Despite the bitter disappointment of those who backed capital gains tax for a win, it’s not the only horse in the wealth tax race, Max Rashbrooke studies the form guide

Despite the bitter disappointment of those who backed capital gains tax for a win, it’s not the only horse in the wealth tax race, Max Rashbrooke studies the form guide
Photo: Getty/The Spinoff.

If the capital gains tax were a horse, Jacinda Ardern’s announcement earlier this month was the final nobbling of an equine that, despite praise from some quarters, never quite got out of the starting gate. Its demise has prompted much wailing from the young, the property-less and frankly anyone who thinks that those making a fortune from rising house values should pay something back into the communal pot. But it also leaves the field open once more for a race between wealth tax ideas – each of them with its own jockey, form, and political odds.

Before we survey that field, though, it’s worth remembering why the contest exists in the first place. People possess material resources – income and wealth, in other words – in various forms. Tax is levied on those resources because people become wealthy partly by relying on collective services, such as driving on public roads, being educated in state schools, and using the public health system, and they have to contribute to the upkeep of those services. An individual’s success also typically owes something to luck, and in a fair society the fortunate compensate the not-so-fortunate through the tax and benefit system.

In New Zealand, we tax income (and consumption, through GST). But we don’t generally tax wealth. We don’t tax most of the increases in wealth – the much-discussed ‘capital gains’ – that people make by selling assets, nor do we levy wealth received in the form of gifts and inheritances. We also don’t tax wealth directly (except to a very minimal extent through local council rates). Yet just like income all these resources are generated by relying on collective resources and luck. This is why every other developed country taxes them in some form or another, and why we should as well.

So how best to do that? If it were a thoroughbred horse a proposed wealth tax should shine on many levels. Ideally it would be easy to collect, fair, and politically feasible.

Even if no wealth tax is perfect, some ideas score more highly than others. Below we run our practised eye over the field, arranged from shortest to longest odds.

Bright-line test

This rule currently stipulates that anyone who sells a house (excluding the family home) within five years of buying it has to pay tax on that transaction. Extending this rule, informally known as Mr Bright-Line, to 10 years would be the simplest way to bring more capital gains into the tax net. Its incremental nature and ability to target widely disliked property speculators makes it a relatively palatable option. But it is unlikely to raise much revenue or significantly address wealth inequality.

Jockey: Bill English, originally; current rider unclear

Odds: 10-1

Wealth tax

Each year everyone pays a levy of, say, 1% of the value of their assets (once any debts have been accounted for). Such a tax, set low so as to be politically acceptable, has been used at one point or another by many developed countries, although currently just three deploy it. Requiring people to value their assets every year creates both administrative hassles and opportunities for creative accounting. There are also tricky questions as to who pays and at what rate, because levying a tax on all wealth would be political suicide in New Zealand. But an exemption of $500,000 per person would exclude most households (and, helpfully, family homes). And to get a greater contribution from those who can afford it the rate could increase up the scale, so that fortunes over $5 million paid 2%, those over $10 million 5%, and so on. However exemptions would reduce the revenue raised, and varying the rates would create extra complexity.

Jockey: Suave French economist Thomas Piketty

Odds: Approximately 1,000,000-1, if designed to catch all wealth, but much lower if aimed only at a few

Comprehensive capital income tax (CCIT)

Under this proposal your wealth is valued annually, and it is assumed that you are generating an income from it equivalent to 6% of its value (because that’s what a canny economist would do). You are then taxed at a flat rate of 30% of that notional income. Got that? No, nor has anyone else – except for the likes of Gareth Morgan, its former chief proponent, for whom the public’s failure to embrace it was no doubt another data point in his theory that other people aren’t as bright as he is. Regardless, it is conceptually elegant and would encourage people to either use their assets profitably or sell them to someone who can. However it has a flat tax element, in that those with the most income pay a larger amount of tax but don’t pay a larger proportion of their income in tax – unlike our current system of income tax rates which rise from 10.5% to 33%. And a tax on all family homes remains a hard sell.

Jockey: With Morgan’s withdrawal from public life the whip passes to TOP leader Geoff Simmons

Odds: 50-1

Risk-free rate of return method tax (RFRM)

As currently proposed, this is essentially a tax on the value of housing (once any mortgage debt is deducted), including both investment properties and family homes of a certain size. It gets its name from the idea that housing should be able to generate the same amount of income as a ‘risk-free’ investment like a term deposit. So, as with Gareth Morgan’s CCIT, it assumes that housing generates a certain annual return and taxes that notional return at the individual’s relevant tax rate. Houses worth less than, say, $1 million could be exempt. ‘A CCIT for rich houses’ would be a catchy name (‘catchy’ being a relative term in the tax world). From a political point of view it would avoid bun fights with business groups and farmers, and could be designed so as to exempt many or most households. But it would leave large amounts of wealth untouched while remaining a hard policy to explain to voters.

Jockey: Tax expert and child poverty campaigner Susan St John

Odds: 50-1

Land tax

Does what it says on the tin. The advantage of taxing land is that it is the one kind of wealth that can’t be moved, and therefore hidden. It also renders irrelevant the argument that taxing things discourages effort, since you can’t produce more land anyway. So a land tax would generate a relatively high level of revenue for the effort taken to collect it. However one major political hurdle is Māori land. Māori quite reasonably argue it should be exempt, given they have already lost 98% of what they originally owned, but such an exemption would be highly unpopular. A land tax would also leave most assets untouched. And it has little political support.

Jockey: The ghost of Henry George

Odds: 75-1

Lifetime gifts tax

Although used in New Zealand until 1993 estate and inheritance taxes have recently fallen out of favour, possibly because taxing people for dying sounds a bit odd. A better way to frame the issue might be to tax the recipients of inheritances and gifts, because no one can be said to ‘deserve’ such rewards, and the tax revenue could be used to compensate the less fortunate. Under a lifetime gifts tax people could accumulate gifts (from friends, relatives and others) up to a certain threshold, say $200,000, without paying tax, but would pay tax on all further gifts. Such a tax could not, by definition, discourage effort. It would balance the desire to help out relatives with the need to ensure fairness across society. But pragmatically it would either rely on people declaring such gifts or require very careful policing. On the political front there is barely a murmur of interest in it.

Jockey: The noted economist Sir Anthony Atkinson (deceased)

Odds: 100-1

Capital gains tax

Now of theoretical interest only. For political reasons the Tax Working Group’s version would have exempted the family home, but New Zealand could have copied other countries that have a CGT including the family home above a certain value, both increasing the revenue raised and enhancing its fairness. Taxing only future sales would in any case have failed to capture the tens of billions of dollars that Baby Boomers have banked in rising house values in recent decades. The official OECD line is that a capital gains tax plus an inheritance tax is probably the best way to tax wealth. But good luck getting both of those introduced in New Zealand at the same time.

Jockey: Michael Cullen, unfortunately

Odds: Prohibitive

*This article first ran on The Spinoff here and is used with permission. Max Rashbrooke is an author, academic and journalist.

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A wealth tax of 0.25% annually - let alone 1% - would destroy this economy in short order.
What I would like to know is this...NZ GDP is around $280b give or take. The govt takes in $83b, and according to Treasury, this is expected to go to $100b within 5yrs. On almost every metric (disposable income, child poverty, crime, etc) we are going backwards and most of the media and the govt are talking about the need for MORE tax! The sad reality is that the media and the govt are absolutely clueless about the economy and are getting ready to throw us off the cliff. Unbelievable.

The stats for real disposable income and crime are both getting better every year as far as I can see, so not sure where you get your stats from. Child poverty stats did get worse last year, but they are really just a measure of general inequality. Our tax system is designed partly with wealth transfer in mind (WFF etc), so I don't see how removing that subsidy will improve inequality.

Have a look at the tax/gdp list. Most countries that are nice places to live all have fairly high tax rates.

"Have a look at the tax/gdp list. Most countries that are nice places to live all have fairly high tax rates."

I think that is an effect, rather than a cause. Raising taxes in Chad to the same value as Norway are not going to see any real benefit.

It's obviously both cause and effect.

Child "poverty" is defined as children living in the bottom 40% of households, and has no actual correlation with the ability to afford things. The median household income in NZ is $85,000 - so everyone with kids who earn slightly less than that are considered to be "living in poverty".

It's not that simple.

"Child poverty is currently measured using income measures and material hardship measures. Income poverty is based on a poverty line measured as 60% of the median household income after housing costs (AHC) and adjusted for family size."


As Lanthanide points out below,it is NOT the case that "everyone with kids who earn slightly less than that are considered to be 'living in poverty'. Of course,you don't want to let anything as inconvenient as facts get in the way of your prejudices,do you?

I know Max Rasbrooke supports fixing the housing crisis (he has said so publicly) but I was a bit disappointed he didn't include this as an option to improve wealth inequality in New Zealand.

I gave what I thought was a good economic explanation of the rationale behind 'fixing the housing crisis' recently for

Hopefully this message is beginning to spread? Certainly it is helpful that is doing its best to improve our business and economic literacy : )

Brendon ,
I thought your article was excellent - the analysis part of it anyhow .

You lost me when you arrived to your suggestions ( government taking a "creative" pro-active role in the market ) and particularly when you somehow conflated the housing issue with "existential environment crisis".

The first part read as rational economic analysis ; the second as sop to an imaginary or real left-wing audience.

My article was a political/economic analysis of how housing relates to productivity.
The first part related to the economics of the situation. The second part what this means for politics i.e. how to build a large enough coalition to implement the needed changes.
For Jacinda's coalition government that means the government taking at least in part a 'creative pro-active approach to the market' and it means 'housing crisis' reforms working in harmony with reforms resolving the 'climate change crisis' i.e. it must be a twin housing + environment strategy.
A future right wing government when building its coalition for progressive housing and productivity reform might propose a more free market reform process and be less concerned about conflict with climate change policies.
But I am like Jacinda Ardern (and probably John Key) -in being a pragmatic realist -NZ doesn't have a right wing government and we are not likely to have a right wing government until at least 2023 if not later. So if the housing productivity (and inequality) reforms I outlined are to be successfully promoted before that -then we need to be mindful of how a progressive left wing coalition government will build the support for reform.

Any wealth or capital gains tax needs to account for inflation. If I have a million dollar portfolio, and inflation is 2%, I havent "earned" $20,000 - its just that it now takes $1,020,000 to buy the same things $1,000,000 bought a year ago.

Overseas CGTs typically account for inflation by being taxed at a lower rate than regular income taxes. For example the top tax rate in the US is 37% but the top capital gains tax is 20%, although if you hold the asset for less than 1 year then it is taxed as income.

Which was a rather stupid element of the TWG's proposal to just use the income tax rates without any adjustment or consideration for inflation. Apparently the reason for this is that tax on bank savings account doesn't account for inflation. The simple solution to that is to adjust taxation of those returns so that they do. That would also have been a sweetener to get the public on board, especially the elderly.

I struggled to get past the rational of a wealth tax to actually read the article:
“Yet just like income all these resources are generated by relying on collective resources and luck. This is why every other developed country taxes them in some form or another, and why we should as well.”
Collective resources yes but luck? Not really. Luck isn’t arbitrary dished out, the harder you work the luckier you get as the saying goes. This is part of the problem of ideas like these, they don’t account for an individuals entrepreneurship, conscientiousness or contribution. This is why they are called envy taxes as the people calling for them try to diminish other people’s achievements by attributing success to luck and trying to tax them accordingly. That reasoning is not good enough.

You can't choose your parents or how much or how little they abuse you during childhood. Luck also plays a big part in whether you get a job you apply for or not - depends on who the other applicants you are up against, etc.

Really it is ridiculous to say that luck plays no part in success whatsoever.

Yes luck plays a greater part than I indicated in my initial comment however even the “unlucky” in NZ have a good shot if they apply themselves. It is rediculous to propose like the author that success comes down to surroundings and luck.


I would love to know just what level of taxation you think would be equitable for someone such as yourself? Someone so clearly with 'entrepreneurship,conscientiousness and contribution'.
I am fortunate enough to be comfortably off,having been able to retire completely at 57,but I am under no illusion that luck played no part in that.I pay tax at the top rate here and far from moaning about it,I think how fortunate I am to be in that position.Just why is it that so many of the rich just don't want to pay any tax,never mind a fair share? Every time there is a leak from one or other tax haven,large numbers of oh so 'respectable' people come tumbling out of the closet.

well said.

It must be Labour time, everyone's talking about taxes.
Why don't we talk about creating wealth any more?
Because it's Labour time.
Hard Labour?
Too right!

I’m still a bit lost as to why our national discourse is so, so dominated by discussions about the need for new taxes. Government finances are in good shape. They already collect the taxes they need. What on earth are we even doing? Oh right, wrongs need to be righted by putting our hands in other people’s pockets.

Deeming that an asset “should” achieve a particular rate of return and then charging a tax on that is the kind of thing that people might fantasize about under a benevolent dictatorship. Why should anyone else be able to decide what I do, or should be doing, with my private property? Or have we given up on the idea that we live in a free country with property rights? If I want to leave an asset dormant, that should be my decision and I should not be penalised for it. Obviously you can make a caricature out of my point and criticise the extreme version of it - yes, obviously we should do something if our economy was really stalling completely due to massive amounts of idle wealth. However, that isn’t what’s happening.

It’s a bitter pill to swallow, but the problem with the NZ economy is a lack of productivity in NZ’s workforce. Many of our workers are poorly educated, often barely literate and incapable of genuine critical thinking, and make little to no effort after entering the workforce to upskill. Address that first, please, before you start deciding what I will or won’t do with what is mine.

Please don’t respond with some snarky nonsense like “actually you can choose to do what you want with your assets if you just pay the tax”. Sure. If I shoot a bullet at you it’s your choice whether you get out of the way in time, right? It’s a false choice and is predicated on the idea that it’s the government’s right to decide what people do with their private property. It’s not compatible with a free society. I’m not some kind of bearded American tech bro libertarian, but honestly we have enough social engineering in this country, thanks.

Lastly - all money has a multiplier effect on the economy depending on what is done with it. Money that is left in private hands has been shown consistently around the world since anyone cared to think about this question to have a higher multiplier effect than money that is taxed and used by the government. In other words, by taxing people more you are quite literally shrinking the economy and making us all poorer as a whole. It’s a poor idea to just tax rich people more when there’s no real fiscal need for more funds just because we’ve got a bit of an axe to grind.

Ah bugger it, it’d still feel good - go on then Taxinda.

"It’s a false choice and is predicated on the idea that it’s the government’s right to decide what people do with their private property."

It might be a false choice but this statement of yours is a literal strawman. The government is literally not telling you what to do with your private property. With a deemed rate of return tax they are tilting the playing field so that some behaviours are more desirable than others, but that is literally what every single tax does.

So it's not "snarky nonsense" - the nonsense is your claim the government is forcing you to do some thing with your assets.

A really long bow is being drawn here.

Yeah, it's a false choice but no, they are not telling you what to do. They are just saying your behaviour is undesirable and should be punished.


Your remark about the purpose of tax being to discourage undesirable behaviour speaks volumes. "Literally every single tax" is about "tilting the playing field so that some behaviours are more desirable than others". Literally every single one! Right. So what about income tax? What undesirable behaviour does income tax target? Does GST imply consumption is undesirable? We have a consumer driven economy that would shrivel into nothingness without consumption. Or is it about providing a stable source of tax funds that is difficult for anyone to avoid?

I am quite sure that you do understand that the right and appropriate purpose of tax is to fund the fiscal needs of the government, and not simply to "tilt the playing field" (or whatever other euphemism for social engineering you might apply). What you are talking about (penalising undesirable behaviour) should more rightly be called fines - the government in effect fining people, for example, for not achieving the rate of return they deem acceptable on their private assets. Cloaking it with the moniker of tax, or excise, or duty, or anything else is misleading.

Government operations are well funded. We are back to my initial question - why are we talking about new taxes so much? Is there some massive government initiative that has not yet been revealed but will require an injection of more taxpayer money? No? So, are we just proposing dumping some cash on Jacinda's plate to.. see what she feels like doing with it? If there is a policy that needs to be funded, put it forward, make a case, and then raise the funds for it. Until then leave everybody's money alone.

Unless of course you simply have an axe to grind and the authority to grind it. Yeah, that's good government all right.