Bernard Hickey points out a 1% land tax on all property owners would now allow a 5.5% cut in personal tax rates or a 10% GST rate. So why won't John Key do another big tax switch?

Bernard Hickey points out a 1% land tax on all property owners would now allow a 5.5% cut in personal tax rates or a 10% GST rate. So why won't John Key do another big tax switch?

By Bernard Hickey

Now that the Prime Minister has let the land tax genie out of the bottle we should all have a good close look at it to see which version suits us best.

Mr Key has suggested a land tax targeted only at non-residents, but with some sort of three year exemption for expatriates who own houses here would be the best way to take some of the heat out of the housing market and comply with our trade agreements.

It is already looking like the sort of highly-targeted tax that is shot through with exemptions and loop holes of the type that killed off the original version of a land tax that was eventually retired in the early 1990s. Foreign investors must already be calling their tax planners for some early side-stepping tips.

It is not the version of a land tax that was proposed in 2010 by the Tax Working Group that Mr Key set up and which he has already rejected once. That land tax was a broad tax on everyone owning land. No specific rate was proposed, but former Reserve Bank Chairman and Tax Working Group member Arthur Grimes put forward a paper in late 2009 that estimated a 1% land tax would raise NZ$4.6 billion and cause an almost overnight reduction of land values of 16.7%. That would have bought a substantial income tax reduction and avoided a GST increase.

However, that 'bill shock' number of a 16.7% fall in land prices seemed to be enough to discourage the Mr Key from adopting the plan. Instead he chose to increase the GST rate by 2.5% to 15% and use those increased tax revenues to cut the top personal tax rate from 38% to 33% and to cut the corporate tax rate from 30% to 28%.

But the times have changed and it's worth looking again at what a land tax could achieve and cost. A big fall in property prices must have appeared particularly dangerous in 2010. New Zealand was barely out of the Global Financial Crisis and land prices had already fallen as much as 10% through 2008 and 2009. New Zealand's banks, which have more than half of their lending linked to the value of land, were still operating under a Government Guarantee of deposits. A deliberate and immediate engineering of a 16.7% fall in land values must have seemed difficult to say the least.

Since then things have changed. In 2014 the Reserve Bank tested the effects of a notional 40% fall in house and land prices on bank profits and capital reserves and found they could cope and still have capital reserves above minimum levels. In the six years since that decision not to impose a land tax the value of the taxable land base has risen at least 45% to NZ$670 billion. The Reserve Bank has also made banks more secure and less vulnerable to the risk of negative equity by limiting the amount and proportion of high Loan to Value Ratio lending.

Also since then, the sharp and sustained fall in interest rates, the biggest net migration surge in over a century and a massive shortfall in house building has generated a mis-match of demand and supply that has driven up the value of houses and the land underneath them by 15.7% to NZ$862 billion over the year to the end of September 2015, Reserve Bank figures show. Since then the median house price has risen a further 2.1%.

So a 16.7% fall in land prices 'overnight' in 2016 would simply reset values to where they were a year ago.

The benefits of a 1% land tax on that engorged base of land values shouldn't be sneezed at either. It would generate NZ$6.7 billion of tax revenues that would allow either income taxes to be cut across the board by 5.5 percentage points, which would mean a top personal tax rate of 27.5%, or for the GST rate to be cut back to 10%. If it was all focused on corporate tax cuts, that rate could be cut from 28% to 11%.

Mr Key could engineer a massive new tax cut switch that would help address the housing affordability crisis and reset the incentives for business investment in one fell swoop.

The politics of it would be awkward, but not insurmountable. It would be progressive tax (ie it hurts more as wealth levels rise) that fell more heavily on some more than others, in particular richer and older people, and especially those on New Zealand Superannuation.

There are a few ways around this. The 2010 tax switch was arranged so it was distributionally neutral, which meant those on lower incomes who spent proportionally more and were therefore hit harder by the GST hike were given slightly bigger tax cuts. One option would be to increase the New Zealand Superannuation to compensate for the land tax. Another would be to allow pensioners to defer payment of their land taxes interest free until death or the sale of the property. It would turn into a progressive estate tax, which many think we should have had anyway.

The benefits are obvious. It would finally send the right signals to investors, that capital gains are not completely tax free, that more productive and intensive use of land makes sense, that land banking does not make sense, and that investing in equipment, research and development would be as sensible as a gearing up to buy land. It would be the biggest leg up for first home buyers in a couple of generations.

It would also fit with New Zealand's successful broad-based and low-rate ethos for collecting taxes, which the Government has rightly fought to protect and which is the envy of the Australians. Ironically, the Prime Minister pointed to Victoria's stamp duties and surcharges on land purchases by non-residents as justification for his idea of loophole-filled land tax. The Australians are grappling with a morass of state and federal taxes that is so compromised with exemptions and quick fixes that many there want a massive New Zealand-style set of tax reforms.

Just as ironically, Australian Prime Minister Malcolm Turnbull has pointed to Mr Key's 2010 tax switch as a model. New Zealand could be the model again for another big tax switch that kills two birds with one stone, as long as it thrown as low and as flat as possible for the best 'skipping' effect on the tax base and the economy.  


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

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21
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There are a lot of sensible things Key could do. History shows he won't.

Bernard Hickey has over-simplified this issue ............. a 1% land tax will do incredible damage to the middle class home owner , the 1% LAND TAX WILL BE EQUAL TO 10 TIMES THE ANNUAL RATES for most .

We as a family would need to stop eating completely to pay $22,000 per annum if this tax was introduced

Quite simply a LAND TAX at 1% per annum will never happen

So a land tax would tax us back to last years prices and then what ?

850k average instead of 930k. Would that be enough to put off any would be investors ? or does that just dial back the clocks one year and the party continues? Is an additional 10k a year expense enough to stop investors from buying 40% of the properties on the market. Somehow I doubt it.

Retired people and those on struggling to pay mortgages would have to deal with not only increasing rates plus an additional 1% land tax each year.

What would you like to happen Joe?

Don't know what Joe thinks but I'd rather see a 1% tax on all financial transactions. It would hit all speculative activity, ie currency trading, shares, money laundering etc, and bring in way more - you could probably scrap GST altogether !

Errr... no.

A Financial Transactions Tax (FTT), Tobin tax, whatever you want to call it, is a terrible idea.

The IMF has published masses of research showing the negative effect it has on liquidity and thus increasing volatility and reducing the efficiency of markets.... reduced efficiency, ironically, spurs speculative behaviour - so implementing a FTT / Tobin tax to stop speculative bubbles becomes entirely counter-productive.

And 1%? Did you just pull that out of the air? Any prior discussion on FTT or Tobin tax has suggested c.0.05%.
1% is laughable, the entire global financial system would come to a standstill within 5 minutes.

In short, it's nutty pseudo-economics and doesn't deserve serious consideration.

A broad based land tax, like that proposed by Bernard, is a sensible suggestion that deserves serious consideration.

Cmat - there is a huge difference between the different types of investments and or trading......The FTT was considered a way of raising revenue from the financial sector to help pay for the financial crisis that they created. The general populace often thinks of the financial sector in very limited terms as somewhere to bank or invest cash or for borrowing purposes......but this is actually a small part of the trading undertakings.

There is a big difference between housing markets and the futures, swaps, options, derivatives markets.......some of these trades do not have much premium available but use volume to create the profit........

Housing is a completely different ball game you have the physical assets so to speak which is the house then you have the security instrument which has been created if there is mortgage .The FTT was considered to capture the latter trading activity. The fact that a house was the underlying asset behind the security seems to have created some confusion.....

Bernard would benefit from undertaking some derivative style trading activity as he seems to lack an understanding of how these instruments work, he knows there is a problem in the world of money, finances and markets but then offers solutions which attack the wrong end of the stick. He wants to whip the end user who is really just being used by the system.

Stripping all the taxes, fees and levies out of the system and starting again is a far better way. I wouldn't use an FTT I think an APT tax is superior and levels the playing field for all asset types, investment, business and people.

"The IMF has published masses of research showing the negative effect it has on liquidity...." does the research list actual application or does it simple expound further on theory? Has anyone anywhere actually applied a FTT? If not why do we continue to put weight on theory, when so often the theory proves to be flawed in practice?

Taxing the number of windows in dwellings would also be a broad based, sensible suggestion for serious consideration.

You are probably aware the Brits tried that many years ago. You can still see bricked-up windows in very old buildings.

Idiotic bureaucracy has been with us for a long time. Nothing changes.

Its comical to walk around London seeing all the bricked up windows. This tax was tired 100 years ago and doesnt work.

So soon? I have been saying for sometime a land tax would happen as the hunt for unearned income gets more desperate, more acute, but I thought it was some way off. If you think this is aimed at the Auckland housing bubble I think you are wrong, this will be implemented because the writing is on the wall for other revenue sources.

A land tax is a major paradigm shift, there is likely to be major unintended consequences.

One simple bit of maths I see missing is that if you raise $6.7B, but the tax lowers the value by 16.7%, then the next years the $6.7B will also be lower by 16.7%.

Very observant

Not necessarily - the land tax would most likely be based on CV not market value - makes it easier.

It's a capital gains tax effectively. It's been on the cards for some time and it's not that unusual in the US or the UK. So long as the administration is kept simple then it's not a big deal. It would balance the Government's books and give RBNZ a bit more room to move. If we're lucky it might free up some empty houses.

The difference is you don't pay the tax until you realise the gain in the UK which is infinitely fairer.

A capital gains tax is like taxing a thief. Steal $100 but you only give back $1. All sources of unearned income are ultimately equal. But like the thief that believes he has done nothing wrong, I suspect from your rhetoric around here that this principle is completely incomprehensible to you and hence why a land tax is required.

We have very, very different views of the world. Yours sounds like its straight out of the North Korean Party handbook. Why cant people earn money from assets? I want to support myself during retirement. I dont want to rely on a hand to mouth state pension and I certainly dont want to live in state provided housing.

Trying to call me a communist is fallacious. When you resort of fallacies of argument it is because you don't have a valid one, you have in fact already lost. There is nothing wrong with getting ahead and securing your future, it is when that behaviour is at the expense of others, your children and grandchildren for instance, that you are a problem. When you have people collectively behaving this way it swings the worlds economy, since we are so interconnected these days. That is what is at heart of the principle of unearned income, but all means earn a good living but do it off your own back not of the efforts of others. Wikipedia has a pretty good description of unearned income. The difference between you and I, at this point in time, is that you are behaving in a self centered manner and are yet to develop a holistic view of the world. Yet to understand the effects of your actions on others. And for the record, I don't follow any particular brand of politics and don't vote. Democracy is an illusion.

No, you lost the second you called someone who makes money out of property a "thief". The police haven't arrested me for it. I'm going to look after my children and grandkids so don't you worry your self about them.

It is earned income, there is debt to service, property to keep maintained and of course a risk that someone decides to build a motorway though the suburb or Govt deciding to plonk 100 state houses in a field nearby. If you dont vote - dont moan!

.......no doubt in my mind that the boomers have constructed a financial system that is thieving off the next. Be offended, landlords are the leaders of this inter generational theff, soaking up the accomodation supplements, avoiding tax through loss offsets and enjoying the tax free cap gains. All unearned. Shameful generation.....

Plenty of opportunity down the track for Gen Y to smother them to death in rest homes. Actually, that might be a good strategy for the younger set. Track down ancient boomers whose minds are going and whose children have been driven overseas, convince them to change their wills, then pillow over the face.

That's a mighty fine idea. I was also thinking of investing in adult diapers and mobility scooters and playing the long term game. The baby boomer landlords are winning for now, but the tide will turn in my favor in about 15 years time when they can't walk and they're all soiling themselves due to old age..

You wld be far better off investing in funeral homes and crematoriums. Why are you waiting for 15 years, I'm a BB born 1947 and the rot has already started. I have to admit that I am starting to agree that there are a lot of very selfish BB out there who are buying up investment properties. However where else can they get returns on their investments except in a bubble right now. Me? I only own the house we live in and have enough invested money (not in property) to hopefully last another 20 years and that's drawing down capital not interest or dividends to augment the super and not living the high life by any means. Getting a bit tired of the BB bashing though, we are not all selfish old people, most still care deeply about what the world has become. And don't say it's all our fault!

Thanks for the tips Gin! I'm not into the BB bashing either, however I'm a lot younger than they, and I can see how bigger cock up they're making of things. The question I have, is 'why so greedy'?

Not into BB bashing but think its a "good idea" to smother them in care homes?

Any market needs greed, just as much as it needs fear. The way of the world.

Maybe that's the next insane bubble, and we'll all be shaking our heads as crematoriums are flipped for absurd amounts with barely a pause to scrape down the furnace walls before being put back on the market, and economists look on in bafflement, because there aren't that many people dying, so where are the fundamentals?

I'm just taking the exploitive greedy scum cohort at their word and looking at it from a position of rational self-interest. They're stealing Gen Y's working lives whilst hypocritically exhorting them to make greater sacrifices to get on the 'housing ladder'. So my modest proposal is simply that Gen Y should take them at their word and start sacrificing exploitive greedy boomers.

Ohh get over it! The generation above me exploited me too. Its called "being young". Do you think it was hard for us to buy houses 15 odd years ago? I remember saving for 2 years (hard, not going out at all) and mum leant me 20k so I could by my first 1 bed "flat" (note, not a 3 bed house on a 1/4 acre in Mt Eden). Work hard, get smart and you'll have a turn too.

HAHAHAHA.

You really don't get satire, do you? Even when somebody makes it as easy and obvious as possible by putting the words 'modest proposal' where even the most obtuse couldn't miss them.

Poe's Law is an attempt at effective liberal internet satire and declares: “Without a winking smiley or other blatant display of humour, it is impossible to create a parody of fundamentalism that someone won't mistake for the real thing.”

That said I think people should respect, even worship the generations before. Things always go badly if you don't respect the ancestors. Millennials in the future will look out of the slit of their micro houses or tiny electric transport pods as they travel through the heat and sea water and recall fondly the giants that walked the earth before them who had quarter acre sections in Epsom and drove an Audi and went on holidays to tropical islands every year. Some will say it was just a myth.

There will be giant bronze statues of Nick Smith at every street corner. Won't that be nice?

You're hardly Oscar Wilde mate, I get satire - you just don't do it well.

Kakapo's humour is often a little "off". I'm sure if you or I used the same 'style' a ton of bricks would come falling down on our heads.

They have got me on naughty words once or twice. Fair cop, gov.

Ever seen a cat fall off the bench, then lick its arse furiously to pretend that it meant to do that all along? Exactly what you're doing now.

Your jokes fly as well as a kakapo.

What a nasty bit of work you are.

Im gen X, born in '74 so call me whatever you want. I have ex-mates who thought leaving skool at 15 and having the coolest car was the thing to do in the 90's so now they moan like Gen Y as they pay rent to a landlord who eats children. Don't hate the player, hate the game. I have no shame at all in saving for my retirement and trying to be as little burden on the state as possible, while paying the highest rate of tax.

But how are you saving? You meaning borrowing further against the debt you already have?

When you retire you need an income. The rentals are all paid off at the point providing an income. Of course you borrow to buy the assets. Always good to hand on too. Unlike pensions that just evaporate the second you do.

Indeed, the thing is it looks like many "landlords" are only in it for the short term tax free gain, and not a few of the rest the long term tax free gain. So all income should be taxed this includes capital gains on selling. Pensions v property, I actually agree with you there 100%, Pensions are one huge scam IMHO.

The income is taxed, just like any business and if you were forced to sell the profit is taxed at 33%. That is not easy to avoid. Having had more than a few dealings with both the UK HMRC and the NZ IRD they want to squeeze everything they can, and that includes "keeping in the spirit" of the law. I hate them.

Couldnt agree more with you on pensions. I work for an IB and Id never touch one.

Yes and UK Capital Gains is based on business rate of 28% not a whopping 33% income tax like here.
The only other country that charges a higher rate of CGT on investment property is OZ.

Its also not on your primary residence, allowing you to work your way up the ladder over time. The stamp duty on the other gets heavier which is killing the market now. People dont move, they extend.

I think the banks also charge a commercial rate on the mortgage and not a residential one, unless its changed. As when I looked at it the bank wanted x2 the interest, of course most people simply lied, I know one person had 11 houses each with a different bank, I think he was running out of banks, LOL.

Its unusual for Mr Hickey to recommend doing something that entails increasing NZ Super. (Increased govt debt).
Or his alternative of effectively forcing reverse mortgages on old people would decrease the inheritance that they pass on to young people.
Sooner or later, both these things hurt young people.

Interesting to see ideas like this considered a century ago resurface. It would certainly penalise land-baking, the real reason for Auckland house shortage, and increase the incentive for productive use of land and investments other than in land. it'll need some more carve outs than the proposal here for pensioners. For example farmers ROA is only about 2%, so taking away 1% would crash their incomes and values. It has merit, but the time will never be right. The best course would be a long, slow staged introduction over a decade or so, with a high level of certainty that it will happen, rather than swapping land tax for income tax and gst in a couple of years. Key will want an election mandate as well. He might take it into an election cycle to counter criticism of lack of cgt, house prices etc.

Maybe an incremental tax over 5 years would incentivise development insofar as the owner would know that a few years away the tax burden would be massive. Telegraphing a future tax is a great way of incentivising an investor to take action.
Add an immediate high level tax on overseas owned land and it begins to look useful.
However for those on fixed incomes the result would be dire because their investment income or lack of it would be totally out of balance.

I can't see a blanket tax happening. It wouldn't keep National in power. Say the current yield on property is 3.3% and so a 1% tax would reduce yield by 30% so in theory prices would fall by a similar amount.Think of all those cash poor(National voting)retirees in AKL who would be paying an extra $20k per year.

Owner/occupiers on a property shouldn't and won't be taxed.
A land tax should be introduced but not on primary residences.

if you only tax rental property then effectively you are taxing those who can't afford to by a house. If costs affect all landlords then the price will go on the rent. It would make buying vs renting more attractive but buying is a long term commitment and it isn't for everyone at their current stage of life. You also need money.

You are only looking at the stick, not the carrot. If National were to propose a land tax and a corresponding big reduction in PAYE, then PAYE earners with one house outside Auckland, and renters, would probably end out better off (some by a large amount). The only ones that would end up worse off would be housing investors and Aucklanders with very expensive land.

Land tax = raised rent = young people longer saving for deposit = land price back to where it started

Yeah right. If my landlord tries to raise my rent on me, I'll be buying my own house (at a 16.7% discount) faster than they can blink.

Saving for a deposit wouldn't be an issue. The high LVR requirements are themselves a product of the broken property market we currently have. Fix the market and there's no need for 20% deposits. Much as landlords would love them to be, FHBs wouldn't be trapped in their overpriced rentals.

If you wanted a property 16% cheaper why didn't you buy one in November last year if you have the deposit?

I do agree 20% deposits kill FTB purchases but historically these have always been normal. It was only in the "glory years" (2000-2008) that saw loose lending and we all know how that ended. This land tax will raise rent prices. Im not eating $8500 of extra expense and Im confident 99% of other landlords wont either. Anyway, a blanket land tax is Bernards idea, not the Govts. Its just Johnny Foreigner or Ju-ni Fung as the case may be who will be cannon fodder here.

If you have scope to increase rents on your tenants by $8,500 then why haven't you done so already?

Frankly, you haven't because you can't - that's the little thing called "fundamentals" that property 'investors' struggle to comprehend - you can only get so much blood out of a stone. So no, if this tax comes in then you won't be passing it on, unless income inflation responds accordingly... then guess what? Your interest rates will increase too.

If you don't like the heat (i.e. land taxes) then get get out of the kitchen.
Prices and yields will respond accordingly.

If 1 landlord raises rents on his own the tenant will simply move. if a large proportion of landlords all raise in unison because of an increase in cost then tenants are unlikely to find anywhere so they might move but the landlords will simply find new tenants.

its not rocket science is it?

Did you not read my comment? I don't have scope to raise rents by $8500p/a. But, as I clearly stated, the Govt slaps a $8,500 tax on me and 99% of other people providing rented accommodation there will be scope. Interest rates are going nowhere for a decade, at least.

12
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Rents are maxed out in AKL so I can't see rents going up.

This isn't the first option when considering house price controls. I couldn't imagine a Gov ever running with it. A flat Capital Gains tax would be much more likely and wouldn't have to be offset be tax decreases. Then, there are still many things that could be in place for non resident, investment and rental properties, before a flat land tax, annoying every land owner.

Actually it looks a very good option to me.

Sell it to Housing NZ , Landcorp, Pensioners and Single Income families.

If it looks good to Steven it must be a very bad idea. I think you are spot on Caleb.

You obviously have a high income and not much property.

Nope, I am looking at the value of the land tax which is to tax some who pay none as its hard to dodge.

The only reason a 1% land tax would be mooted is to make a CGT more palatable. A 1% land tax on someone with multiple properties would be crushing year after year while a CGT paid upon sale would be infinitely more tolerable.
Also I'm sure your average home owner will love to pay something like $1,500 less in income tax while paying an extra $5,000 in land tax - not!

Dont want it from a property speculator? great idea then. "crushing" that is the idea. Your math looks wonky, seriously wonky, just running my own numbers roughly looks more like a neutral balance but then no surprises there from a property vested interest. Much depends on the value of the property and dual income or not. So single income $500k house, probably lose a bit, costs $5k in land tax v $4k in PAYE gains however if double income that looks like $8k in less PAYE. That would however probably be regressive on PAYE so GST is probably the better option. A land tax is also very hard to avoid unlike taxation, also means that foreign companies will pay tax??? lessening their advantage over our NZ companies. PS CGT, lets have both.

My figures are probably a bit out although I reckon they would just ramp up the PAYE a couple of years down the track.
But anyway, phew, thank goodness people like me hold the reins of power. Can't see this tax being brought in at all if they wouldn't bring in CGT. So you want to crush us? Game on!

You are deluded.

So are you saying I am deluded because I think they will not bring in a land tax for everyone in NZ?

A 1% property tax would be passed on to tenants. Investors would then enjoy positive cash flows from properties and lower income taxes on that income. The losers are people that have modest incomes and have managed to buy property or need to live in one. High income earners will be the winners. Making the GST rate 10% instead of 15% would mean I'd have to spend $100k (before get) on items that attract GST to save the $5k property tax I'd have to pay.

Zac, the median section price is $200K, at 1% tax that's only $2K per year. REINZ New Zealand section sales data to December 2015.
One aspect of this tax would be to encourage much needed development of all kinds in poorer areas.

Look don't even think about a general land tax, it won't be accepted by the people. Anyway according to Bernard we won't all just be paying the median section price in NZ because the wealthier you are the more it will hurt.

Not in auckland. I'd be a very happy camper if I could get a decent section in a decent location for twice that. It is the sort of tax that would run the poor out of areas once the development started. Once the price goes up so does the tax payable so they would be forced to move to cheaper areas. It is a horrible tax. It would force the elderly out of their homes and communities, it would increase the cost of living for the poor. You say it is only 2k a year but that is a lot of money for some people. It would go straight onto rents. People complain about GST being unfair on the poor, but this one is so much worse. A land tax on foreigners however is a different ballgame as it only targets are portion of buyers. They wouldn't be able to put rents up in the same way as the costs wouldn't be incurred by other landlords.

That is all complete crap. You need to study the economics before talking out your behind.

Rents are capped by demand, land tax in principle is paid by the land owner.

2K a year is nothing - because the values of properties reduce commensurately, meaning the surplus capital is invested somewhere else, and will earn around 2K to compensate. For those already in Auckland property, cry me a river.

What do you think will happen if overnight, mortgaged or not, a landlord has to come up with anything from $6000-$10000 extra a year? Do you think he's going to eat that cost? No landlord will. Rents will go up anything from 1/4-1/3 in a heartbeat.

What would happen Obese one is: a. Rents would not go up so much. The market determines rent not landlord costs. B. A portion of landlords would exit because they could not sustain the business. C. The houses would continue to exist and there would be a greater proportion of purchases made by owner occupiers. D. The houses continue to exist, so no net disadvantage to Kiwis seeking a roof. E. With a portion of discouraged landlords exiting, house prices might drop. Certainly the seekers of capital gain might find that business model don't work no more.
Kiwiland would be a much better place.
I not keen on the property tax either Obese one. But you are dreaming about the rents.

Ah - The economists view point. Lets now look at the real world -
It is pretty naive to think that a tax on the land wont be passed through to the renter. Any increase in price at any point only impacts one person - the last person to pay.

So your points become:
A: Rent would go up as the 1% hits everyone. i.e. the market has been artificially moved up.
B: A portion of tenants wont exist (they become homeless) as they can't afford the new rent
C: the houses continue to exist, however there are less owner/occupiers as those can't afford a house with a 1% per annum tax will drop out of ownership and become renters.
D: The houses continue to exist, but only the wealthy who can afford the tax own them.
E: No landlords would be discouraged. Only FHB and families wanting to own their own place.

A Tax on anything will not lower a price.

Fair comments Noncents. But calling me an economist. Hurtful.
As for costs determining rents and not markets. Um. What about all the rents that have been drastically reduced because interest costs have plunged? oh hang on.

yeah sorry about that I shouldn't bandy that sort of language about so willy-nilly.

Soon it will be like London back in my OE days. Rents will be so high you just pack more to a house. Went to one place in East London that had hospital curtains dividing all the rooms and Hallways. 44 people in a single two up two down. Rent was "really cheap" though for each individual.

That's kind of like student days when we'd create and extra room or two to keep costs down. I knew one guy who was renting a garden shed for $10 per week, your weekly income went a long way with rent that low.

lol - I remember those days. I saw a front porch in Wellington set up with a camp bed and footlocker one Uni term.

At peak I remember renting out half the lounge, half the garage and a mattress behind the couch.

Another flat that had cheap rent but I think they spent all their money on booze. At one point they only had one lightbulb so they had to remove it to move everyone between lounge and kitchen if someone needed a cup of tea.

Cut GST because a) that significantly reduces the argument for blocking imports as our retailers can now compete "fairly" (LOL) , b) its a progressive tax.

New Zealand retailers are appalling. High prices and a poor range of products. True it's because of our size but some stuff I buy I can't be sure the New Zealand wholesaler will even import so I have to import from overseas.

Same here, but the retailers current argument is ppl are dodging GST so its "wrong" Sad fact is even with GST quite a few products I buy are a lot cheaper. Then there is the lack of choice, and its getting worse.

Do you think the range will widen by buying from overseas. It is that attitude that will kill bricks and mortar business, and with it goes any chance of service and local long term product support. I have had this argument a few times with potential customers. They call me, waste 1/2 and hour of my time, then inform me after they have bled me for information that they can buy it cheaper overseas, how do they/you think I eat ?
Retailers arent robbers, but if you arent making a minimum 30% GP you are going broke with the volumes we have available to us here in most sectors.

I'd suggest it's more the middlemen killing the retailers by treating A/NZ as a captive audience and an open wallet. I've heard all the excuses (shipping cost, small market, regulations etc).

European electrical goods - marketed as high-end luxury items here with a price tag to match. Go check out pricespy UK and you'll find them for about a third the price as you can here or in Australia, same models. Unlikely that there's some sort of price fixing going on between hundreds of retailers so why the big price tag compared to UK retailers?

Car parts: About half price imported from the US for my ~2004 NZ-new Subaru including postage. GST and duty wouldn't make up that other 50% so where's that all going?

NB: I do my research online on my time only - if I go into a shop it will be that I have every intention of buying locally, what you're describing isn't cool.

because the land tax won't increase costs for retailers either.

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No one has the guts politically to deal with any of this now. I believe it will unfortunately be left till the inevitable crash occurs and again we will all sit back and see who is picked as the winners of GFC 2.0 bailout.

This problem infests everything and everyone to some degree so we all have a proportion of self interest in the end result. If we had of just let things fall in 2008 naturally where they may then we would not have any of this imbalance continued. Things are so out of whack now that these tinkering tax ideas just won't cut it. They come across like ideas for changing the moon's orbit.
Don't get be wrong, I'm not saying do nothing. I'm saying.....nothing will be done that makes a blind deal of real difference that's implemented by a politician

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As far as I can tell there seem to be two things at play here. Firstly FOMO and secondly a suspicion by everyone that the whole interest rate / price of housing is a disaster waiting to happen. The cat is out of the bag. I don't subscribe to any conspiracy theory that the National party "planned" for the rampant house price inflation in Auckland, just that the government did nothing because they didn't think there would problem ( but things outside their control resulted in unforeseen consequences) and now it has got the point where it is out of control and has the potential to do serious damage to the New Zealand economy. The government and the RB are between a rock and hard place with factors outside their control (i.e. what's happening in the rest of the world) calling the shots. The solution is to work on the things that we can control and mitigate the other factors as far as possible - also some innovative solutions rather than trying the same orthodox solutions that have been tried and found to be seriously wanting.

Any action by the government that threatens property investors "business plan / model" is seen as negative (that assumes that property investors have a "business plan / model" which is suspect most don't). People are looking for certainty - sorry life is not like that - the only certainties in life are death and taxes.

People keep trotting out the argument that Auckland is a great city, international city etc etc - bollocks - it's just people trying to justify to themselves the irrational decisions they have made in over paying for a house. Reality is that deep down I suspect they know they are lying to themselves - anything that threatens the lie is seen as negative.

Foreign property investors are slowly being shut out of other markets - the logical thing to assume would be that they some would head to New Zealand to invest their money or maybe not. They may no longer see property as a sure be safe investment or store of wealth and stop buying property.

Self interest seems to be rampant.

Auckland is a great city in a great country. Lots of surveys attest to this. The majority European populated Commonwealth countries all fall into this category. They have epic levels of freedom and quality of life that surpass even Western Europe. I see no reason whatsoever to see these facts as "bollocks". This is just typical old school Kiwi attitudes that really should be dustbinned. Even China's richest person has come out and said the NZ is very well regarded among his people.
People really do want to come here and warm themselves by the dying embers of the epic British Empire. I have seen the fear in people's faces who have been threatened with eviction back to their own countries (China and Korea) even though they are on quite modest wages here.
You know what the trouble is? We don't know how lucky we are..ha!

I think you prove my point exactly....

Perhaps, but self interest has got us to where we are today. In the old days self interest was a little broader and people had a general vision of working for the concept of 'King and Country' which is now disparaged, so, oh well, it's personal self interest now. Auckland is a desirable suburb in the global community and property prices reflect that. It's a new world now.

Ahhhh.... infected with the sickness of greed. I don't believe in for "King and Country" - a seriously outdated concept even in its day. What I am saying is if we don't do something it won't be the haves and the have nots - it'll be everyone has nothing as the New Zealand economy tanks.

Not so sure about Auckland being a "desirable suburb" - poor transport infrastructure, high crime rate in some areas, high house prices relative to income. - good attempt at myth making - helps people avoid looking at the less desirable features of the city.

So if the Auckland house bubble bursts you will take the loss on the chin.....

Has anybody ever invoked 'King and Country' who wasn't recruiting cannon-fodder?

Probably not - no.

New Zealand wouldn't even exist if there was no notion of sacrifice for King and Country by our forebears. Your attitudes are why I don't support you guys, you don't have a future, I have to look after myself.

Put 'King and Country' through auto translate to Korean and back and it comes out as "Let us fight devotedly for respected Supreme Commander Comrade Kim Jong Un!"

A dichotomy.
NZ is currently seen as a stable safe bolt hole.
But property is now so crazy that a huge crash is just a matter of time.

Some of those surveys are for companies who have to decide how to remunerate their staff if they are transfered to Auckland. They don't reflect the lives of the ordinary people.

You may be right about some not having plans but as for the rest, well your definition of great and others must differ quite a lot. I couldn't buy a house as close to the CBD of the largest city in most western countries for what I can in Auckland. It would be very unlikely for it to be a free standing house with land.
I'm not saying auckland is cheap but it isn't surprising given what is happening elsewhere. The solution is obviously to increase supply. If auckland is so terrible why do so many people want to move here?

It's relative - why do people move to Australia to work?

A 1% land tax across all property would be the last straw for many in the dairy industry, and a fair number of sheep and beef farmers as well. Would really make life interesting for the banks.

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Three words in no particular order,
bolted,horse,already.
Its going to take a politician with big nuts to fix this.
Seems to be a lack of them in NZ at the moment.

This is really bad news for people that don't have high incomes and have managed to purchase a house. I have a house which has a land value of around $500k.. If this was taxed at 1% it would cost $5k a year.
Income taxes would have to be slashed massively to offset this. Property investors will just put rents up as it is a cost that can't be avoided. For me to get this back in income tax cuts I would have to earn well over $100k pa. This would be horrendous for the majority of people. Massive welfare payouts would need to be funded too as low income people wouldn't be able to afford rent increases. Old people will be forced out of areas they have lived in all their lives.

Done correctly it will be a zero net change in tax and should lead to less tax burden on those of us already paying full rates - as opposed to those paying no cap gains, using tax loss offsets and so on. If you are on PAYE own your who home and don't use any tax mitigation techniques, you will end up paying less. The land tax will get those who are shafting the current crop of tax payers.

Expect the opponents who will be caught to use fear as their tool.

Really?
If the landlords property drops by 10% the rent should actually fall by 10%.
Holding the rent flat would make the land tax easy to pay as it would be net of any income tax.
Landlords have already realised that renters are not an unlimited cash cow.
Under any land tax imposition the changed balance would allow many renters to say goodbye.

The kill-shot

Stuff it - I'm sick of this tripe - it's not as if it's a new problem - it's been going around for too long - nothing done - in the meantime the property owners and in particular property investors have had a very good innings

I would go for the kill-shot

Annual Land tax to be $10,000 or 1% of the unimproved value whichever is the higher for every piece of land in the country

Then, each NZ based NZ Tax Resident property owning individual gets a tax-rebate-credit-voucher of $9000 which is available to one individual, they get one voucher only each year, and the value of the tax-credit voucher is limited to and can be no more than any tax payable from property rentals if they have any rental income subject to tax

That would mean an investor with 5 properties would pay a minimum $50,000 in land tax and get a single tax-rebate of $9,000 against his tax. If no tax payable then the rebate is zero

Pensioners and those under 65 taxpaying IRD registered householders get the lot
A home-owning and occupying individual - only the one property - would pay net $1000

Property owning Trusts and Companies and Partnerships get no rebate - individuals only

..I'd hazard a guess and so that the forecast gst take looks progressively worse. My got to for non urgent retail is now a certain Chinese based site. Factor in what must be a growing tax take reduction due to loss offsets from rentals, the search for a tax that we can't wriggle out of must surely be on = a land tax of some sort being imminent.

Erosion of a tax base is a huge motivator for govt.

I like the idea of a land tax because it discourages land banking. But if central government charged a land tax it would crowd out LG rates which is a land plus capital value tax. This would make it even harder for LG to fund needed infrastructure. So when considering a tax switch -part of the equation would be land taxes going to CG would replace LG rates and LG would need alternative forms of funding -capital grants based on population, road charging, a proportion of locally generated PAYE....

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The biggest benefit of a land tax is increased productivity in the economy. If people are less reliant on capital gains on land, because the land is taxed - and they are more reliant on income (from producing goods and services) which would now pay less tax - the economy would improve.

It's the old mis-allocation of capital argument ( and mis-allocation of talent and everything else). If land gains are tax free, then people speculate on it all day. If land is taxed, and their income from productive investments now pays lower tax, whammo, we get more of the productive stuff.

Top economic thinkers like Neville Bennett, the nz economic history expert, have been saying this for years - nz should do a land tax

The first time a pensioner or young family is on TV crying as their home is sold due to unpaid land tax the Government would be voted out in a heartbeat. Land tax is stupid as it taxes unrealized gains. A universal capital gains tax is the best method of taxing property value gains. Simple to administer and as the vendor has the proceeds from the sale there will always be funds available to pay the CGT.

National knows this that is why they are only proposing a land tax on a small pool of landowners with little to no political clout.

A helluva lot of people don't even have a home, and the rate of homeownership is falling all the time in NZ - a land tax would drop property prices, make homes more affordable - and more people in total would be able to own a home. NZ's consumer debt levels, amongst the top in the world now, would also likely start falling. That would also lead to a healthier economy, with more consumption long term

Home ownership in NZ is about 50%. So let me rewrite your comment for you:

A helluva lot of people own a home, and the rate of homeownership isn't changing that much in NZ - a land tax would increase the cost of owning a property , making homes less affordable - and more people in total would not be able to own a home. NZ's consumer debt levels, amongst the top in the world now, would also likely start rising as everyone needs more credit cards to buy food, etc. That would also lead to a less healthy economy, with less consumption forever.

The 50/50 argument is irrelevant. And homeownership has decrease the last 15 years at an much accelerated rate.FACT

You state: "a land tax would increase the cost of owning a property".

keyword.."owning". That's the POINT of such a Tax. To increase the cost of "owning" so as to reduce incentives for hoarding and thus the sale price for others to "purchase" by increased dis-incentives to own more than one property.

BTW, a Land Tax on foreign investors/speculators and...... mutiple.....dwelling owners is whom this tax would be aimed directly at and for good reason.
What these people are doing is hurting the economy by restricting affordable access for the next generation/s, thus they will require even more gov benefits and credit (as you state) to survive if nothing is done.

Concentration of wealth, particularly when the concentration is in an essential asset we ALL require ( a home for warmth and shelter etc) is a disaster for economic equality . This is why property hoarding must be dis-incentivised as a money making scheme.

Taxes do not drop prices.

Yes they can. Example: if the government increased taxes what happens to people's disposable spending? It goes down, thus any business effected must reduce prices to maintain sales. In the case of hoarding homes, more taxes as long as substantial on this practice will help reduce the incentives to do so. Much like with saving, when interest rates are reduced the incentive to save is reduced in conjunction with the RWT which penalises savers. This is why a large CGT on speculation and property hoarding is needed. To rebalance the incentive toward good things for the economy.

You got it in one. The tax wont reduce the prices of houses, it will just give people less disposable income.

Houses are being bought by investors. The tax will not cause them any significant issue, particularly if their cash is from offshore, or they can pass on the costs to renters.

So end result, house prices continue to climb, average Kiwi with a house has less disposable income, spends less elsewhere (after all they do need a roof over their heads) and the economy tanks even worse. Sharemarket then drops, and even more people try and pile into Property to store their wealth.

And there's always a tax on borrowing put onto banks for investors only that could be applied.....on application. A targeted tax just for them. Like I said plenty of options to specifically hit where it needs too hurt as a total dis incentive

Only investors disposable income will be hurt. You seem to keep missing the point. Taxes can be very specifically aimed. Foreign investors can be shy out entirely if we so wish it. You obviously have skin in the game so fear any changes. Well tough

Me? I have no skin in the game other than I own a single house for my family. So yeah a tax on all land will impact me, I will have less cash. Will it stop the investors? I doubt it, will it be a drain on my ability to support my family - yes.

I agree it is not hard (for any normal person) to develop rules to resolve the housing issue. Problem is no normal people are in Government.

We use a term at work, "it's not that the horse has bolted, it's that they didn't even know they owned a horse to begin with"

It seems to be a complete inability to acknowledge there is a problem. By the time they work out and accept they do. They will then need to form 50 committees to produce wildly inaccurate findings. Next they choose the worst option, implement it poorly, then take ten years to discover all the unintended consequences of their stupid policy have made the whole thing worse.

I think a key point noncents is you shouldn't have less money. A land tax should be a tax switch, so you pay less income tax. The only people paying a lot more, as the others are saying, is the property hoarders or so-called investors.

Agree

True - But the key point is it "should be a tax swtich" - will that happen? I doubt it, there are far too many individual variables.

Simple example.
Say I bought my house 6 years ago for x amount now it is worth 40% more, but my mortgage is still only for the original amount, and my salary is still only enough to service that mortgage - now they charge a percentage of the current value (no relation to my income or my actual purchase price) and then we expect them to reduce my PAYE by the same amount? It would have to be a straight dollar for dollar rebate, in which case they might as well just target the investors - i.e. no blanket land tax just a stamp duty on non owner inhabited house.

Do you really trust any Government to write the law so that it works in reality?

If they have less income, they cant pay as much, prices have to slow if not sdrop and dis-infaltion and even deflation results. You can see this effect in the tradeables and non-tradeables sectors today.

Yes they can and demand for some housing is based on the expected profit. If you have a sizable % of speculators and they are overseas then make them pay taxes to the point its of no advantage to buy in NZ they will exit.

Step one will probably be a land tax on overseas owners and a scraping of the tax benefits on second homes.If prices don't cool after that then the land tax will be expanded to second home owners.

The problem with introducing a CGT is that the elderly won't downsize until they die or go into care. That's not what is needed now.

I favour a land tax but primary residences exempted. That seems the fair solution.

I don't favour any new taxes.

That happens now, the elderly are used to where they are and wont move come hell or high water until forced to by ill-health. Ergo I dont think it will matter, plus the 'family" home is I assume exempt.

Taxes are an economic menace at best and frequently with unintended consequences.
This huge land / housing bubble in and around Auckland is due to dopey planning, supply issues, and central bankers flooding the world economy with cheap credit. Speculators seek out bubbles any where in the world. The next global financial crises will burst this bubble in a heart beat. Meddling with a successful GST tax system and personal tax rates based on something like a land tax is asking for future trouble.

Local Government New Zealand, a body representing local councils, has highlighted the need to align three different pieces of legislation that impact on land supply: the Local Government Act, the Resource Management Act and the Land Transport Management Act. The regulatory complexity created by these acts means that it is conceptually and practically difficult to supply land quickly and easily. Until policy can be better aligned and streamlined, land supply will remain low.

Further work needs to done to identify whether land banking, for profit motives, is slowing supply. If land banking is taking place, there are international examples of what could be done –for instance by taxing land (including vacant land) more heavily than structures….. When taxes are much higher for land than structures, there is an incentive to make sure there are lots of income earning structures on that land to pay for the tax and maximise profits. The US city of Pittsburgh increased the tax burden on land to five times that on structures in 1979/80, encouraging building activity and avoiding having to increase other tax rates, which might have impeded growth elsewhere.

It is disappointing that the general public in New Zealand doesn’t know more about land value taxes (LVTs). There is over a century of theoretical support and practical use of the tax. Up until just a few decades ago ratepayers were regularly polled at each municipal election on whether the rating system should be based on land values or land plus capital values (improved values). By 1982, 90% of municipalities used land values and land value rating accounted for 80% of local government revenue.

Land taxes were first introduced in New Zealand by Sir George Grey in 1878, when he was the premier, following corresponding with, and even meeting personally, the philosophers and economists John Stewart Mill and Henry George. By 1922 it was 10% of the Budget. The 1890 New Zealand Liberal government used land value taxes as one measure to ensure farms were affordable so the agrarian export economy could be established.

Despite life-long land value tax campaigners such as Ronald O’ Reagan, who addressed the Labour Party Policy Council and Caucus Committee on Local Government in 1985/6. And land value rating being Labour Party policy since 1948, Michael Bassett, the 1984-90 Local Government Minister abolished the requirement municipalities’ poll ratepayers on the use of land value taxes. Gradually the use of land value taxes has declined to the point where the new Auckland super-city Council legislation specifically prohibited the use of land values for rating purposes.

In more recent times interest.co.nz has for at least five years been publishing articles supporting land value taxes. Including articles by respected academic historian and international economics expert of 40 years’ experience -Neville Bennett, a long time editor of the NBR, where he concluded in 2009.

"It is inefficient and inequitable to avoid taxing land. Land taxes are avoided, however, by political systems which have a large landed interest.

In the UK it was sought by the liberal party, with powerful advocates like Lloyd George and Winston Churchill, but would never have passed through the self-interested House of Lords."

With regard to housing affordability, LVTs are helpful because they increase the holding costs for land bankers and decrease the marginal cost of building new or additional structures on suitable sites. The tax encourages land to be used for its most productive purpose and therefore encourages ‘up’ development in growing cities. Because of these factors land value taxes improves the responsiveness of supply and therefore housing affordability.

that's a cracker comment Brendon...brilliant

Are not a lot of so called "land bankers", especially those that have bought simple full sections, waiting for the go ahead to subdivide and build?
Another thing that slows development is the numerous properties on cross-lease titles. The council could gain a massive windfall if they made all cross-leases freehold for a fee of say $30k or something. I seem to recall there was a plan to get rid of cross-leases at some stage.

Spot on, Brendon. I'm assuming the LGNZ piece you are referring to is this one;

http://www.lgnz.co.nz/home/our-work/publications/a-blue-skies-discussion/

It really is tragic how rates in recent decades have trended more and more toward becoming a regressive tax. The influence of vested interests (particularly the enabling aspects of CG policy change) in that process would make for a really interesting case study.

I like the idea of using targeted/differential rates as a means to promote more efficient land use close to major centres of employment, such that if within (say 30 minutes) walking distance of a major centre of employment, a single unit dwelling residential lot would pay a far, far higher rate of land tax than a multi-unit residential dwelling. The more multiples of dwellings in number, the lower the land tax - and the further out from a major employment centre, the lower the land tax. All able to be calculated by GIS system data.

I could then see little need for using the planning system to try and increase density near centres of employment. So, a much more simplified zoning - back to the simple categories of residential, commercial and industrial - and that's it.

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Crikey Bernard, what are you thinking? Land tax of 1% per annum and corporation tax of 11%. What? Are you mad? That would transform New Zealand into a successful modern economy based on profitable businesses. That's what Singapore did. Can't have that here. I mean what would we have to grumble about?

It would certainly transform NZ. But not into what you're thinking.

Oh, no! You mean wealth would pool somewhere else? Or wealth would be destroyed? I mean, it will never happen but governments do try stupid stuff and it is as well to be prepared. They might try a land tax and spend it on themselves for instance, you know, more staff, more expenses, more responsibility and therefore more pay.

Regarding housing affordability its about supply for the land bankers rezone the land residential and rate it accordingly.

1% land tax, less 5.5% drop in PAYE (as if that would ever actually happen) would see me paying the govt about $8,000 a year more than I currently do in taxes. That sounds fabulous. I can't wait to pour more money into the coffers.

I guess that's one way to cut the immigration numbers - by forcing people to move overseas.

And your property would be re-valued 16.7% lower; what is that figure (the difference) and what is it worth capitalized at say 5% p.a.?

What I'd like to see to address housing:
1. Increase income tax on income over 100K.
2. Pump extra tax revenue into a big social housing programme in Auckland, that provides housing for low-moderate income earners as well as the bottom of the heap

Will this ever happen under National or Labour? 'No way' to the former, probably not under the latter. I think Labour could make a lot of ground if they had the balls to do this, though.

So, I'd like to see a CGT. I'm not convinced at all that it would make much difference to runaway house prices, but at least it can be pumped back into mitigating social / affordable housing delivery.

how bout cutting GST on new housing? A $600K new apartment has roughly 80K of GSt built into it - significant

And limiting foreign investment to new builds only

And reducing immigration

And the one tick I'll give the Nats - helping to free up supply. It's very important, but their BIG flaw is they place too much faith on this one thing alone.

Nothing will happen Fritz I'm afraid. We are all on here talking to a brick wall effectively. No one is listening to us. You would think after all the years many of us have been commenting on here that we would get that..... and do something a little more proactive as a collective mind, start a new political party, get the 500 signatures etc and try influencing something from inside the government buildings maybe. Commentators have some good ideas on here I reckon many a time.

Jezz, I mean if the likes of Peter 'bow tie' Dunne can do it eh.

True...
When was the last time we had a govt that went against 'popular sentiment' and did something in the true interests of the country? Lange's Labour govt?

Once upon a time, long long ago, when I was a little girl this happened, and my Labour voting parents never forgave him. http://www.teara.govt.nz/en/photograph/23953/arnold-nordmeyer-and-his-bl...

Another Envy tax wisher, but this one wants it on your income! All that will do is make people stop up skilling and bettering themselves. What an odd situation. I don't know what people find so hard to understand but there IS a capital gains tax already. When you sell a property the profit is taxed at 33% and called "income".

You're correct Fritz. This would never happen under a National government because National is not in the business of implementing stupid policies. Maybe wait for the Greens or Labour to make a come back. Hahahaha. Good luck with that.

A land tax would be a disaster. Councils would be incentivised to RAISE land values quick smart.

Back to the drawing board BH.

Are they not already doing that? That's one of the main reasons they hold back mass housing development. They know damn well an oversupply of new land & housing would force them to drop local rates.

At the end of the day JK has only said that the new land tax would only be on overseas owners to start with. I wish he should get on and actually implement it asap. Talk is cheap.

I think BH was being the Devils Advocate to stimulate debate and he's successfully done that.

Yeah BH is trolling us. Don't feed the trolls!

Tax, tax, tax ...

Firstly, fix the out of control system of mass immigration of unskilled people into New Zealand. Secondly, introduce an Australian style ban on real estate purchases by non-citizens.

If those two measures fail, start talking about tax.

I am amazed that so many people believe in taxation as an adequate means of fixing social problems. We have just seen this so-called PM wasting 20 million of our money on a beach towel and another 50 million (and counting) on his invitation to 750 Syrians (are they going to live in AKL, btw?). Key also is very keen on taking Turnbulls's bogus refugees, but again not paying for them with his private loot.

Here my suggestion. Crack down on destructive immigration policies and LOWER tax, so that people have more money to put down on a house.

You'll find 95% of these people calling for taxes wont ever have to pay them. Its NZ tall poppy syndrome. "If I cant have it you cant either".

The people wanting to introduce these sorts of taxes are whiny little reds with vacuous notions and theories about universal morality and no understanding whatsoever of history. It is just a blatant attempt to redistribute wealth. However in a globalist world it will just mean us all ending up impoverished.

Land tax has been well understood for over 150 years as one of the most sensible ways of implementing taxation, in general.

It encourages productive land use, reduces capital sunk in land, raises land/rent yields while keeping absolute rents fair, and reduces other taxes that hurt labor (income tax) and are regressive (sales tax).

The only thing preventing their implementation is always the strong political entrenchment of the landed elite.

All the above commenters whining about taxes and panicking at the thought of their ill-gotten Auckland property gains disappearing in front of their egos need to do some basic study in the concept. The best place to start is in 1879:
https://en.wikipedia.org/wiki/Progress_and_Poverty

Take now... some hard-headed business man, who has no theories, but knows how to make money. Say to him: "Here is a little village; in ten years it will be a great city—in ten years the railroad will have taken the place of the stage coach, the electric light of the candle; it will abound with all the machinery and improvements that so enormously multiply the effective power of labor. Will in ten years, interest be any higher?" He will tell you, "No!" "Will the wages of the common labor be any higher...?" He will tell you, "No the wages of common labor will not be any higher..." "What, then, will be higher?" "Rent, the value of land. Go, get yourself a piece of ground, and hold possession." And if, under such circumstances, you take his advice, you need do nothing more. You may sit down and smoke your pipe; you may lie around like the lazzaroni of Naples or the leperos of Mexico; you may go up in a balloon or down a hole in the ground; and without doing one stroke of work, without adding one iota of wealth to the community, in ten years you will be rich! In the new city you may have a luxurious mansion, but among its public buildings will be an almshouse."

It is not so much the land tax, it is a fundamental mistrust of politicians; primarily here Bernard suggests that by putting a tax on land the pollies could reduce tax somewhere else. Really? They'd consider reducing taxes at the top end, but will only look for ways to increase it at the bottom. the bottom line here, as your quote above suggests it is always the wealthy who will benefit. The question I have is when will Government act to protect the ordinary Kiwi ? A land tax is not the answer as today those first home buyers, almost anywhere, but particularly Auckland could be considered to be living in virtual poverty for the sacrifices they've made to get into their own homes. Many renters too, for the ridiculously unaffordable rents.

Agree, sadly. HC's Govn was forced to not put up the obvious taxes like PAYE so milked the electricity SOE's for every penny they could via stealth even though that was in effect a regressive tax. Why? because the swing voter is centre and wont tolerate any threat to their financial well being ie a tax increase. Want to be in power? pander to this group many of whom will have 1 rental (at least) as a retirement plan. We can see this in the outright rejection of Labour's CGT etc IMHO. Want to fix this stupidity? well its a problem no one wants to touch. a) You need to do things like bring in financial regulation to make it safer for ppl to invest in the likes of the stock market to start with. b) Stop immigration dead, or at least 50%. c) tax the foreign buyers out of the market with a (land) tax and a CGT. The last 2 taking away the speculators is what is needed. maybe also d) Legislate for non-recourse loans so the bank now takes a decent risk, that will make them far more conservative in their lending.

The Govn doesnt protect the "ordinary" kiwi because a) that voting block isnt what wins the elections and b) the "ordinary" kiwi doesnt want protecting, they like the "swing" voter wants pampering.

I dont agree on the land tax, but it would take time. Really time is now what we dont have. This mess was 10~15years in the building of and points back to HC and exasperated by JK. (Quite why ppl think she's suitable for the UN mystifies me, except maybe she's better off over there out of our way, LOL). Looking at what the Green's and Labour want to do would very probably cause the reset needed to bring prices back to affordability to protect the "ordainary" kiwi but that wont be tolerated like I said. Enjoy another 3 years of JK I reckon.

Love your comment re HC at the UN.

Perhaps the real answers lies with multiple layers of minor regulation to dial back greed at multiple levels. Although I often argue against it, I do believe that there is, and always will be a need for individuals to invest and provide properties for renting. However i do believe this must be well regulated to ensure that the level of it does not become driven by greed, but is keep at the "Providing a service" level. I would suggest that this be defined by affordability, not reliance on tax payer subsidies. This is what I mean by "balanced regulation". This allows investment, but limits greed, encourages choice and restricts monopolys, retains power with the Government which should be acting in the terms of Abe Lincoln - (for the people, of the people, by the people), and be accountable. But then pigs can fly, can't they?

But the wages of the workers in the city did go up. That's why people flocked from the countryside to work in the cities. They went from $2 to $200 a day. This Henry George guy was some sort of idiot.

The first thing the reds do is go after the local landlords. This has never worked out well. This land tax idea is just a blatant way of redistributing wealth from the capable to the incapable. Landowners would be doubly punished with heavy ongoing taxes and steeply dropping property prices while renters would suddenly be a lot wealthier. Of course it appeals to the nutcases and losers on this forum. National are hardly going to introduce this, maybe the NZ communist party will suggest it.

Not so nice when the shoe is on the other foot!

I used to be a renter. I even rented a b&w TV. I was on minimal wages. I studied, worked hard and volunteered for every bit of overtime I could, thousands of hours working weekends and through the night. The government told me I would have to support my own retirement so I invested, took big risks and had sleepless nights. Now losers want to take it all away and call me names like scum, leech and a parasite. I think I am well within my rights to resist this madness.

So you assume current renters are not trying to do the same, or putting in similar efforts to improve their current financial position?

..God how i detest self righteous pratts.

Prat only has one t...

Zachary,

I hear what you are saying but you are talking about an era when affordability was multiple times cheaper. Generation Rent have zero chance of getting on to the housing ladder however many jobs(unless a drugs dealer)and how much saving they do. The ability for someone in their early twenties to get onto the housing ladder now depends almost entirely on the "bank of mum and dad" to put down the deposit. I don't think it should come down to you socio-economic background to determine whether you are able to own a house.

We therefore have to do something to get the young onto the housing ladder or else just accept that in the future that the younger generation will rent until either their parents die or give them a deposit.

I don't think you really understand how difficult it is for the young. Some of us have had a free ride on the property bubble and we really need to rebalance the books. What do you suggest?

PS. I am very right wing in my political thinking but I just think the whole thing has got out of hand. Having house price inflation has been great for the politicians as it has masked the underlying issues in Western economies. Maybe Central Banks should be given the task of keeping property prices within a 2-5% growth band using Land taxes. It is been very convenient for politicians to leave house price inflation figures out of the CPI data.

That is what you get for sharing good advice, I am afraid. Instead of being at Key's back for letting the country being overrun by migrants most of us could do without ... we are at each others' back. Mission accomplished. Key is a cynical politician.

Anyways, if it is any consolation, I appreciate what you are saying :-) Most whiners could move to a "bad" suburb and start the long march to prosperity whatever Key is doing. With a bit of good luck - luck is always part of the story - it is a proven strategy. Well, good luck to us all in this world that is getting more unstable by the day. Whatever the land taxers are hoping to achieve, they will probably suffer most from the ensuing instability they are creating.

Zach, you and I did not take big risks. Houses and shares were so cheap. What we had to borrow was stuff all. My shares cost a $1. Now probably including dividends and share buy backs worth somewhere up in the range of $15. And the dividends are 5% per annum with imputation credits attached. Your houses were probably 3 times. If you had fifty houses you took a risk. Today when they borrow $800k or so they are taking a risk. You need to be more honest with yourself and others.

Gordon, I only really started at the age of 40 after a marriage breakup two years earlier and then the arrival of my first child with a stay at home mum. So we are a bit different. I won't say anymore as I don't want to sound self righteous!

Zac I don't think it is being self righteous - by the sound of things you have worked hard for what you have - I wish I could say the same for myself - I can't. My personal view is that there is a real risk to the economy - a hole has been dug and now we ( all of New Zealand) has to work to get the country out of said hole. Everyone will have to take a bite of the shit sandwich in some way or another.

.. by the sound of things you have worked hard for what you have

And herein lie the very odd part of the present situation - in many cases what some consider to be the 'haves' actually only have a mountain of debt. And if the current account is any indication - much of it is debt that will never be repaid.

You have two houses with mortgages, wait until you have 50% capital through capital gain and repaying some debt. Sell one house and then you have one house all paid for.

Waiting in this environment is a bad idea. If your assets are in one of NZ's highly inflated markets and you have anything less than 30% equity on a recent purchase, then my advice would be to cash up now and take what gain you can while you can. The stats I just posted from the IMF;

http://www.imf.org/external/research/housing/report/pdf/0416.pdf

Really do sheet home the insanity of NZ's housing market. It won't last.

The insanity will last longer than anybody can imagine.

Okay so it was not 3 times. It was 4 or 5 times. You are splitting hairs. The other day you talked about having four houses. How could anyone today do that when properties in Auckland are at least 10 times. They and their family could probably not eat for a start. X and the boomers had it easy but most of us do not want to look in the mirror and admit it as we have screwed Y and Z and those not even born yet.

Gordon, I have no doubt that there are a lot of young people today who will end up far richer than me. A lot will be poorer as well but that is the same for my own generation.
Anyway how would you feel about paying an annual 20k tax on your property? Your niece would have to pay the same as well. The value of the property would likely drop 30-40%, possibly more, with the introduction of such a tax as well.

As per usual you do not answer my question and wander off elsewhere. How can y and z own four homes like you when they are at least 10 times . And don't say stop buying coffee.

national will go after the vote, if you end up with more renters as voters guess what will happen.
yes they will start to bring in tenant friendly policy.
its just a matter of time as their policies are locking FHB out and home ownership rates drop dramatically

Losers and nutcases. Nice.

If you wanted to live in a decent society where you could save money and own a home and start a family, and otherwise benefit from the return on your labour without it all being leeched away by self-satisfied parasites, then why didn't you show a bit of initiative and motivation and arrange to be born in 1950, or bribe a politician, or go into the lucrative methamphetamine manufacturing and distribution industry? So irresponsible of you.

Don't forget my desire for Sky TV.

I'm gasping in extremely sarcastic horror right now. You could probably hear the snap of judgy-elastic as I put on my judgy-pants.

That's the rules. Your $150 6-year-old iPod with free content = extravagant and irresponsible. Their $1000 radiogram and many and varied Fleetwood Mac and Seekers LPs = perfectly fine and not at all hypocritical. Get with the programme.

People spending $300 on their phone that they use for everything is also terrible. You need to remain technologically backward and not realise any of the benefits of the world we live in. It's easy to forget that there are a large number of people who don't realise people study, listen to music, navigate and watch netflix/neon on their phone.

Clearly it was more cost effective in the 80s spending $3000 on a 22" CRT TV or a VHS. That figure isn't adjusted for the present value.

Thanks for the laugh Kakapo! Side note, sadly I actually was standing next to a lady in the petrol station the other day who was speaking loudly to her husband about this exact issue. That our 'problem' is our 'inability' to save and our 'extravagant' lifestyles. It was loud, and obnoxious and I wanted to scream. Sorry if that makes me sound like the very definition of a nutcase but I was furious. It was so judgemental and so unfair I felt like there was visible steam coming out of my ears. She actually was with her son who looked about 15. I had to wonder if she cared about his future or if he was practicing what she was preaching. It's just getting beyond a joke.

Was this while she was sipping on a latte and filling up her recently purchased Audi, still in her designer lululemon clothes after finishing her incredibly expensive yoga class, that she is most probably terrible at but uses to de-stress herself after her hard-day of browsing through the property press to see where she is going to buy her next rental property?

B&W TV those were easier days before NZ housing was on the global market with no barriers to entry.

Now it is a free for all. We have gone from a single household high interest rates low debt, then dual income households high interest rates low debt and finally dual income households low interest rates high debt. What is next ?

Bankruptcy.

Exactly good point sharetrader sooner or later the majority will be renters and then the politicians may start acting until then hold onto your seats.

this in the herald comments is gold :

Andrew
"I have a PhD in genetics. I work as a research scientist (one of the few that has 'made it' thanks to the extreme underfunding of both science and postgraduate education in New Zealand). I do not own a TV. All of the furniture I own cost less than $100. I walk to work. I do not drink, do not smoke, I don't go out for food but make it myself. My money goes on food, rent and student loan repayments. This situation is not out of poor budgeting or a lack of intelligence or drive. I am at the point of demanding intergenerational war. The people who hold the purse strings had a free education, bought houses at less than a tenth of the cost comparing median house price to median income. Now middle-aged economists are saying we should tighten our belts - let them eat cake indeed. The unsustainable lives of the baby boomers have blown away the equity in the country and made living unaffordable, and the politicians are now both supping at the trough, and too fearful to do anything that might upset the landowning bourgeoisie, allowing the destitution of a generation."

Blaming a whole generation is scapegoating. Look first at property investors and the main political parties who pushed immigration despite public ambivalence.

It had to end badly:

Tonight, a pumped de Roos tells his audience that he wants people to invest in property and write to him 12 months down the track and tell him they’ve “made one million or three million, or you’ve got 16 properties, or we’re taking six months off because our cash flow now exceeds our outflow!” He says, “I don’t know any other activity where the rewards are so huge. If you want to invest a million dollars in the sharemarket, you need a million dollars. If you want to invest a million in real estate, you only need $100,000.”

You can buy one property, get it revalued, use the equity to buy another property and then buy another and another. “And you do it all with OPM. Other people’s money. OPM. It’s like being high on drugs!” What’s more, the wonder of depreciation claims on the building and contents means “the government subsidises your investment! It’s delightful!”

House of the rising Sum, Pamela Stirling Listener

Meanwhile the National Party released its immigration policy. You may wonder what this means for the property market. It is clear from research that immigration is one of the key drivers of house price growth.
The logic is simple. If you import more people into the country, then you need more houses. Supply and demand means that prices are then pushed up, this is particularly so in Auckland.
While the latest immigration numbers show the number of people coming into New Zealand is starting to rise, the Nat’s policy looks like it wants to increase immigration levels even further. (Although it is unclear what sort of number they are targeting.)
This policy is, arguably, a plus for people who want house prices to rise. (But may be not so good for first home owners wanting to buy.)
My guess has always been that property investors lean heavily towards the right rather than the left. (This was made clear in an email newsletter I saw from one developer this week.)

The Landlord Says

There is a danger that a sector of the economy is being augmented that is totally reliant on a small domestic economy. Not only do these industries have limited potential for per-capita growth but ‘deriving growth via factor inputs such as labour places pressure on infrastructure such as transport and land supply, and ultimately have a further negative impact on growth (ARC 2005). Finally, as the sector gets larger, it gains in lobbying/political strength and can lobby for immigration regardless if it is the best interests of the economy as a whole. This could be seen in Canada where the development industry has lobbied hard for high sustained immigration levels (Ley and Tutchener 2001).

Dr Greg Clydesdale Growing Pains
http://kauri.aut.ac.nz:8080/dspace/bitstream/123456789/205/1/clydesdale....

I don't blame the baby boomers. They did what was allowed at the time and deserve all they have got. I'm just saying let's help first home buyers as currently they are competing against investors. Have investors focus on new builds by making them pay 10% stamp duty if they buy existing housing stock. That will take a large amount of them out of the low cost housing and into new property supply. The tax will help pay infrastructure.

Having the world's highest prices relative to incomes indicates enough is enough and it's time to act. Stamp duty applied indiscriminately to all investors would not breach the Korean FTA so let's do it. Stop the madness and give FHBs a chance.

In a hypothetical imaginary future of decentralised internationalised bitcoin type payment systems, land is about the only thing that will be able to be taxed.

I presume that this will apply to farmland. Good. It will have a very significant affect on farm values and overseas farm purchasers.
I cant see why we ignore the value of the improvements. eg Why should an overseas apartment owner be virtually let off?
If we were to charge everyone 1-2% of the total CV then we may get close to being able to eliminate income tax for most people. It is getting close to Gareth Morgan's ideas.

The economic reality is that much wealth eventually resides in land. A considered land tax should be an equitable solution to some necessary income redistribution and ensure that overseas land owners contribute to the costs of society which make their investment secure.
David

So True

Did anyone see this

The distinctive feature of the New Zealand economy is that land is an important input into the productive process. This is obvious with the agricultural,fishing and forestry sectors but it also applies to international tourism. In a simple model of the New Zealand economy where the supply of land is fixed, and New Zealand’s isolation means it is not a ‘natural’ location for the production of a broad range of internationally traded goods and services, then an increase in the labour supply through large scale immigration will reduce the marginal product of labour. As a result:

Real wages will fall

Owners of land will benefit

There will be an outflow of ‘native’ labour in search of higher wages in Australia

The economy will be bigger, but average incomes will fall

Resources will flow into low value service production.

http://www.tailrisk.co.nz/documents/TheSuperdiversityMyth.pdf

All True

It doesn't seem to be main stream economics despite it's intuitive appeal?

Interesting to read over at Macrobusiness that the Chinese are seeking to clamp down on flight of capital.
Is that a key reason why JK mentioned a land tax on foreign investors? Maybe the Chinese - who he saw recently - want him to discourage outflow of capital? I feel a bust coming on....

The capital flow from China is ginormous.What would have happened if it stayed at home?

Nothing would happen , China is awash with cheap money that has pushed all asset prices sky-high already