We’ve always known the richest among us probably don’t pay their fair share in tax. But a report released today shows it’s even bleaker than imagined.

The Inland Revenue Department today released its High Wealth Individuals research project, reporting the findings from its six-year tracking of 311 of New Zealand’s wealthiest families. The top line? That between 2017 and 2021, those families’ collective annual income grew (not the total, just the annual growth) from as little as $1b in 2017 to as much as $14.6b in 2021, and on average, they paid an effective tax rate of 9.5%. That’s less than the lowest tax bracket (those earning less than $14,000, who pay 10.5% income tax). 

Read the full explainer on what’s in the report here.

The report itself is hundreds of pages long, with extensive methodology, definitions and findings. But the general, depressing story can be told in three graphs. 

NZ income tax vs Australia income tax

At first glance (meaning if glanced left to right on the graph) we appear to have an aggressive income tax system. But then it immediately goes the other way. On the other end of the spectrum, Australia’s top tax rate is 45% for any dollar earned over $180,000. New Zealand’s top tax bracket is 39% for every dollar earned over $180,000, and that was only raised in 2021.

So in short, those earning a lot of money are on relatively low tax rates, especially when considering that even those earning very little pay income tax on every dollar. 

Wealth by taxable income

Our tax rates may be low compared to our neighbours but if the wealthiest New Zealanders are millionaires – and even billionaires – that’s still a lot of tax being paid, right? Wrong. 

This extremely bleak and basic graph shows a simple truth. Only a tiny portion of the wealthiest New Zealanders’ income is taxable. Just 7% of the 311 wealthy New Zealanders’ annual earnings was taxable income (like salaries). Meanwhile, the majority of New Zealanders earn all (or nearly all) of their income through salaries and therefore are taxed on 100% of it. But the wealthiest don’t become wealthy by working hard for a big salary. That other 93% of their annual income is largely drawn from and held in trusts, assets, business entities and property.

So while higher income tax brackets will make a difference, it will still only impact a fraction of the wealth accumulated every year by New Zealand’s richest citizens. 

Pandemic property boom, baby

The report tracked the 311 individuals and families (aka the Project population) from 2015 to 2021, and covered their wealth growth both as individuals and as a population. Their wealth increased year on year throughout the six years but saw a particular jump in 2020/2021, largely thanks to skyrocketing property prices. Unsurprisingly, those who already held great wealth heading into the pandemic (again, often held in real estate, regardless of a person’s area of business) saw their wealth grow hugely in the 12 months from the start of the first nationwide lockdown to April 2021. Even the top 10% (decile 10) can’t hold a candle to the extremely wealthy. I can hear Bernard Hickey screaming as I type.

Once again I gently suggest that you just buy a house to secure your financial future. No follow-up questions, please.

An effective tax rate of 9.5% on annual earnings of $14.6b from just 311 individuals means that any move to bring that effective rate closer to the average earner (32%) would see massive increases in tax revenue each year. As revenue minister David Parker said while presenting the findings, the project was not about “chasing tax avoiders” or “attacking the rich”. It’s simply a long-overdue step in understanding just how unfair our tax system is.