Doesn’t New Zealand already have one of the most efficient tax systems in the world?

The New Zealand tax system has been found to be insufficiently progressive, meaning it does not do an adequate job of redistributing resources from the wealthiest to the least wealthy, and it does not adequately reflect people’s ability to pay.

This means that the wealthiest in New Zealand aren’t paying their fair share while working people carry more of the load. This is because our tax system predominantly taxes work and consumption, as opposed to capital gains and wealth.

The IRD’s high net worth individuals research project found that the wealthiest individuals pay a median effective tax rate of 9.4% including GST. By comparison, the median income earner  in New Zealand has an effective tax rate of around 20%—more than double the rate paid by the wealthiest. 80% of the economic income of high-wealth individuals comes from capital gains. This highlights the fact that untaxed capital gains are a significant contributor to wealth inequality in New Zealand and to the regressivity of our tax system at the top end (or the fact that the wealthiest pay proportionately less in tax compared to the typical wage/salary earner in New Zealand).

Because the majority of wage-earners in New Zealand consume, or spend, a high proportion of their income, they pay proportionately much more in GST than high-wealth individuals, who save more of their income. It’s not fair that most New Zealanders, who have to work for a living and are burdened by rising costs and rising GST, are paying almost double the tax rate of the very wealthy, who gain their income passively, from returns on investments.