90 seconds at 9 am: International tax feuds escalate

High prices and limited supply cool the US's hot housing market; German GDP growth slows; US defends Apple in tax war; UK authorities crack down on evasion; UST 10yr yield at 1.55%; oil and gold down; NZ$1 = 73.1 US¢, TWI-5 = 76.0

25th Aug 16, 8:10am by Jenée Tibshraeny

Here's my summary of the key events overnight that affect New Zealand, with news of international tax feuds continuing.

The US has launched a stinging attack on the European Commission in an attempt to stop Brussels from hitting Apple with a demand for billions of euros in underpaid taxes. The US Treasury has issued a rare warning that Brussels is becoming a “supranational tax authority” that threatens international agreements on tax reform.

Meanwhile UK authorities are proposing new legislation requiring taxpayers with outstanding offshore tax liabilities to come forward before being subject to a new set of sanctions for “failing to correct”.

New housing data out of the US suggests rising prices and limited supply are cooling sales. A Federal Housing Finance Agency report shows house prices rose 1.2% in the second quarter - a 5.6% increase from last year. Meanwhile, a National Association of Realtors report shows existing home sales fell 3.2% in July - a 1.6% drop from a year ago.

Rising prices aren’t deterring first home buyers from entering the market, with the share of first-time buyers rising to 32% from 28% a year ago.

Yet the Agency’s chief economist says the rate of price growth is slowing. Data out yesterday, showing a surge in new home sales, also indicates there’s a rebound in residential construction investment.

The pace of Germany’s economic growth has slowed in the second quarter, yet remains steady. Its gross domestic product (GDP) rose in line with expectations at a quarterly rate of 0.4%, or annualised rate of 1.7%.

The growth in Europe’s largest economy was spurred by strong exports, high state spending and private consumption, which made up for weaker investment. In light of the Brexit, it’s worth noting a large portion of Germany’s exports were to the UK.

In New York, the UST 10yr yield has remained at 1.55% overnight.

The US benchmark oil price has fallen on an EIA inventory rise. It’s down around US$1 to US$47 a barrel, while the Brent benchmark has slipped to US$49 a barrel.

The gold price is also down to US$1,325/oz.

The New Zealand dollar starts the day strong, as investors anxiously await the Federal Reserve’s annual meeting on Saturday (NZ time). It’s at 73.1 UC¢, 96.0 AU¢ and 64.9 euro cents. The TWI-5 index has risen to 76.0.

If you want to catch up with all the local changes yesterday, we have an update here.

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

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44 Comments

by Stephen Hulme | 25th Aug 16, 8:45am 1472071556

New housing data out of the US suggests rising prices and limited supply are cooling sales. A Federal Housing Finance Agency report shows house prices rose 1.2% in the second quarter - a 5.6% increase from last year. Meanwhile, a National Association of Realtors report shows existing home sales fell 3.2% in July - a 1.6% drop from a year ago.

Rising prices aren’t deterring first home buyers from entering the market, with the share of first-time buyers rising to 32% from 28% a year ago.

Hmmmm...

The housing recovery that began in 2012 has lifted the overall market but left behind a broad swath of the middle class, threatening to create a generation of permanent renters and sowing economic anxiety and frustration for millions of Americans…

But most of the price gains, economists said, stem from a lack of fresh supply rather than a surge of buyers. The pace of new home construction remains at levels typically associated with recessions, while the homeownership rate in the second quarter was at its lowest point since the Census Bureau began tracking quarterly data in 1965 and the share of first-time home purchases remains mired near three-decade lows. Read more

by Cowpat | 25th Aug 16, 9:17am 1472073456

And the share of first home buyers in New Zealand is stagnant and significantly lower . But then again , no surprise given the average age of a FHB. Todays RBNZ lending data will possibly show mortgage 'growth' slumping further.

by Undecided_Voter | 25th Aug 16, 9:34am 1472074474

Pretty damn hard for FHB to compete when 29% of sales are going to foreigners.

#JKexit #Make New Zealand Great Again

by Stephen Hulme | 25th Aug 16, 9:50am 1472075424

Does this US claim resonate with your expectations?

Severely restrained inventory and the tightening grip it’s putting on affordability is the primary culprit for the considerable sales slump throughout much of the country last month. Realtors® are reporting diminished buyer traffic because of the scarce number of affordable homes on the market, and the lack of supply is stifling the efforts of many prospective buyers attempting to purchase while mortgage rates hover at historical lows. Read more

by Cowpat | 25th Aug 16, 10:15am 1472076959

Actually C16 housing loan data came thru yesterday. Mortgage values are in freefall. Auckland market , for those requiring credit appears to be on cliffs edge.Now what happens to prices if you cannot borrow more. Interesting given further rate cut

by notaneconomist | 25th Aug 16, 9:22am 1472073728

I think you'll find it is the new black SH.......one provides data in a certain way with the hope of wafting a pleasant fragrance......this apparently makes the nasal cavity relax with the allure closing the eyes in blissful ignorance.

by Joe Public | 25th Aug 16, 9:19am 1472073548

Auckland is world’s “hottest” city for luxury real estate last year according to the Wall street journal.

WAKE UP JOHN KEY.

WSJ explains how NZ is one of few countries with an OPEN DOOR POLICY on foreign buyers.

“Add to that the country’s property laws—which do not include a stamp duty, capital gains tax or visa requirements—and the result is one of the world’s most attractive property markets for overseas buyers.”

"While other countries grappling to contain frothy housing markets have moved to cool foreign investment, this picturesque island nation boasts one of the world’s most open-door policies.
That relaxed attitude toward foreign buyers helped New Zealand’s commercial capital, Auckland, overtake Toronto as the world’s “hottest” city for luxury real estate last year, according to a survey by Christie’s International Real Estate."

"New Zealand hasn’t targeted overseas buyers in the same way other countries have done. The provincial government of the Canadian city of Vancouver recently said foreign home buyers will face an additional 15% property transfer tax. In Australia, where foreigners can only buy newly built properties, wealthy Chinese are helping fuel a residential construction boom."

http://www.wsj.com/articles/new-zealand-hangs-welcome-sign-for-foreign-…

by notaneconomist | 25th Aug 16, 9:36am 1472074570

For goodness sake JP New Zealand already has income taxes on profits on property and why anyone would want to add stamp duty is beyond me.......if you actually took the time to read up on the various tax agreements you will find that the implementation of any new tax will affect locals too!!

Why would you want to hurt locals when many are already hurting??? I'm pretty sure that most FHB and other locals don't want to have to cough up with loads of extra dosh on purchasing a house in NZ!

by frazz | 25th Aug 16, 10:14am 1472076876

How would a 15% tax on foreign house purchases adversely affect FHB?? Awaiting your response in anticipation.

by Noncents | 25th Aug 16, 10:28am 1472077683

It wouldn't - thats the problem. A Chinese national paying $1.5mil for a $500k house is already overspending, they wont care about another pitiful 15%

End result - houses are no cheaper. So no benefit to anyone.

WIll the government gain any real tax income? No because only "3%" are foreign buyers, i.e. all the smart foreign buyers will find a loophole and not have to pay anyway.

A tax will never ever fix anything.

by kiwimm | 25th Aug 16, 10:29am 1472077776

See Vancouver prices for counter-evidence to your claim

by Noncents | 25th Aug 16, 11:03am 1472079787

I believe they taxed non-citizens. Not NZ govts version of a "Foreign resident"

by kiwimm | 25th Aug 16, 12:10pm 1472083837

They tax anyone who does not have the right to permanently live in Canada at the time of purchase. So permanent residents and citizens are the only exempt persons.

by frazz | 25th Aug 16, 10:35am 1472078148

3% cough splutter....try 27%. Yer nah if I was buying a 1.5 million house $225K would not bother me at all?
Someone tell him hes dreamming

by Noncents | 25th Aug 16, 11:18am 1472080687

That's right - it would bother you. But you aren't aiming the tax at yourself are you?

by Joe Public | 25th Aug 16, 10:49am 1472078948

15% tax will help kiwis as it would raise millions in tax revenue that can be used to fund infrastructure.

The contrary of allowing them to buy and paying ZERO tax is actually what doesn't help anyone.

The 3% is incorrect it is more likely 30%

Tax on foreign purchasers would need to include
- Off shore buyers
- Foreign Students (96,000 in NZ)
- Foreign Temp Workers (207,000 in NZ)

Looking at the LINZ numbers foreign buyers ( including students & temp visa) are buying over 29% of properties

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=116…

And yes it seems to be doing the trick in Vancouver. Time to bring it to NZ.

by Noncents | 25th Aug 16, 11:06am 1472079986

The 3% is of course bollocks, but that is what our govt want us to believe.

But, like all taxes their will be loopholes, which most will then utilize. So I can't see much tax actually being collected.

If we actually want to do something. We would be much better banning non citizens from owning residential property.

by notaneconomist | 25th Aug 16, 10:42am 1472078563

I am going to accuse you of being lazy here Frazz.....you want me to supply a response on something you cannot be bothered looking up for yourself.

It is written into the various tax agreements that NZ has with other countries that the tax citizen/resident of the other country will not face any different taxes to that of the locals.........hence any changes/additional taxes would apply to locals as well!!

by frazz | 25th Aug 16, 10:46am 1472078802

Bull^%&)*

by notaneconomist | 25th Aug 16, 11:58am 1472083114

I beg your pardon.......are you accusing the PM of lying?

by Joe Public | 25th Aug 16, 10:57am 1472079451

That is also false.... 3 false statements in one morning well done.

They can not ban foreign buyers however they can TAX Them. See below from the Korean FTA.

As long as they don't discriminate against a particular nationality so a blanket tax on all foreign buyers would be fine. I would tax all investors and foreign buyers.

https://www.nzte.govt.nz/media/4763292/new-zealand-korea-fta-guide.pdf

Taxation measures are also largely excluded from
the FTA, except to the extent that they are covered
by the WTO. Neither Party to the FTA will be required
to disclose information if it considers that the
disclosure would:
• be contrary to its domestic laws;
• impede law enforcement;
• be contrary to the public interest;

and
https://www.mfat.govt.nz/assets/_securedfiles/FTAs-agreed-not-signed/Ko…

TAXATION AND EXPROPRIATION
The determination of whether a taxation measure, in a specific fact situation, constitutes an
expropriation requires a case-by-case, fact-based inquiry that considers all relevant factors
relating to the investment, including the factors listed in Annex 10-B and the following
considerations:
(a) the imposition of taxes does not generally constitute an expropriation. The mere
introduction of a new taxation measure or the imposition of a taxation measure
in more than one jurisdiction in respect of an investment generally does not in
and of itself constitute an expropriation;
(b) a taxation measure that is consistent within internationally recognised tax
policies, principles, and practices should not constitute an expropriation. In
particular, a taxation measure aimed at preventing the avoidance or evasion of
taxation measures generally does not constitute an expropriation;
(c) a taxation measure that is applied on a non-discriminatory basis, as opposed to a
taxation measure that is targeted at investors of a particular nationality or at
specific taxpayers, is less likely to constitute an expropriation; and

by notaneconomist | 25th Aug 16, 11:42am 1472082169

http://www.stuff.co.nz/business/79271237/PM-hints-at-land-tax-to-rein-i…

"Key also clarified the situation in relation to the Trans Pacific Partnership Agreement".

"Under TPP, we have retained the ability to impose a discriminatory stamp duty on property sales to people from other TPP countries." Note the retained!!!!

"However, a discriminatory stamp duty like this would be inconsistent with the Korea FTA and our Double Tax Agreements with Australia, Japan and Mexico," Key said through the spokeswoman."

"Land taxes are considered direct taxes and non-discrimination obligations in FTAs are not applicable to these type of taxes. Also a tax on "non-residents" would capture some New Zealand citizens as well
as foreigners as it would be applied on the basis of residency not nationality. In that case it would not necessarily constitute discrimination for the purposes of our double tax agreements."

"Other options, like stamp duty, were not possible under deals like New Zealand's free trade agreement with China, Key confirmed."

"But New Zealand retained the right to impose some taxes and a land tax was "the most obvious" one of those."

Plenty of information here as to how the system works!
http://www.ird.govt.nz/international/residency/dta/double-tax-agreement…

by notaneconomist | 25th Aug 16, 11:43am 1472082212

http://www.stuff.co.nz/business/79271237/PM-hints-at-land-tax-to-rein-i…

"Key also clarified the situation in relation to the Trans Pacific Partnership Agreement".

"Under TPP, we have retained the ability to impose a discriminatory stamp duty on property sales to people from other TPP countries." Note the retained!!!!

"However, a discriminatory stamp duty like this would be inconsistent with the Korea FTA and our Double Tax Agreements with Australia, Japan and Mexico," Key said through the spokeswoman."

"Other options, like stamp duty, were not possible under deals like New Zealand's free trade agreement with China, Key confirmed."

"But New Zealand retained the right to impose some taxes and a land tax was "the most obvious" one of those."

Plenty of information here as to how the system works!
http://www.ird.govt.nz/international/residency/dta/double-tax-agreement…

by kiwimm | 25th Aug 16, 12:42pm 1472085762

"However, a discriminatory stamp duty like this would be inconsistent with the Korea FTA and our Double Tax Agreements with Australia, Japan and Mexico," Key said through the spokeswoman."

The key word here is inconsistent, not illegal. It could easily be done if there was the political will to do so.

https://www.mfat.govt.nz/assets/_securedfiles/FTAs-agreed-not-signed/Ko…

by notaneconomist | 25th Aug 16, 4:11pm 1472098288

You're trying to make these statements fit with your beliefs!

What you are saying is that you don't want to recognise people from other countries as being people!!

Why not spend your time being proactive ensuring councils open up land, that building acts and codes don't impede the process, allow people to build their own homes, stop the bureaucracies milking the industry..........are you really so naive as to think that foreign investors would want to invest here in a market that has no forward momentum?.

If you want NZ'ers to enjoy home ownership then do everything you can to make sure houses are able to be built efficiently and on land that is not too expensive and that will be the biggest discouragement to any investor. If you don't do these things then you are part of the problem!!

by Joe Public | 25th Aug 16, 6:34pm 1472106847

Spot on kiwimm... political will

by kiwimm | 25th Aug 16, 10:59am 1472079561

notaneconomist - this has been discussed and disproved on this site previously. If you feel this is not correct, then please provide evidence to support your claim.

by notaneconomist | 25th Aug 16, 11:48am 1472082488

Disproved by who?

by Joe Public | 25th Aug 16, 10:43am 1472078629

Likewise looking forward to your response

15% tax on foreign buyers (including students & temp) will help FHBs by reducing house prices so they don't need such ridiculous mortgages.

Do you believe run away house prices fuelled by foreign cash is helping FHBs ?

by Noncents | 25th Aug 16, 11:15am 1472080530

At best, if it was perfectly executed and enforced, it would drop prices by 15% (the cost of the tax), As it is clear that foreign buyers have more cash so can always outbid a local. So FHB would still be way out of their depth.

A tax doesn't fix the fundamental issue as to why Locals can't afford a house. So why would you want one?

The Kings of old would love most of the comments on this site - More taxes, more taxes.

by frazz | 25th Aug 16, 11:21am 1472080878

Keep digging with your strawman responses

by Noncents | 25th Aug 16, 11:26am 1472081179

and your counter evidence is?

Can you please explain how a 15% tax will make houses in Auckland affordable to a FHB?

Average AKL price is near $1mil, that is a 200k deposit. Even at half that, a 100k deposit and a 400k mortgage is still too much for an average FHB - over 25 years that is $1000 per fortnight - and that's at record low interest rates.

You can tax all you want, but it wont fix a thing.

by Joe Public | 25th Aug 16, 6:42pm 1472107341

Again Canada down 20% already... (not the 15% you claim)

This sends a message that if you want to buy our houses it will cost you a large amount of money.

This puts off foreign students and temp workers from buying in NZ. Without them buying fewer mums and dad investors also buy so overall demand drops. We all know what happens when demand drops with teh same supply. Prices follow.

46% of buyers are investors
29%+ are foreign Students & Temp Workers

If prices could rise 85% in 4 years then there is ample room for them to drop.

by notaneconomist | 25th Aug 16, 12:03pm 1472083425

JP -You make the most senseless of statements and ask the silliest of questions. You do not understand the bigger picture of how the worlds economy is structured or how NZ fits into that structure.

by frazz | 25th Aug 16, 12:05pm 1472083502

I understand far more than I let on (very busy today), but your arguments are riddled with holes. One city for you to study in the world picture today Nota....VANCOUVER

by notaneconomist | 25th Aug 16, 12:24pm 1472084696

Oh I see frazz - the classic derogatory one worded insult.
Followed by petty other phrases.
Then the patting yourself on the back moment
While hastily making an exit using the "too busy" excuse.
Then there is the air-shot......piece of advice....well done you not!

by frazz | 25th Aug 16, 8:54pm 1472115245

Yes yes you do go on, but no comment on Vancouver tax?

by Joe Public | 25th Aug 16, 6:44pm 1472107480

Notaneconomist - you clearly live up to your name. Vancouver tax is evidence that it can work what more do you want.

I also showed you that the FTA with Korea allows Taxation such as stamp duty. This was repeated by what Key said.

by kiwimm | 25th Aug 16, 10:28am 1472077696

It might affect non-resident "locals" but then that is the point :)

by Joe Public | 25th Aug 16, 11:10am 1472080231

This is how I see it

One one side you have :
-Govt - election next year
-Banks - Business is booming and the loan books are exploding
-Real Estate - business is booming and commissions are through the roof
-Media - advertising Revenue from Real Estate & Banks
-Foreign Buyers - investing with zero purchase tax
-Investors - become overnight millionaires
-John Key - NEXT ELECTION

on the other side
- FHB - completely priced out of the market or taking on large amounts of debt to get on the ladder-
- Home Owners - yes their house is worth more, however those with children know large deposits will be needed in the future and those wanting to scale up find that it is becoming more and more difficult
- Renters - as prices increase eventually rents will follow
- Essential Key workers (Police, nurses, teachers) - wages are not moving and housing is becoming every more unaffordable.
- Business - harder to attract talent to Auckland as the cost of living increases. Also find it difficult to obtain credit as all money is pumped into real estate.
- Exporters - artificially high dollar due to high rates (to contain house prices) hurts exports and tourism.
- Household debt climbing 8.8% pa and at 230bln
- S&P - warning of housing price correction risks

by Smalltown | 25th Aug 16, 12:19pm 1472084358

Yep - every night JK must give a liitle prayer that it doesn't go tits up till late next year.

I expect to see some half baked ideas coming out of the Nats skunk works as we go into 2017 promising to clean up all the money laundering, housing and immigration scams "but look - at the end of the day these will have to be carefully considered" and nothing much will happen till after the election.

Does anyone know if JK is still alive-some of his presentations look quite robotic - if this was a movie it would be "The Big Short meets Weekend at Bernies (Madoff) meets The Manchurian Candidate" ?

by David George | 25th Aug 16, 12:34pm 1472085256

Bloody Aussies - Phar Lap, Split Enz now Manuka!

'New Zealand doesn't have a monopoly on manuka, said Trevor Weatherhead, executive director of the Australian Honey Bee Industry Council. “We have exactly the same plant that they have,” he said, adding that made-in-Australia manuka is similar in quality to New Zealand manuka. As for claims that the manuka name comes from New Zealand's Maori language, Weatherhead says the word has an Australian heritage, too. “We have evidence of the name manuka being used in Tasmania for years,” he said. The New Zealanders “are just looking for a marketing edge.”
http://www.bloomberg.com/news/articles/2016-08-24/there-s-a-battle-to-t…

by kiwimannz | 25th Aug 16, 3:03pm 1472094190

Labour Party will and should definitely raise the voice about foreign buyers as each and everyone knows the real reason and role of foreign buyer in Housing Crisis. National too knows but vested interest stop them from admitting it as a result are exposing themselves more and more..

http://www.nzherald.co.nz/mortgages/news/article.cfm?c_id=516&objectid=…

What does the saying 'the higher a monkey climbs, the more he shows his ass' mean?
It means be cautious in anything that you do, if you don't want to look ridiculous to others.

The reason I mention the above quote, for I have been voting for national and am hoping that someone from national or other national supporters reads the above quote and gets the message, though doubtful as the another saying proves to be correct from them : POWER MAKES ONE ARROGANT AND CORRUPT.

by Joe Public | 25th Aug 16, 9:50pm 1472118646

this shows the scale of the prices

http://www.trademe.co.nz/property/residential-property-for-sale/auction…

1.16m for a 4bed house on 630sqm in New Lynn. Tell me that foreign buyers are not influencing this price.
38 times the median NZ salary of 30k.

What would this rent for 500 a week ? Rental yield 2.2%