By Geoff Simmons*
Earlier this week Labour’s new leader reaffirmed her party's softly, softly approach to the housing crisis. Not to be outdone, Bill English reconfirmed that National remains the party of the property owning class. Both our establishment parties seem dedicated to not reining the horses on house prices, which all adds up to another spring time price boom.
Lite-blue Labour
Despite new leadership, Labour is keeping their lite-blue approach to the housing crisis. Apart from some tinkering around the edges – extending the bright line test to five years and cracking down on negative gearing - Labour is not promising any major shake up post-election.
That isn’t because they don’t see the problems. They understand that wealth inequality is increasing, that those on low incomes have less money left after paying their housing costs. They understand that the housing crisis is the root cause of the problem. They realise that even the capital gains tax excluding the family home as they proposed at the last election would be woefully inadequate in addressing the problem. It hasn’t worked overseas; the evidence base is screaming at us that capital gains taxes don’t work. Labour have promised to build affordable housing, but their biggest problem is they have no way to get the land necessary to deliver their promises at an affordable price.
All that Labour is promising is yet another “review” of the tax system. We’ve been here before - Labour reviewed the tax system in 2001 and National did it again in 2010. Both reviews recommended precisely what TOP is advocating with tax, yet few of the major recommendations were implemented in either case. These politically inspired “reviews” of the tax system are nothing more than a delaying tactic; all the experts know what needs to happen. TOP’s fair tax reform represents the findings of those past reviews. Come on Jacinda, stop ducking responsibility on this issue, you reckon that led by you, Labour will be better – so “let’s do this!”
It appears we are still a long way from the reforming Labour Party of old, the Labour Party with big, bold ideas. It looks like it is still a timid imitation of National that is looking to get into Parliament before they even look at any of the difficult issues. Based on past performance, they won’t do anything even when they get there, which is simply a disservice to the public who want leadership.
National – party of the property owning class
Bill English didn’t want to be outdone by Ardern’s property-friendly approach. So he virtually promised that a National Government, after September, would guarantee a return to the double-digit price rises of the past few years.
For the past few years our Reserve Bank Governor has been lamenting the lack of property taxation. He often wanted to lower interest rates further than he did to counter New Zealand’s tepid economy, but he was unable to because that would further stoke Auckland’s over-heated property market.
The only choice Governor Graeme Wheeler had to curtail house price inflation was to put in limits on bank lending. Loan to value ratios mean that most people can’t borrow more than 80% for a house; they have to provide the other 20%. For investors the ratio is higher; they have to provide 40% and can only borrow 60%. These sorts of loan to value ratios are common overseas.
These changes seem to have calmed the housing market – for now. There have even been – shock horror – signs that the housing market in Auckland may be slipping slightly. Heaven forbid that actually happens, and some of Bill English’s real estate agent mates face a substantial drop in business as house sales plummet, and his core voters see a small reversal in their housing equity! Bill’s reaction is that these loan to value ratios need to be phased out, nothing must get in the way of continued house price inflation. Not to be outdone, Jacinda even agreed. These twins are just totally out to lunch when it comes to addressing the housing issue – not a shred of evidence to support their approach.
As Bernard Hickey points out, this is all pointing to another house price boom post election. Housing affordability looks unlikely to improve, instead it will continue to deteriorate. TOP has calculated that house prices need to be stable for 15 years for affordability to be restored, without plunging New Zealand into a debt crisis. This is achievable if we gradually introduce our tax reform and match it with income tax cuts, making 80% of Kiwis better off and encouraging Kiwis to invest in businesses rather than houses.
The future under either establishment party looks like more of the same – a continued rise in house prices and deterioration in housing affordability. You get the politicians you deserve.
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*Geoff Simmons is Deputy Leader of The Opportunities Party and its candidate for Wellington Central. This article first appeared here and is used with permission.
148 Comments
Me to. National has had 9 years to get NZ on track and things are getting worse not better. Sometimes you just have to vote for change. It's a bit like taking a lid of a jar, if you've had 9 tries and still can't do it you need to pass the jar on to the next person to have a crack. If you keep trying and getting the same result you are drifting into the realms of insanity. Time to let Labour and Jacinda have a crack.
You're being conned by a smile. If she smiled nicely would you let her run Fonterra, Apple or Google? don't be ridiculous she is unqualified for the job of PM have never run anything.
Plus, her party policy has a foundation in the politics of envy. Tax the hell out of the people who work hard and smart to lift themselves up in life and give it to those expecting the state to lift them out of poverty. Ridiculous notions that have been thoroughly discredited. Human endeavour is driven by self interest not altruistic motivations. We are hard wired this way so don't fight it. And oh did in mention - ignore the smile and don't vote left.
"We are hard wired this way so don't fight it." Clearly we are not all hard wired to be this way, otherwise we wouldn't, would we?
And should I say, maybe the masculine selfish way of doing things need to give way to the more feminine, co-operative way of doing things, because left and right kind of are manifestations of male and female, neither are wrong but too much of either is a bad thing
..yep sh'e got the smile...all she needs now is to wave a bit . She will never master the pony tail thing though.
She's got labour on a roll. Worse still for the Nats, plenty of youngies are doing the voter guide thing.....and Nat aint alligning very well with these younger voters. The young voter turnout this year might be a shock.
It has been a disappointing but entirely predictable week for politicians talking about housing. In most bubbles the politicians talk it up and then try to keep talking it up once the market turns to crap. Bubble-O-Bill confirmed his ponzi credentials.
I don't think we're going to see more than a wee dead cat bounce after the election. The slowdown didn't start because of the lead up to the election, it was due to LVRs, restricted Chinese capital and banks hitting their domestic funding stops. For anyone to think there is going to be another boom post election, they need to explain where the money for that boom is going to come from.
Thing is, as Simmons points out, Labour are "extending the bright line test to five years and cracking down on negative gearing" - both actions would presumably have the effect of generating marginally higher tax receipts - and it's not as if the government of NZ is flush with respect to operating surpluses at the moment.
Hence the reason why we are experiencing a period of austerity - lower government expenditure on a per capita and needs basis (where need is growing, e.g., social housing, mental health, orthopedic surgery, etc.) is the only way this government has been able to deliver any sort of surplus.
TOP are directing their policy attention to tax neutral changes, which doesn't necessarily solve all the current under-spending - although I appreciate that they point out in most of their policies (Justice for example) that better spending on different/new initiatives will in the long run save taxpayer dollars.
That said, I still can't get my head around why TOP aren't just advocating a land value tax which similarly could be offset by lower income tax (depending on what level it is set at). There is already in place a LG Rates Rebate scheme, so offsetting the same type of tax/cost is already in place for owner-occupiers of residential housing.
I think the other thing to keep in mind regarding a comparison of housing policies between the different parties - is that NZ First is the only party with a stated policy to restrict non-resident landownership (and I assume houses on such land) in NZ - see here;
http://policy.thespinoff.co.nz/topic/Housing#Housing Affordability
I think this might become particularly important as a means to prevent the corporate/international corporate sector from entering our rental accommodation market as was the case in the US post-GFC.
This was a really good speech by Winston Peters to Local Government NZ recently;
http://www.nzfirst.org.nz/speech_bro_cal_government_what_future_with_se…
He is unafraid to speak the truth - that being that so many LAs have hit their debt ceilings and simply cannot afford what is required in terms of maintaining local infrastructure. He is so very right when he states;
We are living at a time when economies here and internationally are seriously fragile and with our major trading partner, Australia, in particular. There is going to be a correction any day soon and yet no steps are being made to prepare ratepayers or taxpayers for the looming crisis when issues of productive versus consumptive debt will be critical.
That website linked to earlier does have a Regional Development policy comparison - which looks to be a close to LG policies as a category as it gets;
http://policy.thespinoff.co.nz/topic/Economy#Regional Development
Interest.co have a specific Local Government category;
http://www.interest.co.nz/news/87617/election-2017-party-policies-gover…
And now I've looked at it - and used the link to click through to NZ First policies;
http://www.nzfirst.org.nz/local_government
It's clear they are strong in this area. I'm particularly happy to see the first thing they mention is to dust off and follow the recommendations from the 2006 Shand Report. A very comprehensive look at the problems - most recommendations which were largely ignored... and hence the problems have worsened since then.
This is the ONLY reason why I'm voting for Winnie.
If you don't introduce/change any other policy, this alone will allow the market to sort itself out over time. Outside influence have distorted the market to the point that its uncontrollable internally.
Since the "fuel" have been turned off +- 12 months ago, the market has been "flying" on tank of petrol. The empty light is starting to flicker now, so unless you fill up, this plane will have to land/crash.
A land value tax would not take into account the varying amount of equity that people will have in property e.g. someone with no equity in a $1m home and another person with 100% equity in a $1m home would pay the same land tax. That is at odds with TOP's policy which is to tax wealth/equity (from what I understand).
Under TOP's policy the 100% leveraged home owner pays nothing while the %100 equity home owner will pay a deemed rate of return on their equity (i.e. the value of the home).
Rising house prices are crucial for maintaining consumer spending, which is the pillar of the NZ economy. Without current levels of or greater consumer spending, the economy would be in tatters. You only have to look to Japan and even the U.S. to understand the aftermath of house price bubbles and the impact it has on people's behavior. However, most people don't really take the time to think about, except for behavioral economists. I have no doubt this is discussed by the govt behind closed doors but not openly (don't want to scare the sheeple). Regardless, the National party are likely to fight tooth and nail to ensure the unthinkable doesn't happen. Personal reputations, legacies and careers are on the line here. The Labor Party are between a rock and a hard place without any visionaries or natural leaders. Perhaps the best case scenario for NZ is a full economic meltdown (perhaps a China debt-driven crisis) where the whole paradigm implodes and people get back to the basics like creating and producing as a means to an end.
Economy in tatters? What do you think would happen if the media reported steadily falling house prices? Do you think it would have some impact on consumer spending? To be honest, I think you could be looking at a death spiral. Lower consumer spending means less business activity that further impacts on people's ability to speculate on houses.
Are we staring down the barrel of a choice between long-term stagnation vs. a short but brutal reset though? If house prices keep going up and most of the population is renting, they won't be spending anyway, and the most talented will seek greener pastures as in the past.
Have a think of this, in the 60,s we had a boom and bust, in the 70,s we had a boom and bust, in the 80,s , should I go on, each decade incomes went up a little and housing from one decade or one boom to the next was a little higher, that why people always said housing always goes up and long term does, each decade housing has slowly gone higher than incomes have lifted, some decades booms were higher but busts were just as correcting , wine the clock to ether side of the 2008 GFC , incomes , the population and owner occupied homes were in general ok , wine the clock to now, most things aren't that different except there's half a dozen city's around the world been hit with Chinese overseas investors turning those city's into there countries biggest booms in there history taking all these cities housing miles over affordable with massive amounts of buyers and people willing to sell, under normal circumstances like ether side of 2008 with all your different levels of salarys and amount off house sales these extra high house prices would be very hard to get, all around the world China has stopped most of this overseas investment to happen and all these city's including Auckland are now getting the affected, Areas of Auckland in the early 2000,s have gone from $500k to over $2 million, other areas $300k to $1 million to $1.5 million, now you ask yourself have the condition of 7 or so years ago warrant such high increases under such unusual circumstances and are they likely to stick or fall back over this correction we are now in, make your own mind up
"Rising house prices are crucial to maintaining consumer spending".
Crazy talk.
Being able to afford a house that doesn't cost 10x or 12x your salary will have a greater impact on consumer spending than a rising house price. If one could afford a house on an average salary, housing ownership would sky rocket and the consumer purchases that follow home ownership will also go up. What you have with high housing prices is property investors and others leveraged to the hilt and unable to buy or fix things or having to increase their debt trying to do so.
I see housing as the main driver of inequality long term in NZ. I have a four year old daughter. My wife and I are already making plans to buy a second house in our area close by to insure she could one day also live where she grew up and own a house. This seems crazy that we are buying a house for our 4 year old daughter, but with our current tax system it makes perfect sense. But what about the kids whose parents cant afford to do this?....the gap between the rich and poor just accelerates.
Also having to take on so much debt now to buy property also forces kiwis to be very financially focused in their decision making, often at the expense of their own health and that of the environment.
We have to start asking ourselves: What sort of NZ do we actually want to create? Then focus our financial polices around the answer to that question. Focusing only on the financials really just creates a long term outcome for NZ very few would ever want.
A society where there is equal opportunity.
A society where hard work is rewarded.
A society where basic things like, water, power, sewerage and housing are affordable.
A society where people are free to live without undue encumbrance.
A society where people take responsibility for living at peace with others.
A society where people are more important than ideologies.
A society where for every right there is a responsibility.
A society where government is accountable for the "other people's money" it spends.
A society where the yoke of taxation is light.
A society where people are born with respect and don't have to "earn" it.
A society where you treat others as if they were yourself.
There is a difference though between lib left and right, quite subtle but there. Jesus Christ (assuming that was the guy's name) would probably have identified with it. Never ceases to amuse me, the likes of that Baptist minister calling for gays to be shot would be horrified if ever his tiny brain could grasp the idea.
But again, human nature has a bit of a habit for screwing such concepts up.
In fairness to the actual Baptist Church, that fellow is not part of it. He has his own made up church not affiliated with any major denomination. He's also essentially correct about that punishment for homosexuality being advocated in Leviticus, but the majority of Christianity has long ago relegated these regulations to be contextual and not applicable to the modern world.
A whole bunch of stuff is advocated in the OT especially, maybe Christians should burn it, I don't know, I find the whole believing in deities to be a bit odd to be frank, but he calls himself a Christian and he is not alone. I am absolutely positive if the guy we refer to as Jesus Christ walked today, he would have been among first of the advocates for gay marriage.
Would be interesting to know more of what that fellow Jesus actually thought and said. The heavily Pauline Christianity we mostly have now - Greek-influenced as it is - may be quite, quite different to what Jesus' own more Jewish thinking would have brought about.
Agree on some of the OT fun and games. Especially pertinent is the advice suggesting boxers are better than briefs. Leviticus 28:42:
“Make linen undergarments as a covering for the body, reaching from the waist to the thigh..
I sincerely hope none of you Philistines favour briefs.
Good point! Yes I see my daughter being massively disadvantaged if I don't take the actions I do. What I want is to see the need to do this evaporate. I'm simply connecting the dots and realizing that my daughter will not have the same opportunities I have had. Its very sad and caused by our current tax policies.
Unfortunately, when you let things get too bad, the other alternative people choose is to take themselves out of it, and if they're angry enough, take others with them. Watching the Vice mini-documentary on the Charlottesville goings-on last night - and having recently read the books Hillbilly Elegy and Strangers in Their Own Land, I'm reminded that if we keep pushing to increase our own wealth and at the same time reduce opportunities for young folk, we're going to end up with messy results in the end.
There was a blackberry bush which a gardener cut back severely every autumn because Its fruit was sour.
One autumn the blackberry said to the gardener, 'Look at how much fruit I have, if only I had more sun, then my fruit would be sweet.' So the gardener cut away the trees that gave shelter to the garden, but the next summer the fruit was sour.
Then the blackberry said to the gardener, 'Look at how much fruit I have, if only I had compost and mulch around me, then my fruit would be sweet.' So the gardener used all of his compost and mulch on the blackberry and the other plants withered, but next summer the fruit was sour.
Then blackberry said to the gardener, 'Look at how much fruit I have, if only I had more space to mature, then my fruit would be sweet.' So the gardener let the blackberry grow until it filled the entire garden, but the fruit remained sour.
The owner of the garden came and said, 'Where is my rent?' and the gardener said, 'I let the blackberry grow because it is tough, can survive many harsh days and has much fruit. Here is the fruit that is your due.'
The owner tasted the fruit and said, 'You foolish servant', fired the gardener, and cut down the blackberry and threw it into the fire to be burned.
Your whole position appears insoluble.
The corporate is nothing more than the sum of its individuals, which is why politics is the art of the possible. Only in the world where you don't get a vote can "you" change the rules, otherwise you remain at the mercy of the electorate. Which is why most parties end up with mostly the same policies in the election.
And on the human nature side, the same character traits required to succeed in this 'dog-eat-dog' scenario you propose preclude you from being qualified to make changes for others benefits should you arrive at such a destination. Because when you plant gorse bushes they can't grow strawberries.
Equal opportunity is all we need to encourage. We can't keep taking away from some people to give to those who cannot hang on to their money and opportunities (lead a horse to water but you can't make it drink).
Eventually the "haves" will not have any more to give... then everyone will be equally miserable.
Effort has to be rewarded for our society to work. The left's politics of envy runs counter to this and is foolish.
We can't keep taking away from some people to give to those who cannot hang on to their money and opportunities (lead a horse to water but you can't make it drink).
We should apply that evenly then. It's terrible to subscribe to a politics of envy where we take hard-earned money away from workers and give it to people who aren't working, just because they're aged 65+. If they haven't worked hard and saved for their retirement, why is that a reason to take money away from workers? Especially workers who aren't given the same benefits and opportunities the older ones were?
Politics of envy.
Well I worked hard and saved and I'm now comfortable and retired enjoying my UK pension which I paid for over 36 years (they changed the number of years from 40 to 30 so I wasted 6 years of contributions). That UK pension it topped up to reach NZ superannuation and I paid income tax for 11 years in NZ.
Meanwhile my neighbour is a Kiwi also retired. He was a drain-layer and I suspect he drank every spare dollar he earned but he will have paid NZ income taxes for about 40 years. He is in state housing and has the generous NZ superannuation too.
I think both my neighbour and myself are getting what we deserved for paying our taxes over a long period.
If you kill or reduce superannuation I will either move back to the UK or more likely spend my savings but my neighbour - either he would have togo on some benefit or would you let him starve?
Kiwisaver is a great idea but it is just one more way in which the rich get richer and the poor poorer.
In other words we have to have superannuation or something like it. It could be less generous (but before you say that please try living on it) and it could and should start at a later date (it ought to be whatever the average life expectancy is minus 15 years.) Even then we need some way of dealing with manual labourers - it gets hard digging ditches and laying bricks after you are 50.
Super is taken from today's taxes. All your tax has been spent on services for you already. Nobody earns their superannuation, it is just like the unemployment or sickness benefit. I am OK with super, but it should be means tested. Maybe also recovering it from the estate as a form of inheritance tax would be good too.
Fair point but it would persuade my adult children to spend not save for their retirement.
60% of North Shore inhabitants are immigrants or the children of immigrants. I suspect there would be many entitled to a UK pension like myself.
BTW when I was earning in NZ some of my taxes went into the NZ superannuation fund. Can I have my share back when your policy is enacted or would you prefer to give me a pension but not to Kiwis who started work after Bill froze contributions?
But in the end you're still advocating taxing others to find your lifestyle, while being stridently against the principal of it when it's reversed and when it's time to help others, at which time it's horrid socialism.
Just pointing out, if people are really all about "my own two feet" they owe it to themselves to live up to that. Otherwise, recognise the need for social elements and recognise the amount they've helped them over their lives.
Rick: I can't understand your comment. I like TOP ideas; certainly NZ today is moving my politics to the left and a strong belief in further redistribution of wealth.
My only point about Superannuation/pension is that I spent 40 years working hard, saving carefully, paying tax and being told I would get a pension. I can agree with you and TOP that the pension may be too generous compared say to the benefits children receive. I can agree with you that the system is unfair and ought to be changed for future generations. What I cannot agree with is your idea that I do not deserve a pension. And as I said before I could live without one but my neighbours couldn't - how many old folk will you let starve?
Your Kiwisaver system (which I quite approve of) is no substitute for a universal pension. If it is to be the only income for pensioners it will greatly increase the rich/poor divide.
Hi Lapun, I may have inadvertantly conflated some of Keeppostitive's 'politics of envy' sentiment into your own viewpoint where it doesn't exist. My apologies for that.
My initial point was that the Pension (taking money from young workers to fund lifestyles for the old) is as much 'politics of envy' as taking money from workers to fund free schooling, medical care, affordable housing efforts of the 20th centurey, or any social support we provide from taxes. So if we're going to abandon some because they're unwanted products of 'politics of envy' then surely the Pension is equally unjustifiable from that standpoint. So my point was to ask philosophical consistency from those who cry 'politics of envy'.
I myself agree that a pension is necessary and desirable in our society. I agree that it's also a reflection of the fact that people contribute to society through their life and society can support them when they're no longer able. (Whether we should be paying the pension to the highly wealthy when it's over 50% of our social welfare budget is another matter, but we can agree that any discussion of that is difficult, as is the implementation.) So we're pretty aligned on the need for a pension.
Personally, I think we've lost our way on the balance of tax, and on society's participation in fostering affordable housing - where this effort in affordable housing was part of policy for most of the 20th century and indeed fostered a high level of home ownership. The idea was that your average hard-working Kiwi should have a realistic chance of owning their own home mortgage-free by retirement, and the Pension was predicated on that. Our tax policies and our abandonment of affordable housing efforts are creating - in my view - a reduction of opportunity and social mobility that undermines the previously-balanced model of opportunity in youth and support in old age, and it's introducing a dangerous imbalance in terms of the young supporting the old while not getting those opportunities the old did in their turn. My gut feel is there are too many who don't appreciate the role society played in fostering the affordable housing they received the benefits of, and thus feel no compunction to suggest society should support this again - or even no compunction to admit there's a problem in housing affordability.
From a generational perspective, you'd have to worry that the young would get to the stage they feel no justification for looking after the old when the old have abandoned NZ's history of caring for the younger generations.
Or you could just have 9 kids and expect the NZ taxpayer to foot the bill for accommodation and food.
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11905430
BTW I have decided I am voting for TOP this year. The long term direction we are heading with our current short term focused policies just makes no sense. Below is my list of long term outcomes you are voting for if you vote for the status quo.
** The wealth divide will continue to accelerate creating a dangerous unbalance
** Our population growth will also accelerate with no long term vision to the effects of this on kiwis lifestyles and the our environment.
** Pollution will get worse with a lot of negative press effecting tourism and peoples health
** Foreign ownership will continue to creep up and raise prices.
** The predicted diabetics epidemic will eventuate lowering the average health of kiwis.
** House prices will continue to rise with the parents actions becoming the most important factor around whether someone can buy their 1st come in any of the main centers.
Whoever you vote for this year, please make your decision around the long term vision of NZ you want. Not just short term financial goals.
I'm at the tail of the Baby Boomers, paying close to 1/2 my income in tax (direct and indirect). As is typical for my age bracket, my income is at best likely to continue for a few more years but more likely to end up in a cheque (taxed at the top tax rate). For the following 30 years I will be careful with whatever income I have (might even need welfare for the first time in my life). Why the heck would anyone in my situation vote for a party that wants to tax my assets after my income has diminished/gone?
You're missing part of the equation here - net wealth destruction to your family also depends on how much income tax your children save by redistributing taxes. The beauty is, those tax savings are also made by other, not so lucky, children. This will help level the playing field a little for the next generation, so that inheriting a big house from Mum and Dad becomes less important than working hard on your own life.
"(might even need welfare for the first time in my life)"
You will! Everyone is entitled to the Aged Pension at 65, regardless of means. Very few New Zealanders ( any?) will knock back a fortnightly payment from The Government ( other New Zealanders) if it's theirs by right.....
Because you'll be dead before the tax is realised.
A tax of 1.5% will see your equity drop by about 30% after 25 years. But it won't be you but your kids on the short end of the stick, because they will get less inheritance.
However, the plus side is that housing will be much more affordable for your kids.
Only two things can result in lower house prices: a significant cut in immigration and real estate agents starting to be more honest when appraising property. They are still "buying the listing" by appraising at 20% or more above market value then moaning when sales drop for a few months. Since neither of these things is likely to happen we can forget about ever seeing prices within a hundred miles of affordable. Love him or hate him Winston Peters is our best hope!
That is simply not true Delboy1953.
If I magically created 1 million new houses on the fringes of current cities the supply shock would result in lower house prices.
If I removed council land boundaries nationally and allowed anyone to build anywhere they could pay finance he infrastructure costs the shock on land-banking by developers would lower land costs.
If there were a financial crisis that stopped all new lending the shock to the demand side would result in lower house prices.
There will be more, I am just thinking on the fly.
Incorrect.
What contributes to the developed land's "value"? Answer: how much income it is generating. But any income from the property it is already getting taxed. TOP's tax only applies to land without sufficient taxed cashflow.
TOP's comprehensive capital income tax works like this: It assumes that the owner of the capital is getting at least the risk-free rate of return as "income" (otherwise why bother? They could just put the money in the bank!), and they tax the property based on that.
E.g. if the risk-free rate is 5%, and the tax rate is 30%, then the owner of that property will be changed 1.5% on their equity. If they already have sufficient income from that property that is already being taxed, then the 1.5% no longer applies.
The reason why land with a property is worth more is because it is either rented out (taxable income), or it enables the home-owner to not pay any rent (non-taxable imputed rental). Both are forms of income, and if you don't believe me go check how GDP is calculated - imputed rental is a large component.
TOP's stance is that all these forms of income should be taxed equally. Why? Because there is a large amount of misallocated capital tied up in housing (because of the above described tax loophole) that could be reallocated into more productive forms - and maybe create some jobs!
This is a re-post from a different article but I thnk still applies here in response to TOP's belief in tax loopholes.
Asset classes you can invest in: Cash (term deposits), bonds, property, shares.
All return income by way of interest, dividends or rent.
All of these income returns are taxed equally.
Capital gains made in any of the asset classes above are taxed if you are deemed to be trading. The only difference being that recently there has been a bright line test applied to property (of two years), meaning that you are deemed to be a trader if you sell an investment property within two years. This makes the tax laws on property more strict than the other asset classes.
Exactly how is property taxed less than the other asset classes?
Why do people invest in property as opposed to shares?
1. People with money (mostly baby boomers) still haven't got over the 1987 crash. Next there was the finance company crash, that people mistakenly equate to the sharemarket.
2. Leverage. You can amplify your returns by borrowing for a house. Banks don't typically lend money for you to buy shares unless you are borrowing against a house anyway.
3. Offsetting losses against personal income, thereby reducing your PERSONAL income tax. Ring-fencing would solve this.
4. Lack of education. This follows from point 1, but people actually think that property has outperformed the sharemarket, which is incorrect.
5. Lack of education. People think that property investment is safer than the sharemarket.
6. Lack of education. People think that all companies on the sharemarket are equally risky.
People have wised up. They not only have been through 1987 but have experienced the inept funds management industry. It's a joke along with it's returns and make guys like Gareth rich. Property isn't as easy as people think, it only looks that way when there is an upswing. You can borrow for shares on margin accounts readily available online. But that's for the Warren Buffetts of this world not for mum and dad. This is where slimey financial advisers step in flogging their managed fund products off to gullible investors. KiwiSaver will end in tears.
A bit negative today Property King? For those wanting to do some research on the side I have found investing in shares and my Kiwisaver scheme returns very good. Early investor in Xero and A2..both companies headed by great team and have a long term vision, not selling out before the real returns start to eventuate.
I can still remember the naysayers re Xero on this site. I think Gareth got rich from investing in Trade Me PK... Yes Mum and Dad just keep paying that million dollar mortgage..one day you too will be rich
Because of the disparity between a renter + stockmarket (or otherwise) investor and owner occupier with the same amounts of equity. With such high house prices, and barrier to entry, these two situations are now equally as likely.
An owner occupier simply won't pay off their house before the bright line test is over. Their investment is long-term (see: 30 year commitment). Now if they had the same amount of equity, then the renter will pay taxes on whatever returns he makes from the stockmarket (including capital gains). The owner occupier will pay no tax for this same time period. Your argument that the tax is returned at the end is just wrong because the bright line just never applies. Even if there was a never-ending capital gains, the house could just be inherited, or such a person would not care because they are dead. The renter has had to pay his tax every year on his returns. He can't simply die and not worry about the tax. The ongoing nature is incredibly important here.
Hi, not sure if this was in reply to me. Something about the tax being returned at the end? Not sure...
Anyway, I see you are trotting out the old misleading argument about an owner occupier.
As you can see above, I have looked at all INVESTMENT options.
Buying your house that you live in is just buying your house that you live in. This is a personal asset until you decide to rent it out. Just like owning a boat. Or a car. If you hire your car out then you will pay tax because this is income.
Please remember not to confuse personal and business assets.
If you want to bring up wealth tax, then we can, as that is an entirely separate issue. What TOP advocates is actually just a wealth tax in disguise. The reason they disguise it is so that they can confuse the issue and pretend that there is a tax loophole.
Labour have promised to build affordable housing, but their biggest problem is they have no way to get the land necessary to deliver their promises at an affordable price.
Oh yes, any central Gubmint does. Not saying I approve of these suggestions, but the underlying Power is certainly there:
Legislation.govt.nz - search for Public Works Act 1981
16 Empowering acquisition of land
(1) The Minister is hereby empowered to acquire under this Act any land required for a Government work.
(2) Every local authority is hereby empowered to acquire under this Act any land required for a local work for which it has financial responsibility.
So, because it's 'for the children and FHB's' -
- Deem Social Housing a Government Work and the subdivision a Local Work
- Acquire hundreds of hectares of rural land at rural prices - land pricing issue solved.
- Deem the local TLA's Plans (and whatever else stands in the way under the RMA) null and void - bump it straight up to the EPA and lean on 'em hard...NIMBY's and BANANA's sidelined.
- Fire up the dozers (and scrapers, it'd be like them Good Old Days...http://waymad.blogspot.co.nz/2013/05/a-tale-of-two-scrapers.html
- Infrastructure Bonds for the - er - infrastructure financing
- PPP for the subdivision work itself
- Housing factory down the track for the modular, built-under-cover, multi-proof consented builds - call it KiwiBuild
Of course, a Gubmint big enough to Give ya everything ya Wants, is Big enough to Take Away everything ya Has......but since when has that stopped the Utopians amongst us?
And NZ First looks intent on using it;
Establish a new state agency to acquire land where Special Housing Areas have been designated under the Housing Accords and Special Housing Areas Act 2013, for sustainable residential development.
http://www.nzfirst.org.nz/housing
Take that, land bankers, eh?.
I read the article tax reform link. Says it will only affect 20% of people but doesn't say why. Surely property owners are more than 20% of the population?
If it's not explainable in a few sentences, then it's no good really.
Pretty sure any party that says it's going to tax everyone who owns a house, because they dare to live in it tax-free is going to get a very very small percentage of the vote.
It's a tax-neutral policy, meaning that the government would collect the same amount of tax overall. As such, if they were to tax housing equity they would have to decrease income tax. According to their calculations, 80% of people would end up paying less tax overall.
I've said this before, I like some of TOPs policies, however, you have a leader who tells everyone how many properties he owns, and how he legitimately avoids taxes. I'm miles away from his league, but I could have avoided a lot of the tax I paid, I didn't because I don't believe it's the right thing to do. Until Gareth gets rid of his property portfolio, starts paying what is due, irrespective of whether he is required to or not, then it's just empty rhetoric bordering on hypocrisy.
Look, LVRs dont mean anything when the banks are tightening up lending already. No bank is going to lend FHBs 900K with a 100k deposit in auckland.
The recession is coming.
We can remove the LVRs and kiwis can leverage up to the max all they like but when the chinese have to report every transaction thats over 2000 Yuan, there will be NO ONE to buy your one mil plus property because average kiwis cant afford it.
What I want to know, is why do both National and Labour believe that the cost of building a house over the last 3 years has increased between 30-40%, since when Labour announced the Kiwibuild policy in the last campaign? This figure was quote by National on the Nation, and wasn't disputed by Labour. Labour should be questioning National why it has risen so much in just 3 years, considering inflation is less than 2% and wage growth is almost nothing. Who is making all this extra money. Is a 30-40% rise even correct,?. I think Labour and Nationals parties aren't that dissimilar, that they could combine to create a super collation, and cut NZ and the greens out.
Spoken like a true property simpleton Property King. KiwiSaver is exactly what this country needs it's time we emulated the Aussies and we should have it compulsory 10% that is, investing in productive assets that grow the economy not buying and selling houses to one another. "By a do up rental mate, houses they always go up"
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