Does New Zealand need an inheritance tax?

Does New Zealand need an inheritance tax

Over the course of the next decade heirs of the wealthiest people in the world are expect to inherit around $15.4 trillion USD in assets. With the average house price in New Zealand cities now over $700,000 many heirs are set to inherit a great deal of wealth from their parents. Right now this wealth is entirely untaxed in New Zealand.

Other countries such as Ireland are making moves to make their tax systems more equitable, perhaps New Zealand should consider doing the same. The first inheritance between generations was transferred in 1866 but estate duty rates were not reduced to zero until 1993 whilst taxes on gifts were removed in 2011. For a long time taxes on estates were widely supported, it seemed normal to tax personal wealth after people no longer needed it and ensure that it went to the state but in the modern era attitudes have changed. Australia was the first country to entirely remove estate duties in 1979 and since then the support for inheritance taxes has steadily declined.

In New Zealand it is often felt that the abolishment of inheritance taxes has improved the efficiency of the tax system but it’s not obvious why. Inheritance taxes seem to inspire strong negative opinions and are difficult to implement – in fact they’re often referred to as ‘death taxes’ to help turn people off them but in the future the resistance to inheritance taxes may seem strange.

Baby boomers will start to die in the 2020’s and inheritance tax represent an opportunity to redistribute wealth. Taxing inherited wealth will help to stop wealth inequalities from becoming entrenched. Introducing inheritance taxes will require a change in attitude, people will need to recognise that if they have money, whether it’s made from work, investment or inheritance, then they can pay taxes. Right now in Zealand the only party proposing an inheritance tax is the Green party, but this should change as a big generational shift draws nearer.