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Wealth Taxes and the Green Eyed Monster of Envy

The Green Party have been hitting the headlines for wanting to introduce a wealth tax, set at a rate of 1% for those "with a net worth over $1 million". They argue that "the money we need to support each other is already there. But right now, unfair rules are funneling it into the padded pockets of the few rather than fairly distributing it among all of us ... Our plan rewrites the rules and makes sure the wealthiest people in NZ pay their fair share." It's unclear why the Green's are using pejorative language to describe wealthy people, as if they are all one type deserving of disdain. The truth is that people are different. They are diverse. Including the wealthy.


Consider two prosperous Kiwis, each earning $3 million a year. After paying income tax, their disposable incomes fall to about $2 million. One of them leads an extravagant lifestyle, spending all of their $2 million on travel, cars, boats, home furnishings, clothes and restaurants. The other is thrifty and frugal. Part of their $2 million is saved in the bank. The rest is mostly used to invest in new business start-ups, fund medical research charities and scholarships for children from low-income families, as well as to help less well off family members. A modest amount is set aside for their own day-to-day spending needs. It's easy to find examples of both types on the National Business Review's "Rich List".


Under the present tax system the millionaire with the extravagant lifestyle pays around $300,000 in additional taxes (=15% * $2 million) compared to the one who lives frugally, due to our 15% Goods and Services Tax. In other words, our existing tax system is already designed to hit big spending wealthy people hard. Why do the Greens want to go after the "padded pockets" of the thrifty millionaire and label him or her as a public enemy? That person's savings help build the capital stock of the country, thereby lifting the productivity and incomes of all workers.