Finance Minister Bill English has spoken out against "compact cities" saying that they drive up house prices.
In a speech to the Trans Tasman Business Circle in Wellington today English said the Government was "addressing inequities" caused by the effect of planning rules in the housing market.
The Government and the Auckland Council have recently agreed in principle to an Auckland Housing Accord that would enable the fast-tracking of developments in New Zealand's largest city, with 39,000 new houses planned over three years.
However, the Government and council have been at odds over the enacting legislation for the accord, currently with a Parliamentary select committee, because it gives the Government wide powers potentially to over-rule the council and make development planning decisions and approvals itself.
The proposed Unitary Plan for Auckland features a combination of new greenfield development and increased intensification in the Auckland metropolitan area.
Auckland's deputy mayor Penny Hulse has said that the housing accord legislation as currently worded appeared to "go back to the ‘just release the urban limits around Auckland and lets plonk houses in paddocks’ which is definitely not going to work".
Drive up prices
However, English said today that "compact cities" can drive up house prices - both by restricting the spread of cities and setting expensive standards for urban design inside cities.
"Both measures make housing more expensive. This favours existing owners of houses and can lock young and low-income families out of house ownership.
"The same price rises that make home owners better off also increase inequality. By any international standard, housing in New Zealand is expensive relative to income.
"Therefore, anyone concerned with unequal wealth should support more flexible supply of new housing."
Auckland is currently estimated to have a shortage of about 30,000 houses. Real Estate Institute figures out this week showed that the region's annual house price inflation was running at nearly 20%.
Times of need
In his speech English paid particular attention to how he said this Government's policy had "maintained a redistributive tax and income support system to support those New Zealanders through times of need".
"Therefore, at any particular time, a large number of households effectively don’t pay any tax. That’s because the amount they pay in income tax is exceeded by the amount they receive from welfare benefits, Working for Families, paid parental leave and accommodation subsidies. That’s entirely appropriate for those families genuinely in need."
English said using data from the Household Economic Survey, the Treasury estimates that in the current tax year ending 31 March 2014, households earning over NZ$150,000 a year – that’s the top 12% of households by income – will pay 46% of income tax.
"But when benefit payments, Working for Families, paid parental leave and accommodation support is taken into account, these households are expected to pay 76%t of the net income tax. And that is before New Zealand Superannuation payments are added into the equation.
Top households pay 76% of tax
"So we have the top 12% of households by income paying 76% of net income tax."
At the same time, he said, households earning under NZ$60,000 a year - which is around half of all households – are expected to pay 11% of income tax.
"But when we take account of the income support payments I’ve mentioned, as a group those households will pay no net income tax at all. That’s because the NZ$2.7 billion of income tax they are expected to pay this year will be more than offset by the NZ$8.1 billion they will receive in income support."
Estimates of net income tax paid by household income, before and after Budget 2010, indicate the system has "become more progressive" over this period, English said.
Households earning less than NZ$60,000 are generally expected to pay less, in percentage terms, towards net tax in 2013/14 than they were paying in 2008/09. Conversely, households earning more than NZ$150,000 are generally paying more of the net tax than they were in 2008/09.
"These figures are a timely reminder to those who call for even greater transfers to lower income families, or who call for the top personal tax rate to be raised, just how redistributive the system already is."
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