Breakfast briefing: Corporates caught on social contract standards

PMIs expanding well; EU consumer sentiment recovering; China flustered over forced labour; Taiwan faces bad drought; Aussie PMIs show sharp inflation; UST 10yr at 1.62%; oil and gold recover; NZ$1 = 69.9 USc; TWI-5 = 72.3

25th Mar 21, 7:19am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand, with news corporate social action plans are under the microscope today.

But first, the warnings we have been reporting earlier this week keep coming in the US. Now the February durable goods order data shows them -1.1% lower than for the prior month, and that is a worse outcome than the +0.8% rise expected. It is also well down from the +3.5% rise in January. Year-on-year at least it is +2.3% higher. Companies are investing however; non-defense capital goods orders are a strong +13% higher year-on-year.

The more up-to-date March data for PMIs is fortunately more positive, indicating a continuing moderate level of expansion for both manufacturing (59.0) and services (60.0). New order growth is the best since 2015 and new export orders are part of the reason.

In Europe, this same survey suggests they returned to an economic expansion in March for the first time in six months. This was led by factories, especially in Germany. The German service sector was one of the few majors to expand.

The long-term negative European consumer sentiment eased somewhat in March.

In China, the world’s largest clothing brand, Sweden's H&M , is under assault there (one of its biggest markets where it has over 400 stores) over its commitment not to buy cotton produced in western China made with forced labour. Beijing calls this 'politics' and they have 'organised' boycotts and protests. H&M's stance started over two years ago, but the pushback is only starting now that international pressure is building.

We regularly report on the Taiwanese economy, and most of their economic benchmarks have been quite impressive over the past few years. But that may not last; they are in the midst of a severe drought, one that will start affecting industrial output soon.

The 'flash' PMI for Australia has been released for March showing a survey-record increase in input costs, with higher prices for a wide range of materials and a spike in shipping costs. But new orders are rising as the pandemic restrictions abate, and employment is rising as a consequence.

And staying in Australia, the ANZ Bank is under pressure as the "worst" bank for financing fossil fuel projects, despite it being the smallest of their big four banks. ANZ made a big deal about exiting this type of funding last year, but it's declared pace of retreat is the slowest of any local bank.

On Wall Street, their Wednesday session is up +0.5% in early afternoon trade. Overnight, European markets were mixed with London posting a small gain and Frankfurt retreating. Yesterday, Tokyo ended with a large -2.0% loss, and Hong Kong had the same heavy -2.0% retreat. In Shanghai they ended with a -1.3% loss. The ASX200 was up +0.5% but the NZX50 Capital Index was down -0.3%.

The latest global compilation of COVID-19 data is here. The global tally is still rising and at a fast pace, now at 124,430,000 and up +562,000 in one day. Global deaths reported now exceed 2,738,000 and +11,000 in one day. Vaccinations in the world are rising fast however, now up to 476 mln and in the US a third (127.1 mln) have now had this protection (+1.7 mln) and they are achieving a very fast rollout. The number of active cases there fell yesterday to 7,050,000 (-129,000 in one day), resuming the reducing trend and taking the number currently infected down to 2.1% of their population.

The UST 10yr yield is down -2 bps at just on 1.62%. The US 2-10 rate curve is only marginally flatter at 149 bps. Their 1-5 curve is also just marginally flatter at +76 bps, while their 3m-10 year curve is unchanged at +163 bps. The Australian Govt 10 year yield is also down -1 bp at 1.71%. The China Govt 10 year yield is down -3 bps at 3.22%. And the New Zealand Govt 10 year yield is down a very sharp -17 bps to 1.53%.

The price of gold starts today up +US$8 in New York at US$1735/oz.

Oil prices have recovered today, up +US$2/bbl and are now at just over US$61/bbl in the US, while the international price is now just over US$64/bbl.

The Kiwi dollar opens today even lower at 69.9 USc and down by another -¼c, and now well outside the long term 71c-73c range it has been in all year. Against the Australian dollar we are holding at 91.7 AUc. Against the euro we are also holding at 59.1 euro cents. Today's shifts are all about a rising greenback. That means our TWI-5 opens today marginally lower at 72.3.

The bitcoin price will start today at US$55,930 and up just +0.8% from this time yesterday. Volatility in the past 24 hours has been high at +/- 3.4%. The bitcoin rate is charted in the exchange rate set below.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

Daily exchange rates

Select chart tabs

Source: RBNZ

Source: CoinDesk

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

126 Comments

by CJ099 | 25th Mar 21, 7:35am 1616610942

Move over Bitcoin, Artists have the last laugh now with NFTs! :P Wall Street Journal article: https://www.wsj.com/articles/nfts-are-music-industrys-latest-big-hit-11…

by Tom Joad | 25th Mar 21, 11:41am 1616625661

Another "end of cycle" indicator and symptom of Central Banker's 20 year campaign of currency debasement.

by dago | 25th Mar 21, 10:12am 1616620366

That and the shoe-shine boy indicator of the 21st century - children's Sharesies accounts and a 9 yr old's owning property https://www.businessinsider.com/how-to-spot-stock-market-bubbles-2017-1…

by dago | 25th Mar 21, 10:21am 1616620883

Oops my mistake, 8 year old boy https://www.nzherald.co.nz/business/eight-year-old-boy-snaps-up-investm…

by Ezy | 25th Mar 21, 10:47am 1616622467

NFTs are like any new tech bubble - they'll blow up and then settle into their daily use case. Ironically with the comments above, NFTs are ideally suited to something like property, where a token proves ownership of the unique asset. That's where the future value of NFTs lie, doing the heavy lifting in the contract space. No more real estate agent escrow accounts, expensive lawyer contracts, and deadline sale triggers managed by a trusted 3rd party - everything will be baked into the token that enables effortless transfer of ownership based on the agreed rules of engagement for tens of dollars. It'll probably take 10-15 years, but it will happen.

by EdwardD | 25th Mar 21, 8:04am 1616612681

Thanks for the link - you learn something new every day :)

by Gummy Bear Hero | 25th Mar 21, 8:30am 1616614239

.. nonfungible assets are hard to price .... whereas , fungible ones are priced by the kilo , fry up nicely , and are delicious on toast with a knob of butter & some thinly sliced chives ...

by richard1965 | 25th Mar 21, 7:38am 1616611138

Absolutely correct that this house does not help much to FHB though tax change is a good first step but it should and has to be followed by restriction on Interest Only Loan and than see, how it goes as give more high risk buying power to speculator, which should have been acted upon earlier or asap - better late than ever.

https://www.newstalkzb.co.nz/on-air/heather-du-plessis-allan-drive/audi…

by taimaiakka0 | 25th Mar 21, 7:53am 1616612019

Tax Change to bring parity between investor and owner occupied house is good but to stop speculator from speculative buying, it is important to cut their source of cheap and easy money through Interest only loan as by restricting it, will be reduce speculators buying capticity, which is a know fact and bound to achieve results in favour of FHB in future buying SO why no action and urgency shown by Jacinda Arden Government to instruct RBNZ.

Would like to see detailed article on it and if can get response from government will be great as nowere in media have seen any journalist raising it with government, which could be a game changer.

by WhiskeyJack | 25th Mar 21, 8:11am 1616613100

I'm not sure about other businesses but when I get a bank loan, they want me to pay it back in 10 years, which is sensible I think.

by Nzdan | 25th Mar 21, 9:02am 1616616122

Pretty sure it's common for other businesses to take out business loans, pay off the principle amount, pay GST and conform to health and safety requirements to name a few. If residential property investors were doing the same, then I will concede an argument for the same benefits around deductibles that other businesses enjoy.

https://www.interest.co.nz/borrowing/business-base-rates

by Independent_Observer | 25th Mar 21, 8:43am 1616615037

Banks might be running the numbers on many investment property mortgages now and realising the numbers no longer stack up - as such the lending that was speculative as you put it could come to a pretty rapid halt.

by EdwardD | 25th Mar 21, 8:09am 1616612964

I agree. It would have been prudent for Mr Orr to have made an announcement on interest only loans as well as loan to income ratios, in conjunction with GR. He is now 'thinking about it' until May.

by T-Bone | 25th Mar 21, 9:51am 1616619109

Previously there was an incentive to NOT pay off any principal on a loan. They have removed that incentive so I am not so sure that interest only loans are such a big deal now? Only anecdotal but as soon as deductibility is gone we will be paying the residential investment debt off quickly, was interest only beforehand (as was beneficial to pay off any OO debt or use the money elsewhere)

by dago | 25th Mar 21, 10:30am 1616621414

To be fair, the decision on interest only loans may be waiting on outcome of cooling affect/assessing IQ's of average specuvestors and their appetite for risk, post-announcements. My guess, given the denial and "we will just raise rents" attitude, the implications of the interest-deductability change will take too long to sink in, and interest-only will be removed come May. The beatings will continue until specuvestors pack up and p*ss off

by brisket | 25th Mar 21, 10:54am 1616622888

From your lips to God's ear, may it be so.

by alittle | 25th Mar 21, 8:41am 1616614915

Agree

INTEREST ONLY LOAN = TOOL FOR HIGH RISK EASY CHEAP MONEY TO SPECULATORS

Very obvious and best option to try but still Mr Orr needs more time till May but why? what is it that he is waiting upon that will make him decide as if price rise by 10% in a month is not goid enough.

Mr Orr too should be held for accountability.

by dago | 25th Mar 21, 10:35am 1616621711

As above - way overestimating specuvestors intelligence and how much the tax change will cool market, may take months to sink in, if not years

by waymad | 25th Mar 21, 7:44am 1616611454

Interesting to see Michael Reddell's ruminations re housing, interest deductibility, emerging differences in tax treatment of small vs large; equity vs debt etc. The title says it all: 'Messing Around with Housing'. And the conclusion is as always - treating the symptoms, not the cause.....

And this Stuff article introduces another unintended consequence: investors will compete directly with FHB for new builds......guess who has deeper pockets....

by powerdownkiwi | 25th Mar 21, 8:10am 1616613041

Reddell is just another economics-blinkered pontificator. I always wonder what these folk think when they have to fuel-up their cars.
"
He gets close with " at the best alterative use (mostly farming presumably)," but that falls a long way short. Trying to address a lack-of-remaining deck-above-water by making deck-space 'cheaper', won't solve the Titanic's problem - but it does provide a fine example of how examining one facet in minutae, can get you a long way down a dead-end thought-path.

A more encompassing, thought-provoking piece:
https://www.jonathan-cook.net/blog/2021-03-23/fear-police-protest/

"This sane minority is treading the vanishingly thin line between alienating the majority and averting oblivion for our species. As the stakes grow higher, as awareness of imminent catastrophe intensifies, those wishing to make a nuisance of themselves, to be noisy, will grow."

"What we decide now determines how that struggle plays out: whether we get to take control of our future and the fight for our survival, or whether we are forced to stay mute as the disaster unfolds."

by sparrow | 25th Mar 21, 11:57am 1616626655

I like reading Reddell's blog, but his solution to housing is to let the suburbs sprawl hundreds of kilometres into the countryside, and let the occupants hop in their cars to commute to work. Dumb on many counts.

by Burni | 25th Mar 21, 8:06am 1616612763

Not overlooking the instant increase in govt tax income as the result of lost interest deductibility.

by Gummy Bear Hero | 25th Mar 21, 8:37am 1616614650

... in every other industry interest paid on debt is a legitimate expense , written off on the accounts , against income earnt .... so , is Robbo saying that being a landlord is not a business ? ....

by iconoclast | 25th Mar 21, 9:14am 1616616847

Not so

The Inland Revenue and the Accounting profession recognise that interest costs are attributable the nature of the expenditure. If the expenditure is of a capital nature the cost is capitalised and not deductible. Ring fencing rules are a partial acknowledgement of that in that all interest costs in excess of the rents received are not deducted for tax purposes, are capitalised, and carried forward against the eventual sale

The current buying frenzy clearly evidences that buyers are investing in capital gain and not rents

by Hamish | 25th Mar 21, 8:55am 1616615725

And in those cases we don't even need a bright line test, because the intention is clear (LOL)

by Gummy Bear Hero | 25th Mar 21, 9:09am 1616616580

.. however you frame it , an investor is creating a mini business by purchasing a house & renting it out .. as such , interest expense ought to be a legitimate item to offset against income received from that asset ...

by GV 27 | 25th Mar 21, 9:16am 1616616980

How many businesses produce operating losses year on year and doesn't make anything at all until the underlying asset is sold? Arguably, that kind of business has no merits as a going concern and is basically just functioning as a hedge against inflation - on the off chance you hold that asset long enough for it be profitable, which most won't. I'm sorry, but the enormous social costs of this kind of investment warrants it being singled out for special treatment, just like we do with smoking, gaming machines or any other excise-worthy product.

by Gummy Bear Hero | 25th Mar 21, 9:20am 1616617207

... so , are you saying that there should be no rentals , no investors , no landlords ?

by GV 27 | 25th Mar 21, 9:27am 1616617622

"Can you imagine a world without lawyers?"

No, I'm saying coddling one type of investment class that every Tom, Dick and Harry thinks is their pathway to retirement that generates massive social costs that the general public has to pay for is unsustainable and dangerous. If I thought there should be no landlords at all, I would have used the words "there should be no landlords at all". You'll notice I didn't do that in my post.

If only we could tax property investor insecurity, we'd be able to build all the state houses we could ever need without incurring any extra crown debt whatsoever.

by mfd | 25th Mar 21, 9:33am 1616618018

Are we better off as a country today with more investment properties and fewer owner-occupiers (proportionally) than in the past? The direction of travel has been pretty clear moving from owning to renting over the last few decades.

I don't think many would say houses shouldn't be available for rent, but it's not crazy to think the segments are getting out of whack and some government intervention is justified.

by Gummy Bear Hero | 25th Mar 21, 9:37am 1616618270

... home ownership is at record lows in NZ ... why ? ... 'cos house prices have exploded beyond affordability ... why ? .... cheap credit , lack of supply , excessive immigration ... so , why are we kicking the snot out of investors ?

by frazz | 25th Mar 21, 9:45am 1616618736

Because they are buying up and out bidding all the FHB..geez is mary!

by Hamish | 25th Mar 21, 9:52am 1616619164

Yeh, kind of glossed over the access to credit by just claiming cheap credit as a driver for house price inflation.

by Gummy Bear Hero | 25th Mar 21, 10:12am 1616620336

... my beef is that Robbo's announcement yesterday does very little to address the drivers of NZ property prices . . The infrastructure fund was OK , albeit way too small .. the other changes make no sense , nor will assist FBH's at all ...

by Kate | 25th Mar 21, 10:54am 1616622863

With respect to the size of the infrastructure fund - Bernard Hickey interviewed on TVNZ pointed out that we need to compare it to the annual costs of emergency housing + accommodation supplements which combined are greater than that fund amount!

The cost-of-living is just too high. Where accommodation is concerned, we have to regulate the private sector rental market - TINA. And the government needs to rush to build (or buy and re-purpose) multi-story apartment-style tenancies, particularly for small households and retirees (and anyone else on a fixed lower quintile income).

by GV 27 | 25th Mar 21, 11:04am 1616623466

Agreed Kate, which results in Kiwis putting of things like having kids and having fewer of them when they do. Instead of addressing the drivers, the government just imports more population, doesn't stump up for the infrastructure needed to house them, and things get worse, and the whole cycle repeats over and over again. Maybe we should be asking why Kiwis are having fewer children, rather than using it as a launching pad to greenlight higher levels of migration.

by sparrow | 25th Mar 21, 12:02pm 1616626974

The number one driver over the last decade has been too many people through too much net migration. At the moment Covid is taking care of that problem.

The low interest rate effect has probably played out, now that all the cost savings have been capitalized into higher prices and they don't have room to move much lower.

by mfd | 25th Mar 21, 9:46am 1616618810

Investors are a significant part of the demand. Mortgage lending up about 2 billion February 2021 compared to February 2020, with 0.7 billion of that from investors. There are moral differences too - if you stop an investor buying a house, they find something else to invest in. Maybe even something productive. If you stop a FHB buying a house they are unable to settle, maybe move abroad, maybe delay starting a family.

https://www.rbnz.govt.nz/statistics/c31

by blobbles | 25th Mar 21, 10:02am 1616619744

This is it. "Investing" in housing is not true investment. Which involves productive industries, you know, actually making a product or service and selling it to generate profitable cash flow.

"Investing" in housing in the way we have in this country has the opposite effect of productive investment, it significantly reduces economic mobility, it heavily restricts capital available for growing productive businesses, it reduces the ability for workers to live fulfilling lives causing all sorts of social harms both short and long term, it reduces the ability for people to start new businesses because they are paying too much for mortgages or rents and it creates a monster in our financial system which becomes "too big to fail". All in all, the type of investment we have created with the housing investment model in this country has been destroying our short and long term productivity potential for the past decade and a half and the effects amplify the longer it continues. While at the same time putting our entire financial system and economy at risk WHEN there is a downturn in the industry (whether this is an internal shock or external).

by Gummy Bear Hero | 25th Mar 21, 10:15am 1616620509

... so , you're implying that investors are to blame for our outrageous house prices , and that we ought not have a house rental industry ?

by brisket | 25th Mar 21, 10:57am 1616623035

I don't know if he was implying it, but I would answer yes and yes.
Seriously, the specuvestors on here sound like meth dealers outraged, outraged!! that the government would interfere with the free market by seeking to regulate the harm they do.

by blobbles | 25th Mar 21, 11:04am 1616623454

No, again you are taking it to the extreme.

The government has set the playing field, for years this has been tilted in favour or investors (both professional and unprofessional), or those that already own property, to be able to leverage that property to gain more properties. While at the same time they have allowed lots of immigration, not built enough houses, not allowed effective zoning laws and allowed the cost of house builds to skyrocket. ALL of these are factors, not just some of them. This has created a self fulfilling situation where property has become more and more concentrated (note the stats on home ownership rates), pushed up prices and has resulted in huge distortions and massive barriers to entry. Nobody really wants to address it because of the powerful lobbies out there who are generally older and who generally vote more are making mega bucks off it.

House rental industries can definitely exist, in this country however it has become more parasitic than other places around the world, where they are strongly regulated and highly professional businesses. Here it's cowboy land (you only have to see the news articles on what is being rented out or ridiculous rent raises or landlords doing stupid stuff), poorly regulated and mostly unprofessional people running it. I can say this from the evidence we see everyday in the news and from personal experience.

by KH | 25th Mar 21, 11:05am 1616623534

Investors I understand. But speculators are a different animal.
Unfortunately the self replicating speculation has driven much of the problem.

by powerdownkiwi | 25th Mar 21, 11:22am 1616624567

KH - is the one not really the other?

by Gummy Bear Hero | 25th Mar 21, 11:54am 1616626449

... not sure how we divide it up fairly , between the lovely cool & groovy huggable furry investors , and the rabid blood sucking leeches , the speculators ...

by Independent_Observer | 25th Mar 21, 10:21am 1616620901

Isn't the market cap of the housing market multiple times larger than the NZX50? Pretty much sums it up in the sense that we have massive capital mis-allocation in this country and that is going to be problematic/detrimental going forward.

by dago | 25th Mar 21, 10:41am 1616622105

Specuvestors can find something to invest in, like their time and energy in picking apples

by VeryInterested | 25th Mar 21, 9:51am 1616619094

What you describe sounds to me like a Zombie company. Amazes me how someone with an investment property suddenly see’s themselves as a business operator/entrepreneur. If you work full time running your property portfolio, which some on here are doing then yes it is a business, but not for someone not doing this they are simply investors. I think there needs to be much more clarification in this space. Can’t blame people for wanting an investment property or two as it’s been the way to get ahead for the last 50 years of this current debt ponzi scheme.

by GV 27 | 25th Mar 21, 9:56am 1616619392

Oh, I can't blame people for taking advantage of a shitty tax and regulatory situation, but I CAN make fun of them for melting down and having a whinge because the things that were suddenly overwhelmingly stacked in their favour are now just slightly less so, after decades of them mocking my cohort for 'not working hard enough'.

Maybe cut back on the Netflix, iPhones and flat whites and then see how you get on?

by dago | 25th Mar 21, 10:55am 1616622920

Hey specuvestors, tomatoes are going cheap!

I wonder if ASB will change the tone of it's home loan ad campaign to stop mocking Buyers. No longer use the term 'first home buyer', a label used to describe the small marginalized beaten-down creature, now nationally endangered

by VeryInterested | 25th Mar 21, 12:07pm 1616627276

GV27 - Totally agree with you 100%! The point of the latter part of comment was that it is the proven get rich quick no brainer scheme. Investors think they are doing nz’ers a big favour by buying houses and renting them out. Bankers, Governments and buyers and worked in tandem to push up prices to ridiculous levels. This will end badly as the level of debt and high cost of living, inc rents leaves little money to be spent into the economy. This will lead to a very unpleasant recession. We are about to head into a double dip recession. You can only run a country on the wealth effect of high house prices for so long. You need real money generated from increased wages and reduced living expenses to grow an economy safely not the paper rich debt based system that we have now.

by gnx | 25th Mar 21, 9:28am 1616617687

its not a business if it doesn't have enough capital to make a buck

a third of landlords claim a loss of on average $8000 a year

the rort has to stop at some point

by Gummy Bear Hero | 25th Mar 21, 9:34am 1616618089

... how so ... if they're making a loss , surely they have to sell up .... or supply top up funds from their regular employment ....

by brisket | 25th Mar 21, 9:44am 1616618683

Yes, they can sell up! For a handsome profit, at the present time.
Yet here they are, whinging about how hard done by they are. It's puzzling.
Why is the possibility of selling so horrifying?

by mfd | 25th Mar 21, 9:50am 1616619005

I've seen the argument in a couple of places that removing the income deductibility will leave investors stranded and maybe even defaulting on their mortgages. If only they had access to some kind of asset to sell, which had recently appreciated quite significantly..?

Regardless of whether the changes are fair, there is lot of exaggeration over how devastating the impact will be. 99.9% of investors should be sitting pretty right now and can easily sell if the ongoing numbers don't work for them.

by Independent_Observer | 25th Mar 21, 9:59am 1616619546

Landlords purchased a lot of property the last 12 months - a significant amount at maximum LVR. Those loans will be marginal going forward and any rise in interest rates will see them underwater. If they're new investors, then I don't see any option other than selling. If they pool their new purchase with other older rentals, then I guess they could carry the loss and hope for capital gain to cover the loss.

by mfd | 25th Mar 21, 10:43am 1616622185

Yes - the worst outcome in most cases in selling for 10-20% high than they bought, and having to pay some tax on the profits. Not exactly devastating.

There will of course be a few very recent, overstretched investors who may get burnt. This is always the nature of bubbles.

by GV 27 | 25th Mar 21, 10:46am 1616622378

It's almost like literally every single investment class has risk, but snowflake investors think they shouldn't face any risk at all.

Which is wild, because if they're so worried about *making lower gains* on exit, AND they're running at a loss during the time they're operating as a rental property, then it sort of begs the question "Was this actually just taxable speculation the whole time?"

by gnx | 25th Mar 21, 10:03am 1616619807

its that annoying piece of paper that says they own the bank $500k that's the worrying part....

wait until the stories start of banks tightening their lending policies ,couples losing their equity begin, cant roll over loans, cant pay their tax etc

then we will see how long term these long term investors are

I can see interest only loans going next and then its really game on

by dago | 25th Mar 21, 11:01am 1616623310

Amazing isn't it. Specuvestors are behaving like spoilt little children when Super Nanny arrives to deliver a sharp reality check

by Believer1980 | 25th Mar 21, 9:54am 1616619244

I agree. The rort is no CGT allowing people to divert the expense side of things to reduce their tax and keep the profit to themselves. That is simply mad. Bring in CGT (and I guess you will need to keep the ringfencing requirements in place as well) then it will be fair and square.

by VeryInterested | 25th Mar 21, 9:59am 1616619585

Robert Kiyosaki refers to this as DUMB. Why would you want to own a property that does not provide you with a decent income! He looked at buying property in Australia years ago. He buys based on the income that can be generated from the property not on the capital gain that is only realised when you sell. He seems to have done quite well with his property investments following this method. The proceeds for his Rich dad books also provide a nice income of $500k/month.

by donny11 | 25th Mar 21, 10:18am 1616620721

Exactly Gummy Bear! Further any gains from buying & selling properties should be treated as income . This "capital gains" exception is absurd from an accountancy perspective. A capital gain is in effect capital income & should be treated as income.

We now have a situation where we have made an exception on one sort of income (capital gain). This has serious caused market distortions. They are now introducing another exception to try & correct these market distortions (not allowing interest to be an expense). Just remove both exceptions!

by Believer1980 | 25th Mar 21, 9:51am 1616619077

The gaping hole is no CG. In presence of CG there is not need to treat interest expenses in any other way. In accounting you capitalize interest when you are building an asset. E.g. during the construction phase of a house or a road. You would never continue to capitalize interest once the asset is ready and in use. Interest expense you pay on a completed house is expense (from an accounting perspective) and would never be allowed to be capitalized.
Ring fencing is needed because of no CGT. In makes no accounting or economic sense otherwise. Because NZ does not tax capital gains, it has to do all sort of silly things to offset it. It also reflect that fact the IRD can impose any tax they like because they simply can.

by Hamish | 25th Mar 21, 8:53am 1616615634

I thought landlords were more philanthropist in nature rather than business orientated.

by Rhumline | 25th Mar 21, 9:58am 1616619530

Hahahaha

by dago | 25th Mar 21, 11:05am 1616623551

LOL do you mean their charitable service providing accommodation is now a business?

by iconoclast | 25th Mar 21, 8:58am 1616615929

An investor who buys a residential property using a mortgage, but holds it un-tenanted, without rents coming in, is clearly investing in Capital Gain

by Gummy Bear Hero | 25th Mar 21, 9:06am 1616616363

... in that case , with no income from the asset ... the investor must stump up cash from private income to cover the costs ...

by brisket | 25th Mar 21, 11:18am 1616624287

Which is how it should be.
You make an investment that you KNOW will be cashflow negative.
And then you expect the government to give you tax breaks, to make whole your STUPID investment?
If I borrow money to buy Dogecoin, and Dogecoin tanks, will the Gov't let me claim that against my tax?

by Noncents | 25th Mar 21, 9:58am 1616619494

Or it could just be the ol' fashioned Kiwi batch/crib.

i.e. a lifestyle, rather than an "investment"

by Nzdan | 25th Mar 21, 9:13am 1616616823

How many Landlords pay GST Gummo? It's not a requirement for them to pay GST if it's a long term rental, yet a long term business is subject to GST.

I read all the time that Landlords "provide a much needed service", so why is GST optional? If a Landlord is paying GST then go for gold on writing off expenses.

by Gummy Bear Hero | 25th Mar 21, 9:17am 1616617072

... well , danno .... they dont pay GST because that'd be shifted directly onto the tenants ... and d'yer reckon rents whacking up a further 15 % is fair ?

by frazz | 25th Mar 21, 9:47am 1616618869

and then the accommodation supplement/benefit would be then increased which is paid out of your taxes ...fair ah?

by Hamish | 25th Mar 21, 9:51am 1616619066

Is GST application assessed on some sort of fairness spectrum? Interesting.

by Nzdan | 25th Mar 21, 9:56am 1616619395

I imagine there could be an initial signal to the market to increase prices by 15%. But then the market will resume it's usual price discovery, based on what the market can bear, not cost +.

by brisket | 25th Mar 21, 10:02am 1616619771

Is paying 15% GST on food fair?

by Believer1980 | 25th Mar 21, 10:07am 1616620079

GST is paid by the consumer not the supplier. Supplier simply collects GST on behalf of government. If landlords are requried to collect GST, that would not have any financial impact on them.
Why are we happy to make any arguments, even if they are absolutely 100% wrong, just because it seems to further discredit something we do not like?
The access to credit (with criteria to such access being 1) future income to repay 2) collateral against the debt) is where PIs have an massive advantage over FHBs. House prices moving up, makes FHBs weaker (their cash deposit % to value reduces) but the PI stronger (if they have 1 house, they move with the flow, any more than 1 and they are much better off). Now if such an advantage was to be removed (very high LVR or simply disallowing equity as collateral for any other house) that would have been an equalizer. if you introduced CGT on top of that, that would have been a massive leveling field.

by frazz | 25th Mar 21, 8:09am 1616612971

A new build is a new build - however is financing it..

by alittle | 25th Mar 21, 8:20am 1616613601

One source of deeper pocket for investor is Interest Only Loan, which should have been restricted by now but has not been done - why is government having cold feet ????

Not that government is not aware of the benefit of its restriction as is mentioned in their announcement but why once again taking the route of delaying and avoiding by pushing it for further announcement with no action, when was possible through RBNZ as Mr Orr too knows but by himself will never act as his priorities as mentioned by home are different and is government responsibility.

Jacinda Arden is correct when she says, that she does not have a silver bullet, which she will never have SO why not use the best available bullet that you - Restricting Interest only loan.

Just like banning foreign buyer was not a silver bullet but it did help to calm the housing market - gave breather which is needed and current measures though good as first step are not complete without restricting IO loan.

Jacinda Arden wants to put it back but how come as rightly pointed in one of the comment, no journalist has highlighted it and allowed it to get hurried in other noise just as Jacinda Arden and her team wanted and planned.

by Albert2020 | 25th Mar 21, 8:31am 1616614271

That's not a bad thing in the medium to long term, we want there to be increased demand for new stock to encourage more development and reduced demand for existing.

by Advisor | 25th Mar 21, 9:26am 1616617566

True. If these policy changes are able to channelise investor demand into new builds, that's much better for our economy than speculators simply swapping existing homes for ever-increasing prices.

by rastus1 | 25th Mar 21, 8:54am 1616615674

Let the investors buy new, let the fhb's buy the old neglected rentals and do them up with their own 'free' sweat. That's' how it should be.

by Mountie | 25th Mar 21, 11:10am 1616623837

At least this will add to supply.

by Audaxes | 25th Mar 21, 8:43am 1616615000

How about a word in respect of this debacle?:
Kiwi QE Fail: NZ Bond Yields Plunge After Failed QE Operation

RBNZ Open market operations - D3

by powerdownkiwi | 25th Mar 21, 8:42am 1616614925

Just the vultures staying away from the carcass - to teach it not to stink, you understand.

Think the Westpac notice-to-leave is associated? Easier pickings (perceived) elsewhere?

by taimaiakka0 | 25th Mar 21, 8:52am 1616615544

Westpac notice to leave is just throwing tantrums ...trying to blackmail.

by frazz | 25th Mar 21, 9:09am 1616616584

Its not like they employ a great deal of staff or produce anything? I am sure they have some lobbyist working overtime right now.

by Audaxes | 25th Mar 21, 8:54am 1616615694

Better to Remain Silent and Be Thought a Fool than to Speak and Remove All Doubt

by rastus1 | 25th Mar 21, 9:12am 1616616755

Audaxes..for a non economists amongst us..what might the significance etc be of this? ta

by Audaxes | 25th Mar 21, 9:29am 1616617778

I posted this on the BNZ commentary

by Audaxes | 25th Mar 21, 9:21am
The 10-year NZGB fell by a massive 17bps to 1.51%, taking its fall this week to 30bps, outperforming swaps which fell by “only” 15bps to 1.72%
Dealers Finally *Choose* To Sell UST’s, Predictably Market Chooses to Buy All of Them

I guess we aren’t supposed to notice that the rest of the world has been buying UST’s at a furious pace. How else did the yield curve invert in the first place? Sure, the money market fund and other nonbanks like it may have preferred commercial paper or even unsecured LIBOR to a very low UST yield, but someone is buying to push every UST yield lower to begin with.

Not just someone, but a whole ton of someones. To believe in this convoluted theory, you are asked to believe that primary dealers whose entire job is to find buyers for Treasuries are disrupting repo markets and other funding mechanisms because they can’t find enough buyers for Treasuries during a time when there is otherwise so much demand for Treasuries it has upended the natural order of curves everywhere.

by Jonny.Foe | 25th Mar 21, 9:22am 1616617343

Interesting - but doesn't this just show that bond holders didn't want to sell at the price offered? Given that the objective of QE is keep bond prices up and yields down, how is this operation a failure?

by Audaxes | 25th Mar 21, 10:15am 1616620521

Take it away Dick Fisher:

MR. FISHER. In summary, I want to mention that, as I said earlier, most of these variations that have been suggested are very un-Bagehot-like. And what I mean by that is, twisting [or QE] entails purchasing assets that investors are fleeing toward, not assets that they are fleeing from.Link

by VeryInterested | 25th Mar 21, 12:18pm 1616627908

Comments section is worth reading!

by GV 27 | 25th Mar 21, 9:34am 1616618066

The staggering tone-deafness from some investors sooking in the media last night: "I feel like we're being punished for planning for our retirement".

If that's how you're planning for your retirement, then you're not paying for it - everyone else is. What is it about these people that makes them think that leveraging the gains on their cheap family home bought in the 1980s in inner Auckland to buy three rentals makes them Warren Buffet? Selling a house you bought as an investment doesn't mean the house gets bulldozed and ceases to exist. It's hysterical.

"The family we're charging $800 a week to live in the house would have to find somewhere else to live" - if that family can afford the $800 a week you're charging them in rent (dead money) then they can probably afford to service the mortgage; but it's paying your rent that means they can never get a deposit together. And why are the deposits so high? Because the investor cohort has been using their tax-advantages and ability to leverage to muscle FHBs out of affordable properties.

It's time for the madness to stop. Start unwinding it and finish the job.

by Independent_Observer | 25th Mar 21, 9:54am 1616619297

I've found that landlords in Nz (not all, but many, or general culture involved in landlording in NZ) has strong narcissistic personality disorder traits. They pretty much tick all the boxes. And yet government after government have been pandering to them...its completely bizarre.

https://cdn.psychologytoday.com/sites/default/files/styles/image-articl…

by dago | 25th Mar 21, 11:11am 1616623886

Govt has discovered that warnings and counting down from 3 don't affect these types, only good hard spankings can be understood

by VeryInterested | 25th Mar 21, 9:35am 1616618127

FED “We need higher oil prices to prop up the energy and banking sector, what to do..... what to do.... what to do...... got it, lets block the Suez Canal with a big container ship, thereby forcing the backlog of ships to take the longer trip around the globe”

by Audaxes | 25th Mar 21, 10:18am 1616620680

OK NYMEX, Beginning To Notice The Fine Print?

by Independent_Observer | 25th Mar 21, 10:26am 1616621184

A tweet to Choe Swarbrick:

"@_chloeswarbrick is painting us all as millionaires. We don't make any moeny from the homes we own".

Her response:

"To take this on face value: If you're not making 'any money' from something (property investing) and that something is causing immense inequality, deprivation, stress and homelessness (the housing crisis), maybe you stop doing the something?"

God help us.

by Burni | 25th Mar 21, 10:35am 1616621729

The Greens and Labour have been doing plenty that has caused immense inequality, deprivation, stress and homelessness but they're still doing it.

So Chloe are you going to resign? Nah didn't think so.

by Plutocracy | 25th Mar 21, 10:43am 1616622222

She appears to be one of the few politicians who actually is motivated to try and bring positive changes for the young. I hope she can bring about some positive changes during her future career.

by alittle | 25th Mar 21, 10:43am 1616622235

Is Chloe not a politicians.....

by powerdownkiwi | 25th Mar 21, 10:57am 1616623022

I didn't catch the name on Morning Report, but turned to my partner and said: Ït's a long time since I heard someone enunciating the problem so clearly".

So I listened for the name.

And thought: Future PM. Her logic outclasses our current one, and both are about 100 years ahead of the National rump (even if one of them is taking lessons in sounding like Key - anyone noticed?).

by Plutocracy | 25th Mar 21, 12:32pm 1616628720

I respect her as she's both articulate and competent, a rare combination in politics. Certain demographics find those traits threatening however.

by ikimpaul | 25th Mar 21, 10:27am 1616621265

Just reading on the herald that 42 homes in Auckland went to Auction yesterday and only 15 sold. Can anybody else verify this? If that info is correct then the housing market may not have slowed but crashed overnight.

by alittle | 25th Mar 21, 10:38am 1616621927

Have doubts, as too believe that money supply has to be controlled specially for speculator to have result as greed as of now overtakes all emotions so may not make much visible difference though in 2018 November was able to visible difference, so may be...

by VeryInterested | 25th Mar 21, 12:30pm 1616628623

Barfoot and Thompson who run their city auction on Wednesday’s have this live link for sales on their website. https://www.barfoot.co.nz/auctions-live/completed

by stuart786786 | 25th Mar 21, 10:30am 1616621446

Not happy with Jacinda Arden's housing policy, though a good start but missed opportunity by not curtailing the source of cheap and easy money supply to speculators in the form of interest only loan.

BUT

Happy to see shouting and kicking reflecting sheer frustration by Mike's and Tony's....Alexander's of New Zealand along with Judith C who does not know what hit her and is coming and how to react.

by GV 27 | 25th Mar 21, 10:48am 1616622488

The National Party is going to find a significant cohort of young professionals who are frozen out of the property market who fully support this sort of intervention, and they won't find that out until they step outside their own, highly partisan supporter base. If that was a viable road back to power, then they'd already be in power.

by ikimpaul | 25th Mar 21, 10:55am 1616622902

I think that national party just got their base back - a large number of traditional national voters voted for Labour to stop the greens wealth tax ie to stop a labor/greens coalition. Those voters dont want to be taxed - National have already said they will overturn this weeks announcement so you can guarantee those voters will return to National now.

The young voters if they cant get into the housing market will just leave for greener shores - making the base older and even more likely to vote for National. Dont forget these policies also hurt aspirational middle age voters who dream of one day owning a small investment property and now wont be able to.

the next polls will be the key

by GV 27 | 25th Mar 21, 11:01am 1616623283

I think the concerns of people who aspire to nothing more than owning investment properties should be well down the list of political priorities for National. That kind of attitude is simply out of touch in NZ in this day and age. The National Party has to be a party for taxpayers and businesses, and it can't be that if it wants to perpetuate a system that requires massive government subsidies like accommodation supplements. Just think what our taxes would be like if we didn't have to underwrite these massive programmes just to help people keep their heads above water?

by brisket | 25th Mar 21, 11:03am 1616623408

'aspirational middle age voters who dream of one day owning a small investment property...'
Is that really how pathetic we've become, as a nation?
If so, we are absolutely cooked. Third world status in no time at all.

by Hamish | 25th Mar 21, 11:27am 1616624873

Yes. Just look at how many politicians have extra properties and you start to wonder if their personal level of ambition is how the level of ambition for us as a nation has continued to decay over the last few decades (with a few exceptions along the way)

by Burni | 25th Mar 21, 10:32am 1616621553

Somebody has the be the "worst" bank for investment in fossil fuels.

Imagine how hard life would be without any fossil fuels or oil based products. I don't think people have woken up to the negative impacts.

by iconoclast | 25th Mar 21, 10:56am 1616622994

How Hard life would be

Energy supply in NZ is = renewables=40%, Fossil Fuels=60%
To meet the Climate Change Commission target total renewable by 2035 will require the previous 100 years of investment in renewables to increase by a further 150% in 15 years - impossible - won't happen
https://figure.nz/chart/8Vpo6WKVNXqzLhpC

by powerdownkiwi | 25th Mar 21, 11:15am 1616624157

And therein lies the housing problem, and the poverty problem, and the debt can't be repaid meaningfully problem.

As I point out often here (but note the zero take-up from the media) we bet on future energy. We do that because it supplies future work. That once-off hit of Fossil energy, was head-and-shoulders more than we can supply long term, and not only was it leaving us, the burning of it was leaving us a stuffed planet. So lesser-energised we will be.

Some of us have gone ahead and demonstrated lesser-energised, perfectly satisfying lives (not perfect, but don't use that as an excuse to denigrate). The problem is that society at large cannot handle the reduction required, and the forward bets are irredeemable. Folk have placed these bets in pension funds, in house-price rises, in, in. in, - but that's all they were; bets.

Saul's: 'The Collapse of Globalism' or King's: 'When the Money Runs Out' are good background reads. Neither get the physics; both see the inexorable reduction of growth. We haven't had this debate yet, but Kiwisaver bets are the same as house-price-gain bets, in the great scheme of things. And all anyone is doing - from the US to China and all points in-between) is writing more debt.

by Gummy Bear Hero | 25th Mar 21, 11:01am 1616623266

... too many are living in an ideological dream land ... we still need fossil fuels .... transitioning out of them will take decades .... baby steps to get to a near fully renewables utopia ... in the meantime , keep ordering coal from Indonesia !

by alittle | 25th Mar 21, 11:07am 1616623667

Trying to put pressure on government has begun by threatining...blackmailing.....

https://www.nzherald.co.nz/business/will-my-sector-be-next-businessnz-s…

To be seen if Jacinda Arden sccumbs to it or rise above and deliver the unfinished job.

by iconoclast | 25th Mar 21, 12:08pm 1616627328

Can you hear them sing, Negatively geared investors claim the right as businesses, to full tax-deductability of interest on their borrowings

They want to be treated as businesses, but don't want to pay business rates of interest of 8%

Give them their wish and classify them as businesses and charge them accordingly
At the business rate of 8%, with full tax-benefit, they would still be paying 5%

by Burni | 25th Mar 21, 12:30pm 1616628636

And charging GST on top of rents i guess too.

by GV 27 | 25th Mar 21, 12:45pm 1616629510

Why? They're providing an exempt service. Nothing to do with income tax.

by two otherguys | 25th Mar 21, 1:01pm 1616630487

Yes it is an exempt service, but that can be changed

by GV 27 | 25th Mar 21, 3:43pm 1616640192

It can be changed, but the government could just start seizing land also. Why are we arguing around 'what could happen'. Almost no one is suggesting GST is likely to charged on rents.

by iconoclast | 25th Mar 21, 12:56pm 1616630202

Gotta admire anyone willing to build a brand new house for $1,400,000, take out a $1,000,000 mortgage, and then rent it out

by Independent_Observer | 25th Mar 21, 2:43pm 1616636600

Especially when you look at what the 10 year US treasury bond is doing.