Budget 2023: Parties navigate fresh tax debate ahead of tight election

Jane Patterson for RNZ

"When you're looking at potential changes to the tax system ... you have to have a mandate," - Chris Hipkins

Expectations are being kept very low for the 18 May Budget, so any surprises can have maximum political impact. 

With a tight election looming, Labour will want to offer a proverbial carrot to voters - and could yet campaign on changes to the tax system after that milestone. 

But staring down the unavoidable cost of recovering from Cyclone Gabrielle and tackling rising living costs, leader Chris Hipkins is touting this year's spend as "no frills" with a sharp focus on infrastructure. 

Tax is fundamental to New Zealanders' lives - affecting people's and businesses earnings, and how much the government can spend on their behalf - and can dramatically impact equality across social strata. 

Most New Zealanders' tax burden is relatively easy to define through income taxes - Pay As You Earn (PAYE) - but wages make up a relatively small portion of earnings for the richest New Zealanders, who also earn through property, business, and investments.

In 2020, Revenue Minister David Parker changed the law in 2020 to allow the department to track down earnings information from New Zealand's 311 richest families. Between them they have a collective wealth of $85 billion, and much of that - 67 percent - is tied up in trusts. 

The resulting report from Inland Revenue on Wednesday has one major message: the wealthiest New Zealanders pay effective tax of 9.4 percent on earnings, compared to the 20.2 percent of middle New Zealand.

It's a disparity that may smack of unfairness for many, and offers a vehicle for Labour to again campaign on changes to the tax system. Speaking at the report's release however, Parker quickly rules out any immediate "new tax policy or tax switch". 

Opposition parties have been quick to lay the blame at the feet of the government. National's Christopher Luxon rails against the Labour's economic approach, saying the real unfairness was to be seen in rising inflation. 

"It's all a little too little, too late, frankly," he says. "Again, four months out from an election, Chris Hipkins has all of a sudden discovered that actually controlling and being disciplined spending of taxpayer money is actually important. Well, it's always been important."

ACT leader David Seymour points out benefit payments were not accounted for as "negative tax" and those richest families were responsible for paying a large proportion of the total tax take. 

On the left, Green MP Chloe Swarbrick said the report created "crystal clear grounds" for a fairer system. 

Te Pāti Māori co-leader Rawiri Waititi described the level of disparity as shocking, saying many people probably would not know just 2 percent of New Zealanders controlled half the country's wealth. 

Council of Trade Unions economist Craig Renney casts the report as revealing what we already knew, saying the real surprise in the report is the size of the gap between the super-rich and the average Kiwi. 

Income equality expert Max Rashbrooke, a senior associate from Victoria University of Wellington, takes a similar view

"New Zealand's tax laws are not fit for purpose because, unlike almost every country in the developed world, we don't tax capital gains - even though capital gains are income just like my salary is income," he says.