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Revenue Minister David Parker in black and white, wearing a suit. There are green bubbles in the background
Revenue minister David Parker (Image design: Archi Banal)

PoliticsApril 28, 2023

Bernard Hickey and David Parker get down to brass tax

Revenue Minister David Parker in black and white, wearing a suit. There are green bubbles in the background
Revenue minister David Parker (Image design: Archi Banal)

In the wake of two reports that reveal the shockingly low rates of tax paid by New Zealand’s wealthiest, Bernard Hickey talks to the revenue minister who commissioned them about reframing the debate.

Changing taxes is really hard; increasing taxes is almost impossible. And introducing a new tax has proven absolutely impossible over the last decade in New Zealand. And when we think about the debates around capital gains tax ahead of the elections of 2011, of 2014, and then 2017, you realise just how hard it is to get anyone to agree to a new tax.

In essence, there is a massive problem here with magical thinking. We love the idea that we can have public services, maybe even some initial infrastructure investment, but we don’t want to have higher taxes to do it. And over the years, that’s meant that we have continued to cut taxes, because one way to get elected is to promise a tax cut, and provide services, or more importantly, keep a sinking lid on services. But this wasn’t always the plan.


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Way back in the late 1980s, when our tax system was being reformed in a really big way, we slashed income taxes. And we introduced a new type of tax, the Goods and Services Tax. It’s been increased a couple of times since then. But what it’s meant is that we have built what appears to be a very efficient and sensible tax system, broad base low rate, hardly any exceptions, certainly for GST, and a very simple system for PAYE. 

But in doing that, we’ve created a massive hole in our tax system, which is now skewing our economy towards a lot more investment in dead land in particular. Our tax system should be progressive – which means as you get higher and higher up the income spectrum, you should be paying a higher percentage of your income in tax – but that’s not the case. Particularly because we don’t have a capital gains tax.

This week on When the Facts Change I spoke with revenue minister David Parker, who thinks about this a lot, and who a year ago asked Inland Revenue to do a study of what the actual wealth and income of our richest people was. IRD went away and surveyed more than 300 families, and found that on average, they were worth a quarter of a billion dollars each, and that collectively, those 300 families created income in the 2020-2021 year of $14.6 billion. 

But because there is no capital gains tax, we discovered this group paid an effective tax rate of just over 9%. Why is that? Well, it’s largely because most of their income is structured as capital returns. It might be a purchase and sale of land, or some sort of company. And quite often, there is no tax to pay, there’s nothing to declare. So what that’s meant is that over time, we’ve built a system where those who are the richest and who should be paying a higher percentage of their income in taxes than those on lower incomes have ended up paying less.

The two studies produced this week by IRD and Treasury show that someone on an $80,000 a year PAYE income will effectively be paying 30% of their income in tax, both in PAYE and through GST, because they probably spend about three quarters of the money they earn. Those people who are on lower incomes will actually be paying quite high rates as well. What it means is that now, because of this hole in our tax system, those people who are the richest are effectively paying a third of the tax relative to their income of those on lower incomes. We’ve built ourselves a fundamentally unfair tax system. 

‘He mea tautoko nā ngā mema atawhai. Supported by our generous members.’
Liam Rātana
— Ātea editor

And we’ve locked it in for nearly two decades, in that we haven’t been able to introduce a tax on capital gains, or on wealth, or an inheritance tax, all of which are perfectly conventional and in place in other areas. It’s meant that our tax system has been not just economically locked in place, but politically locked in place. Now, we know that in 2017, then opposition leader, soon to be prime minister Jacinda Ardern decided three days before the election to bail out on Labour’s policy of bringing in a capital gains tax in its first term. She promised not to do that, and instead have a tax working group. And then in 2019, when that report finally came back, she promised that in her political lifetime, she would not bring in a capital gains tax. And that’s why we didn’t have a debate about it at the 2020 election. 

Now, everyone else in the Labour Party pretty much still wants a capital gains tax to redress this fundamental unfairness in our tax system. David Parker is one of those, but he hasn’t expressed a particular view in this interview about what type of tax change he wants. So he’s been very careful not to say what he would like to do. But this research ordered by David Parker and presented by David Parker this week reframes the debate about tax. Up until now, a capital gains tax has been presented mostly as something that would hit middle New Zealand, that would stop them from being able to buy rental properties and from being able to build up their wealth, from being able to get on the ladder and help their families get on the ladder. 

But this research shows that the biggest chunk of untaxed income is actually concentrated around a relatively small number of people earning enormous sums and hardly being taxed at all. For example, if those 311 families had been taxed at the same effective tax rate as someone on a PAYE income of $80,000 per year, they would have paid $3.3 billion extra in tax in the 2020-2021 financial year. Instead, that money had to be borrowed. And those people who earn that money didn’t pay tax on it. 

There is a new opportunity here to reframe the debate around whether those on extremely high incomes should pay a fair share, rather than a debate about middle New Zealand paying a capital gains tax. Find out some more from my interview with David Parker, recorded on Wednesday afternoon, just after the release of the two reports from the IRD and Treasury.


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traffic queued up on Queen St, against a green background with money floating around
Traffic on Queen Street in downtown Auckland (Photo: Getty Images; additional design by The Spinoff)

PoliticsApril 28, 2023

Would you pay $7 to drive into Auckland’s CBD? Congestion charging explained

traffic queued up on Queen St, against a green background with money floating around
Traffic on Queen Street in downtown Auckland (Photo: Getty Images; additional design by The Spinoff)

Labour wants to accelerate the introduction of its congestion charge policy through gathering the support of all parliamentary parties. So how would it work?

New Zealand’s biggest cities – like Auckland, Christchurch and Wellington – must reduce their transport emissions. That much is known. One solution, posed by transport minister Michael Wood, is congestion charging. Wood is seeking support for the policy from all parliamentary parties. RNZ reported that although all parties are theoretically supportive, there is conflict over the best approach. The Act-National bloc opposes congestion charging and the regional fuel taxes (like Auckland’s 10c per litre tax) operating concurrently. Labour seems to agree. As Wood said, “Auckland’s fuel tax would likely be scrapped if a congestion charge was introduced.” Conversely, the Greens think replacing the fuel tax with congestion charging is not sensible. “You would not be able to plug the gap that’s needed, particularly in Auckland, simply with congestion pricing revenue,” said Greens transport spokesperson Julie Anne Genter

Transport Minister Michael Wood
Transport minister Michael Wood (Photo: Hagen Hopkins/Getty Images)

What is congestion charging?

A congestion charge is a commuter fee for driving in heavy-traffic (congestion) areas – like CBDs – at set times like morning and evening peaks, though sometimes it extends beyond peak periods. The aim is to incentivise commuters to use other modes of transport, such as public and active transport, resulting in reduced congestion and emissions. 

Does it work?

The Congestion Question (QC) report references successful examples in Asia and Europe, which have resulted in improved traffic, emissions, public transport mode-share and increased off-peak travel. Research from WSP NZ, an engineering consultancy, found that schemes in London, Singapore and Stockholm reduced traffic by 10-30% and increased traffic speeds by the same figure. Further WSP insights show the charges correlate to a 15-20% emissions reduction. 

What might congestion charging look like in NZ?

The City of S(n)ails CBD would be the likeliest recipient of congestion charging, according to the CQ report. Drivers would be charged up to $3.50 one way or $7 for a round trip to get in and out of Auckland’s inner city from potentially as soon as November 2025. If the CBD scheme successfully reduced traffic and emissions, it could expand outward into the supercity – likely along “strategic corridors” aka the busiest arterial roads. The CQ report suggested that gridlock would improve by up to 12%. According to WSP’s Phil Harrison, “for a city like Auckland, the economic benefits of easing congestion are significant.” Congestion charging is also on the table for Wellington

But how would it actually work?

You would be charged $3.50 upon entering (or exiting) Auckland’s inner city, “with the charges only applied once within a two-hour window regardless of distance travelled”, RNZ reported. Using the same technology as automatic toll roads, roadside cameras would record number plates to enforce payment. Implementing this policy would require upgrading the existing camera network and constructing new standalone infrastructure for new cameras. The CQ report suggested that an app and website could be used for tasks like manual payments, setting up automatic payments or adding number plates to your account.  

three lanes of cars queued up on Jervois Quay in Wellington
A congestion charge is also on the cards for Wellington (Photo: Hagen Hopkins/Getty Images)

The case for congestion charging

As mentioned earlier, this policy would minimise traffic and emissions while increasing traffic speed. The NZ Institute of Economic Research found that if Auckland’s traffic were free-flowing, it would garner $1.4-$1.9 billion in benefits – equivalent to 1.5%-2% of the city’s GDP. 

A 2022 study from Sweden’s Lund University compared 12 traffic-easing measures including carpooling, replacing car parks with bike lanes/footpaths and targeted fares-free public transport. The report concluded that congestion charging was the most effective policy. 

Another opportunity, endorsed by WSP’s Harrison, is reinvesting the congestion charging income into improving alternative transport modes. The Lund study also argued that money raised from disincentivising driving should “expand and improve walking, biking and public transport”.

Further proponents include the sustainability advocates Greater Auckland. Some of their reasons are “improving safety, improving efficiency for both freight and public transport services, and long-term benefits to our health system as a result of more people using active modes”.

The case against congestion charging

”While the benefits can be substantial, public acceptance can be a huge barrier,” said Harrison. He called congestion charging “a political hand grenade” that is hard to introduce due to low public support – at least at first. Citing Edinburgh, Harrison noted that “a number of congestion charge schemes investigated around the world have failed to be implemented because of public opposition”. Reasons for this opposition include residents feeling “over-taxed” and having equity and fairness concerns. It’s an argument National has made here, with the party not keen to add “further cost to people using the roads at a time of cost of living crisis”.

Another argument against congestion charging is the fact that both cities’ public transport systems are wildly unreliable. As urban planning professor Timothy Welch puts it, Auckland is “facing a public transport crisis” – a description that could also be used for Wellington. Because of that, Auckland mayor Wayne Brown thinks congestion charging is an unwanted distraction from solving the public transport crisis. “Congestion charging could only make sense once every Aucklander has the option of catching a bus or a train that they know will show up on time, every time,” Brown said. Harrison noted that ensuring there are reliable non-driving options “may require substantial investment in other modes of transportation, before charges are imposed“. Some cities with successful congestion charging schemes, like London, already had reliable public transport systems before introducing the tax. 

A central London street scene with a congestion charge sign in the foreground
A congestion charge sign in London (Photo: Philip Toscano/PA Images via Getty Images)

So it’s good but only if public transport is good too?

Pretty much. Harrison thinks congestion charging is “a way of harnessing the power of the market to swiftly reduce the problems associated with traffic congestion, such as emissions and delays to the essential movement of goods, services, and people”. But it shouldn’t be an isolated policy, argues James Allan Jones, an economic policy expert, citing concurrent public transport investment as a must. The Lund University study agrees, saying, “a carrot and stick approach is key to success, such as improving buses and bike lanes while simultaneously discouraging car use”. Congestion charge revenue could be reinvested “in public transport or other alternatives to provide more people with practical alternatives to paying the charge” suggested the CQ report.

What about those equity arguments? 

Research from WSP’s Tom Jones suggests an Auckland CBD initiative would “likely not have largely negative equity impacts” because “travel data shows that most people who commute to and from the CBD use public and active transport, and most come from more affluent suburbs”. However, Jones’ analysis also indicated that “active and public alternatives are not sufficient outside of the CBD currently, which means a charging zone outside of it will likely have negative equity impacts”. 

With all the arguments in mind, transport minister Wood will have a tough time appeasing everyone – but that won’t stop him from trying. National has pledged to continue working on congestion charging should it be elected come October. 

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