On Wealth Taxes And Capital Flight

Scoop

28-05-2025

In the wake of the Greens' alternative Budget – and the criticism levelled at it – it seems pretty obvious that when it comes to tax policy, Labour's only election campaign concession to left wing voters is going to be a capital gains tax (CGT).
A wealth tax is not on the cards. Yet in the run-up to next year's election, even a CGT is going to be demonised as a plunge into radicalism. It is a sign of just how restrictive the politics of progressive taxation are in New Zealand, that a tax seen to be an utterly conventional tool in every other developed country in the world is still widely regarded here as being a surrender to the 'tax and spend' forces of radical left wing extremism.
On the evidence, a wealth tax would be entirely justified on the grounds of fairness and equity. Only two years ago, IRD research showed that the income of the wealthiest New Zealanders is being taxed at less than half the average rate of ordinary wage and salary earners. Not surprisingly, the coalition government quickly shut down this IRD line of research.
If, in future, a meaningful attempt was ever made to correct that injustice by way of a wealth tax, one immediate concern is capital flight i.e. the tax will allegedly cause the wealthiest Kiwis to up stakes and move to tax havens elsewhere.
To some extent, that concern looks bizarrely misplaced. Right now, an estimated 191 New Zealanders are leaving this country every day, for what they regard as greener pastures elsewhere. This is happening without any meaningful response from the government presiding over this outflow of the best and the brightest, the hopeful and the desperate. Yet if a few billionaires left in high dudgeon after being asked to pay a little more tax for the general good? Perish the thought!
Moreover, how transferable would these riches actually be, given that much of the wealth in question is sunk in property empires or in neo-monopoly businesses firmly located here. Even more to the point, many of the possible socially desirable destinations operate a capital gains tax and have other revenue gathering taxes comparable to, or in excess of, what we have here. Not everyone – and their sack of gold – can get into Switzerland.
That said, there is overseas evidence of a link between a net wealth tax and significant levels of capital flight. There's a reason why the number of OECD countries with a wealth tax has shrunk from 12 to 5 over the past 20 years. Norway's experience – where its expected revenue gains were well outweighed by its losses via capital flight – is a sign that creating more fairness in the tax system will almost certainly come with a price tag:
In 2022, Norway's Labour-led government raised the wealth tax to 1.1%, hoping to boost annual revenues by $146 million. Instead...Roughly 50 of Norway's richest citizens packed their bags and left, including high-profile investors and founders of tech firms. Switzerland emerged as a favoured destination, thanks to its lenient tax regime and predictable fiscal policy. The net effect? A reported $594 million loss in tax revenue—four times the projected gain.
Other reports on Norway's capital flight experience can be found here. And also here. How the Norwegian wealth tax is structured, and how the Swiss tax system operates – and how it benefits the ultra-rich – is outlined here. Yet evidently, even Switzerland has a capital gains tax on transactions involving Swiss real estate. (New Zealand's lack of a CGT on property transactions in particular has made this country a bizarre outlier, for decades. )
In sum, a significant extent of capital flight is likely to be the transitional cost of arriving at a more equitable system of taxing wealth as much as we tax wages. Would those fleeing billionaires be a loss felt by many ordinary citizens ? Chances are, some of those departing tycoons may not have enhanced the lives of ordinary Norwegians all that much, and it cannot be assumed they will be conferring added value to the lives of the Swiss either, or to wherever else they land.
Meaning: the social argument for a wealth tax remains, whatever the transitional costs may be: 'If you have enjoyed success and become rich in Norway, we hope you will stay and continue taking part in the Norwegian society,' Erlend Grimstad, an official in Norway's Finance Ministry told the Guardian: 'We do encourage Norwegians to succeed in creating value and become rich. And we believe the Norwegian model with a strong public welfare system and high education levels are important factors in making that success possible. The model in Norway is that everyone should contribute relevant to ability, and therefore those that have a greater ability to pay taxes, should pay a little more.'
Exactly. People who become wealthy owe something more to the society in which their success was possible. The Norwegian annual 1.1% added tax on the very high layers of accumulated wealth and assets hardly seems exorbitant. Neither, in New Zealand, does the 2.5% rate the Green Party advocated (in its alternative budget) on assets above a personal threshold of $2 million for individuals, and $4 million for couples.
To repeat: in a situation where, as the IRD found, the ultra-rich people are currently paying less than half the taxes on their sources of wealth as average Kiwis are paying on their wages, such a tax looks entirely fair. To anyone willing to abandon this country if asked to contribute a little more of their wealth to serve the greater good...then one could easily be forgiven for saying: 'Goodbye, and good riddance.'
Trump: No Joke
Laughing at the latest weird utterance of Donald Trump may provide us with a brief sense of superiority, but we were never the intended audience. Treating Trump as being deranged at worst or not very bright at best, tends to obscure the logical consistency of his positions on the wars in Ukraine and in Gaza.
Vladimir Putin and Benjamin Netanyahu are hearing the same message loud and clear: Trump is solidly in their corner, and the US is giving them the greenlight to proceed as they wish, without fear of the US imposing any meaningful sanctions, and without the US joining up with any sanctions regime initiated by the Europeans, either. With Trump's help, Putin's stated goal of splitting up the old trans-Atlantic alliance between the US and Europe has been achieved.
If we regard Trump as a Russian proxy – and there is plenty of evidence for why we should – then the fatuity of Trump's criticism of Putin makes perfect sense. The 'Vladimir: STOP! ' text from a month ago came in response to a massive Russian attack on civilian centres in Ukraine. It was a signal that the US was A-OK with those military actions.
Similarly, last weekend's Trump's comment 'I don't know what the hell happened to Putin...he has gone absolutely CRAZY' followed on from unprecedentedly heavy drone attacks on Ukrainian cities. To Putin, the fatuity of Trump's language makes the pantomime of concern reassuringly obvious. (Just kidding, Vladimir.) To the MAGA faithful, the inflated rhetoric sounds like the Big Man is talking tough.
In reality, Trump has refused to impose US sanctions on Russia and consistently refused to join in any EU sanctions regime. Only days after last week's 'excellent' phone call between Putin and Trump that – according to Trump, was going to be directly followed by peace negotiations, Russia carried out its heaviest ever drone attacks on Ukraine.
As the New York Times pointed out yesterday:
Trump has never linked the attacks with his own decision, reaffirmed last week, to refuse to join the Europeans in new financial sanctions on Russia, or to offer new arms and help to the Ukrainians. The result is a strategic void in which Mr. Trump complains about Russia's continued killing but so far has been unwilling to make Mr. Putin pay even a modest price.
This is a very familiar pattern. As the NYT added:
Trump signals he is pulling back from a conflict he often describes as Europe's war, then expresses shock that Mr. Putin responds with a familiar list of demands that amount to a Ukrainian surrender, followed by accelerating attacks. Mr. Trump episodically insists he is 'absolutely' considering sanctions, including on Sunday. Yet each time when he is forced to make a decision about joining Europe in new economic penalties, he has pulled back.
The US stance on a ceasefire and on peace negotiations involves striking the same zigzag path between feigned concern on one hand, and absolutely no follow through actions on the other. Only a fortnight ago, Trump was saying that peace in Ukraine would only be achieved until he and Putin talked. After they did, Trump's line has been that peace can come only after the leaders of Russia and Ukraine conduct direct negotiations. And so it goes.
At some point, Ukraine's allies – including New Zealand – are going to have to summon the courage to call out the Trump administration for its bad faith expressions of feigned concern, and its related willingness to aid and abet Putin over Ukraine, and Netanyahu over Gaza.
Laughing incredulously at Trump may make some people feel superior, but he – and his pal in the Kremlin – are having the last laugh.
Kneecapping
The criminal prosecution of a member of the Irish rap trio Kneecap for displaying a Hezbollah flag thrown onstage at a London gig will go to a hearing on June 18. In their press release, the band defended their actions in these terms:
14,000 babies are about to die of starvation in Gaza, with food sent by the world sitting on the other side of a wall, and once again the British establishment is focused on us. We deny this 'offence' and will vehemently defend ourselves.
This is political policing. This is a carnival of distraction. We are not the story. Genocide is...
What's the objective? To restrict our ability to travel. To prevent us speaking to young people across the world. To silence voices of compassion. To prosecute artists who dare speak out. Instead of defending innocent people, or the principles of international law they claim to uphold, the powerful in Britain have abetted slaughter and famine in Gaza, just as they did in Ireland for centuries. Then, like now, they claim justification.
The IDF units they arm and fly spy plane missions for are the real terrorists, the whole world can see it.
WE STAND PROUDLY WITH THE PEOPLE.
YOU STAND COMPLICIT WITH THE WAR CRIMINALS. WE ARE ON THE RIGHT SIDE OF HISTORY. YOU ARE NOT. WE WILL FIGHT YOU IN YOUR COURT. WE WILL WIN.
Kneecap's new single 'The Recap' – which alludes to their current legal troubles - can be found by scrolling down at this site.
Kneecap also have starred in a critically acclaimed semi-biographical film. Here is the trailer: