OPINION: Natalia Albert/Substack
Tax policy is the most important political statement. Everything else is downstream. It is also complex, boring and a nightmare to implement. Capital gains tax, wealth tax, land tax, income tax, inheritance tax, corporate tax, bright-line test, GST, blah blah blah.
And then, ok, more tax, sure, but for what? Off we go into the endless list of possibilities, which is exactly why it is confusing and boring. So, it gets reduced in a way that removes the complexity and it gets oversimplified. The Left wants more, the Right wants less, and it is just not that simple. It is not. No matter how you slice and dice it.
One side will say the wealthy are not paying their share, and we need new instruments to reach them. The other side will say we have a spending problem, not a revenue problem, and that taxing capital will drive it offshore. Neither is reasonable or practical.
And in November we will vote, and the tax system in 2029 will look substantially like the tax system in 2026. I know this because it always does. So how do we solve our problems? And can we?
What we currently have
New Zealand has one of the simplest tax systems in the developed world, and we are oddly proud of this. Broad-based, low-rate. Not many exemptions. A 15% GST that applies to nearly everything, without the carve-outs that make other countries’ systems a mess. The Treasury and Inland Revenue will tell you, with a straight face, that we have the broadest consumption tax base in the OECD.
Here is the shape of it. We tax income. We tax consumption. And we tax the accumulation and holding of assets almost not at all. Neither doing enough for our economy or our projected population growth. And my generation (folks born during the 1980s) and everyone born after that are going to have a dire experience once we start ageing.
We have no comprehensive capital gains tax. No land tax. No wealth tax. No stamp duty. No estate or inheritance duty since 1992. What we have instead is a bright-line test on residential property. It started at two years in 2015, went to five, then ten, and is back at two since July 2024.
Why that is a problem
The obvious objection is fairness. In 2023 Inland Revenue looked at 311 of the wealthiest families in the country and found they paid a median effective tax rate of 8.9% on their economic income, about 9.5% once you add GST. A middle-income earner pays around 20%. When the wealthiest households pay a lower effective rate than a nurse, something has gone grossly wrong that no amount of “broad-based, low rate” can talk its way out of.
But fairness is not the argument I find most persuasive, because fairness arguments are unwinnable. They bottom out in competing intuitions about who deserves what, and nobody has ever been talked out of one of those. We should still aim for equity as far as our capitalist, post-colonial structures allow. But that is not what a democracy is for.
The point of a democracy is stability, not fairness.[1] It is a system for deciding who governs without anyone reaching for a weapon, and for making sure the people who lose accept the result and turn up again in three years. Everything else it delivers depends on that holding. So, the question to ask of a tax system is not whether it is fair, which nobody will ever agree on, but whether people can keep living under it without concluding the whole arrangement is rigged. A system where the wealthiest pay nine per cent and a nurse pays twenty will not fail a fairness test so much as a patience test. I will come back to this.
In the meantime, there is a more practical problem, which is what our tax system tells people to do with their money. If you tax productive activity hard and asset holding barely at all, you have built a country where the most rational thing an ordinary person can do is put everything into an asset that produces nothing. We then act surprised that our businesses are undercapitalised, our productivity is flat and our housing is unaffordable.
The argument we keep having is the wrong argument
Both sides of the shitshow are arguing about how much money the government can collect. The Left says we need more revenue to fund the services people need. The Right says we cannot afford it and must live within our means. These sound like opposites, but they are the same claim. Both assume the government is a very large household with a very large bank account, and that the money has to come from somewhere before it can go anywhere. I have become increasingly unsure that this is the right question.
Dr Ganesh Ahirao and Morgan Edwards[2] say there is a government Money Tree. They argue that the household metaphor is not just oversimplified but wrong. They explain that Crown spending flows through the Crown Settlement Account at the Reserve Bank, that government spending creates money rather than dispensing money already gathered, and that spending is therefore not operationally dependent on tax being collected first. That Government not only can generate money but has every legal mechanism to do so. True but also not quite that simple.
So, if the government can create the money, why tax at all? To manage inflation. Spending injects money; tax withdraws it. If the state spends into an economy near capacity and drains nothing back, the constraint shows up as prices, not as an empty account. Tax also creates demand for the currency, shapes behaviour, and decides who ends up holding the money once the spending is done. The Money Tree is real; its limit is inflation, not the bank balance.
This is contested. It sits close to the modern monetary theory family, and plenty of orthodox economists think it either understates the inflation constraint or gets the accounting right and the policy conclusions wrong. I am not an economist, and I am not going to pretend the debate is settled. But I do think the household metaphor is dead, and that alone changes what we should be arguing about. A country is not a household or a company and should not be run like one.
The taxes that make sense to me
A land tax, because land is the asset we have most systematically failed to tax and the one where taxing it does the best. You cannot move land offshore. You cannot hide it in a trust structure the Commissioner cannot see. New Zealand taxes work heavily and land lightly, and that is an incentive problem more than a revenue one. A land tax fixes it by making the parasitic use of capital less attractive than the productive one, which is the entire point.[3]
A higher income tax and a higher corporate tax, but modestly. The top personal rate sits at 39% above $180,000. Take it to 41%, not the Greens’ 45%, and leave the threshold where it is. Company tax sits at 28% for everyone. Move it to 33% for the largest firms only, the banks, the supermarkets and the gentailers, and leave the 28% for the small and medium businesses that actually carry the risk.
Fewer things, done better
I think the state should do a much smaller number of things and do them better.
Health. Housing. Infrastructure. Seniors, children and the disabled community. That is close to my whole list. They are not the only things that matter, but they are the things where failure compounds, where private provision reliably produces worse outcomes at higher cost, and where the state is the only actor with the time horizon to do it.
So that is my combination. Tax land. Nudge the top income and company rates up without pretending it is a revolution. Then spend on fewer things and do them properly. Nobody is selling that box in November. The Left has the taxes and none of the discipline. The Right has the discipline and none of the taxes. Open to suggestions.
Full disclosure: I stood for TOP in 2023 and land tax is their signature policy. I would make the argument if they had never existed, and the land value tax literature long predates them.
