National Party finance spokesperson Nicola Willis says the party will reveal its long-awaited tax policy, which will be fully funded and focused on middle-income New Zealanders, on Wednesday.
It is expected to include an adjustment to income tax brackets, the return of interest deductibility for property investors, and four new "revenue measures" to help fund the lower income rates.
The announcement came after Labour cut $4 billion from its four-year budget to offset a short-fall in tax revenue, as high interest rates eat into corporate profits.
Budget 2023 included significant spending increases and were based on optimistic Treasury forecasts of the Government’s revenue which have not panned out.
The deeper deficits were likely to be revealed in Treasury’s pre-election economic and fiscal update (PREFU) and new forecasts could show Labour failing to meet its own fiscal rules.
To prevent that from happening, Finance Minister Grant Robertson has searched for savings that can be baked into the PREFU numbers and get the Crown accounts back into surplus.
Nicola Willis said the cuts were “far too little, far too late” and that National would put a stop to wasteful spending.
The opposition party does not have a public plan for how it would tax and spend if elected, but promised to release one within the week.
“To deal with your suspense, let me be clear. This week, we will be releasing our tax plan,” Willis told reporters on Monday.
“That tax plan is fully funded, which is to say it will not require a dollar of borrowing or extra spending.”
Finding funding
National has committed to correcting income tax thresholds by at least 11.5%, to account for some of the inflation that has occurred since the pandemic. That’s likely to cost about $2 billion per year.
It is also expected to reinstate interest deductibility for property investors and has promised to bring the bright line test back to two-years, at a cost of about $700 million.
This means Willis will have to find almost $11 billion in funding across the next four years, to cover the cost of the cuts. But this money need not come solely from spending cuts.
The finance spokesperson indicated some tax increases would be included in the soon-to-be-revealed plan, to ensure it was funded across the forecast period.
“We have itemised the reprioritizations that need to occur to fund it, as well as the targeted revenue initiatives,” she said.
When asked whether the tax plan would include any tax increases, Willis wouldn’t give a direct answer.
Instead she said the plan would be “heavily targeted towards the squeezed middle of working New Zealanders”. However, she ruled out any increase to income tax rates.
Why wait
Opposition parties in previous elections have released their fiscal policies earlier in the campaign, but National has waited until the last six weeks.
Willis said she wanted to give voters time to examine the tax plan and understand what it meant for their household.
“At the same time, we wanted to make sure that it was final, credible, fully funded and that it had been externally peer reviewed. And it is all of those things.”
While the tax plan will be fully funded, National will not finalise its fiscal plan until after Treasury’s PREFU on September 12.
Willis said she was unable to commit to delivering budget surpluses without having seen those forecasts.
“I remember in 2008 when Michael Cullen opened the books and left the Key and English government with a decade of deficits forecast. We’re playing that out all over again,” she said.
However, this is a mischaracterization. Cullen delivered nine consecutive budget surpluses as finance minister between 2002 and 2008; the longest unbroken run since the 1940s.
National was then able to run six consecutive deficits—after the global financial crisis and the Christchurch earthquakes—partly because Labour had paid down debt in the decade prior.
English only delivered three budget surpluses before the 2017 election, then Robertson provided two more before the pandemic hit.
Since then, Labour’s deficits have been large and net debt has jumped from 2% of GDP in 2019 to over 20% today. Those same numbers as net core Crown debt are 18.6% and almost 40%.
146 Comments
In the interest of lowering the average age of their voter base they need to drop the interest deductibility and anything else that pumps the property market. Even a GST refund for new builds would be better.
Property investors have had a great run, myself included, it’s now time to put our energy into other stuff and leave houses to be lived in.
Interest is still deductible for new builds, any investors adding to supply are unaffected. Safe to assume that allowing interest deductibility on existing properties will incentivize investors buying old rather than building new, meaning fewer houses overall.
While I'm uncomfortable with the violation of normal accounting rules, it's quite a powerful policy and I think a force for good.
Are you by any chance aware if building new just occurs overnight or if investors need to buy the property and hold it (interest not tax deductible) whilst getting geotech, site levels, storm water plans, building plans, engineering plans drawn up, building & resource consents, ground works, utility connections, materials & availability of staff and then wait the year or so after first site cut for the dwelling to be ready? Are any investors here aware if the added tax cost during the process might make new builds less likely to happen?
Someone with more expertise might be able to comment, but I imagine it would likely add 5-10k or so to the holding costs if the property is left tenanted while jumping through the hoops.
So for the investor wanting to build new, it's an extra one off cost. For the investor wanting to buy existing, that cost recurs every year.
Still looks like a pretty useful incentive.
You can’t fix a mortgage if you want to demolish the dwelling to build new, this means you get the 8.5% floating rate. This translates to 85,000pa of interest per million whilst holding (33,150 in tax at 39% - you will need to be in this bracket to service the 85,000 mortgage), the average developable sized plot in Auckland is circa 2,000,000 meaning 66,300 per year in extra tax related holding costs. The best part is this 66,300 comes out of cashflow and so dramatically reduces your borrowing power when calculated in accordance with the CCCFA.
So say the build cost is another couple of million, we're talking about an extra ~2% on the project cost from this regulation.
Buying existing properties is much more significantly affected - basically unviable unless you are banking on regulation changes, or can buy with minimal borrowing and don't mind puny returns.
4.2% of land value in holding costs per year of holding. This means that if you want to allow for any sort of contingency against delays (which always happen) you potentially have to budget for 2 years or 8.4% of land value as just the tax component of holding costs, factor in actual interest and the time value of money and you start having to look at 25% margins just to break even, and you wonder why housing is unaffordable!
Are you talking about people building to sell or building to rent? If I build a house to rent out, that's hugely more valuable to me than buying an existing property to rent as I'll be able to deduct interest costs. If it weren't for the regulatory uncertainty you could quite happily make a loss on building rather than buying existing.
Or I could take my money elsewhere and invest in something more productive than residential property - even better.
There is a sound basis for the housing tax deductibility rule. Essentially it is the addressing of unearned income through inflation paying off the mortgage or as some people call it capital gain. I think that perhaps a better approach would be to preserve the purchasing power of the capital involved. To that end any sum borrowed should be increased by the inflation rate and conversely any sum lent should be incremented by the inflation rate. In other words I borrowed X purchasing power from you and I will repay you X purchasing power. Interest paid and received over and above that would taxed and tax deducted as normal tax rules. It is fair logical and reasonable. What do borrowers want? to rip off the lenders?
Yep most of the interest cost is actually repaid by inflation. You paid to borrow money, but you bought an asset which has gone up with inflation. You should only be able to claim (interest - inflation). And likewise you should only pay tax on (interest - inflation) when you have savings.
Examples, or 'like for like'?
The US allows interest deductibility for home owners, but not landlords. In Germany, it's the opposite. Germany has less home owners, the US has more, and also has a much more volatile house price market, and has had a lot more house price appreciation than Germany.
It's more likely that the boom/busy cycle is more resultant from the ebbs and flows of owner occupiers' fortunes and credit availability than investors. Even in NZ, there's a very observable trend of increases to lending thresholds for FHBs having an almost immediate effect on the price of houses at the lower end.
Note, this isn't to promote property investing, but more to highlight that nerfing investment won't resolve the boom/bust cycle, or the high cost of housing, especially for new entrants.
Some parts of USA have very non-volatile housing markets. And some high demand markets at that
so….like for like! This means starting points, moments in time etc etc. not just transferring historic international experiences without context.
so starting point - At this point in time, despite circa 20% falls, affordability is ridiculously stretched still in NZ. Few people see a situation where the OCR will be back south of 2.5-3% again, or at least anytime soon. With investors sidelined I struggle to see how owner occupier demand is bullish for prices, especially given demographics ( ageing boomers, poorer immigrants by historic standards etc) along with the affordability issue.
of course, there could be a rental crisis in a few years time, in fact there probably will be, but that’s a different issue
At this point in time, despite circa 20% falls, affordability is ridiculously stretched still in NZ.
Yep. People think there's going to be some breakthrough where affordability will improve, when really there's an interplay between purchase prices and servicing costs that doesn't change most people's overall ability to acquire a home.
We expedited house building and lowered costs under semi-emergency conditions in the wake of the Chch quake. That really needs to be expanded to the entire country.
How many have been turned into Air BNBs or left empty? Tax airBNBs and require councils rate them commercial, and restrict the number of days they can be used as air BNBs. All this is done overseas, including states in the US, such as Palm Springs where airBNBs have become a problem.
Also have a vacant house tax.
All these taxes are avoidable if landlords rent out healthy homes to renters.
There could just be 5 big warehouses for all to occupy i guess.
Serious answer is household sizes have been shrinking for over 100 years via cultural change. I'm not sure how you mitigate that. Force randoms to live with one another?
One thing I do know, is the model of smaller groups of people fighting over a limited supply of housing leaves a lot of people upset.
Nktokyo Good you point out the low number of properties for rent in Rotorua, only 349 for sale in Rotorua on Trademe as well, that must be near an all time low. Just figured out who you are, great to see you on here, one of my favourite sites. I will let you know who I am next time I see you.
Look I'm not really a fan of income tax in general and I understand your point but the reason for progressive tax brackets is pretty solid, people on lower incomes by necessity need to spend more of their income on goods just to survive and to place proportionally more burden on them isn't going to magic a bunch of productivity into existence. In fact, our productivity shortfall probably has less to do with individual work ethic and more to do with a lack of investment in technologies and industries that would actually improve our productivity.
And lowering taxes on the top tax bracket isn't going to magically raise GDP, the median wage in this country is $60k, and not everybody, even if they were all willing to work equally as hard and "smart" will be able to earn six-figure incomes purely through grit and determination as the money simply isn't there. A potentially better solution would be introducing a tax-free bracket at the bottom that would actually help everybody rather than disproportionately helping those on higher incomes who realistically aren't struggling as much as those on lower incomes whose jobs are just as needed (if not more needed) as those on higher incomes.
In fact, our productivity shortfall probably has less to do with individual work ethic and more to do with a lack of investment in technologies and industries that would actually improve our productivity.
'productivity' is actually a very complex issue. On the employee front, every added piece of legislation, minimum wage, or salary increase has a dampening effect on productivity, because you're spending an increasing amount of money to generate the same result.
It's extremely difficult to have technology investment supplant the high cost of labour in mature economies in a way that has it returning a profit for functions that are much cheaper to perform offshore. There's obviously exceptions, but it's a very marginal enterprise - hence most developed nations are faced with the grim reality that many of its citizens' fortunes are in irreversible decline.
'productivity' is actually a very complex issue. On the employee front, every added piece of legislation, minimum wage, or salary increase has a dampening effect on productivity, because you're spending an increasing amount of money to generate the same result.
Yes, I am aware but since I didn't want to write a novel I didn't go over every single possible reason for a potential decline in productivity.
And you are correct in developed economies it is increasingly difficult to eak out more productivity gains but I don't really see that as a reason to give up and accept our "irreversible decline" If there are gains to be made we should strive to make them even if their effect is marginal it is still better than doing nothing.
And that's happening. As you said though, it's a fairly marginal proposition, also on the businesses side.
As nktokyo has alluded, anyone wanting improved incomes via increased productivity is far better served working on their own productivity instead of expecting someone else to do it for them.
It is happening but not to the same extent that it is in other advanced economies hence why we are continuously falling behind (amongst other reasons).
And yes anyone wanting to improve their own lot in life will benefit from working on that but collectively we would all benefit from increased productivity, with more opportunities, more economic activity, a more diverse economy etc. An individual can only do so much on their own and more government support and investment into increasing productivity through upskilling/technology would help everyone.
Much of the productivity gains we see in other advanced economies aren't due to actual investment in improved technology though. What you've said is fairly self evident, but also extremely elusive.
An individual can do much on their own, someone capable of cultivating a marketable skill can be many multiples more productive than their least productive peer.
Much of the productivity gains we see in other advanced economies aren't due to actual investment in improved technology though.
What are they from then? Obviously, there is more to it but a large contributor would appear to be investing in technology that amplifies the productivity of individual workers.
An individual can do a lot on their own, but a contribution to one's own success comes from the the society we live in. All of us here are enormously lucky to be born in NZ or able to immigrate here, Despite its problems it is still a great place to live compared to a lot of other places around the world. I consider myself very fortunate to have been raised and educated here as it's a privilege that many others haven't had and has given me a lot of opportunities that wouldn't be possible if I was born elsewhere.
Where I am today is partly because of my own work and another part is being raised in a decent family that prioritized education and effort, but none of the opportunities I have would be around if it wasn't for the society that we live in. An attitude like yours of every man for himself, don't support anyone else, "everything in my life is because of me, and me alone" is not the recipe for a strong society or economy.
Yes absolutely, hard work should correlate with higher incomes but I think people take for granted the advantages that we have from living in an advanced economy, advantages like infrastructure, opportunities, job prospects, education, a stable political system, peace etc. I would like for all of these aspects to improve rather than decline but it will require more than actions on the individual level to do so, and the system as it is doesn't do a good job of incentivising economic activity and jobs that would lift our productivity rather than suppress it.
What are they from then? Obviously, there is more to it but a large contributor would appear to be investing in technology that amplifies the productivity of individual workers.
While the word "productivity" immediately has you thinking of things like "producing things", or "efficiency", the actual measure for productivity is $ generated per employee (or employee working hour).
As a for instance, the last decade or two has seen Ireland's productivity skyrocket, and their GDP per capita. This was not done by building or improving factories, research and development, that sort of thing. It was done by giving company tax advantages, so multinational corporations set up their European branches there. On paper, it looks awesome, but the average Irish person isn't any better off.
As for the rest of your comment, you are misconstruing self-improvement and personal advancement with "every man for themselves".
Why do you always bring up Ireland? That’s hardly a relevant anecdote in the context of New Zealand.
I feel like you are being overly literal there in the definition of productive to the point of being pedantic. Yes that is the literal definition but generally I think you know what I mean when I’m referring to productivity that we can improve.
As I said before I’m not going to write a novel, picking at the definitions of terminology when you know what exactly what I’m referring to is incredibly tedious.
And I actually think you’re misconstruing what I’m saying, there’s immense value in self-improvement but it also has its limits, we don’t exist in a vacuum and the people around us, the economy around us play a massive role in what anyone is able to achieve on their own.
I like using Ireland because it's an amazing example of moving indicators around without actually delivering worthwhile results. I spose I couldve used somewhere like Switzerland, who's productivity gains have come largely from banking rather than production and development of goods.
Productivity is really about generation per employee so I think it's a fairly important distinction to recognise, because most of the developed peers we have who've improved productivity haven't done it via the means you're espousing. Partially because the over-riding labour costs invariably move improved production methods somewhere the labour is cheaper - double whammy. Tedious maybe, but also unfortunately reality.
While everyone exists in a wider system, having employed hundreds of people, there's a rather wide chasm in the productive abilities of our workforce. Like, multiples of 2-3x more productivity, or more. The better employees invariably subsidising the worst ones.
I spose I couldve used somewhere like Switzerland, who's productivity gains have come largely from banking rather than production and development of goods.
Do you have any evidence of this or are you just making it up?
Only about 9 percent of Swiss GDP is traceable to financial services. Manufacturing makes up around 18 percent, retail almost 15 percent; the most significant part of GDP, some 31 percent, is generated in other services.
https://www.gisreportsonline.com/r/swiss-economy/
Switzerland to me is an example of a pretty competently run country and whilst we can't replicate their success i'm sure there are some lessons we could learn from them e.g education, R&D funding, etc. The main driver of Switzerland's success is being a diverse economy with a lot going on which would certainly be an improvement over our current path where we put all of the eggs into two fragile baskets (Tourism & Dairy).
You've shown revenue by sector, not productivity. The Swiss financial services sector is less people intensive, improving the country's overall productivity figures.
Here's a better task for you to investigate, find some developed economies thatve managed to retain or increase their industrial output via productivity investment. They're relative unicorns. Instead we just sell houses and consumer items to one another.
Once again I think you’re focusing to much on details because I don’t want my comment to become a multi-page essay. Even though financial services will improve their productivity figures a bit it’s clear the rest of their economy is quite productive as well, especially their manufacturing and r&d sector.
Here's a better task for you to investigate
This seems overly patronizing which I don’t really appreciate.
I’m not asking for a silver bullet but I’m sure there are ways we can improve and diversify our economy so we have more going for ourselves than dairy and tourism. a lot of that will have to come from the private sector and individuals, but part of that can be incentivized and encouraged by the government and replicating successful models used overseas where productivity growth hasn’t stalled to the same extent.
The lower brackets are very expensive to move in any significant way, hence why labour are trying all sorts of alternatives like GST off fruit and veges and winter energy handouts. But without shifting the upper tax brackets we are ending up with an almost flat tax system. Minimum wage earners are one pay rise away from paying the 30% tax rate! Almost all middle class are paying the 33% former top tax rate, the same rate as someone on $179k. Even the $180k bracket which was for the super rich is starting to tax the upper middle.
I don't disagree if I'm being honest, without something like an LVT to take up the slack it would be a very expensive exercise to introduce a meaningful tax-free threshold even though it would probably help people out a lot more.
I more take an issue with claiming that lowering taxes on higher incomes is going to inspire everybody into higher-paying jobs which seems like a dumb conclusion to make that ignores the realities of our economy. Ideally, we need to reduce income taxes across the board as it isn't really an ideal way of raising revenue compared to some other options that we could look into.
That's misleading, while they share the top tax rate, their overall tax rates are very different. Someone on 179k pays 28% of their income in tax. Someone on 80k pays 22%
While it is flatter due to inflation, the lower tax brackets at the bottom make a much bigger impact percentage wise on those with lower incomes
They just made it so that our inflation is double that of the USA & Japan, 8x that of China. Even if you exclude all the top economies and look at other small pacific island nations, we have 3x the inflation of Fiji ! Some inflation is good, just maybe try stick within +/- 10% of our major trading partners and allies instead of being 2 - 8x higher than them!
They've had 13 years to come up with a solution to that problem while they haven't been adjusting the thresholds. Instead they've been helping themselves to tax increases by stealth rather than being honest with the electorate and seeking a mandate to increase taxes.
They have the ability to not adjust for inflation, and they have cynically abused it to their own ends. They should lose that power.
When you consider the claw back in the housing rebate and working for families it is a far worse poverty trap. Some how we need to get to the situation where even a low wage worker can support their families, and save for a home without the need for all this welfare. This government welfare is not there to benefit the workers, it is merely a way that employers can get away with paying the minimum to an increasing proportion of the population. It really is corporate welfare by stealth. If these companies cannot survive without the government topping up their wages then it is in the best interests of the country that they go broke and only companies that invest and put a lot of effort put into increasing productivity, survive and flourish. That is a far more positive and virtuous cycle than the death spiral race to the bottom track that we are currently on.
I'm starting to think that shoving some couple hundred randomly selected (like jury duty) into a room with subject matter experts and have them decide on outcomes is going to work better than _any_ of this.
Maybe, just maybe we end up with some way of paying nurses properly, not loosing doctors and teachers to overseas or working them till they're broken.
I've long thought that. Imagine this:
1000 parliamentarians. 10 year terms. Every year, 100 end service, new 100 selected from population (may decline that's ok). Pay the position same as other public servants (teachers, police, nurses, social workers), and no old-boy's perks after.
Just requires a suitable oversight (benevolent dictator for life) to veto stupid things (e.g. majority decisions that trample a minority).
Of course, changing the government system won't fix the issue of unelected bureaucrats in their little fiefdoms who do whatever they can to maintain the status quo and keep the gravy train rolling...
that is what she did last time so i do doubt she will try to sell the same plan, i am thinking increases in all sorts of other things that people do not notice like tax on your kiwisaver, they will stop funding your kiwisaver for sure no more $520 per year , PIE funds, putting fees up ie road user, petrol tax, same trick bill english pulled
its not a rumour they have openly been talking about it and said they will allow auckland wellington and christchurch councils to bring it in, of course they will take a cut
National's transport spokesperson has committed to not raising fuel taxes in a potential first term if his party wins the election, but says he wants to "rapidly" legislate to allow major centres to roll out congestion charges. Speaking to Q+A, Simeon Brown also hinted at wanting to shake up central government's system for transport funding, with a greater emphasis on user pays.
Drop the road maintenance charges from fuel duty and move them to RUCs would be sensible to tidy up all the different uses (petrol/diesel/PHEV/EV) but emissions charges need to stay on fuel to promote better decisions on vehicle purchase/use i.e. you get charged for each litre of fuel you use rather than some made up number.
1) False. ) Every machine has a 'useful life'. 3) Modern battery tech is fine. It's just going to take a while to trickle down to the used market en masse. Like any technology.
If only battery recycling was as easy as recycling out of date talking points and incorrect claims about EVs.
The elephant in the room for all this is a high polling Act coalition partner. They will demand a number of things which they will have a good chance of getting with strong bargaining power. One of those things could well be Act’s idea of giving 50% of GST revenue on new housing back to local government. While the idea has merit, it could also leave a decent hole in central government’s revenue.
While the tax plan will be fully funded, National will not finalise its fiscal plan until after Treasury’s PREFU on September 12.
Willis said she was unable to commit to delivering budget surpluses without having seen those forecasts.
how is it fully funded if they don't know the state of the books. fully funded by deficits if necessary , by the look .
Fully-funded is a foggy term. But in this case she means not using debt nor dipping into the annual operating allowances.
She means every dollar cut in income tax will be matched with a dollar less spent and/or a dollar raised from another tax.
The National government may still run a deficit, but it wouldn’t be bigger or smaller because of the tax plan. That’s her promise, at least.
Lest we forget that govt was only able to deliver surpluses pre-2008 and during the few years before COVID because the housing ponzi was in full swing and private debt was rocketing up. Any talk of returning to surplus should always be followed by a question:
Who will get poorer because govt is taxing back more than it is spending?
Lest we forget that govt was only able to deliver surpluses pre-2008 and during the few years before COVID because the housing ponzi was in full swing and private debt was rocketing up.
So nothing to do with how our export economy operates when there's not a global recession or pandemic?
I heard a NZ economist on the radio recently saying that China needs their house prices to start increasing again, so that they start to feel rich and they will start spending again. Sounds a lot like NZ. IMO that is just not sustainable though, becuase over the long term house prices simply can't increase by more than wage inflation, otherwise less and less people will be able to afford home. National effectively increasing the retirement age for most NZers under 50, which is what they have said they will do if they get back in (increasing super and kiwisaver eligibility ages), does potentially allow banks to increase mortgage terms to say 40 years, or even have multi generation mortgages.
I would suggest that we now have more young people staying at home for longer than ever before. Due to housing costs.
Birth rates have dropped a lot, so that drags the amount of people per household down also.
I don't recall in my lifetime when the make up of NZ households was that much different to now. The odd grandma moving back in with kids when too old to look after themselves.
When exactly are you remembering, and how different was it to now?
I'm referring to most of human history, which was very different to now. Multiple generations, all living and working together. From travelling fairly extensively, this looks to also produce the happiest people.
Now we're shoving smaller amounts of people into smaller boxes, all filling the boxes with individual use items. It's not working.
My point is more we've only started hearing this talking point in response to the idea that National might raise the age, whereas the current government had campaigned on doing the same thing and we didn't hear anything of the sort.
It's one of those 'convenient morality' dealies where you have to panic about something to overlook the massive backflips that successive oppositions have done when it comes to this policy without the same pre-emptive outrage ever being raised.
In today's edition of Stuff (29-08-2023):
'The liquidators received a preferential claim from Inland Revenue for $350,145 in relation to unpaid employer taxes for JCL.' and 'The Liquidators received a claim from Inland Revenue for $130,833 in relation to unpaid GST'.
There is a part your missing tax revenue! You would almost question why some people are in business? This one was definitely not in business to pay his taxes but to fund his car racing habits!
The National Party has waited so long to publish their budget that I expect it'll be a shocker.
It will either:
1. Be absolutely honest. Tax cuts will be pushed out until just before the next election. They may even need to introduce further taxes. Maybe even an extremely light-handed CGT? What they propose selling off after their [begin sarc] wonderfully successful electricity reforms that benefitted consumers [end sarc] will also be announced.
2. Be full of holes and/or weaselly words that completely cloud what they actually have planned.
My guess is that it'll be the latter.
Will National, or any political party, help Jack?
by GetFeeling | 19th Aug 23, 1:44pm
Take my friend Jack ... Average Kiwi bloke earning $80,000 per year.
Government takes about $17,320 in income tax each year.
Jack hates paying tax and begrudges paying it.
How dare they take money he has earned!
Still, people tell him he actually gets back most of it in government services.
But Jack has also just taken out a $500,000 mortgage.
In the first year, Jack will pay some $34,839 in interest.
Yes, read that number again. Twice as much as the government takes from him in tax.
He'll never see this money again. Nor receive any physical services.
Some of it goes to people richer than him that have been able to save money and then lend it to banks.
The rest of it goes to very rich people through a convoluted series part-payments with yet more rich people taking a cut.
Does Jack begrudge paying this "Housing Tax" to faceless rich people?
No. Jack just accepts it as the price to pay that ensures that over time his 'asset' will appreciate in value.
But does it? Once all the costs are taken into account, and including the slice rich people take, and adjusted for real inflation and property cycles, it is questionable.
But what is unquestionable is that the rich have found a way to tax the majority of us way more than our governments do and provide nothing in return except for the 'privilege' of paying them more and more as they lend more and more to inflate house prices.
It has always seemed crazy to think we can all get rich by selling existing houses to ourselves. At some stage it was going to backfire. With any pyramid scheme it is the people who start it off that make all the money and the people that get in last that make all the losses, a bit like Bitcoin too.
Most people never take this into consideration when taking out a loan. An $800 000 loan for that $1 million house will cost you $1.6M over the life of the loan assuming you only make standard repayments.
That's before maintenance costs, insurance and rates. Suddenly renting doesnt look that bad.
People suggest investing the deposit and difference between rent and housing costs into NZX50 returning 7% p.a. I've run the numbers, if guaranteed 7% p.a. NZX50 by year 20 you should have $1.5m - $2.0m. Assuming start rent @ $500 pw vs a $1000 pw mortgage + rates/insurance ($750k house/$150k deposit), rents/rates/insurance increase by 5% p.a..
Depends on what the house increases by, if 3% p.a. the renter could buy. But after 20 years, when the kids have moved out? "Gee thanks Dad for having me move schools 5 times during childhood, enjoy the house you savvy investor".
What is the solution. Drop interest rates to near zero so that Jack can borrow $1,000,000 and pay double for the same house as has been the case.
Better to hike interest rates and stifle the housing market back to a reasonable level while keeping out wealthy foreign immigrants and investors.
Those lending the money will pay tax on their interest.
Or, you come up with a way to stop every man and his dog piling into housing as the default retirement scheme and don't just sweep aside the huge issues with hiking interest rates for owner occupiers, who seem to be acceptable collateral damage on the way up and on the way down when it comes to simply owning a family home.
There's so much we could do, and so little political will to do so.
- Higher interest rates
- non-recourse mortgages
- taxed deposits only (i.e no un-taxed capital gains leverage)
- interest-only mortgages for new builds only
- Call accounts at the OCR with the RBNZ
- A reasonable DTI would also not go amiss - but that's really ambulance treatment which is only needed to counter low interest rates.
No need for loopholes around the family home if you did that.
Those who cannot afford mortgages due to interest rates simply overspent.
You raised some good points, but you let your fetish for being able to wag your finger in someone's face blind you to the huge failures at an institutional and political level that have gone without any independent scrutiny that led us to this point post-Covid.
Governments and banks, with hundreds of billions of dollars and huge resources got this massively wrong, yet you want to compartmentalise it down to the individual level so you can feel good about blaming someone for something, and the banks and political operators behind it get away scott-free because they can always count on there being someone else to play the blame game on their behalf and deflect attention away from what they did.
supply and demand. the banks lent because there was demand. the government of the day (at least here) is chosen by the people of the day. The success of either is a reflection of what the people want. there's no such thing as 'independent scrutiny' outside of the population being willing to stand up and say what's right, what's wrong, what could be and what should be.
NZ has long been afflicted by the malaise of greed, and a suffocating addiction to debt. I don't feel 'good' about it - but I have done what I could by, a) refusing to play that game, and b) voting and lobbying accordingly. There is only so much an individual can do, and until the masses wake up to the enormity of the problem, then it will remain. For the most part, I have advocated for those who suffered the affliction by proxy - that is the large swathe of our population who are mortgage-slaves to their landlord, whilst the landlords engorged themselves in their lust for more.
Both institutes you mention have accountability - no one is forcing anyone to purchase a house, nor do they have to vote for the same old same old. Yes, people make their choices in the context of the system they know - but they are still their choices. It's much easier to blame the large faceless institutions than take responsibility for our own actions - is this not also deflecting attention away from introspective scrutiny? People who understood the lessons history has to teach us on financial cycles (i.e, they happen) would never have accepted a stress test in the single digits - and yet many did not and have been trapped as a result. Is that really institutional failure?
People who understood the lessons history has to teach us on financial cycles (i.e, they happen) would never have accepted a stress test in the single digits - and yet many did not and have been trapped as a result. Is that really institutional failure?
The financial cycle? You mean the seven year correction we're now what... fifteen years overdue for? Conventional economic wisdom went out the window long ago, and all it did was leave people paying rent for longer and getting further and further away from home ownership. Jumping into the market while key players made it clear they would do everything they could to stop a correct was the rational and informed choice. You need to examine the actions of the people who made this the right thing to do. When the PM, Finance Minister and RBNZ Governor all start talking about protecting house prices and negative interest rates, you're relying on stopped clock logic to pick a massive run-up at extremely short notice.
And to answer your question: Yes. It is. The banks failed, the regulators failed, the political processes that scrutinise them have failed. Massively, and lumped everyone else with the bill. You're expecting normal, every day people to interpret market signals as if they function as a proper market.
there's no such thing as 'independent scrutiny' outside of the population being willing to stand up and say what's right, what's wrong, what could be and what should be.
We could absolutely have an independent review of the decision-making around the decisions of RBNZ in the post-Covid era and their response if we wanted to. However, they were allowed to do their own internal review. That's pretty much the most basic for of 'independent scrutiny' and we aren't getting it. I'll let you speculate as to why that might be.
Nice, robust discussion. Thanks!!
You mean the seven year correction we're now what... fifteen years overdue for
No, I meant much longer. The late 80's are within my memory, and the 70's in my older friends, and the 1920's in history books. All of which warned of the eventuality of (whether right or wrong) higher interest rates.
Jumping into the market while key players made it clear they would do everything they could to stop a correct was [a] rational and informed choice.
I've just replaced the definite with the indefinite, because it wasn't the only choice.
the PM, Finance Minister and RBNZ Governor
None of those have been particularly good at doing anything other than securing their paycheck for quite some time - I have to admit I am perplexed as to why people give them any credence.
The banks failed.
How? By being successful businesses?
the regulators failed
Did the banks break the law? It irks me a lot that the banks get sole say over who may own vs who may pay another to own - but that is not up to a regulator to fix.
the political processes that scrutinise them have failed.
The people who scrutinise the politicians have failed (and yes I voted Labour last time, so I'll take my share of ownership for that). But we might see a correction here over the next decade, perhaps?
We could absolutely have an independent review of the decision-making around the decisions of RBNZ in the post-Covid era and their response if we wanted to.
Do you mean by an external entity (such as the IMF) which holds no legal sway and would be ignored? Who would be truly independent? It would be good if, say, Orr were more accountable, but the RBNZ hasn't actually failed its mandate yet so what need he be accountable for?
Adopting Islamic banking.
"Islamic law prohibits the payment and collection of interest, also commonly called “Riba” (usury). The main argument against interest is that money is not used as a commodity with which to make a profit but that it should be earned on goods and services only, not on control of money itself."
At a wild guess- I suspect they will allow foreign investors to buy property again in NZ but they will take an annual tax on it - similar to what occurs in a number of other countries.
They did say the other day they would allow foreign investment but there would be conditions.
This is a win win for the government who create the argument that if you want to own a house in NZ then you have to wear some of the pain in maintaining the infrastructure around it.
Well, that's an interesting guess - but if you're right, whatever they forecast to be earned from the foreign residential property investor will most likely be a huge over-estimate. Foreign buyers liked our houses when they were relatively cheap and credit was freely available. Such a different story now.
I don't see the prospect for busloads of foreigners coming in to buy property at the moment.
My wild guess would be upping the GST rate possibly to 20%, but exempting certain food stuffs (likely NZ-sourced meat, dairy products and fresh fruit and veggies).
Williams Corp has a sales office in Singapore, they work it pretty hard based on the social media I have seen. I think China will clamp down hard on any outflow of capital.
The potential OIO about turn is just handing votes to the Winnie handbrake. I can't believe they are even considering it.
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