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Have your say: Should GST be added to mortgage payments and rents?

Posted in News

Brian Fallow at the NZ Herald has a provocative piece this morning suggesting the tax working group should look at the idea of applying GST to mortgage payments and rents. The move, he said, would reduce the amount buyers would be willing to pay for a property and reduce the chances of another housing bubble. It may also keep away the need for rises in the Official Cash Rate which would hurt the tradeable sector. Fallow said that one way or the other, any overhaul of the tax system worth the effort would have to find a way to bring housing into the tax net, and that this could fund serious cuts elsewhere in the tax system.

What is so special about expenditure on housing that warrants exemption from a consumption tax? Other necessities like food, clothing and electricity attract GST. It would bring in a useful amount of money, enough to fund serious cuts elsewhere in the tax system, like the income tax scale.

Including principal, Stats NZ figures show the average household spends just over NZ$10,000 a year on mortgage payments or rents, Fallow said.

With nearly 1.6 million households, at the current GST rate and ignoring any second round effects, that would yield about $2 billion a year. That is also about what an increase in the GST rate to 15 per cent would yield and is reportedly enough to fund, for example, a cut in the top income tax rate to 30c in the dollar - an avowed goal of the Government.

Fallow concludes:

All else being equal, like incomes and interest rates, you would expect the application of GST to mortgage payments and rents to reduce the amount buyers, whether owner occupiers or investors, are willing to pay for a property. It should reduce the chances of another housing bubble, or its diameter. That would be a good thing. In dollar terms the value of New Zealand's housing stock doubled between 2002 and 2007. Does that mean we are twice as wealthy as we were? No. Like other forms of inflation it creates losers as well as winners and encourages a misallocation of resources. And if timed right, the introduction of such a measure might spare the economy some official cash rate rises - and the collateral damage they do to the tradeable sector.

Your view? Ideas on how to change the tax system are flying in think and fast at the moment. How do you think this one stacks up? What effects would this have on the housing market if it were to be implemented? We welcome your comments and insights below.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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70 Comments

I think its a pretty

I think its a pretty good idea, provided it is complemented as he suggests by big reductions in income tax.
BTW, does any one know the process for this tax review? Presumaby the findings go before Parliament? then what?

Good, if we see lower

Good, if we see lower and converging income, corp, trust tax rates.

Also make said GST variable, by RBNZ. Even less damage to tradeables.

Well, I've not read the

Well, I've not read the article, don't have time to do so, but from this I would say it's not going to affect domestic rental investment, because I would assume that type of investment will no longer be a GST exempt activity, thus, landlords will be able to claim the GST on the interest back, plus will add GST to existing rentals to be returned. No difference to them.

So who loses?

Tenants, because they will have a 12.5% rent rise.

Every house owner, especially low income house holders who will incur dramatically higher interest rates via the GST component, which they won't be able to claim back, some of whom will thus be forced into rented ghettos, paying rents they can't afford for the same reason.

Another brain dead idea by a NZ mainstream economist who only seems to find 'solutions' that include increasing the cost of living for kiwis by the likes of this, or further taxes. Why not advocate reducing the size of the State so the people that would be so badly affected by this ludicrous proposal could be given tax cuts - that aren't simply to compensate for higher taxation elsewhere - and get on with their lives with the least amount of government, and economist, interference.

Bloody hell. (You can take that last bit out if you want Bryan with a 'y'.)

Matt, do you see a

Matt, do you see a government implementing any new tax, and then cutting another tax.

It doesn't happen.

There is something wrong in

There is something wrong in the assumption on how much new tax it would raise.
GST is a cascade tax that is paid by the end consumer. Moving where the final consumer is would only raise a net increase not a gross amount.

It would change the relativities between the cost of mortgages/ rents and other goods/services.

I still favour making interest non deductable for tax to get the same effect.

great ........ more taxes. Let's

great ........ more taxes.

Let's make it provisional as well, so we have to guess what tax we will need to pay in advance .... and then if we get it wrong we should get charged for not getting it right. To top it all off we would need to spend hours on the phone explaining to the IRD why we could not forecast the future.

Fat chance of this coming

Fat chance of this coming in. For a start the banks will tell Bill "NO" when he asks them if it's ok. They won't fancy a future where demand for mortgages drops. The other "NO" will come from the National Party rump and the Caucus, both invested in property and longing to harvest the capital tax free gains. So, it's dead in the water, just like the economy. You have to come up with a tax that only the peasants pay and the fat cats can escape.

What a daft idea.

What a daft idea.

Neville you are right. There

Neville you are right.

There seems to be a misconception about loans, they are a service just like anything else, and in my view there is no logic in exempting them from GST.

The important thing is to realise is that the financial sector has a free ride. I think it must be historical due to the need for governments to finance wars over the centuries but they get very special treatment.

Specifically the ability to charge interest as an operating expense is in a sense a huge rort which is endemic in the western world. A business (and in my view owning a house is a business venture) can be financed by equity or debt or both. The owners decide. The decision to take on debt is an ownership decision not an operating one. Thus interest should be allowable against capital gains but not against income.

The net result of giving special deals to a sector is it gets disprortionately large and I believe this is what has happened with finance both globally and in NZ. I mean how many of us does it take to lend each other money? The current system is ridiculously inefficient.

I could only laugh at

I could only laugh at this ridiculous proposal - in fact it had me wondering if it was April 1st

@Hubbard : can't agree more

@Hubbard : can't agree more

GST on mortgage is not going to affect landlords because we can claim it back.

GST on rents would only make our tenants worse-off. But landlords will like it because tenants would be forced to buy houses so that they can receive the 12.5% discount, which will push up the house price...haha...

I always thought Fallow is an anti-housing person, I was wrong.

Tax will never stop house price from raising. If Fallow would like to make housing less attractive, he should have suggested something else.

For example, decrease the banks' house loan to capital ratio to 1:100 for all future loans and make 60% deposit compulsory for second property.

The next morning you will find a Mt Eden 4brm house asking only $250,000, which comes with full furniture and a brand new BMW car in the garage.

You have a greater chance

You have a greater chance of seeing all MPs hand over all their perks, than you have of seeing GST slapped on mortgages and rents. Too many fingers in the cash box that would get chopped off. Too much of a threat to the party machine desperate to buy the next election.

Moving accross to Australia will

Moving accross to Australia will be an even better proposition.

You're more at risk than

You're more at risk than others Gingerbreadman. The taxman would enjoy taking a bigger bite out of you.

I support this proposal wholeheartly....provided

I support this proposal wholeheartly....provided there is a corresponding tax cut.
Otherwise it is just another tax increase. Then lets watch the Labour/Green and "spend- other-peoples-money crowd" whinge about the "poor" being left homeless and forced to eat dirt.

The argument about GST increasing rent is without basis. If the GST can be claimed againsts interest and cost, then it's effect is minimal. Furthermore rent is a function of income, not GST. If renters cannot afford to pay the higher rent asked by Landlords, then the rent asked will have to fall or remain static.

Interest is a cost to business, if a business has to rely on bank loans to operate (which business doesn't?) then they should treat interest payment as cost. If somebody uses 100% equity to fund his business and has no interest cost, then he makes more profit because he does not have interest "costs"...get it ??

FINALLY, ALL THIS TINKERING IS NOT GOING TO REDUCE HOUSE PRICES...WHICH IS A FUNCTION OF LOOSE CREDIT CONDITION (interest rates 2.5% etc etc ) and UNREALISTIC EXPECTATIONS OF UNENDING PRICE APPRECIATION......When this end so will the housing boom end.....which will be not too far into the future. So don't sweat it too much.

If the 2billion saved was

If the 2billion saved was "spent" on say the first $1500 income for everyone was tax free, I could see that as sensible...almost....however I would agree with Mark H. in that I dont see landlords paying GST, its the end users....

From what I can see this suggestion seems remarkably ill-thought out and easy to get around....yet this is from a so called pro?

regards

I had to chuckle at

I had to chuckle at Breakfast on TVOne this morning, after Matt Noland had presented his rather ambiguous piece on "NZ property to soar", when Paul Henry looked at Alison Mau and asked her, " So does that mean he thinks we should buy or sell?"
"Sell" she whispered..!!

for goodness sake, if you

for goodness sake, if you want property values to fall just ask me for the list of r sole tenants that have done me wrong over the years. i can think of about a dozen really awful individuals, that if given a street front property each, about a block or two apart, would make the suburbs perceived value drop like a stone. there are many such people out there, and many landlords now use TINZ to avoid them if they can,TINZ could probably list enough such people to ruin auckland city with such a plan.

the only problem is when they all get hauled off to the slammer, house prices will shoot back through the roof.

i.e. a temporary fix is not necessarily permanent, and our tax and legal system is only the best that money can buy, if you can afford to, you can get around it. if you don't believe me, then get the green party to get the rest of parliament to disclose not just the MP perks, but also MP's gross income and tax if any....

oh... and by the way, in case you missed it, property prices are rising, therefore there is little chance of a drop - just some crabbing here and there, aside from the dog houses which only increase in value when they are demolished.

up up and away in my beautiful my beautiful balloon.... (it aint no bubble)

Forget that for a joke...

Forget that for a joke... every landlord having to fill out a return... claiming every expence... Rats and Mice fraud city!

Nope GST is great as a leveling tax, it is a tax on spending rather than earning.

Bump GST to 20-25%, have $15K-$25K tax free (not $1500 which is nothing)

This will also save the Gvmt a hang of a lot of double handling and taxing.

At the moment every student allowance/ sickness benefit etc. is taxed... but it comes from tax. Of course this is fair in the current environment, but it's a waste of time. The govt gives it out, then has to deduct tax and collect it back! Of course this doesn't work well in the case of family benefits where some have to recieve more than the threshhold could be...

However, this might sound nutty, but what if Income Tax only applied over 100K or so? and GST is bumped to 25%... how would that work?

That would be an encouragement to savers... even MPs have to pay GST!

Heres a hopeful thought. I

Heres a hopeful thought. I think there is growing realisation (now becoming the mainstream) that our over investment in property is killing the economy (in exactly the same way Muldoonism and the welfare state were killing the economy). Yes a lot of people will come out with their pitchforks to oppose taxing property but we now have no alternative. Rational behaviour is being forced upon us in much the same way as a warming climate might force us to change our behaviour re the environmnet (Don't want to open up an argument on this here, just using it as an analogy).

Its either tax property or slide off the face of the earth. I dont believe it would be an election killer for the govt. Its something that their arch enemies the greens are largely in favour of, ALL of gen Y, half of gen x, and boomers who care about their kids. If its accompanied by good education to trump the campaign we would expect from vested interests then the govt will still stay in power. Rogernomics was never popular, but to a large extent there was no choice so people lived with the change and then voted in a govt who never intended to dismantle the changes but instead accelerated them.

Even simply giving the message that the govt is serious about applying some kind of tax should serve as a warning and a restraint on bubble behaviour. Have faith property bears. The times are a changing I believe, the days of property being given sacred status are fast fading. WHY?? Because it no longer serves those who were supposed to benefit from the sacred status in the first place. TAX IT AND TAX IT HARD!!

not that I think the

not that I think the GST idea is so great - it seems to be something that would be worn by renter if anything, but if accompanied by a general cut in income tax I have no problem. The key thing that needs to occur is a disincentive to speculate in property. So a blanket CGT on ALL asset including the family home is the only way to go to even up tax treatment. Why should we pay tax on income when a millionaire with a 10 mill beachfront property that doubles pays none??

Its ludicrous to pretend a CGT will not reduce house prices. Lets say i buy for 300 with 200 mortgage, sell for 500 with 200 mortgage - without tax I have 300 equity to invest in the next house. with tax of 30% I have about 240 equity. When I go to buy second home I will have less to spend but it wont matter because everyone else will be in the same boat. This will without doubt reduce the price of second homes and consequently first homes.

@ jimmy why not just

@ jimmy

why not just tax you more since you like tax so much. are you in or owning a business? perhaps if we double or triple your tax, and not allow you to claim any business expenses you could lead by example of how it makes everyones lives that much easy with more expenses, less income, more tax, and no deductions....

President, Get a grip on

President,

Get a grip on yourself. The intention of the tax proposals is to come up with ways that do NOT increase the tax take, merely spread it around in a way that is fairer AND assists productivity. In an ideal world NO investment behaviour should be influenced by tax. It should be even across the board eg

1) it should NOT be tax advantageous to apportion income to your non working spouse
2) it shoudl NOT be tax advatageous to earn money on capital appreciation on your house v gains on foreign shares v salary v interest on savings.
3) it should NOT be tax advantageous to borrow lots of money on a cash flow negative investment that can never become positive in the short/medium term.

We need to work towards a broader and flatter tax with consumption tax thrown in as well.
Its about removing distortions not ADDING to the tax take. Property owners have had their snouts in the trough for so long they think they are entitled to preferential treatment.

Had a good laff at

Had a good laff at Mark H & CCBuyer at their idea that rents would go up 12.5%. This concept has often been promoted in the past: eg, i"f values stop going up, we will have to put rentals up to compensate" etc. The reality of course is: how many tenants are sitting there with an extra 12.5% ready to shove it at the landlord? The vast majority of tenants live from week-to-week, consuming 100% of their income. So in fact the pre-GST rent would have to DROP 12.5% to allow, thus taking away a huge amount of the incentive to be a landlord, & dropping demand & therefore house prices precipitously.

Bloody good thing.

Libertarian blogger, Peter Cresswell, says

Libertarian blogger, Peter Cresswell, says it well:

http://pc.blogspot.com/2009/08/fat-fools-call-for-new-taxes-on-rent.html

Quote:

"Everyone's got a favourite tax they want to slap on someone to stop the exchange rate exploding and the housing bubble happening again.

Brian Fallow is the latest alleged economist to weigh in with a new tax burden to fix things."Time to add GST to rents and mortgages,"says the Fat Man. No Brian, it's time you and your tax-hungry buddies stuck your head down a toilet and pressed flush. ..."

Jimmy, the best way to 'remove distortions' is to take the State out of the economy altogether, period. Indeed, separate State and the economy (and for the same reason that the State and religion were separated in the past on our way to civilised societies). Not more distorting taxes to try and fix the last lot of distorting taxes. What a racket this country has become for those who govern, that and a nation of slaves, as exemplified in so many posts above - a lethal combination.

Added to that, Philly, will

Added to that, Philly, will be a probable increase in the number of defaulting tenants if rents rise in sympathy with a GST. If there's no financially viable alternative for a tennant then I can see a need for more staff at the Tenancy Tribunal

Gee, what is it with

Gee, what is it with this country that we're so without aspiration. Give people an incentive to earn more by lowering tax rates on income by increasing tax rates on expenditure and other forms of income such as housing and they say you're picking on those on low incomes and giving the so called 'rich' an easy ride. Those at the very bottom of the income scale will probably always be there for various reasons and the government will always give them plenty (in fact these people will probably spend their entire life paying no tax). The rest of you should aspire to move into the above 70k 'rich'(what a laugh)bracket. Instead everybody is finding ways to avoid moving into this bracket by legalised fraud, whether by trust, LAQC, or property losses. I hope that the government moves toward a very flat income tax structure and starts taxing housing in some way. It just makes sense and is fairer. Why should PAYE earners at the the top end shoulder all the tax burden when people earn thousands through no effort & pay no tax. It is all a massive disincentive to productivity and the reason the country will get poorer and poorer. In 20-30 years we'll be at the bottom of the OECD, if not before.

Rent I can understand charging

Rent I can understand charging GST, as it is a service. However mortgage payments are a repayment of a debt. If they are going to do that, then why wouldn't there be GST charged when you purhcase a house, as that is a good that you are paying for. I assume if you are buying a new house off a developer, you do pay GST?
Considering we have to pay GST on rates, which is essentailly a tax on a tax, then I don't know why rent is GST exempt.

"In 20-30 years we’ll be

"In 20-30 years we'll be at the bottom of the OECD" jeez Andy M, do we have to take that long! The sooner we catch up with Zimbabwe, the sooner we get an IMF handout.

Mark - Fallow predicates the

Mark - Fallow predicates the idea on the basis of a substantial reduction in income tax, part of a "revenue neutral" approach

As Peter Cresswell says in

As Peter Cresswell says in my link above, Matt, trust no government to 'ever' take off a tax.

To quote Peter further, and incidentally, I think you'll agree with his point number one for fixing housing bubbles:

It's not an answer to say that this would be "revenue-neutral." What rot. What serious student of politics would seriously expect any commensurate drop in income and company taxes to match the new ones. And what serious economist would want the serious dislocations that would happen when a tax on rents and mortgages was slapped on "“ not to mention the serious injustice of raising taxes on one group, even if you did drop them elsewhere.

Apparently it's too much like rocket science to figure out what's really wrong and to fix it. Better instead to flap about strangling the residents while their house is burning down.

Because it's not rocket science to fix things. Here you go, let's fix them:

1. Fix the building regulations and the land controls that are still ramping up supply-side costs (even when demand has dropped), and
2. stop the Reserve Bank inflating the economy with counterfeit capital.

@ Rob, good point, they

@ Rob, good point, they could charge GST on the interest I suppose...

@ Andy M, THE TRUTH HAS NEVER BEEN CLEARER, thanks!

@ MH and other libertarians (if this is what they think), get real! I suppose police are a bad idea too? Can you really imagine a country with no govt controls on the economy???? I suppose no IRD, no TAX... let's continue a bit further... no hospitals?, no welfare (at all, not for sick, not for anyone)... Are you advocating Anarchy? Try moving to Zimbabwe if you think 'freedom' is so great!

Freedom can never be obtained by the notion of 'doing what I like', only by those who acheive the goal of 'liking what they do'. This isn't advocating slavery, but social responsibility.

Jamman that's not true, I

Jamman that's not true, I do what I like and like what I do. I'm as free as can be, with only the taxman getting a piece of me.

@ MH, Your comment about

@ MH,

Your comment about buildign regs and control (plus compliance costs) is quite true, as long as not take to extremes. Which from your previous posts might seem unlikely.

While I certainly advocate greater freedom of land use and self determination, equally I think this would lead to HUGE abuse, if left totally unregulated. The problem is... well, what is it, not just Greenies (No, no, no, it will upset my butterflies' equlibrium!!!), not just anti-progress freaks (oh no, please don't paint your roof, it been like that for 40 years and I really like the look of it...), the problem is in the whole that we (humans) cannot be trusted to do what we want! We will always abuse freedom, if we have it ALL.

Mark - good point, all

Mark - good point, all I'm saying is that Fallow's proposal was predicated on the basis of big reductions in income tax, so we have to take his GST proposal in that context
As you say whether that would ever happen is another story, but that was Fallow's concept anyway
And yep I agree with Cresswell's point 1, as I myself have argued ad nauseum on this website

<b>Jamman</b> <i>I suppose police are

Jamman

I suppose police are a bad idea too?

No, they are an essential component of a Libertarian minarchy, to ensure no individual or group can initiate force, including fraud, on another.

Can you really imagine a country with no govt controls on the economy????

Yes, it's called laissaz faire. The only economic system that gives true freedom is the only system that allocates a civilisations resources without bias or corruption.

I suppose no IRD, no TAX"¦ let's continue a bit further"¦ no hospitals?, no welfare

Yes, yes, yes and YES. I'm feeling giddy here.

are you advocating Anarchy?

No, not at all, I'm advocating a minarchy. Anarchists make lovely pets, but the trouble is they can't defend themselves, nor do they have an economic system that allows them to live and prosper.

Try moving to Zimbabwe if you think "˜freedom' is so great!

No, that's the absolute opposite: a tribal autocracy. One of the most evil things on the earth. Interesting thing though, they had a Western fiat monetary system, headed by their central bank. Cause for thought, don't you think.

Hey Wally, do you really

Hey Wally, do you really 'do what you like'?

Most of us submit to a few constraints of law, because it's 'the law', but equally there are no doubt quite a few things we would happily do if the law allowed it (driving at 110 instead of 100, for example).

I'm certainly glad you are happy, but those who really do what they like are in jail. Except the clever crooks who know when to behave (like me and possibly you?)

Jamman - I agree that

Jamman - I agree that a total laissez faire approach to urban planning would be undesirable - you would end up with the horrible sort of environments one witness in Auckland's CBD on all too frequent a basis . What would be desirable in my view is something between the currently excessively regulated approach (try carrying all three volumes of Auckland City Council's District Plan!!!!) and laissez faire.

MH, who funds your police?

MH, who funds your police?

No hospitals??? Do we all become cavemen? Survival of the fittest?

@ Janman do you really

@ Janman

do you really think all the prison guards like what they do? (taking the mickey out of your silly statement of course)

it seems obvious to me that you never heard the saying find a job you love and you will never have to 'work' again - which is different to what you imply being that all good things are illegal. no no no, once again another for you... the best things in life are free....

Thanks Matt, a bit of

Thanks Matt, a bit of balance never goes astray.

Freedom for one, can easily impose on another.

Jamman. Do you think you

Jamman.

Do you think you have a right to food at my expense? If I grow a bag of potatoes, are you entitled to it?

Why do you assume you have a right to health care, at my expense? There is no intrinsic right to healthcare.

And to answer your question, no, a private health system does not mean people will be dying on the streets. Without the intrusion of State, in general people will be financially better off (via a number of means, including having to learn to make responsible decisions for themselves, which is not having ten children on a below average wage (or am I responsible for that too) and thus able to insure themselves, plus for those few who would not be able to, there is private charity - although, if you are on the Left, you will of course not believe in charity, as you only believe in compassion through State coercion.

Thing is Jamman, if one

Thing is Jamman, if one is not a crook by nature and accepts the need for law, then yes it is possible to do what you like and like what you do. I don't work because I don't like to work and don't need to work and there is no law to say I must work. My bomb can hardily reach 100k.

I think you got me

I think you got me wrong PoP.

I am DEFINATELY NOT saying all good things in life are illegal. Law is good. I submit to the law because it is good, but this doesn't mean that my propensities do not tend outside of it at time (Have you never sped... and (oops) enjoyed it?).

I suppose I am really just making a point about the insatiable nature of the human mind.

Sorry if you misunderstood me.

MH, sorry, i didn't realise

MH, sorry, i didn't realise you were simply advocating the privatisation of everything!

Nice dream, where does it work? If I have enough potatoes, I'll share them with you. Sounds so simple, but alas, was it ever?

Wally, "if one is not a crook by nature"... It appears you are not so introspective as I imagined... There is not one good, no not one... a breif study iof history, including my own, prove this to be true, though I might be (and trust I am) a law-abiding citizen.

We all are until the

We all are until the Bill arrives Jamman!

Wally: Facts are facts, whether

Wally: Facts are facts, whether you are pulled over doing 55 ina 50 or not, you are still outside the law. I think you get my point. You don't have to worry about the Bill arriving if you submit to the law and have your propensities under control.

They just don't get it.

They just don't get it. That it is the productive sector that has been insidiously decimated by successive inept governments.

The result massive blowouts in unproductive government expenditure. More and more people believe that as of a right the government owes them something.

As Woody Guthrie said

Now as through this world I rumble
I see lots of funny men
Some will rob you with a six gun
And some with a fountain pen.

A liitle off track ,

A liitle off track , but one for the property fanatics

http://www.economist.com/businessfinance/displayStory.cfm?story_id=14258...

"My bomb can hardily reach

"My bomb can hardily reach 100k."
recon Wally Drives a Bradford...
Back to the subject, I just cant see the logic of taxing mortgages /rents stopping any future bubbles.....yes it may in the near future, but hey do we really expect one that soon?
And as far as the long term goes, eventually prices/rents (if have a tax on) will come back into normal market parameters...once that happens they will be just sussepitable to any booms as they always have been...
:always have been" ?
hmm. NZ has had its property ups and downs over the last 100 yrs, as does any market, but this last BOOM, was simply because of no requirement for savings/deposits and any real proof of being able to afford to service.
I think Brian Fallow has forgotten to turn on his brain, opened his mouth and changed feet.

No Steps you have it

No Steps you have it wrong, Brians idea has merit, some, but because it would threaten bank profits it will never get the go. The bubble could have been stopped had the RBNZ been given the green light to put a block in but this was a threat to Labours dream of staying in power. The bubble had govt support. Now we have low income families, that's most families, unable to afford a home of their own without a crippling bank debt. The new govt couldn't give a rats rear end about them. The welcome home to more debt splurge is all about porking their mates in the building sector. It will be Mr Market and rising rates that arrive to be the destroyer of equity in residential property. You can bet Bill English will sidestep any questions about the massive household debt burden and the property speculative insanity that prevails in the NZ economy, when he gets to chat up the worlds savers on his trip. They will ask him why the hell should they risk their money in a country with a govt that wants to carry on the madness.

No merit in it at

No merit in it at all, a crazy solution for a crazy problem I guess.

Rent and mortgage cannot be lumped together, period.

Imagine borrowing $50 from a neighbour and being expected to pay tax on it when it was returned! Okay Wally, do I hear you say "Don't give them ideas!"?

A mortgage is a repayment of debt, not a service. Rent is a goods/service.

Is Brian suggesting that the purchase price of a house should have GST added?

Thats fine, but then investors will claim it back and M & D will be stuck will another huge debt... What was this supposed to be a solution for? Go figure!

Why not tax people that

Why not tax people that earn over 300k pa at 80% rate and bring in CGT. It seems to me that the working class seem to pay more taxes than they can afford. Remember the old days when the average worker earnt approx half what the boss was on, no wonder those Telecom boys are on strike they have a long way to go befor they will earn their 2.5 mil per year, would someone wake up before we all become redundant!!!

Jamman Even though the mortgage

Jamman
Even though the mortgage is only a debt repayment, but I am happy if people to pay GST on it. Rent is a service, but I don't support the renter to pay GST on it.

Interesting, did Brian get this

Interesting, did Brian get this idea from me?

I suggested taxing mortgages and using the proceeds to subsidise business borrowing to help balance the economy towards the productive side.

@Rod Taxing those fiends that

@Rod

Taxing those fiends that earn over 330k at 80% surely isn't enough. They should be publicly flogged as well. That'll learn 'em.

Pete, what would Sue Bradford

Pete, what would Sue Bradford think of that

Theory, theory, theory. When will

Theory, theory, theory. When will Mark Hubbard become human? does he have a softer side, or is that only for his pussycats to see?

Rod - I'm Thinking she

Rod - I'm Thinking she might like that... It's all in the delivery you know.

Stupidest idea I have heard

Stupidest idea I have heard in ages.

As already pointed out a mortgage is a debt not a service. So in theory if it did come into play how does the IRD account for.

1. New borrowings on mortgages not related to housing as such but consumption. Does the money spent get GST tax plus the debt repayment?
2. Mortagages with differing intereset costs but the same debt level, having in effect differing payment amounts but the same tax. Or is GST going to be levies on the payments? If so how do you account for changes in interest rates?
3 What happens if rather than a mortgage other debt is used to purchase property. Does this become tax avoidance? And in the event of mortagage default can I get tax reductions?

All likely to have too much compliance and time wasted getting around it. Just put GST to 15% and put in a nil threshold for say the first $15k. Tax consumption more and earnings less.

Stupid idea, maybe it's a

Stupid idea, maybe it's a way of softening people up for CGT, which would seem much easier by comparison.

GST on houses? Clearly another

GST on houses?

Clearly another proposal not even remotely thought through by another silly headline grabber!

Let's think about this.

GST treatment of residential and commercial landlords will become the same. So residential landlords will be able to claim back GST when they buy a rental, assuming the current GST 'logic' is applied owner occupiers won't be able to claim GST - hence it will become more affordable for landlords to buy than homebuyers - great news for first home buyers? Not!!

Now lets think about GST on interest. At present commercial landlords pay GST on rents they receive but since interest isn't GST deductible they are essentially paying GST on the interest! To put it simply, the only thing charging GST on interest would do for a commercial landlord would be that the bank would now pay the GST to IRD rather than the landlord! GST ON INTEREST WOULD NOT COST A COMMERCIAL LANDLORD ONE CENT MORE TAX!

So under this proposal, it follows that it would not cost a residential landlord one cent more!

OK, so who's GST on residential property going to hurt?

1. Renters - the property doomsdayers among you may think GST will deflate rents - well it may but more likely it will inflate prices. Even if it did deflate prices it would affect existing property owners only, not future buyers of investment property so, as outlined above it won't cost them one cent more - hence property investment fundamentals won't change so it will do nothing but hurt the renters who will need additional government subsidies to pay the additional taxes anyway!

2. First home buyers - again doomsdayers may think that GST will deflate house prices but did that happen to consumer prices when GST was introduced and then increased in 86 and 89 - I don't think so!!

3. Owner occupiers with mortgages - they'll get taxed twice plus have to keep every last receipt for every last fixture or fitting purchased!! They'll get taxed on their interest payments plus taxed on their capital gain (although the government will assume the risk of tax losses from any fall in capital prices which all you doomsdayers are expecting any day now!!) Brilliant!!

Now every house built since 1986 has already had GST added onto the cost price, that's about 25% of all houses and the remaining 75% have, on average, had a fair amount of GST added to the price through renovations too, (everyone seems to forget how this affected real house prices), but just think how adding the same tax twice is going to impact on prices.

How? Well new house prices already include GST but existing ones don't - if GST were to be added to existing houses - driving up houses prices then suddenly it becomes 1/9 cheaper to build a new house - fantastic! - land prices will adjust something like 20% upwards to compensate!!

Why don't silly people think things through before getting out their pens?

some great posts - those

some great posts - those with brains know who you are - very well put discussions about this idiotic proposal...

Jimmy - property "is" the

Jimmy - property "is" the NZ economy - it's thirty times bigger in value than the NZ sharemarket when commercial and residential property values are tallied.

It is effectively "too big to fail" in fact it will always be the biggest economic powerhouse sector in NZ and nothing will change that, not GST, CGT, Stamp duty or any other form of tax.

Everything is driven by the success of the property industry and it all starts with peoples confidence and with the beautiful balloon gracefully heading skyward people are very confident right now!

A new home already has GST on the section and the build cost - they can't put GST on GST so it will never happen - Fallow is a stirrer.

We are wasting our time discussing various taxes on property as their is no way this government is going to committ property hari kari.

Lara, Lara, Lara... do you

Lara, Lara, Lara... do you realise what you are saying?

If property IS the NZ economy... HELP!

As posted by someone else elsewhere... 84% of our wealth is spend on shelter/location etc... how efficient is that!

"too big to fail" sounds so much like General Motors it's scary... when people think something is a sure thing, THATS when you really have a problem, its called denial!...

The 1932 great depression was a classic case of property being 'too big to fail', there was too much riding on it, banks, personal fortunes, private livelihood... CRASH!... was it really too big to fail?... Cost several million lives to fix that one... might do the same this time... China is running out of options.

However you are right, the question is null and void, just a 'stirring the pot'. Give us something realistic Brian!

Ridiculous, but nevertheless, amusing. This

Ridiculous, but nevertheless, amusing. This is not going to work in a country like New Zealand.

Did anyone else listen to

Did anyone else listen to the item on National Radio this morning with Chris Laidlaw?
It was on Tax reform with Professor Craig Elliffe from Auckland University, Bill Rosenberg, economist with the C.T.U. and Alf Capito, Head of Taxation Policy, Oceania with Ernst and Young Australia.
As one would expect from this line up it was pretty left leaning (especially the first two) none of them liked the idea of increasing GST, and was interesting to hear from Alf Capito on the Aussie experience with Capital Gains tax.
If you can tolerate the somewhat leftish bias then its worth a listen:

http://www.radionz.co.nz/search?mode=results&queries_all_query=sunday

Was very happy to find

Was very happy to find this site.I would like to thank you for this very good read!! I clearly happy every little bit of it and I have bookmarked to check out new stuff you post.

Adding GST to margtages -

Adding GST to margtages - maybe for people buying a first home but not for those already in the process thats totaly unfair and does nobody realize that when ever you get an income tax cut but G.S.T increases you are paying out the cut 10 fold. In addition the latest G.S.T tax increase was supposed to be to bring us into line with Australia, I have friends in Aus who are telling me that G.S.T there is still at 10% and doesn't apply to everything.

So when it comes down to it the New Zealand goverment is just being greedy at the expense of low income earners and doesnt give a damn about the comman man who works his guts out for sweet stuff all and there are four million two legged sheep in this country that need to grow a brain.

Taxing mortgage debt is a

Taxing mortgage debt is a dangerous road to go down.  I guess the next logical step is then taxing all debt.  Tax the car loans - that should bring down the cost of cars then too, right? 

Or better yet, tax the credit cards.  That should drive the final nail in the consumer economy coffin.

There is probably a way around this anyway.  Let's see. Maybe a LAQC or Trust that I then rent the house for $1,,,,,hmmm