Economic Fitness

April 29th, 2009 at 2:30 pm by David Farrar

The NZ Institute has published an analysis of NZ’s lack of economic fitness, and that it is not all about the “recessionary flu”. The Institute notes:

Achieving a step change in New Zealand’s economic growth rate is essential to improve the fiscal position. Unless New Zealand radically improves its growth prospects, basic amenities such as quality free education, health services, environmental protection measures and security in retirement may be at risk.

Yep, we need more pro-growth policies. The recession is a good reminder of how important economic growth is.

Both tax and spending measures should also be on the table to control the deficit, to make room for growth-boosting policies, and to maintain and strengthen support for at-risk individuals through the recession to avoid creating a future social deficit.

A $10 billion a year deficit must be curtailed. The interest on public debt would indeed threaten education and health funding.

The next two proposed tranches of income tax cuts should be cancelled on the grounds that they would contribute to the structural deficit and likely do very little for growth.

Long term, tax cuts are part of higher growth, but I agree these one are unsustainable.

Other spending areas that have contributed to the increase in government spending between 2003 and 2008 of 1.6% of GDP should be carefully reviewed with the aim of achieving their objectives more effectively at lower cost going forward. These include: the Working for Families tax credit system, and health expenditure.

WFF is very inefficient. There is huge wastage or churn as you take money from taxpayers to give it back to the same taxpayers. Welfare should be targeted to those most at need.

The tax mix should also be on the table as part of a long-term rebalancing exercise. Creating new sources of revenue (such as from taxes on property) will create room to finance the cost arising from future demographic pressures. Another objective is to more lightly tax productive investment and savings (for example through gradual reductions in company tax and taxes on savings overtime), while making residential property investment less attractive. This will help to address the structural imbalances in the New Zealand .

This is a big call, but one that does have to be looked at.

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38 Responses to “Economic Fitness”

  1. garethw (205 comments) says:

    – WFF: “There is huge wastage or churn as you take money from taxpayers to give it back to the same taxpayers.”
    Given this Government introduced the Independent Earner Credit, I can’t see them being particularly worried about this unfortunately.

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  2. expat (4,050 comments) says:

    “The next two proposed tranches of income tax cuts should be cancelled on the grounds that they would contribute to the structural deficit and likely do very little for growth.

    Long term, tax cuts are part of higher growth, but I agree these one are unsustainable.”

    >> decoded – NZ can’t afford it thanks to a $10 b structural deficit and a global recession.

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  3. Alan Wilkinson (1,878 comments) says:

    Only an idiot or a polli/bureaucrat would suggest giving the government “new sources of tax revenue”.

    You might as well give homicidal maniacs an AK45. But the NZI has been notable for idiotic proposals. I had hoped its change of leadership would improve it.

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  4. Banana Llama (1,043 comments) says:

    At least we are running a Trade Surplus thanks to the recession O.o

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  5. Alan Wilkinson (1,878 comments) says:

    Oops – 45 should read 47.

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  6. JeffW (326 comments) says:

    Rubbish, it is not the tax cuts which are unsustainable, it is the poor quality government spending and interference in our lives which needs to be curtailed. Government needs to get out of the way to allow the economy to grow.

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  7. KiwiGreg (3,255 comments) says:

    “At least we are running a Trade Surplus thanks to the recession O.o”

    Only on physical goods, I think. We still spend $1.08 for every $1 we earn from the rest of the world. That’s the real issue.

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  8. GJ (329 comments) says:

    Give the tax cuts and get rid of the non productive bureaucrats, which there are thousands of, and we would be well on the way to recovery!
    I am very tired of paid public servants that are not capable of making even simple decisions because they want to cover their backs!
    Most that want to progress forward in this wonderful Nation of NZ are continually hamstrung by these people.

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  9. gd (2,286 comments) says:

    Good grief From the same people who memoan the lack of saving by the babyboomers to fund their retirements the call for a cancellation of tax cuts HTF are the babyboomers supposed to save when they are taxed to the hilt and then watch the income on what they do manage to save slashed to bits to give a subsidy to those who spend without having saved first and watch the value of the shares they were told they should buy instead of property go thru the floor

    What planet are these people on It aint earth.

    fact is those who follow the advice of the “experts” like Bollard Cullen the NZI economists et al are doomed to a retirement of bread and water.

    get a grip idiots. Put the money back into the pockets of those who earn it

    Stop low quality high cost spending

    Stop WFF and other dumbarse schemes.

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  10. Offshore_Kiwi (499 comments) says:

    Sadly, we have been left with an enduring $10 billion per-annum deficit, thanks to the rape, pillage and deceive economic management policies of the last government. There is not much we can do about where we’re at (thanks very much to the pinkos on the left), but there are some smart things we can do, but are not yet doing. Aardvark had some good ideas a couple of months ago about creating a genuinely “new economy” (given that our traditional agricultural industries are basically fucked, or a clear and present danger to the future of the earth). Sadly (as Aardvark pointed out) the R&D tax credits have been canned and therefore we have bugger all chance of either luring any real new-economy money to NZ, or encouraging new start-ups that will take on the world.

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  11. Alan Wilkinson (1,878 comments) says:

    “our traditional agricultural industries are … a clear and present danger to the future of the earth”

    Hardly, greenhouse gases are only dangerous if you freeze them and then put them into a sealed container like these clowns:

    http://www.stuff.co.nz/world/swine-flu/2370703/Container-with-swine-virus-explodes-on-Swiss-train

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  12. ben (2,380 comments) says:

    I haven’t looked at the report but I hope private property rights are front and center of their attention. That is a glaring problem with New Zealand and property rights really affect incentives to invest.

    New Zealand is hostile to economic growth on a number of fronts. The government consumes a large proportion of the economy, there is a generous welfare system, government controls a very large proportion of all research funding possibly 90% or more, land use is very severely restricted and quite arbitrarily controlled. All of that is hostile to economic growth.

    My intuition is that the NZ Institute’s focus on WFF and relatively modest recent expansions in health is tinkering at the margins.

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  13. virtualmark (1,523 comments) says:

    Our over-emphasis on investing in residential property is the real elephant in the room, and I think the NZ Institute is quite right to suggest we “more lightly tax productive investment and savings (for example through gradual reductions in company tax and taxes on savings overtime), while making residential property investment less attractive”.

    In the last 10 years low interest rates (by our historical norms) have led to a frenzy of demand from both home-owners and investors for residential property. That’s sucked investment out of the productive sectors of the economy, pushed up housing prices and lured far too many people to over-leverage themselves in overvalued houses. We’ve created this false prosperity by borrowing lots of money off overseas investors (Japanese housewives) to over-pay for unproductive assets.

    So now we (as a nation) are stuck with more overseas debt than we should sensibly have, and lots of our true earned wealth ends up going overseas to feed that debt. The sooner we address the distortionary tax treatment of residential property the better.

    A capital gains tax could be introduced alongside reductions in income, corporate & indirect (GST) taxes. A flat income tax, reduced corporate tax, but capital gains tax, would do a lot to setup healthy incentives to grow our economy.

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  14. thedavincimode (6,759 comments) says:

    Offshore Kiwi

    Heads up.

    NZ grows grass efficiently. Others can’t.

    The end.

    PS: unless you are advocating the global lentil diet intiative.

    PPS: hmmm … is that what Klerk is up to???

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  15. expat (4,050 comments) says:

    only problem is Naru is nearly empty & there is competition for superphosphates. NZ’s soil structure isnt that productive for pasture production without additives.

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  16. Alan Wilkinson (1,878 comments) says:

    virtualmark, you’ve swallowed a lot of nonsense from “received wisdom” commentators that haven’t looked at the facts.

    I took the latest World Bank 2007 year GDP figures from here: http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP.pdf and the Joint BIS-IMF-OECD-WB External Debt Hub data from here: http://www.jedh.org/2006Q4_2008Q3.xls

    Selecting item “30_Liabilities to BIS banks, consolidated, total” from the latter, dividing by the GDP from the former and sorting gives this list in descending order:

    Country BankDebt GDP Debt/GDP (Millions of US$)
    Marshall Islands 28,110 163 17245.4%
    Liberia 28,551 725 3938.1%
    Luxembourg 631,596 47,942 1317.4%
    Isle of Man 24,702 2,916 847.1%
    Samoa 1,677 482 347.9%
    Ireland 861,750 254,970 338.0%
    Panama 62,841 19,740 318.3%
    Iceland 60,831 19,510 311.8%
    Cyprus 55,034 21,277 258.7%
    Bahrain 38,429 16,041 239.6%
    Malta 14,551 6,375 228.3%
    Belize 2,642 1,274 207.4%
    Seychelles 1,509 728 207.3%
    Mauritius 12,056 6,363 189.5%
    Switzerland 692,770 415,516 166.7%
    Barbados 5,377 3,430 156.8%
    Netherlands 1,124,451 754,203 149.1%
    Estonia 30,945 21,279 145.4%
    Latvia 37,256 27,154 137.2%
    Singapore 198,534 161,347 123.0%
    Belgium 511,379 448,560 114.0%
    United Kingdom 3,055,206 2,727,806 112.0%
    Guyana 1,028 1,044 98.5%
    Croatia 48,795 51,277 95.2%
    Montenegro 3,216 3,557 90.4%
    Lithuania 33,343 38,328 87.0%
    Denmark 259,866 308,093 84.3%
    Portugal 183,736 220,241 83.4%
    Hong Kong SAR, China 171,411 206,706 82.9%
    Bulgaria 31,294 39,549 79.1%
    Hungary 104,928 138,182 75.9%
    Qatar 31,807 42,463 74.9%
    Austria 273,584 377,028 72.6%
    United Arab Emirates 93,237 129,702 71.9%
    Macau SAR, China 9,949 14,204 70.0%
    France 1,728,568 2,562,288 67.5%
    Spain 915,925 1,429,226 64.1%
    Norway 232,216 381,951 60.8%
    Sweden 262,493 444,443 59.1%
    Slovenia 26,383 45,451 58.0%
    Cape Verde 821 1,434 57.3%
    Maldives 598 1,049 57.0%
    Greece 202,640 360,031 56.3%
    Italy 1,061,722 2,107,481 50.4%
    Germany 1,649,512 3,297,233 50.0%
    Romania 82,948 165,980 50.0%
    Jamaica 4,885 10,739 45.5%
    Finland 107,547 246,020 43.7%
    Bosnia and Herzegovina 6,240 15,144 41.2%
    New Zealand 50,785 129,372 39.3%
    Serbia 16,083 41,581 38.7%
    Dominica 121 328 36.9%
    Australia 292,566 821,716 35.6%

    All the terrible bank borrowing by NZ households is a mirage. There is no evidence NZers invest unwisely compared with the rest of the world.

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  17. sonic (2,818 comments) says:

    Poor Nats, ah well back to the drawing board.

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  18. dad4justice (8,222 comments) says:

    Oh well sonic I guess the “drawing board” is better than the Liarbour witches and eunuchs around the Weegee board.

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  19. radvad (765 comments) says:

    Nats=drawing board
    Labour=ouiji board

    Hahaha. Your best post forever D4J

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  20. OECD rank 22 kiwi (2,752 comments) says:

    The next two proposed tranches of income tax cuts are sustainable. It’s just a case of priorities for National. Which Election promises are they keener to break? It appears on the surface that they would rather carry on with Labour’s previous spending proposals rather than complete National’s own tax cut program.

    Just as well I’m not paying for Labour’s previous mistakes and National’s yet to come mistakes.

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  21. reid (16,452 comments) says:

    WFF is very inefficient. There is huge wastage or churn as you take money from taxpayers to give it back to the same taxpayers. Welfare should be targeted to those most at need.

    Yeh but it’s very popular because everyone gets it and no-one is anti-family so there’s no jealousy from the idiots either. It’s perfect.

    Look this is going to be a long hard winter and the economy’s getting worse next year as well, you wait. And I think people know it. If you want to float the idea of getting rid of that small comfort blanket at this particular moment in time then I predict a needless negative direction in the polls which Liarbore will try to milk for all it’s worth and they’ll keep reminding people all the freakin time.

    Do you really want to subject us to that?

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  22. bchapman (649 comments) says:

    The mere act of the government going back into surplus is not in itself going to produce a better economy. Productivity is driven by innovation and technological advancement something which requires vision (rather than slavish adherence to dogma). We need to keep our thinkers, educators, doctors, inventors, engineers, designers etc whether employed publicly or not. Following Fiji and sacking a few public servants is going to solve our current account deficit problems

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  23. reid (16,452 comments) says:

    “sacking a few public servants is going to solve our current account deficit problems”

    The govt doesn’t particularly want to be seen adding significantly to the unemployment figures and apart from the political hit it’s also unwise at this moment to do that.

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  24. bruceh (102 comments) says:

    for a decent perspective, Preb’s article on the risk to Triple A Credit Rating is a good read

    http://www.rogerdouglas.org.nz/?p=188

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  25. virtualmark (1,523 comments) says:

    Alan Wilkinson … not sure I believe those figures at all. New Zealand may well owe $50.8b to **BIS banks**. But we also owe a lot to Japanese housewives, Belgian dentists etc etc.

    Last figures I saw from the RBNZ is that New Zealand’s total overseas debt is about NZ$250b. (http://www.rbnz.govt.nz/statistics/extfin/e3/data.html).

    You’ll also see from that RBNZ data that the Government has relatively low levels of gross debt, and in fact has about zero net debt (albeit Bill English is going to have to make those figures look a lot more untidy over the next few years). The NZ$229b of corporate debt is heavily biased towards the banking sector, and mainly used to fund their mortgage books.

    And even if there are other Western countries with similar total-debt-to-GDP ratios then there’s still the question of what that debt is funding. In New Zealand it’s predominantly gone into unproductive assets (residential houses). I suspect that zee Germans, for example, have put their private sector debt to better uses.

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  26. Chthoniid (2,047 comments) says:
    WFF is very inefficient. There is huge wastage or churn as you take money from taxpayers to give it back to the same taxpayers. Welfare should be targeted to those most at need.

    Yeh but it’s very popular because everyone gets it and no-one is anti-family so there’s no jealousy from the idiots either. It’s perfect.

    Renaming (rebranding) WFF as Middle-Class Welfare or something similarly perjorative would be a good start.

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  27. stephen (4,063 comments) says:

    Would getting rid of WFF and instead distributing (or whatever) that money back in tax cuts for all at the lower ends be politically acceptable?

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  28. Alan Wilkinson (1,878 comments) says:

    virtualmark, funny you don’t believe my figures though I’ve given you all the WB/IMF/OECD sources yet you believe various commentators who make generalising statements with no data whatever to back them up?

    If you prefer, try this list of the most indebted 15 nations of the 50 biggest economies from the business channel of NBC:

    http://www.cnbc.com/id/30308959

    Scroll through the slides to see them all. NZ doesn’t figure in the horror stories, but most of the countries you would rate as successful do.

    Re housing: last month’s REINZ national median price was 4.8% down on the maximum reached in Nov 2007. Turnover was high. Compare that with the performance of any other assets anywhere in the world over that period. No evidence whatever that Kiwis have invested their money unwisely.

    Moral: most commentators in NZ don’t have a clue (or have a huge vested interest). Ignore them and do your own research.

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  29. virtualmark (1,523 comments) says:

    Alan. As I pointed out this morning, the data in your post from 8:00pm last night is the debt owed to BIS banks – in other words, the debt New Zealand owes to other countries’ central banks. The World Bank and BIS deal with central banks, so naturally enough that is the data they have to draw from. But that’s just a part of our total overseas debt. Most of our trading banks wholesale funding is sourced from private individuals, via instruments like Eurokiwis and Uridashis, rather than from central banks. That lending is not and will not be recorded in your item “30_Liabilities to BIS banks, consolidated, total”.

    The RBNZ figures I pointed you to show the whole of our overseas debt. As at the end of December total overseas debt taken out by corporates stood at NZ$230bn. Since then our currency has dropped a bit, so that number has probably risen. I don’t have the exact figures in front of me right now, but off the top of my head I’d say about 75% of that $230bn is held by trading banks. Nearly all of that has gone into funding their mortgage books.

    Let’s say we as a country owe NZ$150bn to overseas funders of our mortgages, and that funding is costing 6% pa. That’s NZ$9bn of our wealth going out each year just to service that debt. Housing is not a productive asset. It’s not earning NZ$9bn of income. So that’s money going out that has to be found from other productive ventures, and that we then cannot direct to growing our economy, growing jobs etc.

    Kiwis haven’t necessarily been unwise in investing in housing. They’ve naturally directed their investment towards the area most favoured by tax law. Poorly designed tax law that is distorting our economy and directing investment away from productive areas. Each investor is behaving rationally enough, but it’s based on an unhealthy foundation.

    If all investments were taxed equally/consistently then house prices would drop significantly as the current tax benefit unwound. That would be unpopular, but it would be for the long-term economic good of the country.

    As to whether commentators have a clue or not … I work in finance (not for a trading bank, and not related to property lending). My experience has been that economists are consistent about our property prices being over-valued, and about the distortion its causing to our economy, and to our vulnerability due to the resulting unhealthy levels of foreign debt. My experience is that the people who don’t have a clue, and have a huge vested interest, are (i) the real estate industry and (ii) those people who are over-exposed to investment properties.

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  30. Alan Wilkinson (1,878 comments) says:

    virtualmark, as a proportion of GDP your estimated expenditure on housing is around 6%. How is that excessive? Housing is one of the most valuable products contributing to making our lives better. Good housing contributes immensely to health, wealth, security, family and happiness. It ranks second only to good food in importance to our lives.

    Furthermore, many property mortgages are actually funding business capital needs – either farms or small businesses for which banks recognise (completely contrary to your assertions) that property is a far safer security than what you glibly describe as “productive areas”.

    People who put money where their mouths are generally do have a clue. Those who don’t, usually don’t. That includes the many bank economists who publicly deplored property investments while their own banks pursued those same investments ferociously.

    Actually with minor exceptions all investments are taxed equally. The tax rules on capital gains apply equally to property and business assets. So do loss attributions if ownership is structured properly. The house price boom has been no different in developed countries which have formal capital gains taxes and those which didn’t. The tax changes you and others advocate would make no significant difference to national property prices.

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  31. Alan Wilkinson (1,878 comments) says:

    One more point is that a housing investment is easy for most people to understand and manage both risks and costs. That makes it a good investment for them.

    Witness the sad alternatives of the many who have invested in finance and other companies they didn’t properly understand with truly tragic and disastrous consequences.

    Those advocated for those investments directly or indirectly have a great deal to answer for. I don’t see too many professionals from the finance industry coming forward to accept their share of the blame.

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  32. virtualmark (1,523 comments) says:

    Alan, the 6% is just servicing the debt. It’s not repaying the principal. And that’s every year, not just a one off. Personally I think that’s a lot of money for NZ Inc to completely lose. I don’t disagree that good housing contributes to social goods. But I think our good housing is overvalued. It’s a good thing, just too expensive.

    The reason banks like property as a security is that it’s an easy asset for them to take control of, and relatively easy for them to trade. Banks are ruthlessly pragmatic about that sort of stuff.

    As for the bank economists, I think what you mean to say is that the bank economists tend to speak quite independently of their employer’s interests and incentives. Personally I think that’s a good thing.

    But no, I disagree that all investments are taxed equally. Yes there are provisions for capital gains tax on property, but they’re very seldom enforced and property investors quite sensibly don’t expect to ever be hit with them. Meanwhile, just as an example, investments in overseas shares are taxed as a regular part of the IRD’s business, even if you don’t make a capital gain.

    Where the tax distortions on property are most marked is that owners of investment properties can claim operating losses on their property against their own personal tax. 39% tax payers have a strong incentive to get into investment properties, which artificially inflates the supposed value of those properties. Also, the costs that you can claim arising from a property investment are orders of magnitude higher than the costs incurred with, for example, buying a parcel of shares on the NZX.

    I do agree that property is something that Kiwi’s tend to understand, and in that regard it’s a sensible investment for them. I’m not arguing against it as an investment option, I’m just arguing that the current tax treatment of it is distortionary, which has ended up with NZ having more overseas debt than is healthy, and has meant we’ve had less money to invest in growing our economy.

    And don’t mind, you won’t ever have found me being a supporter of finance companies writing racy loans on second hand cars and property developments. That was always a mugs game. Unfortunately we’ve had a ready supply of mugs.

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  33. Alan Wilkinson (1,878 comments) says:

    “the 6% is just servicing the debt. It’s not repaying the principal”

    That’s irrelevant. If you repay the principal you are then suffering opportunity cost. The 6% is the cost of housing either way.

    No, our good housing isn’t overvalued – at least relative to the rest of the world. That’s why foreigners snap it up and think it’s cheap.

    Nope, I think 90% of bank economists’ statements on property investments are nonsense. They don’t square with anyone who has skin in the game including their employers.

    Investment in overseas shares are only recently taxed on capital gains directly and even then many Australian shares are exempt. Dividend income is taxed, as is rent.

    Yes, house prices rose at the same time as the 39% tax rate was introduced – anyway a truly idiotic move from Cullen. But I think it was mostly coincidence and world-wide driven by demographics. As noted, the same boom happened everywhere irrespective of tax structures. I don’t believe that removing operating loss tax offsets would make any detectable difference to house prices.

    If you want to encourage other “more productive” investments allow similar operating loss offsets for them. If you don’t think that would work, explain why not. If you do, explain why it is not being done. The costs of starting up a company are more than comparable with operating a rental property.

    How come there has been so much public criticism from the finance profession about investing in property and so little about investing in finance companies and flaky managed funds? Surely that is exactly why there was “a ready supply of mugs”?

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  34. virtualmark (1,523 comments) says:

    Alan, the point I’ve been making is that that 6% of GDP is lost money. It goes off overseas, and isn’t available to be invested in growing our economy. It does though have to be paid from our true earnings. So it’s a big deadweight cost for our economy to have to shoulder.

    A big difficulty in any discussion of house prices is deciding which valuation approaches you want to use. In absolute terms our housing is at similar absolute prices to the rest of the world. But, in terms of the relationship between our Kiwi incomes and Kiwi house prices it’s over-valued. And certainly if you look at it in terms of standard valuation approaches like earnings yields and the like it’s also over-valued.

    As for bank economists. I’ve seen a few wonky statements, from one particular trading bank. But the other major trading banks and the investment bank economists and the economic consultancies are all pretty consistent and pretty sensible. We’ll just have to agree to disagree on that one.

    Re the choices of investment options … I’m not against investing in residential property per se. What I’ve consistently argued in this thread is that residential property gets favourable tax treatment (both specifically through tax law, and also implicitly via the way the IRD implements that tax law), and that this distorts where investment flows.

    At a simplistic level yes tax treatment is theoretically equal across most investment classes – all are taxed on their **net** income, and can be hit with capital gains taxes if the IRD decides that you bought the asset in order to make a capital gain.

    Where property gets its tax advantage is that it can easily be structured to have negative net income, and so escapes the tax on income that hits other investments like term deposits, bonds, dividend-paying shares etc (where it’s just not practical to structure a negative net income). But if a property is truly making a genuine loss then rationally you’d have to expect that investors must be buying the property in order to make a capital gain. Yet investors know that IRD is very very unlikely to ever levy a capital gains tax on them.

    If for example residential property was ringfenced so that losses on it could only be used for taxes on the property itself (and not able to be used to offset taxes on your personal income) and there was a moderate (15% or so) capital gains tax applied to all investment classes … I’d wager that less money would be directed to property investments, and property prices would fall.

    As for finance companies … I’d argue that too many punters didn’t look closely enough at those finance companies before investing in their debt products. A lot of 14% debt that got sold to punters at 10%. Just because a finance company is offering a few percent more than a bank term deposit doesn’t mean that makes it a good investment. I’d have happily offered the exact same opinion to you 2-3 years ago.

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  35. virtualmark (1,523 comments) says:

    Sorry Alan, just picking up on your question of why there hasn’t been much public criticism from the finance profession re finance companies and mutual funds.

    Looking at mutual funds first … I suspect the main reason there’s little criticism of them is that mutual funds have just been doing exactly what was written on the label. No one should feel deceived. Personally I think they tend to under-perform and over-charge. But they have a place in the investment market.

    Re finance companies … I think that was mainly seen as a case of caveat emptor. What strikes me as I write this is that I don’t know any finance person I deal with who had money in any of them.

    I suspect the wariness about residential property investment is because of its flow-on effects at a macro-economic level. You’re talking about a massive times more money than went into finance companies and mutual funds. And because of peculiarities about NZ it’s mainly been financed with offshore debt, which has a big impact on the economy as a whole.

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  36. burt (8,269 comments) says:

    reid on WFF said;

    Yeh but it’s very popular because everyone gets it

    Except the people who pay the most tax, they are denied it.

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  37. Alan Wilkinson (1,878 comments) says:

    virtualmark, if you “structure” a property investment to have a negative income then it really does have a negative income and costs you $2 for every $1 you save in tax. Hardly a bargain is it unless you can make a capital gain on it?

    My guess is that only a tiny fraction of investment house buyers have done that and that most have invested as a long term security and asset against their retirement. So you are talking about a small fraction of an already small fraction of house buyers.

    I don’t believe it affects pricing detectably (except perhaps for the city apartment bubble). I also think you are quite wrong about house prices here being equivalent in absolute terms to those overseas in comparable countries. My experience is that at currency conversion rates Europe at least is substantially dearer. Furthermore as already stated there is overwhelming evidence that the recent house price bubble occurred similarly world-wide irrespective of tax structures. Your expectations fly in the face of the available evidence – or at least any I have seen.

    Also I understand a very substantial amount of the bank mortgage lending was rural – especially for dairy conversions.

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