OPINION— When the government asks wealthy people to comply with the law, sometimes they just laugh. One multimillionaire claimed last year that $15,000, the likely fine for non-compliance with Inland Revenue requests, was “frankly just a night on the town”.
This is one vignette from an incipient battle between tax officials, acting at the behest of Revenue Minister David Parker, and New Zealand’s richest citizens. It’s a battle in which the issues at stake include our ability to determine basic issues of fairness and ensure the rich follow the same rules as everyone else. It’s also a battle in which apparently arcane efforts to collect data have profound democratic implications.
The latest skirmish will play out this month as Inland Revenue writes to roughly 400 New Zealanders, worth more than $20 million each, asking for initial details of their assets and liabilities, what they own and owe. Sounds intrusive? Not really, because it’s the kind of data thousands of ordinary Kiwis regularly provide.
Every three years, some 5000 of us sit down with Statistics NZ interviewers to fill out the “net worth” section of the Household Economic Survey, explaining the value of our houses, investments, cars and other items, as well as our mortgages and credit card debts. Our responses, extrapolated to the whole population, help answer one of the most basic questions any society faces: is life fair?
Our wealth, after all, does much to determine whether we can achieve our ambitions. So we need to know whether wealth is distributed fairly – whether, in other words, it lines up with people’s efforts and contributions to society.
From the 5000 responses above, statisticians estimate the wealthiest 1 per cent have 20 per cent of all assets. Their typical net worth is around 70 times that of the average New Zealander, an already disproportionate sum.
There’s a catch, however: almost none of the 5000 will be extremely wealthy. One year, the biggest fortune surveyed was $20m, in a country with several billionaires. The very rich are, of course, few in number, but there’s also a more insidious reason for their absence: often, they simply refuse to take part. Possibly they fear (mistakenly) the information will be misused; possibly they don’t see themselves as bound by the same responsibilities as others.
Internationally, this is known as the “shy wealthy” phenomenon, and it means household surveys underestimate inequality. Statisticians can try to fill the data gap using the Rich List or other methods, raising the wealthiest 1 per cent’s estimated share from 20 per cent to 24-25 per cent.
Better than estimates, though, is actual data. And that’s one reason for Inland Revenue to write to the very wealthy: to get them to provide the same information ordinary New Zealanders happily volunteer.
The wealth distribution, in turn, affects how much tax people pay. Inland Revenue estimates that 40 per cent of New Zealand’s wealthiest individuals pay a lower rate of tax than those on the minimum wage. The rich, officials believe, take much of their income as capital gains, which are barely taxed.
Again, though, that’s just an estimate. Again, officials are justified in asking detailed questions about people’s wealth, so we can definitively establish how it changes and what capital gains they’ve enjoyed. That helps us better understand how much of their income each group pays in tax, and whether the system operates fairly.
Some of the wealthy, accepting this point, are being cooperative. But not all of them. Our $15,000-a-night friend above may display their contempt by simply stonewalling officials. Others are talking about hiring QCs (just as the infamous Wānaka lockdown-breaking couple did) and launching a judicial review. Big law firms are queueing up for the work. (How many cases, I wonder, do such firms take for beneficiaries complaining about government requests for their data?)
It’s true the law allowing Inland Revenue to carry out these investigations was rushed through under urgency. That’s improper – but not illegal. And Inland Revenue, which for years has had a special unit dealing with litigious “high worth individuals”, will be well-prepared for any court case.
This saga, which will unroll over the next couple of years, is a reminder of the old maxim: knowledge is power. If we, as a society, can better understand where wealth lies and how tax is paid, we will be in a much stronger position to redress the unfairness such data reveals.
Not every wealthy individual wants that. But few New Zealanders will be moved by the Rich Listers’ claim of government intrusion, a lament so insignificant it would have to be played on a violin that could only be seen under an electron microscope.
And even if the wealthy did win a judicial review, all they would have done is exposed their own disproportionate power. Which in itself would tell us something about the world in which we live.
CORRECTION: This column has been corrected to make clear in the fourth paragraph that the Household Economic Survey is conducted by interviewers from Statistics NZ, not Inland Revenue. (Amended: 14/1/22, 11.59am)
Max Rashbrooke is a senior associate at the Institute for Governance and Policy Studies, Victoria University of Wellington-Te Herenga Waka. He wrote Too Much Money: How Wealth Disparities are Unbalancing Aotearoa New Zealand (BWB, November 2021). He serves on the Technical Advisory Group on the redesign of the Government’s wealth surveys.