12. Question No. 12—RevenueHELEN WHITE (Labour) to the Minister of RevenueQuestion No. 12—Revenue12. HELEN WHITE (Labour) to the Minister of Revenue: What were the main findings of the Inland Revenue Department's report on the effective tax rate paid by high-wealth individuals?Hon DAVID PARKER (Minister of Revenue): Last week Inland Revenue released its research which showed the large difference between the tax rates middle-income New Zealanders pay on their income compared with wealthier citizens. The research delved into the wealth income and tax paid by 311 of New Zealand's high-wealth individuals including their life partners and dependent children. Their financial affairs are very complex and can involve multiple trusts and up to a hundred companies. The study looked into the tax they paid personally as well as that paid via their many trusts and companies. They had on average $276 million of net assets each; $85 billion in total. The study showed that 93 percent of their income comes from investment returns and that their effective tax rate was 9.5 percent including income taxes company taxes trustee tax and the GST they've paid. The assessment criteria were based on similar studies overseas including by the OECD and the application of those tax criteria was informed by an external reference group. Helen White: Why was this research needed?Hon DAVID PARKER: Well as Thomas Piketty has shown population-based surveys like the household economic—[Interruption] They don't like it do they? They just don't like it. Transparency on everything except the tax paid by the wealthy! But as we know Thomas Piketty has proven surveys like the household economic survey (HES) are inaccurate at the top. The HES has only ever picked up two people with assets of more than $20 million in a country of billionaires. It's out by a factor of more than 100 at the top. The IRD report used actual data not an analysis of scenarios based on population-based surveys so for the first time even the National Party now knows indisputably that the effective tax rate paid by middle-income earners is more than twice or sometimes three times that paid by our wealthiest citizens.Hon Damien O'Connor: Did that report indicate the effects on New Zealanders with low or high income of increasing GST?Hon DAVID PARKER: In fact the study showed that the highest-income New Zealanders pay very low rates of GST relative to their income compared with middle-income New Zealanders.Andrew Bayly: Why did the IRD use unrealised capital gains to calculate effective tax rates unless his Government which commissioned the report is gearing up to tax 'em?Hon DAVID PARKER: I'm not responsible for the phantom tax policies invented by the National Party.Helen White: What is the effective tax rate of someone whose income is a salary of $80000?Hon DAVID PARKER: A Kiwi whose income is a salary or wage of $80000 pays income tax at an average rate of 22 percent plus the GST they pay out of their income. They spend two-thirds of their income roughly on GST which means as a percentage of their income it's another 8 or 9 percent. So their effective tax rate is 30 percent which is three times the effective tax rate of wealthy New Zealanders. A companion study from the Treasury shows that whichever way you cut it Mr Bayly—whichever way you cut it—whichever families you look at the wealthy are paying less than half the rate of the middle class.Helen White: What other insights does the Inland Revenue study provide?Hon DAVID PARKER: For me one of the many interesting facts from the study is that on average the higher the proportion a high-wealth individual owns of a company the lower the rate of profit and tax of that company. Given that the wealthy are amongst the best business people in New Zealand it's counterintuitive. It indicates that high-wealth individuals can borrow more money against their asset base to acquire even more assets. Their interest costs reduce taxable income while capital income earned from the increasing asset base is often untaxed—exactly as Andrew Bayly likes it. SPEAKER: That concludes oral questions. [Interruption] Order! Before everyone goes can I just ask you to go quietly and immediately. Thank you—those who are going.