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Even if next week’s budget avoids the issue, it’s time New Zealand seriously considered a wealth tax, Lisa Marriott argues

Public Policy / opinion
Even if next week’s budget avoids the issue, it’s time New Zealand seriously considered a wealth tax, Lisa Marriott argues
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Getty Images.

By Lisa Marriott*

Tax is back in the news. Often this means a looming budget or election, as is indeed the case now, with the government’s 2022 budget delivered next week.

The election is much further away, but if the past couple of weeks are anything to go by, the interim will see the parties’ contrasting tax positions given plenty of attention.

So it’s probably time to discuss “wealth taxes” – a term broadly used here to capture the bucket of potential taxes on wealth, including capital gains, inheritance, gift, land or other types of tax on assets.

As recently as May 3, Prime Minister Jacinda Ardern said her government doesn’t have current plans to introduce a wealth tax but was also refusing to rule one out. Either way, it’s an issue that is unlikely to go away any time soon.

What we tax

To put it in context, there are three primary means of taxation, or three “limbs”, to use a frequently used tax term.

The first is income – taxes on earnings such as wages, salaries or company earnings. The second is taxing consumption – taxes on purchases of goods and services. Finally, there are taxes on wealth – taxes on what you own, usually assets.

In Aotearoa, we have comprehensive regimes for the first two of these.

Income tax is mostly paid by individuals and companies. In 2020-21, individuals paid income tax of $45 billion or 46.4% of total taxation revenue. Companies paid $15.8 billion or 16.2% of total taxation revenue in the same period. While not without its issues, it is better than many income tax systems.

Our goods and services tax (GST) is a broad-based consumption tax. This does what it says: it taxes goods and services.

Globally, our GST is often referred to as a model system due to its broad base and few exemptions. GST collected in 2020-21 was $25.6 billion (net), or 26.3% of total tax revenue.

Other consumption taxes include fuel, tobacco, and alcohol excise and duty. These are also all paid by the final consumer and totalled $5 billion in 2020-21 (5.2% of total tax revenue).

The primary issue with GST and excise taxes is that they fall more heavily on lower income earners as a proportion of earnings.

Auckland viaduct at twighlight.

The true level of wealth in New Zealand is largely unknown. Kerry Kissane/Getty Images.

The missing limb

But where is limb three? This is largely absent in Aotearoa, although we do tax assets in a small number of specific situations, such as the “bright-line” test for residential housing.

But the default is that we don’t tax wealth, and unless a transaction is explicitly included in the legislation, it will not attract tax. Why is this a problem?

First, as the OECD puts it, wealth accumulation “operates in a self-reinforcing way and is likely to increase in the absence of taxation”.

The OECD also argues “there is a strong case for addressing wealth inequality through the tax system”. This is because higher income earners have greater capacity to save, which facilitates investment creation and further wealth accumulation.

Additionally, wealth inequality is greater than income inequality. But income is comprehensively taxed while wealth is not.

Not the law’s fault

The discussion inevitably comes back to fairness. We’re all familiar with the stories of the untaxed passive gains made by property owners, while those earning wages or salaries pay tax on every dollar earned.

We can’t blame “the wealthy” for this outcome. They are only following the rules as outlined in tax legislation, as they are required to by law.

We can, however, blame governments – and not just the current one, despite its parliamentary majority offering an opportunity for action that recent past governments haven’t had.

The issue is that none appear willing to tackle the political unpalatability of introducing a wealth tax. And in the absence of a government willing to take a leadership role, the wealthy continue to benefit at the expense of those who have less.

It is important to note that wealth taxes are not typically directed at an individual’s personal home. They are intended to tax wealth in the traditional meaning of the word – for example, people who own multiple houses or are “land banking”.

Importantly, taxes are flexible instruments, they can have exclusions where appropriate, such as for Māori land.

David Parker sitting in front of microphones

Revenue Minister David Parker said the government will quantify the level of wealth in New Zealand but declined to say whether a wealth tax would follow. Lynn Grieveson/Getty Images.

An informed debate

Revenue minister David Parker’s recent proposals indicate some positive steps forward. Capturing more accurate information about high wealth individuals has the potential to provide the mandate for change.

As Parker said, current data used for policy purposes “effectively ignores the wealthiest”. He cited evidence that the maximum net worth collected in the current survey data used for policy purposes was $20 million, which is “out by a factor of hundreds”.

The question is, what will the government do when that information is available?

Collecting information is just the first step to inform debate in a democratic society. The issue is how much inequality our democracy is willing to tolerate.

Better quality data on who wins and who loses from a wealth tax will contribute to better quality debate. Whether we want a wealth tax, however, can only be determined at the ballot box. This should be put to the vote.The Conversation


*Lisa Marriott is Professor of Taxation at Te Herenga Waka — Victoria University of Wellington. This article is republished from The Conversation under a Creative Commons license. Read the original article.

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188 Comments

"Why is this a problem?

First, as the OECD puts it, wealth accumulation “operates in a self-reinforcing way and is likely to increase in the absence of taxation”. So, not a problem at all then; everyone wants to increase their wealth.

The OECD also argues “there is a strong case for addressing wealth inequality through the tax system”. This is because higher income earners have greater capacity to save, which facilitates investment creation and further wealth accumulation. Equality of opportunity is fair. Equality of outcomes is unfair, it ignores individual effort & the discipline required to making smarter choices in life.

Additionally, wealth inequality is greater than income inequality. But income is comprehensively taxed while wealth is not." 

NZ had wealth taxes/death duties for over a century. Getting rid of these envy taxes & other economic inefficiencies such as stamp duty was the electoral mandate quid pro quo given for the original introduction of GST a few decades ago - by a Labour Govt.

Assuming the wealth was originally earned legally (including the tax legally due & paid at the time of earning which contributed to the required share of health pension & other state benefits), it's then up to the capital owner to dispose of/bequest it. Not those who think they have a right to steal it simply because of their envy.

Any subsequent income earnings from the capital are of course subject to taxation according to relevant legislation.

There's nothing stopping anyone leaving your money to the State if you don't want to leave it to your family to provide for their future in a volatile uncertain complex & ambiguous world.

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I agree, equality of opportunity would be great but we are not there yet. Adding a substantial inheritance tax would be a good start. 

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Yeah perfect. An individual works and pays income tax while they do that. They die and pass on their taxed money as inheritance and it is taxed a second time. Well thought through!

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Well, they get taxed again if they decide to spend it on a loaf of bread, why should the freeloading kids get it without contributing some to society? 

There can be no pretense of equality of opportunity when some get huge inheritances and others don't. 

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You are confusing & conflating equality of opportunity with equality of outcomes. 

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Inheritance tax obviously moves closer toward a meritocratic society for kids starting out, where it's up to them to make it under their own steam. 

Not endorsing it, specifically, just pointing it out.

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I am happy to go further and endorse this - I think Meritocracy is a Good Thing. It's a simple fairness issue for me - why should some children in a given cohort receive large inheritances which they have done precisely nothing to earn while others do not? There is also evidence to suggest that simple inheritances are often not a benefit to the child anyway - there is a difference in how people treat earned money vs windfall money. 

I do understand the drive to support your children and give them as many legs up as possible to ensure they succeed, and I will happy give in to that counterpoint and accept a 50% inheritance tax rate rather than the much more fair 100%. 

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If you think children of people who have accumulated tax-as-income savings have done 'nothing to earn it', then let me tell you how much less of a claim the government has to it. 

This argument only works if you begin under the assumption the government has a default right to all property, which at 100% inheritance taxes is getting up there with the kinds of people who advocated for a day-zero pastoral-based society.

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The Government needs to raise money from somewhere to pay for the services it provides - Education, Health, Police, Defence etc. Looking at the options, I think inheritance is a great target. Perhaps we can agree that someone inheriting money has done less to earn it than someone working to earn a salary? Why is it more justifiable to tax the latter? 

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The Government needs to raise money from somewhere to pay for the services it provides - Education, Health, Police, Defence etc. 

I guess this would be relevant if I was suggesting the government doesn't collect any tax at all, but I wasn't. 

Perhaps we can agree that someone inheriting money has done less to earn it than someone working to earn a salary? Why is it more justifiable to tax the latter? 

Because that's how social contract works. I pay taxes, the government gives me a safe (lol) place to live and work and raise a family. When I die, I pose no further drain on the government. I get burned to a delicious crisp and no one ever has to worry about me again. At that point, I've done my bit.

If the government can't run its own affairs from the income I provide it while I'm alive then I fail to see why it should get another crack just because I've expired, ahead of my family, who may well need that money to make up for the huge living costs decades of crappy government spending and decisions have foisted upon them. 

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I was just defining our common point - the state needs to raise money and the discussion is how it should be raised. The social contract isn't quite as you say - the Government provides these services to all citizens regardless of their contributions - a Welfare State. It is explicitly not a user-pays system, so there is no need for the money to come from a particular pot. 

I'm proposing an alternative, where you pay fewer taxes through your life (giving you more opportunities to spend, invest, treat or educate your children, whatever you like), and in exchange you pay more tax when you die. If I could pay all my tax after I'm dead I'd sign up for that in an instant. The children of the wealthy still have all the advantages of expensive upbringings, education, tutors, music lessons etc, but the inheritance tax goes some way to level the field.  

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It's not even a fairness thing for me, it's about building a stronger society.  If a coach picks his son over other kids better than him then the team is weaker than it otherwise would be.  That's what happens with generational inequality, your success in life depends more on where you started than what you're capable of.  Overall, it means less competent people take jobs that more competent people should be taking. I'd rather have my teeth seen to by someone who has competed fairly against others to be the best dentist than one who is a dentist because his dad was. 

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Is the core function of the tax system to impose that kind of outcome upon people, or is it to fund the state?

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What would be your preferred method for the State to encourage a meritocracy - or do you not think this is a worthwhile goal for the State?

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No. The state should not have the compulsion to tax for anything beyond providing services required to keep a functional society. What you're arguing for is for government to use the power of compulsion to start knee-capping people based on ideology to promote equality of outcomes, then it is abusing that power.

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There is no morally neutral way to raise tax, unfortunately. Personally I love it when a tax also promotes a social good - fuel duty discourages driving with all the negative externalities that entails, likewise alcohol and tobacco taxes. Carbon taxes discourage pollution and encourage energy efficiency. Land taxes encourage efficient use of land. Inheritance tax levels the playing field for the next generation. 

Meanwhile we are stuck with predominantly income tax, discouraging our citizens from going out and working hard. I find that bizarre. 

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Overly emotive language doesn't help your argument. Nobody was suggesting increasing the overall tax take, other taxes can be reduced. Inheritance tax is not to promote equality of outcome, rather equality of opportunity at a personal level. Just under half the OECD countries have inheritance taxes.

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"Just under half the OECD countries have inheritance taxes."

And they also have carve-outs, rollover relief, high thresholds... shall I go on? Context is important if you want to start saying everyone else jumping off bridges means we should do it too. Bit of a dumb idea if they have bungees and you don't. Seems quite relevant. 

I fail to see how my language is 'overly emotive' given the fact some people here seem to view taxation - a monopoly right of the state to levy under pain of imprisonment - as a way for them to drive their own personal agendas. The state already collects huge amounts of money to help with 'equality of opportunity'. It seems manifestly unable to do so. How much more should it take from everyday Kiwis, given that apparently the amount it collects now is not enough?

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I would expect any NZ inheritance tax to have similar settings unfortunately - probably a million dollar threshold to make it more politically palatable and allow modest family homes to be passed on in full. Houses are sacred cows in this country. 

Nobody apart from you is talking about the amount of tax raised, this is about the method of raising the funds required and whether there is a better way than primarily taxing income with a little consumption on the side. 

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Nobody apart from you is talking about the amount of tax raised, this is about the method of raising the funds required and whether there is a better way than primarily taxing income with a little consumption on the side.

Sure. We could tax realised capital gains. We could tax unimproved land. We could have hugely punitive stamp duties that punish people for owning more than one house. There's all sorts of things we could do. But what we should absolutely not do is let people use the power of the state to raise taxation revenue to push their own barrows.

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Our current taxation regime is the result of the wealthy and powerful pushing their barrows, so I think the horse has bolted on that one. Would you truly argue that our current setup is morally neutral and any discussion of changing the balance is unwarranted? We should just close the doors on the discussion despite the fact that our taxation landscape has constantly evolved?

But in quick order - capital gains tax yes, with appropriate treatment of inflationary gains. Tax on unimproved land, yes. Stamp duties for the first home no - that's a tax on mobility. Stamp duties on second + homes, absolutely. Tax the excessive use of a scarce resource. Great set of ideas - I wish the Government would take as broad a view. We could then significantly reduce income tax and probably GST, and really help out the average Kiwi. 

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And they also have carve-outs, rollover relief, high thresholds... shall I go on?

That's really just describing the regulatory capture that also infected and killed off our earlier land tax that was used to get land out of land banks and into the hands of more average Kiwis.

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No, we are discussing tax policy to fund society's services. At the moment it is out of kilter and sees productive work being heavily taxed while much money is made elsewhere under the pretense of completely accidental capital gains, while tax money goes into subsidising property prices and yields. Which is arguable abusing the power to tax, in a way that enriches the few with influence.

It kneecaps young productive people based on ideology and greed, and sees them paying the taxes to fund society's services while many making money can freeload. Fundamentally skewiffy when the young are expected to pay for the keeping of the old today.

I've merely pointed out that inheritance tax is more conducive to meritocracy for the young. That's just a description, not an endorsement.

 

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I guess it depends on your definition of a functional society. You can have functional societies that are based on slavery but I would aspire to something more

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No, I am not. Do you and I have the same opportunity to succeed if I inherit a million dollars and a small portfolio of investment properties when I turn 18, and your family is unable to even help fund your degree? 

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My wife and I started with nothing, we have and will not receive any inheritance, as far as I know everyone I grew up with had the same opportunities as we did,  we put in the hard work and some pretty big sacrifices and we have accumulated wealth over many years. We have three children, now as I have been taxed through my whole life, I don't see why we should be suddenly to pay tax twice if I decide to leave my children some dollars to give them a hand in life. They won't receive millions but whatever they do receive I feel that we worked damn hard to give them what amounts we have left (after our retirement) and we paid the appropriate tax at the time.  

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OK, but you're not being taxed twice. You were taxed on the money you earned when you received it, and with an inheritance tax your children will be taxed on the money they get when they receive it. Just like I was taxed on the money earned when I received it, and when I transfer it to other people (like the guy who mows the lawns) they pay tax on the money the get when they receive it. If people who just get given money from someone else shouldn't be taxed on it because it's already been taxed, then it seems that people who get given money from someone else to pay for a service shouldn't be taxed on it either, because it's already been taxed. 

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What's even better is that if you're left a non-cash asset in an estate, then taxing people on the value of that asset (even if you would never sell it) means people either have to come up with the cash to keep it in the family, or end up selling it because they can't afford to pay the tax on the asset. Great news if you're a finance minister with a penchant for racking up huge government spending, bad news if you're inheriting your Grandad's old TR6. 
 

PS: The guy who mows the lawns is knowingly swapping his labour for something, the people getting the benefits of an already-taxed estate have not set out in enterprise to profit from their parents death. Considering the rort with property where we let "Oh, I didn't mean to sell this after we made $600K in six months, it just worked out that way" slide, you're going to have to do better than that to convince me the people who let that level of piss-taking go on now grab hold of inheritances away from working Kiwis as well.

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Let's be clear about the arguments against: 

1. I'm being taxed twice! No, you're not. You were taxed on the money when you earned it. Your children are being taxed on the money when they received it. 

2. It's just taking more away from hard working kiwis! No, it's not. Adding a wealth tax could easily be revenue neutral. If so, it would work to reduce the tax burden on hard working kiwis, by taxing instead wealth that is not a result of your hard work at all, but of someone else's hard work. 

3. It would mean that people who inherit an asset might have to sell it when they don't want to! Sure. But plenty of people have to sell assets when they don't want to, or worse luck, never get assets in the first place. What you are saying is that I have to pay more tax on money I earn through my hard work so that someone else's kid gets to keep a 2 million dollar house as opposed to having to sell it and instead getting, say, 1.5 mil in the bank with which they could buy a different house. I mean, I understand that houses have sentimental value and all, I'm just not sure why someone else's sentimental valuing of a house is something I should have to pay for by paying more tax on money I actually worked to earn. 

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"Let's be clear" sounds a lot like "Here are my talking points to rebuff your talking points but I'm going to assert they somehow have more authority" but go off, king.

1. No, they get the net proceeds. The tax is being paid by the estate, which is for all intents and purposes, me but dead. It may seem like semantics but it is not. 

2. The rich will structure around it, the poor have no assets and pay no tax anyway, so the burden will fall on the middle. And guess what? We're having this discussion because the government doesn't have enough and wants more. So hard to see how they will be end up better off by a tax they will end up bearing the brunt of - otherwise what was the point?

3. That $2m house could be easily targeted using the framework of the Income Tax Act, very surgically and very specifically, which I am entirely in favour of. What I don't agree with is people using historically poor administration of the tax system to an excuse to restructure it to achieve political aims, and abusing the power of the state to do so. There are any number of smarter ways to target property outside the family home if that's what you're actually interested in doing. But to use it as an excuse to start taxing inheritances without targeted measures against the multi-property owners of the here and now is a sick joke, and totally ignores the huge numbers of exemptions, rollover relief and carve-out schemes other countries have.

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1. I don't understand why this isn't just semantics. Perhaps we'll just have to agree to disagree about this - it doesn't seem like the most important argument against wealth tax anyway. 

2. The rich will structure around it - sure. They always do and always will. They are currently structuring around income taxes. It doesn't seem like that's an argument against income taxes, so it's not clear why it should be an argument against wealth taxes. 

2a. (This seemed like a separate point to me): We're having this discussion because the government doesn't have enough and wants more: If you're against wealth taxes because you think in practice they will operate to increase the overall taxes and won't be used to reduce the tax burden on wage and salary earners, then I agree with you - in that case they would be a bad idea. But in principle , wealth taxes don't need to work like this. 

3. But to use it as an excuse to start taxing inheritances without targeted measures against the multi-property owners of the here and now is a sick joke. I totally agree with you about this, multi-property owners should be targeted, and should probably be targeted before inheritance tax. But I don't see this as an argument against wealth tax. Just because we should target property owners as well and first doesn't mean a wealth tax isn't also appropriate. 

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Frankly I think avoiding the need for inheritance taxes would be a brilliant motivation for tax reform everywhere else, but the problem is that you get people who simply want to go hard at inheritances without any real scrutiny of the system as-is because it achieves a political desire for them - which is how we got into this mess with ignoring the flow-on effect of rental property investment but in reverse.

If we did all the other bits that a competent tax system needs, there would be no need for an inheritance tax. But again, the loudest win out and we end up accepting the need for one as a fait accompli, without asking whether that's actually the case. Because let's face it, academics aren't going to start out with the argument that 'here's what we need to do to avoid the need for an inheritance tax' and it's probably a pretty important part of the conversation.

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If we did all the other bits that a competent tax system needs, there would be no need for an inheritance tax

This might be true, but - imagine we were designing the ideal tax system, and we've got a set amount of taxes in mind that need to be raised. So we could have, say, personal income taxes and nothing else, wealth taxes and nothing else, GST and nothing else, or some combination of them. From my perspective, there is no reason to think that inheritance taxes are for some reason inherently worse than any other type of tax - it seems to me that just about every decent argument against inheritance taxes provides an either stringer argument against income taxes. Is there a reason why you think inheritance taxes are especially bad, compared to (say) income taxes? 

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I get a choice about the money I earn and how I do it. I don't a choice about when I cark. Nor do my kids get to claim an 'input cost' for the enormous burden of no longer having their parent around. Treating it like an intentional and commercial transaction but with no claimable inputs is wrong to me. 

Realistically, leaving everything else untaxed but coming after the project car or small amount of cash I might have after paying down my own mortgage (which will take most of my working life, caused largely due by the damage done by ineffective government) to further enrich ineffective government seems like there isn't much incentive for the government to actually do better at any point. At least when I'm alive, I have a voice in a democracy. When I'm dead, I do not. That is the point at which their ability to take things from me should end. 

Let's be clear, the property my progeny may acquire after my death is acquired for nil, and if they dispose it, everything past $1 is profit. The tax system should contemplate that when it comes to property. But the tax system should be a hell of a lot more effective than it is, and the fact it isn't shouldn't be my estate's problem, or my that of my kids. If the government wants to collect even more revenue from my family but then piss it away, at the same time as it makes life harder and harder for people, then that isn't upholding their end of the deal, let alone the moral high ground required to genuinely say they need to tax the dead.

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But the tax system should be a hell of a lot more effective than it is, and the fact it isn't shouldn't be my estate's problem, or my that of my kids

Well sure. But the fact that it isn't shouldn't be the problem if hardworking Kiwis who have only what they earn through their own effort to support themselves either. That's my point - it doesn't seem to me like your estate, or your kids right to get a tax free inheritance, is more important than someone else's right to the fruits of their labour. Why is it more wrong to take money from your estate than from people who've worked for it? An estate isn't a person. Why is it more wrong to take some of the money your kids didn't earn themselves off of them, than to take money that I did work for off me? 

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Your argument is flawed Al123, If I gifted my children the house/shares/cash when I was alive they wouldn't pay tax as it's not income. Why does me dying change that?

Inheritance tax is truly a socialist evil and there will be so many loopholes as to be worthless.

Life's not fair and it never will be. Not going to get a large inheritance? Be thankful you were born in a first world country, you have a head start over billions.

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Socialist evil is taxing productive work for all NZ society and then handing it out as landlord subsidies and welfare benefits to wealthy older folk. Socialists.

Your argument is flawed as you're trying to use the absence of a tax on a form of income to justify another absence of a tax on a form of income. It doesn't justify it, just highlights that there is another untaxed income.

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Evil socialist USA with a 40% inheritance/estate tax!!

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Inheritance tax is theft of already taxed money pure and simple. A person who accumulates wealth through their hard work through their lifetime should be free to do with it what they want without it being stolen from them.  End of. 

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And they can. Donate to charity, bury it with you, place it on a burning boat and be put out to sea with it, no problem. 

However, if someone is receiving a large gift from a deceased relative or friend, I think it's very reasonable to tax that unearned income. 

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What about money all children have spent on them? they surely have not earned that money. Should we keep a tab on how much money they received from their parents from when they were born and tax the whole lot? 

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An interesting idea. I can see the moral equivalence but I think the administrative burden would be rather excessive. Inheritance tax is relatively simple, give or take some issues valuing items. There is also an obvious difference between taxing, say, 30% of a lump sum of cash you are receiving vs. receiving a tax bill out of the blue and having to find a way to pay it. 

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Why is it rather "excessive" admin, you can tax people for having kids, average spend on a kid given your total income bracket is X, you pay taxes on the X. It sound far easier than valuing non-cash assets for inheritance tax purposes. You can alternatively look through the income earner to their dependents. Net after tax of the family is divided between family members, and the unearned income is taxed at family member's tax rate, Simple and beautiful. PAYE for children from cradle to grave. 

The very best alternative is for all children to be taken away from their parents at birth, randomly assigned to government care-giving organisations, with equal resources and attention allocated to each child (e.g. you all get 3 hugs a day). This will surely given the fairest starting point to all members of society.

Sorry, there is a missing step here: we should randomly assign couples (thanks god for computing capacity we have today) and compel them to have children, this way your genetic make up is also determined by chance, so it will give all of us an equal chance of genetic make up. 

Unfotunatley I am wrong again. The answer is cloning, if government clones the same individual, then we will have no problem. 

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We actually already have GST to tax the spend on children so we've got that covered, but thanks for the alternative approach.

The gap is if you don't spend the money and want to give it to someone else who didn't earn it. 

Your other examples show the difficulty of achieving true equality of opportunity, even though some seem to think we have this already. An inheritance tax is a relatively easy and painless way to start moving us in that direction.

 

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It is not unearned income it is a gift to your children, already taxed money. I would rather bun it to Keep warm rather that it be stolen by the government  to waste. 

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Sure, but there's no good reason you're entitled to take others' income (earned or unearned) as your socialist pension, for example. They might rather burn (or even bun) it than have it be handouts to you. 

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There is a distinction between capital and income mfd. Secondly, whatever wealth any person accumulates over their lifetime is no business of yours, or any Government, as they will have paid any taxes legally due at the time. Luckily, we currently have property laws in NZ which allow owners|beneficial owners to use, collect or dispose of any property as they see fit, whenever they choose. Your argument is nothing but pure envy.  And there is a reason inheritance tax was removed. Do read about it. It will enlighten you.

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They're not being taxed. End of.

If someone else receives incoming money from that person when they die, it's taxed as income - because at that point it's income. Just like if you spend your taxed income at someone's store then that person receives it as revenue and pays tax on their income. 

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Agreed when it comes to non-cash assets.  Not only do you have to factor in the means to pay, but how does one determine the value of the asset?  Does the state's own registered valuation trump over the asset owner's registered valuation?  

Imagine inheriting the home that you grew up in from your parents, only to have to take out a $10k - $20k loan to pay the tax.  And also many assets are already "taxed" by way of annual rates to fund local services.  

 

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We have RVs as a good starting point, perhaps with a right to ask for a revaluation at the time of inheritance? 

Inheriting an asset with associated debts is always a possibility - outstanding mortgages, unpaid debts or particularly reverse equity mortgages. A friend is going through this right now and having to sell the property.

I wouldn't have too much sympathy for the inheritor of a million dollar home also inheriting a $20k mortgage - they can always sell and pocket the difference is the loan is a problem. 

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Yes there's that side of the equation too.  If the person inheritor was renting for $500 per week, what's $100 per week for a 5 year $20k mortgage?  Or put that $500 per week into the mortgage and have it gone in less than a year.  

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Or we deem the value of inherited property to be nil, and the full whack is taxed upon disposal under the existing Income Tax Act system, but with rollover relief for people who move into these houses to make use of a main home exemption? Like... have the debate around this properly, don't just jump straight to the 'tax all inheritances everywhere upon distribution'. I'm largely in agreement with this as you're acquiring the property for nothing, but eventually selling it creates the taxable event and gain, not taking possession of it.

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But if I give it to a church it's not taxed right....go fiqure.

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Good job, you have done well for yourselves. I don't argue that people who don't receive an inheritance stand no chance, but obviously they are handicapped in some way. It is in my nature to like a fair fight, so inheritance tax strongly aligns with my values. 

Out of curiosity - would your life have been better or easier with an inheritance, or do you think you have more satisfaction knowing you earned it all for yourself? Do you think your childrens' lives will be better or easier if you can pass on an inheritance? 

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Who knows, some people with inheritance waste it, some give it to charities. My point is someone at sometime had to work hard and make the right decisions to get that wealth (usually..lotto being one exception) at the time they probably paid taxes through wages or RWT  etc etc. So just because they didn't buy a 100k boat or 50k cars through their life, that if they pass away and leave it to their loved ones, they are hit with a tax. We never saw not having an inheritance as a handicap, we just set some goals and worked hard to achieve them, and I will never be sorry for that, neither should my kids.

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If you'd bought that boat instead you would have paid tax at that point, of course. I agree you have already paid tax on the money that you earned (or at least I assume so), but to me this is more of an argument against a wealth tax. Passing money to your children is a transaction which could, and I think should, be taxed. You have paid the tax, but your children haven't - it is truly unearned income to them and in my mind should be taxed more heavily than earned income is. 

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Wrong my family is part of me.

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If your child fails to pay a tax bill, are you happy for the state to knock on your door to collect? How about a Cousin? 

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"You have paid the tax, but your children haven't"

We have already stolen from future generations by means of ludicrous debt.

Why would we then rob them of the end product that debt was for.

It is just kicking them while they are down.

 

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The idea would be to reduce income tax, funded by higher inheritance tax. 

What benefits future generations more - tax free inheritance or lower tax on their lifetime of labour? 

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People don't need to worry about inheritance taxes, they are not paid in the UK, where they were invented, another poster said the take per annum was about 0.7% of the tax take lol.

I will have my assets off shore or in a perpetual trust.  

What it will mean that if start-ups want me to invest (and I have in the past) they will have to show that they are not resident in NZ.  No big deal to anyone.

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Sorry mfd, but spoken like someone who doesn't have much. People make good choices throughout their lives and there is no reason their family and their families after that shouldn't benefit from those choices. People who make bad choices, often struggle. But that's their problem, no one elses.

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Imagine if we had an inheritance tax all throughout your working life?  Your "appropriate tax" could have been lower as this could have been offset by the revenue gained from the inheritance tax.

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How is there equality of opportunity when some through their unequal wealth can afford better quality and quantities of food, healthy dry homes and no fear of loosing it, their own bedrooms and equal technology for study needs, private tutors, private schools and private clubs with exclusive networking in wealthy circles etc? Those are not the starting points for equal opportunities and/or equal outcomes.

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You make it sound like it's a requirement to contribute something to society mfd. Are you suggesting poor people contribute something to society as well?

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Society and its associated services and systems probably contribute more to your overall "wealth" than your individual "hard work", so it makes sense to give back in some form.

Yes the "poor" do contribute to society in many forms. Residential property investment is one form. They also provide a lesson for society to learn compassion and empathy. And maybe that unfettered economic self interest does not create a cooperative, healthy functioning society that serves the wellbeing of all inhabitants.

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Sure, but from the perspective of their child, they get a massive untaxed windfall for happening to be born to wealthy parents. The person doesn't pay tax twice, as they're dead! It's their estate or the inheritors depending on how you think about it that pay the tax. However it's a troublesome tax as it's easy to avoid without complexity around gift duties and the like.

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The paying tax twice argument is ridiculous anyway. There is no rule that you can't be taxed twice on the same money. Have they not heard of PAYE and GST?

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Surely people must be aware that "it's being taxed twice" argument makes no logical sense at all. Once is when it's income to the parent. When money is income to the child, they also pay income tax. Neither individual is paying tax twice.

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Interesting you only mentioned income worked for though.

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The money for the original investment (if legal) was taxed, but why should the return on that investment be untaxed? If I put a chunk of money in the bank I pay tax on the interest. Why if I put a chunk of money into land shouldn't I pay tax on the gains? 

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If we are to have a wealth tax debate, let's hear how it's going to be targeted at plutocrats and untaxed earnings like capital gains and not accumulated residual income that has been taxed when it was earned by ordinary salary and wage earners.

I also want to know whether it will be like the Greens' dumpster fire, whereby you could have owned four properties in the backwaters and paid nothing, but owning a family home in Auckland outright could have pushed you right up to the brink.

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Pure evil.

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It's times like these that I wish for a downvote button

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With your comment, I have to agree.

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Land Value Tax, broadly applied and with very few exemptions, is far more functional than Wealth taxes. Land Value Tax should have one exemption, which is postponing of LVT on a single property during retirement until death so a person retires at 65-67 and dies at 86 owes 18-20 years worth of LVT upon the distribution of the Will. That is effectively an inheritance tax on property and it is essentially unavoidable.

All that will happen with a Wealth tax is people hide their money in legal bodies. It just punishes people who are middle/upper middle class who can save a few hundred thousand over a lifetime while being completely dodged by anyone with the money for a decent accountant or a business to hide money in.

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The article describes wealth tax as a broad umbrella, where the LVT you describe would be a potential implementation of a wealth tax

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Agree, LVT on the unimproved value of land coupled with lower income taxes would be ideal. Reward hard work, not just sitting on land.

Better than a wealth tax. As conservative Milton Friedman noted, LVT is the "least bad tax" in terms of negative effects. Taxing productive work hard like we do is pretty bad in comparison. To think, income tax was first brought in as a temporary measure too...

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Primary residence should be exempt from a land tax. If your tax proposal requires people to rack up a huge bill against a home to collect on as a security then your tax proposal sucks and offers no chance of rollover relief - so not only does it function as an inheritance tax, it would be one of the most punitive in the world.

But that's the NZ approach to something all over: make it so that ordinary Kiwis owning one single house get stung, while those renting or who never own the house under them don't - and blithely act as if fairness is somehow an overriding concern. It's time we demanded an actual definition of 'fair' - it can't be 'inventing another way in which the middle carry the burden'. 

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No, after this Housing price issue has rendered future generations destitute, it should be universally applied with very few exemptions. The nation belongs to the living, the dead and those who are yet to be born, and robbing one generation of its productive labour to enrich an older generation is fundamentally irresponsible. It gives wealth for merely owning wealth rather than through productivity to enable ruthless speculation without imposing costs of speculation.

If you own a home, pay your 1.5% LVT and maybe have a slight income tax reduction.

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"No, after this Housing price issue has rendered future generations destitute, it should be universally applied with very few exemptions. "

If housing shortages are the issue then target it at people who own multiple houses. Owner-occupiers who own one house and will never own anything more than one house copping another hit for a 'slight' income tax reduction is a crappy trade-off for people who aren't actually contributing to the problem you're supposedly trying to solve.

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The original LVT that New Zealand implemented in the 1890s had an exemption added for personal residence in the 1920s, followed by more and more exemptions over time (largely at the request of the banks) until it was hardly paid by anybody. It was removed by Roger Douglas in the 80s because literally no one paid it with all the exemptions.

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So... you can see why I'm not in favour of governments being able to run up bills against Kiwi homeowners on credit, given their inability to master the basics of tax administration?

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The rich and powerful captured and got rid of this tax in the past...so we should concentrate on taxes that the poorer have no hope of getting rid of. Great.

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The 'poor' in NZ are not going to be a stonking source of revenue for a wealth tax, nor are they currently a decent source of income tax. So at this poitn there's all sorts of complexities that you have to take into account if concern for 'the poor' is a desired outcome because everyone paying a 'fair share' generally doesn't gel with huge chunks of people paying almost nothing, either at the top or the bottom. 

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Point missed?

We stick with income tax because the poorer Kiwis can't get rid of it as the wealthier Kiwis got rid of land tax et al. Your point was about taxes having been eroded by people with influence.

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Exempt the family home from a tax........and guess what will happen to house prices (as we can see) ????

If you are going to do this..........TOP party tax on all assets is the only way -  unless you  want to inflate the housing bubble even further!

 

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No the TOP policy is very weak.  It was a rushed bit of thinking by my reading.  The 2% tax on assets per annum would simply bankrupt most retirees in a few years particularly in times of high inflation. 

Would it crash house prices?  Certainly, also creating a new class of very poor and welfare dependent people.  

There is one upside tho, as all the tradies take a 4 hour flight to Aussie we would all have to spend our weekends learning how to build our cheap sub-standard housing, great for the community! (cue 70's BBQ working bee flash backs).

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TOP policy is on its way every day more people see the need for a rebalancing of our tax system no other party will do what needs to be done.  

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Rebalancing our tax system... nothing says 'stop treating housing as investment' like taxing all housing as it were generating a return on an investment. Except all assets everywhere. 

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What is Wealth?

Is it holistic?

Health = Wealth so they say. I have been fortunate enough not to need any medical services in years? Should I be taxed for that?

I have a young family, does their love and company make me wealthy? I would say yes, the Govt says no.

Govt issued $ are the "real" wealth they tell me.

But wait, we need to be taxed on that "real" wealth...

I paid x for my house in 2010. It is now worth 100% more. Funny thing it wasn't me that made the wealth, it was a combination of Central Govt, Local govt, and Central Bank ineptitude that did it.

So I should be taxed on their failures?

We don't need more tax $, our tax take is the highest it has ever been.

We need a fairer system. 

Workers are paying 45% of the tax already, oh and then there is the GST component, and the Levies. So in all likelihood they are paying over 50%. Now we want to tax the change in value of those things they bought with their post tax income.

Why don't we just call it what it is - slavery. After all isn't that the ideal outcome... everyone working for free.

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If your house price (and associated tax) increases due to govt action then you have good motivation to vote for a different government.

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Lol, I believe the country tried that. Look where it got us... a one way ticket to the moon.

Ironically prices are now "crashing" but at best will collapse back to 2019 levels, which were still much higher than the "crisis" prices they got voted into reduce.

Any talk of wealth tax will only impact one demographic, and we all know who that is.... Middle NZ is screwed.

Best vote is a one way ticket out, ballots are for chumps.

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I think that there are more nuanced ways that this could be done so that the worst tax abusers can be dealt with without hurting the bulk of hard working tax paying public who are the backbone of our economy.

Some of the places where I see people not paying their fair share are :-

1. People working overseas, perhaps or perhaps not paying tax there but certainly not in NZ. They may also be parking their family in a home in NZ and consuming the benefits of our country.

2. Overseas people who enjoy the benefits of owning property here, but contribute next to nothing.

Rates only pay for a very narrow part of the costs of running the country.

Further it is not unreasonable that they should be expected to pay a premium for the privilege of owning property here and enjoying living here on the occasions that they do.

3. New Zealand resident landlords, land bankers etc. The removal of the tax deduct ability on mortgage interests should have eliminated one of the major loopholes but I have the suspicion that there are some who are able to arrange their affairs so that they minimize their tax obligations. This would not be an additional tax to what arises from the removal of the tax deduct ability. One offsets part of the other.

I would like to suggest a simple property tax based on the capital value of the property and land. Normally I would not support this idea as it seems like double taxation on the assets that people have contributed to the economy, scrimped and saved for all their life. Accordingly I would add the provision that this tax could be offset by any income tax paid in New Zealand. If the tax was say 1.5% then even on a million dollar property, most NZ resident families should be paying more than enough tax to offset this. Retired people could be a problem but this could be dealt with by allowing them an exemption on the house that they live in provided that they have paid tax in New Zealand for say 30 years. For  recently retired immigrants this exemption could be scaled back on a pro rata basis.

 

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I think some of what you say here makes sense but let's make it even more simple.  Let's just have rates reflect the true cost of the infrastructure required to support the property?

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The government decides the population level. It also decides the taxation level. It also provides the infrastructure. Why the shortcomings in this should be borne by existing taxpayers (on top of declining living standards) is for the Crown to justify. I'd be in favour of such a system if there was ever any chance of us getting back to level pegging, but so far we can't build infrastructure, we are being taxed on inflationary earnings and there is no population strategy. So taxing us based on infrastructure that should mostly already be there seems like double jeopardy. 

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That adds extra taxes for all new Zealanders.  I want to get the ones who are largely avoiding tax.

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I think we would find that most of the overseas property would soon be owned by NZ based trusts with local lawyers as their Trustees, I think what you are saying is a good idea, I just think we need to close other loop-holes as well.  

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That would not let them escape.  The property would still be taxable which can only be offset by income tax paid in NZ.  There is no way out of it.  

The other point is that you were suggesting raising rates to cover a lot of the other things that taxes pay for like infrastructure.  These people benefit by pretty much everything that tax pays for so following your line we should abolish all income tax and replace that with rates.  That would have problems though.  The rich would not own property and just rent?  Ok how do we deal with that?  Collect taxes only on the basis of peoples total wealth?  That may work.  It would certainly give people starting out in life a good start.  But then they may tend to leave the country as they get older and more wealthy?

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Rates on property ought to just be a uniform charge across all properties, or if different between properties based on how many people are living there.  Just because "my" house is fancy and in a nice area doesn't mean that I get extra rubbish bins, or use more services than someone who is living in a studio down the road.   

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That is because it is a form of wealth or envy tax. You are talking about a poll tax, and it is a more fair tax. But it would mean people living in cheaper houses will pay more, even though they use the same services. Currently if they have 10 people living in the house, then a single person living in a large expensive house is essentially subsidising their services.  

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Income tax is a form of envy tax, by those who may have assets but lack the knowledge or skills to make incomes as others can.

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Capital gains tax is fair. You pay on profit. Tried and tested around the world as a means of raising taxes. 

It would also allow for a targeted approach on driving investment into the productive end of the economy by providing a selective portfolio of  "CGT free" investments that suits the needs of the economy at any given time.

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Overlooking that much of those gains have been due to the creation of inflation via Central Banks. 

 

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Yes, but it has been painted badly by the media. A wealth tax is potentially far worse for people with assets. Especially when governments often don't move the bands for inflation, so every year it captures more and more people.

Many people aren't very intelligent, and many people still think that they would have to pay tax on the total, not just the profit. Just like many people are against higher income taxes, because they think they pay the higher rate on the full amount they earn, and not just on the band of income above the threshold. It is staggering how many people still don't get this. I even had to explain this to someone who earns a lot, and they said they didn't want to get into the next tax threshold as they would end up earning less after tax. You would think they would teach this in schools.

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How about get stuffed. I have worked, paid no end of tax, have been screwed with GST and even my interest earned on my bank savings is being ripped. It gets to the point of not being worth working, hell lets all just sit on the dole and get other government handouts, no point trying to get anywhere in life by hard work because you get penalised for it. Its politcal suicide anyway, not going to happen. The only positive over the years is they dropped the gifting $25K a year, at least now you can pass on that money to your kids for a house deposit without the governmant trying to tax that as well.

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Ironically, a proper rebalance away from income tax and towards wealth tax will make working hard much more worthwhile as you get to keep more of the income. 

So much focus on the cons and so little discussion of the pros.

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There is an Irony for sure, but more "turkey's voting for Christmas".

Here's one for you to ponder, if you can earn more but it there is less point in investing in anything as it will be taxed Buzz Lightyear style what would you do?  Yeah, so would I, pubs and clubs will be charging $50 a pint and a new Ranger will set you back a mill'.  Not flash from an ecological standpoint ether I wouldn't think.

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I think this is a very naive comment.  Do you really think the government will introduce a wealth tax AND reduce income tax in any substantial way?  You're dreaming.   If a wealth tax is added it will be an additional tax - not a substitute tax. 

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Well not much more to discuss then is there? Any new tax type is bad, cos you don't trust the government. 

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I share the sentiment - but I think some kind of wealth tax could actually be a solution to the problem you are pointing to. The goal shouldn't be to add a wealth tax so workers end up paying more  - it should be to add a wealth tax so workers end up paying less (that is, take some of the tax burden off PAYE and GST and redistribute it to Wealth.  Are you actually against a wealth tax, or just against higher overall taxation?

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Replied to wrong comment.

 

But I also think your reaction is overly dramatic.

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Maybe Im an idiot. But I really do not understand the vitriol from many towards being taxed in any way shape or form. I have many friends who are very much in this camp, suprisingly particularly the property obsessed ones.

Personally I dont care, tax away !! And Im not someone who doesnt pay tax, personally and business I donate 300k + a year to the cause.

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They are accustomed to freeloading while working Kiwis pay the bulk of NZ's taxes. It is basic entitlement mentality charading as something more meritorious.

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We need less taxes not more to encourage hard work and personal accountability. The government policy should be encouraging investment in productive areas like SMEs and manufacturing. Buying and selling houses to each other is not that, but it seems to be the main economy in New Zealand. 

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Low hanging fruit. Lets generate as many taxable events as possible from cradle to grave. 

I've paid tax on the money I earn. If that money then generates me more money, then that's for me. Hands off. 

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Basically that's just "I pay tax on that income and I don't want to pay tax on this income...make someone else pay."

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No its not, that is your construction and not your greatest work.  His argument was simple, I have paid tax on my labour, if I invest the residual capital in a profit making endeavour I will earn money back on that capital and that endeavour will pay an additional tax.  

This is the true nature of progress.  The radical left have mutated the meaning of progress to mean hard-pressed identity politics, fantasies of equality for all.  This is the very opposite of progress as has been proven by every attempt to implement that communist ideal.  It results in everyone being less well off.

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Very dramatic. But in reality economics has recognised the difference between earned and unearned income for a while now, and many countries tax both. CGT is not some communist ideal that we should be red-scaring about on here.

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So I started a business with tax paid income i earned. You are saying that business shouldnt pay tax because it was started with money I was already taxed on ? 

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Yes, you should not be taxed on that. You must be taxed on net change in your wealth. If you are taxed on your starting wealth, the wealth will diminish rather quickly. Taxing "unconsumed income" (i.e. saving) is simply mad. 

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If you hold foreign investments they get taxed under the FIF rules whether or not they generate any income, you can argue about the detail but the principal seems fair enough to me. Surely the same should apply to all assets.

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No, as I said the endeavour that was invested in will add to the tax base - it would be taxed.

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Lets see some dynamism. How about reducing the base tax rates by the inflation figure every year. How about changing tax thresholds how about disincentivising owning 50 houses. 

Think outside the box,,, we have been thinking inside the box created by the capitaled class too long. How about publishing the amount of tax by anyone with wealth above 5 million. Stop being driven by the lobyists, and start attacking them. Stop claiming we are the most corruption free country in the world, and start proving it by doing forensic audits of every politician every 3 years... Shake it up NZ

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A wealth tax is barrow-pushers who are arguing for their favourite nuclear tax solution (to push an ideological outcome) instead of a targeted surgical strike on the actual issue; which is property investment and hoarding of the basics of accommodation.

That we didn't get stamp duties that doubled with every additional property owned and could be waived for FHBs along with the Brightline is a tragedy, but using it to argue for inheritance taxes or other attempts at social engineering is cynical opportunism.

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As a brand new tax without changing the rates of existing taxes I can understand the negative sentiment. However we have zero details about implementation here. As a replacement for some fraction of income tax and/or GST I could get behind a wealth tax such as an LVT.

Structured right, 90% of people would ending up paying much less tax overall, and those would be the "middle NZ" battlers that are struggling and seem to get missed by Labour who increases benefits for those worse off, and National that want to reduce taxes for those earning a lot more.

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Given that the middle that are currently copping it are being missed in the here and now, what sort of weapons-grade faith should we have that those running a tax system that hasn't been adjusted for inflation in over a decade will suddenly design a tax system that can and will fairly allocate a tax burden so that all Kiwis pay their fair share, and not one small portion of earners being slugged over and over again, at increasing rates in real terms?

It feels like we're kind of relying on the people who caused most of the issues as things stand to suddenly fix everything in one foul swoop and I would suggest that faith is perhaps misplaced, based on current form. 

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I believe the term is "blind faith".

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Let's wait until there's an actual proposal and judge it on its merit. We all know Labour and National are awful at implementing policy, there's no silver bullet to fixing these problems but if I see parties coming out with steps in the right direction I will take notice.

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Do I need to see the actual proposal to know that it's garbage-tier when the entire justification revolves around problematic notions like 'fairness', which has so far seen a small core group of taxpayers providing the overwhelming bulk of income tax receipts and while a huge cohort pay literally nothing? This aspect of 'fairness' never seems to be open for discussion. 

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The Opportunities Party.

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Of course, we must import the political wars from the US if it suits the needs of the left.  The rules of biology and humanity in turn should be ignored, we should all be equal that will be better.

Lisa says "The primary issue with GST and excise taxes is that they fall more heavily on lower income earners as a proportion of earnings."  Yes this is true, a communist state is clearly the aspiration (although none exist per Lenin's definition) so we can then all be lower income earners.  Otherwise there will always be income variation as we are not actually equal, we can do some things and not others.  

I agree with Lisa we need a wealth tax but that honestly it will not resolve significant value. 

A death tax as they have in the UK (40%, threshold used to be over 548k pounds not sure what it is now) has meant that almost all property over that value is owned by trusts (that never die).  It also led to a crisis in their grand houses and the maintenance of their estates.  No tears for the wealthy landowners as their successful enterprises are stamped out.  Quietly however, the National Trust, English Heritage and the Landmark Trust now have 2 Billion pounds of aging infrastructure to maintain through charitable donations.  (together the need just under 800 Million pounds per annum to do their work).  

They also have a stamp duty (~4%) on housing which was simply absorbed into the sale price within a couple of years.

Those are the taxes I know of that "work".  In the end these sorts of tax are well and good but they avoid some certain obvious truths, namely.

We are not all the same in our capability.  Some are more able than others, some more able than others at certain things.  This is the case in every facet of our lives but we "believe" something else as it helps those less able to live with that fact.

As human beings our demand on the planet is relatively similar (not the same but similar) to others.  To tax one persons labour more than another's is to suggest otherwise and this is also not true.  I get that a civilised society requires a centrally managed set of common goods, but there is no reason why one person's use of those common goods is more significant than another's.

 

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If trusts are the issue, then can they tax trusts more? Are trusts legal persons? If not, make them to be, and make them pay income tax at the highest marginal rate. As far as I can tell, trusts are good for owning family baches and keeping money intended for one person away from another person. The 'another person' should exclude the government. Change the definition of tax avoidance and tax evasion so people using trusts to pay less tax get hit.

I know it's not that simple, but does anyone ever talk about trusts?

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There has been quite some discussion about trusts, specifically their use in obfuscation in ownership (trusts owning trusts etc) of assets.

Trust's are seen as legal persons in the eye of the tax system.  They pay tax at the corporate rate on earnings.  

The point I was making was that inheritance taxes (death taxes) are not practical.

Another point is that ideas (such as the TOP's party) to tax assets per year is not practical ether.  Rental housing assets are not able to earn enough income to pay the existing tax on their revenues not that interest expense is "no longer an expense" (yeah I know).

Unfortunately higher taxation does not result in better social outcomes in and of itself.  For example Labour has campaigned on lowering the price of housing and mental health and we all know how that turned out.

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It must be obvious to anyone who gives our tax system even a cursory glance that's it is unfair. We have virtually no tax on capital and that should change.

Personally, I would favour a broad based Inheritance Tax. Why should a proportion of my estate not go to the state rather than to my children? 

Of course it would make our system more complex and yes, smart lawyers and accountants wouldbe employed to try and find ways round it, but having dealt with IT issues for clients in the UK, I believe that most would just grumble and pay it. In the UK, IT currently raises some 6bn pounds and represents  0.70% of all tax receipts.

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But the interesting thing is that the asset base of the UK must be worth Trillions, I think you can see that this tax is basically a total failure.  That 6B tax revenue sounds great, I wonder how many start-ups are funding from the Bahamas just to avoid this tax and I wonder how much corporate tax could have been captured by this not being the case?

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JustanOpinion,

here's a radical idea. Shut down all the tax havens. I can just about understand why criminals use them, but I cannot get my head round the greed that impels already wealthy people go to enormous lengths to avoid paying tax.

I agree that it is a small amount relative to the Uk's asset and tax base, but they also have a CGT and it is part of a fairer system to tax not just income, but capital also. Of their system is not perfect, but i would argue that it's better than ours.

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Those that need chasing are the very top earners because they would pay so much tax it suddenly becomes them worth while trying to evade paying it. Going after your middle income NZ with a wealth tax is so much easier though, they just pay up and do not go to all the effort of any "Creative Accounting". What makes me puke is that somehow the people at the bottom think that taxing others is going to make them better off when all that money just dissapears into a giant black hole. NZ is terrible country for "Tall Poppy" syndrome, its been really noticable even for me.

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There are no inheritance or estate taxes in Australia.

If you are a beneficiary of a deceased estate | Australian Taxation Office (ato.gov.au)

 

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To be fair Carlos that is what we are told.  That more tax revenue and punishing the successful is the answer to our problems.

It's not like the government already has 45 Billion in the war-chest and can't spend that.  Or that it can't even spend it's existing budgets competently.

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Middle income NZ doesn't have any wealth, for the most part. Also, I think it's a bit misleading to just focus on income. Income isn't a very reliable guide to who is better off. When I was at Uni there were quite a few students getting the full student allowance because their parent's 'incomes' were below the threshold, but who were clearly very wealthy. I have heaps of colleagues who earn less than me, but have significantly more money to spend simply because of when they were able to buy a house. An easy way to see the issue is to think about what you lifestyle would be like if, say, you had inherited a house. Someone who buys the average house in NZ, assuming an average interest rate of 5%, will pay about 1.3 million for that house over 25 years. That's the equivalent of $52000 a year for 25 years. What that means is that a couple who earns 100k each but had to buy their own house (200k between them) will be worse off than a couple who earns 65k each (130k between them) who inherited a house. Yet a 200k couple would not be considered middle income, while a 130k couple probably would (they are pretty close to the median household income). TLDR: 'income' is not a very reliable guide to how well off you actually are. Why should someone shoulder more of the tax burden because they actually earn the money that pays for their lifestyle through working? 

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Agreed. Cut those tall poppies down is the approach here.  No one likes to see others that are more successful its really sad.

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That seems to be what has driven us overtaxing our high-achieving productive folk while others sit around on their inflating assets, huh? Tall Poppy syndrome from those without the skills to compete in a knowledge economy.

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carlos67: "NZ is terrible country for "Tall Poppy" syndrome, its been really noticable even for me."

NZ is a strange country, with its overt envy/hatred of anyone who manages to be successful in life (unless it's a sportsperson, then there's an abundance of hero-worship). I've travelled widely and lived and worked in other countries, and to me it seems that NZ is unique in this repugnant tall-poppy attitude. In most places people are applauded and respected if they manage to be financially successful. 

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Business builders who achieve highly are applauded. It's lose who make money by ethically dubious wealth transfers who aren't so well regarded. Nothing too strange about that. Many people have ethical standards.

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Honestly I'd like to don't have tax on the income (any income) at all.

Even GST is unfair, imho.

If the govt/community needs money I feel that is easier and more fair to take that money from where it is, not where it is made.

Take water from the reservoir, not the stream. 

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Remove the distinction and associated exemptions between revenue and capital income in tax legislation and instead of a wealth tax it's a recognition of all forms of income.

A wealth tax will create all sorts of division and argument especially from the entitled wealthy. There needs to be a societal shift in beliefs, a redefining of wealth and success, a shift away from celebrating and idolising wealth accumulation. Maybe a shift towards having enough, a maximum wealth limit and encouragement to gift unconditionally back to the community anything above that limit? Only then do you receive the accolades and titles.

Human nature has been distorted by the governing and control systems, by an economic system that can only measure life in monetary terms and has no sense of wellbeing.

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This was tried by the Stoics in Roman times and it worked for a while.  In the end, the truth of humanity won through.

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The truth of humanity won through or the truth of selfish and power corrupted rulers?

Here's a question to ponder.

Is society a reflection of its rulers or are our rulers a reflection of society?

We're in an era where we need to be supporting, encouraging and empowering each other, not fighting and competing to have more, to outdo each other. Time's they are a changing.

Judging from the majority of comments everyone just wants more and more for themselves and damn anyone else. It's almost like everyone is afraid of being equal, because then what, how do I measure my "worth", my social status, how do I measure getting ahead?

It's funny, all these issues staring humanity in the face and we're angry and upset arguing about "what's mine", "leave my wealth alone"! And we have the hubris to call ourselves the most intelligent species. 

"Intelligence without wisdom equals stupidity".

"The significant issues we face today cannot be solved by the same thinking that created them" - Einstein 

Maybe JFK's famous line can be rewritten - ask not what your community can do for you but, what can you do for your community? Question then is - who is your community and who are you excluding?

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TLDR. I reject the premise of the question. 

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"Intelligence without wisdom equals stupidity".

How about 'I can't feed my family morals'? 

The community is very good at telling me I owe it a debt of gratitude. It seems less interested in explaining why my generation has taken a pounding compared to previous ones, or why I will be working until I die to pay a mortgage on my first house. Funny that. No shortage of people wanting to wag their finger in their face or help themselves to whatever I can afford to leave my children.

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The community ain't telling you anything and I'm certainly not dictating anything either. I'm merely posing questions and alternate perspectives. Obviously it's your personal choice.

But it would appear that many are upset with the status quo and the imbalances, yet continue to buy into it effectively perpetuating the very same problems for the next generation. At some point the cycle has to be broken.

What point is hard work and sacrifice if it's not balanced with quality family time, maintaining one's health, personal productive pursuits and celebration of living? Why shouldn't we create something better for the future rather than staying stuck in a "this is the way we've always done it mindset". That's just plain dumb.

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I'm with you on the generational pounding thing (assuming you are millenial-ish)?  But the thing that I resent is that every single 'solution' people propose seems to involve yet another hit on the millennials. Raise the super age because we suddenly can't afford it? Well, that sure as shit is not going to happen overnight - it will be phased in just in time for all the boomers to scoot through the door, and those that come after will take yet another hit after struggling to save extra for their retirement as well as pay stupid accommodation costs (whether renting or buying) their whole life. The thing I like about wealth taxes is that they are the only proposal I've seen that actually involve someone other than the generation currently getting the shaft having to carry some of the weight for once, when you think about where the wealth is concentrated - and why it is concentrated there, as a result of decades-long deliberate intergenerational wealth transfers from young to old 'for the good of the economy.' 

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These mostly considered comments make me wonder… I feel like the conversation could go further and better if we talked about specifics for once. Saying a wealth or inheritance tax or LVT sounds scary to the middle who work hard, earn above average salaries and live a good life but are by no means the richest pricks who minimise nearly all tax such as developers. 
 

Like TOP raises, an outcome where the above people maybe pay slightly more tax but not hugely more because other forms or rates have been reduced but those with multiple properties and large wealth finally pay something like a fair share seems much more palatable and debatable among sensible people. Specific and well thought out proposals is what we need (I know politicians aren’t well known for this). E.g. LVT of 1.5% but PAYE rates come down so median and below are better off, just above median pay a bit more and the rich pay more a fair share. 

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... a fourth limb of taxation , rarely raised , is " charities " ...

As of 2020 NZ has 28015 registered charities ... all tax exempt .... Why  ?

... its abundantly clear that some , such as the owners of Sanitarium cereals , Brian Tamaki , the Gloriavale community , are simply rorting the system , creating an uneven playing field , filling their own pockets  ... 

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...and Iwi businesses

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... its estimated that charities in NZ sit atop a combined $ 65 billion in assets ... and had a combined untaxed income of $ 19.6 billion , almost $ 20 billion , in 2020 ... wow ...

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Let's unleash the Commerce Commission on em!

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... the  Commerce Omission are too busy thrashing the supermarkets , whipping them with a soggy lettuce leaf  ...

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well said.

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Lol, living trust lawyers will be rubbing their hands with glee..!

From my limited understanding probate tax only applies if you have assets in your own name

Living trusts (another you...) allow you to control assets and give the benefits to others without transferring assets therefore avoiding probate taxes

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This one is easy.  Introduce a wealth tax, the truly wealthy will leave for residence overseas and pay no tax here.  As proposed by the Green party, the wealth tax will fall on the middle class.

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Typical socialist thinking tax, tax and more tax there is never any mention of striving to grow the pie just to how to divide it and eventually destroy it in the process. We never seem to learn from history or is it just diversionary politics.

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We don't strive to grow the pie because we tax productive work hard and let people live off those achievers while they fund everything...then we have handouts to property speculators while leaving them tax-free. No way to grow the pie that way. Bloody socialists freeloading off the productive folk.

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Property taxation is not taxed at 0%, it is less than that. When you add in the accommodation supplement being paid, it is negative.

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Quite the parasites.

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But the pie has been growing for hundreds of years. It would appear that a few get larger and larger pieces while the many get smaller pieces. It's funny, many children get taught to share, so that others don't miss out. For many children it's their human nature and you can see this in the early ages. Some learn that if they eat too much pie they get sick.

What went wrong in the adult world?

There's also a point where the pie can't get any bigger without adverse consequences and it could be suggested we've reached that point.

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An article that tries hard to mislead the reader into thinking that wealth taxes are the norm somehow - and NZ is a deviation from that norm . 

"missing third limb" .. " ..OECD recommendations .." references are all designed to create an impression that wealth taxes are common . The opposite is true - only a few European countries have wealth taxes at present , with high tax-free allowances , many exemptions and lower/nil tax rates on capital income ( CGT, dividends ) to compensate.

Argentina is another example of a country that has a wealth tax ( recently introduced ) - not an example to follow. 

Neither UK or US have a wealth tax of course.

With respect to wealth taxes NZ falls within the norm and its is not an outlier the author tries to paint it to be.

To introduce a wealth tax in a small , open country would simply be an invitation for capital to flee given that most of the rest of the world does not levy a wealth tax. I for one would  be compelled to take that invitation up. 

 

 

 

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Very good points. I've already been selling down my local investments in preparation to move abroad later in the year, and I believe I'm not the only one. This is the second time the topic of wealth tax has raised its ugly head under this government, that's two warning shots. 

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Fairness... in the current tax system. Its an oxymoron as people earning over $100k pay 42% of the tax, probably more once you factor in WWF into the less than $100k group.

Is it fair that some can build massive property portfolios, houses, farm's etc with a degree of tax avoidance in doing so,  I would say no. Eliminate tax rinsing on debt and or introduce a tax land.

Is it fair that we allow non NZ taxed foreign capital to compete for domestic housing owners and farms in NZ, I would say no. Charge a higher land tax.

Is it fair that we allow global companies to trade here disrupting traditional trading models, and avoid tax through offshoring and profit shifting outside NZ, no that's not fair. Charge tax on transaction value, not manipulated profit.

Is it far that we allow registered charities to buy up commercial properties, to rent and generate money to be used offshore (Africa), no that's not fair, tax charities, and donations are tax free.

Is it fair that some pay for those that choose to sit at home doing nothing, while being propped up by taxpayers that  work hard, sacrifice their personal family and recreation time to build assets and business, no that's not fair either. This is the 6000 pound gorilla in NZ, with successive Govt's refusing to do anything about it. It is also why people take advantage of tax avoidance through property debt because of the lack of real action on these issues.

 

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Most people already pay a wealth tax. If you have Kiwisaver, investment funds or overseas investments over $50k cost then you are paying FIF which is a tax between 0.525%-1.95% of assets per year, depending on your marginal income tax rate.

Property wealth tax is also place for part of the rates bill. It varies by area but, for example, in Chch it is about 0.6% of the RV per year.

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A tax free threshold would alleviate some of the unfairness in taxes . Inheritance tax would force people into alternatives such as giving away estates before their death or using trusts . If in my later years I simply gave my assets to my kids while I live rent free until my death as at that point the house etc. Is theirs anyway , what's to tax ? 

 

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Should we also introduce a tax for inheriting desirable attributes from your parents? surely that gives you an unfair advantage over others. If you are very healthy, intelligent, talented in arts or sports etc, because you have inherited good genes from your parents, then you have unearned wealth from the moment you were born.

Also, if your parents loved you, cared for you, sacrificed their own time and resources so you are better off, they have transferred a world of wealth to you. How is that fair, compared to someone who grew up in a dysfunctional household (by so called care givers, who probably abused a lot more than they cared). Should we also tax people who spend more time on development of their children? You only can spend 10 hours on your child, if you spend 10 hours doing the same on someone else's child.  

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We do tax some of those things, after a fashion. If you're making tons of money from your natural talent, then we tax that income and use it to support people who weren't as lucky, by providing (for example) support for people who can't work due to disability. We also use tax money to help support those kids who do come from dysfunctional households (though not very well for the most part, to be fair) through foster care, free education, social work support etc. It's not inconsistent to think that we can't and shouldn't try to compensate for every difference in opportunity that people have through inheritance or luck by making everyone absolutely equal, but also to think that we should try and ensure that everyone gets at least a reasonable shot at a decent existence regardless of their luck or parentage, and that it is fair to ask the lucky to help pay for that. 

 

 

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Sure. You are taxing the income of the person, the output of the person, not the handout from the parent (in genetic talent or positive attention received). Taxing the wealth parents accumulated over their working life (assuming they paid their fair share of income tax, which is not always the case), is like taxing them for spending time with their kids. They did something right, at their own expense (time spent with children vs on self, money saved for children vs spent on self) to benefit their own kids. Why is it fair to punish them? parents must be allowed to accrue the result of their effort to their kids and not be required to share that with the government (to whom they already paid taxes). 

If you are a really good parent to your own kid, the society will be better off if you accept a kid that does not have good parents and treat them as your own (even pay you for that if you are low income). This will be by far better than existing arrangements for less fortunate kids. This would off course reduces the time and resources you can give to your own child, but hey a society of kind people is a great thing to have. Why the society should not be able to compel you to accept the child for the greater good? This is because the ends does not justify the mean.

Yes to supporting less fortunate members of the society, yes to giving opportunity to others, but this is not a justification to automatically compel other to contribute even more.

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"parents must be allowed to accrue the result of their effort to their kids and not be required to share that with the government (to whom they already paid taxes)." Why must they be allowed to do so? Why is them being allowed to do so more important than, say, someone who is currently working getting more of their income back in their hand now because the tax burden has been more fairly spread between wages and wealth? More income that they could spend on their own kids? Or maybe they could spend more time on their own kids, What you are doing is asking working people to give up more of their time and their money that they could spend on their own kids (or whatever else they want to spend it on) because you think that you should be allowed to pass as much money as you want on to your kids without them having to pay any tax. I really don't see why I should be on the hook for funding that desire of yours. Nothing against your kids or anything, but I care about myself more. I don't see why I should pay more tax on money I earn by working so your kids can pay less tax on money you give them. I've already paid quite a lot in taxes towards other people's kids when you take into account education, parental leave, working for families, etc. I can see why those things are good for society generally, so I don't begrudge most of them (though WFF to me seems like double jeopardy if you don't have kids - you don't get it, and it's likely that your wages are suppressed because other people do). But why is it good for society for your kids to get a slightly bigger inheritance? Why is it fair to punish me by taxing me more just so your kids can get a slightly bigger windfall when you die, when I've already involuntarily donated quite a lot to other people's children already?  

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What's to stop someone who's "circling the drain " from gifting everything prior to their death ?

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Gift tax/duty.

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1) Yes we need a capital gains tax - this is effectively income

2) Yes we need wealth tax - however the only real justification for it is that previous capital gains were not taxed

3) Yes there should be an inheritance tax

4) Yes we need to rebalance the tax system.  Additional revenue from the above taxes can be used to reduce income taxes, reduce tax on bank savings, and potentially reduce GST.

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There is is a  problem when the likes of google and others of it kind  are paying 15% say, and the rest of us are around the 30% plus mark. They are making use of most  of our collective endeavours including assets  that have been provided up to this time. They are benefiting from these more than most - so they should pay more than most.

 

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Most comments here seem to relate to the untaxed capital gains on second homes. The angst about inequality comes down to that for most people, presumably because they have missed out. I am against buying existing homes as investments, by and large. It drives the price up for people who want to live in a house, and turns a proportion of them into renters. But of course things aren’t that simple. It does seem though that governments worldwide are tackling the issue of second home ownership and the social problems that arise. Higher council rates, cgt, extra stamp duty and so on. Only a matter of time before we see something similar, I feel. The bright line test and mortgage tax relief changes point to that. It is hard to see how National will be able to roll those back, either on a moral or fiscal basis.

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Let's cut through all the debate and moralising, and be pragmatic for a minute. A wealth tax will fail spectacularly (as it has done time and time again in other countries), as the wealthy will simply find ways around it or relocate overseas, taking their wealth with them and leaving the country even poorer than it is.

https://en.wikipedia.org/wiki/Wealth_tax#Capital_flight

In 2004, a study by the Institut de l'enterprise investigated why several European countries were eliminating wealth taxes and made the following observations: 1. Wealth taxes contributed to capital drain, promoting the flight of capital as well as discouraging investors from coming in. 2. Wealth taxes had high management cost and relatively low returns. 3. Wealth taxes distorted resource allocation, particularly involving certain exemptions and unequal valuation of assets. In its summary, the institute found that the "wealth taxes were not as equitable as they appeared".
 

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This only proves that taxation is something that should be standardised globally to prevent capital flight to lower tax destinations. It also proves that greed breeds greed(creating State competition for tax minimisation laws/loopholes) and is not good a value to propagate for humanity and society as a whole.

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This worldview seems to assume anyone the author deems wealthy has got so by some inappropriate way. My wife and I, using this, would be deemed wealthy. We are not in such a position by accident. We worked hard  upgraded our skills, changed jobs, minimized debt-especially expensive non-productive debt, and invested carefully. Now that we are retired with a free home and substantial term deposits, we are somehow at fault. Worldwide it has been evidenced that redistribution of wealth from those who work hard and made sound economic decisions, to those that do not  doesn't work. For the simpler reason that it rewards poor financial decision making, and punishes good decision-making. 

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its simply socialist 'robin hood theory' reiterated....

The problem is it doesn't increase wealth or multiply as it would with astute money managers which is how they got money in the first place

It simply redistributes money to people who only know consumption and spending - or simply put don't know how to use it wisely

How is this in any way logical?

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People who spend and consume also pay taxes through those processes.

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Your reasoning completely excludes the basic fact that governments deliberately control the unemployment rate to control wage inflation, ensuring there are always a percentage of the population deliberately excluded from the workforce not by their own choice.

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A fact is it? I would be interested to see your evidence for this 'fact'.  In any case, I am not sure how this relates to my original post. Are you seriously saying the Government stops people working, thereby ensuring poverty? If so, you have more confidence in their capability than I! I  was never 'on the dole', despite four times losing employment for reasons beyond my control.  Once, despite being doctorally qualified, as a temporary measure I sold shoes. Another time 'between jobs', I worked at a timber mill, making up pallets.  Noone, Government or otherwise,  stopped me working.

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