Why Beating Up On The Rich Is Ignorant

A few months behind the ICIJ’s crowdsourced bleating about tax havens, the NZ Herald writes about how super-rich Kiwis don’t pay their fair share of taxes.

Using buzzwords and phrases designed to infuriate poor people who don’t know the difference between an IR3 and an IR281 is effective fake journalism.

These phrases include:

  • offshore bank accounts
  • tax havens
  • family trusts
  • companies
  • luxury goods
  • lifestyle assets
  • “more than $50 million in assets”

The tax jihadis on the left suffer from a really dirty problem – they don’t think that individual property rights matter. They are also ignorant of the new reality since anti-money laundering laws and the Penny and Hooper judgment enable Inland Revenue to essentially enforce tax law as they see fit.

With respect to the buzzwords above, Inland Revenue has excellent data sharing arrangements with every country in the world safe enough to put your money. If you don’t declare an overseas bank account (David Shearer!) you’re stupid. If you don’t declare transactions with offshore entities, you’re stupid. It’s not worth the hassle to go to the lengths that tax jihadis think rich people go to.

Most of these rich people will have interests in or control closely held companies. They are likely to have set up trusts. Unless you are a property developer, if you are “actually rich” as in “owning positive cash flow businesses” it is next to impossible to “evade tax”. There is also a complete ignorance that some rich people of the progressive persuasion are completely fine with paying taxes. It might seem weird – but it’s true.

Firstly, a profitable business will be returning substantial sums in “net GST” that is the difference between the GST they pay on supplies and the GST they add to invoices. It’s a very efficient system and IRD are bloody good at making sure GST returns are accurate.

Secondly, a profitable business won’t be able to artificially lower its profit in NZ. After the convertible notes case, any sort of inter-jurisdiction profit shifting arrangement is unlikely to be worth the hassle. Why spend $1 million on a complicated tax reduction arrangement when the IRD can interpret the law as they see fit and even change their mind on the legality of a structure after they’ve issued a notice on how they’d deal with it?

Thirdly, this focus on the NZ “super rich” is a red herring. The ones that are still here obviously prefer New Zealand to London or Singapore. They might spend a lot of time in Fiji, but they keep on running businesses in this country. They’ll be paying an awful lot of GST and increasing the velocity of money. (No, this isn’t a trickle down argument, just reporting the facts).

The tax jihadis don’t realise that there are some really big problems with the idea that governments have a preferential right to private property. The idea that the aims of the collective are more important than the aims of the individual is dangerous. The envy – while justified for those who’ve obtained their wealth in a dodgy manner – doesn’t do anyone any good.

Most NZ Herald readers will never be rich, never interact with rich people, never advise rich people on efficient wealth structuring options and indirectly benefit from them because in the ponzi scheme that is government distribution, the rich pay a lot of taxes simply because they earn more money.

What is even more disgusting is that a lot of NZ Herald readers will read this article, agree with it, get angry, and then tell their friends at a dinner party about the $80,000 they made after doing up their “wental pwopitty”.

Middle class residential property investors are the real tax evaders. I was pleased to read in the budget that more resources will be allocated to these types, who cynically seek their fake wealth creation to be exempt from taxes while calling for people who build businesses to “pay more of their fair share”.

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