Why Labor may propose an inheritance tax
OPINION There is some evidence to suggest Labor might want to make it to the next election by proposing an inheritance tax.
The first is the government’s decision to allocate $ 5 million over two years to the Inland Revenue in the budget to assess the income and wealth of wealthy people.
An IR spokeswoman confirms the work should shed light on issues such as the amount of wealth inherited.
If the government were to consider an inheritance tax, commissioning such research was likely to be a necessary first step.
* Revenue Minister David Parker clashes with National over death and taxes
* A century of tax evasion on capital gains
* Forget capital gains tax – what New Zealand needs is an inherited wealth tax
The government was flying blind in 2017 when it asked Sir Michael Cullen’s tax task force not to consider the merits of recommending an inheritance tax.
He must have made this decision without any knowledge of how large inheritances might influence the distribution of wealth, because in New Zealand this information simply does not exist.
If someone had asked the task force on taxes how much any type of inheritance tax would increase, they would not have been able to answer.
FINANCE AND EXPENDITURE COMMITTEE
The Minister of Revenue, David Parker, faces thorny questions in a select committee.
But that should change as a result of IR research.
The second development came when Revenue Minister David Parker explained the budget allocation to Parliament’s special finance and expenditure committee in June.
Responding to questions from National Party MP Nicola Willis, Parker said he “does not provide for wealth, inheritance or death tax”.
But he went straight to give a big thumbs up to The capital in the 21st century, a 696-page book published in 2014 by the French economist Thomas Piketty.
Piketty is one of the best-known advocates of inheritance rights and advised Australia to adopt one when he visited in 2016.
Harvard Business Review noted that Piketty’s concern in his 2014 book was that modern economies had again started concentrating wealth in the hands of a few.
Piketty saw a risk of societies going backwards in Jane Austen’s time in the 19th century, when inheriting or marrying in money were the best hopes for a comfortable life.
It’s not as far-fetched as it sounds.
Researchers at the London School of Economics concluded a year earlier that inherited wealth had increased in Britain and France since the mid-1970s, so that it accounted for around 8% and 11% of women’s income, respectively. people.
This was after having already fallen from about a quarter of people’s income in the late 1800s to about 5 percent in the postwar years.
Piketty’s research has been cited with approval by the Organization for Economic Co-operation and Development.
OECD tax director Pascal Saint-Amans said in May that there were good reasons for countries to use more inheritance taxes, arguing that there were “strong arguments for fairness In their favor.
So did Parker commission the wealth and income study from IR in the hopes that it might help inform a discussion about an inheritance tax?
Parker says “no”.
National’s Willis is not convinced.
“I just don’t accept the idea that you would do this research without intending to change the policy,” she says.
“I suspect the minister is trying to create an evidence base for new taxes that Labor could campaign on.”
There are at least three major obstacles to an inheritance tax.
Most importantly, although they are applied in 24 out of 37 OECD countries, they probably seem a bit drastic and macabre to many Kiwis.
Saint-Amans says inheritance taxes tend to be “misunderstood” and exceptions should probably be made for people such as inheritance of family farms.
But new research from the University of South Australia suggests that the mood is changing, at least in Australia.
Historically, inheritance tax was viewed as “political suicide,” but research at the university suggests otherwise, according to study lead researcher Veronica Coram.
“We spoke to young adults and elderly Australians and two-thirds of them thought Australia should consider reintroducing inheritance taxes worth over A $ 3 million (3.2 million New Zealand dollars), when only one in 10 was definitely against it. “
A related hurdle is Labor’s tendency to shy away from serious tax debates, demonstrated in its “no-show” on the Tax Task Force’s recommendation for a comprehensive capital gains tax.
This resulted in Jacinda Ardern being excluded from such a tax, but not an inheritance tax, while she remained prime minister, a withdrawal from her position even before she set up the group. of work.
Then there is the unpleasant reality that if the debate over a capital gains tax is anything to go by, any discussion of an inheritance tax will be ugly and risk bogged down in misinformation.
Expect tired accusations about the ‘envy politics’, dubious claims that talent will leave the country in droves, and chorus that, despite the tax imposed in many other countries, it is somehow impracticable.
But the work is between a rock and a hard place here.
If IR does its job, its research will likely highlight that without post-election tax reform, Labor could be in the unenviable position of spending three terms in government presiding over a period of heightened wealth inequality.
This is not usually what people vote for Labor.
Another reason to think the government can bite the bullet is that it would seem like a sane thing to do.
Few would say that passing something on to your children is not a noble goal and a positive motivation for people.
But it’s a matter of balance, and whether it’s right to shift some of the tax burden from wage income to other things.
No one, to my knowledge, is suggesting banning inheritances, just preventing them from being tax exempt.
The May OECD report concluded that in addition to being fair, inheritance taxes were generally more efficient and easier to assess and collect than other taxes on the wealthy.
This is even if they generally have to go hand in hand with controls on the wealth offered to be effective.
The disincentives they create for wealth creation are also less immediate than for any other type of tax.
In New Zealand, an inheritance tax whose tax-exempt threshold, like Britain’s, can reach £ 1million (NZ $ 1.98million) for a married couple , would also be liable to tax primarily income that had not been previously taxed.
Indeed, it is likely that most of the wealth that people have accumulated beyond this over their lifetime has come from capital gains.
The OECD has concluded that the case for inheritance taxes may be strongest in countries with low taxation of capital and wealth income.
Yes, that’s us.
“Evidence has shown that providing information on inherited wealth and inequality can play an important role in making inheritance tax more acceptable to the general public,” he added.
Well, now that the proof is coming.
So if Parker ordered the IR search with no lens in mind, maybe he caused the party a lot of trouble.