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Damien Grant is an Auckland business owner and a regular opinion contributor for Stuff, writing from a libertarian perspective.
OPINION: David Parker’s envy report, digging into the wealth of 311 talented individuals who didn’t squander their productive years in politics, journalism or worse, the insolvency profession, revealed something interesting.
Net worth in the land of the long-white cloud is heavily concentrated in the elderly. Very heavily. There are three drivers of this.
First, the richest people in our society made their own money. Second, those who make fortunes have large families and share their estate amongst their kids. And third, the children of the mega-wealthy are predominately under-achieving delinquents who blow their inheritance.
READ MORE:
* Ben Thomas: Parker’s wealthy Kiwis tax stunt a kite-flying exercise
* Richest Kiwis pay about half as much tax on the dollar as the average New Zealander
* Tax system needs change, but is anyone brave enough to do it?
OK, I made up points two and three, but they are both probably true. Seems right. Moving on.
In the last 50 years, according to the published report, of the 311 wealthy families, only 62 enjoyed an inheritance in the last 50 years, and the total that was transferred was just $411 million, a fraction of the net worth of these individuals. Most received little or nothing at the start of their commercial lives.
The majority of those with serious capital in New Zealand today made their wealth in a free market by providing goods and services on an industrial scale that others were willing to pay for.
Stuff/Stuff
While the Treasury report suggested that the very rich don’t pay a fair share of tax, it also acknowledged that many low-income earners receive more in government cash than they pay in tax.
This is something that should be celebrated. These are Kiwis who have enriched our lives, who built the homes in which we live, the logistics companies that deliver food to our supermarkets and, indeed, built the supermarkets that provide the calories without which we’d be all be a lot thinner.
None of this matters to a political class seeking cheap political points and the report is replete with ugly undertones: “Our tradies, nurses, school teachers, hospitality workers, hairdressers, cleaners, engineers and small business owners all pay much higher effective tax rates than their wealthier fellow Kiwis.”
Not only is this statement wilfully inflammatory, it is untrue. The wealthy do not pay a lower percentage of tax than nurses. To obtain their magical numbers, Inland Revenue relied on Treasury analysis that adopted a dubious form of income called Haig-Simons.
If you own a farm and the market value of that farm goes up, then this is treated as “economic income”. Haig-Simons does not measure the post-sale value, only the estimated rise in the value of an asset.
If your day job was as an accountant, and you paid tax on that income but not on the increased value of your farm, then your rate of “effective tax” is lower because the income of the rising value of the farm was tax-free.
This type of analysis is so flawed, its only practical use is to demonstrate how degraded and actively political the Treasury has become.
To compound the perception of unfairness, the report explicitly ignores the effect of inflation on their analysis, despite this data being readily available and easy to factor in; which makes the report’s conclusions little better than junk. It seems probable that the conclusion was written before the analysis was undertaken.
The research, and I am being generous in calling it that, also suffers from “survivor bias”, because it excludes past families who had been extremely wealthy but whose riches has been lost, squandered, or dissipated.
Vast wealth, as anyone who has been watching the Murdoch docudrama Succession will observe, is inherently transitory. Pun intended.
In 100 years, the descendants of those 311 families will fare little better than the descendants of those currently clearing bedpans, or enjoying the secure employment as a state-funded teacher.
Unsplash
A windfall tax is a one-off tax placed on companies that make excess profits from something they were not responsible for.
In a moment of lucidity, the report states an awkward fact: “Further, when considering the tax and transfer system jointly, many individuals in low-income deciles receive more in the form of government cash transfers than they pay in tax.
“If such transfers are netted off tax paid, these individuals will have very low or negative effective tax rates.”
A large percentage of the population receive more from the state in goods and services than they pay in tax. The state spends about $120 billion, or $24,000 per resident. You need to be earning $100,000 a year to cover this and if your household has five people in it, the household needs to be bringing in half a million.
Let’s be honest. The number of citizens who pay more than their “fair share”, if we consider that to be sharing the tax burden equally amongst all of us, is low. There is a small number who do most of the heavy lifting, who pay a huge percentage of the tax burden.
Despite the hysterics of the report, the 311 maligned families paid, according to a graph included in it, roughly $1 billion in tax in the 2021 financial year.
So 311 families paid 1% of all state revenue. This was higher than in past years, where the average has been 0.5%.
We have the analysis back-to-front. These small number of citizens are the engine of our economy. They are the superstars both in terms of fuelling New Zealand by their innovation, risk-taking and the contribution to employment and commercial life. And on top, they massively subsidise the rest of us with an outsized contribution to the Crown’s reserves.
Stuff
Damien Grant: Politicians who seek to gain short-term advantage by pandering to the baser instincts of the electorate deserve the strongest condemnation.
The fatal conceit of the tax report and those who have been salivating at the prospect of a bit of asset-stripping is to assume that we would be a better society if we took capital away from the most productive and creative members of our community and gave it to the likes of David Parker to manage.
This, however, is not the real failure here. The real failure has been the decision to engage in this sort of disgraceful and dishonest analysis.
Politicians who seek to gain short-term advantage by pandering to the baser instincts of the electorate deserve the strongest condemnation.
New Zealand deserves better from our elected representatives, the bureaucracy and from those commentators who either don’t understand the economics or, worse, who do but cannot resist luxuriating in the warmth of the flames they are helping to stoke.
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