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Sir Michael Cullen has acknowledged the end of public submissions on the Tax Working Group's agenda doesn't mean that the public debate will stop.

One of the key questions facing the Tax Working Group is whether it should be aiming to reduce inequality, according to documents released by the working group.

A broad-based capital gains tax would help if that was the goal, according to Inland Revenue and Treasury officials who are currently serving as the group's secretariat and who prepared the advice.

The Tax Working Group (TWG) headed by Sir Michael Cullen is considering tax changes that could be implemented by the next Government and there is a strong expectation it may recommend the introduction of a broad-based capital gains tax.  

The officials' advice indicated the TWG was unlikely to recommend a wealth tax as an alternative to a broad-based capital gains tax, even though it said the overall impact of the two taxes would be similar.

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"In practice the policy option being considered would be to have a net wealth tax as an additional tax to capital income tax," if it did come in, officials said.

However, they appeared to play down the likelihood of that happening, noting that wealth taxes were relatively expensive to collect and in decline globally.

Only five major countries had wealth taxes in 2017 – Argentina, France, Norway, Spain and Switzerland – compared to 12 in 1990, they said "and many of those that do still have wealth taxes are making steps towards removing it".

"A key question for the Tax Working Group is whether or not tax changes should be targeted to reducing inequality in New Zealand," they said.

"There is considerable public concern about the levels of inequality," they also said.

"Something that may not have been given enough attention in the discussion until recently has been that wealth ownership has a very skewed distribution.

"Reducing the tax on capital income may have contributed an increasing level of inequality in many developed countries in recent years." 

Capital income taxes reduced inequality by reducing the rate at which reinvested capital income accumulated, they said. 

More than 60 per cent of New Zealanders' investments are tied up in housing according to the documents.  

That figure includes people's own homes, but when owner-occupied property is excluded, Kiwis still have a massive $265 billion invested in housing.

That is more than the $170b people have invested in cash and terms deposits, the $191m invested in local and foreign shares and the $95b people have saved up in superannuation schemes.

Another document noted there had been calls to exempt some necessities, such as food, from GST but said such exceptions were "a poorly targeted" way of reducing inequalities and such exemptions would be complicated to manage and "arbitrary".

The release of six new background papers prepared for the TWG comes days after public consultations on its work closed, with 6700 submissions received.

However, Cullen has previously said he expected people would continue to make their views known after the deadline for formal submissions.

He has also forecast the Government would put out the interim report that the TWG is due to release in September for public consultation.  

WHERE KIWIS' MONEY IS TIED UP

Owner-ocupied housing: $785b

Housing investments: $265b

Business investments: $201b

Cash and term deposits: $170b

Investment and superannuation funds: $157b

NZ shares: $121b

Foreign shares: $8b

Binds: $45b

 - Stuff