In April 2023, Inland Revenue published the result of a five million dollar research project that tracked 311 of the wealthiest families in the country across six years of returns. The median family had a net worth above 50 million dollars. The headline finding, drawn from a methodology peer reviewed by two academic economists and an external advisory group, was that those families paid an effective tax rate of 8.9 percent on their economic income. The comparable figure for the median New Zealand household was 20.2 percent. (IRD high wealth report)
The 8.9 percent figure is contested, and the most pointed criticisms are worth taking seriously, but the underlying picture is not really in dispute. Eighty percent of the wealthy families’ economic income was capital gains, realised and unrealised. Sixty seven percent flowed through trusts. The code as it stands taxes wages in full while leaving the lion’s share of the gains accruing to capital almost entirely alone.
This is not the result of any single policy. It is the cumulative effect of a series of legislative choices made over thirty five years, some by Labour governments, some by National governments, and several by both. What follows is a plain audit of those choices, the gaps in the code that favour capital, and the squeeze that the same code applies to wage earners and working families.
No comprehensive capital gains tax
This is the biggest single gap. New Zealand and Belgium are routinely identified by the OECD as the only two of its 38 member countries without a comprehensive tax on capital gains. (OECD Taxing Capital Gains 2025) Australia introduced one in 1985, the United Kingdom in 1965, the United States in 1913.
New Zealand does tax some gains. Property sold within two years of purchase is caught by the bright-line test, although the period was halved from ten years to two by the coalition government from 1 July 2024. (IRD bright-line) Property bought with the intention of resale is taxable irrespective of how long it is held, but the intent test is difficult to enforce. Foreign equities are caught by the Foreign Investment Fund rules. Share traders and developers are taxed on their gains as ordinary income. Outside those carve outs, the gain on selling a rental, a holding company, a chunk of farmland or a portfolio of New Zealand shares is, in the great majority of cases, not taxable income at all.
The structural consequence is that the same dollar earned as wages is taxed at up to 39 percent and the same dollar earned as capital appreciation is taxed at zero.
No estate, inheritance or gift duty
Estate duty was abolished in 1992 by the Bolger government. Gift duty was abolished in 2011 by the Key government. There is, today, no tax of any kind on the transfer of wealth between generations, no matter the size of the estate.
Most comparable countries impose something. The United Kingdom applies a 40 percent inheritance tax above a 325,000 pound threshold. The United States, France, Japan, Germany, Ireland and South Korea all have a meaningful inheritance or estate tax. The combined effect of no capital gains tax during life and no estate tax on death is that accumulated wealth can move from one generation to the next without ever attracting a tax event.
No stamp duty and no wealth tax
New Zealand abolished stamp duty on property transactions in 1999. Australia, the United Kingdom and most European jurisdictions retain it. A typical Australian state stamp duty on a one million dollar residential purchase runs to about 40,000 dollars. The corresponding figure in New Zealand is zero.
There is no annual wealth tax. The Greens have proposed a 2.5 percent annual levy on individual net wealth above two million dollars, with a 1.5 percent companion rate inside private trusts. (Greens tax policy) That proposal has not been adopted by any other party.
The trust structure
Estimates published by legal and accounting commentators put the number of family trusts in New Zealand somewhere between 300,000 and 500,000, in a population of 5.2 million. That is, by some margin, the highest concentration of family trusts per capita in the world.
Trusts are used for many things. They protect family homes from relationship property claims. They hold assets for children. They are a vehicle for legitimate succession planning. But the Inland Revenue high wealth study found that two thirds of the economic income of the wealthiest families flowed through trust structures, and that the trust rate, then 33 percent, was the most important single mechanism for keeping their effective tax rate below the wage earner’s.
The trustee rate was lifted to 39 percent from 1 April 2024 to bring it into line with the top personal rate. (KPMG) That narrowed the gap on trustee income. It did not close it. Income retained in a trust as company value, and later realised as a capital gain on share sale, still attracts no tax at all.
The PIE 28 percent cap
Portfolio Investment Entities, the vehicle that holds most KiwiSaver and managed fund money, are taxed at a maximum prescribed investor rate of 28 percent. (IRD PIE income) For a low income KiwiSaver member on a 10.5 percent personal rate, the PIE rate is a fair reflection of their tax position. For a high income earner on the 39 percent personal rate, the 28 percent cap is an eleven point discount, available simply by holding investments inside a PIE rather than directly in their own name.
On 10,000 dollars of attributed PIE income, the saving compared with the top personal rate is 1,100 dollars. On a 500,000 dollar PIE balance returning seven percent, the annual saving is closer to 3,800 dollars.
Charitable trading businesses
New Zealand grants full income tax exemptions to charities, including those that own and operate large commercial businesses. The most cited examples are Sanitarium, owned by the Seventh-day Adventist Church, and Trinity Lands, an Open Brethren linked horticultural group that is the largest single shareholder in Zespri.
Finance Minister Nicola Willis floated a crackdown on charity owned trading businesses in 2024. The proposal was dropped in April 2025 after 86 percent of the 901 submissions opposed it and the projected annual revenue collapsed from around 400 million dollars to closer to 50 million. (The Spinoff) A narrower consultation on donor controlled private charities ran into late 2025. Officials are still drafting follow up.
Bright-line and interest deductibility, working together
The economics of a leveraged rental property turn on two settings. The first is whether the gain on sale is taxable. The second is whether the interest cost is deductible.
By April 2025 the coalition government had reset both. The bright-line is back to two years. Interest deductibility on residential rentals was fully restored from 1 April 2025, irrespective of when the property was bought or the mortgage drawn down. (Wolters Kluwer) Ring fencing of rental losses against other income still applies, but the structural after tax case for borrowing to buy a rental and selling it for a tax free gain after two years is essentially restored to its pre 2021 state.
Fiscal drag and the squeeze on wage earners
If the gaps above describe one half of the architecture, the squeeze on wage earners describes the other.
Personal income tax thresholds were not adjusted between 2010 and 2024. Over that period, wage inflation lifted the average New Zealand worker into higher and higher brackets without any explicit policy decision being taken. The coalition government’s 2024 threshold lift was the first in fourteen years, and the new thresholds are not indexed. Fiscal drag will resume eating into real take home pay through 2026 unless adjustments are made again.
By way of comparison, Australian personal income tax thresholds are not formally indexed either, but Australian governments have adjusted them at intervals of three to five years. The fourteen year New Zealand gap was an outlier.
High effective marginal rates for working families
Treasury’s Analytical Note 25/01, published in January 2025, is the most authoritative recent assessment of effective marginal tax rates in New Zealand. (Treasury AN 25/01)
The headline numbers from that paper are these. Ninety four percent of New Zealanders face effective marginal tax rates below 50 percent. The six percent who face rates above 50 percent are heavily concentrated in families with children. Thirty percent of single parent families and thirteen percent of couple parent families face an effective marginal rate above 50 percent. A small group, all of them families with children, face effective marginal rates above 100 percent, meaning that taking on additional work leaves them worse off in total.
The mechanism is the abatement of Working for Families, Accommodation Supplement and, for those still on a main benefit, the benefit itself. Each additional dollar of earned income reduces a transfer payment by between 27 and 70 cents, and is also subject to PAYE. The structural effect is that the move from welfare to work, and then from low income work to middle income work, is taxed more heavily than any other transition in the economy.
GST and the bottom of the income scale
Goods and Services Tax was introduced at 10 percent in 1986 and has stood at 15 percent since 2010. It is administratively elegant, broad based and difficult to evade. It is also, in distributional terms, the most regressive component of the New Zealand tax mix.
The Tax Working Group’s 2018 background paper on distributional analysis found that GST absorbs a substantially higher share of disposable income at the bottom of the income distribution than at the top. (TWG distributional paper) Households in the bottom quintile spend close to all of their disposable income on consumption, and therefore pay GST on close to all of it. Households in the top quintile save and invest a meaningful share, on which GST is not levied.
The tax wedge that looks generous but is not
The OECD publishes an annual comparison of the tax wedge on labour. In the 2026 edition, the wedge on a single average wage earner in New Zealand was 20.8 percent, the third lowest among 38 member countries, against an OECD average of 35.1 percent. (OECD Taxing Wages 2026)
The instinct is to read that figure as generous to workers. It is more accurate to read it as a description of where the New Zealand revenue base sits. The country raises a relatively low share of its tax from PAYE because it raises a relatively high share from GST, and because it raises almost nothing from capital. The same OECD revenue statistics show New Zealand’s total tax to GDP at 32.9 percent in 2024, broadly in line with the 34.1 percent OECD average. (OECD Revenue Statistics 2025) The composition is what differs.
A teacher and a rental investor
Consider two New Zealanders whose economic income in a given year is identical, at 200,000 dollars.
The first is a senior secondary school teacher earning 110,000 dollars in salary and 90,000 in a side consultancy. The whole amount is taxed at her marginal rates. She pays roughly 51,000 dollars in personal income tax and 1.75 percent in ACC earner levy. Her effective tax rate before GST is around 27 percent.
The second is a self employed Aucklander with a modest portfolio of three rental properties, bought between 2015 and 2022. Her gross rents net of interest cost are roughly nominal. The capital value of her portfolio has appreciated by 90,000 dollars over the year. She also earns 110,000 from a part time professional role. Assuming she holds each property for more than two years, the 90,000 dollars of capital appreciation is not taxable. She pays personal income tax on the 110,000 only, around 25,000 dollars before ACC.
The teacher’s effective tax rate on her 200,000 of economic income is roughly 27 percent. The investor’s is roughly 12 percent. Both work hard. The code treats them differently.
What the critics of reform say
An audit of the gaps is not a recommendation that every gap should be closed. The arguments on the other side are real and worth airing.
Capital is internationally mobile. A New Zealand capital gains tax that catches commercial property, business sale value and listed shares risks shifting investment to lower tax jurisdictions. Industry groups argue that the resulting reduction in productive investment would more than offset the additional revenue.
Compliance and valuation costs are substantial. A wealth tax of the type the Greens propose would require annual valuations of private companies, art, intellectual property and unlisted real estate. Disputes over those valuations would absorb a meaningful share of the revenue raised.
The unrealised gains methodology that drove the 8.9 percent figure has its own critics. Counting paper wealth that may never be realised as income inflates the gap with wage earners. On a realised gains basis alone, the median effective rate for the same wealthy families is closer to 21 percent, still below the median New Zealander but a different story.
Behavioural responses erode revenue. International experience after the introduction of capital gains taxes shows that realisation activity drops sharply, exemptions accumulate over time, and actual revenue raised settles well below static modelled estimates.
Most New Zealand rental properties are held by households with one or two properties as a retirement plan, not by professional investors. Reform that does not differentiate between those households and serial property traders carries political and economic costs.
What is on the 2026 ballot
The architecture is not nature. Each of the choices set out above can be changed, and each was made deliberately. The October 2026 general election offers, for the first time in a decade, materially different settings to choose between.
The coalition government’s position is to hold the line. National has lifted personal thresholds, halved the bright-line, restored interest deductibility, dropped the charity reform, and lifted the trustee rate. It has ruled out a capital gains tax, a wealth tax and an inheritance tax in the next term.
Labour has committed to a flat 28 percent capital gains tax on residential investment property and commercial property only, accruing from a 1 July 2027 valuation day, excluding the family home, farms, business assets, KiwiSaver and inheritances. (Labour CGT announcement, Herald) Chris Hipkins has ruled out a wealth tax and an inheritance tax. The Labour proposal is narrow by international standards, and would not capture most of the income the Inland Revenue study identified as flowing through business value rather than rental property.
The Greens have the most expansive package on offer, with a 2.5 percent annual wealth tax above two million dollars, a 33 percent inheritance tax, a new 45 percent personal rate above 180,000 and a corporate rate lifted to 33 percent.
A late 2024 Ipsos Issues Monitor poll found 65 percent of respondents supported a capital gains tax in some form, with 57 percent supporting one on investment property specifically and 13 percent supporting one on the family home. (RNZ Ipsos) Support for an inheritance tax is materially lower.
None of those settings is correct or incorrect as a matter of arithmetic. They are choices, and they have consequences for the relative tax burden borne by wage earners and asset owners. The choice in October 2026 is whether the architecture this audit describes is the architecture New Zealand wants for the next decade.
Voting in October 2026? Newswire’s voting tool compares the major parties on tax, housing, health and more in plain language.
What’s your take, are the gaps in the code defensible or overdue for reform? Have your say in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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