Inland Revenue trying to claw back $90 million from our 390 ultra-rich

The number of ultra-rich New Zealanders has nearly doubled since 2014 with 390 people now worth $50 million or more.

Some members of the group – called High Wealth Individuals (HWIs) by Inland Revenue – are in a fight over more than $90 million in disputed tax

One of New Zealand’s leading experts on economic inequality was amazed by the figures and worries about the future impact of Covid-19.

And a Rotorua Lakes councillor said New Zealand is facing down the barrel of a “generation of beneficiaries” as the gap between the rich and the poor continues to grow.

An HWI has, or is in control of, wealth in excess of $50m and their incomes often include property development, agriculture, manufacturing and investment.

University of Waikato’s school of accounting, finance and economics head Professor Frank Scrimgeour said the increase in HWIs was a “bracket creep”.

“You would expect the number of HWIs to grow as an economy grows, just as we expect the number of people earning $100,000 per annum per year grows,” he said.

In the 2019 tax year, Inland Revenue was attempting to recover $90.9m from some HWIs and their companies, partnerships, trusts and related individuals.

Disputed tax is the difference between what a tax customer thinks they need to pay and what Inland Revenue thinks they owe.

Investigations into HWIs often spark tax disputes, and if the matter isn’t resolved in one tax year it rolls into the following year.

Associated entities of the 390 super-rich group totalled 12,537 in 2019, a figure which has been steadily increasing over at least the past seven years.

Scrimgeour said there were a few ways to get around tax but the dodgy often get caught.

To avoid tax, people could fail to declare income, misclassify investment expenditure, receive income in a form that attracts a lower tax, or shift business activity overseas – which comes at other costs.

Scrimgeour said filing taxes were complicated for large organisations or individuals with complicated income streams but it was commonly known Inland Revenue had lots of staff processing tax returns.

“It wouldn’t be surprising if there [are] just as many people involved in completing tax returns of various sorts,” he said. “However, probably there are even more people involved in preparing PAYE and GST returns.”

Tax returns were the simplest way for Inland Revenue to identify whether someone owed tax, however, they could also look closer at specific transactions if they had doubts.

They were also aware of sectors showing lots of economic activity, meaning they may have a reason to look closer if it didn’t show up in reported data, Scrimgeour said.

Economic inequality writer Max Rashbrooke said the numbers appeared to show another sign of an “increasing concentration of wealth”.

“My concern would be that not only do these figures show a striking level of wealth inequality but things are probably even getting worse.”

He said the Government had helped cushion the impact of the pandemic but a lot of poverty had been created through Covid-19.

Scrimgeour thought the greatest impact was on the property-owning middle classes because they had a higher share of wealth in property and it was one of the asset classes that had risen the most in the past year.

Te Tuinga Whānau executive director Tommy Wilson said the virus had exposed “the underbelly of homelessness and degeneration poverty” in New Zealand and that was good.

“The elephant in the room is apathy, people have this false sense of everything is ka pai [good] now, where it just isn’t,” he said.

“The community [needs to] step up because we cannot rely on hospitals, police and the Government to take all of the burdens.”

Wilson said people in the Bay of Plenty region were struggling but handouts were not the answer – instead, people needed to be educated better.

“You just can’t keep feeding those that have become used to being fed because you’re just enabling them,” Wilson said.

“That’s what we’ve got to stop doing, giving people money and food so they can carry on living the lifestyles that are never going to get them out of their dilemma.”

Meanwhile, Rotorua Lakes councillor Merepeka Raukawa-Tait said despite the global pandemic, the virus had dealt the wealthy a great hand.

Although there was an initial drop in sharemarkets around the world, they quickly righted themselves but those in the lower tax bracket had not fared so well, she said.

In January, Oxfam International said the world’s 1000 richest people recouped any Covid-19 losses within just nine months.

It came as Oxfam New Zealand revealed New Zealand’s richest citizen, Graeme Hart, had his fortune increase by $3.4 billion since March 2020.

A global survey of 295 economists from 79 counties, revealed 87 per cent expected an “increase or major increase” in income inequality as a result of the pandemic.

The report showed it could take 14 times longer for the number of people living in poverty to return to pre-pandemic levels than it took for the super-rich.

“We stand to witness the greatest rise in inequality since records began,” Oxfam International executive director Gabriela Bucher said.

Meanwhile, Raukawa-Tait said many families were already struggling before the virus, with people working in lower-paid jobs, or on the minimum or living wage.

“They worked in the sectors that have seen businesses close and jobs gone: hospitality, office hotel-motel cleaning, tourism, manufacturing,” she said.

“These workers don’t have the option of working from home. They also can’t get out, travel and see New Zealand. They have no disposable dollars.

“Their future is precarious. A generation of beneficiaries, unable to live to their potential, if we do not provide support to lift them up.”

Wilson asked people to think about why they wanted so much when they didn’t need it.

“People have to ask themselves why this is happening,” he said. “The answer is always greed – there is no other answer.”

High Wealth Individuals

2013 tax year

Total number of HWIs and associates: 7009;

2014 tax year

Total number of HWIs and associates: 7198;

2015 tax year

Total number of HWIs and associates: 7928;

2016 tax year

Total number of HWIs and associates: 9623;

2017 tax year

Total number of HWIs and associates: 10,521;

2018 tax year

Total number of HWIs and associates: 11,585;

2019 tax year

Total number of HWIs and associates: 12,537.

Disputed tax

2014 tax year

Disputed tax: $112,874,762;

2015 tax year

Disputed tax: $102,458,997;

2016 tax year

Disputed tax: $110,964,956;

2017 tax year

Disputed tax: $66,520,852;

2018 tax year

Disputed tax: $85,835,753;

2019 tax year

Disputed tax: $90,981,454;

2020 tax year

Disputed tax: Not yet available.

Data provided by Inland Revenue

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