In Brief: How New Zealand's tax system favours the rich

Yeah, well, rich people have good reason to resist or elude telling the public what it is they own and earn, I suppose, namely that we might deem it unfair or efficient and make some sort of policy intervention perhaps to restore fairness and efficiency.

Typically, typical wealth surveys like New Zealand's household economic survey have well-known failures in measuring the top tail of the distribution, namely because rich people don't like to tell you what's going on up there.

Hence the constant contention and sort of methodological innovations to try and get into what the rich are really up to.

So this is the problem that the likes of Thomas Piketty and Gabriel Zuckman, Emmanuel Sayers, many colleagues sort of have spent the best part of two decades developing solutions to, I guess, rich people are slippery.

They're doing what they can to leave as little trace as possible of their true wealth.

So this was the context in which Labour's revenue minister at the time, David Parker, directed Treasury and IRD to pursue what would become that high wealth individuals report that by now we have heard a bit about.

So this was the direct survey of 311 selected families under new provisions in the Tax Administration Act that made it specifically possible under particular privacy provisions to make a direct survey to get a true view at the top.

We were flying pretty blind on tax policy with respect to the top of the distribution up until that point.

And the study was able to give us a impressively direct measure of what some of the richest families pay.

Crucially, as you've already pointed out, the concept of income that you're considering was shown to be really crucial to the impression given of the tax rates at the top.

Once you count retained business profits and capital gains, very wealthy families paid an effective rate around 10%, a little under 10%, while families in the middle of the wealth distribution paid around 16% on a comparable basis.

But this exercise can't be repeated or can't be systematically part of the way that we administered the tax system.

Part of the privacy provisions at the time were that the data would be destroyed, and they have been, and the power to collect future versions of the survey was repealed this year.

So you're telling me that the government has given up its ability to legally assess the effective tax rate of our wealthiest people?

Yeah, I guess it decided that what's happening at the top of the distribution just isn't that relevant to the fairness and efficiency of the tax system.

But I find it a difficult argument to... to follow.

So we have to rebuild now from what's publicly available, which makes sense.

It's unfortunate not to have direct surveys going recurrently, but the results of those surveys didn't come out of nowhere.

They do leave traces in the macroeconomic data and IRD data and the sort of micro administrative tax data.

So there's traces in there that we have to sort of think about the relationships between what we learned in the survey data and the statisticals summaries that remain, estimate some relationships between those and some macro aggregates and some of the micro data to make a sort of synthetic version of this population that was surveyed and see how they behaved in a longer period of time, which is what this project undertook.

And you've compared this synthetic approach that you've followed with the results of the original IRD survey, haven't you? And that's given you confidence that your approach is robust.

Yeah, it reproduces both the IRD and the Treasury results, which gives us confidence that we've reasonably estimated what was going on, what the reality of the time was, and are able to extend it back and forth.

Yeah, well, rich people have good reason to resist or elude telling the public what it is they own and earn, I suppose, namely that we might deem it unfair or efficient and make some sort of policy intervention perhaps to restore fairness and efficiency.

Typically, typical wealth surveys like New Zealand's household economic survey have well-known failures in measuring the top tail of the distribution, namely because rich people don't like to tell you what's going on up there.

Hence the constant contention and sort of methodological innovations to try and get into what the rich are really up to.

So this is the problem that the likes of Thomas Piketty and Gabriel Zuckman, Emmanuel Sayers, many colleagues sort of have spent the best part of two decades developing solutions to, I guess, rich people are slippery.

They're doing what they can to leave as little trace as possible of their true wealth.

So this was the context in which Labour's revenue minister at the time, David Parker, directed Treasury and IRD to pursue what would become that high wealth individuals report that by now we have heard a bit about.

So this was the direct survey of 311 selected families under new provisions in the Tax Administration Act that made it specifically possible under particular privacy provisions to make a direct survey to get a true view at the top.

We were flying pretty blind on tax policy with respect to the top of the distribution up until that point.

And the study was able to give us a impressively direct measure of what some of the richest families pay.

Crucially, as you've already pointed out, the concept of income that you're considering was shown to be really crucial to the impression given of the tax rates at the top.

Once you count retained business profits and capital gains, very wealthy families paid an effective rate around 10%, a little under 10%, while families in the middle of the wealth distribution paid around 16% on a comparable basis.

But this exercise can't be repeated or can't be systematically part of the way that we administered the tax system.

Part of the privacy provisions at the time were that the data would be destroyed, and they have been, and the power to collect future versions of the survey was repealed this year.

So you're telling me that the government has given up its ability to legally assess the effective tax rate of our wealthiest people?

Yeah, I guess it decided that what's happening at the top of the distribution just isn't that relevant to the fairness and efficiency of the tax system.

But I find it a difficult argument to... to follow.

So we have to rebuild now from what's publicly available, which makes sense.

It's unfortunate not to have direct surveys going recurrently, but the results of those surveys didn't come out of nowhere.

They do leave traces in the macroeconomic data and IRD data and the sort of micro administrative tax data.

So there's traces in there that we have to sort of think about the relationships between what we learned in the survey data and the statisticals summaries that remain, estimate some relationships between those and some macro aggregates and some of the micro data to make a sort of synthetic version of this population that was surveyed and see how they behaved in a longer period of time, which is what this project undertook.

And you've compared this synthetic approach that you've followed with the results of the original IRD survey, haven't you? And that's given you confidence that your approach is robust.

Yeah, it reproduces both the IRD and the Treasury results, which gives us confidence that we've reasonably estimated what was going on, what the reality of the time was, and are able to extend it back and forth.