Inland Revenue research released today reveals a large differential between the tax rates ordinary New Zealanders pay on their full income compared with the super-wealthy, Revenue Minister David Parker says.

'This internationally ground-breaking research provides hard data showing that the wealthiest New Zealanders pay tax at much less than half the rate of other Kiwis.

'The data, based on full income information from 311 of our wealthiest citizens, shows that the average person in this group pays an effective tax rate of just 8.9 per cent tax on their economic income – that is, income from all sources, including capital gains on investments.

'In contrast, most New Zealanders pay tax at more than twice that rate. For example, someone earning a salary of $80,000, with no other income, pays 22 per cent tax on that income, excluding GST.

'The difference is mainly because the very wealthy earn only a small portion of their income from wages and salaries, unlike most New Zealanders.

'The differential is even larger when GST is included: for the wealthiest, their effective tax rate rises to 9.5 per cent, but for the person on an $80,000 salary, it goes up to around 28 or 29 per cent. That is because wealthy New Zealanders spend a much smaller portion of their income each year, compared with other earners.”

The High Wealth Individuals Research Project is internationally significant because it uses real data, unlike other overseas studies which draw on surveys or scenarios, says Parker.

'Last year, the Government changed the law to enable IRD to require high-wealth individuals to provide their earnings data, in order to do this work.

'To be clear, this work is not about chasing tax avoiders, nor is it about 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. 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.”

Today's IRD report release is accompanied by a new Treasury report setting out effective average tax rates across the population. It uses scenarios to show that effective tax rates paid by middle New Zealanders (including GST) are between 6.8 and 10.8 percentage points higher than for the wealthiest people.

Waste of time and money

The Texpayers' Union says today's report is a waste of time and money to tell Kiwis what we already know.

Responding to the High Wealth Individuals Research Project report just released by IRD, Taxpayers' Union spokesman Jordan Williams says there's nothing new in here.

He says the report confirms that 'we have a highly progressive income tax system, compliance is good, and those who can afford to pay a lot more do so”.

'It also confirms that the wealthy obtain most of their economic income from capital gains that are not taxed.

'Fundamentally, the report concludes that high net wealth families are only paying nine per cent of their economic income in tax. But the report shows that most of that economic income is unrealised capital gains. No one in the world taxes that, and it is disinformation to encourage comparisons to those primarily earning PAYE income.”

Williams says the report totally ignores the risky nature of capital gains.

'The short point is that investing in a business is more risky than turning up to a job and demands appropriate returns to encourage much needed investment. Tax rates need to reflect that, as well as the fact that New Zealand, like all countries, compete for capital.

'Everyone supports evidence-based public policy. This report is policy looking for evidence and its timing is clearly designed to stoke resentment and justify an envy tax that will make New Zealand poorer.”