The Green Party’s announcement it favoured a wealth tax was always going to be controversial. Most people dislike new taxes, and this one was never going to get an easy ride. New Zealand does not even have a general capital gains tax, any sort of inheritance tax, or even stamp duty. All these tax wealth, so jumping straight into a wealth tax was ambitious.
We all want to live in a society that takes care of the most vulnerable and gives people opportunities to get ahead and be happy. But is a wealth tax the best way?
New Zealand’s love affair with property is well known. People lucky enough to have owned or inherited a home or land before 2015 will have felt wealthier these past few years as property prices ratcheted skywards.
Plenty of places are thought to have possibly doubled in value in the past ten or fifteen years.
At the same time, over the past year, property has dropped 15, 20 or even 25 per cent – depending on who you read or where you live. Those who felt much richer three years ago could well now feel much poorer. A few very unlucky people who bought in late 2021 or early 2022 at the height of the market could now have negative equity as price drops and inflation eat into deposits and capital repayments on mortgages.
At the same time, as property valuations have headed skywards, most incomes have not. This means many might now miss out entirely on the joys [and sorrows] of home ownership.
Unfortunately, for many property owners, rates are based – at least in part on property valuations – meaning the happiness we feel when our house valuations go up is often matched by the sadness we feel when the first rates bill based on the new value arrives.
Much of New Zealand’s ‘wealth’ is based on property. Homes, farms, and commercial premises form the bedrock of most individuals’ and families’ ‘wealth’. There are other sources of ‘wealth’, of course, but property is a staple.
The problem with taxing wealth based on property is it is not liquid. It’s not like income, which can be divided as it comes in with some set aside for tax. A wealth tax would target illiquid property owners in a way that could have unintended outcomes.
Just because a person owns a valuable property does not mean they are wealthy.
Properties in some of our major cities worth half a million dollars 15 or 20 years ago could be valued at more than two million now.
If an unemployed person or single pensioner owned one of these places, on the face of it, they could be up for the proposed two-and-a-half per cent tax. Where does this come from?
Just because someone has ‘wealth’, does not mean they have cash.
At the same time, a capital gains tax also has a capital losses component – that are generally available to be offset against income.
New taxes come at a cost, which people with liquid wealth can generally afford clever advice to mitigate.
