The recent IRD report highlighted the inequitable tax system in Aotearoa New Zealand. Most Kiwis believe we have a progressive tax system where those that earn more income pay more tax as their income grows, and those earning lower incomes pay less tax. The report states:

“The tax system supports the well-being of New Zealanders by providing revenue to fund public goods and services, influencing behaviours, and as a means of redistribution. The progressive nature of New Zealand’s income tax means that the tax system plays a role in reducing inequality and encouraging social cohesion.”[1]

The report, however, provided evidence that showed that for the very wealthy (the top 1%) the opposite was true.

The IRD report revealed that our country’s wealthiest 311 households paid an effective tax rate of 9.5%.[2] This compares to a person who has a personal taxable income of $50,000 will have an effective tax rate of 16% and those with an income of $100,000 have an effective tax rate of 24%.[3] This is because the report shows that the wealthiest New Zealanders accumulate most of their wealth through untaxed capital gains and inheritances rather than taxable salaries.

I am impressed with the wealthy people that responded to the release of this report by saying they were willing to pay more tax.

Wealth is only one end of the income spectrum, with poverty at the other. To get a fuller picture of economic justice, we also need to take into account the criminalisation of poverty in our country. Lisa Marriot, Professor of Taxation at Victoria University of Wellington, explains the difference between how welfare fraud is treated more harshly than tax evasion.[4]

There are significant differences in the legislative powers that IRD and MSD have. IRD has significant powers to write off debt, while MSD has very little power to write of debt owed to it and is under a legislative duty to recover debt. This explains the different approaches these government departments take in recovering debt. The question is whether this is fair? Is it fair that most MSD debt is not written off until a person dies, and their estate is insolvent?

Another important difference to note is that tax debt arises from unpaid tax on previous earnings, while welfare debt arises from overpayment of support entitlements or recoverable loans for emergency income support. Tax evasion or fraud is usually viewed as a white-collar crime, while welfare fraud is viewed as blue-collar crime, however tax evasion generates significantly higher levels of economic hardship due to the amounts involved and the lower tax take means there is less money to fund health, education, and social services.

Marriott’s research shows the stark inequalities in how these two types of debt to government is treated. See table below.

Economic Justice — Image by: Carol Barron

People who get their income from welfare support, are our most vulnerable people in society. In 2019, the Welfare Expert Advisory Group (WEAG) report recommended changes to our social support system to provide liveable incomes for our most vulnerable whānau. Only a few of these recommendations, however, have been implemented to date.

The recommendations from both the Welfare Expert Advisory Group (WEAG) report and Tax Working Group have provided the government with a range of possibilities to reduce income inequity and wealth distribution in Aotearoa New Zealand. The recent report from IRD provides real data on how unequal our tax system and subsequent wealth distribution is.

In summary, there is a clear need to revisit both the tax and welfare systems to make them fair and equitable to ensure that everyone in Aotearoa New Zealand can thrive in a society that is just and inclusive. Societies that are more equal, have higher functionality and productivity, more cohesion, and are healthier than their unequal counterparts. Many recent polls in Aotearoa show that most people are concerned with our widening inequality and the associated negative effects, and the majority of New Zealanders support a more even distribution of wealth than we currently have. We can and should advocate for change which is needed to ensure the most vulnerable are provided with a liveable income and treated fairly.

The Methodist Alliance’s working group campaigning to increase benefit & abatement rates has drafted a resource that looks at the issues of income security, wealth distribution and debt to government. It contains questions to consider, stories to reflect on, and questions for parliamentary candidates. We hope this will be a well-used resource to help us make Aotearoa a more just and inclusive society where everyone can flourish.

Carol Barron, National Coordinator
03 375 0512 | 027 561 9164 | Carol@MethodistAlliance.org.nz

[1] IRD, High-wealth individuals research project, April 2023. P1

[2] https://www.rnz.co.nz/news/on-the-inside/488815/proving-the-wealthiest-new-zealanders-pay-low-tax-rates-is-a-good-start-now-comes-the-hard-part#:~:text=The%20report%2C%20commissioned%20by%20Minister,percent%20if%20you%20include%20GST.

[3] IRD, High-wealth individuals research project, April 2023. P1

[4] https://www.youtube.com/watch?v=GWfo5ovIqys

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