By Craig Elliffe

The recent announcement by the Green Party[1] of a proposed wealth tax raises many important questions about the taxation system. Although this was part of a range of proposed measures suggested by the Green Party, in my view, the suggestion of a wealth tax is the most controversial. In essence, the Greens propose a 1% levy on the net wealth of any person which exceeds $1 million and a 2% levy on the net wealth of any person which is greater than $2 million. The net wealth calculation includes one’s home and most other valuable assets (certainly financial assets such as shares, bonds and business assets but also valuable artwork and some household assets and consumer goods with values greater than $50,000-say some European or electric cars).

Do we need more taxation?

The “Great Lockdown” has been described as the worst recession since the Great Depression and certainly is much worse than the Global Financial Crisis. Most countries around the world will have largely emptied their coffers, and borrowed heavily, to fund strategies to support their businesses and workers. Back in April 2020, the International Monetary Fund (IMF) forecast that the cumulative loss to global GDP over 2020 and 2021 from the pandemic crisis could be around US $9 trillion, greater than the economies of Japan and Germany combined, but the latest information suggests that this is optimistic.

In New Zealand, annual GDP has declined by 4.6% (the quarterly decline in GDP for the June quarter was over 20%), the unemployment rate is forecast to peak at just under 10% at some stage in the next nine months, and the government has provided the wage subsidy scheme costing almost $12 billion covering some 1.66 million workers (63% of total employment). The net core Crown debt is forecast to rise over the next five years from around $55 billion (or about 16% of GDP) to approximately $200 billion, which is over 50% of GDP. The economic environment is fragile and uncertain, but at some point and hopefully, shortly, a robust recovery should happen. When we return to better economic times then, I’m guessing, the need to pay down some of our government indebtedness and so we may need more taxation.

Taxes do more than just raise revenue

Taxes have different functions and tax policy has been described as the “legal maid of all work” by the legal theorist Lon Fuller. What he meant by this is that taxation fulfills an enormous range of objectives other than the obvious of raising revenue to fund government expenditures in those critical areas of citizens’ daily lives such as funding roads, infrastructural assets, health systems, education, law and order and social welfare. You only need to reflect on a couple of examples of the context in which taxation is used to see Fuller’s point. Take, for example, behavioural taxes such as taxation on tobacco and alcohol which have the point of suppressing consumption of health-harmful products or tax policy designed to assist productive enterprise in the economy, such as research and development expenditure credits.

Why do we need to tax wealth?

So why would we have a wealth tax apart from raising revenue? One reason is to address wealth inequality which some commentators suggest is a problem in contemporary societies. Daniel Halliday, a Melbourne-based academic, in his book on The Inheritance of Wealth (Oxford University Press 2018) suggests that societies are afflicted by something called “economic segregation”. Economic segregation enables “certain groups … to monopolise superior life prospects for their members, thanks to their ability to retain wealth over time”.  Such hoarding of wealth is an instrument to reduce inequality privilege, he believes, and a means that people from different social groups live lives cut off from each other, separated by differences in social capital (education, valuable knowledge and opportunities through society and contacts) and cultural capital (dress, accent, education, the company one keeps, and concerningly, inaccurate and demeaning attitudes to other groups).

The Green Party suggest that this wealth inequality creates “an underlying structural problem” and that the tax-free status of wealth results in an unbalanced tax system. They point to information provided to the Tax Working Group in 2018 which would suggest that “very wealthy people often don’t pay much income tax”. In summary, the rather obvious point of wealth taxation is as an instrument to reduce inequality, reducing the assets of our wealthiest households, and providing revenue which is available for redistribution.

Is wealth taxation the best form of taxation?

A short answer to this question, in my view, is no. There are several points which are worth considering as we discuss this question. The Tax Working Group used well-established principles to assess taxation based on efficiency, equity and fairness, revenue integrity, fiscal adequacy, compliance and administration costs, coherence and predictability and certainty. These are useful tools particularly when used in conjunction with the Living Standards Framework which examines natural, human, social and financial/physical capital. As discussed above, some of the issues to do with wealth taxes are strongly related to issues of equity and fairness and social capital. It is in other areas where wealth taxation might be less than optimal.

Why are fewer and fewer countries relying on net wealth taxes?

Despite some recent discussion by potential candidates in the United States wealth taxes are far less widespread than they used to be. An OECD study in 2018, The Role and Design of Net Wealth Taxes in the OECD, illustrates this point. There were 12 OECD countries which had a wealth tax in 1990, but only three of these (Norway, Spain, and Switzerland) have retained them. If you include Argentina, then only four major countries impose net wealth taxes around the world. It is more common to find transfer taxes such as inheritance taxes and gift duties than it is net wealth taxes. New Zealand has never had a net wealth tax of a formal kind, but it should be noted that our foreign investment fund rules masquerade as taxing an imputed “fair dividend rate” but follow a net worth calculation formula (net wealth times a percentage to establish imputed income). We abolished death duties in 1993 and gift duty in 2011.

The trend away from net wealth taxes seems to be based on one or more of the following considerations, which frequently are interrelated to each other:

  • Wealth taxes do not collect much revenue
    The 2018 OECD report makes it clear that wealth taxes do not provide very much revenue. For example, Spain’s produces taxation equal to 0.2% of GDP (the figures from Norway and France which has just recently abolished its wealth tax are broadly consistent), while Switzerland is the standout performer at 1% of GDP. Switzerland has designed its tax with a broad base and a wealthy populace. The OECD notes that there is growing wealth inequality in OECD countries, but ascribes the paradoxical lack of wealth tax revenue to changes in the design of the wealth taxes, a failure to update property values, and widespread avoidance and evasion.
  • It seems there are significant integrity issues.
    Net wealth is a narrow base compared to income and consumption (which are the bases for our income tax and GST). It seems somewhat obvious that the wealthy can afford good advisers and as wealth is more concentrated than income there will be considerable efforts made to minimise this type of taxation. The tax can be avoided by owning forms of wealth which are not subject to the tax or, when all else fails, the ownership of the wealth is transferred outside of jurisdictional reach.
  • Jurisdiction to tax and residence flight
    The Green’s proposed wealth tax seems to be based on the normal proposal that all the worldwide net wealth of a New Zealand resident is subject to assessment. Very wealthy people are likely: (i) to have both significant assets in New Zealand and overseas, and (ii) to have more than one home available to them in multiple jurisdictions. So the possibility of becoming a non-resident in New Zealand, and resident in a jurisdiction which does not have a wealth tax may not be a very high barrier for them to overcome (subject of course to the current COVID-19 restrictions). This will have the effect of ensuring their non-New Zealand assets escape the wealth tax net.
  • Distorting investment decision-making
    Generally speaking, wealth taxes are more distortive and less equitable than personal capital income taxes because they are imposed irrespective of actual returns earned on assets but rather just on asset values. This can lead to over-taxation relative to actual economic return and, of course, under-taxation in situations where the investment provides significant economic rents (investments above an expected normal rate of return). Given that we do not tax capital income this can lead to an under (or an over) taxation of capital. If non-residents are subject to tax on their New Zealand based assets then this could lead to a decline in foreign direct investment but more certainly double taxation as a non-resident is unlikely to be able to credit a wealth tax against income taxation in their home jurisdiction.
  • Compliance costs and practical administration
    A capital gains tax can require a valuation at the commencement date, whereas a net wealth tax requires valuations of all assets within the base every year. Some assets are easy to value, but others are more difficult. Another key issue is the widespread ownership of assets in New Zealand by family trusts. Trust assets, under the Green’s Proposal, will either be allocated to a particular individual, or the trust treated as its own taxable person and taxed at 2% on all assets it owns (i.e. there are no $1 million thresholds). It may be difficult to ascertain whether such assets held by family trusts are held for the benefit of New Zealand residents or non-residents, given that many families have beneficiaries widely spread around the globe.
  • Liquidity concerns-ability to pay
    A major concern is that unlike a realised capital income tax, a wealth tax is imposed irrespective of a realised gain. This can lead to liquidity issues and the proposal deals with this by simply allowing the taxpayers to defer their tax payments presumably whilst incurring use of money interest, otherwise all taxpayers would defer unless they were scrupulously honest.


The OECD concludes in its study that there are limited arguments for having a net wealth tax on top of a broad-based personal capital income tax system. Of course New Zealand, unlike any of its fellow OECD members, does not have a broad-base capital income system. The OECD concludes that “where the overall tax burden on capital is low or where levying broad-based capital income taxes or inheritance tax is not feasible, net wealth taxes may play an important substitution role”.

In summary, there is likely to be a strong need for tax revenue, and standing back from the New Zealand tax system, the under-taxation of capital is an issue for the variety of reasons set out in the Tax Working Group’s interim and final reports. Is a wealth tax the answer? I don’t believe so when there are other alternatives, and it seems to me that wealth taxes would play a very imperfect substitution role for the various reasons and problems listed above.


[1] Poverty Action Plan, Green Party Election Priority (June 28, 2020) available at

Craig Elliffe is a Professor of Law at the University of Auckland. He is an expert in international tax, tax avoidance and tax reform.

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