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Now the Capital Gains Tax debate is a poisoned well, Bernard Hickey points to other ideas that could solve the Reserve Bank's financial stability concerns and fix the Govt's fiscal problems

Now the Capital Gains Tax debate is a poisoned well, Bernard Hickey points to other ideas that could solve the Reserve Bank's financial stability concerns and fix the Govt's fiscal problems

By Bernard Hickey

The Reserve Bank's suggestion last week of another look at the tax incentives for landlords has highlighted just how poisoned the well of that debate has become after voters rejected the Labour/Green Capital Gains Tax at last year's election.

Watching Labour Leader Andrew Little squirm over a policy he clearly doesn't want is like watching a hospital pass recipient a split second before Ma'a Nonu arrives.

Even its supporters acknowledge a Capital Gains Tax is slow, clunky, difficult to administer, hard to apply widely and may not raise that much revenue, at least in the short term.

It also applies to plenty of non-landlord activity that risks creating a swathe of collateral damage.

It was easy for Prime Minister John Key to destroy it in the eyes of the public, particularly when then Labour Leader David Cunliffe appeared not to be on top of the detail.

So now that particular tax has solidified into a third rail of New Zealand political life which shall not be touched, what else could the boffins and politicians look at as a better, simpler, cleaner and more targeted reduction of the tax incentives for rental property investors?

The 2010 Tax Working Group looked at the option of a land tax. Arthur Grimes, who is a former Reserve Bank Chairman and a widely respected public policy economist, proposed a land tax.

It is simple, clean and he estimated a 1% tax on the value of land would raise NZ$460 million a year and cut land prices by 17% if it was introduced up front.

It would encourage more intense development of land and also encourage land bankers to build on their land, something that both the Reserve Bank and the Government say they want.

Farmers and Iwi would not be thrilled, but it would be the sort of broad-based and low rate tax which works best and which New Zealand has been effective in introducing.

A less simple, but also cleaner and more targeted option is one proposed this week by former Treasury Deputy Secretary John Crawford.

He proposed the IRD apply a deemed rate of return on rental property and then tax that return at the usual income tax rates.

The 'deemed' rate would be set with reference to a similar market return such as commercial property or to a 'risk free' rate such as the Government bond yield plus a margin of say 4%.

It would mean IRD would look at the council valuation of a property and assume it returned say 8% per annum, which reflected the likely capital gains and cash profits from renting.

For example, a NZ$500,000 rental property would be deemed to have a return of NZ$40,000 and the landlord would have to pay tax on that income.

There would be no arguments about the size of the profit or the value of the property.

The actual income from the property would be tax exempt and so there would be no padding of accounts with expenses in any sort of negative gearing sense.

There would be no escape.

This is a model already applied by the IRD when working out the income earned by investors with money in investment funds overseas.

Mr Crawford proposed that it only apply to residential property investment and not to owner-occupied or commercial properties. That would keep the tax nice and targeted and away from farms and other businesses.

It would address the Reserve Bank's concerns about the tax incentives for landlords pumping up a housing bubble that could burst and damage the banking system.

The Reserve Bank estimates there are 33,000 landlords in New Zealand who own rental properties worth NZ$181.3 billion. At a deemed rate of return of 8%, that would imply taxable income of NZ$14.5 billion and a tax bill of NZ$4.8 billion at the trust and top income rate of 33%.

That would certainly attract the attention of landlords and generate a significant drop in house prices.

Landlords might argue it would force them put up rents because of the removal of the tax incentives inherent in the current system. That would expose the bankruptcy of their current logic when they say they don't have any incentives at the moment. That possible rise in rents is also up for debate given Auckland rents rose just 2.8% in the March quarter from a year ago, Statistics New Zealand reported, while the median house price in Auckland rose 20.1% to NZ$720,000.

Rents are clearly disconnected from prices, so why would tax-induced change in house prices affect rents?

Also, landlords are in no position to complain.

They are the most subsidised industry in New Zealand, as Finance Minister Bill English regularly points out.

Taxpayer-funded Income related rents and accommodation supplements worth more than NZ$2.2 billion a year are spent subsidising more than half of all the rental properties in New Zealand.

Mr English now has a fiscal problem worsened by these subsidies and the prospect that rampant house price inflation may eventually be reflected in higher rents. A tax on landlords at even half the 8% deemed return suggested by Mr Crawford could solve both the Government's fiscal problems and the Reserve Bank's financial stability issues in one fell swoop.

And it wouldn't be quite such a hospital pass in a political sense.

Only 33,000 voters would be in a position to complain.

Why should New Zealand's political and economic debate held hostage by 33,000 voters?

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A version of this article has also been published in the Herald on Sunday. It is here with permission.

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100 Comments

The Crawford tax could also be applied to land within urban boundaries as an incentive to move it on.
Other benefits include being a positive for landlords in less popular areas where the yield may already be above the threshold return. Holders of unoccupied property should also be trapped if they are unable to prove it is for their own personal use within say six months of purchase.
Crawford is a bit soft on those points.

Bring it on!

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Crawford tax after reading the details again is completely unworkable and unfair as he has stated it. He says cap value used not owners equity to apply the rate to, and that no interest expenses can b deducted. I assume this is a mistake. Can only b one or the other.

Either apply the rate, eg 8%, on the owner equity in the property and not allow interest deductibilty (as only 'expense' on owners equity is opportunity cost which is accounted for by the rental return).

Or, apply to cap value of property, but interest expenses must be allowed to be deducted

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Gareth morgans comprehensive capital tax uses my second option above where interest is able to be deducted if applying the rate to full capital value.

"Comprehensive Capital Tax (CCT)

The Comprehensive Capital Tax (CCT) is an annual charge calculated by applying the flat tax rate to a ‘minimum required return’ from real assets less interest costs (the minimum required return is set by government but 6% was assumed in the Big Kahuna)."

What Crawford states in his article is either a mistake or hes lost the plot

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listen to the landlords whine, I like it.

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So you consider it fair that landlords would be paying tax on a portion of an asset owned by the bank, which you are already paying interest to for use of their funds? So the govt double dips by taxing the bank on its interest revenue on the bank loan, and the property 'owner' as well for the same bank loan portion as well as the owners equity?.

No. Would never happen. Gareth morgans version seems fair though, and at 6% would hurt speculators and rewards real investors

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Isnt this what rates are? Or say I buy a car on HP, the HP company owns most of it so it should be GST free?. So eventually you will own all of it, hence you pay tax, on all of it.

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If your car is used as a business car then yes, at the time of the contract payment you are supposed to claim the GST. On the contracted value if invoice basis, on the payments if receipts basis.

Likewise when you dispose of the car, it is secondhand at you need to either zero rate it (and thus make sure the other company knows it's zero rated so they don't claim GST which you have not added) or , especially if sold to a consumer who is not registered for GST, you need to add the GST back on for the sale value.

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yes excellent extort liquidity.... that's got to be good for the economy. who cares if the victim doesn't have the income/liquidity, they're just state property anyway. Just remember what happened to those two tax collectors in Mortons Fork.

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Where's the bit about getting the foreigners out of the market? You did say ideas (plural) didn't you?

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Oh the green-eyed-monster is strong in this post.

Other people are making money from residential property, we're not, so let's tax them to death! Hahahaa that'll serve those greedy landlords!

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I don't see it that way Davo36.

I see it that the current regulatory system is rigged in favour of the landlord for the following reasons;

*the tax system (thank you Bernard for addressing this area of debate)
*supply restraints caused by a lack of transport and other infrastructure and the consequent planning restrictions
*open borders for foreign property purchases
*government subsidies -accommodation supplement, WFF
*rental rules making them unsuitable and unstable as family homes
*the self entitled attitude that property prices need to be protected unlike other economic factors -farm export prices, rents, employment, wages, profits.....

Dismantling the rigged system would not be done for jealousy reasons but to make a fairer more effective environment for investment in New Zealand's economy.

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(1) the tax system is not rigged towards landlords.
(2) those restrictions are natural effects of resource supply and "scarcity", exacerbated by rapidly growing population
(3) that is true ... but who benefits? Not the local landlords
(4) the accomodation suppliment and WFF are subsidies to families, not to landlords. The advantage there goes to wage payers (WFF and consumers) as wages can stay artifically lower than they should be for our overtaxation requirements, and to put roofs overheads (for accomodation suppliment) when benefits the families and your "community" by keeping the poor in accomodation that is much nicer and more healthy than they can afford.
(5) people aren't forced into rental properties and strongarmed by landlords to sign tenancy contracts. Many homes are far nicer than is needed - just look back through history and see what a family home can be. It is the prices of food and clothing (especially the tax component), and the extras forced to be added to homes (eg rates, interest, insurance) that causes them to suffer needlessly, as are rules which provent them making their own cheap accomodation as many of their great grandparents could.
(6) you're talking rubbish. farm export prices, rents, profits aren't protected, neither are property prices.

poverty is the problem. poverty from lack of purchasing power and regulations which make expensive certifications a requirement and other such no-value add ons. The lack of purchasing power can be traced directly to Velocity of Money... ie to much taxation for the size of the economy.

If you spend as much time finding better ways to fund your gang mates, you would have better answers than trying to justify your bs "fairer" thievery. And the people might actually have a few resources left of their own to build what they need. You want fair...look at the risk vs return of a small business owner vs a middle or upper government employee. Don't forget to add time and personal exposure to that.

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Excellent Bernard. You have done a great job out of taking emotion out of the discussion. Both ideas you raise have potential. My only comment would be to do make the changes slowly over a five year period; so if you want to get to a land tax of 1%, start at 0.2% in year one. Same with imputated rate of return, start at government 10 year bond yield. It's important to get the structure right and implement it gradually, exactly as the NZ diplomats do with trade deals (ie get the other party to phase out tariffs over a 15 year period).

Having said that it is tempting to suggest that the land tax should be passed back to the regions it comes from on a per capita basis, something like the Swiss do to fund their cantons. The Swiss system has the wonderful benefit of encouraging the cantons to compete with each other to attract business and people to their area, this is the missing piece in NZ local government.

It would be nice to sort out the non deductibility of depreciation and earthquake strengthening at the same time, the current system is stupid. Buildings do deteriorate with time and the owners should be encouraged to keep them fully functional.

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One way to get Iwi and farmers on board with land value taxes is for the tax to be returned to them in some collective form. For instance it could go to an iwi controlled trust and for farmers it could go to a trust that aims to improve productivity for instance.

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No.
tax = bad.

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No taxes = anarchy

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Just like the United Arab Emirates that managed to go from nothing a little over a decade ago to a major economic hub? With no income tax.

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Does UAE have no taxes of any type?

Most non-anarchist would agree that some level of government is needed and it needs to be funded by taxes.

So given the need for taxes what is the best sort?

Which taxes create a level playing field, which taxes encourage the things we want to encourage and discourage the things we want to discourage? That is the question Bernard is addressing and I think he did a pretty good job.

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Of course they do - they levy oil taxes so no need for any other taxes. Wouldn't National love to be able to do that?

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Any non citizen resident also has to fully pay for health, education, pensions. There is no social welfare for non citizens. There are land taxes like rates here. So 80% of what taxes go to here, are self funded in the UAE. Abu Dhabi, (one of the two main emirates, the other being Dubai) has more oil per capita than anywhere else in the world, and Abu Dhabi pays for policing, defence, most central government admin (which is relatively small given most things are user pays), and core national infrastructure. So the tax free element is pretty good, but you or your employer would have to pay for a lot of things that are taxpayer funded here, depending on your personal/family circumstances.

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that is utter bull.

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How about come back with an argument that holds water, ie but they own all the oil.

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incorrect.

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There are chances of valuation and tax rate being manipulated to suit the governments' needs...and many will suffer from such arbitrariness. Once you let in a tax, it won't go away ever. Be careful of what you wish for, you may get it.

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More Moral Hazard - Is it an Auckland problem or is it a National problem

Auckland has the highest proportion of households in rental housing
The percentage of households who rented their home was higher in Auckland than in any other region of New Zealand and has increased, at 35.4 percent in 2013, compared with 32.4 percent in 2006

At the 2013 Census
Auckland had 439,000 dwellings
Of which 35% were rentals or 153,000 and climbing
That's Auckland on its own, not nationally

If there are only 33,000 landlords "nationally", that is a high concentration in a few hands
RBNZ and Hickey don't provide the number of Auckland landlords
How many landlords are in Auckland? owning those 153,000 rentals

Which leads to the next two obvious questions
How many of the 33,000 landlords are Foreign Nationals
How many of the unknown number of Auckland landlords are Foreign Nationals

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Hickey's numbers are rubbish.

$181b divided by 33,000 landlords is $5.5m of property on average!

With a third of all properties in NZ rented say 500,000, then each landlord on average owns 15 properties!!

More likely there are 330,000 landlords and the majority own 1 rental. Our friend Hickey balls-uped the numbers ... again!

That's like 660,000 voters and two-thirds of what you need to win an election!

And to add more stupidity to his article he thinks that a one-off change will keep prices low. All a one-off change will do is make a one off price adjustment, from which prices will return to climbing based on a new normal. Nothing will be achieved.

Cutting unsustainable immigration is the only solution and it's about time some people man-up and admit it instead of spouting the xenophobia or racism card in order to deny the problem.

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When you say 33,000 voters does that figure include their spouses who would presumably also prefer that their family income was not reduced? What about their voting aged kids? If we assume 33,000 voters + 33,000 spouses + 66,000 kids = 132,000 votes from the segment of society most likely to vote or 5.5 % of those who voted in the last election.
Add to this everyone who owns a holiday home or batch / has an immediate relative who owns one and lets them use it and you have probably got a very massive portion of the vote.

Landlords might simply erect 10 square meter sleepouts that don't require consent or make a "room" in the attic on their properties and declare that the primary residence of their partner/kids while tenanting out the primary house on the property.

What happens to Joe average first home buyer who buys a house with his life savings and then loses 17% of his land value as you've approximated above pushing him into negative equity and making him lose his home to the bank? Volatility is a friend of those who have capital, allowing them to buy Joe average's house at bargain rates when the bank forecloses.

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Bernard, I do enjoy most of your articles and gain a lot of insight from much of your writing, but I have a few concerns here.

First, the entire premise of your article is undermined by your implication that there is some massive fiscal problem that needs fixing. What problem? The government has run mild fiscal deficits for a few years, which is exactly what is supposed to happen after a once in a lifetime global economic shock in order to help revive the patient. The deficit was appropriate, the government is now on a sustainable path towards balancing the budget, and net government debt is low by world standards. There is no fiscal emergency at all. We Kiwis have this urge for constant reform of everything. We are a bit like the old man with his train set; we keep fiddling with it out of restlessness as much as anything fundamental.

Secondly, this business about setting a 'deemed' rate of return is so odd it's difficult to know where to begin in addressing it. What does IRD know about property markets? By suggesting the deemed rate would be "set with reference to a similar market return such as commercial property", you are giving the game away completely. How are residential and commercial property similar at all? Then, we have this gem: "... or to a 'risk free' rate such as the Government bond yield plus a margin of say 4%". The NZ government (no capital g required, Bernard, it is not a personal pronoun) bond yield is not a risk-free rate! It Of all government securities issued worldwide, we have among the highest risk premium in the so-called 'developed' world. What on earth are you talking about? The theory of estimating a proper required rate of return relies on using a true risk-free rate, not one that already has a significant risk premium built into it. Saying IRD should tack on another lazy 4% (where does 4% come from, incidentally?) over and above a rate that is already quite a risky rate is double-dipping to put it mildly.

Thirdly, why is property investing the only business where these ideas should apply? Perhaps IRD should deem that Fonterra return a certain return on equity and tax that instead of its actual pre-tax income? It's easy, just start with a risk-free rate of whatever your gut tells you and tack on a margin of say whatever way the wind is blowing and voila - there would be no escape! Furthermore, why is property investing the only business where profitable expenditure should not be tax deductible? How do participants in this discourse get away with such intellectual dishonesty?

Or are you suggesting that all tax deductions should be scrapped in every area of the economy? At least that would be consistent.

This is a higgledy-piggledy suggestion to a trumped up emergency that isn't really an emergency.

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Well said. Another point is the factoring in of "expected capital gain" into the deemed rate of return (is this rate nationwide, or does it vary for different regions/cities/suburbs/streets even?). I doubt Southland landlords would cherish Aucklandesque capital gains being factored into their tax bills.There is massive crystal ball gazing built in to this approach, and past gains do not always carry on into the future.

Why can't rental property investment be treated like any other business activity? If an asset is sold and the proceeds exceed the IRD's depreciated value, the surplus is assessable income. This should apply to all property used to generate taxable income. The question of intent at time of purchase should be irrelevant, as whether the business income is generated from rent or sale or a mixture of both is irrelevant, it is all income and it should be taxed as such. The only reason it isn't currently must be political, there certainly any logic involved.

THere is more merit in the land tax proposal, it at least has some intellectual pedigree, can be very broad based, has some good moral arguments in its favour, and is used successfully in other countries.

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Actually rental property IS currently treated as other business activity.
If you buy a car, use it for a business purpose, write down the car, then sell it for more than you bought it.

You do need to provide a paper trail, but as long as you were not intending to resell (or trade in) the car then you don't pay for the "income" it generates!

My previous example was a sound recorder mixer that a band manager friend of mine owned. Because he brought it cheap second hand, and had figured he'd just toss it when the band got famous or he could afford a bigger one or he'd use it until it crapped out, the disposal value was nil. Intention to resell was zero.
When he was looking to upgrade someone recognised the model and offered him not only more than the written down value, but more than he paid for it - and since there were no other cheaper ones exactly equivalent on the market...IRD said that the money wasn't taxable, although he would have to reverse the final years depreciation claim (ie can't claim that last year because obviously it hadn't depreciated that year).

Tests include:
- must have reasonable expectation that item is not going to be re-sold for profit.
- can't be a trading enterprise (ie he could not do it if he own a second hand store or music equipment store) ie has to be _capital_ equipment
- exactly equivalent items must not be available cheaper (stops gaming the system with fake prices)
- amount must be more than the original purchase value. If the amount is more than the written down value but less than the original purchase value it just indicates that the depreciation/disposal value has been incorrectly calculated.

What IRD is being reckless about is the first one. Many houses could be said to be ideally resold for a future profit. But rather than properly revise "family home" legislative can of worms they would rather wait for a way to pocket more cash. Of course such things are down by our law policy _makers_ who have more political things to occupy their times. Like using Anzac day, a day of mourning the waste and loss of war, to try and drum up sympathy for getting more NZers murdered for foreign profits.

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More Moral Hazard

By not acting sooner, the fools have stupidly allowed a dilemma become a nightmare

The logic effect of both solutions is to subsidise Auckland

By imposing a national penalty/impost, spread across the nation, to solve an Auckland problem

At some point, they will have to solve the ring-fencing of a one-region problem

This can only get worse

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Agree, but then Helen Clarke should have acted a decade plus ago.

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But it does allow Auckland councils and wealthy top corporate people to borrow more on their inflated proeprties, and do a bit of insider trading on the property market before closing the profit door.

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My thoughts
National = do nothing and hope it sorts itself out, so two more years of the same
Labour = high immigration so not sure how they will reduce demand. will be interesting to see if they have solutions or weather they just sit back and let national do the work for them of turning their voters off for them to come back in
Greens = GCT and banning foreign owners but still high immigration so not sure that will work
NZfirst = low immigration and no foreign owners, they could have a good result next election if their leader does not implode the party.
I cant see any one party with what I would to see
1 you can not own any NZ LAND unless you are a NZ resident or citizen, you either rent or lease the land you can still own buildings and that includes companies
2 20% deposit first house 40% second 60% third ETC
3 the government to build whole subdivisions, to a standard 5, or 6 designs to only sell to first home buyers, keeping 5% of house for social needs, the cost borne out of the profit and the thing to be fiscally neutral, i.e 100 houses built 5 kept for the old or poor whole subdision comes in no cost no profit
4 to use the building to train the young into trades, you could put a quota on who ever wins the contact to building there must be 2% of the workers in training for each trade. chippees, plumbers, electricans etc etc.
I grew in an age where only the cream went to university to be doctors lawyers, your degree was based on you ability not how much you could borrow
next level went into the trades and there were plenty of places to get that training,most were govt departments(but the training was good), but most left when training was complete and went on to be self employed and we didn't have to import
last lot went into lower skill jobs, and the beauty of that system was when you employed someone you pretty much knew what they were capable off
5 no work no pay, if you are on the dole you have to do some work, don't care what it is, picking rubbish up for all I care. and you must do min 30 hours week still 10 hours for job interviews. if not your dole reduces per hour missed to try to instill some kind of work ethic.

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no work no pay, if you are on the dole you have to do some work, don't care what it is, picking rubbish up for all I care

That reminds me of this street cleaner who lost his job recently and got onto the dole. Then he had to start working for the dole. And guess what? He had to do hiw own old job!
It's all very well, this "working for the dole", but whose jobs are being taken??

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Very true, in effect since its work it is minimum wage applies thanks, ergo the Govn ends up employing, supervising and training a whole raft of ppl, its way more expensive then letting them do nought.

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yep. and you don't get workers rights when you're on the dole chain gang.

"work for dole" schemes have proven to be absolute failures in the past. Only institutionalised mindsets still keep trying it and clearly they have no concept around why the causes or cues to the actual problem is.

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Really just thinking aloud here.

New Zealand already has a land tax in the form of rates which clearly have no effect in suppressing bubbles. I have been a bit slow on the uptake but a land tax is different from rates because
- in rates land values only define who pays what through relative land values.
- a land value tax would be applied to the absolute value of land

So all other things being equal a rise in land values such as we are getting in Auckland right now would mean an increase in land value tax but no rise in rates. (Smirk, smirk - it's just a hypothetical thought experiment).

OK that bit is easy what is not easy is defining what land value means. If we really talk about land value we need to be clear about how land acquires value and then consider how we tax it. Firstly what land value isn't is any form of improvements (buildings, fencing, landscaping, irrigation systems, internal roads etc etc).

Rural land largely gets its value from its inherent productive capacity (soil fertility, average rainfall, sunshine hours, contours etc) or the extractable resources already on it (timber, minerals etc). Only a small part of its value derives from where it is (relative usually to towns and transport links).

The opposite is true for urbanised land. Pretty much all of the value of urban lots derives from where the lot is relative to various amenities, workplaces, schools etc. There is no value in how many veges you can pull out of a suburban plot.

If the point of a land value tax is to take the wind out of speculative markets and promote financial stability as opposed to simply raising revenue (for which existing taxes are perfectly adequate and more effective) then we really want to tax the excess of market price over base or inherent value.

In the urban case we know how much it costs to buy land at its next best usage price and how much it costs to service a new lot. In Auckland we could set a base price for a vacant lot on the fringes of the urban area at say $150K. The land tax would then apply to the council valuation of every rateable unit minus the base or inherent value. So Auckland median undeveloped section priced at $475K would still attract rates but also a land value tax applied to the $325K surplus.

In the case of rural land I would find a formula to effectively levy zero taxes. Except for when you get silly bubbles such as lifestyle block creation,coastal subdivision or dairy conversion.

Once residents understood how much Auckland Council's ludicrous over-planning was costing them in land taxes I think some of the political pressures would shift pretty fast.

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PS you don't even want to think about how much land tax the growers of thistles and ponies inside Auckland's MUL would end up paying.

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You would levy a land tax on unimproved value, a figure already shown on your rates bill.
The arguments for a land tax go as far back as Adam Smith, and were advanced by influential thinkers such as Henry George, Ricardo and John Stuart Mill Some form of it exists in many countries.

A land tax provides strong incentives for land to be used productively, would tend to favour more intensive urban development, and discourage landbanking, and non-productive "lifestyle" blocks (one of my bugbears). If I was in cjharge, I would introduce it incrementally over a number of years, and reduce income tax and/or GST to maintain fiscal neutrality.
Impossible to avoid, and in a fundamental way targets those who seem to avoid most other taxes.

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Technically the land value on your rates bill is not the actual land value but the overall value of the property minus all visible improvements. The simplest example is an undeveloped section in an urban area where the assessed land value includes the value of services to the lot.

I think a strict Georgist view would exclude whether a particular piece of land had water or sewer connections. Particularly since his view was a late 19th C view and Ricardo was very early 19thC and really had no idea of serviced land.

If you were to take a pragmatic approach you wouldn't let these finer points get too much in the road but they still have to be taken into account.

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The old system also doesn't allow for value of access - eg to shopping malls, bus stops, other corporate business. Like Marx, the value was in the material cost; modern understanding of price drivers setting value (eg Auckland prices vs Provincial prices VS Auckland CBD prices. Same land, sometimes same building, much different value - often depending on whether the property is a dwelling place, a low value price follower (eg farm, esp. farm outskirting town), or price setting factory (eg Fonterra Factory with railway access or Corporate headquarters with CityLink fibre support)

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Earlier arguments for Land tax were based on the idea that the rich owned the land, and value ultimated derived from land. That was why one French economist said that all taxes and charges were eventually just levies against the landlord - as the landlord could not move the land and was frequently the last paid of all creditors (and thus the ultimate price follower, as any business had to deduct all other costs first else be unable to function - unlike the landlord who could not refuse supply of labour or resource or credit ).

Fortunately with the rise of Double Entry Accounting economics should be more business and cashflow aware. the formalised system of True Value inherent in the double Entry Balance Sheet allows us to list "intangibles". the value of anything that is paid more than the sum of its parts. ... and also to separate (via the trading accounts) the price settors from the price followers - a factor that early economists perceived but were unable to quantify.

Hence revisions such as "Mark to Market" and "Inflation Adjusted" modifications to Accounting systems.

In theory "a land tax provides strong incentives for land to be used productivity". But think about it a little more. _WHY_ isn't it being used productively already?

I really can't stress that _WHY_ hard enough?

What is it that _REALLY_ stops that land being put to more profitable use?
What _REALLY_ stops a business using it...what stops _you_ putting something there? You can perceive the opportunity for the land to be used...what is the _REAL_ obstacle.... before you go throwing some tax cost on a system which already isn't paying much (and thus the price is being pulled from somewhere else in the system)

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Tiresome - here we go again - round the dance floor one more time

Deeming at 8%

Former Treasury Deputy Secretary John Crawford's proposal is less simple, (that is, it's more complicated) but also cleaner and more targeted option

Think. Think. Think it through one more time

Read Crawford's treatise a number of times. It is complicated and would require considerable bureaucratic infrastructure to administer, yet on closer analysis, if you consider any actual rent derived above or below 8% as mere pocket-fluff, then the proposal is equivalent to simply dis-allowing negative gearing altogether

Dis-allowing interest on mortgages as an income-tax-deduction and treating is as a capital-cost can be achieved by a simple gazetted regulation and a bit of retraining at the IRD. So why do it the complicated way with an army of bureaucrats

But, as mentioned up-thread, that hurts the non-Auckland regions in a one-size-fits-alls system

Wrote about this last week here
http://www.interest.co.nz/opinion/75123/we-should-embrace-and-accept-au…

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So rather than have my rental small business....

a few properties, with mortgages and loans, paying back with rental income, paying expenses, deducting interest on the capital I used to purchase the "plant" with which I run my rent-a-dwelling business.

They want to say MY small business unlike other NZ businesses can't write off it's interest.

so now I put the property in holding, rent it from the holding company. Take a loan in Company A, guaranteed by property and directorship in holding Company. Related party loan the money from holding company, to Company A, claim the interest on that working capital loan.

And while that's happening someone can explain to me why MY business gets singled out for this privilege of having its legimate expenses taxed.
I put in capital. I raise funds via debt. I buy plant. I sell service (shelter for periods of time). I have maintainence and wage costs. I have legal and financial costs. Yet unlike other small businesses I aren't allowed to claim my interest cost? And I get saddled with other costs and responsibilties not connected to my doing business, unlike other small businesses.

what can MY business do when the corruption is institutionalised.
Or are you all just trying it on because I've left farming after realising sharemilkers and modern entries into farming are just being farmed by their co-ops.

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Land Tax 1%

So a pensioner granny living in her crappy old villa in Waipukurau that she has lived in for 60 years, raised her children, buried her husband, would have to pay $3000 per annum out of her pension assuming the large section the old villa sits on is worth about $300,000

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Your emotive argument picks a poor example. Are you suggesting citizens should have a right to own land without any responsibilities to their fellow citizens? Maybe you should disclose your personal interests first before using granny to hide your motives.

Perhaps you should think about how land came to be "owned" in the first place. It ain't pretty.

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Citizens DO have a right to own land.

And they have no responsibilities while enjoying the privileges of ownership _of_their_own_property_, to anyone else (other people or the state) apart from not Offensively (in legal terms thats the opposite of "defensively") impinging on the other peoples rights. eg dumping their rubbish or animal waste upstream, damming water ways, having out of control burn offs, playing loud music that attacks other peoples quiet space (when the other people are in the other peoples property)

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Every private landowner citizen or not has to pay a property tax called rates and as Waymad commenting on a previous article demonstrated it would not be hard to change the rating system to a explicit LVT.

It is landowners responsibility to their community to pay whatever rating system is deemed necessary. If they fail to comply with this responsibility the local government can impose sanctions in order to enforce payment. Ultimately I believe local government can enforce through a due process legal proceedings that a private landowner sell their land to pay their debt to the community.

Cowboy you can live live in some anarchist dream world where you say you have no responsibilities to the community but if you truly acted on those beliefs reality would hit you hard.

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hey brendon.... Do u think we live in some kind of Utopia..??
There is a "Law" of economics I have learnt.... ie. "Everyone games the system.. " ie. both the public sector and the private sector.
When u use the term .."community".... do u think u are being a little unrealistic..??
if Bureaucrats have a licence to tax land... they will game it to their own advantage...
Just like they have with the whole building consent process...
Why not simply mandate that Local Govt can only generate income thru rates ... ????? That would bring land prices down and lower the cost of building.... dont u think..??

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I don't actually game the system.
One of the problems about being a loud individual, one who pushes several boundaries (such as language on this site), is NOT gaming the system.

I leave the gaming and selfishness to the evil people of the world. There's enough of them to keep each other busy.

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Cowboy... we all game the system... It is a fundamental economic principle.. Maybe u are "holier than thou".... but we all use the "system" to maximize out own self interest....
Even in Rugby.... teams play beyond the "ethos" and "rules" of the game ... in order to win..

The only solution to this.... is too have very simple rules that are as close to "first principles" as possible.
Just my view of course..

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I do not game the system.

Neither do I utilise it for my own self interest.

I stopped playing Rugby when the people involved started "gaming it" and "playing advantage" etc. You want punches in a scum...? I do martial arts I can give you punches... heck I even know how to conceal knives (thanks to security training and what to look for)... I generally "play nice" by following the rules. I have no time for those who don't...because you don't want to play nice, then I won't and I'll be the one with the powdered glass for the opponents f-ing middle time orange juice.

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Brendon do you even know what an anarchist system looks like??

Here's some tips.
The guys with the biggest guns rule.
Those who have a monopoly on violence and money make the rules to suit themselves.
They get to levy whatever _they_ feel like against others. And they get to declare it to be their rightful gain - I believe the gangs call it "taxing" their members and associates.
The best positioned gang hire muscle to make sure others are kept in their place and pay up.
If you want to exist in their area, you have to pay your protection money or the local gang send around the muscle to take your stuff, beat you up if they feel like it, and cart you off for torture or imprisonment if they want to. because in an anarchy you have no individual rights.

Does that ring any bells?

Yes, rates are land taxes. And improvement taxes.
And yes their muscle men will(have) come at me with weapons and stolen my property in the past, and made it clear that they are looking forward to trying to do so again.

And I have no responsibilities to your community, passed that of a degree of civility and the right of others not to be unreasonably interfered with in the enjoyment of their lives and their property. Shame your gangs can't say the same.

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Remind me again Brendon : What are the responsibilities of the community to the individual person.

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interesting how whenever the "community" pundits get asked about the responsibilities of the community to its members you can hear the crickets and watch the tumbleweed....

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Brendon.....So what you're saying is you have a preference to mob rule....and because a mob has numbers it must be right? And if you have a mob you can enforce payment and crush the individual just because you can.....who the hell gives anyone the right to inflict such power and control over any other person? And you think Cowboy is living an Anarchists dream!?!?!?!

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Technically they don't.

Mrs Windsor owns all the land in NZ. Taking title over a land parcel gives us two rights:

1. The right to exercise whatever rights Mrs Windsor in her infinite wisdom has decreed we may have
2. The right to not have to turn up at Buck House with our knights whenever she calls

That's why you can't secede when you have had a gutsful of the council

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Imperial State using it's gang law and monopoly of violence to impose on peoples rights.

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Take away the state's ability to impose this form of order then you have to subscribe to "all property is theft" and you are on the fast track to anarchy and a return to hunter-gatherer lifestyles.

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Not at all.
The difficulty lies in "Who are the State?"
That's why I think a constitutional monarch is an excellent system of governance. The "State" is hands off, singular, not a popularity competition, nor up for sale. Yet the day to day management, can be handled by normal people WHO ARE NOT THE STATE.

Not the State. But like councils, are supposed to work for the people, not to lead them, not to do secret shady deals, no to pass laws on who and what your lawn or garage or other personal asset should be.
Such management does involve managing public assets... for the public. Not selling them off for a song. Not doing secret trades with bankers that crawl us deeper into debt. Those managers are supposed to protecting borders, physically and financially. For the people in the country.

This means education of public... full education, not some half arsed propaganda machine.
Because only informed people of all genders can make informed decisions. And that's where the current system falls down with it's lies and image brokering.

Sure we can elect officials and members to stand on council boards.
But we have no transparency and no control within the organisations themselves. Like back when I was with a power company, the company just made sure all the dangerous people keep away from the board and the little empire could do what it wanted. And those people made deals with others of influence in the organisation (the union man on staff - by the time you realised what was up they'd already hatchetted you...most people went quietly...one didn't....).
the same happens in the existing State system. Instead of being management as caretakers, they see themselves as upper management of policy setters - and they hire people who keep that empire intact. And reward them for their loyalty...and try to crucify them if they don't obey.

The point of inflexion, the line that gets crossed, is when your own property is no longer your own. That you are no longer a free sovereign person in your own right and have somehow become a ward of the State (vassal).

The difference between "my property and ownership" and "all property is theft", is that intelligent people can agree on methods and ways to record and recognise ownership, and transference or ownership (trade, contracts). These trade and contracts are the very foundation of civilisation.
the State as master does not recognise intelligent people can agree on such things and insists that it's way is the only way, that its mandates are the only valid ones, and that ultimately thee is no private ownership is through it's rule everything actually belongs to it. Clear a violation of every human and natural right by the State.

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here's a quick rule of thumb:
Using a cow.

If the cow is provided by the State, and the State accepts responsibillity (without delegation) for the feeding and health and security of the cow, if the State accepts responsibility (without delegation) for the handling, movement and processing of the cow, if the State takes _all_ risk to do with the cows behaviour (wandering, attacking people, consumption effects of milk), and if the State has full responsibility (without delegation) of the disposal of the cow after it's death.... then there is a good chance the cow is owned by the State - as the State is accepting all responsibility (risk).

Yet the State accepts a total of None of those things, and instead insist that someone is responsible for the cow. That means the cow is _owned_ (with accompanying FULL rights of ownership, including untaxed profit making) by the person whom has the responsibilities.

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Yes but how did Mrs W come to "own" the land - ultimately, if we go back far enough in time, land was privatised from the commons by force. If one applies the legal principle that one cannot gain better title to property than the person you acquired it from, then land ownership in the modern sense has no moral legitimacy. Perhaps this is what Rousseau meant when he said "all property is theft"

We may claim some rights to exclusive use (but in NZ, you have no rights to the minerals underground), but the fact that man lives in communities dictates that with these rights come restrictions, obligations (e.g. pay rates) and responsibilities.
Kumbel, you seem well read. Who do you think has a legitimate claim to the "unearned increment"?

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Apparently Pierre-Joseph Prudhon actually coined the phrase although Rousseau shared the sentiment. However John Locke was one of the great thinkers on this topic. John Quiggin is taking another look at this topic so it will be interesting to see where he gets to (http://johnquiggin.com/2015/04/20/lockes-theory-of-just-expropriation-c…)

What was not so apparent. to the 18th and 19th century thinkers is that our hunter-gatherer forebears almost certainly were territorial. So the notion of "this is ours, that's yours" predates nations, cities and towns. And of course you don't have to go far in the rest of the animal kingdom to find territoriality as the norm. All we have done since the Neolithic revolution is extend that notion to sub-community units (mostly the individual). But, as you rightly point out, that has meant transferring the common wealth from the community to some individuals. Which is why we have ended up where we are today.

And it is a lovely legal construct that once you accept the axiom that individuals hold land in return for services to the monarch or state then it follows that the monarch can demand taxes, rates, duty and responsibilities in exchange.

The legitimate claim to the unearned increment or economic rent lies with the community. This, at least, was the view of Henry George in 1878. I have only just started Progress and Poverty so I don't know his full argument but it is pretty obvious that a single landowner cannot take credit for the relative attractiveness of a particular city. So any great increment in price they get for their landowning in Auckland over a similar landowning in Waipukurau is due to the cumulative investment in public goods, business and amenities made over many years by the whole Auckland community. Therefore the unearned portion is due to the community.

The world has moved on since 1878 and the argument has become more nuanced. The one thing I will say is that there are examples of public bodies finding ways to get its hands on that money without having to institute land taxes. But we also need to consider that we have a new option which is to not create the unearned increment in the first place. This option is working successfully all over the world notable in the whole of Germany.

We are not short of options but collectively we are struggling to imagine a NZ where the property casino is not an endemic way of life.

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Yes, the depressing things are the complete lack of political will here to even analyse the problems let alone get to possible solutions, and the vested interests that distort the debate. While the casino still holds credible promise the status quo will endure.
Your historical perspective does show the need for serious reflection and consideration rather than looking for the quick fix. We do need to be careful what we wish for.

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Not once you know the keys. Problem is the casino operators know that as long as the game is rigged in favour of the house the only thing they have to do is find ways to keep people at the table.
Once the people know whats happening and aren't addicited the gig is up.

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The unearned incomes we know of come from a couple of sources.
One of the oldest was for guards to market places, and to adjudicators to settle judgements under dispute (back when a contract was a clay ball, and small effigies of the trade were placed in the clay), if there was a dispute, then the third party could break the sealed (and therefore untampered) ball and the facts of the exchange could be counted. This of course required the services of an adjudicator, who received income for the decision, but it also requires safe storage of the balls, as the balls were not modified this is unearned income.

Coming forward from that we have the market towns in Scandinavia and similar around the world. Although these were usual large projects from cartel backers, like modern concerts today, Similar "unearned income" would result from selling of favourable stalls, maintaining guards, and upkeep of the location (including jails). Of course these were classic places of real "unearned income", that of traders bringing goods brought at low cost, then supplied to distributors and wholesalers, at a considerable mark-up. Despite the service provided it is considered "unearned" because the product itself was not modified, nor a specific skillset applied to it (as evidenced by it's unmodified state).

The territory, like the unearned income, comes to use through the Eorls and Fyrd of the early Dark Ages and similar systems around the world. The Eorls/Karls were responsible for managing order and farms in their area (a Hyde, basically enough area to support about 100 families IIRC). Therefore some Eorl's areas were larger than others, and some Eorls managed to politically gain control over smaller more productive neighbours to their advantage. In those times the Eorls primary purpose was to see to the organisation of raising militia if bandits or tribal enemies attacked (eg to raid the families for children or women as slaves/sex objects, or to steal tools, weapons, items of value, or food eg grain stores). At these times of emergency the Eorl had a contract to supply a certain number of ready and able men to the defence of the the peace/tribe/king. In return for providing that service, he was entitled to a stripend.
This was on top of the earlier tribal system which you might recognise if you watch the TV show "Vikings". In those earlier times the village was an extension of the family, as the family was ruled by the Strongest or the Oldest (ie the most influential) and all orders and decisions were made by those in power. Everything from who could marry who, what was planted, when and where it was planted, what jobs or land you or your family were allowed, whether you deserved your home or someone else deserved it better, these were all things the family head decided. disagreement was a challenge to authority, which just like in the TV program, was usually decided by removal of one party. In that system all property belonged to the bosses who made the decisions, disagreement.... Fortunately in England they moved away from that system, as they did in parts of the Mediterranean; through the encouragement of arts and metal craft, job specialisation, and the recognition of personal property.

Now you could trade with others for the product of their labour, and develop a market, and supply that market for a profit, and keep the profit ! This process worked so incredibly well that it was (a) promoted through much of the Mediterranean, and led to the small island nation of England to become a world superpower. However the problem with private property, as we see in the Mediterranean, is the rise of professional banditry. Initially with the family tribes, there would be constant raids, and you'd need strong people to protect you, hence the use of walled enclosures and agreements to protect each other. With the rise of private property and thus the rise of trade, the value of tradable items to be stolen went up (previously everything belonged to the boss and there wasn't much stored value - No point stealing excess grain or cattle if you have no-one to trade it to).
With the trade, and agreements to protect each others families, came the rise of the semi-professional soldiers. Equipment not in daily use and for violence were created and traded for (saddles, spears, padded clothing, helmets). At the same time the value in tradable items created trade routes and trade towns. Some areas had better or safer access... and some towns specialised, like in the production of bronze and iron ... before it was the rule of the family head, with the specialisation a new kind of Elder emerged - that of the republic head. From either the dominant or most skilled or best connected businesses - likewise they became the defacto ruler with their support businesses. Of course, historically these were kept "in family" with secrets preserved from generation to generation to ensure the families survival and power. This was done in pre-Roman times with fermentation and pottery firing secrets...right through to the accounting and lending practices that the Medici's used to create the Renaissance.

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The indirect mode of trading in slavery has been the preferred option for quite a long time.....I can't directly keep a slave and make use of that slave so I must therefore use other means and trade instead in the slaves undertakings.......

Avoidance of the Ancient Rights granted in the 1688 Bill of Rights..........And the Universal Declaration of Human Rights.......and.....NZBORA hidden at the bottom under miscellaneous is easy....
Part 3
Miscellaneous provisions
28 Other rights and freedoms not affected

An existing right or freedom shall not be held to be abrogated or restricted by reason only that the right or freedom is not included in this Bill of Rights or is included only in part.

It is a case of Would the real owner of the Glass Slpper please stand up!!!.....The gasps will be on those with cankles!!!

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There's an ancient saying that taxing anything is like plucking a goose for its down: one wants the most feathers for the least hissing.

Apply that to the current discussion. The land tax suggestion is a least-hissing option if properly targetted.

Whichever way you count 'em, minimizing the numbers affected (by clevver targetting of the tax), will produce, by definition, the least hissing.

BH has omitted the expenses side of the equation, understandable in a short article to be read on a Lazy Sunday. He's focussed on the revenue. Yes, it's a new tax, so what could we do with all of that Moolah?

- build out infrastructure to allow new towns etc - the area between Awkland and Hamilton is a sitter for this, but TLA's are in no position to act at present.
- build houses, especially for the FHB's. They are destined to be Generation Rent otherwise. Yes, there's subsidization inherent in this suggestion. But then, look at landlords receiving accommodation supplements......and say it ain't already rife.
- kick-start factory-built housing components such as SIP's, modularisations of various sorts, make the multi-proof consenting procedures apply where these components are used. Just don't allow the current materials duopoly in on the act....
- offer redundancy packages to former Planning staff in every TLA, if they take up positions in aforesaid factories. The entrenchment of spatial planning and its inherent contradictions (the Christchurch Planners' motto is 'We finish what the Earthquakes started!') is one of the root causes of housing woes: the RMA is completely silent on spatial aspects: it concentrates on Effects. History will come to regard the craze for post-war British planning practices throughout the Anglosphere, as one of the cardinal mistakes of the era. Zoning, to take one minor example, causes Commuting, by separating Housing from Doing Stuff.

But enough already. It Is Sunday, last time I looked.

Have at it!

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The ancient saying also neglects the effect on the goose.

tax = theft.

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Repeating it ad nauseum doesn't make it true, Cowboy. You only end up brainwashing yourself...

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The incapacity to understand that it is true doesn't make it not true, it is called unearned income and actually isn't a principle that is too hard to grasp.

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It's not called unearned income. It's called tax.
In some places (student flats?) it's called kitty.
In this society we all contribute a little into the kitty and collecdtively recieve the benefits, like education, health etc.
If you don't want to contribute to the kitty, go and start you our own republic somewhere.

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The example of a student flat is an excellent example of a collective.

Each individual is responsible for contribution to the operation of the whole.

But what if one student declares that they will lock the others in closets or sell there property if their demands aren't met? That that one student, perhaps because they scored a high score on an irrelevant exam, or perhaps they were the one that found the flat listing, declares that the kitty will no longer be for rent, power, phone, net but will in fact be quadrupled to pay that student a "management fee", and that as manager, they will pay their boyfriend to beat and lock people in closets and sell their stuff if they don't obey the ruling students decrees.
What if that collective was then ordered by "democracy" that everyone who voted for the ruling student would get a cut of the kitty, any who disagree would get to contribute more to make up for it.

Run that through your iterative game theory, and see where it leads.

The difference being that at least in a student flat, you get to leave; and the scam is obvious.

I have no issue with a gross 10% capped contribution to the kitty. What I have issue with is the tax scam, and the green eyed morons who want to make life worse for all the other flatmates "to be fair"

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So it's not "tax = theft" anymore? It's now "I don't want to help people who are struggling"?

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If I don't repeat it to these people it doesn't get through. The detail has been given and it obviously goes above their head or is too detailed and long for them to bother reading, so I have to simplify it for them.

It's true...because it's actually true.

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I am unsure why folk posting to this site do not realise they are trying to solve a "symptom" rather than a problem. Rising house prices in Auckland are merely the result of Government immigration threshholds.

As a result we will likely see some 36,000 immigrants hit Auckland this year. Will taxes house them? I don't think so.

There is an essential reason why we have high immigration (aside from kiwis returning home). It is because Government has given the money-making education sector the ability to tour Asia and offer every student the opportunity to have NZ citizenship after three years in the country. The pot is further sweetened by those that market New Zealand as a destination for the parents of these students.

Destination NZ provides those who attain age 65 years full retirement benefits after ten years residency - when there is often no support for retirees after age 65yrs in their home country.

The Government is fond of touting the success of the education export sector. But refuses to recognise the downside. It simply places blame with others.

Wake up New Zealand.

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our education has become a huge money maker for our institutions, and along with that we have opened a backdoor for immigration with how it is structured.
you can come as a student. study certain subjects that are we short of?, get a sponsored job (some rorting going on here) and become a resident, then a citizen, then bring the rest of the family in.
we have a whole industry now based around studying and then becoming a resident which has fingers in it all the way to the top.

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While on a student visa itself, a student can bring the spouse on a work visa. So both can work towards residency and eventual citizenship. All to feed the cheap labour which the businesses here crave and thrive on. It is a rort, for sure.

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businesses here? or multinationals and chains with branches and franchises here?

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I agree with share trader that a lot of people takes the study path to get residency, but it's not as easy as you say. It takes 5 years to become citizen, starting from when you are permanent resident. Therefore the student visa period is not counted in the 5 years. The problem is that govt is turning a blind eye on this, because immigrants spend money on Nz Unis, pump up rent prices and keep wages down. What not to like?

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Not strictly true. If you can get a job in NZ in the area of your degree then yes you can stay. However Malaysia for instance pays for the degree, you have to go back and work for them for 5 years or so as a payback, I think this is quite common. On top of that the ppl we just put through the NZ tertiary system are after all NZ degree qualified and young, ideal new citizens.

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Don't think so - about symptoms and causes - and this wasn't the first time

iconoclast 15/06/2013 - 12:52 pm

Brendan: Upthread. Property player buys 64 homes in one month

Something is going on. One could extrapolate from that a number of scenarios and possibilities. I could offer a plausible explanation. But would prefer to know (a) the region or locale (b) the nationality of the buyer (c) resident or non-resident (d) were they all bought and registered in same name (e) was it corporate (f) were they registered in the names of one or many different trusts or company fronts, or (g) registered personally in the buyers name (h) financed? (ii) cash? (j) source of funds - domestic or off-shore. Brendans post comment-740842

Stephen Hulme 15/06/2013

This needs to be exposed - NZ is too small to accommodate fleeing capital trying to protect value in our domestic dwelling market - didn't we just receive anecdotal evidence of a Japanese buyer consummating the purchase of 27 individual properties (in 2 days) before heading back home?

iconoclast 15/06/2013

Listen to the chatter ..
rivers run deep .. while the locals froth and bubble on the surface .. talking about the symptoms .. never about the causes .. down below .. under the surface .. in the sludge at the bottom of the swamp where daylight never penetrates .. under the cover of darkness .. there is a bigger play going on that has no regard for Len Brown .. Penny Hulse .. Hewey, Dewey, and Lewey .. they, along with a lot of other people, are simply pawns, collateral damage .. I see a lot of real-estate being taken off the monopoly board .. price no object .. the cloak of anonymity is provided by the silence and invisibility of data .. one day someone will look back and ask "how did that happen"

http://www.interest.co.nz/property/64938/bnz-chief-economist-has-radica…

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It's not just fleeing "fleeing capital trying to protect value in our domestic dwelling market"

It's a great way to launder that cash

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However getting a job before 56 isnt that easy.

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The immigrants only only part of the problem. It's the money men behind them, and those who are just completely off shore.

Many immigrants want to start new lives and a _little_ cultural diversity is good. But if they only let in the ultra rich, then they just buy up everything NZ's less wealthy can't afford, and influence politics and professions in ways NZers raised and living here can't do

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cowboy says a _little_ cultural diversity is good

Hopefully they will eventually embrace our New Zealand way of life - epitomising the current symbolisation of the ANZAC spirit and remembrances and all that represents - sacrifice - effort

Not like a certain person who arrived in NZ in 2002, applied for citizenship, was declined by the immigration department, then caused a fair bit of grief to 3 sitting ministers, passed a bit of cash, was granted citizenship, then while

appearing in the Auckland Court in 2015, required an interpreter - after 13 years here - that's a lot of embrace - little effort

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Good piece.

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It's great to have all these articles with ideas. But this government is incapable of taking action and nothing at all will change until it is replaced.

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If we're going to tax ownership of land property.... for it to be "fair" we must tax all other owned property.

So you should be taxed for the car you own. boats, jetskis, pets, stove, TV, bicycle. they're all assets ... whats the main difference? Oh most of you don't own more than one house, so like the russian farmer who doesn't have two tractors taxing houses is good.... but taxing the chickens (which the russian farmer had two) is bad....

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It makes me laugh to hear a jetski called an asset. Even the family home doesn't really qualify as an asset. I like the definition of an asset as "something that puts money in your pocket."

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thats why I put it in there. :)
A building isn't an asset either, it's a depreciating plant & machinery for a business. The land is just somewhere to keep the building and has to be maintained and attracts rates and green-eyed thieves.

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A building that is integral to generating income (e.g. rental dwelling) meets the definition of an asset in economic and accounting parlance. The fact it may depreciate is taken into account but that doesn't stop it being an asset.

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It's just plant, as such yes it's an asset like a car or ice cream making machine or hammer.

However you can't put the house in a toolbox and forget it, or mothball the house like a machine, or even just seal it up in a garage.

This makes the house a liability. It is exposed to weather and vandalism. It is at risk to seismic events and other "acts of god". The rules for houses change - seldom are the rules changing for owning a car or a hammer or machine; but if you wish to modify a house you need their lordships permission before you start, inspections while you do the work, and a final sign off - you even have to pay expensive certified experts by LAW to do many of the modificiations. That liability exists for a car but only as long as you wish to use it on a public road, and only during that period, and the costs are generally minimised. The house also attracts constant expense in the way of rates which is completely unavoidable. I don't recall councils repaying rates to landbankers or landlords without tenants when the property isn't being used... if anything the property/house owner faces public demon-isation and demands to contribute more. Should you pay more if your car asset is off the road? OR if no one has paid you for using your hammer this month?

No. A house is a liability. Ownership is a liability. hence by taunt to those who see The State as ultimate owner.... if they were true the State would be paying the taxes and the ownership responsibilities !!!

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Following your logic, all buildings (structures erected on land) are thereby liabilities and not assets (can't be both at the same time). We will have to agree to differ.

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Indeed they are. so is that depreciating lump of silicon on your desk.

Ownership is a liability. And people want the government to be taxing us for having ownership liabilities because well what could go wrong with that .... we ALL have huge secure incomes forever don't we?

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The Aussies are having the same debate. http://www.afr.com/news/policy/tax/dump-negative-gearing-in-favour-of-r…

Negative gearing could be scaled back to finance income tax rate cuts in a similar vein to Ronald Reagan's 1986 tax reforms in the US, a leading tax professor says.

It seems in 1986 Reagan limited deductions for interest on rental properties; and gave the extra tax made back to taxpayers by way of higher tax brackets.

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"leading tax professor" is a criminal who has a single hammer in their tool box.

negative gearing (while not advisable) is merely the claiming of a net loss in a business investment. Most small investors that business is a sole proprietor or small partnership. they going to reduce everyones' ability to correctly identify their income?? or just property owners?

Let's take a wager on whether the "leading tax professor" receives a wage/salary, and has plenty of cash on hand (unlike her victims)

Also I hope that any attempt to interfere with accurate reporting is also taken back 50 years.
After all if we are being "FAIR" about our taxation then it is hardly kosher to let those who had advantage of soft rules for the last 50years profit from that advantage, and continue to enjoy the compounding profit/advantage of those gains... when anyone trying to invest or start a property portfolio from here on in would be at a major tax disadvantage (on top of the gouging the earlier advantaged people had from price advantages too)

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just been listening to alan jones talking about a shoebox being sold for 1.1 to an invester and his comment was how are a young aussie couple going to afford to buy and whether the govt has the kahunas to get rid of neg gearing. if it goes in aussie god help auckland

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about to put our north shore, auckland house on the market having bought 4 and a half years ago. at the time, the house price fitted our metrics re paying back a mortgage rather than rent and still managing to have a decent family life. now our suggested auction reserve for selling is over double what we paid for it - which brings it way north of a million. it was bought as a do-up and is still v much a do up - with us having done only minimal improvements but then realizing just how prohibitively expensive it would be to do a full reno. hooray for us n all but what an example of how screwed up the housing and building markets are and how screwed kiwis are housing-wise. we wouldn't sell if we weren't exiting the mkt altogether to move overseas, as buying another house would just throw us back in to the same housing shark-tank. so dumb-luck and crap political, economic and resource management lets us take the tax-free profit and run.

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