Bill Rosenberg says inequalities in wealth are much greater even than inequalities in income often accentuated by the arrival of people from overseas, and it is important to head off growing extremes of wealth

This is the fourth of ten articles in the Public Service Association’s “Ten perspectives on tax” series.*


By Bill Rosenberg*

Wealth is assets. They can be physical like land, buildings, plant and equipment, ‘intangible’ like trademarks, patents, and a firm’s reputation or brand, or financial like a bank account, shares, bonds or other securities. Companies and people own assets because they hope to get future benefits from them whether as income or capital gain or non-financial benefits such as having a house to live in. 

Why tax wealth?

Inequalities in wealth are much greater even than inequalities in income. The most recent data from Statistics New Zealand1 showed that in the year to June 2015, the wealthiest one-fifth of households had almost 70% of household wealth and the top 1% alone had 18% of the wealth – more than the least wealthy 60% combined.  The highest incomes tend to come from wealth, and can be much higher even than extreme chief executive salaries. Extremes of wealth concentrate power and influence and are therefore bad for social cohesion and a healthy democracy. If wealth can be passed on without limit between generations then those extremes worsen. 

A large part of wealth is in housing. Home ownership can boost local communities and social stability. But fewer people live in their own homes, which are becoming increasingly unaffordable. Fixing that is a complex issue beyond this discussion, but taxes on wealth are among the policies that need to change. They could help to reduce the likelihood of more housing bubbles and to rebalance the New Zealand economy if more investment moved out of buying and selling larger and more expensive houses into productive assets that supports good jobs.

Taxes on wealth also help to combat tax avoidance. Companies with operations around the world avoid taxes by using various tricks to shift profits to low tax countries. They undermine the revenue we need for good public services. Wealth taxes can be more difficult to avoid than income taxes.

What taxes on wealth do we have?

New Zealand has few wealth taxes left. The only notable one is a weak capital gains tax. Income tax is payable on the profit made in reselling a property (not the owner’s family home) within the first two years or if it was bought with the intention of resale at a profit.

Taxes on wealth used to be much more extensive. Until 1992 there was an estate duty of 40% on deceased estates over $450,000 ($730,000 in today’s dollars). Gift duties (abolished only in 2011) discouraged avoidance of estate duties.

Stamp duties, abolished in 1999, taxed property sales. They are a form of transaction tax, and in many countries are also levied on share sales.

They are a close relative to financial transaction taxes which can reduce the flows of speculative international finance. These flows can at times have disastrous effects on financial stability and the value of exchange rates.

Land taxes were one of the earliest taxes in colonial New Zealand but were abolished in 1990. However there is still a property tax in the form of local government rates which are levied on the value of both land and buildings. Property registers make land and property taxes very efficient to collect.

Most of these taxes are common among other countries, including Australia. New Zealand is unusual in its weak taxation of wealth.

What taxes on wealth would be useful for New Zealand?

It is important to head off growing extremes of wealth. Any form of progressive income or wealth tax would help with this, but the most direct would be to reinstate estate and gift duties. A simple and progressive structure for an estate duty would be to exempt an amount approximately equal to the median house price ($550,000 at time of writing) and tax the remainder at the top income tax rate which is currently 33% but should be higher – at least 45%.

We should do what is possible through taxation to make housing more affordable, less subject to price bubbles and to encourage investment in other productive forms of assets. A full capital gains tax on property encourages investors to focus more on investment income than on rising asset prices. It may slow the formation of a price bubble, but it would need a tax that almost confiscates the capital gain to make speculation unattractive once rapid price rises are underway. Capital gains should be taxed like any other income. For public acceptance it would exempt the primary family home.

An alternative is a tax on a deemed ‘risk-free rate of return’ on the property (usually taken to be the interest rate at which Treasury can borrow).  Again the primary family home should be exempted or low income home owners compensated by reductions in other taxes. This would have the benefit of being a more reliable source of revenue than a capital gains tax, but the disadvantage of being less responsive to downturns in the economy. It removes much of the advantage that housing currently has over other forms of investment. A capital gains tax should be retained for other forms of wealth (such as shares) and on property if price bubbles recur.

There is concern that overseas residents push up house prices, particularly during a bubble. We could copy the Australian ban on non-resident purchases of existing houses. Alternatively we could levy a hefty stamp duty on property purchases by non-residents: for example British Columbia in Canada introduced a 15% property transfer tax on foreign real estate buyers in 2016 .2

Assistance to low to middle income first-home buyers must avoid the risk of pushing prices up further. We could couple concessionary interest rates or a contribution to their deposit (paid for by the above taxes) with a requirement that they buy new houses. At the same time the government should be building or requiring developers to provide good quality low cost starter houses for which first-home buyers get priority.

Finally, we should be designing an international financial transaction tax to help manage the exchange rate of the New Zealand dollar and during financial crises. Cooperation with other governments would make this more effective.


[1] Household Net Worth Statistics: Year ended June 2015, Available at https://goo.gl/L8oz66               

[2] Canada tax targets foreign house buyers, 26 July 2016, available at https://goo.gl/eqWn09


*Bill Rosenberg was appointed Economist and Director of Policy at the CTU in May 2009. This is the fourth article in the PSA’s “Progressive thinking series, Ten perspectives on tax.