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Housing the Kiwi Tax dodge

Housing: The Great Kiwi Tax Dodge

Housing the Kiwi Tax dodge

“favourable tax treatment of housing …should be removed” (OECD Economic Surveys of New Zealand April 2011)

My 5 point plan for housing has prompted a fair bit of debate and I’d like to respond to the points people have made.

Let’s start by clearing up one thing about housing as an investment. I am not anti-housing as an investment, I own several. How many do I need to buy to make that clear? Would I own the same number if the tax and finance playing fields were levelled? Yes. But currently the tax system is not fair – it favours housing.

Now let’s talk about tax. Independent tax reviews commissioned by New Zealand governments since the 1960s have consistently identified the failure to tax housing as a major problem in the tax system. That governments have consistently failed to implement this independent advice is an indictment on the over-riding self-interest of our political leaders and the wilful ignorance of the voting public. New Zealand stands out a mile on this issue, given most countries have some sort of tax on housing. In its most recent report on New Zealand the OECD said the failure to tax housing needs to be addressed. Sorry, but I don’t agree that we can keep our head in the sand over this issue any longer:

“favourable tax treatment of housing …should be removed” (OECD Economic Surveys of New Zealand April 2011).

What I propose is a wealth tax against which income tax is credited. This would not see  anyone who already pays their full share of income tax  pay more– structured properly the wealth tax would simply close loopholes wherein some can increment their wealth and not pay tax on that increment, and others can’t. You can find more details of this wealth tax proposal here, which we recommend as part of wider tax and welfare reform.

What about the potential value of high density development, an issue which seems to truly animate the land-obsessed New Zealand public? The 2011 Mercer Survey on the best cities to live in, ranked Auckland as third best city in the world. That is a laudable achievement and well-deserved. Of the other cities making up the top ten, only Vancouver had a lower population density (more urban sprawl) than Auckland. Top ranking Vienna had a population density of 4000 people per square kilometre which is a mile from the highest density area of Auckland (the North Shore at 1581 people). Other top-ten cities included Zurich (close to 4000), Munich (4280), Geneva (4101) and Sydney (maxing out at 8800 people per square kilometre in Sydney East and 7900 in Sydney West).

You get the picture? High density cities can be very liveable and attractive indeed. I think everybody would agree that thus far neither Auckland’s municipal leaders, developers and their bankers nor the residents of Auckland have had to seriously consider the potential of accommodation options other sprawling out and building houses over the hills and far away. But land prices have now reached a level which should be focusing minds on new solutions. Inner city living done well has huge potential – as evidenced by the quality of life delivered by European cities like Vienna and Zurich.- and it is a hell of a lot cheaper to service.  We should be thinking about how we can connect that potential to the natural wealth of Auckland and other cities in New Zealand.

My comments about making user pays principles apply to new subdivisions is designed to reveal the true price of urban sprawl. If the potential buyers saw the true cost then they wouldn’t be so keen to pay the true price. By councils masking this in the rates bills for the city, they end up subsidising new buyers who should be paying the true marginal costs – Economics 101.

Anyway the arguments are robust, New Zealand needs to face up to the gross distortion to GDP, incomes and jobs brought about by these policies that favour housing over all other types of investment. Until we do expect the obvious result from misallocating investment capital, unnecessarily lower incomes and fewer jobs.

 

  • http://www.facebook.com/curtisantonynixon Curtis Antony Nixon

    Right on Gareth! You rock!

    I think you meant “…other ‘than’ sprawling out…” above.

    I live in a first floor apartment and it’s a great lifestyle for me and my girl. There is a garden outside she can play in and ride her scooter.

    Another thing Gareth, have seen news about the paid parental leave bill being attempted in Parliament at present and I considered that it could be another facet of social economic policy your Universal Basic Income scheme could replace; along with WINZ benefits, ACC and Student Allowance and Loan living cost payments, Working for Families payments et al. In other countries like Singapore the government pays families when their new baby is born. All of these complicated schemes applying in different circumstances, at different times of peoples lives could be replaced with one, equal, lifetime UBI! Think of the administration costs saved. I love this idea Gareth!

    Please form a political party, either with you as Parliamentary leader or another person supported by you and run for office in the 2013 General Election. New Zealand is in a bad way nationaly and needs a fresh movement like you are offering with your visionary economic and social policy ideas. I will vote for you!
    We need the Big Kahuna!

    • http://www.facebook.com/peter.quixote.92 Peter Quixote

      Its nearly Christsmas 2014. and well nearly everything went according to plan. The Labour party desperate to head off the Greens buys into Gareth Morgan’s socialist tax, loosely known as the big Kahuna comprehensive. Or as we shall see shortly the kahuna not so comprehensive.
      Gareth had been at the beehive giving last minute advise to this perilous new Government on how to establish this thing and the Bill is drawn up. It is beautiful.
      It is going to tax all those bloody middle class people 1.8% per year on their houses, and it is based on land size. That will sort the bastards out. There are exemptions of course to the comprehensive kahuna but the people they should not notice, we hope.
      Gareth leans back in his seat, in his office ; feet on the table, and for some reason the phone is quiet. His assistant knocks on thedoor,
      “ Gareth she says a man here from the IRD to see you” … “Show him in show him in will you ,Gareth, says and prepares a seat….. The IRD man come in.
      IRD says “ I suppose you heard the news that the Big Kahuna legislation had some last minute amendments”
      “What ? What do you mean says Gareth.

      “Well Russell Norman had a last minute change of mind , he vetoed the tax on homes as being inequitable and retrospective in nature, but he has decided that your proposed exemption to shares and stocks will not go
      ahead. I am here to tell you that you will be responsible for collecting 1.8% tax from all your clients in ‘Gareth Investments Ltd” starting as from today, why didn’t you just stay in the Environment business you could have been famous ”

      • http://www.facebook.com/curtisantonynixon Curtis Antony Nixon

        Fairy tales from a troll?

        • http://www.facebook.com/paul.scott.10441 Paul Scott

          The confusion with Gareth’s asset tax, which he calls a wealth tax but which is not, will soften the market for a Capital Gains tax. There is no chance, no chance at all that any NZ Government is going to give any credibility to a lunatic asset tax which would decimate the NZ Economy.

          The words comprehensive tax,would lead you to believe the tax would be comprehensive. No possibility none at all.of a sweeping asset tax. You are more likely to see Quantitative easing, printing money before an asset tax.
          If you want to move to the left as green does and Gareth does it is best to make a show of extremism so that your real proposal seem acceptable.

          Above I have argued that Gareth uses House and Home housing arguments for an Asset tax. No merit whatsoever
          Morgan’s arguments support a capital gains tax. They do not support green mush organic universal asset tax.

          • http://www.facebook.com/curtisantonynixon Curtis Antony Nixon

            Troll

  • http://www.facebook.com/paul.scott.10441 Paul Scott

    So now after your absurd all encompassing Capital tax Gareth, you seem to be drifting to supporting it with Capital Gains arguments ; .. Capital Gains makes sense. The more comprehensive the asset tax, the more capital flight. Only the house owner would be left to shoulder the burden since you can not ship your house to Australa. A capital tax would see massive wealth flight overseas while you are having a cup of tea with the PM. Moneys, stocks and bonds everything NZ decimated . You can call it a wealth tax, but it is an asset tax unless there is a high starting point.
    None of your arguments about housing are new, they have been around since little Adam. But your tax would be the third major tax for New Zealanders unfoirtunate enough not to get out.
    Income tax
    Roiger Douglas GST
    Gareth Morgan socialist capital tax

    • http://www.facebook.com/curtisantonynixon Curtis Antony Nixon

      You are conducting mis-information Paul, and your mate Peter too; nowhere does Gareth talk about Capital Gains, above or in his other writings. Connecting Gareth with Labour, Green or socialism is cavil. For someone to understand his economic ideas require some thought, a willingness to set aside prejudices, and some imagination.

  • Vickie Ferns

    Just out of interest Gareth, do you think NZ will see a correction to house prices like the rest of the world did, other than Australia? The USA have low prices for housing to wages, Britain’s housing stock is still correcting around the country except for London which has gone back to 2007 prices. In Australia the prices are extreme in some cities. In Sydney they had some sort of stop on prices increasing, although I haven’t read up on how they achieved that yet. Another question concerns the predictions on flooding with climate change, if Auckland is predicted to flood in a big way in the future, is it wise to keep building there? Putting a big transport system in to an area that probably would have to be abandoned in 100 years or (possibly less) , seems like an expensive waste. Wouldn’t it be better to have an area in the north away from the coast designed to meet the increasing population and housing needs of a sustainable future–I’m aware I’m probably asking too much. Britain has built several cities or new towns from scratch. I remember studying them at school and even got to live in one for two years many years ago. We could walk to the large town centre within 10 mins, the population is around 100,000 in an area of 17.36km2. Our car was parked up most of the time. They had their own hospital. Wellington City is about 200,000 population in an area of 290.11 km2 but I doubt you can easily walk to the centre from most areas. I know it’s not a good example because Wellington is hilly but it’s interesting to compare the numbers. Just interested in your views Gareth, great sites by the way. I read Richard Branson’s blog and like the positive stuff he tries to achieve as well.

    • http://garethsworld.com/ Gareth Morgan

      The correction doesn’t look to be imminent, let’s say that. Now the taps are open on bank lending we’re back to what we do best – debt financing of property speculation. Yeee haaa, it remains the most sure-fired way to accumulate wealth in New Zealand.

      For that not to be inevitable requires positive action by the Reserve Bank to reverse the preference it instructs banks to give to mortgage lending. But the Bank spokespeople have said they won’t do that unless the stability of the financial system is at stake. In other words there is no interest whatsoever from our Reserve Bank to change the property-led allocation of capital investment for any reason apart from a banking collapse. It may be hard to believe but there is a religious adherence to the edict put out by the Bank of International Settlements in its Basle Guidelines that lending on property is “by definition” less risky than other forms of lending. This, despite the events you cite in Europe and the US that disprove such blind faith, is the quality of regulator we are burdened with. Sit back and enjoy it, buy yourself a couple more houses and ride the train.

      • Vickie Ferns

        Thanks, for answering. I need to read the rest of your essays as I have only just found this blog. I’m quite ill so I’m afraid I’m not sitting on that particular train but still have hope I may earn a living someday. I spend my time reading up on all the serious issues of the world, art and humour and particularly enjoy creative minds.