Tax Working Group
October 5th, 2009 at 10:00 am by David FarrarA summary and papers from the third session of the Tax Working Group are online at Vic Uni. Some extracts from the work:
Capital Gains Tax:
- Treasury estimate a realisation based CGT on residential property excluding owner occupied would bring in $1.5 billion a year. This would allow the top income tax rate and company tax rate t be lowered to 30c.
- CGT would make tax system more progressive as the wealthier benefit more from it (and the wealthier would benefit most from drop to 30c income tax so overall effect on progressivity might be limited)
- IRD say an accrual based CGT not viable but an realisation based CGT may reduce economic efficiency as it will distort decisions on land-use decisions
- Overall IRD say the benefits of a CGT would not outweigh its disadvantages
- Some worry that as a CGT is so progressive, it might encourage wealthy people to leave NZ. Recommended that if there is a CGT, it apply at same levels as income tax for individuals
Land Tax
- Very efficient as land is immobile. More efficient than a property tax.We have much lower land and property taxes than most countries.
- A land tax would lead to a one off decline in value of land, which would increase home ownership rates.
- The taxable land base is $460 billion so a 0.1% annual tax would raise $460 million a year.If you exclude agricultural land, forestry land and owner occupied land then revenue would be only $160 million a year.
- Average farm land value is $1 million and average residential land value $200,000 so a 0.1% land tax would cost average farmer $1,000 a year and average home owner $200 a year.
- Retired persons might be most disadvantaged as they benefit less from reductions in income tax to compensate
- A land tax will bring foreign owners of land into the tax base, and has high degree of integrity as hard to avoid.
Rental Property
- The tax revenue from the $200 billion rental property sector is negative and has trended down since the 39% tax rate came in.
- An option is to remove income tax from rental of land, and also remove deductibility of expenses relating to the investment, replacing both with income tax on a risk free rate of return on the equity of the property.
- Also discussion on whether rental housing and commercial properties really do depreciate, and should such depreciation be able to be claimed off tax. Depreciation on buildings is worth $1.3 billion a year of foregone income.
I am pleased to see the group backing away from a capital gains tax, but more favourable towards a land tax. I think the land tax (so long as income tax is cut to compensate) has considerable merit. I also think there is merit in concluding most buildings do not depreciate (in fact they appreciate massively) and disallowing depreciation in future. Again this is contingent on the overall level of taxation not increasing.
The website above, has papers which go into great details of the pros and cons. One paper looks at a 0.5% property tax if there is elastic supply. It says:
- 33% income tax rate could drop to 30%
- 20% income tax rate to around 18%
- Average house price drop from $384,500 to $378,000
- Average rent from $11,850 to $12,700
- A 1% land tax or a 0.55% property tax would raise $4.6 billion
Hat Tip: Bernard Hickey
October 5th, 2009 at 10:15 am
If people are not keen on a CGT, then a land tax would bring down the government.
Vote:October 5th, 2009 at 10:28 am
The problem is, that it is still a new stick with which to beat the taxpayer – so however much you trust the blue team, what happens when the reds get their hands on the sticks again?
Vote:October 5th, 2009 at 10:33 am
Stamp Duty was abolished in 1999 and now it looks like it will be brought back in.
What have we learned in 10 years?
Vote:October 5th, 2009 at 10:34 am
The IRD appears to have its brains in its arse.
“…..realisation based CGT may reduce economic efficiency as it will distort decisions on land-use decisions.”
The fools don’t appear to understand the absence of a CGT already is distorting decisions on land use. That’s why so many farmers (like idiot Crafar) will tell your “we don’t pay tax, we prefer to pay debt” as, abetted by avaricious banks, they gleefully bid up the price of limited farm land in eager anticipation of tax free capital profits in a two or three years’ time.
[DPF: I think the point they were making is that if the CGT only applies when a gain is realised it will provide very strong incentives to never sell, which is what reduces economic efficiency]
Vote:October 5th, 2009 at 10:34 am
A land tax sounds an awful lot like rates, which seem to be adjusted per the value of the property – what’s the difference?
Vote:October 5th, 2009 at 10:36 am
If people are not keen on a CGT, then a land tax would bring down the government.
Even with the ‘income tax adjustment’? Conceivably just pissing off old people with no income could bring down the government on its own though.
Vote:October 5th, 2009 at 10:44 am
“A land tax would lead to a one off decline in value of land, which would increase home ownership rates.”
Got any proof of that? Can they name one country in the world where this has happened? Just like CGT, there has been no effect on values or affordibilty.
I did like the comment from Treasury about removing the ability to treat housing as a “business investment” and all the associated deductibilty that brings.
Vote:Do that in conjunction with chasing people who are property traders to pay the right amount of tax and free up land for use instead of this stupid Smart Growth system and we might see some sense return.
October 5th, 2009 at 10:46 am
urgh imagine it. a CGT and a drop in the top tax rate to 30%! good for everyone…
then the left come back in, keep the CGT and up the tax rate on us rich pricks to 40% … fun!!!
could see also the left adjusting the CGT to include properties worth more than 500k (rich pricks) or to include the family home.
ill pass thanks.
Vote:October 5th, 2009 at 10:48 am
I can only see the long and sticky fingers of the state trying to extort more money from its citizens.
Vote:Never trust the government on taxation matters.
October 5th, 2009 at 10:49 am
Rates are in fact a land tax but are generally based on the value (or earning power) of improvements. Rates have moved from being a fee for services to a wealth tax. A fair way of taxing land is for the Govt. to tax the unimproved value of the land and for the Local Authority to levy the improvements; since it is the improvements and the related activity that generate a need for services.
Vote:Those who are baying for a tax on the capital gains on house sales should understand that housing is;
(1) a personal savings scheme – if oldies are freehold they are not a burden on the State.
(2) a commercial investment if let – no different from a factory
(3) an investment that most people understand
(4) if investors do not provide the rental housing needed who does?
(5) investment in housing is a stimulus to the economy – ‘what is good for the building industry is good for high street’.
(6) Speculative profit is a very small part of the housing economy – and offset by speculative losses – plenty of those around. The IRD has adequate powers (but not enough resources apparently) to tax traders in residential property,
(7) Where else can someone invest outside of a Bank and know that their nestegg is safe?
October 5th, 2009 at 10:53 am
A CGT will be quite unpopular, but at least it is on realised assets. Land is a fairly illiquid asset. A land tax will therefore rasie the spectre of people paying much more tax – liquid money – than before whilst most will not receive any compensation in terms of increased cash incomes. Politics is a simple game, and Labour will be smacking their lips at the thought the government will “force you off your land” whilst at the same time delivering a double whammy by depressing the price you will get when you are forced to sell up to pay the tax.
In a wider sense, what is the purpose of this tax review? Is it simply to come up with new ways of generating revenue from the perspective of (now thoroughly discredited) hard-right neo-liberal economic theories? Because that is what it seem to be to me. Every suggestion seems to be about lessening the tax burden on the rich whilst maintaining total revenue – i.e. redistributing the tax burden from the rich to the middle class and the poor, in the hope that the bizarre Treasury religion of “trickle down” will finally come true. Nowhere, for example, do I see the idea of an financial transactions tax discussed, yet this could raise hundreds of millions and would hit financial speculators hard (doing a favour for our embattled exporters).
It is the same with the discussion on CGT/land tax. Why is the tax Working group looking at this? Is it informed by the wider desire to dampen down property bubbles or just to ensure that their neo-liberal reforms are revenue neutral? It seems to me the best way to end property speculation would be a FTT, CGT and a ban on foreign ownership of New Zealand land.
Similarly, there is absolutely no recognition by the working group that progressive taxation and things like inheritance tax are important social tools in a healthy democracy for income re-distribution and preventing the creation of an aristocracy.
If this tax working group simply spews out a whole lot of neo-liberal bullshit (which, given the ideological rigidity of Treasury it almost certainly will) designed to make the rich richer, then the whole exercise will be a disaster for the National government.
[DPF: Sigh you obviously have not read even the summary of their work. Wonderful to see your prejudices in full flow. They do in fact have regard for keeping the tax system progressive and much of the stuff they are looking at would hit wealthier people more. For example a land tax would mean foreign owners of land would be added to the tax base. The main purpose of the tax review is to look at the economic efficiency of the tax system.]
Vote:October 5th, 2009 at 11:01 am
“from the perspective of (now thoroughly discredited) hard-right neo-liberal economic theories? ”
Lol. It always amuses me when people generalise to such an extent. Discredited by whom Tom? Yourself? Hardly an authority on such matters.
IRD is supposed to already have the powers to make capital gains taxable if you are in the business of property speculation. Perhaps they just need more resources to enforce this,
Vote:October 5th, 2009 at 11:07 am
nickb: Have you missed the international crisis in finance? In the minds of the general public neo-liberal economics is to blame, and the public is almost out of patience with public institutions that won’t retreat from clinging to neo-liberalism. Hell, most people want the speculators to be actively PUNISHED.
Vote:October 5th, 2009 at 11:21 am
TS, no, in the minds of the left, neo-liberal economics is to blame. In the minds of the public, a combination of Democrat Party meddling and irresponsible banking practice is to blame.
Vote:October 5th, 2009 at 11:38 am
These proposals are predatory to say the least!
What I find astonishing is this view that “the Government needs to maintain its current level of tax collection” and then come up with ways that would be achieved.
Why is nobody suggesting the Government collects far too much money in taxation, wastes it on far too many programmes which are unnecessary and suggest ways to cut spending and taxes?
Because the New Zealand Government has timeframes no longer than ‘newscycle to newscycle’ they never take a long term view, never see that the most productive people have no loyalties, never see that you can simply move Countries by flicking to a different screen on your computer in this globalised World and treat New Zealand as a playground or holiday destination.
Were Mr Key to cut taxes to 15%, making us the most competitive nation in the World, there would be an influx of productive people wanting to live here and do business; would you rather get 15% of 1 trillion dollars or 38% of $150 billion? (and in time 38% of $120 billion, and then 38% of $100 billion…)
http://www.nightcitytrader.blogspot.com
Vote:October 5th, 2009 at 11:40 am
Problem with land taxes is that thay are not based on income or liqudity so they will penalise asset rich but income poor NZers. Don’t think the Maori Party and the iwi would go for this.
A property transaction tax would serve the same purpose and be a lot fairer. A CGT which promotes productive investment would be of great benefit as well.
In general I suspect the above discussion will be irrelevant as I doubt the current govt has the intellectual or political skills to push through unpopular taxes, I hope I am wrong, but judging by Key’s CGT rejection I don’t hold out much hope.
Vote:October 5th, 2009 at 11:45 am
I agree with Elijah. I also agree with Manolo re: the govt establishing new ways to extract money from us.
Who can remember the introduction of GST. Was it, or was it not, sold to the nation on that basis that a consumtion tax would allow lower income tax? Yes it was. And someone on the average wage today is paying higher levels income tax plus GST.
So don’t believe any socialist polititian who claims that a new form of taxation will allow reductions in another.
Vote:October 5th, 2009 at 11:53 am
If a CGT could be brought in, and resulted in our top tax rate being the same as our company rate, this sounds like a really positive outcome from my point of view. Considering capital gains are primarily recognised in terms of property (shares are more often than not on revenue account with the majority being active traders) surely overall it would have a positive impact.
The problem with a land tax is that land can often increase in price quite dramatically, especially when a beach area becomes popular. People who were living there before quite often couldnt afford a land tax on an unrealised gain based on the market value of their land. Where as a capital gains tax can easily be deferred to when it is recognised.
Vote:October 5th, 2009 at 11:56 am
Why is the government even having these discussions? I thought they were elected on the mandate to lower state expenditure, balance the books, and reduce taxes. So far they have done none of that (aside from a tiny tax cut).
Get your act together, Mr English! Imposing a new tax on land or on capital gains is NOT what we want. Even the proposed changes to rental property taxation are dopey – yes, many rental properties don’t make a profit but will do in the future. All this proposal will do is create yet another barrier for people to get into the investment market, making it even harder for people in New Zealand to get ahead. Perhaps the tax department should look at taxing more people as property traders – and one of the tests could be whether there was profit from rents (ie propping up a property implies trading).
FFS get off our case, this National government is no better than Labour. ACT should distance themselves from the nats now, then they will pick up a lot of the votes from the disenfranchised that would have voted National.
Vote:October 5th, 2009 at 12:10 pm
Why bother with a land tax, just raise GST to 20%, it will bring in more dosh.
Either one will piss us with a few wrinkles off.
Oh those who want a 15% income tax rate, still want your kids to get free varsity and interest free loans ?
Vote:October 5th, 2009 at 12:14 pm
Hori – no and no.
Nor should anyone else get such handouts; or other unnecessary things as welfare, pensions, working for families and other things which simply encourage indolence.
http://www.nightcitytrader.blogspot.com
Vote:October 5th, 2009 at 12:36 pm
“Oh those who want a 15% income tax rate, still want your kids to get free varsity and interest free loans ?”
A very loud NO is my answer your question.
Vote:October 5th, 2009 at 12:47 pm
If we had a 15% income tax rate, we could still afford cheap varsity. The government will have sit up and actually have to prioritise their spending, and stop wasting it on departments of women’s affairs, or families commissions.
Vote:October 5th, 2009 at 12:54 pm
I wouldn’t trust the bastards as far as I could spit at them, which isn’t bloody far in this wind. Why the fuck do the clowns need a new tax, can’t they dick us over enough with the tools they have at hand. Every new tax and every new increase is bleeding our ability to make this country work. Grumpy I have a better idea. Why don’t we sack 20% of the parasitic worms that infest the public service, if that’s not enough why not drop welfare payments by 20% or drop student loan schemes. I should have upset enough by now. I agree with you, I don’t think for one minute these scum suckers (politicians) will be happy once they have introduced a new tax. Would they be happy with this alone, yeah of course and pigs might fly.
5
Vote:October 5th, 2009 at 1:27 pm
For those lamenting the prospect of additional taxation levers, and wishing the government would get it’s costs (ie our spending) under control, here a list of commision[ers], councils, departments that you and I pay for… and which I’d like to put in font of a taxpayer jury. Some should be gone completely. Others should have some of their functions traneferred before they’re stopped. Others require serious makovers. I’m not holding my breath.
1. Broadcasting Commission
2. Charities Commission
3. Children’s Commissioner
4. Earthquake Commission
5. Electricity Commission
6. Families Commission
7. New Zealand Fire Service Commission
8. Health Sponsorship Council
9. Human Rights Commission
10. KiwiRail Holdings Limited (yes, a fire sale required)
11. Local Government Commission
12. Te Taura Whiri i Te Reo Māori (Māori Language Commission)
13. Maori Television
14. Mental Health Commission
15. Ministry for Culture and Heritage
16. Ministry of Social Development (Keep, but rename ‘Ministry of Essential Welfare’ and re-task accordingly)
17. Ministry of Māori Development
18. Ministry of Women’s Affairs
19. Ministry of Youth Development
20. Ministry of Pacific Island Affairs
21. National Advisory Council on the Employment of Women
22. New Zealand Game Bird Habitat Trust Board
23. New Zealand Fish and Game Council
24. New Zealand Quality College
25. Drug Free Sport New Zealand
26. New Zealand Teachers Council
27. New Zealand Walking Access Commission
28. Ngai Tahu Ancillary Claims Trust
29. New Zealand Artificial Limb Board
30. New Zealand Film Commission
31. Office of Ethnic Affairs
32. Plant Variety Rights Office
33. Public Sector Training Organisation
34. Real Estate Agents Authority
35. Registrar of Unions
36. Removal Review Authority
37. Retirement Commissioner
38. Social Workers Registration Board
39. Sport and Recreation New Zealand
40. Standards Council
41. Standards New Zealand
42. Tertiary Education Commission
43. Te Puni Kokiri
44. Radio New Zealand Limited
45. The Bioethics Council
46. Transport Accident Investigation Commission
47. Valuers Registration Board
48. Walking Access
49. War Pension Services
I anticipate howls of outrage from vested interests. Tough. We simply must have a cleanout because the junkroom is overflowing as we’ve been hoarding government ‘services’ for far too long. Business can and do this (read Maverick by Ricardo Semler) and so can governments. Come on John. Chop, chop.
Vote:October 5th, 2009 at 1:31 pm
Get Staffed – this is what I consider ‘Crimes Against Humanity’.
Forget about Nuremberg! ..this rape of taxpayers to pay for nonsense has destroyed the wealth of businessmen and capitalists for years.
http://www.nightcitytrader.blogspot.com
Vote:October 5th, 2009 at 1:35 pm
I agree Getstaffed. Tidy the house before we decide if we need a bigger one.
As Captain Crab said, that statement is floating around without any support. Like a surfboard in a tsunami.
Vote:October 5th, 2009 at 1:54 pm
Any major changes to taxation must be accompanied by citizens binding referenda so that the taxpayer can countermand and recall any legislation or MP that it choses – real democracy – this will concentrate the minds of legislators to consult effectively with the electorate before embarking on unpopular measures which I guarentee will produce better and less legislation. Otherwise agree with get Staffed on the removal of the 49 Quangos – would this be enough to reduce tax rates by ??? % – ?
Vote:October 5th, 2009 at 2:31 pm
“Come on John. Chop, chop.”
Hell will freeze over first.
John Key’s government didn’t have the intestinal fortitude to get rid of the bribe / rort called Working For Families, and you think they would do something more radical? Think again.
Today’s National Party leaders, who are timid and appeasers by nature, will continue most of the destructive social and economic policies instituted by the previous socialist government.
Vote:October 5th, 2009 at 2:32 pm
Total insanity.
Vote:Surely, no government would set out to destroy land based industries when they are the only source of real income this country has.
There is already a particularly vicious land tax applied by local government called rates. These rates change at the whim of local Government as would any new tax. Add in the new emission taxes and the near total demise of productive land use would happen.
Land based industries, particularly agriculture, have been abused for too long by successive Governments and if any of this nonsense was implemented, the Government would pick a huge fight, something long overdue.
Whatever happened to getting Government off our backs and out of our pocket.
Cut taxes and spending now.
October 5th, 2009 at 2:41 pm
If the National party introduces any of these unnecessary and evil taxes will those posting on here against them vote National in 2011? …(thereby showing the National party they can do whatever they like and their supporters will ‘swallow it whole’ without so much as a whimper; in which case between 2011 and 2014 they will simply do it again..and so on..)… or will somebody take a principled stand against the erosion of their wealth?
http://www.nightcitytrader.blogspot.com
Vote:October 5th, 2009 at 2:54 pm
Slightly O/T … but threads like this one must be quite perplexing for the lefties.
They blindly support anything done by the left, and oppose outright anything done by the ‘right’ (incl National.. go figure!).
By contrast, many of us are quite willing to lambast National for their (mounting) failure to implementing economic policy to arrest our now measurable slide into sleepy international irrelevance.
Vote:October 5th, 2009 at 3:50 pm
I also support getstaffed it makes far more sense to get rid of the useless agencies, though he doesn’t seem to include the ridiculous Change the name of towns and cities Board…. Anyway why would the Government tax land when they already continue the Socialists selective subsidisation of some rates scheme.
Vote:October 5th, 2009 at 4:40 pm
I despair. The trouble with the Right in NZ is that you are either poor or invest in exlusively property. In the real world you have hedge fund managers or speculators who trade in stocks, currencies or bonds. For that lot in NZ, there is already a capital gains tax – at the marginal rate. So no CGT means merely preserving the bias towards property.
We either have a CGT or no investment tax. The latter would stop the wealthy leaving as they enter their 50′s and 60′s. Which is exactly what happens. John Key has talked about this in opposition, but is not prepared to do anything about it.
But stop talking about that we do not have a CGT. For real world investors we already have an onerous one.
Vote:October 5th, 2009 at 5:47 pm
Victor –
Vote:Look at how much managed funds fell last year, and compare that to NZ property. Which was the better investment? Ditto for Australia. That is why people tend to steer clear of fund managers – that, plus the fact that you can get better value for money by leaving it in the bank.
If the government want people to commit to savings (or buying stocks, or whatever), then they have to encourage people to do so. Simple way is to eliminate income (and corporate/trust) tax and rely on GST only (ie a consumption tax). That would also go a long way to balancing the trade deficit.
October 5th, 2009 at 5:58 pm
GS, I suspect you might find the Valuers’ Registration Board may well be funded by registered valuers themselves.
Vote:October 5th, 2009 at 6:45 pm
The simplist way to increase the tax on land without annoying the electorate too much would be to simply require local government to pay for more stuff, for example policing, healthcare, education etc. Rates would go up and general taxation could be reduced.
Vote:October 5th, 2009 at 7:03 pm
Adolf – Yes, there could be one or two of those in there. My list was extracted and compiled from here, so I assumed that the public purse is raided to support some of the function.
Vote:October 5th, 2009 at 8:54 pm
HA HA HA!
Paraphrasing Farrar – “income tax should be cut to compensate for a land tax”
Stop it! I’m laughing so hard am likely to do an injury!
Taxation to go down! Ha ha ha!
Naturally Maori Land, Government Land and Local Body Land will be exempt – what a fucking rort.
National Strategists – See historical footnote on “Poll Tax in the UK” discuss in conjunction with “Getting your sorry arses turfed out of government”
Remove the income tax offset from rental property.
Vote:October 5th, 2009 at 8:55 pm
Interestingly the task force dismisses death duty (now euphemised to estate duty)– the document link is below. The task force says that people would move to Australia to avoid paying it. What happens then if Australia introduces it and we don’t? A boom for NZ undertakers?
The task force considers 40% duty on estates above $1m to target the wealthiest 1% to 2% of the population would raise just $200m a year. What if it were a lower rate but cutting in at, say half a million?
A death duty is the ultimate capital gains tax, cheap for the state to collect and difficult to contest after death.
When the potential of a death duty’s come up in Kiwiblog threads before, arguments against it have included trusts to avoid payment etc. Trusts are already a problem with the welfare state, and sooner or later will have to be sorted out as an unfair discrimination against those unable to afford them.
As with all capital gains and indirect taxes, the problem is governments just don’t lower other tax to compensate any such new taxes. They add the new tax to the burden on the respective country’s two-legged working donkeys.
Death duty is a old type of capital gains tax, and kicking in on estates around $500,000 would be interesting, if income tax was lowered to compensate of course.
It would certainly revive the life insurance industry, which is a form of savings, generating capital for investment.
The link document (specifically page 3 and 5 for death duty – estate duty) :
http://www.victoria.ac.nz/sacl/cagtr/twg/Publications/3-other-base-broadening-ird_treasury.pdf
Vote:October 5th, 2009 at 9:00 pm
Death duty can actually bankrupt the beneficiaries of a will of the underlying assets are illiquid.
What will happen:
Removal of income tax offets on investment property
Vote:Stamp duty introduced
No income tax reduction
October 5th, 2009 at 9:13 pm
Expat – I remember this: The Poll Tax Riots. I left London just before this event.. but the political temperature was definitely rising!
Vote:October 5th, 2009 at 9:31 pm
I don’t like negativr gearing the more I think about it.
Vote:Understandable when many people using it are paying 38% tax. But I would rather have a flat low rate of income tax, and not allow rental loss deductions for tax purposes any more- I don’t like the way the State is effectively subsidising investment.
October 5th, 2009 at 9:39 pm
nickb – negative gearing is simply swapping income (on which you would have paid tax) for probable capital gain (on which you won’t pay tax). I don’t like this mechanism either. It encourages a domestic “join ‘em or subsidise ‘em” attitude, which in turn isn’t good for other forex-earning businesses that need capital to fund growth.
Vote:October 5th, 2009 at 10:23 pm
DPF said: ” I also think there is merit in concluding most buildings do not depreciate (in fact they appreciate massively)”
Not true. Land appreciates massively, but is not depreciated. Building depreciate, wear out and require maintenance and eventually replacement.
Vote:October 5th, 2009 at 11:06 pm
“A land tax would lead to a one off decline in value of land, which would increase home ownership rates.”
This decline may not be as much as espected. When greenfields developers develop residential subdivisions they have to meet the total cost of roads, footpaths, street lights, sewers, stormwater drainage, water reticulation, etc. I do not know the current state of play, but they may have to meet some of the cost of power, gas, phone and broadband. In addition councils can ask for further payments to cover off-subdivision works that are ‘used’ by the subdivision.
Now it is likely that the price of a section is 15% to 30% ‘land’ value and the rest earthworks and infrastructure. Land tax will not affect the price of the infrastructure, so it will only impact on the small ‘land’ value component. If this becomes too small, a developer will not develop. So a land tax is unlikely to lead to any significant decrease of the cost of ‘new’ building lots. Unless there is a declining population, the cost of building a brand new house on a brand new section drives all other residential real estate values. Therefore IMO a land tax would be just another deadweight cost that tenants have to bear.
There is a thing missing in the whole debate. There is a subtle disparity in tax treatment between people who rent and those who own their own houses. This disparity would be evened up if house owners had to declare the rental value of their houses (less maintenance, mortgage interest etc) as income for tax purposes. In the past in England when relatively few homes were owner occupied, these owner-occupiers had to do just that but the practice was abandoned as home ownership became more widespread. Conversely there could be some justification for a tax break for tenants, or this tax to be refunded through an ‘accommodation supplement’.
Vote:October 5th, 2009 at 11:38 pm
Peterwn at 11.06 makes an interesting comment:”…Unless there is a declining population, the cost of building a brand new house on a brand new section drives all other residential real estate values….
A well-known poster on Kiwiblog would dispute that with you. From time to time he argues here that harsh planning restrictions force up land prices for housing.
Inflation obviously counts, and building remains an industry with high labour costs and labour cost increases over time should outpace inflation if living standards are rising. Also with rising living standards, people want more expensive houses, or is the expense largely in non-fixtures such as pools, furniture, flooring, etc?
Is it also possible that we NZ’ers more than most Westerners use houses as a mark of rank in society? We are egalitarian, and less class stratified than many Western countries. The need for conspicuous consumption seems inherent in humans. Without higher ranking social classes for the ambitious to aspire to, do we may have fewer acceptable ways (apart from housing) of flagging our status than available to many Westerners?
However, if, as Peter suggests, buildings costs are the sole driver, how do we get increasing bang for the buyers’ buck? As an amateur looking in from the outside, the building industry in some ways seems to have been bypassed by the Industrial Revolution. Attempts to get houses factory built and assembled seem to repeatedly fail or be tiny sideline successes. For material progress, the building industry ought to be able to provide something equivalent to agriculture making two blades of grass grow where one grew before. Why doesn’t housing cost fall despite rising labour costs, just as happens in other industries?
Vote:October 6th, 2009 at 1:56 am
I wonder if it is wise to create new mechanisms for the collection of taxation, when we’re already so bloody terrible at collecting the taxes already due? One easy way to up the take would be to start enforcing Companies legislation wrt property developers. The basic game plan for developers is to use a corporate entity to put up their ghettos using money borrowed from the bank, sell the cubes to poor people, repay the bank and close down the corporate entity, then use a different corporate entity (and the profits from the previous ghetto) to construct the next ghetto. The first corporate entity is then placed into voluntary liquidation and a tame accountant appointed. As the corporate entity no longer exists, the IRD is diddled out of both the GST related to the ghetto, and income tax on the profits from the sale. I know of several developers who have used this particular rort for many years, to fund many ghettos. The IRD can’t or won’t chase the scumbag developer personally because the entities are corporate and they’re protected by the corporate veil. For some reason, the registrar of companies allows scumbag developers to keep creating new corporate entities with which to rape the taxpayer. We whinge about the philus of the world living off welfare for decades, but really that’s small (albeit annoying) potatoes when compared to fraud on this scale.
Vote:October 6th, 2009 at 8:21 am
“Oh those who want a 15% income tax rate, still want your kids to get free varsity ”
What you need to understand is none of this is “free”. Lecturers need to be paid, so does the power company. The only debate we are having is WHO should pay. You for my kids or me? I really get sick of all this “free child care”, “free education”, “free doctor’s visits, “free health” crap. None of it is free. What people are actually saying is let’s make sure there are no price signals so there is over-consumption and/or non-price rationing.
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