The government has allocated $5 million to the IRD to assess the incomes and wealth of high-wealth individuals. This is being taken as a sign that the government is looking to introduce some form of inheritance tax, although it is not expected to be introduced before the next election.

Another good reason to vote them out. What was it Jacinda said: Read my lips – no new taxes? I feel a Tui ad coming on.

Photoshopped image credit Rantykiwi The BFD.

Inheritance taxes were abolished in New Zealand in 1993, and gift duties in 2011, but it is no surprise that this government is looking at bringing them back in some form. Was there ever any tax that they didn’t like?

In truth, I am surprised that inherited property was left out of the Bright Line Test. The tax was introduced by the last National government, specifically to target property speculators, but its reach has been broadened considerably by this government. I would not have been surprised to find that inheriting your parent’s house on their death was included, but not so far. Surprisingly, the Tax Working Group never proposed the reintroduction of inheritance taxes either. However, that may all be about to change.

For the record, I am not opposed to either Capital Gains Tax (CGT) or inheritance tax, as both situations find people with significant windfalls and it is not unreasonable to expect to pay a bit of tax in such situations. It is important to remember though that death duties in past situations have caused hardship, if not ruin, to many families, particularly those running large estates. Taxation is supposed to be fair; it is in fact the first principle of taxation that it is applied fairly, but the approach by the Tax Working Group to CGT proved that their intentions were more akin to gouging than fairness.

And so it may well be with the reintroduction of inheritance taxes. At the moment, any tax paid due to the Bright Line Test rules is paid at the individual’s marginal rate, and the fact that the windfall from the property sale might well force a taxpayer to fall into a higher tax bracket made absolutely no difference to the TWG.

Most countries have flat rates for CGT and inheritance taxes, and most countries also apply a threshold below which no tax is payable. For example, British inheritance taxes do not apply to estates worth less than 325,000GBP. However, no proposals that I have seen so far from this government on CGT have proposed any threshold at all; this government wants to tax your capital gains from the very first dollar.

In the USA, different asset types have different rates of CGT, the highest rates applying to collectables such as artworks and coins, whereas, again, this government has shown no inclination to apply flat rates of CGT. In the USA, CGT is often applied at only 20%, but here, all proposals so far have meant that most taxpayers would be paying the new high tax rate of 39% on their capital gains. That is a very big difference between the two countries.

With a threshold of say $2 million before the tax applied, and a flat rate of 20%, we would ensure that only those who can well afford it pay CGT. This is far removed from the ridiculous proposals put out by the TWG which would have had a hairdresser pay CGT on the sale of her business, even if the sale price was only $50,000, but someone selling a Colin McCahon painting for a few million dollars would pay nothing. The Americans do not fall for such stupidity, but when the chairman of the TWG is an art collector, you cannot expect much else.

Remember also that the Greens proposed a wealth tax last year, with the exemption threshold being only $1 million. This would have meant that just about every homeowner in the country would be paying wealth taxes by now. If they had made the threshold $5 million, however, it would have been a more reasonable proposal. There is nothing wrong with trying to tax wealthy people, but that principle should only be applied to people who are really wealthy. With the average house price now creeping up to $1 million, the Greens’ wealth tax proposal was just plain ridiculous. I don’t agree with wealth taxes generally, but with a realistic threshold, the taxes become more reasonable, rather than just envy taxes.

David Parker says he is not thinking of introducing inheritance taxes, but that makes no sense. Why then has he allocated $5 million of taxpayer money to assess the wealth of high-wealth individuals? I don’t believe him for one second. I would really like to see Labour campaign on introducing inheritance taxes at the next election. That should ensure that Labour loses a few more of those swing voters that voted for them last time. That can hardly be a bad thing.

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