Expressing disappointment at the PM's reluctance to impose a capital gains tax, one of Labour's biggest donors is a signatory to a new open letter offering to pay more tax. Jonathan Milne reports.
He's one of the 311 high-wealth individuals who Inland Revenue found weren't paying as much tax as regular New Zealanders. He's one of Labour's biggest donors.
And, expressing disappointment at the Prime Minister's reluctance to impose a capital gains tax, Phillip Mills has now signed an open letter offering to pay more tax.
The Les Mills International owner has joined more than 80 other business and opinion leaders in signing an open letter that was sent to Revenue Minister David Parker on Wednesday night. "We write as people who are frustrated with how much tax we pay," they say. "We want to pay more."
READ MORE: * The Detail: Tax: What's Fair And What's Next * A Taxing Exercise For NZ's Wealthiest 0.01 Percent * Read my lips: No new taxes, Govt must live within its means
So, perhaps somewhat disingenuously, Newsroom asked Inland Revenue if they could pay more.
"No," says spokesperson Rowan McArthur. "There is not a mechanism in our system for people to make voluntary tax payments in addition to the tax they actually owe. If someone pays Inland Revenue more than we believe they are legally required to, we automatically refund that to them."
We asked Parker but he hadn't yet seen the letter, so declined to comment on whether he'd institute such a mechanism for people to pay additional tax.
Which leaves only the question of whether, as the letter's signatories propose, this Parliament or a future one will legislate to impose new taxes – not just on the letter's signatories, but on all well-off New Zealanders.
"Some of us have built businesses from scratch and celebrate profit when it serves the public good. But we know that in our working lives, we have benefited from the infrastructure paid for by the taxes of past generations: the roads, the hospitals, the schools." – open letter
It comes after the Inland Revenue Department published an 18-month study of more than 311 of the country's wealthiest households, finding they were paying less than half the rate of tax, across all forms of income, of most other New Zealanders.
Nearly 40 of the high-wealth individuals refused a legal demand to disclose information for Inland Revenue's study, but Mills confirms he was one of those who did comply. And like other households in the tax study, he says his family makes most of its money from gains on assets.
"Wealthy people, like me, clearly need to pay more tax. And I feel that there should be some capital gains tax or wealth tax of some kind – the devil will be in the detail, obviously, and there has been some careful work done around what would be the right capital gains tax for New Zealand."
He recalls the late Sir Michael Cullen, who chaired the tax working group on capital gains, telling him that parties should set in place a capital gains tax "Of course we should," he said, "but it would hand the next election to the opposition on a plate."
That was a while ago, though. Mills says he hopes that's no longer the case – that work like the Inland Revenue study means New Zealand voters are now better informed. "I would hope that our leading parties could come to a civilised agreement that would take this off the table as a political issue. For the benefit of all."
In the open letter, Mills and other signatories offer to pay more tax. "Some of us have built businesses from scratch and celebrate profit when it serves the public good. But we know that in our working lives, we have benefited from the infrastructure paid for by the taxes of past generations: the roads, the hospitals, the schools," they write.
"Tax is one way we can build a better world. We are proud to pay it, and ready to pay our fair share."
Interviewed by Newsroom they confirm the unwritten message in the letter: that they want all prosperous New Zealanders to pay more tax. "Yes, I want to personally pay more tax and I would pay more tax is if resulted in New Zealand having a better education system, a better social welfare system, a better health system, and addressing the big issue of climate change," Mills says. "But there should be one rule for all."
ACT leader David Seymour is dubious. “It’s the most tiresome humblebrag that comes up in tax debates around the world every few years, ‘I’m so rich, I want to pay more tax’.
“The thing is, their wealth doesn’t entitle them to a greater say about public policy, it enables them to give more money [to the community] if they want to.”
Malcolm and Melanie Rands were co-founders of Ecostore, but sold their last 10 percent holding in 2016.
The couple launched Ecostore in 1994, aiming to create a new business model based on social enterprise, and using the store as a source of funding for the Fairground Foundation, which supports urban housing and a fundraising app.
"My wealth came from when I sold our final 10 percent of the company," Malcolm Rands says. "I paid no tax on that, which was lovely at the time, but maybe I should have."
But Rands, one of the instigators of the open letter, confirms he's not offering to pay more tax unless others are required to do the same. "Even someone who's as big-hearted as me would not feel good paying more tax when other people aren't – you just want to feel that things are fair," he says. "And that's part of the Kiwi mindset, a fair deal."
He, too, hopes to see a capital gains tax or wealth tax debated constructively this year – he was disappointed Chris Hipkins ruled out a new tax this term, but says he understands the Prime Minister doesn't want to be hasty.
"I'll be disappointed if he doesn't address it in his election campaign."
Malcolm Rands believes the time for a capital gains tax has finally come; that it need not be terminal to a party's election hopes. "I think that might have changed, you know, I've really got that feeling," he says.
"People realise that we're kind-of-like the only Western country that hasn't got it, and that all these other countries seem to survive pretty well with a capital gains tax. There are places like Scandinavia, where people are just looked after a helluva lot better, because there's more tax money to achieve funding."
Phillip Mills says it's "crazy" that particularly unproductive asset classes like real estate are advantaged by New Zealand's tax system.
Tax expert Terry Baucher is another signatory to the letter. He things that for those who want to contribute more to their community, charitable donations are effectively achieving that for them – and it would take too long for Inland Revenue to set up a system for them to pay additional tax. "I don't think a special mechanism is necessary," he tells Newsroom.
He and Associate Professor Susan St John, at the University of Auckland, have proposed taxing residential property on a similar basis to the foreign investment fund regime.
"A capital gains tax should also remove the need for estate taxes," he says. "If there's no capital gains tax, then estate tax will become necessary at some point."
In addition, he says the trustee tax rate should be aligned with the top personal tax rate. Wealth taxes are more difficult because of the difficulty valuing assets, but he says Switzerland raises quite a substantial amount from such a tax.
Tax Justice Aotearoa and Oxfam NZ coordinated the open letter to politicians from people living "financially comfortable lives", calling on government to tax them more.
"We need to recognise that paying our fair share of tax is what enables us all to live the lives we have, and we need more of it to ensure that we as a country can address the complex problems we face,” says Glenn Barclay, chair of Tax Justice. "There is no need to be scared of tax – we need to embrace the role it plays in delivering for the public good and for future generations."
but David Seymour disagrees. “A further issue they seem to miss is that tax is applied equally to all under law. In reality a capital tax on houses such as the Greens promote, for example, will apply to mum and dad property investors as well as the super rich - but I doubt the humble-braggers think that through.”
