Eric Crampton warns of the unexpected consequences and costs in using the tax system to right perceived social problems. Making things more confusing is never a good idea, he says

By Eric Crampton*

I have never been a fan of the old prayer wishing confusion upon one’s opponents.

In a real war, your enemy’s confusion helps.

But in policy battles, it rather seems to me that that confusion hurts everybody.

Take GST.

New Zealand is blessed with what is about the world’s cleanest value-added tax.

Australia’s GST is in dire need of modernisation – their tax exemption regime around food, for one, makes ridiculous and arcane distinctions between bread and crackers and around just what gets to count as a pizza, as noted by the Australian Broadcasting Corporation this week.

Nevertheless, it is not hard to find local advocates of exempting ‘healthy’ food from GST to change peoples’ diets, or for exempting food entirely to help poorer people.

Both proposals are hopelessly confused: they are very costly ways to fail to achieve the desired objectives.

To start with, so long as richer people spend more money on food than do poorer people, exempting food from GST does more to help richer people than it does to help poorer people.

If your goal is to help poorer families be able to afford more food, policies that reduce the cost of housing leave more space in the budget – but we will come to that later. Food exemptions from GST are a very expensive way of helping poorer people as compared to just using our existing income transfer programmes – or making jobs easier to get.

Further, exemption regimes make a mess of GST accounting.

If you think that we should tax people until they eat the way you want them to eat, it is better done with an excise regime than by wrecking GST. We will be taking on the case for and against food taxes later in the year.

But now back to housing. There seems a substantial block of people who simultaneously believe inequality to be a terrible blight, and who fiercely defend their right to prevent anyone else from doing anything that might change their neighbourhood’s ‘character’ and to prevent urban sprawl.

Economist Matthew Rognlie has shown that the bulk of Thomas Piketty’s findings of increased inequality are due to inflation of the value of housing; this in turn is largely due to restrictions on land use preventing both building up and building out.

Business Day’s Michael Pascoe puts it bluntly: those who rail against inequality while freezing their cities under zoning and heritage ordinances are a big part of the problem. Much of what he says about Australia holds here too.

I do not wish confusion on those whose values differ from mine.

I wish them instead a better understanding of the unintended consequences of the policies they advocate. 

-----------------------------

Dr. Eric Crampton is Head of Research at the NZ Initiative

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

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45 Comments

A long time ago Labour had some pretty clear thinking about housing.
 
There first efforts at State Housing was quite successful too because it focused on providing affordable housing for workers not social housing for the poor. 
 
They didn't try to build dense inner city housing despite being urged to by the likes of James Fletcher because to make the economics work the First Labour government needed affordable land, which could only be found further away from the then city limits, in places like Lower Hutt etc (Source: Beyond the State: New Zealand State Houses from Modest to Modern).
 
 

Not sure on your context and age you mean here.  Some workers would have been the poor also Labour was the political wing of the unions and the "poor" with no work were not in a union. Also if you didnt work you were in the poor house.  
In terms of Housing NZ they provide or should provide housing for the un-employed/unemployable IMHO.  What they should not be doing is housing workers who have an income that can be and should be spent on on looking after themselves ie renting or a mortgage. 
I cant see any sign dense inner housing has been a success anywhere in the world, in fact the opposite, it produces dangerous ghettos IMHO.  NZ's way of having social housing mixed into all suburbs was and is the way to go.  

many of the workers were what fits into the WFF category now.  Often those workers (most were men) had to travel and spend days away from home, and their young families who were the hope and backbone of NZs future would have to follow them or have nowhere to live (they couldn't afford to buy because of the need to follow the work, or its temporary nature).

Social housing during that time wasn't required [for non-working families] because the gemstone file report had been enacted so work was plentiful and employees had bargining power.  The numbers of unemployed were counted in digits, not percentages.
After gemstone, the whole purpose of which was to create an unemployment labour pool to give employers better bargining power, then we started needing social housing, and we started having an entrenched poor class.

Is there a similar story to explain entrenched poverty in countries that don't have social housing? It's not the housing that is the problem, its people who are quite happy, so long as they are ok, to see others in poverty, it actually enhances their position to have them remain so. That is the only problem at the end of the day.

Actually it's the same story, which is why I didn't use to believe that our government would be as stupid to deliberately introduce a consumer shortage (ie poverty pool) that mirrors the undeveloped countries.

As long as there is money to spend people will either invest or consume (or hide it under the bed; a historically common alternative).

to have a functioning economy there needs to be enough margin available for people to purchase - hence we have what is known as Fordism.  We have to run a system that is efficient enough to produce an item/service, that also can pay enough to the labourers and owners in profit, so that those labourers and owners can afford to purchase the products or services made.   

This is what is KILLING NZ economically, and destroying the water empire of Fonterra.  Globalisation of milk rulings has become the external factor that breaks the water empire - while we were isolated and had our own sovereignity we were free to manage our own market and environment (systems) needs, and so we could produce very efficiently (cost and resource).  
 One major issue was the government and banks insistance of "foreign money is wonderful" which has reduced that efficiency, and sent owners re-investable profits offshore, where they can be re-invest in economies to compete with us (leaving us with only the workers smaller margin of payment to fund our own economic growth).

the anti-thesis of Fordism is supply-side economics based on continual drive to "competitive" pricing.  This removes the margin available to be spent (B2B) forcing, but it also creates Hard crushing pressure on workers wages and conditions, and on product quality, as margin is required, so costs must reduce - first through quality, then through needed labour.  

Now you might say; How can we have a cost+wages system that is efficiently able to purchase via wages alone? surely this doesn't add up !
 this is achieved through endurance of the goods and purchases.  The worker wasn't expecting a new car every year, nor was every car only going to last a year.  As we can see, poverty workers below the median would create a market demand for second hand cars in a Fordism system.

NOW do you see why I'm so paranoid about NZ having a burgeoning second hand house market?   NZers are so poor that many can't even conceive of participating in the new house market (so much so that wealthy tourists and foreign money is being touted as a method for that "worker-class" participation in the new market, just so the poverty struck will have a [second or third hand housing] market !!!! )

the durability factor means that the volume of population, and linked to Velocity of Money, can afford to purchase a 'market size' worth of product every 'X' years.

Sadly to keep the system alive, private credit has been introduced.  Normally this wouldn't be an issue, as it just allows forward-loading of the product-lifespan cost, for a small convenience fee (small interest).  This has created a situation though, where margins are excessive (demand driven, credit softening the buyers price limit), but at the cost of reducing the workers ability to participate continuously in the economy.
 It is also the function that is powering the widen gap between the few wealthy workers and the poorer workers, via transfer of wealth.   With the increase in passed on costs (the credit supply and low disposable income to deleverage, what was a low cost convenience fee has through demand become a large cost market in it's own right - one that, through legislation and agencies, has become low risk and high return, without the need for worker participation and return)
 As you might imagine, couple this effect with the "second/third hand poverty house market" mentioned above, the result is downright depressing.

We see the same effect in undeveloped nations, typically third world, as the workers don't own themselves or their property (it is either State or Aristocracy owned).  This means workers only own their personal needs and often have no participation in the ecnomy to improve their situation.  With relation to aforementioned Fordism, it means that the workers get very little, and the bosses all the margin.  This means the workers can't participate in their own market, resulting in a need for social housing.  Without property to own, or way to create their own personal micro economy (and make that micro economy, efficient) they stay trapped in poverty; relying on what others give them or re-re-recycling assets...just like NZers are having to re-re-recycling housing and cars.

Cowboy, I really like your intuitive line of reasoning here. I constantly argue that the more zero-sum transfers there are in an economy, the less "stuff" actually gets produced to be shared around.
Acemoglu and Robinson in "Why Nations Fail", argue that it all comes back to how much a nation is plagued by "extractive" insitutions that allow a well-connected few to profit excessively on what does get produced.
I say there is an obvious connection between real housing costs, and this reality. It is not for nothing that so many developing countries have now had generations with half the population stuck in informal slum housing because they cannot afford the "formal" stuff at all.
We are regressing back to this thanks to reinstatement of the same rentier-gouging effect via urban planning. 

Not sure what you are thinking with the second hand housing bit, as you also talked of things lasting longer, as houses can outlast several generations, then clearly there needs to be a market for second hand, third hand and more houses. It is just that now, we have turned those into "investments" where they should be what they are, homes. Via our current laws and regulations we have allowed them to become something quite hideous, a means to line the pockets of a few to the detriment of the many. The "market" will never change that, the market is doing what exactly what it is supposed to. The market is the absolute wrong thing for some things.
I won't argue with you about home ownership, I am sickened by what has happened to housing in this country, and believe that home ownership is a cornerstone of a decent society, but you still need social housing, there will always be, even in the best of worlds, people for whom home ownership is an impossibility, in both of our worlds, they would be small in number.

the second housing bit.

There is huge demand for housing in NZ.
But how much demand is there for new houses to be built.

Clearly a new house is a reflection of taste, has modern materials, can be designed to how you like it, can be positioned where you want, is uniquely yours.  But how much demand is there for NZ new houses? and from which portion of the economy?

So that demand, that ability to pay for it....what does that say about our economy?

If you owned a small company of 50 people, and 42 of them could only _afford_ secondhand clothing you'd think something was wrong.  Yet in NZ that is the state of the house market.

Yes houses are durable and should be a store of wealth.
But that be something visible as an option for most of the economy, not a necessity.

And that needs to driven by real purchasing power (better wages, higher margins) NOT by increasing debt (reduction of VoM, longer term borrowing).

The only way to achieve better margin and keep economic activity is reflected in the Fordism: highest possible wages at the lowest possible cost, is by reducing the compliance and enforced costs. 

As real income (wages) increases then we should see increased demand for new builds, which would take pressure off the second hand market...also we would see a drop in tenancy as tenants can actually afford to get deposits (and rent).  But rent incomes won't drop.

The advantage we see as lower loan interest rates is a marker for bad things (the pot for lending is getting tighter, the contract period to get repayment for "new" money is forced to a longer recovery period)  but I haven't really delved into the whats and hows of that yet.  My _suspicion_ is thatagain it's the lower margins and lower wages, meaning that the "fat" interest rate market is already saturated.

Comparing housing with clothing is like comparing owning a car with a pair of shoes, no comparison at all. Most people who own houses are going to own second hand ones, imagine if they didn't, everywhere would be noise of construction, you'd have to be tearing down the old ones constantly to replace with new. When we were younger you could actually pretty much build your own house, now it is mostly off the plan, in a new subdivision on  a section the size of a postage stamp with perma-shade where the clothesline (if you are lucky enough to have one) is. New houses today have very little about them that I would be attracted to, quality of fittings almost non existent. And please point me to a subdivision where I can build a small cheap(er) house to perhaps put a garage up or extend later - oh that'sright, section is too damned tiny to be able to have a house and separate garage (personally I hate internal access garages, I don't like driving the car into the house).
 

Fuck it. just wrote half a page, and the stupid editor exited the window in an edit, so when I hit backspace it all disappeared.

Ok their is a comparison with clothes and houses.  compare current clothes from warehouse to old clothes.
yes thank you you have highlighted the major area of concern that most dont even realise.

The you taht started out could get a house.  you had the wealth required (skills, willingness to work, minimal extra charge or compliance on that work, chaap resources, other people who could help without being paid cash and work for them to do)

the you that is a similar social/gender/economic status from today does not have those things.  They have lost that intrinsic wealth, so they cannot invest it into a store of value. instead they MUST pay a landlord, then banks and everyone else.

The old you might have thought that the contemporary house of the day weas ok,
the you of today would think that contemporary house of today is normal.
But the new you doesn't get a choice.

As for those subdivisions you talk about... many outside cities or fringe builds.  
Basic people just don't have the money for a choice to have such things, like the extra height in apartment studs, everyone would LIKE it but when they realise they have to pay extra to make up for the missing floor, they cut costs.   That's that competition to poverty effect I was talking about.  
Personally I'm finding it socking to read about 88m2 and 90m2 apartments in Auckland for 400k+.   My current abode is 200m2, without garaging, and I'm finding it tough to downsize to 120m2 ex garage.   

Point is we do this for _economic_ necessity, especially when starting out.
So we're all ruffling through the secondhand shops looking for best of grunge that can be up-cycled, like hobo's fighting over the best cardboard box.   Well in hobo land you aren't going to be creating wealth unless theres a store of value and wealth aspect to the work.

Steven the political poster I linked to dated back to the 1920s, pre the election of the First Labour government. I think the point I was poorly making was the First Labour government were addressing the failure of market place to provide good quaity housing at affordable prices.
 
Housing conditions were unhealthy, there was over crowding, and housing costs were too expensive. The established political parties of the time represented 'landlords and houseowners' and were unwilling to address this market failure.  
 
A lot of people have since focused their attention on the State side of State housing. They have focused on nationising industries or the keynesian effects of increased state spending to provide full employment. Or they see State housing as a social welfare scheme to redistribute income. 
 
But in fact the initial effect that the First Labour government promised and delivered on was much simpler and more powerful than that. It was an intervention to 'provide good, clean, commodious, cheap and sanitary for all at fair rent.'
 
They did that by building good quality homes at affordable prices that priced people into the market. The economics of this required they acquire cheaper land further from towns and cities and provide all the infrastructure required to make it work. But by doing this they broke the system of land speculators/land bankers and landlords who were pricing people out of the market. 
 
In effect the first State houses used the powers of the State to turn affordable land into affordable urban areas. They provided better houses for lower prices than what the previously dysfunctional market was able to. The First Labour government lowered the urban land rent curve. 
 
You can argue that there are other ways to achieve the same ends. But to get back to Eric's original point. There was a time when the left were not confused about housing. 

Like Cowboy said above the early State Houses was like WFF -it was a wage subsidy that allowed employers to keep wages down, while workers enjoyed better disposable income , this also had the benefit of making NZ Inc more competitive.
 
In fact  the early State homes were more effective than WFF because State Housing was self funding, it didn't require a transfer of income from one group to another. 

But it didn't support property investors either.

Correct the First Labour government housing policies supported the real economy not the fake one of the FIRE economy.

Exactly. But the free market in the US produced "Levittowns" which had the same effect. The incumbent property development sector was furious.
Watch this video of a TV "documentary" in 1959 in the USA and guess who funded it:
http://www.rhsdplanning.com/1959
 

The other bonuses of State housing:
(1) provision of real durable assets providing lasting need
(2) employment of thousands of labours across a wide variety of needed skills and market development channels.
(3) training for skilled labourers at a time when it was very expensive for normal colonial workers to hire expert labour.  (to have a Smith-style specialisation advantage you need a market large enough to support (and pay for) the specialists output !)

Government debt provided the means to pay for those services, the spending across a large base ensured Keynesian stimulus, the durability of the asset and it's inherent quality (while low by modern standards, was a solid median then) and the efficiency of methodolgy (any colour as long as it's black, and shape as long as it's one of these 12, and use of duplex to reduce cost without creating "Projects" social issues) meant that the _wealth_ stored in those assets would still be returning financially and socially, even after the Keynesian claw back period.

If they'd built palaces it wouldn't have worked (inefficient)
If they'd done it one the cheap it wouldn't have worked (not durable)
If they'd rented at market it wouldnt have worked (demand vs worker income)
If they'd given people choices or a wider variety of options it wouldnt have worked (complexity reduces efficiency)
If it was a more specialised industry, like with todays one stop building companies it wouldn't have worked (profits would have gone to top wage earners and shareholders, not to wide economic base, velocity of money would have "trickled up" and not provided the stimulus required for Keynesian repayment of initial debt+interest).

such activities has to really careful pick the bottle neck and conditions to be successful.

And there is always the danger of the project becoming a political football if its successful, or a hot potato/poison pill to a good party politicians career if it's not as successful.

cowboy what will you be doing come June post sale?
 

Nothing on the cards yet.
I've got a lot of gib-stopping and joinery to do after the upgrades to my cheap secondhand abode.  60's house, roughcast stucco, iron roof.  put in double glaze, but the walls were hardboard.  So had to decide to remove hardboard to put in gib (the sill width is 5mm different).  Since we had hardboard lining off, decided to batt the walls and re gib... and the builders put up a strongback to replace a wall, so out goes the iron bathtub...and the vanity which was the only thing left in room...  and it had the old style hall way, move one wall, may as move the other... and another.  re ling the lot...oh and the ceiling since there's a gap where the wall was....turns out the previous owners only insulated  what could be reached from the manhole...so new batts there too.   Chuck some new hotpoints and drawwires while we're re-doing the lining, but since we had the ceiling off, best time to move the air-con, and get the new wiring done, and downlights for ceiling height.... and the old wiring is marginal and oozes, so got rid of that; new MCB's and RCD's to replace older ceramic fuses that aren't code anymore, turns out the main earth was tied to the cold water pipe on the vanity (now illegal) so new main earth.  Also some odd looking 5A fixed electrical points, no idea what they were for, so take them out while we're at it.  
 Sadly for some reason the previous carpenders and building inspectors decided they could do a 3x5 metal tray as a flat roof without bitumen - so that's next summers job.  Also ripping out the antique electric hot water cylinder for something solar with tubes.
 Still have to mount the PV panels on the garage.  the sparky replaced the garage sub-main because everytime he tried to test it tripped out the RCD's back at the main board.  Also the fly wire to the garage was damaged I think someone must have caught it with a tall load, and pulled up a meter of the garage wiring, found a loop but I don't think they ever got it serviced.
  But apart from gibstop, joinery, painting; and filling the holes and painting the doubleglazing facia I'm putting my feet up.

Was thinking about doing some currency trading, but I don't like the way it's being gamed.  Someone is working towards an objective, and that means fundamentals get ignored in hope of a "bigger betterer picture".  If the picture is what I suspect it is, then I don't want to much exposed money tied up in FX margin.

Might see if the Sparky is interested in an adult apprentice.  When I was younger they didn't seem to want me playing with lethal things, maybe that's changed.

Or I'm tossing up between some accounting papers, tax accounting will always be an in-demand skill for as long as governments demand taxes, and it's B2B so gets around that whole "the consumers have no money" (and the government aspect gets around that nuisance "customers have a choice" aspect.
Or law.  Could be interesting but it's a worry because most of what government and quangos do appears to be illegal, or at least unethical, without bus-ticket law additions.  Starting with restriction of trade practices with lawyers having to deal on a "cab-rank" basis (except if able to plead conflict of interest).

I'd look at doing writing stuff... but all the long suffering folks at Interest.co.nz know that's not my strong suit.  sorry everyone :)

- Oh..the 50% rise in butter prices.  Initial indications is that the contracted raw milk supply for the butter might have been done on-the-side of the sales going to gDT auction, through a parallel private contract with it's own to-market subsidary for an in-advance contract, aka "Guaranteed Milk Price".   Ideally this would have allowed the long term customer (Fonterra butter) to lock in pricing a year/6 months in advance to everyone else, giving a significant advantage in planning and stability....if it wasn't for the fact the Fonterra people believed their own marketing and farm industry _media_ stories that kept telling them the peak prices were the new high (dairy ALWAYS has a saw tooth supply, always a big drop after a peak price, as distributors warehouses fill with overpriced stock that isn't moving, and credit and liquidity both dry up, as does the demand for new raw materials).. Nope, it looks like they had to be clever and knew more than the market, and got caught.
 I don't know if there's truth to it, and I don't know how ethical such internal supply deals are.  I know we had to be careful in the electrical industry with co-generation, as it can be considered inside trading or market favouratism, or just related party trading.

So at this point I'm considering enjoying my solar energy projects, setting up 10k of water storage and playing with some hydroponics and japanese composting ideas.  And just watch the world as it burns.
 

ah so lets throw some more confusion in....
Pity Interest.co.nz doesnt also have a left wing "economist" to argue the other side of the coin.

They should, never hurt to keep an open mind about things

They'd get a smack on the hand from the advertisers.  So looks like all one-eyed propaganda for us.
 
If the renamed-for-PR-purposes Business Round-table aren't paying them to run this half-baked drivel, what's the point?  It's embarassingly bad.

Mightn't the advertisers from the property and finance sectors NOT like the reform ideas to bring urban land and property prices down? Your assumption makes no sense at all when it comes to this particular topic, valid as it might be in many other areas. 

Has Bernard Hickey gone?

He still contributes.  But there have been some changes around here.
 
 

GST is a regressive tax and the poor spend a bigger proportion of their income on food.
In terms of breaking up GST and giving exemptions I end to agree, KISS (keep is simple and stupid) given the increasing Internet sales, and the regressive nature of GST I would be interested in looking at the logic of doing away with GST altogether and having say a land tax instead to recover the income.

Land tax would either be passed on to those who could pass on the costs, or not affect a large chunk of the population.

Re: the GST effect on the poor.  EXACTLY the reason GST needs to set to 0% for essential foods.  Government is getting wealthy  on the inflation (on things like butter) which overly penalises the poor.  Rather than raise minimum wages (which just makes everyone taxed more)  reduction in GST and other costs that are put on essentials needs to be implimented.  This would make anyone who needs to reduce lifestyle costs able to get by easier, and it would be fair across the board.

Government just needs to learn to reduce it's cost footprint.
"Collectively" inflation is going down remember (even if butter went up 50%)

You wouldn't need the land tax if you just had a more progressive tax system.

Wrong Steven. GST is a progressive tax.  The rich spend more on BMWs than the poor.

As a share of income, not nominal amounts.  The rich purchase GST exempt items, shares, savings, housing, business.  While those are out of reach for the poor who spend alltheir income on Goods and services.

Its a proportion thing.

Those GST exempt items aren't "purchased", they're stores of value in a world of depreciating money.  And they provide tranche returns (income streams) which are taxed but do add cost & interest & taxcost to the end consumer.

So a wealthy person might be 15% non-disposables; 20% stored/invested; 65% disposables

the poor person faces 85-95% non-disposables; 0% or negative investment; 5-15% disposable.

This is what I was trying to get through to Mike last week.
NZers are already "saving" too much of their income,  those at the bottom need to have more disposable, at the moment they're reducing costs, cutting corners, going without, eating badly, not spending in order to try and drive down the non-disposable costs...aka "making savings".   But this means that they aren't participating in the consumer buying as much as needed to keep the governments economy afloat.   Sadly the services they do get, aren't cutdown versions, the price settors and market dominants are forcing them to have to choose either cheap rubbish which doesn't last and doesn't do the job properly, or to go for products with a lot of unneceesary "value add" padded into the bill.   Compliance and overheads means there's no margin or value in providing low cost or quality budget products  (eg Pam's with their toxic levels of sugar and processing/ingredigent aids)

GST is regressive as it is paid on consumption, not on earning.

PAYE is progressive is it gets taxed before it is paid to worker.

This means people can electively avoid GST tax take by saving or investing or delaying spending, or recycling/second hand products.  They cannot do that with PAYE as the money is taxed before it's received so cannot be avoided.  
 That's why the push in US "get rich fast" schemes were all about setting up businesses because they were regressively taxed on INC after expenses (and that meant everything through the business), as opposed to trying to get wealthy through wages which were progressively taxed and thus no effective wealth generation was possible (as government would always loot people back into mediocracy)

Dump GST it is now already an outdated model (online purchasing from overseas) and introduce a tiny, totally comprehensive transactions tax. The big thing would be that it remain tiny, but be on everything from withdrawing $20 from the hole in the wall and all the way up. If it moves round in a bank it attracts the financial transactions tax.
I wouldn't mind betting that those on low incomes would pay a fraction of what they are now with this, but because it is all encompassing it would nett more than GST

if it nets more than GST someone has to pay for it.

Big buyers can get discounts - and while they're blowing $1000 discounted fees, and a small transaction cost (say 10c eftpos charge) on that 0.1 / 1000 = 0.01%

while small buyers and children buying a few groceries or takeaways is $20 non-discounted, and a large transaction cost (say 12c because of low $$ volume) 0.12 / 20 = 0.6%

To test your theory take an existing system: Visa Credit Card.
Make _all_ you purchases "big income" and "little income" see how it tests in practice.   (you'll notice how many smaller places don't actually accept Visa for some reason ... some reason related to the transaction costs they're charged....)

Everyone would pay for it, everyone who puts money through a bank, being all encompassing its spread would be much further, who is going to get upset about less than 1% on a transaction? Remember there will now be no GST no GST returns and none of the transactions tax would be reclaimable. 

All price settors pass on the any "unreclaimable" costs , allowing them to be reclaimed from those can't pass on their cost.

The resultant can't be "less than 1% on a transaction".  You are talking removing GST, which in most cases equivalents to 15% per transaction.  Government will not remove a 15% cost to replace it with a "less than 1%" cost. They can't afford to.   And for the big operations (eg banks) where the company pays, it will needed to be added to the margin of each sale, which if that margin is equivalent to 15% now, then it will need to be around 15% in future.
 Wages are transactions to, but that just means a "less than 1%" across the board taxation rise.

 

There is a lot of confusion about the urban land rent curve and how that affects housing prices. 
 
A few comments from Eric's blog Offsetting behaviour might help.
 
The standard spatial urban econmics model indicates "you get a nice price gradient in the standard simple model where housing close to downtown amenities is very expensive to housing farther away, with the slope of the gradient depending on things like the ease of commuting and the desirability of the amenities. At the edges of the city, the cost of a house should be the cost of building it, plus the cost of providing basic infrastructure, plus the underlying base value of land in its next best alternative use."
 
"So median house prices relative to incomes can tell us a few different things. High prices would be associated with strong amenity values. But if there are also very high prices at the city fringes, or if the very high prices persist for a long time, there's also something else going on - something related to building new houses and apartments. You don't get sharp drop-offs in land values at metropolitan urban limits, or apartment buildings built to only 10 stories when another 5 stories would cost less to build than the apartments' sale prices, unless something else is up."

And in addition Brendon, the urban land curve exists with approximately the same gradient in any city in the world, irrespective of whether the city has restrictive or non restrictive boundaries. BUT the difference between the two cities is the one with non restrictive boundaries has low fringe prices AND correspondingly relative low inner city prices compared to the city with the restrictive boundaries. That is,if you have lower suburban prices, then you can have lower relative inner city higher density prices. Central Govt. recieved approx. $1.4 million per ha for their Hobsonville Point fringe land. This sets the benchmark for any any land price increases closer into the centre.
The other curve that is important is the supply and demand curve. If you want affordable housing of all types then the restrictions on boundaries and time and cost to market need to be removed so the supply curve and can match the demand curve.
By its very nature, once the mechanics that cause relative high land curves ie restrictive boundaries are allowed by Govt. (central and local), then those same Govt. bodies also cause extra non-valued time and costs into the system that prevent the supply curve matching the demand curve.
Once the curves are out of sync, they will cross occassionally as any counter oscillating curves will, so the politicians will be able to say for a brief moment in time that either demand equals supply (in a over build scenario) or that supply equals demand (in a under build scenario), the later of course is the next one up, and when it is announced then it will be the precursor to an over supply and fall in prices. What they need to be able to say ALL THE TIME is supply equals demand.
The people that are confused by all this are the people making money out of the present status quo, after all it is hard for someone to understand how to make housing affordable, when there income is dependant on it not being affordable.

It is excellent to see comments of this quality on what is meant to be NZ's premier finance and economics discussion site.
I would add to what you say, that regardless of what is assumed by even many economists as well as planners, there is no city anywhere with a growth boundary, where removing height restrictions makes housing per unit more affordable.
In a city with NO growth boundary, vertically stacked apartments are indeed a means of providing cheapness at the places where there is demand, but this is just one of many options that are ALL good value for money. The flat urban land rent curve holds down the value of sites everywhere.
But upzoning within a growth boundary actually causes the value of an upzoned site to rise instantly, even if it never gets anything built on it. 
Consider examples of affordable US cities versus unaffordable US cities with a boundary AND low density mandates, versus UK cities with a boundary and much higher allowed densities. Both Boston and Manchester UK have median multiples of around 6 to 7 versus the 3 of affordable cities.
Boston is low density and so are the affordable cities. But Manchester is high density and yet its median multiple is the same as Boston's. In fact in fringe developments in Boston, where there might be a mandate of no more than 2 housing units to the acre, and in Manchester, where there might be 20 units per acre getting developed, the end price of the housing is the same! So the difference is that the site vendor has been able to gouge at least 10 times as much for the land inside the boundary. 
Furthermore, apartments in Manchester CBD rent for about 10 times as much per square foot as in the affordable cities where houses on 1/4 acre sections cost 3 times incomes. 
Hence I conclude that growth boundaries AND upzoning are a combined desired strategic gouge by the powerful land-rentier class. 
 

I started to read this but when he babbled on about how the wealthy spend more on food (like it was a BIG income cost to them) i spewed and gave up.
 
GST can easily be removed from food. It is just a matter of common sence and i am suprised the Greens have not come up with it.
How it is done
Every business with a turnover of $30k has to be GST registered.
Make it like this
Every business, whose sole income, comes from any of the following dose not have to be GST registered.
Income solely from the production of organic or naturally grown food.
Income solely from the sale of secondhand goods
That is
You exempt, on the basis of the type of business, rather than on the type of product being sold.
Mixed businesses that sell GST and none GST products would miss out. They would have to pay GST on everything.
As an example supermarkes would have to split their businesses if they wished to take advantage of GST exemption.
 

It's easy enough.  Each product has a product code.
put a field or range of codes into a zero rated amount.

have a central register of products with codes and/or descriptions that can be zero rated.
start with electricity and rates.
non-imported unprocessed goods.
other goods can be added on application.

By not making it all food it allows the government to still collect revenue on more luxury orientated or highly processed items.

This means things like tinned food can be given zero rating to encourage people to stock up for Chch style emergencies without penalty.

While convenience things like softdrinks, chocolate & sweets, biscuits, alcohols which aren't "basic living" but are electable treats can be still enjoyed but the cost encourages moderation...which these things should be in moderation anyway - same as restaurants.  Those who use these things are doing so from lifestyle choice anyway, so making them cheaper won't make much difference to the tax take - only those who need to bargin hunt will be the real winners...and from the benefits to society so will everyone else.
 AND if the tax take lost from GST on survival foods is significant, then clearly we have more serious problems on our hands ! especially since that means the basic survival of the poor is making up a significant input to the tax income...and burden placed on those who can least afford it, and who we can least afford to oppress with it.

...not quite so simple cowboy.  Take the truck that delivers the food to the supermarket.  If he carries both non and gst payable goods, then he can't claim all the gst on his fuel...same with his R&M etc.  Same for the shop selling...can't claim all gst on the power, rates, rents and so on.  Sure it may be easy at the check-out, but it's all thes backroom adjustments that make it a very costly and inefficient way of doing things   Aussies fell for it - due to union pressure the only way they got gst in was to exempt some items.  As a consequnce their gst scheme is a compliance nightmare....  

Yep, Rinse and repeat USA style. You would think he'd be a bit more original  and not regurgitate 20 year old US tripe.  
You could remove GST on food but frankly its easier to keep it as is and give a tax free threshold or something.

GST is a cost pluss. That is the shop sells the product pluss GST.
 
If you had a turnover tax this would be very simple to operate and is also a type of cost pluss.
All income comes from sales therefore this is your turnover and this is where you pay tax based upon that turnover.
Similary types of businesses could be tax exampt as per my above.
 

facepalm.  add just what do you think is going to happen if the business makes a loss in a year?   Sell more next year...that increases their tax burden !

Part of the difficulty is that real costs such as wages and interest - the former should be encouraged not reduced, the later a necessary part of investor returns for passive returns (ie old age or long term improvements) - cost the seller GST.