By Jenée Tibshraeny
There are renewed calls for trust fund babies, rich kids, silver-spooners and inheritors of old money, to give some of what they’ve been given back to society.
Journalist, researcher and author, Max Rashbrooke, says New Zealand needs to start taxing wealth, in addition to income, to curb inequality.
In his book released this week, ‘Wealth and New Zealand’, he proposes introducing a new tax regime that could include a wealth, inheritance, gift or more robust capital gains tax.
“It’s one thing if people have worked for their income, but when they’re inheriting it, that’s self-evidently unfair because lots of people don’t inherit anything,” he told interest.co.nz in a Double Shot interview.
“That sense of compounding inequality going forward, which really restricts the opportunities for the next generation; I think that’s what has people worried.”
“It’s not entirely new – there’s always been inherited wealth… but the point is it’s almost certainly getting worse.”
Rashbrooke explains, “New Zealand is about as unequal as most other developed countries. Our wealthiest 1%, that’s about 34,000 adults, have about a fifth of all the wealth in the country.
“You expand that out to the wealthiest 10%, they’ve got over half of the wealth in the country. That’s pretty much what you’d find in countries like Germany or Canada.
“That’s a huge concentration at the upper end. What I think it tells you is that although we like to say we’re an egalitarian country, we actually aren’t.”
Wealth inequality both worse and more ‘in your face’
Rashbrooke, who’s also authored, ‘The Inequality Debate: An Introduction’, says we talk a lot about income, but policymakers need to direct their attention to wealth.
He describes income as a river and wealth as the reservoir this income flows into.
“Income is what gets you through the week, but having wealth to draw on is what gives you stability, it gives you security, it gives you the chance to ride out the tough times and plan for the future,” he says.
“The fact that a small number of people have got a very large amount of the wealth, and a huge number of New Zealanders – you know half the population – have got virtually no wealth at all, makes an enormous difference to what kind of lives people can lead.”
Rashbrooke believes wealth inequality has become both worse and more pronounced due to social media over the last 30 or 40 years.
While there isn’t hard data on how wealth inequality has changed over this time, he says there’s data showing income inequality has shot up.
“Not everyone has a problem with that, and you can make an argument that that’s because of merit and hard work and stuff, but what we are now seeing is that generation of older people, who became much richer over last 30 years, they are now handing that over to the next generation, and I think that’s what really gets people concerned,” he says.
Housing the locus
Rashbrooke admits, “Housing is where you see all those factors of the last 30 years, of those growing gaps… coming together.
“It was about 20 to 30 years ago that you started to have this big shift in shares of income going towards the rich. And that came at about the same point that house building rates started to taper off, in part because of a very big reduction in the amount of social housing that got built.
“You’ve got all these things, which are compounding, and they come together, and the locus of them is the housing market. Disproportionate income shares, inheritance and lack of housing means there is a very limited number of houses going, and yes, they will inevitably go to people who’ve got parents who can help them.”
Tax at one end, handouts at the other
Rashbrooke says, “New Zealand is pretty extraordinary in that fact that we don’t tax wealth in any meaningful way.”
He notes that without an inheritance, wealth, gift, land, or real capital gains tax, the wealthy keep getting wealthier.
“If anyone’s done well in New Zealand – if they’ve generated wealth – normally there’s a lot of hard work and effort in it. But they’ve also driven on roads everyone’s paid for, and are employing a workforce educated at the public’s expense. So there’s an argument for putting a bit back to the common pool of resources, and that’s the tax.
“Whatever you did, logically you would then try to find a way of channelling that to the people at the lower end of the scale, who don’t have any assets.”
For example, Rashbrooke suggests giving cash grants to everyone when they enter adulthood, or initiating a savings scheme where the government matches any savings parents put in a fund for their children.
He denies cutting down the ‘tall poppies’ in his work.
“Any wealth that’s been created; no one’s done it all by themselves as an island. They’ve done it by drawing on the common pool of resources that society provides; the infrastructure, the health system, the education, whatever else. If that common pool of resources is going to be there for the next generation, you have to feed back into it, otherwise it just gets depleted.”