Julie Anne Genter says it's time for some good old fashioned auditing and policing of high net worth individuals' tax behaviour

Julie Anne Genter says it's time for some good old fashioned auditing and policing of high net worth individuals' tax behaviour

By Julie Anne Genter*

National’s Tax Working Group used the following graph (p30) in 2010 as part of their justification to cut the top tax rate.

The big peaks around the top tax threshold were evidence of a suspiciously high number of taxpayers declaring income at the threshold before the top tax rate kicked in. The Group argued that the high top tax rate incentivised wealthy taxpayers to use trust and company structures to hide income and avoid paying their fair share of tax. 

Instead of going after tax cheats, National decided to increase tax thresholds and reduce the top tax rate to bring it into closer alignment with the lower company and trust tax rates – arguing that this would remove the incentive to hide income and avoid paying the top tax rate. 

We know now, in hindsight, how the story ended.

National’s 2010 upper-income tax cuts sent the Government deeper into debt and helped fuel the growth of inequality in New Zealand. But did tax ‘alignment’ eliminate the tax dodging behaviour around the top income tax rate (33%) now that it was closely aligned to the trust (33%) and company tax rates (28%)? 

Here’s the same chart six years on (black line).

The updated chart from IRD’s website shows the same suspicious peak, now at a higher threshold. 

Turns out that wealthy people are still arranging their tax affairs to avoid paying the top tax rate on their income despite a big cut to their top tax rate. 

Last week, this immoral behaviour was further reinforced by Hamish Fletcher who uncovered that over a third of the High Net Worth Individuals monitored by IRD last year declared personal income of less than $70,000. 

National’s plan to address tax dodging at the top end of the income scale by aligning tax rates has not worked. 

It’s time the National Government invested in some good old fashioned auditing and policing of high wealth taxpayer behaviour in New Zealand. 

The signs are not promising, however, if Budget 2016 is anything to go by:

Note: In case you’re wondering about all those other spikes, below $25,000, they reflect taxable transfers such as welfare benefits or NZ Super, with large numbers of people having the same taxable income.

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*Julie Anne Genter is the Green Party's finance spokesperson. This article first appeared on the Greens' website here and is used with permission.

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25 Comments

17
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These graphs show the middle class ($30 to $80K) paying almost all the tax - plus of course the lion's share of GST. Looks like there is little will to go after the big end of town, speculators or multi nationals. Your fruit stalls, mum doing some sewing in the spare bedroom or the guy doing a bit of weekend lawnmowing for cash on the other hand will be pursued with vigour, shamed and fined as if they were criminals.

12
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That's what happens when you implement and increase regressive taxes like GST.

Still waiting for that "trickle down" to happen

I find it strange that Sanitarium has charity status but then sponsors the All Blacks.who are also sponsored by booze barons.Clearly a conflict of interests.

A flat 25% tax rate would remove the artificial boundrys that people are declaring income up to and by having it set lower than the corporate or trust rates the incentive to use those structures is removed.

Would not change a thing.Sorry

I'm not so sure about the premise here. Invested funds in PIEs won't count as income if they are taxed at the correct rate at source. The more you earn, the bigger the tax savings, so it makes sense for people to do this instead.

Wouldn't the IRD have more to gain by chasing some high net worth Americans ... such as Mr Google , and Miss Amazon ... and the Apple family ... imagine what we could get from them .... Yahoo !

Out of curiosity what do you pay Google NZ for? Most of the web services that google offer are global services hosted out of server farms in the U.S.A or Europe. The only part in NZ is the user buying the overseas based service.

Google are NZs largest advertising business. A large proportion of all advertising dollars spent by NZ companies goes to Google.

A large part of Google's advertising platform was developed overseas and is hosted overseas. Net neutrality means that no country can claim the internet or any part thereof. To get ads from google kiwis have to visit sites hosted overseas. I'm fairly sure google pays tax on locally hosted and developed content.

Great for a politician to be engaging in debate here, a zone where substance and debate have at least some chance, beyond the land of soundbites bereft of meaning.

I don't disagree what you're saying, but are there not more fruitful areas, substantively and politically? In latter respect, your play here is open to a swift right-wing smear that it's a left-wing attack on hard-working kiwis. And you lose all traction. No reason not to argue it, but position it well.

On substance, though, aren't there much, much bigger issues? Long ignored, the multinational avoidance issue already mentioned is getting more and more airtime and potentially risks undermining voluntary payment of tax, which IR hold dearly (rightly so). And the amounts involved are staggering. Tap into that, and tax rates could fall.

And pollies complain about people shifting between trusts, companies, etc, yet these rates are still misaligned. Isn't it simple to remove opportunities to play around by taxing income without favouring any one type of ownership/earning vehicle?

And the political elephant in the room? New Zealand's long-skewed tax system hasn't really affected the core of what it means to be kiwi, but that's now straining at the edges as NZ's policy settings are designed to exponentially increase the income-inequality gap. When a two-parent family, renting, are working two jobs each just to pay for food, are taxed on everything they earn, and others are taxed only on some of what they earn (and can even offset that against property), is that a level playing field? And even aside from that, when one asset class is massively favoured, especially in a low-yield-environment, what happens to asset prices? I know I'll now get flamed by those here who have certain fixed views (and I'm saying this in a house, not renting, & concerned more about where this may all be going).

But anyway, good for entering debate, your points are valid, but there are some much bigger fish to fry that could help shape the future economy and society. And done well, tax rates could fall across the board. That's gotta be a good thing, even for those readying the flamethrowers...

And a great piece by Deborah Russell the other day, here

@ Ron Pol: Not sure if you've noticed about the court cases that have been happening over in B.C Canada? In the last few months; money laundering Chinese citizens that have fled to Canada are now being taken to court by their banks for defrauding etc.. And now that the Vancouver housing market is crashing, the Chinese Government seems to be very eager via their banks to seize Canadian property.

Here's a two recent articles that highlight what has been going on with China's bind eye to it's citizens moving large amounts of capital overseas.

BBC article: 'Gangster grannies' and China's shadow banking world
http://www.bbc.com/news/business-37114643

And the recent court cases over in B.C. Canada where the Chinese banks are seeking to seize assets.

Chinese companies want courts to seize B.C. properties - See more at: http://www.timescolonist.com/business/chinese-companies-want-courts-to-s...

China alleging that “billions of dollars” of bank fraud proceeds are invested in B.C. real estate.

Given that our wonderful PM seems to want to dial back on anti money laundering measures due to implementation cost.

So the big question is; What's to stop China from seizing assets in NZ once our Auckland property market crashes?

Don't you realise? that was the plan from the very start

10
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Yes that's the worry. But I'd just like to know how vulnerable we are? Are we just sitting ducks? See at least the Canadians have a counter plan and that's to tax empty homes. So the Chinese Government will still have to pay back if they choose to just sit on those seized property assets. ;) Go Canada!!

Article: China’s CITIC Bank tries to seize luxury homes in Vancouver, saying buyer fled mainland with illicit cash
http://www.scmp.com/news/world/united-states-canada/article/1982532/chin...

We have to get our Government to realise the damage it's doing by doing nothing and not taking any AML preventative steps to protect its land and citizens.

Thanks CJ

Sorry Ron, I didn't mean to put you on the spot. Just it really staggers me how much people can get away with bending the rules to suite their own ends (Or monetary gains in this case). And it's always the same player no matter how may angles you look at it from.

It's just from a business point of view; I do think NZ is slowly garotting its self. I'm in the creative industry (Film, TV and Computer Games) and where were very much project based. So we hire staff on our project needs and this is common through out our industry. The problem is, now that house and rental incomes are so high in Auckland, when we try to hire staff from outside of Auckland (And NZ) we simply get turned down as they take one look at the extremely cost of living in Auckland and say thanks but no thanks.

I've seen the same thing happen in Sydney and Melbourne. This is one reason why I think Vancouver pushed through with their Foreign Buyer Tax. They have a massive film and TV industry over there, much larger than ours, from what I hear they were also experiencing the same staff hiring issues.

The irony is; Key could end up killing the very industry (Film) that really put New Zealand on the map.

Apple rips us off - but it's legal. Time to make that game illegal.

If Apple is ripping you off then don't buy apple products? There are alternatives to every product that apple has on the market.

Didn't think that one through did you Sadr. I don't buy Apple, but when anybody does Apple rips off the New Zealand taxpayer. Do some swot will you on what the Irish setup by Apple does to the New Zealand taxpayer.

The value added in NZ to an apple product is completely subject to tax in NZ... how is apple ripping the NZ taxpayer off? If developers overseas add value by developing a product it is fair that the tax is added where value is generated. Why should you have to pay extra tax in Australia if someone resells something you make here to an Aussie? To encourage development you generally lower tax to encourage big companies to bring their development work to your country.

The writer has no understanding of business operations or the practical application of tax policies. Wealthy people often don't pay much tax individually, because they don't personally own income generating assets. The income from assets is returned at 28% tax in NZ companies or 33% if trustee income. Or alternatively invested in PIEs where final tax is paid at 28% and not required to be returned by the individual. If the writer thinks rich people should pay more than 28-33% income tax on top of 15% GST and various fuel, ACC, Excise levies, then she is deluded. The tax rates now are fair. And if the Greens think we should pay more, they should just add "socialist" to their name and go to Venezuela for a tax policy sabbattical.

So you're basically saying that National's Tax Working Group has no understanding of business operations, as that's what the whole premise of the argument is based on. Maybe you didn't read the article.

Up until now I thought Julie Anne Gentler had a few clues. Does she not realise that if you pay tax in your own name at a lower threshold, you end up paying it elsewhere under a different entity - like a company. These people are paying tax alright - just in different ways. She would be better hunting the routing corporates using transfer pricing.

Once again, you seem to know better than the 2010 Tax Working Group who were the ones originally asserting that the peak before the top tax threshold was evidence of tax avoidance. And FYI: Greens are going after multinational corporates using transfer pricing. Pity the National Government aren't: https://www.greens.org.nz/news/press-release/govt-should-move-now-start-...