A new report from Oxfam has ranked New Zealand 136th in the world on the fairness of its tax system.

Oxfam Aotearoa advocacy and communications director Dr Jo Spratt told the NZ Herald's the Front Page podcast that our tax system doesn't do enough to help reduce the issue of wealth inequality in this country.

"Tax systems are one of the most powerful tools governments have to prevent and reduce inequality," says Spratt.

"Overall we only looked at the income tax regime and it's pretty flat. We've got quite a regressive GST and we don't have very high tax brackets… and there are elements of our tax system that just aren't working well in terms of preventing and reducing inequality."

Last year, the Government introduced an extra tax bracket for super earners with anything over $180,000 taxed at 39 per cent.

Oxfam is among those who have called on the Government to go even further by introducing a wealth tax - something the Green Party has long campaigned for.

"We did things like this after World War II and the 1980 flu pandemic when we taxed extreme wealth and used the revenue to pay for the hospitals, schools and roads that benefit everyone. Also, corporate profits are up about 70 per cent from what they were prior to the pandemic. And there's now potential to tax excess profits."

Spratt says the money taken from this could then be channelled into services that help society, particularly those on the poorer end of the spectrum.

However, this discussion emerges at a moment when the National Party is campaigning on tax cuts across the board – including scrapping the Labour Government's 39 per cent rate for those earning more than $180,000 per year. National's argument being that New Zealanders deserve more money in their pockets amid the cost-of-living crisis.

But as the example of the UK showed, getting the balance wrong can have a disastrous impact on the economy.

So what is the right answer to addressing New Zealand's wealth inequality gap while also helping those who are struggling the most?

University of Auckland-based tax expert Professor Craig Elliffe told the Front Page that a wealth tax could have the impact of redistributing some wealth across society.

"If you take tax from the rich and provide that to the poor, it's the principal reason for a wealth tax," he says.

The Government introduced a tax rate of 39 per cent for those earning more than $180,000. Photo / Mark Mitchell

"The redistributive effect of collecting funds from the people who are most able to bear the tax consequences and then applying those to the services that the Government provides to all of us would help to address [inequality], but there are other issues involved."

One of the biggest challenges with a wealth tax lies in actually collecting the revenue in the first place.

"Because wealth taxes are not commonly found in many jurisdictions around the world, it would mean in actual fact it is quite easy for very wealthy people to migrate."

The other factor that plays into this is how adept wealthy people are at avoiding taxes.

"The revenue collected by wealth taxes are not high," says Elliffe.

"I suspect that's for a variety of reasons but [avoidance] is one reason. You just need to look at the percentage of revenue to GDP that's actually raised by most wealth taxes – and it's lamentably low, usually below 1 per cent."

This has contributed to many countries ditching their wealth taxes altogether. In 1990, there were 12 OECD countries that had a wealth tax, but only three (Norway, Spain and Switzerland) retained them.

Asked about the likely impact of tax cuts on the economy, Elliffe says he would be apprehensive about cutting taxes across the board.

"I am personally of the view that we are not in a great financial position to be making significant tax cuts, particularly to the wealthy," Elliffe said.

"I would prefer to see a situation where tax cuts are targeted to the low and middle-income members of our population."

He says that National's tax-cut policy has some good in it, but it has to be more targeted at low and medium-income earners.

In terms of those on higher incomes, Elliffe says we are already running into problems when it comes to the 39 per cent tax rate on those earning more than $180,000 per annum.

"There are lots of very wealthy people who are not affected by this because they make sure that the organisations they own pay them salaries of below that rate, and yet they're making huge capital profits, which are not subject to tax at all."

Elliffe says that given the limitations of a wealth tax and the risks of broad-sweeping tax cuts, he remains in favour of a capital gains tax.

He says that under ideal circumstances, New Zealand would have a capital gains tax with some "logical exemptions" and that any revenue derived from that could be redistributed to low and middle-income earners through a series of tax cuts.

This approach would almost demand Labour, the Greens and National work together to bring their ideas to life – something that seems very unlikely in the current political climate.

• The Front Page is a daily news podcast from the New Zealand Herald, available to listen to every weekday from 5am.
• You can follow the podcast at iHeartRadio, Apple Podcasts, Spotify, or wherever you get your podcasts.