The Inland Revenue Department has revealed that two thirds of the 161 people who each have assets worth over $50 million, only declare personal incomes of under $70,000 each year. This means that they do not pay the top tax rate and they pay very little in tax when they should be paying a huge amount more.
The multimillionaires used a variety of tax-planning devices – such as companies, trusts and overseas bank accounts – to avoid paying tax.
An Auckland University tax specialist, Dr Michael Littlewood, estimated that up to $36 trillion was hidden in tax havens around the world. “It is an enormous amount of wealth. Pretty much every government in the world is attempting to do something about it.”
In 2010, the IRD Tax Working Group raised concerns about the rich avoiding the top tax rate through sheltering devices such as family trusts. The number had increased from 146,000 in 2001 to 237,000 in 2010.
The Government in 2010 cut the top personal tax rate to help the rich get richer. Politicians were told to say that this would make the rich work harder and create more jobs but it actually had the opposite effect because the rich then had more money to play with. In 2010 the National Government also increased GST to 15%, which badly affected those who have to spend all or most of their income on necessities.
A report on tax compliance said the IRD had noted an “increasing complexity” in the financing arrangements of some companies, large corporations and high-wealth or -income individuals in the past year.
Aggressive tax arrangements can include the use of tax havens, transferring profits to associated overseas entities, using trusts to divert taxable income, and showing lifestyle and luxury assets as business ones.
“Some people, particularly high-wealth and high-income individuals, are continuing to use offshore schemes and bank accounts to evade tax by misrepresenting how much they earn or own. There are also people who under report their worldwide income,” according to the 2012/13 report.
In a book titled `The New Zealand Tax System’ which was published in 2011 by the Institute of Policy Studies at Victoria University, Dr Rob Salmond found that consumption taxes (GST) were higher here than in other OECD countries and that income taxes for those on high incomes were lower. Corporate taxes were also lower and there was no capital gains tax here.
New Zealand stands out as being a developed country that does not have a capital gains tax. This drives up property prices and reduces investment in productive business activities. A huge amount of tax, which could improve Government finances, is lost. You can grow rich much quicker if most of your income is in the form of tax free capital gains.
It is well accepted around the world that capital gains should be taxed but New Zealand is the only developed country which does not have a combination of a capital gains tax, a land tax, wealth tax, inheritance tax or stamp duties. As a result billions of dollars have been lost and this means that ordinary taxpayers have to pay more in other taxes. In other similar countries the income tax top rate is 40 cents to 45 cents. The National Party reduced the top rate from 38 cents to 33 cents in 2010 and wanted to do the same again in 2023 but ditched this when a similar plan in the U k proved to be a disaster.
This situation exists because public servants and politicians have been lobbied by farmers and those owning investment assets. When the Labour Party was in coalition with the N Z First Party between 2017 and 2020, it wanted to bring in a capital gains tax but lobbying of N Z First resulted in this being blocked.
In 2023 the IRD reported that 311 individuals wer able to avoid paying $3.4 billion in tax each year because there was no tax on their wealth or on their capital gains.
Large multi national companies, like Microsoft and google, also pay little or no tax. Some Political parties encourage overseas investors to take over New Zealand businesses because the money brought into the country provides a short-term boost. What they ignore is that often these businesses go from paying full tax on their profits to paying little or no tax.
All overseas investors receiving incomes in New Zealand should pay their fair share of tax and politicians should introduce a comprehensive range of measures to ensure that this happens. A few individuals and companies might completely move out of New Zealand but this would provide opportunities for New Zealanders to make more money. If overseas companies paid more tax, it would provide more money to hand out to New Zealand domicile led businesses.
