The tax department is currently chasing millions from so-called ‘High Wealth Individuals’ who won’t pay up. But when inequality is spiralling, why not set a maximum level of wealth, and simply take the rest for the betterment of all, asks Alex Braae.
Drive into Omaha and you’ll barely notice the road. The tarmac throughout the beachside enclave north of Auckland is wide and smooth, so your eye will be caught by the grand and ostentatious houses instead, or the boats parked in driveways. There’s no gate at the entrance to Omaha, but given the distance it is from the rest of Auckland both in geography and affluence, perhaps there should be.
Drive into Kaingaroa on the edge of the Urewera Ranges, and you’ll see decay everywhere. There are just a few shops, and the empty ones have smashed windows. The school is decile 1, though their latest ERO report showed good qualitative progress. It’s not a slight on the people who live there, who are doing their best. It’s just that the town has been poverty stricken for generations, and neglected by the state, and it shows in all of the social indicators.
Despite the vast disparities, the towns have a few similarities. They both require a long journey off the main road to reach, and are both relatively out of sight from the rest of the country. They’re both places where a major selling point for living there is the beautiful natural landscape surrounding them. And they’re both towns that are symptomatic of an economic system that is steadily driving the two ends of the country further and further apart.
For a society to remain in any way cohesive, far more of the wealth of the former needs to make its way to the latter. It’s not realistic to imagine that all wealth disparities could be eliminated across a society, but it is incredible that the two ends of the spectrum have been allowed to drift so far away from each other. And it’s dangerous as well – at both ends, those who get further and further away from the median will see less of a reason to consider themselves invested in the wider society around them.
The NZ Herald approached the topic on their front page yesterday, with a story about the IRD chasing $85 million from 350 “High Wealth Individuals”. Those are people who are personally worth more than $50 million. If you simply average it out across them, that’s about $240,000 per person, or less than half of one percent of $50 million. The total amount of money being sought would certainly be useful – but on balance is about 0.1% of the government’s total annual spending.
The calculations here are crude, but they illustrate a wider point – it would surely not cause these HWIs any hardship at all to simply give up the money. Perhaps those disputing it should feel ashamed for forcing the public to expend resources to extract what to them is a relatively small amount. Perhaps these people would point towards philanthropy or some other form of charity, and argue that they already redistribute some of their wealth, on their own terms.
But perhaps there is a different question to be asked here. We have a minimum wage, and various benefits, aimed at preventing people from falling into absolute poverty. Why aren’t there upper limits placed on the level of wealth a person can attain as well? Rather than quibbling over a few hundred thousand dollars, why not give the super-wealthy a high figure and then demanding everything else above that be given back to the public? You could even make that figure absurdly high – for example, owning assets worth $50 million or more. Again, it’s a crude number to pluck out of the air, and you’d want exemptions for people to make productive contributions with their money.
But the tax system is currently poorly designed for redistribution, in an economic system that has allowed this new class of the ultra-rich to develop. The top marginal tax rate kicks in at the relatively low rate of $70,000 a year, which means that everyone earning upwards of what a mid-range public servant gets is effectively on a flat tax. Putting a much higher marginal tax rate on higher incomes would be a start.
But it wouldn’t really accomplish the wider goal, because the people in the HWI category aren’t getting there because of their income – on the whole they’re there because being rich is self-fulfilling. Wealth doesn’t really get taxed in any meaningful way in New Zealand, which means that it can snowball dramatically. And inheritances don’t in effect get seriously taxed either, which means that extreme wealth can now be locked up for generations. Strong arguments are regularly advanced about progressive wealth taxes, or the potential for inheritance taxes as a mechanism for redressing the accumulated imbalances.
The government has so far shown little appetite to do anything about this, and while they clearly consider it to be a problem, any solutions will have to wait until the tax policy for the 2020 election is unveiled. They very swiftly ruled out any sort of inheritance tax from the recent Tax Working Group, and the TWG recommended against a wide-ranging wealth tax, preferring to recommend instead the ultimately doomed capital gains tax. So in all likelihood, the super-wealthy will simply continue to drift further into the economic stratosphere.
Part of the problem with talking about issues like inheritance or wealth taxes is that many people will see themselves in it, perhaps because they’ve paid off the mortgage on a house in a suburb that has boomed. And obviously not every resident – or even holiday home owner – in a place like Omaha will be a hoarder of extreme wealth, and something like an inheritance tax should only apply to people passing on huge inheritances. But they shouldn’t be alarmed by such proposals anyway, because regardless of whether or not they fall into the HWI category, they would still be rich by any meaningful standards.
And that’s the rub of what HWIs could be offered, in return for giving up the vast excesses of their wealth. These people didn’t get there by giving something away for nothing, after all, so the deal would need a sweetener. Perhaps that could be the chance to live in a stable, functioning society.
Because once you’ve reached a certain level of wealth, New Zealand in the 21st century offers one of the highest qualities of life ever experienced in human history. It’s a free, stable democracy, with an abundance of natural capital. You can turn on almost any tap and drink clean water, breathe the air without fear of heavy pollution. If there was a paradise on earth, being rich in this country would come close.
Those who argue that such policies would drive the super-rich away are missing the point. With much of the rest of the world looking increasingly unstable, and climate change promising huge and global disruptions, the world’s super-rich are already looking to New Zealand as a bunker to ride out the storm. Right now, we as a country have enormous leverage over HWIs, because we can offer them a better chance of not dying in the turmoil that is almost certain to come. Let them try their luck in a California being ravaged by wildfires, or the mega-malls of Dubai where intensive desalination is needed to create drinking water.
But if someone in that position did choose to stay here, and it’s a safe bet the vast majority would, they should have to make a genuine contribution to a decent society, which offers equal opportunities to people no matter where they happen to have been born. As rampant inequality gets wider, it’s time to turn our attention to those at the very top, and make them do their bit to close the gaps.
Subscribe to The Bulletin to get all the day’s key news stories in five minutes – delivered every weekday at 7.30am.