One of the main issues I have with a wealth tax is that it can, in certain circumstances, tax the same income twice.
Using the lowest of the settings from the Maori Party policy last election, a household with a net worth of over $2 million would get taxed at 2% on that wealth.
So, a theoretical household where there's a Structural Engineer who runs his own practice. He receives income from drawings from his business, a rental property and managed funds. He pays part of his salary into KiwiSaver, reducing the mortgage on the rental property and managed funds. At the start of the year, his net worth in $2.4 million so he would pay $8,000 in wealth tax for the previous year.
During the year, he pays down the mortgages increasing his equity in the properties. Even if the value of them remains the same, his net worth increases because he has less debt. He's already paid income tax on the money used to paydown that debt and now he has to pay tax again on the gain in equity even though the value of the properties hasn't risen. Tax on tax.
Because he's worked had, the book value of his practice has expanded increasing his net worth without realising him any money until he sells the practice. Tax on nothing.
He's paid money into his KiwiSaver and managed funds, money which has already been taxed and that increases in value increasing his net worth. But, that money is taxed when he earned it as income, the proceeds of profit made in interest, bonds, dividends etc, by the KiwiSaver or managed fund are taxed and then he's taxed again because his net worth has increased.
And what happens if houses reduces in value, or the share market goes down during the year. Is the wealth tax worked out on what his greatest wealth was in the year at anyone point or on the value at the end of the financial year or on the average value throughout the year. This is why most countries don't have wealth taxes.... they are too expensive to adminsister and to "catch" those who may have, even very briefly, at one point in the year crossed over into the first, or the second, or the third wealth tax threshold due to a surge in the sharemarket or property values or cypto.
The reason people like wealth taxes over a capital gains taxes is because, unless they win Lotto, it will never affect them as they may never reach that threshold.... but each year, there's a cost to them providing proof to the IRD that they haven't crossed that threshold.
The other reason people like a wealth tax over a capital gains tax or estate duty, is the money goes to the government within 12 months. A capital gains tax is reliant on something been sold while estate duties rely on someone dying.
