Wealth tax

What is the problem we’re trying to fix?

Wealth inequality has spiralled out of control. Over time, more and more of New Zealand’s resources have been bought up by a small group of increasingly wealthy people. Now, the wealthiest 1% of New Zealanders now hold 26% of all assets, while the poorest 50% own just 2% of assets. This inequality is only getting worse, causing the living standards and opportunities of ordinary people to get worse too.

Most people don’t own much wealth, but for those who do, their wealth grows at 4-5% each year without them doing anything. Assets can generate income that’s used to buy more assets, and get more income, and buy more assets. 

Wealth held in assets and income from that wealth largely goes untaxed. This widens the gap between the wealthiest, and those who work to earn their income and are taxed on every dollar. Research has shown that the wealthiest families pay an effective tax rate of 9%, while the middle-income wage earner pays around 20%.

How does a wealth tax work?

A wealth tax is an annual levy of 1-3% paid by only the wealthiest people. 

For example, a wealth tax could apply to those who have $2 million in net wealth - that is what they own, minus any debt like a mortgage. So if all your major assets are worth $2 million, but you have $1.4 million in debt, your net wealth would be $600,000 and you would not be caught by the wealth tax. Often family homes are excluded from wealth taxes.

Why would a wealth tax make things better?

A wealth tax improves the fairness of our tax system, ensuring those whose income comes from owning things, rather than working, pay their fair share. 

It would also generate significant revenue to fund the things that support everyone to lead good lives, like great schools for our kids, functioning hospitals and efficient transport systems.

A wealth tax requires an annual valuation of assets, but there are a number of overseas models we can learn from. A very small group of people who are asset-rich but cash-poor could find it challenging to pay the tax. To address these situations, the payment of wealth taxes can be deferred. And exit taxes can be put in place to mitigate “capital flight” of wealthy people moving their assets offshore to avoid the tax.

Ultimately, a wealth tax would tackle extreme wealth inequality more directly than other taxes. It targets the wealth of those at the top that grows by itself, constantly expanding the portion of our collective resources that are owned by the wealthiest few, while ordinary people’s wages aren’t even keeping pace with the cost of living and most have little or no wealth.