Tax call by Labour upsets young voters

For one young Labour activist, the Government’s call to scrap work on a wealth or capital gains tax feels like a bitter pill to swallow.

The 21-year-old, who did not want to be named because of his work with the party, said his generation was feeling increasingly disillusioned, and there was a growing feeling that Labour would lose progressive votes to the Green Party in October’s election.

“Wealth inequality just becomes such a big issue. For the Labour Party not to address the balance, it is very disappointing from a generational perspective,” he said.

His disillusionment echoes the cries of many younger voters on social media after the prime minister moved quickly to scotch talk of either tax, as Labour’s polling slumps.

The nation’s total wealth has been increasing, but younger people are increasingly losing ground, while feeling locked out of the housing market.

The trend creates a greater social divide between those who can afford homes and those who cannot, because home ownership is the traditional way people build their wealth.

Treasury documents released on Wednesday revealed that officials were working up a tax package for May’s Budget before Prime Minister Chris Hipkins decided it wasn’t politically palatable.

Finance Minister Grant Robertson and Revenue Minister David Parker had been working on the package, which they had pitched as spreading the tax burden more fairly.

It included a tax-free zone of up to $10,000, funded by a new wealth tax which would kick in at 1.5% on net value assets, excluding the family home, above $5 million.

About 46,000 people would have paid the wealth tax, which would have raised $3.4 billion in the 2024-25 tax year, growing to $3.7b in 2026-27, according to the March 23 memo.

Budget advice papers from Treasury and the Inland Revenue Department show that officials were concerned about the compliance costs – up to 20% or more of the total collected. The tax-free zone would give every wage earner an extra $20 a week.

A capital gains tax was also worked on. The proposals were discussed by Cabinet, but Hipkins said he made the call to drop the policy, disappointing many core Labour supporters in the runup to the election. Hipkins has confirmed that he will release a revised tax policy “soon”.

Max Rashbrooke, a senior associate at the Institute for Governance and Policy Studies, said it was increasingly difficult for young people to get ahead without family wealth.

“Wealth accumulation is harder for young people: saddled down with debt, the labour market is a lot more unstable than it used to be, there are more low-quality, precarious jobs. House prices have rendered housing out of reach for a huge number of people.”

People generally accumulate more wealth through their working life, but Stats NZ data sets show a widening gap between generations over time.

In 2001, a 40-year-old had nearly $100,000 worth of wealth, and a 65-yearold had nearly $300,000. But in 2018, this had grown further apart, to $120,000 and $500,000, mostly because of rising house prices and capital gains.

“If you take it right down to the basics, there is more income and wealth around than there was previously, but the question is how is that distributed – and what we know from the Treasury’s work this year, a lot of the increases in wealth have gone to older generations,” Rashbrooke said.

The debate had been dominated by people opposed to higher taxes, and everyday people were worried that they were going to have to pay more, he said.

“New taxes aren’t really popular if middle New Zealand thinks they are going to have to pay them.

“People are envisaging a wealth tax that they themselves would never have to pay.”

Caeden Tipler, a political activist behind the Make It 16 campaign to lower the voting age, who is also the co-convenor of the youth wing of the Green Party, suggested that Labour was lacking the vision and leadership needed to tackle major issues around wealth.

“Labour has in the past campaigned on being the party beating social inequality, but that is not who Labour is at the moment,” she said.

“I think it is frustrating for a lot of young people the prime minister has said because we are in a cost of living crisis, now is not the change for transformational change.”

Alan Johnson, Child Poverty Action Group convenor and housing spokesperson, said tax reform was key to tackling child poverty. The Labour Government had increased benefits, and pulled thousands of children out of abject poverty, but more radical change was needed, he said.

“We believe that the time for tinkering is well over. The Government, with the best intentions, has tinkered over the last five years.”

High housing costs put families under pressure, and left less money for food and other basics, he said.

Brad Olsen, Infometrics chief executive and principal economist, said he had found Labour’s handling of the issue “bewildering”.

“We are so far away from having a reasonable conversation about tax. I say that professionally and as a young person,” Olsen, who is 26, said.

He didn’t believe the Government had a mandate to implement a wealth tax, but there was merit to a capital gains tax.

However, he was scathing that the Government pushed ahead with asking officials to design a wealth tax without taking it to the electorate, and when it hadn’t yet completed its bombshell research project into high-wealth individuals, which found that many pay as little as 8.9% in tax.

“I find it galling that the Government designed what would be one of the most comprehensive changes in the tax system in history without going to the electorate on it.

“This research was being conducted before the high net worth study. Are we being led by the evidence?”

“People are envisaging a wealth tax that they themselves would never have to pay.”

Max Rashbrooke

“Labour has in the past campaigned on being the party beating social inequality, but that is not who Labour is at the moment.”

Caeden Tipler

“We are so far away from having a reasonable conversation about tax.”

Brad Olsen