Is it bye bye to LAQCs?

January 2nd, 2010 at 4:09 pm by David Farrar

James Weir writes in the Dom Post:

The Government has a chance to lift the economy in 2010 with big changes on “crazy” tax breaks for investment property, according to NZX chief executive .

“Tax is the No1 change,” Weldon said.

The Government has an unprecedented chance to take action and send signals this year.

“That would make meaningful long-term differences to our wealth, growth and standard of living.”

I agree, that some tax reform is much needed.

Investment property should be the target, such as dumping loss attributing qualifying companies () which allowed some wealthy people – including some on the Government’s own Tax Working Group – to pay no tax at all, Weldon said. Weldon is a member of the Tax Working Group.

“There is no difference between a rental property, a share, bond or bank account, so treat them all the same [for tax],” he said. If they were all treated equally for tax purposes, then money would go where it should, rather than chasing tax breaks.

Weldon makes a good point. Far too much property investment is because of the tax breaks. And this means capital is tied up in residential property insteaad of other areas which could grow the economy more.

But capital gains taxes – taxing a house when it was sold at a profit – showed mixed results around the world.

“You are a lot better off with a low-level . It is administratively efficient.”

Such taxes could be imposed at, say, 0.2 per cent of the land value, raising a few hundred dollars a year, which would not upset house values.

Raising such a property tax would allow for personal income tax rates to be brought down and might allow company tax rates to be reduced if Australia dropped their company tax rates further.

I do not support a but do support a land tax, if income tax is reduced to compensate. A land tax would be administratively very simple -  Councils already levy rates on properties, so it would be merely added to that.

If listed companies were the same size as the value of all rental properties in New Zealand, shareholders in listed companies would theoretically pay about $11b in tax.

In stark contrast, investors in rental properties actually got back $150 million from the government from tax breaks.

This is the nub of the problem. Over $100 billion invested in residential property, and the “investment” generates a loss or effective subsidy from taxpayers.

“You look at that imbalance – you are taxing the productive sector and not the unproductive sector,” he said. Weldon questioned the concept of allowing on rental properties which was supposed to be for things that wore out. There was no on shares or bonds, which are supposed to go up in value.

That is a change worth considering also – no depreciation on residential property. One can claim 3% a year depreciation off tax, which is a lot of money. Now eventually when you sell, the tax claimed has to be repaid – but you have had the benefit of that money interest-free for possibly a couple of decades.

Has any residential property ever actually decreased in value, such that depreciation makes economic sense? Not over any extended period of time. In fact they constantly appreciate.

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71 Responses to “Is it bye bye to LAQCs?”

  1. Gooner (995 comments) says:

    I don’t know how many times I have to say this in order to get people to understand, but LAQCs are NOT the problem. The tax breaks are exactly the same whether the investment property is owned by a LAQC or by individuals. The tax offsets are identical. LAQCs do have a couple of distinct advantages relating to the selling of the shares rather than the selling of the property itself but the tax advantages are identical in a property owned by a LAQC or individuals.

    I truly hope a “tax working group” appreciates this. Although I fear it might just be a softening up for politicians to get on the soapbox and announce the “end of LAQCs” as a sop to the masses who rail against property capitalists.

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  2. jaba (2,089 comments) says:

    with so many people in the LAQC system, to change the rules would be a shocker. I got a rental at the end of 2007 (yes, a mug as it turned out) and I have had a 1/2 and a 1 year “rebate” which was sod all. I made a loss and got some back .. bugger all. At the same time the value of the house (and my prime residence) has taken a huge 10-15% drop in value so selling would be devastating (add lawyer, Accountant & Real Estate and bank fees).
    So, that will put me in the crapper. Doing the LACQ was recommended by my banker, lawyer and accountant mmmm!!!?
    Now, Weldon wants the LAQC’s dropped so where do those with spare money put it .. how about shares in NZ listed companies .. what a great idea AND Mark will be laughing all the way to the (maybe my) bank.
    Anyway, the risk in having a rental are such that the investor should get some benefit. The cost of rentaing will increase big time and even Bernard Hickey has said that.

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  3. artemisia (208 comments) says:

    What gooner said, pretty much. However, LAQCs and individual ownership allow losses to be offset against other income in the current year. If losses were to be ringfenced (so that they are carried forward to be offset against future tax liability) that would move these businesses to the same tax footing as most other business structures. Basically that would remove the need for LAQCs.

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  4. Blue Coast (165 comments) says:

    The problem here is not a LAQC ( yes I have one) but the unfair tax system which encourages tax payers to reduce their tax liability. Of course the same works without a LAQC as mentioned by Gooner but without some of the other benefits .i.e limited liability.

    Investing in rental properties like any other investment has risks and gains. So why pick on a large number of mum and dads who have invested in property for their retirement savings as part of their investment plan.

    If you think these investors are rich then have a look at the average rental property owner.

    Kicking this group won’t get the Nats any votes.

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  5. Graeme Edgeler (3,267 comments) says:

    LAQCs can be used for all sorts of ownership – the provide the same tax advantages to owners of real property as they allow owners of shares.

    If you borrow money to buy a house to rent, the losses on that house (cf. the interest) can be offset against other income.

    If you borrow money to buy shares, the losses on those shares (cf. the interest) can be offset against other income.

    The problem isn’t that real property has tax advantages, it’s that banks will lend money to ordinary investors to purchase investment property, but they won’t lend money to ordinary investors to purchase investments in shares.

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  6. Anthony (768 comments) says:

    Yes, it is more than LAQCs – ring fencing the losses would need to be comprehensive.

    Grumbling landlords need to decide what business they are in – if they are prepared to make operational losses while waiting for the big capital gain pay-off then they really they are in the capital appreciation business too and should be taxed on that. My favourite comparison is forestry – yes the operational losses while the forest is growing are deductible but all the proceeds when the forest is sold or harvested are taxable. Why should landlords be any different?

    Great points made by Mark Weldon. Sometimes what he says shows a lack of understanding of economics but he is spot on with his property comments.

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  7. Bruce Hamilton (60 comments) says:

    The problem I have with any Land Tax is that is a tax. Busybodies take my money and use it for whatever purposes they wish, most of which will not be helping community economic growth. If a land tax is applied to all properties, then older people with low income, living a frugal lifestyle in their own home, will have to find even more money.

    An example of poor investment is in today’s Dom-Post, which reports that $2.4 million of Wellington City Council’s ever-increasing rates are being surreptitiously allocated as a loan to help fund bizarre concepts such as Zealandia’s visitor centre, on top of the $8 million already lent by WCC.

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  8. Gerrit (105 comments) says:

    LaCQ,s were set up originally (correct me if I’m wrong) so that the government could get out of owing state rental housing.

    What could well happen is that without LACQ’s investment into rental properties will dry up and the onus to provide shelter for the masses on benefits, falls back on the state.

    It could well be that the government sees forgoing the tax take due to investment properties LACQ is in fact lower then it the state was to go back into buying housing (including maintenance – administration, etc).

    I would suggest that the cost for new state housing may well exceed the tax loss due to LACQ’s.

    I really dont see the government taking away the LACQ as the only effect will be on wage and salary earners.

    If like me the rental property is owned by a business unit, my total tax liabilites are for ALL my businesses units combined, so the tax losses are offset against other business tax payments.

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  9. jackp (668 comments) says:

    A low level land tax??? You have got to be kidding. First, it would be political suicide, second, we have enough taxes. Our regional council rates went up 200 percent in one year. How about stop looking at taxes and cut taxes, business down to 15 percent, flat tax of 20 percent, that would be administrively efficient. Looks like this government is trying to find the elephant with a magnifying glass.

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  10. Redbaiter (13,197 comments) says:

    “If they were all treated equally for tax purposes, then money would go where it should, rather than chasing tax breaks.”

    Obviously then, more such tax breaks are necessary and should be applied equally across the investment spectrum.

    (socialists shuffling deck chairs again)

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  11. daveski (86 comments) says:

    By the same logic, if you can’t claim expenses and losses on an asset, you shouldn’t therefore be taxed on the income hence all rental income should be tax free.

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  12. Blue Coast (165 comments) says:

    Adding another tax will work for about ……………. That is how long it will take the likes of me and my advisors to find another way of reducing our tax liability.

    Gummitt just has to get the message we will find a way until you reduce tax and cut the crap out of the current gummitt gifts to the unproductive.

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  13. kowtow (7,614 comments) says:

    Land tax be damned. Capital gains tax on profits made on sale of second house (not family home)is the way to go.Just about every other country in the world does it. To say it doesn’t work is bollocks ,it works to raise govt revenues . It can’t be that complex either if every tax jurisdiction in the world is doing it. To say it doesn’t stop boom and bust property cycles is bollocks too ,so what if it doesnt,nothing can stop those cycles. So if you want to invest in property, good go ahead and make some money and then let the govt have its slice ,it has a slice of everything else, so why not?
    A land tax will only end up being an extra tax on your own home which will be a burden to low paid and fixed income types and is imposed in good times and bad.A capital gains is only a hit on money you’ve made and therefor not so onerous….if you can say that about paying tax.

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  14. Barnsley Bill (975 comments) says:

    And why would Weldon be coming out against this? Trying to get mum and dad investors to pour their cash into the worst casino in the country perhaps? Inside knowledge is the only way to make money on the NZX.

    The only thing saving our wild west, micky mouse stock exchange from more criticism is the even more wild west, mickey mouse finance company situation that developed over the last four or five years.
    Seriously David. You and John Key need to distance yourselves from this scrip spruiker.

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  15. reid (15,942 comments) says:

    Although I fear it might just be a softening up for politicians to get on the soapbox and announce the “end of LAQCs” as a sop to the masses who rail against property capitalists.

    The old “There is nothing more vigorously defended than a vested interest disguised as an intellectual conviction” axiom raises its oft-raised head yet again. (Especially happens when money’s involved.)

    Fuck off you LAQC fucktards because the only fucking reason you setup the LAQC was to rip the rest of us off so IMO you’re in the same category as that subset of beneficiaries who are bludgers. Q.E.D. Fuck you.

    Residential investment property is and always has been a productive sink on the economy. The only reason you guys can’t or more likely won’t acknowledge it is because of your vested interest.

    Commercial property investment has a productive place in the economy, residential investment property doesn’t. And puhlease don’t wank on about the productive value of “providing roofs over people’s heads who otherwise couldn’t afford them.” They will be provided for. That’s what the market does. It did it before LAQC’s came along and will do it after they go.

    Elimination on LAQCs and capital gains taxes on everything but the family home are what this country has needed for decades. Cullen didn’t have the guts to do it. In his words it was “political suicide.” Those politicians who do the right thing regardless of whether or not its in their own best interests are the great ones.

    Sorry for those of you above who will be in trouble. There are alternatives, you know, based on my own personal reading and I’m not an investment advisor by profession, the following are personal comments from your common-or-garden blogger.

    Gold hasn’t finished its run yet. Platinum is critical for the membranes used in hydrogen fuel cells, and coltan is critical for the aerials of every cellphone in the world. (Why do you think the Dem Repub of Congo has become such a wartime hotspot over the last decade – it’s got the richest coltan reserves bar none.) If you don’t want commodities, try MetalStorm which has an incredible future. If you weren’t an early investor too bad, you’ve missed a lot, but it’s still got a long way to run.

    BTW, if you want my tax advice which after my rant, I’m sure you don’t. But if you wanted a great tax, I recommend the Tobin tax. Brash doesn’t like it because he argues it would distort capital investment in NZ if implemented unilaterally. Maybe he’s right, but in my judgement, the benefits in terms of quietening the trade in the Kiwi would offset the additional cost of capital, and we sure as hell need a quietening, our $ instability is just a nightmare for exporters. Some people may object because the Greens and the Progressives like it. Forget them. Take a look, it could mean we could drop income tax without loss of overall revenue.

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  16. Viking2 (11,128 comments) says:

    Dr Don did a study on the amount of money spent on housing. In his report hesaid from memeory that it was about the average for the OECD. So housing spend isn’t the issue.
    The vast majority of landlords own one or two houses and will continue to do so, finding ways to get around the rules. Just like any tax or tax change it happens very quickly. People act to stop a loss. That’s human nature.

    The surge in LAQC’s was driven quite directly by the 39% tax rate and the brazen inflation in wages. It didn’t tke much for Clark and co to lift public service wages which then shifted them all into the higher tax brackets. Natuarally many of them said oh thank you Helen and now we will go and minimize the tax you are taking.
    Maybe DPF could graph the rise in LAQC’s v’s the rise in wages v’s the rise in tax rates. Like the graph from yesterday a picture will show the truth. ( I would do it but just don’t have the skills.)

    Landlords have always been targets of the socialists so this time is no different.
    We need rental houses and we need some better rules surrounding them.
    Two changes would make a difference. Allow landlords to pass on the local body charges,rates etc and replace the current 21 days notice by tenants to longer lease terms such as they have in Australia. 12 Months there. 90 days seems reasonable given that’s the minimum notice landlords can give.
    Less expenses incurred by landlords would assist with profitability and therefore with the generation of taxable returns.

    But the socialist housing minister won’t have a bar of it.
    Being a landlord can be a shit occupation so rewards are required.

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  17. Viking2 (11,128 comments) says:

    Barnsley Bill; you are absolutely correct, but, Key can’t and won’t cause that been his reason d’etre for what, 20 years. Gamblers one and all.
    Until the stock exchange is properly ruled and run its a place of tapu.

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  18. Viking2 (11,128 comments) says:

    DPF said: I do not support a capital gains tax but do support a land tax, if income tax is reduced to compensate. A land tax would be administratively very simple – Councils already levy rates on properties, so it would be merely added to that.

    Of course only property owners will be slugged for this tax. Renters don’t pay. We’ve pointed all this out before.

    Not only councils but the new layer of councils as well. Outfits like EBOP have added another $200 per year to rates in BOP with more to come.
    These nice little taxes are unrecoverable to a landlord so reduce the possible profit and therefore the tax take. Never ending cycle of stupidity.
    Now if the landlord was allowed to recover these taxes the Govt. may well gain but increasing the deductable taxes without allowing an increase in income hardly makes sense.

    If they don’t then housing will be a serious issue by the next election. Landlords will bail, short term gain, rentals will become short again and screams about housing will arise. Law of intended consequence.

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  19. Lucia Maria (2,207 comments) says:

    Land tax is a great way of hitting the pensioners.

    Seriously, tax should only be on stuff that earns money. For alot of people, their home is where they live. Not an investment. It only gets cashed in when they die. Taxing that, just because the Government is broke and borrowing heaps to bailout the unemployed is stupid. And unjust.

    What’s next, death taxes?

    [DPF: The tax changes will be revenue neutral so it is nothing to do with bailing out the unemployed.

    The argument for a land tax is that it encourages better economic use of land, and it allows you to reduce taxes on mobile things such as labour and capital - which we want to keep here.

    Finally I note we already have a land tax - local body rates - they tax both land and improvements]

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  20. nickb (3,659 comments) says:

    A lot of people here misunderstand LAQC’s.

    You can offset rental losses against personal income regardless of whether the property is owned by an LAQC.

    LAQC’s main focus is getting small businesses of the ground, so that losses made are not trapped in the company’s books.

    So to “remove LAQC’s” is to do absolutely zero, it is valid to argue whether the rental offset should be removed, but that is a different thing altogether to hurting small businesses by canning the LAQC structure

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  21. MarkS (79 comments) says:

    A few comments here:

    As pointed LAQC is only to do with allowing losses on one investment to be offset against the income from elsewhere. Nothing specifically to do with housing. Also, you don’t need an LAQC – I had a rental property without one. One just subtracts the loss from one’s income at the end of the year on an IR3 form.

    Depreciation is only on the building, not the land. Generally, it is the land that appreciates not the building, which will depreciate over a period of time (except in unusual scenarios where building costs rise dramatically, such as asset bubbles).

    A land tax is not going to change behaviour even if it raises money for the government. We already pay around 2% land tax per year for local body rates, so another 0.2% isn’t going to do very much.

    The major drivers of residential property appreciation are the following:

    * High marginal income tax rate, coupled with the ability to deduct losses from one’s income. For an investor, this makes residential property substantially cheaper (by 38%) than for somebody wanting to own and live in the house.

    * Resource management act and other bureaucracy. Anything that increases the lag between supply and demand will accentuate any asset bubbles.

    * Arbitrary metropolitan urban limits. Restricting the supply of land can only increase land costs.

    Addressing the above three points (reducing the top marginal tax rate, streamlining bureaucracy, and removing or substantially loosening the MULs) will make the biggest impact on house prices over the long run. Everything else is dealing with the symptoms, not the cause.

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  22. Rod (236 comments) says:

    “I do not support a capital gains tax but do support a land tax…”
    But we already have a capital gains tax. If you are deemed to be trading in shares or property the IRD will levy capital gains tax, treating it as trading profits. Same if you buy and sell livestock, cars, or what have you as a business in order to make a profit.
    Perhaps the IRD has not been as aggressive as it could be in assessing these gains for tax, but a lot of property investors have been brought into that net, or could find themselves in it when they sell.
    Perhaps you mean you don’t support a capital gains tax on the family home.
    The rules are woolly but in effect the family home as a non-business asset held for purposes other than trading for profit is already exempt – and one reason why we have so many elaborate mansions around these days.
    The LAQC issue is a diversion, and Wheldon is showing ignorance. I have one, but not for property investment purposes. Banning LAQCs would lead on to a whole bunch of other effects Wheldon clearly does not understand. The use of LAQCs for property investment is a relatively recent innovation.
    Seems to me the misallocation of resources here and around the world has little to do with tax structures and capital gains tax – the problem happens in all western tax jurisdictions. It has much more to do with the banking system that provides the funds and the risk profile assigned to property compared to other businesses.
    Just try and get bank support for a business without property security … fat chance.
    If you want to boost the growth of export and other business sectors instead of property you need to look at the capital/lending markets. Especially for small businesses not covered by the NZX. Compared to investing in property, investing in small business in NZ is bloody difficult.

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  23. Gooner (995 comments) says:

    What Nickb said.

    But as I said up front, I truly hope the tax working group don’t cut off their noses to spite their faces.

    Disclosure: I do not have a LAQC.

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  24. reid (15,942 comments) says:

    “LAQC’s main focus is getting small businesses of the ground, so that losses made are not trapped in the company’s books.”

    Regardless of intention, unfortunately for the economy over the last 20 years the main effect of LAQCs has been in providing a vehicle to those who work full time either as a permanent or as a contractor, to offset their income. i.e. these people are not funding their own private enterprise they are getting their income from 3rd parties.

    It might have been setup as a vehicle to facilitate the self-employed, it hasn’t worked out like that. That’s the problem and it’s been evident for decades.

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  25. ZenTiger (425 comments) says:

    I do not support a capital gains tax but do support a land tax, if income tax is reduced to compensate. A land tax would be administratively very simple – Councils already levy rates on properties, so it would be merely added to that.

    Add a new tax for a lowering on income tax? Where have I heard that before?

    Oh yes, GST was added at a rate of 10% in exchange for lowering of income tax.

    What happened after that point?

    GST went up to 12.5% and income tax went back up again too.

    Why will this time be any different?

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  26. nickb (3,659 comments) says:

    “Regardless of intention, unfortunately for the economy over the last 20 years the main effect of LAQCs has been in providing a vehicle to those who work full time either as a permanent or as a contractor, to offset their income. i.e. these people are not funding their own private enterprise they are getting their income from 3rd parties.”

    Correct me if I’m wrong reid, but you are able to offset rental income regardless of whether or not you have a loss attributing company.
    If that is correct it would seem to me that having an LAQC would provide you with zero advantage for offsetting income against someone who had rental properties without an LAQC. If this is the case, then why are LAQC’s a problem?

    IIRC, the IRD is currently focussing on a small group of LAQC shareholders who live in a home owned by the LAQC (thus enabling the company to claim business deductions for what are really private home expenses- like rates etc).
    IMO this is the real type of rorts that are going on, but certainly one which is being clamped down on.

    As I say reid, you can argue the merits of allowing rental offsets, but I can’t see how LAQC’s change the picture here. Removing them would also reduce investment and capital to small businesses.

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  27. Lucia Maria (2,207 comments) says:

    David,

    The tax changes will be revenue neutral so it is nothing to do with bailing out the unemployed.

    The argument for a land tax is that it encourages better economic use of land, and it allows you to reduce taxes on mobile things such as labour and capital – which we want to keep here.

    Finally I note we already have a land tax – local body rates – they tax both land and improvements.

    My elderly mother owns prime real estate in Miramar, which she uses as a place to live.

    She volunteers her time to St Vincent de Paul free of charge.

    How would increasing her rates encourage her to make better economic use of her land?

    She already has a heart condition, and even though I would be one of the beneficiaries of her estate, should she die, I’m in no hurry to stress her out so much that she leaves this earth prematurely.

    She already has enough trouble being able to afford her rates as it is.

    [DPF: First of all just because not every person will be able to make better economic use of land, doesn't mean that overall there won't be better use.

    As for your mother's situation, there are three options (at least) for dealing with the situation elderly land owners with little income face. One is to increase income support to then. The second is to extend the rates rebate scheme. The third (which I prefer) is to allow the land tax to accumulate against the property until it is sold (normally as part of an estate or going into a rest home).

    To take your mother's position in Miramar, the average house value in Miramar is $475,000, and the land value part of that around $230,000. Now a 0.2% land tax would be an annual charge of $460 a year or $9 a week. If that $9 a week is too much, then it just accumulates against the property. Let's say your mother manages to avoid getting stressed and survives another 20 years. Then the property will have a debt of $9,200 against it. Even if the property has not appreciated in real terms in 20 years (most unlikely) that will represent only 2% of its value, so your inheritance won't be greatly affected (not suggesting that is your concern anyway)]

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  28. Viking2 (11,128 comments) says:

    DPF; the changes are only revenue neutral to the govt. ( if we believe them, which we don’t,) but just like current taxation it will be caught up in the cycle of inflation and costs and so will rise like these things always do.
    There are other parties to the transaction as well and these taxes won’t necessarily be neutral to them. There are so many scenarios involved in the business/tax/ land equation that there will without doubt be a lot who are disadvantaged. ( and more work for lawyers and accountants to counter this stuff.)

    Land tax won’t run because the Feds won’t buy into it. They grizzle, rightly, often about the rates farmers/landowners have to pay now. Those rates are already a direct attack on farm profitability.
    The other question that looms large over this idea is the Maori and Treaty Settlements. Do we think that they will just roll over on this one? Especially tribes like Ngai Tahu and Tuhoe who will have large land bases with minor incomes. Are they to be appeased by exemptions?

    A land tax does not do as the proponents would have us believe and remove distortions. It will create new ones.
    You commented;
    Weldon makes a good point. Far too much property investment is because of the tax breaks. And this means capital is tied up in residential property instead of other areas which could grow the economy more.

    What is obviously wrong with this statement is that if all the experts are to be believed this is money borrowed from overseas and invested by the borrowers in housing using rhe value of asset to support that borrowing.
    To make a leap of faith and say that it would have been or should be put into the share market or productive enterprise is a gigantic leap of fantasy. There is no asset base that the banks will lend against and there is no asset they can use to borrow against to lend money to all and sundry to gamble on the share market.
    Seems to me to be the fatal flaw in Weldons argument. Unless of course he is like Lehman and others able to conjure up funny money from somewhere.

    Weldon needs to sort out his own business, get it properly regulated and separated. Until he does not too many of us are going to go down that track, and interestingly I recall a couple of years ago the business community were saying that actually the don’t need the share market these days. They can access the funds they need without running the risk of loosing their businesses to the rogues and takeover merchants.
    And actually our friendly cereal man Mr Hubbard has just done exactly that. Didn’t need Weldons product.
    And that’s Weldons and NZX’s problem, basically they are irrelevant to many these days. He has a product that is past its useby date in its present form.

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  29. mattyroo (973 comments) says:

    For Fucks Fucking Sake!!! It’s not the LAQC’s that are the problem. LAQC’s serve a very useful purpose, but it is easier for the likes of Reid et al to just run off at the mouth with verbal diarrhea than actually understand the problem.

    As nickb said, rental losses can be offset against income regardless of whether the property is owned by an LAQC.

    By attacking LAQC’s, makes no difference to property investors, they simply buy investment properties through sole traders, partnerships, special partnerships or joint ventures, and losses can be offset against an individuals other income regardless. An LAQC is simply a business structure, attacking that structure will make no difference to property investment, as people can easily change the company structure.

    The way to fix the property investment mess, is ring fence losses on a rental income. As well as putting a good dose of salts through the NZX to make it more attractive.

    And for all you wankers crying poor over what this may do to the value of your rental property, you can get nicked – Myself and others who took a hit on the sharemarket in the last year or so, just get on with it and put our money to better use. We don’t and can’t use special set-ups so that the taxpayer carries our losses. So, if it comes to pass that you do lose money, take some fucking responsibility for the decision YOU MADE to buy the place!

    Furthermore, I am heartily sick of people saying “we can’t invest in the casino that is the NZX”. That is pure unadulterated tripe. There are some good growth value companies listed on the NZX, that pay a dividend. I admit, there are very few though, and the NZX is a bloody mess that needs a good dose of bleach through it. It is also very easy, just as easy in fact, to buy and sell shares on the ASX, and if you are an NZ resident, as long as the shares are not being “traded” you are free from CGT.

    People in property investment only decry the stock exchange because they are; a) too fuckin lazy (and probably not smart enough) to do any research and find good companies to invest in, and b) fallen for the great kiwi con that is property investment, so are just talking their own book – just like Weldon is doing shouting down LAQC’s, but it has been long established that he is an idiot….

    Don’t give me this bullshit about brokers and fund managers losing your money – shares can all be bought and sold very easily online, you’ve just gotta do the work (research).

    Disclosure – Not a holder of an LAQC, but used one in the past to get my small business off the ground, whilst I was still in employment!

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  30. wreck1080 (3,730 comments) says:

    oh yeah, we couldn’t have anyone getting interest free money.

    I reckon there should be no tax on savings/share investments full stop. Possibly introduce cap gains to compensate.

    Housing is a crazy way for people to make their fortunes. Houses are the least productive investment out there.

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  31. nickb (3,659 comments) says:

    Exactly matty.
    Reid I guess my question is- how does the LAQC structure give any special tax advantages one would not have without it? For the purposes of proprty investment, that is

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  32. Gooner (995 comments) says:

    Zen, it might be different after this year’s budget, and next year, and the year after. But we all know what will happen when Labour are in again.

    That’s why we need ACT’s entrenched Taxpayer Rights Bill to cap government spending. That is more important than tax cuts or tax reform IMHO.

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  33. Gooner (995 comments) says:

    Mattyroo, well said, despite the expletives!

    You can set up an ASX account through ASB Securities in about 10 minutes. Then all you need is a computer and a bit of investment/financial nouse and the ASX is your oyster.

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  34. ZenTiger (425 comments) says:

    Gooner, I agree – I think we are trying to stem the leaks from the wrong end. Government is built to require a steady increase in spending, and therefore a steady increase in tax. We need to put restraints on Government that actually forces government to behave differently.

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  35. Lucia Maria (2,207 comments) says:

    Government is built to require a steady increase in spending, and therefore a steady increase in tax. We need to put restraints on Government that actually forces government to behave differently.

    Absolutely, totally agree.

    The Government just keeps spending more and more money and expecting a select few taxpayers to make up the shortfall.

    Have National actually lowered any taxes since they came into power?

    Can’t think of any.

    [DPF: Are you stupid or pretending? There was over $2 billion of income tax cuts on 1 April]

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  36. ZenTiger (425 comments) says:

    The argument for a land tax is that it encourages better economic use of land, and it allows you to reduce taxes on mobile things such as labour and capital – which we want to keep here.

    David, that has to be one of the most Socialist/Progressive things I’ve ever heard you utter!

    “Encouraging better use of land” means a retired person who is asset rich and cash poor needs to sell it so that some-one else can use it “better”. The only sacrifice here is a personal and human one – ship the old folks off to a home so that a developer can make the family home more productive by turning it into three townhouses to “share the cost of the land tax”. Of course, the fact that the person is uprooted out of their familiar environment is just collateral damage, and not relevant?

    Why does this statement matter: “Finally I note we already have a land tax – local body rates – they tax both land and improvements.”

    If we already have the tax, why add it? Because it’s still a different tax, no matter how you slice it – it doesn’t go to the Council for the provision of local services and infrastructure – it goes to the government’s consolidated funds to pay for the new MP expense account system and travel costs. The rate will be controlled and set by a different body, and voting out one council politician to keep the land tax rate will count for nothing.

    [DPF: As Don Brash and Alan Grimes have backed a land tax, I'm pretty confident that it isn't some socialist plot.

    You miss the point. This is not about the overall level of taxation. This is about whether we should only tax capital and labour (both highly mobile) or also immobile stuff such as land.

    As for the local govt mention, I agree of course it goes to central Govt. The point I am making is that people already pay a land tax for local body services and facilities, so the notion is not new]

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  37. Gooner (995 comments) says:

    Here’s a very pertinent and timely example of where the Land Taxes will go:

    http://www.stuff.co.nz/national/3202325/Wellington-ratepayers-bail-out-tourist-attractions

    Summary:

    Karori wildlife sanctuary

    Council has increased its interest-free loan by $2.38m.

    The Trust that operates the sanctuary has failed to find a cafe operator willing to pay to fit out the cafe so it has asked WCC to release more than $200,000 to do the fitout itself.

    Basin Reserve Trust

    Is unable to fully fund depreciation on its assets, notably the giant replay screen so cannot afford a new one.

    St James Theatre Charitable Trust

    Has minimal levels of cash reserves, affecting its ability to take risks on shows. Increased likelihood that it will need to use its overdraft facility. No prizes for guessing who will guarantee the overdraft loan.

    Wellington Cable Car

    Has safety issues which may require extra WCC funding.

    Wellington Museums Trust

    Is increasingly reliant on council funding.

    Wellington Zoo Trust

    May ask for more WCC funding should it not meet sponsorship or visitor targets.

    Wellington Regional Trust Stadium

    Budgeting for upgrades ahead of the rugby World Cup creates a risk that the trust will not be able to repay a $15m council loan on time.

    Capacity

    Annual savings target of $432,000 in doubt.

    Thankfully I live in Auckland where our rates are just as exorbitant and partly fund as many follies as these ones!

    [DPF: Normally you can intelligently debate. The issue is whether the tax base should include land, or be just income and capital. Do you have an intelligent reasons for why land should be excluded? Do you think it is better to keep income taxes higher and have no land tax?]

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  38. Gooner (995 comments) says:

    DPF said:

    The argument for a land tax is that it encourages better economic use of land,…

    Abolish the RMA so that property owners can actually *use* their land economically and I might believe you.

    [DPF: Again you make a stupid argument. For a start there has been some significant RMA reform. But regardless of the RMA, a land tax will increase the incentive because the RMA costs remain constant. Basic benefit/cost ratio]

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  39. gazzmaniac (2,317 comments) says:

    The government have to be honest about why they are actually creating a new land tax. If it’s for lowering the cost of housing, it won’t work as the supply of land for residential housing is not going to drop in a hurry thanks to development fees built into the cost of each section – in Kapiti your average new section has $40-50k of development and resource consent fees, meaning that there is actually little profit for a developer in the current market. The price of housing will only decrease when councils stop charging exhorbitant fees to developers. Besides which, the cost of rates varies from district to district by more than the proposed land tax.
    The CGT will not change anything either – there has been a bigger housing boom in Australia (it is ongoing) and they have a CGT. It just means people hold on to their property that little bit longer to make the amount that they want.
    My solution is instead of looking to tax a sector to discourage investment, would be to reduce taxes on everything else to create a level playing field. Also, some people choose housing as their investment because it is possible to easily add value to it in your spare time, and it is even possible to create the asset yourself. This is not possible with most other investments, except perhaps small business. Why should that opportunity be denied to people?

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  40. Blue Coast (165 comments) says:

    Mattyroo

    Just back on line and could not have said it better. It does not matter what you call the reduction in tax vehicle it will always be replaced.

    I know some can’t understand that concept but it is real life.

    I for one will ALWAYS WORK HARD to reduce my considerable tax burden so I am not paying for the fuckards that expect a hand out.

    By the way I give heaps to good causes because I CARE not because I am ordered to by gummitt. That includes sending losers to the likes of outward bound and turning their life around.

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  41. Lucia Maria (2,207 comments) says:

    David,

    Are you stupid or pretending? There was over $2 billion of income tax cuts on 1 April.

    Well, obviously I needed reminding, as they were so insignificant as to be instantly forgettable.

    So, now that tax cuts are out of the way, are the next changes only to be increases in tax?

    [DPF: They were I believe the biggest tax cuts since 1987. I think the average household got $50 a week better off, so I can only presume you earn so much that that you didn't notice. Regardless that doesn't justify telling blatant porkies.

    And no, the overall level of taxation is going to stay relatively constant. It is about changing the *mix* of taxes. If you can not comprehend that, there is no point in trying to debate it. Again this is not about the overall level of taxation - it is about the mix.]

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  42. ZenTiger (425 comments) says:

    [DPF: As Don Brash and Alan Grimes have backed a land tax, I'm pretty confident that it isn't some socialist plot.

    I'm not saying that a Land Tax is a socialist plot, I'm saying your justification of the land tax reeks of socialist/progressive dogma. Of course, you may simply be a capitalist using the excuse to make a quick buck out of old people, but I'm going to assume it was a genuine justification.

    [DPF: The number of normally intelligent people who are making stupid arguments in this thread is monumental. How the fuck am I going to make a quick buck out of old people via a land tax? Are you incapable of actually engaging in an economic argument about the relative merits of taxing income, capital and land? Go ahead - tell me why the first two should be taxed but not the last?]

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  43. ZenTiger (425 comments) says:

    Are you stupid or pretending? There was over $2 billion of income tax cuts on 1 April.

    An easy mistake to make David. In my example, I reaped about $700 a year (about 2% of the $34,000 I pay in income tax) of that 2 billion tax cut “for all” New Zealanders.

    But my ACC levy (another tax) went up by over $300 (and prepare for it to jump much higher now that the real figures are in).

    And my rates (another tax) went up by over $200.

    And there were a whole bunch of other tax increases National might like to forget. So, factoring into account tax increases from other sources, and the tax decrease of PAYE (by increasing the margins as a token adjustment to fail to compensate for inflation over the last 9 years of Labour setting the top tax rate of a “rich prick” at $60K) I actually ended up in real terms worse off.

    If the government is going to raise taxes in some areas and reduce them in other areas, the average tax payer would be right to be cautious before celebrating their “windfall”.

    Which brings me back to my original point: a new tax in exchange for a reduction of an existing tax is often a short-lived gain, and now the government has a new tax to continue to increase after the terms of the deal are forgotten.

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  44. Bruce Hamilton (60 comments) says:

    DPF:

    “To take your mother’s position in Miramar, the average house value in Miramar is $475,000, and the land value part of that around $230,000. Now a 0.2% land tax would be an annual charge of $460 a year or $9 a week. If that $9 a week is too much, then it just accumulates against the property. Let’s say your mother manages to avoid getting stressed and survives another 20 years. Then the property will have a debt of $9,200 against it. ”

    You know that the IRD won’t charge any interest on outstanding taxes?. Given how much they charge on other outstanding taxes, it’s highly probable that the interest rate will, at best, be exorbitant, and a 20 year old debt could be a significant % of the property value – and I suspect that any laws would allow them to claim against the total property value, not just the land value.

    Such a scheme will be as unfair and shonkey as many transfer of title deals are to aged homeowners.

    [DPF: If the Govt did a land tax, the Govt could set a reduced or zero interest rate for low income people who qualify to have the land tax go against their property.

    But even if they charged the full 6.45% cost of borrowing, the 20 year example would become $17,760 against land of $230,000. And again think about how much land has appreciated in the last 20 years? House prices have doubled in seven years? Now a land tax will slow that down but not reverse that.

    You see the problem is that too much money is invested in property, purely due to ever appreciating land prices. So instead of money going into capital markets (for example) which can create new jobs and industries, it goes into a market which makes a net tax loss - this is not sustainable. ]

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  45. Fairfacts Media (371 comments) says:

    I was in Days Bay and Eastbourne yesterday.
    What struck me was that despite the expense of the local property, some of it seemed shabby.
    But if you pay $500,000 for an ordinary place, it follows you might not have the money afterwards to paint it and make it lovely.
    Thus, it makes sense to have lower property prices.
    We need to see property being for ones own home rather than an investment asset.
    Thus, any crackdown on LAQCs is to be welcomed.
    We also need to see the top rate of tax lowewred so property is not seen as an investment.
    That is all Cullen achieved with his raising of tax rates in the early noughties.
    We also need to see some freeing up of land supply so if the price of a section drops, so will will the the price of the finished house.
    That way we can make housing more affordable for all.

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  46. Lucia Maria (2,207 comments) says:

    David,

    Building up a debt that ones pays on the death of a homeowner sounds very much like death taxes to me.

    And I didn’t get a $50 a week decrease in my husband’s tax. More like a quarter of that. But, as Zentiger points out – all the tax increases wiped out all of the decrease, so yeah, not noticeable. Maybe the Government was intending the tax cuts to be revenue neutral as well?

    [DPF: No no no land tax is not an estate tax even though a death can trigger both. National abolished incidentially death tax. The old death tax was a tax on someone dying. If a property exchange hands every 20 years as people died, it got whacked each time.

    A land tax is applied to land every year regardless of who owns it. Some people may decide to defer payment against their property but the tax is incurred annually.]

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  47. ZenTiger (425 comments) says:

    DPF: How the fuck am I going to make a quick buck out of old people via a land tax?

    Let’s take it from the top. You said: The argument for a land tax is that it encourages better economic use of land

    I’m not directly suggesting you personally want to make a quick buck out of old people, just acknowledging that you may have quoted the above argument from a purely capitalist point of view.

    And I’m pointing out that the only way you can make “better use of the land” on a family property if you are a retiree, living in your home and unable to pay the tax, is if you sell it to some-one else. Although another commenter pointed out loosening the RMA and Council bylaws might help – I have a 1/4 acre section but I cannot subdivide, even if I wanted to. If the Council change their mind, I would have over $40,000 in fees, charges and taxes to pay for the privilege.

    Now, there are indeed a few assumptions I am making about the impact of introducing a new land tax, ones borne out in what happens overseas and here in NZ with other taxes:

    1. That the initial land tax rate will be increased over successive governments.
    2. That the combination of council rates (a form of land tax) and the new central government land tax will continue to put pressure on cash strapped retirees to sell and move.
    3. Income tax rates will also increase again over time
    4. The GST rate may increase, putting pressure on food, rates and utilities
    5. CPI adjustments are often built in to automatically increase on government fees and charges, but never on government taxes, eroding the overall value of tax margins and putting pressure on low income, asset rich people (typically retirees, but temporarily out of work people with mortgages will also be hit).

    That the above create a “perfect storm” of pressure on low income workers.

    The way socialist.progressive governments handle this is to instigate an elaborate rebate/deduction/allowance scheme that creates more bureaucracy, more paperwork, and more opportunity for people to evade the actual taxes, except for the middle class who will ultimately see various tax rates raised to cover the people that are too poor to pay it or rich enough to structure their tax affairs to minimise it. I’m not in favour of that approach.

    I note in NSW they decided to exempt the family home, and then they decided to set ranges based on the sum value of properties (but owning just one property in Sydney gets you over this limit.) The end result is that there are complex thresholds to check, and several rates. Their .2% land tax now sits at 1.6 or 1.8%.

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  48. Simon Lyall (101 comments) says:

    If property owners can claim depreciation of their property value why can’t people holding cash/band deposits claim inflation as depreciation?

    Right now deposit rates are 4-5%, tax on this is 39% and after 2% inflation people are lucky to break even.

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  49. Crusader (279 comments) says:

    The problem is not that property is such a fabulous investment, or that unfair tax breaks make it so attractive. The problem is that there is not a more attractive alternative in NZ. If the NZX consistently out-performed property, all those terrible property investor people would take their money out of investment property and put it in the sharemarket.

    So there is the challenge to Key et al – make the NZX (and by implication, all NZ business) perform better. Thus we, the people, will not feel the need to seek alternatives to invest in. Just make business easier and more profitable. Is that so hard? Try reducing company tax rates for one! More company profits will allow more growth and more employment, as well as better returns for investors.

    A new tax on property will not make New Zealand any richer. Why, oh why, do politicians all think that more tax is the answer to everything?

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  50. Gooner (995 comments) says:

    [DPF: Normally you can intelligently debate. The issue is whether the tax base should include land, or be just income and capital. Do you have an intelligent reasons for why land should be excluded? Do you think it is better to keep income taxes higher and have no land tax?]

    I think land should be taxed. In fact I think all capital should be taxed like Gareth Morgan advocated.

    I was being facetious, which is difficult to pick up on a blog of course!

    What I would like though is a package of tax reform in one hit, not just incremental tinkering over years and years. The government should implement a package immediately, but give it a start date in, say, 6 months time, so that people and businesses can plan properly. Any longer and its effectiveness would be reduced.

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  51. ZenTiger (425 comments) says:

    DPF: Normally you can intelligently debate. The issue is whether the tax base should include land, or be just income and capital. Do you have an intelligent reasons for why land should be excluded? Do you think it is better to keep income taxes higher and have no land tax?]

    The other taxes are not just “income and capital”.

    As you already pointed out, we already have a Land Tax – Rates. The suggestion you have made is to increase the rates bill with a guaranteed allocation to the consolidated tax funds rather than just local government for a temporary reduction in income tax.

    And what about all the other taxes? Consumption tax (GST) takes 12.5% on what money we have left over after paying Income Tax and ACC. GST is also applied to our rates, a tax on Land Tax, without having to add a new tax!

    Fuel levies account for another chunk of taxes and so on.

    Do I think it better to keep income high and no land tax? Not necessarily, but I’m not convinced the Government will not raise both.

    I also think they’ll raise GST.

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  52. Gooner (995 comments) says:

    Crusader, to come to the defence of DPF, he is not saying a new tax is the answer. What he is saying, and I agree in principle with him, is that the structure of our tax system must change.

    What I am not in favour of, at all, is piecemeal reform here and there. You know, little bits of this and that over many years. There has to be a complete package otherwise the advantages of a less complex tax system are outweighed immediately by regulation in other related fields. This is what Sir Roger Douglas argues constantly, and it is difficult to say he is wrong.

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  53. ZenTiger (425 comments) says:

    Let me explain what I mean when I say: Land tax…for a temporary reduction in income tax.

    I mean unless legislation was put in place to cap the tax rate in exchange for Land Tax, AND a CPI increase automatically applied to the income tax rates, AND whenever the Land Tax rate was increased in the future, Income Tax rates were then bound by legislation to be decreased, we will only see the deal as temporary.

    [DPF: I agree there is a danger of future Govts putting tax rates up but that applies regardless of land tax. By that rationale we should never have introduced a GST. Tax rates are set by law - the problem is a Parliament can not bind future Parliaments]

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  54. Gooner (995 comments) says:

    Yes Zen, which is why we need a Taxpayer Rights Act.

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  55. Bruce Hamilton (60 comments) says:

    DPF:

    ” You see the problem is that too much money is invested in property, purely due to ever appreciating land prices. So instead of money going into capital markets (for example) which can create new jobs and industries, it goes into a market which makes a net tax loss – this is not sustainable.”

    Money is invested in property because it, in recent history, provides a less-risky return than other forms of investment with the same return. A 0.2% tax isn’t going to change that, maybe a 1 – 2 % tax will. People worked hard to earn that money to invest, and will resent politicians stealing it for their gambling on favoured growth ideas.

    Whilst the NZ stock exchange continues as the local financial equivalent of the wild west, why would hard working peasants invest there, or in many other NZ enterprises that over-promise returns and then under-deliver?.

    Create new jobs and industries?, let’s upscale to a 4-lane national cycleway?. Governments of all stripes have failed to create substantial and durable new jobs and industries – other than more government bureaucrats. Several governments have tried to encourage or fund innovative NZ industries ( kiwifruit, wine, “Think Big – Motunui GtG ” etc. Film? – ask PJ, ) and there are several new ventures that employ 100s of people, but that’s a fraction of the number of industrial and skilled jobs lost over the same timescale.

    Throwing tax money at favoured growth projects in NZ has seldom worked ( electricity infrastructure for Aluminium smelter may be an exception ), as most growth is because investors saw an opportunity where the risks were able to be assessed honestly and potential returns were better than alternatives of similar risk. Taxation doesn’t change the risk, just the returns.

    Also many new entities, and even govt-owned entities, import skilled labour – because the climate for upskilling young professionals was eroded in the late 1980s and early 1990s by the alleged financial costs and delayed returns of investing in staff. Managers are assessed by year-on-year returns, so no incentive for vision or medium term growth – that’s a government and business leadership problem, not solved by taxation.

    New industries overseas can be produced by massive govt investment ( China ), incentives ( India ), or private venture capitalists ( USA ). In NZ, we create lots of small businesses, but any good ideas are likely to be quickly licensed to large offshore companies, because the local business/govt environment won’t support risky innovation investment. Taxing land owners isn’t going to change that culture.

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  56. ZenTiger (425 comments) says:

    DPF: I agree there is a danger of future Govts putting tax rates up but that applies regardless of land tax.

    Yes indeed, and that is one reason I don’t want to give the government another tax source to increase, as they will make small but steady increases once it is in (so complaining seems trite) but across many tax streams this will add up to a lot more (so the middle class actually cop a big increase) and all talk of not worrying about “small taxes” becomes irrelevant to the total tax burden.

    By that rationale we should never have introduced a GST.

    You miss the point. Introducing GST made good sense for other reasons. Whoever uses the reason “because we will lower income tax to compensate” needs to be shot (figuratively speaking) as a warning to others that such a claim is likely only a temporary gain.

    [DPF: The rationale for a land tax is the same as GST. You have a more efficient economy and more efficient tax system by broadening the base. I agree the reasons for bringing in a land tax is not to lower income taxes - just making the point that the Govt has said any new taxes would see income tax reduced towards the goal of a top 30% rate.]

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  57. Sushi Goblin (419 comments) says:

    Gooner speaks much truth in this thread, but he misses a good point why LAQCs are a desirable an entity in his very first post – the limited liability nature of companies – in tandem with the ability to assign losses to individual taxpayers rather than simply carry forward into future years. A number of property investors use LAQCS to reduce tax and other liabilities that might affect them personally.

    LAQCs, or perhaps more correctly, the wider nature of how we treat property rentals (especially those properties that lose money year on year) are indeed a quandary. While it’s true that property owners pay plenty of taxes via services for their property (plumbers, rates etc), they do have advantageous mechanisms like depreciation, running up expenses that are attributed to the rental that make it a very tempting way for someone who wishes to reduce their tax.

    There are other loopholes the government should close. They should , for example, calculate Working for Families at a level that excludes any property expense deductions from income, since this is something already highlighted as a method of abuse.

    Another might be only permitting depreciation for leasehold properties only, on the grounds that property owners who own land and buildings are easily compensated by any degradation in building value by the overall likelihood of appreciation of the land underneath. Leasehold properties (in my opinion, a form of deferred con-artistry, but popular with some) have people who are solely investing in the building and its economic use rather than the underlying land.

    There should be a level playing field for the taxation treatment of investments. However, note that if tougher rules are to be brought against properties generally, this will affect other investment fields – banking, NZX (think of firms like KIPT, GMT and IMP) plus retirement property vehicles like Ryman and Metlife, as well as super funds and Kiwisaver providers. There would be a shakedown that affects more than just the investment apartment or brick and tile in suburbia.

    I would hope though that there is one underlying truth – high income tax rates for higher earners is now a discredited philosophy. anything that makes it easier or incentivised for people to earn more money in productive enterprises (rather than reduce tax through institutionalised incentives) is a good idea.

    So here’s to the government giving incentives to working harder, instead of finding new ways to squeeze the existing stone harder.

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  58. krazykiwi (formerly getstaffed) (9,189 comments) says:

    … but do support a land tax, if income tax is reduced to compensate.

    Ah that old chestnut. Seem to recall GST being ‘sold’ to the taxpayers this way, back in ’86.

    [DPF: And indeed the top tax rate has not gone back to 66c.]

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  59. MikeNZ (3,234 comments) says:

    I’m glad I got to this at this time and have enjoyed reading your comments.

    My answer would have been, not more tax!
    We voted for Act/National to rduce taxes, make the environment better for businesses and sort out the benefits.
    What have they done, given a little but taken back as much or more in loads of little ways.
    Those on fixed incomes are worse off like lucia mother.

    DPF
    I don’t know where your common sense has gone here, do you really think it would stay at 2%?
    As for taking a debt against Lucia’s mothers property, no it wouldn’t be called a death duty but that is what it would be in reality.
    And this from National!
    More importantly where is the reduction in income tax and the dealing to the benefit culture?
    I hope you aren’t feeling the water for National on this one.

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  60. ZenTiger (425 comments) says:

    The property home owners invest in (ie their family home) is simply another form of saving. DPF, do you want to tax people’s savings? At the very least, Land Tax needs to be exempt from the family home.

    The problem we have in NZ is that not enough people own their own home (which adds much to the retirement security of the elderly) and do not have enough savings.

    Far better to tax consumption than income, and consumption rather than savings. I’d prefer to see a GST at 20% and ZERO income tax and a company turnover tax of maybe 2%. In one stroke we would remove heaps of tax law, and any reason to circumvent tax law, and this would dramatically lower the admin costs of companies, giving small businesses a boost and ability to innovate, whilst banks etc would have no reason or ability to attempt to structure investment around evading income taxes. With those kinds of figures, it would likely be possible to provide a universal benefit (paid per person) to help offset GST for low income and unemployed.

    By removing, rather than reducing PAYE it would be much harder for future governments to reintroduce it.

    [DPF: I would note that you are currently taxed on your savings if you invest in debentures or shares (via dividends) so should land be exempt?

    I want to see lower overall tax and lower income tax. What I would like is for the Govt to set a target of say 30% of GDP for state expenditure, and then of course the tax take will be just enough to meet that and no more. Once one sets a target, then it is easier to argue what the mix should be.]

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  61. Anthony (768 comments) says:

    So much crap is spouted in support of landlords! They almost always buying existing properties so do nothing to increase the supply of rental properties. Tax benefits for them just push up the price of property. Landlords also have limited ability to increase rents so loss of their tax benefits will not automatically increase rents.

    LAQCs were not invented to allow the state to get out of rental housing – and wouldn’t achieve that anyway for the reason I mentioned above. They took the place of special partnerships – an earlier organisational form which allowed the limited liability of companies but the ability to attribute losses to individuals.

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  62. ZenTiger (425 comments) says:

    [DPF: I would note that you are currently taxed on your savings if you invest in debentures or shares (via dividends) so should land be exempt?

    If you earn $3,000 in dividends, you pay tax out of that income. That's harder to do with land.

    I want to see lower overall tax and lower income tax. What I would like is for the Govt to set a target of say 30% of GDP for state expenditure, and then of course the tax take will be just enough to meet that and no more. Once one sets a target, then it is easier to argue what the mix should be.]

    It would be an entirely different conversation we would be having if the government first said “let’s set a limit of x% of GDP on government spending, then lets look at our tax base.” At the moment, they just want to broaden the tax base. The offer of offsetting it against income tax is a red herring – they need to keep an eye on the Australian rates whether they like it or not, and the Aus company tax rates are lower and the exchange rate also works in their favour. Australia does have a higher top rate, but given it doesn’t actually kick in until $180K, that too is a red herring.

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  63. freethinker (680 comments) says:

    Gooner (633) Says:
    January 2nd, 2010 at 10:49 pm

    Yes Zen, which is why we need a Taxpayer Rights Act.

    Vote: 3 0
    Binding referenda would be even more effective – just imagine the effect of a referenda removing all MPs who voted for say a land tax which the referendum sought to abolish. Would certainly give MPs something to worry about, who knows they may even consider limiting tax take to say 30% of GDP ratified by binding referendum making it impossible for a future arsehole like Cullen to change without majority taxpayer support – sounds like democracy – shudder shudder>

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  64. KiwiGreg (3,171 comments) says:

    Weldon is just talking his book so is entirely unreliable. If he can make some forms of investment less attractive maybe more people would invest in his market. ““There is no difference between a rental property, a share, bond or bank account, so treat them all the same [for tax],” he said.” And of course they are – the income from all of these is taxable, costs incurred in earning the income (including interest) are deductible. Capital gains on shares and land are treated identically, just as trading or dealing in shares and land are both taxed (I’m obviously aware of the incredibly complex regime that exists for taxing various gains from land but in principle the regimes are the same).

    Houses depreciate and there is no in principle reason to deny depreciation deductions, although I think IRD should review the rates allowed.

    LAQCs are a red herring – as many have pointed out they allow nothing additional other than legal seperation of the individual and the company. People setting up LAQCs to rent houses to themselves were avoiding tax, it didnt work and all it required was detection and enforcement by IRD to end the practice (some publicity and a healthy wallop of penalties would also help).

    Those calling for loss quarantining are really missing the point – you dont try and solve problems of poor policy with further poor policy. Muldoon tried this; I well remember the specified loss limitation rules. There is nothing “special” about rental income requiring special rules.

    “DPF: I would note that you are currently taxed on your savings if you invest in debentures or shares (via dividends) so should land be exempt?”

    I think you are misleading here. You are already taxed on the income of your savings, whether that income is derived as interest, dividends or rent. A land tax is a tax on the capital sum which is quite different, and indeed (in theory, with no other countries) would have the same effect if applied to the capital sum invested – it would tend to drive capital to the most efficient (highest return) use. Unless your aim is double taxation, you would then have to exempt the actual income derived. Parts of the current international tax regime operate in exactly this manner, with tax imposed on effectively imputed income.

    I was involved in the introduction of LAQCS, have held many rental properties over the years (none now) and have never owned an LAQC.

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  65. expat (4,048 comments) says:

    Get rid of all this offset loss against personal income shit and lower taxes.

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  66. MrTips (144 comments) says:

    I am not sure how a land tax could be seen as anything other than an inelegant communist type money grab. Rates are a fee for services provided – what the hell would a land tax pay for? Some treasury economist to be wrong – AGAIN? Len Brown’s mayorlty race funds?

    For a start, the government would be taxing something that it does not own and does not generate real income in the case of a residential home. Sure there is capital gains, but that is not actualised until the time of sale, and in reality, is only useful for lending against to the average homeowner in its unactualised state. Its not like its an Australian style stamp duty, which is again only actualised at the time of sale. The same is true for shares, you don’t get taxed until dividend or sale time. However, I would also be dissapointed if Mark Weldon wasn’t making statements like this, with his position in the NZX he is almost OBLIGED to make noises like this – its no big deal.

    I would be more interested in seeing the government concomitantly invest in people and infrastructure surrounding biotechnology, engineering and technical advice (esp. farming). Those are areas we can compete VERY well in, and in turn, if the environment is created through a REAL R&D tax break, and THAT is where any land tax went in totum then it could be tolerated and might actually create the alternate growth platform that we so desparately need. And we don’t need to pay for foreign advice on company growth surrounding this – just do it.

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  67. Viking2 (11,128 comments) says:

    DPF said:
    [DPF: The rationale for a land tax is the same as GST. You have a more efficient economy and more efficient tax system by broadening the base.

    Now there is another lie. (I thought we got rid of Labour)

    How many citizens in NZ David?
    How many Landowners?
    Considerably less landowners than citizens. yes
    So how does that broaden the tax base with any equity?
    Of course its consistent with the argument that property owners pay the rates, not the citizens who who use the services supplied by those rates.
    Both are wealth taxes on a sector of the community and clearly because there is a small group paying for everyone else all over again. ( Money in shares long term without dividends as in the states means no tax collected but money in land means you pay. Immediately debases the stated objective of broadening the tax base. Brierley ( and others) have for years passed tax free dividends to his share holders in the form of shares so they will continue to have their asset untaxed.
    Look for any listed company to do this. Weldon would love it for sure.)

    Reducing the need for taxes and therefore the tax rates, using GST more effectively and increasing its coverage to a wider range of transactions would be more equitable.
    Indeed a transaction tax maybe a much better answer. It certainly has not has any airing in the current debates but given the ability for ways to separate NZ from its money there may be some semse in it.

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  68. KiwiGreg (3,171 comments) says:

    I thin k you are confused Mr Tips. Rates are a charge for services (that’s why they attract GST). The fact they are calculated on a form of land value (normally impossible to decipher improved land values) is a red herring.

    “For a start, the government would be taxing something that it does not own and does not generate real income in the case of a residential home.”

    Governments can ONLY tax things they dont “own”. I think one of the weaknesses of our current system is the failure to tax the imputed value of an owner occupied home (obviously with a deduction for mortgage interest). R & D tax credits are a complete waste of time. All they do is incentivise the measurement of activities which were occuring anyway.

    I should have said in my earlier post my one regret about the QCo regime is we should have made the attribution of income to the shareholder compulsory.

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  69. pq (728 comments) says:

    I pick an introduction of land tax, on income earning property in the next term of NZ NAT GOVT.

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  70. Crusader (279 comments) says:

    What would be the intention of this proposed new land tax? To make property investment less attractive?
    If so, then I, an investor with a broadly-based portfolio including one rental property, would then reassess my options.
    Believe me, there are alternatives besides New Zealand business or bonds.
    Like for example Australian equities. Or Asian markets.
    Does anyone really believe that using a tax (a blunt instrument at best) to make property less attractive would automatically increase investment in NZ business?

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  71. Dirty Rat (504 comments) says:

    Simon Lyall

    why can’t people holding cash/band deposits claim inflation as depreciation?

    In a way they do, due to time value of money (inflation). A tax on $100 of income @ 33% in 2010 is cheaper than a tax of $100 @ 33% from 2005

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