minister David Parker said it was clear from the data that the country’s tax system is fundamentally unfair. But he stopped short of announcing any new taxes, reiterating that Labour’s tax policy would be announced in full closer to the election. However he had words of comfort for home owners worried by talk of a capital gains tax (CGT): “I have never favoured taxing the family home, either by way of capital gains or imputed rents.” So what will Labour do? Parker is introducing a Tax Principles Act which, as Max Rashbroke explains this morning on The Spinoff, “will enshrine a statement of the values underpinning the tax system… and require reporting against related measures, including the tax rate paid by the wealthiest”. Whether that will have much practical effect is an open question, as is whether any genuinely impactful changes to the tax system are coming. Terry Baucher, writing on interest.co.nz, doubts it, but says he could see the trust tax rate rise from 33% to 39%, in alignment with the top individual tax rate. Rashbroke notes that Parker seems open to a tax "switch": “cutting the bottom rates of tax (or introducing a tax-free threshold) while bringing in a CGT” – much as Bill English did in 2010, when he raised GST to 15% while lowering the amounts paid across all income tax brackets.

National rounds on ‘the Minister for More Tax’

In the wake of the report, National went on the attack. The eye-watering wealth of those surveyed was “the direct result” of the government allowing the Reserve Bank to print tens of billions of dollars during the Covid-19 pandemic, said finance spokesperson Nicola Willis, “The Minister for More Tax, David Parker, can keep flogging the dead horse of a capital gains tax as much as he likes, but it doesn’t change the fact that the main driver of inequality under Labour has been its own economic policies.” In an awkward press conference appearance, leader Chris Luxon avoided commenting on the fairness of the tax system or whether high wealth individuals were being taxed enough, instead redirecting questions back to criticisms of Labour’s economic management. Meanwhile the Greens’ revenue spokesperson Chlöe Swarbrick called on the government to “show the courage of Michael Joseph Savage and fix our crumbling infrastructure with taxes on those who profited handsomely during hard times for many”, adding it was now a “political choice” not to force millionaires to pay “their fair share”.

In Australia, planned tax relief for the wealthy comes under fire

Across the Tasman, the Labor government is pushing ahead with plans to implement tax cuts for medium and high income earners. The “stage three cuts”, a holdover from the Scott Morrison era, are due to come into effect in July 2024 and are set to cost A$254bn over 10 years. The plan involves abolishing the 37% marginal tax bracket for those earning A$120,000 to A$180,000 and creating a flat rate of 30% for those earning between A$45,001 and A$200,000. The cuts are highly controversial, with critics arguing they will hand billions of dollars back to the country’s highest earners and “exactly nothing” to those at the bottom of the economic ladder.

New pay-as-you-go for EV charging from Z

If you use Z’s EV Charging App, now you can pay for charges when you need them, instead of prepaying – another way Z is helping customers easily switch to low carbon transport.

With a plan to have EV charging available across 20% of the network by the end of 2023, Z wants to ensure EV customers across the country can access charging whenever and wherever they need.

For more information about EV charging at Z visit their website. (Sponsored)

Hawke’s Bay braces for more aftershocks after big quake

Hawke’s Bay residents are being warned to expect further aftershocks in the coming weeks after the region was struck by a magnitude 5.9 earthquake on Wednesday morning. The initial quake occurred at a depth of 21km near Pōrangahau in central Hawke's Bay at 10.16am, followed by a magnitude 5.4 earthquake at a depth of 17km a few minutes later in the same location, Stuff reports. The large number of aftershocks the area is experiencing is typical for seismic events of this magnitude, says Dr Katie Jacobs​, duty seismologist at GNS Science. As for the location of the quakes, she explains that “Pōrangahau is located along the Hikurangi Subduction Zone which drives much of the earthquake activity along the East Coast of the North Island.” Victoria University seismologist Dr Finnigan Illsley-Kemp​ says he’s concerned about the quake’s potential impact on potentially saturated ground which could be prone to further slips. "I feel particularly sorry for the people of the area who have had a terrible few months.”

Technical issues force suspension of Great Walks bookings until June 

Last week DOC’s Great Walks booking site crashed after 10,000 people tried to get a spot on the Milford Track in the minutes after reservations opened. Now the site has paused all new bookings until June to give it time to address the issue. Bookings for the Kepler, Abel Tasman, Rakiura, Paparoa, Routeburn, Tongariro Northern Circuit and Whanganui Journey tracks were supposed to open either yesterday or today, and all have now been put on hold. DOC’s Cameron Hyland says the new opening dates for bookings will be posted online later this week. The enormous demand for spots on the more popular tracks has led to speculation that bots are being employed to game the system. However DOC told the Herald earlier this month that “booking bots for Great Walks bookings on opening days are an urban myth”.

A message from Duncan Greive, senior writer, podcast host and founder of The Spinoff.

I founded The Spinoff to fill a hole in our media landscape – to create smart, original writing and content that looks at this country from a different angle. The only reason it exists today is because our members believe in us, and are willing to donate to keep our content free for all. Join us in making a difference to the local media landscape by becoming a member or making a new donation today.

30km/h speed limit could be on its way to nearly all Wellington city streets

Wellington City Council is considering a draft proposal that would lower the speed limit to 30km/h on up to 93% of the city’s streets, NZ Herald reports. To comply with the government’s Road to Zero strategy, the council must introduce safer speed limits near all of the city’s 81 schools by the end of 2027. Around 80% of urban streets are near a primary, intermediate or secondary school, and the council is also looking at safer speed limits near kindergartens and playcentres. Arterial routes will stay at 50km/h. A speed limit of 30km/h is not hugely different to actual speeds people are currently driving, council transport and infrastructure manager Brad Singh told the Herald. “On average people drive 35km/h on arterial routes and 23km/h outside arterial routes.”

Click and collect

• In one of the country’s biggest prosecutions of its kind, two men have been convicted of drugging and sexually assaulting numerous patrons of a popular Christchurch bar. Their convictions encompass dozens of crimes, including rape, sexual violation, indecent assault, and spiking drinks.

• National has announced mental health will get a multimillion-dollar funding boost if elected. Its Mental Health Innovation Fund will support community mental health providers to the tune of $20 million over four years.

• Auckland mayor Wayne Brown says he still plans to sell the council's airport shares, but will reassess his proposed cuts to arts and social services. It follows public consultation on the council’s proposed budget showing Aucklanders broadly support the planned sale of the shares.

• It takes the nation's drug-buying agency, Pharmac, an average of 7.7 years to make funding decisions about potentially life-saving medicines, a report has found.

• The government is boosting the minimum First Home Grant house price cap for new-build properties, In Matamata the cap has increased to $800,000 from $625,000, for example, while in Taupo it is now $825,000, from $575,000.

Got some feedback about The Bulletin, or anything in the news? Get in touch with me at thebulletin@thespinoff.co.nz.

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Sporting snippets

• When Scott Robertson takes over as All Blacks head coach after the World Cup, his coaching team will include Jason Ryan, Leon MacDonald, Jason Holland, and Scott Hansen.

• Australia’s LIV golf tournament “produced wild scenes, a party vibe and enthusiastic talk of a corner turned for the polarising upstart”, but the jury’s still out on LIV Golf’s future, writes The Times’ Rick Broadbent.

• New Zealand heavyweight Joseph Parker will fight in Australia for the first time next month when he takes on Faiga “Django” Opelu at the Margaret Court Arena in Melbourne.

‘A Hideous Man marks practically every stage of my life’

After years of talk of potential criminal charges (and one indictment so far), Donald Trump is finally on trial. He’s being sued in civil court by the writer E. Jean Carroll for battery and defamation after allegedly raping her in a New York department store in 1996 and then denying it years later, when he was president. Carroll first made the allegation public in ‘Hideous Men’, a superb 2019 essay published in New York magazine. It’s about her encounter with Trump, but also about a life punctuated by horrific incidents of sexual assault, and lesser moments of assholery from the “foul harassers, molesters, traducers, swindlers, stranglers, and no-goods I’ve known”.

“As it turns out, a Hideous Man marks practically every stage of my life,” she writes. “And so, Reader, from this cavalcade of 21 assholes, I am selecting a few choice specimens. One or two may not be pleasant for you to read about, I apologize. But if we all just lean over and put our heads between our knees, the fainting feeling will pass. No one need be carried from the room.”