How to get super-rich

New Zealand doesn’t have many of the uber-rich but they have some things in common, writes

When you think of the world’s super-rich, you might imagine billionaires on boats in Monaco, or Jeff Bezos – making a reported US$2500 (NZ$3797) a second.

But while we may not have rich people on an Amazonian scale, New Zealand isn’t short of the superwealthy.

According to Credit Suisse, New Zealand has 0.4 per cent of the world’s top 1 per cent of wealth holders, despite only having 0.1 per cent of its population.

Researcher and journalist Max Rashbrooke, who has studied wealth in this country, said there were nine families or individuals with wealth of at least $1 billion.

Quite a few we can guess at, like New Zealand’s richest man Graeme Hart — worth a reported $6.98b, according to Bloomberg’s Billionaire index. There’s Britomart developer Peter Cooper, and property magnate Sir Bob Jones, with a reported net worth in excess of $1b. Breaking the billion mark, too, was Xero founder Rod Drury.

That’s an amount that it would require 21,000 years of working for someone earning an annual $46,800 to accumulate. Or roughly the same amount of time as human beings have existed.

Then there are the rich people who drop in and out without being officially based here. That’s people like Alexander Abramov, who’s spending tens of millions developing Northland property. Or Peter Thiel, who is worth a reported US$2.5b and was made a citizen despite spending only 12 days in New Zealand.

To be a top 1 per cent earner, you need to earn $235,001 a year or more. To be a top 1 per center by wealth, you need about $8 million.

‘‘New Zealand has always had wealthy people,’’ Rashbrooke said. ‘‘They used to be discreet about it but in the last 20 or 30 years, we have seen more displays of overt wealth.

‘‘We don’t have a lot of people who are wealthy in the global context but that’s about as relevant as the fact that we don’t have a lot of people who are poor in the global context. Everything is relative within New Zealand. Do we have a lot of people who are very wealthy in a New Zealand context? Yes, absolutely we do.’’

How did they get there?

While you can earn your way into the top 1 per cent – former Fonterra boss Theo Spierings earned $43m in his time in the job – most people who are very wealthy have become that way through their investments.

An Inland Revenue report on highwealth individuals found that ‘‘in close to all cases’’, the wealthiest among us had got their capital base from the non-taxable sale of a business or other capital asset.

It classified high-wealth individuals as people with more than $50m, or $20m and complex business structures. There were 11,585 people and entities that met that criteria last year, including 350 individuals. Most seemed to have been boosted by property.

‘‘The most popular business activity is property investment,’’ the report said, ‘‘with 18 per cent of highwealth individuals having their wealth directly linked to property.’’

It was followed by agriculture and technology. But the way our tax system is structured also gave them a boost, and allowed them to keep building wealth at a rate not available to people who were paying tax on every dollar earned.

Inland Revenue noted that the richest individuals had significant tax losses available to them from past activities. That meant they were able to offset the tax they might have had to pay on future income. It noted that the great majority of wealth was being generated by realised and unrealised gains on capital assets.

Rashbrooke said the wealthy individuals were not doing anything illegal – but the system allowed those who entered that sphere to keep growing their wealth.

Infometrics economist Brad Olsen said those with more wealth also tended to be the sorts of people who had the knowledge, resources, and avenues through which to structure their assets and liabilities.

‘‘Those with higher wealth can often find ways to offset their tax and other cost liabilities to grow their wealth further. Essentially, the more wealth someone has, the more Susan Edmunds. avenues they also have to manoeuvre their assets around to minimise their liabilities, at least compared to wage and salary-only earners who have limited ways to minimise their liabilities.’’

Property investor Graeme Fowler, who has said he was worth about as much as a big Powerball win, said investing in property was ‘‘one of the surest’’ ways to get wealthy.

He estimated that eight of the top 25 richest New Zealanders had made money through property, and even those who made money in other ways would often buy real estate as a way to store their wealth.

Inequality

Rasbrooke said the available data suggested wealth inequality had worsened in the past decade or two.

Fourteen per cent of New Zealand households are worth more than $1.5m. The rich by this metric are getting richer. The net worth of the richest 20 per cent of New Zealand households has risen $394,000 since 2015, to reach a median of $1.75m.

The wealthiest 10 per cent have 60 per cent of all wealth. The top 1 per cent have about a fifth. His earlier research showed the richest 0.01 per cent of Kiwis had wealth equal to 6 per cent of gross domestic product (GDP) in 1996 but that had reached 21 per cent by 2015. ‘‘There’s significant concentration of wealth already.’’

If that continued, there could be a class divide developing that would mean the opportunities available to some were completely denied to others.

But he expected to see more people enter the top wealth brackets.

‘‘There are very few demands on wealthy people in New Zealand, no meaningful taxes on their wealth.’’

Intergenerational transfers of wealth were a big aspect of many family fortunes, he said. Of the 250 wealthiest people, a third of the fortunes had a clear dynastic component, Rashbrooke said.

The money had either been inherited or the current generation was actively involving the next generation in its business affairs.

$1 billion is an amount that it would require 21,000 years of working for someone earning an annual $46,800 to accumulate.