In brief
- The government is repealing section 17GB, the “Nosey Parker” clause introduced by Labour’s David Parker.
- Powers were used only once, for IRD’s 2023 wealth report, which claimed the rich paid just 9.4% tax.
- The report’s conclusion was pre-determined due to its assumptions, and even a superficial analysis shows that the posted number was obviously low.
- Repealing the clause restores privacy without weakening enforcement.
- Critics say the repeal blinds IRD, but supporters argue it stops politicised data use and intrusive powers.
Closing the door on politicised tools
The government’s decision to repeal section 17GB of the Tax Administration Act 1994 has been painted by critics as a victory for secrecy. Another take is that it closes the door on a tool introduced by Labour’s David Parker that blurred the line between neutral policy research and political campaigning.
The “Nosey Parker” clause gave Inland Revenue unprecedented powers to demand private information from any taxpayer they chose. Those powers were used only once to produce the 2023 High Wealth Individuals Research Project.
The highlighted results of this report made headlines by claiming 311 wealthy families paid an average “effective” tax rate of 9.4 percent, which was said to be less than half that of middle-income earners.
However, it was politicised from the outset because the study’s structure predetermined that the stated tax on the wealthy would be very low. Determining the tax a person with complicated affairs pays, both directly and indirectly, is exceedingly difficult and will always involve a lot of guesswork. It is harder yet if you are trying to do it for a group of taxpayers with complicated affairs.
The value of many benefits taxpayers receive from society, such as universal healthcare, police, roads, and schools, was ignored. These are a high percentage of the income of an ordinary taxpayer, but a small percentage for the wealthy. Adding these in would not change the “net” effective tax rate much for the high-income earners but would dramatically reduce the rate for others.
The reduction in the effective tax rate would be more significant the lower the income. Of course, the exact impact of this would only be a rough estimate as well, since it is one of the many things that simply cannot be measured precisely, but it is certainly very material.
There were numerous taxes paid by the wealthy on their more complex affairs, such as overseas investments or PIE structures, that were simply ignored. Even more impactful, there were assumptions of increasing asset value, with that estimated gain (paper gains) counted as income on which no tax was paid. By the study’s logic, Auckland homeowners who saw their property values spike on paper during the boom, but who never sold, could have been cast as tax avoiders. In the real world, any tax payable on a gain in asset value is, almost universally, only charged when the asset is sold.
In contrast, the study made ordinary taxpayers look like they paid a much higher rate because all their income and taxes were simple to measure, and no taxes were left out. At the same time, no ‘paper gains’, such as their family home, were added for them. Even ignoring the other defects pointed out above, the attribution of no paper gains meant their rate was guaranteed to be higher than the falsely low rate shown for the wealthy.
Taxing increases on paper would be a nightmare, expensive to run, easy to argue over, and guaranteed to upset everyone. Also, if paper gains are taxable, then isn’t it fair that paper losses are deductible? How would that have worked for real estate over the last few years?
Revenue Minister Simon Watts has argued that Labour never justified why IRD needed such intrusive powers, especially when the department already has extensive tools to enforce compliance. And, aside from being intrusive about collecting data that may not be as confidential as the IRD intends, what about the cost and time required to do so? “Lucky” taxpayers selected for the study were not compensated in any way for their mandated efforts, effectively serving as extras in a political campaign. Is that fair?
A further irony is that those chosen were among the wealthiest families already paying the largest share of tax in dollar terms, yet they were the ones singled out as if they weren’t pulling their weight.
Critics and counterpoints
Tax Justice Aotearoa spokesman Glenn Barclay argued the repeal is “a fundamental blow to transparency in our tax system and shields the rich and powerful from legitimate scrutiny,” accusing the government of “putting a blindfold on the IRD.” Is that so bad when the “blindfold” only stops them from snooping in people’s private lives? They can set the tax rules as they want and then can see the actual results of those policies in tax returns.
The powers under section 17GB seem to many to have been about political leverage. Data was selectively framed to imply the wealthy were dodging their “fair share” and to give cover for Labour’s pursuit of additional taxes. No one is suggesting that repealing 17GB will hinder IRD’s ability to monitor compliance. What it will do is stop the politicisation of private data.
James Ross of the Taxpayers’ Union put it plainly: “Rammed through during COVID with no public consultation, there was next to no limit on the taxman’s powers to rifle through people’s private lives.”
Politics of envy and media spin
The 2023 report succeeded in “establishing” that the wealthy had a very low tax rate, not because of any rigorous analysis but because few, if any, journalists engaged with the 200-page report. Most echoed Labour’s preferred framing: the wealthy paid half the rate of ordinary New Zealanders. The slogan carried the day. Centrist and others who examined the report were accused, not of being wrong, but of defending privilege.
There was considerable effort put into providing, organising and analysing the data for the report. It is too bad it wasn’t made more available, on an anonymised basis, to see what else could be gleaned from it. For instance, if you looked at the same data differently, using just the real income and real taxes actually paid, the wealthy’s tax rate would come out at least two or even three times higher than the 9.4 percent Labour claimed. Doing that work is complex, but it makes clear the actual rate, even with no capital gains tax, was far above the figure Labour promoted. Centrist is prepared to demonstrate this math if anyone who has a serious understanding of the study wishes to debate it.
Why should voters care?
This isn’t about shielding the wealthy. It’s about protecting everyone from politicised numbers and intrusive government powers. If a government can bend the rules to make one group look like villains, it can do the same to homeowners, small business owners, ordinary savers, etc. The media is supposed to call this out, not parrot it unquestioningly.
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