Bruce Bernacchi: Dentons Kensington Swan Partner and tax expert on Labour considering an inheritance tax

When Labour holds its next party conference at the end of the year, tax policy is likely to be near the top of its agenda. 

Finance spokesperson Barbara Edmonds sent a strong signal in March that a comprehensive capital gains tax may be back on its table, questioning the fairness of the current tax system. 

The Labour Party's understood to be considering whether to advocate for an inheritance tax, taking inspiration from an Irish model. 

In Ireland, a 33% tax is applied to inheritance's worth more than NZ$558 thousand. 

Dentons Kensington Swan Partner and tax expert Bruce Bernacchi told Kerre Woodham that he’s not surprised Labour is raising the idea of a comprehensive capital gains tax again. 

He said that they campaigned on it in 2011 and 2014 and had the Tax Working Group in 2019 recommend it over a wealth or inheritance tax. 

Bernacchi said that this is their opportunity to forge ahead with a coherent policy, introducing a capital gains tax that would raise money, people will understand, and it will be effective, instead of an extremely complex inheritance tax. 

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Episode Transcript

Speaker 1 (00:06):
You're listening to the carry Wood of morning's podcast from
News Talks. He'd be.

Speaker 2 (00:12):
When Labour holds its next party conference at the end
of the year, tax policy is likely to be near
the top of the agenda. Finance spokesperson Barbara Edmonds sent
a strong signal in March that a comprehensive capital gains
tax may be back on its table. Questioning the fairness
of the current tax system, the Labor parties understood to
be considering whether to advocate for an inheritance tax, taking

(00:34):
inspiration from an Irish model. In Ireland, a thirty three
percent tax is applied to inheritance is worth more than
five hundred and fifty eight thousand New Zealand dollars. I'm
joined now by Dentins Kensington Swan partner and tax expert
Bruce Bernaki. Very good morning to you, Bruce.

Speaker 3 (00:49):
Good morning carry.

Speaker 2 (00:50):
You'd be rubbing your hands together, wouldn't you. Doesn't this
just mean more work for tax lawyers?

Speaker 3 (00:55):
Well, it certainly does, Carrie. And look, I'm kind of
surprised the idea of an inheritance tax has raised its
head again. There's a good quote about inheritance taxes. I
like that says, pilosophy touches a man that he can't
take his money with him taxes, teaching that he can't
leave it behind either, And it sort of does have
a feeling that, look, you work away all your life

(01:15):
and pay a lot of tax, and you still can't
escape the tax man even in death. So it kind
of surprised this idea is I'm rearing its head again.

Speaker 2 (01:27):
Well yes, and given that they had ample opportunity to
introduce just such a tax, not just once, but twice,
it's a bit rich coming from this particular party out
of thought.

Speaker 3 (01:37):
Yeah. Well, look, I mean I'm not surprised they're raising
the idea of a comprehensive capital gains tax again. And
I do support that. I mean, they campaigned on it
in twenty eleven and twenty fourteen, they had the Tax
Working Group, an independent group of experts in twenty nineteen
recommended it and recommended don't do a wealth tax, don't
do an inheritance tax. And it all fell apart was

(01:58):
the debarkle of Winston Peter's not supporting it and just
cinder Arduin major captains call never introduced one, which is
Leadlabour party, which is not leader of the Labor Party,
and this is their opportunity to forge ahead with a
coherent policy. Introduce a capital gains tax, which every developed
OECD country has except for US. It will raise money,

(02:20):
It will be effect if people will understand it, rather
than sort of throwing out all these random ideas of
inheritance taxes, which while they are they do exist internationally,
are extremely complex. It will create a lot of work
for people like me, So I would be rubbing their
hands in my hands if one came in, because people
will do all sorts of use of family trusts and

(02:41):
wealth planning, all sorts to try and avoid it. You'd
have to int reintroduce a gift duty as well, because
otherwise people just give away all their wealth before they die.
So it would be extremely complex and would not be
as effective at raising revenue as a capital gains tax.

Speaker 2 (02:55):
But see David Parker and right Robertson did have They
took the workings from the Tax Working Group and did
have a capital gains tax ready to go and got
mixed by another Labor lead.

Speaker 3 (03:07):
Yeah, yes it did, and so then they were we
were in this bizarre situation. Not long before the last election,
were allegedly you know in land revenue that actually bring
us to a lot of work on wealth tax. So
we had the let's let's take GST off fresh fruit
and vegetables, and it's all these ideas are being fired
out there. Well let's again, let's go back. You have
an in the group, independent group of experts, let's go

(03:29):
with the capital gains tax. You know that we're offshore
organizations oe OECD and a special monetry fund recommending that
we have won. Like, let's let's go to the electorate
with a coherent policy and get that implemented, get that working,
get that raising revenues which we are going to need
with the aging population and the large government debt. There's
no doubt the next couple of decades we are going

(03:52):
to need a new source of tax. But let's do
something that we know is going to work, rather than
shooting off the hip with something that's going to be
complex and i'd say extremely unpopular with the electorate as well.

Speaker 2 (04:03):
But also the other thing is that people will vote
on something that has will not affect them or their children.
It'll be the next generation after that who've already been
hurt by a lot of this. You know, bonfire of
echo off money.

Speaker 3 (04:18):
Yeah, that's true, and I think it's one of those things.
It's probably almost like a perception or a reaction to it.
I mean, if you look at the Irish example, which
has been talked about, I mean it's only it's only
inheritance is over the equivalent of five hundred and fifty
thousand New Zealand dollars to get taxed. So for a
lot of people, they're never going to be impacted by this.
But I think philosophically a lot of people have an

(04:39):
objection to it that if you do do well, and
you are successful, and you work hard, and you pay
your taxes through your life and you want to leave
something for your kids, then the taxman's going to hit
you again. And not only that, I mean, if there
are assets that are getting passed on, there's not always
going to be the cash to pay the inheritance tax.
And you have that example. Obseuse a lot where kids
are actually having to sell you cherished family property to

(05:03):
pay the tax. And you know that's not going to
create good headlines for the government that introduces it, but.

Speaker 2 (05:08):
It's also not going to create a fair of society,
is it.

Speaker 3 (05:12):
Well, I mean people people have different views on that.
I mean, there are a lot of concerns obviously about
you know, the wealth differential society and equity, and some
people would say, well, this is a way of redistributing
wealth and taxing other people less during during lifetimes. I mean,
that's the political view that people will take. I guess

(05:35):
my view is coming at it from a system of
a view of tax system design, that let's go with
something we know that works and see if that is
sufficient and raising sufficient revenue, and let's not just call
out sort of other random taxes and that are going
to be unpopular and are going to produce sort of

(05:58):
unfair results.

Speaker 2 (05:59):
I think I was when I was reading up on this,
I was stunned that gift duty was only scraped in
twenty eleven and the rate of a state duty was
as reduced as zero in ninety three. I would have
thought that would have been much earlier.

Speaker 3 (06:13):
Yeah, yeah, we did have this unusual situation is where
inheritance taxes death duty disappeared in the early nineties, only
ninety two we still had deat duty around it to
twenty eleven. So it was this kind of weird situation
and everyone was you know, it was good again, it
was good money for lawyers and accountants. Kerry your neighbor
and sell the home into the family, trust them with

(06:34):
a loan back, and then you'd forgive twenty seven thousand
dollars a year. See, didn't get caught up in gift
duty and now it really as a result, they were
amazing almost no money from gift duty. So it was
a scrap because it wasn't wasn't raising a lot of revenue.
And it's just a prime example that if you introduce
these sort of taxes, people are going to come and
see people like me and my colleagues and do all

(06:55):
sorts of wealth planning and family planning and all the
rest to try and avoid paying the sort of tax
where it's a lot harder to avoid a capital game
tax as opposed to inheritance tax.

Speaker 2 (07:08):
When it comes to a fair tax system, is there
any country you can look at and say they've got
it absolutely right?

Speaker 3 (07:16):
Well that's a tough question. Look I don't know that,
but there's any country out there that would have it
absolutely right? Well, we had a feeling.

Speaker 2 (07:25):
We had a caller who said, look you look at Sweden,
who's got a very high tax rate. They're wealthy, but
the gap between rich and pores is very wide and growing.
You've got Singapore, which is a very low flat tax
rate and they are incredibly wealthy too, you know, so
it doesn't it seems to be sort of sort of
how you manage it rather than what the actual tax

(07:47):
rate is.

Speaker 3 (07:48):
Well, I'm trying to remember another quote care I think
it's the Winston Churchill one. Like a man trying to
tax his way into prosperity is like standing in a
bucket of water and trying to lift yourself up with
the handle. I mean, you know, those countries are succeeding,
but for other reasons. I mean, you know, Singapore is
an open economy, you know, English speaking, is situated in

(08:09):
the middle of Asia, very open to foreign business, et cetera.
And look, it does have a low tax straight and
sweaton again, I mean, it's sitting on the edge of
the European Union and there's some noomenally successful businesses created there.
I mean the problem with New Zealand is we haven't
created enough successful businesses. And you do look at you know,
you know, the government it's starting to look at places

(08:30):
like Ireland and similar European countries like Denmark, and why
if they go to these big multinationals and why are
they doing better than the New Zealand. But that's got
nothing to do with the tax system. Look, I tell
you if our Texas was actually pretty good, I think
if we had a comprehensive capital gains tax, we're actually
actually pretty good. We are I think the sixth most
effective country in the ie c D at raising corporate tax.

(08:53):
Our GEST system is world leading. That you know, countries
introduced a GEST system, they always look at New Zealand
and Singapore as the gold standard. You know, people, you know,
small businesses do struggle with tax system. But I'd say, look,
you compare with FBT and all the different types of
payroll p A, y E, KIWI, faber, etcetera. But compared

(09:15):
to a lot of other countries, we've actually got it
pretty good. So I think if you if you added
a capital gains tax to the New Zealand tax base,
I think we'd have something was fair, we'd raise a
lot of revenue, and we have a lot less complexity
than you know, some comparative jurisdictions oversee, certainly compared to
the US Australia, UK, et cetera. We've got a lot better.

Speaker 2 (09:37):
Lovely to talk is always thank you for your insights. S.
Bruce Binaki, tax partner at Denton's Kensington Swan News Talk
said B.

Speaker 1 (09:44):
For more from Kerry Wood and Mornings, listen live to
News Talk said B from nine am weekdays, or follow
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