26 Apr 2023

Wealthiest paying tax at much lower rate than most other New Zealanders - IRD report

1:06 pm on 26 April 2023
Revenue Minister David Parker delivers speech on High-Wealth Individuals Project on 26 April, 2023.

Revenue Minister David Parker. Photo: RNZ / Giles Dexter

An Inland Revenue investigation has found New Zealand's wealthiest families pay less than half the amount of tax, across all forms of income, than most other New Zealanders.

A 2020 law change gave IRD new powers to require the wealthiest families to provide their earnings information. After a two-year investigation, the High Wealth Individuals Research Projects found untaxed capital gains from businesses, property and other investments skew the tax system in favour of the country's most wealthy.

Revenue Minister David Parker said this "internationally ground-breaking research" revealed a "large differential between the tax rates ordinary New Zealanders pay on their full income compared with the super-wealthy".

Parker said: "We have known that some of the wealthiest New Zealanders don't pay tax on some of their income, but we have not known how much, nor their effective tax rate overall.

"Our citizens like tradies, nurses, school teachers, hospitality workers, hairdressers, cleaners, engineers and small business owners all pay a much higher effective tax rate than their wealthier fellow Kiwis."

The project gathered information from 311 families, who generally have a net worth of more than $50 million, looking at the period from 1 April 2015 to 31 March 2021.

Once ownership of businesses, properties and other investments were taken into account, alongside wages and salaries, their median effective tax rate is 9.4 per cent, compared with 20.2 per cent for other "middle wealth New Zealanders". Both figures include payments like benefits and superannuation, as well as GST paid.

IRD generic

Photo: RNZ / Richard Tindiller

Inland Revenue said a major difference was people on low to middle incomes tended to make most of their money through income that is taxed directly - that rate depended on the amount individuals earned.

It said personal taxable income was only a "small part of the economic income of the wealthiest New Zealand families", with most coming from "increases in the value of businesses, property and financial portfolios they own or control", and the picture changes when that was all taken into account, referred to as "economic income".

That was the sum total of all of the different ways "people gain the ability to spend money… and also comes from the things you buy or own increasing in value, these things can be sold to gain the cash needed to buy goods and services" - otherwise known as capital gain.

These wealthiest families tend to earn more from investments, but do pay a higher rate of tax when their income does come from salaries, wages, interest and dividends.

That median was around 30 per cent tax paid on $268,000 of personal income, compared with someone on the median wage - with no other taxable income - who pays around 21 per cent.

For this group, 67 per cent of their economic income was made in trusts.

Inland Revenue Tax declaration form.

Photo: RNZ / Richard Tindiller

Parker said this report was not about chasing tax avoiders, or "attacking the rich".

"Wealthy New Zealanders are usually hard-working and creative people who comply with current rules. They have assisted IRD with this inquiry, and I am grateful for that.

"The excellent work in this survey will enable future discussions on tax policy to be based on solid evidence," he said.

"Later this year, we intend to introduce a Tax Principles Bill to ensure that information like this continues to be transparently collected and reported on."

There was a 90 per cent response rate to the legal notices issued by IRD to 383 individuals.

It was still deciding whether to take any further action against those who failed to respond.

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