New Zealand's richest families pay a lower effective rate of tax - over their whole income - than middle-income earners, two new government reports have found.
Today Inland Revenue (IRD) and Treasury released simultaneous reports looking at how much tax high wealth individuals pay across all income sources, and another on what the general population pays.
The IRD report gathered information on 311 of the country's wealthiest families - many of them with a net worth of more than $50m.
The mean estimated net worth of the families surveyed was $276 million in 2021.
Treasury found the general population pays an effective 20.2% tax rate across all income sources. The IRD found high wealth individuals, by comparison, pay about 9.4%. The figures include paying GST.
The IRD's report said the wealthiest people in New Zealand tended to earn more of their income through investments rather than salaries or wages.
It showed between April 2015 and March 2021, the surveyed families earned 51% of their income from business entities, 19% from property and 13% from investment portfolios.
Personal taxable income accounted for about 17% of their income.
More tax was paid on higher personal taxable incomes - such as wages, salaries, interest and dividends. The median among the families was about 30% of tax paid on $268,000 of taxable income.
People on the median wage with no other taxable income pay about 21% of their wages in income tax.
The report said the families got most of their overall income from increases in value of the businesses, property and financial portfolios they owned or controlled, which is capital gains.
Those gains were "mostly not taxed" according to the report.
They also held many of their assets in trust - 67% of the overall income of the families was made in trusts.
Research not 'about attacking the rich'
Revenue Minister David Parker said Inland Revenue's research showed a large differential between the tax rates ordinary New Zealanders paid on their full income compared with the super-wealthy.
He said the "internationally ground-breaking" research provided hard data on that difference.
“The difference is mainly because the very wealthy earn only a small portion of their income from wages and salaries, unlike most New Zealanders."
He said the difference was starker when GST was included as wealthier people tended to spend a smaller portion of their income each year compared to others.
He said the project was internationally significant because it used real data, compared to other overseas studies which used surveys or scenarios.
The research arose from a 2020 law change which enabled the IRD to require high-wealth individuals to provide their earnings data.
“To be clear, this work is not about chasing tax avoiders, nor is it about attacking the rich. Wealthy New Zealanders are usually hard-working and creative people who comply with current rules. They have assisted IRD with this inquiry, and I am grateful for that.
“The excellent work in this survey will enable future discussions on tax policy to be based on solid evidence.
"Later this year, we intend to introduce a Tax Principles Bill to ensure that information like this continues to be transparently collected and reported on.”
Today’s IRD report release is accompanied by a new Treasury report setting out effective average tax rates across the population. It uses scenarios to show that effective tax rates paid by middle New Zealanders (including GST) are between 6.8 and 10.8 percentage points higher than for the wealthiest people.
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