Gareth Morgan argues for the closing of the tax "glaring loophole" that gives a free pass to non-cash gains on assets

Gareth Morgan argues for the closing of the tax "glaring loophole" that gives a free pass to non-cash gains on assets

By Gareth Morgan*

Anyone with the money to invest faces a dilemma.

Do you put the money into something productive, something that could create jobs, something that could even earn precious foreign exchange, or do you put it into housing? 

The answer most of us give will be housing, unless the potential alternative is a drop-dead certainty with huge upside.

Why in hell would anyone leap through the regulatory hurdles, run the gauntlet of employment law and take the huge financial risk of starting your own business? Of course people do it, I have and I tip my hat to anyone else prepared to take the punt.

But let’s be honest, on average you’d be better off sticking it in housing.

The bank will offer you far more leverage at far better rates if you stick the money into an investment property. Or even better, put all the cash into a bigger family home, and live like royalty rent-free. It’s a no brainer given the tax incentives that we face.

Then we wonder why we have spiraling land prices and ever-larger houses, while productive businesses are starved of the capital they need to start and grow. We scratch our heads at why so many of our businesses end up being sold to overseas investors with much deeper pockets. We suck in our breath every time we hear of New Zealand’s ballooning private debt and our dependence on foreign borrowing.

All of these problems have the same root cause; ever since the late 1980s our tax system has had glaring loopholes. We created a broad base, low rate tax system to ensure there were minimal distortions; with the sole exception of the treatment of non-cash returns on assets.

Now that loophole has grown into a millstone around the neck of our economy. New Zealand’s treatment of housing is probably the most distortionary in the developed world. As a result it should come as no surprise that housing makes up the bulk of our assets, and that the growth in the ratio of house prices to incomes has topped the OECD over the last few years.

Closing this loophole is relatively easy, but appears to have been beyond the comprehension and/or political will of our Establishment politicians since the late 1980s. Housing has been viewed as sacrosanct, and so it continues to retain its tax-free status. And so we keep throwing all our money at it.

But we simply can’t get rich as a nation by buying houses off each other. According to international statistics New Zealand is the 5th richest nation in the world. Yet when it comes to income we languish at 30th. What does that tell you? It tells me that our investment performance is laughably poor. We are terrible at turning wealth into income.

Isn’t that the point of having assets; to turn them into income, to use them to either generate cash or to simply make our lives easier? Here’s the kicker – assets that make our lives easier by generating non cash returns are just as valuable to us as assets that generate cash returns. Yet under the current tax system we treat them completely differently. So where do you put your money?

Our tax system favours investment in assets that generate non-cash returns. So that is where we put our money. Then we are amazed that our assets generate such a crap return.

Other countries at least attempt to skew the tax system so all assets are on a level playing field. They do this in a myriad of complex and imperfect ways, but they generally succeed in encouraging investment in productive business. That is why some countries like Germany have successful economies without rampant housing markets.

Our tax reform is a far more efficient way of closing this loophole than anything we have seen overseas. If implemented it would cool house prices and drive investment towards productive uses. Businesses would benefit, as would wage and salary earners. Those that don’t benefit can well afford it.


Gareth Morgan is the founder and leader of the new political part, The Opportunities Party.  This content was first published here and is used with permission.

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No analysis of the effects on housing of immigration, foreign capital, land restrictions, RMA, the cost of building etc. Nothing whatsoever. The problem is that we don't pay tax on our own homes... is that a Tui billboard?

And: "Isn't that the point of having assets; to turn them into income.."
Nope. The point of owning a house is to live in the house, i.e. it is a personal asset as opposed to a business asset.
You have the two confused.

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You miss the whole point of the policy. It's not about lowering the cost of housing - it's about getting our accumulated capital working for NZ.

Have another read Kate. This article is all about housing, and this policy is proposed as a fix to it.
And let's be honest about what the policy is targeting - people's homes, including retirees.

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No. The article is about fairly taxing the primary investment vehicle in NZ for accumulated capital.

So...housing.
And by the way I don't see my house purchase as an investment, I see it as a home (i.e. a personal asset).

Exactly, and if I make a gain from that asset on sale, then tax the gain because I never intended to use it to be an investment.

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I agree with Kate. It's about changing the composition of who pays tax and who doesn't and thus changes the culture of capital allocation in the process. Gareth's policy is not about collecting more tax overall but neutralising any tax changes for owner occupiers of homes, or less, and placing a higher burden on anyone wanting to acquire swathes of property. The point is that property is unproductive and needs to be dis incentivised from an investment perspective.

Was not $5,000,000,000 Lost by mom & pop kiwi investors placing their savings into NZs under regulated Finance companies ?
That money was used to finance ? Property developers in large part
One of those finance companies used the money to offer car loans to those with the riskiest bad credit histories
So Gareth I think mom & pop like investing in a rental property because unlike that $5Billion lost they can see the asset and it simply will never disappear
Just stick to giving away all your wealth to charity Gareth
Oh Yes! That hasn't happened yet either

Kate... I've spent some time pondering this...
I think u are wrong..
I think it is an attack of the family home... and the property investor.
It is about closing the so -called "tax- loophole".

AND... It is a GIANT leap of faith to think that as a result of that we are suddenly going o become innovative, entrepreneurial business people/investors ...

This is just a progression of the "financialization " of everything.... ( which in my view is THE fundamental problem )

I notice Gareth excludes financial assets from his imputation based tax..

The more I ponder it.... the more I dislike it...

AND yet... I'm all for a fairer way to tax.... and I do accept Gareths' idea of the big Kahuna...

Of course we can get rich this way , when migration has sent demand through the roof , your house becomes a tax-free piggy bank .

My home has increased in "value" by nearly 2 times my annual salary every year for the past 3 years .

I dont know why I bothered to have a job , I should have just bought multiple houses

And indeed many, many, many folks did just that ... granny-pensioners included!

Obviously that is not all granny-pensioners Kate, and therein lies the problem. I would have no problem with grannies with multiple investment properties being forced to sell if they cannot afford the tax due to high asset value and low cash flow.
I have a very big problem with forcing the granny with 1 home in Auckland to sell her only residence to soothe the conscience of some or pacify the angry younger generation who cannot afford a house, especially when there is obviously more than one reason to the ridiculous values of houses in NZ.

Don't use a hammer when you need a scalpel.

The granny with 1 home in Auckland need not sell, as the policy includes an ability to pay the tax as a debt to the IRD - to be collected only on sale of the asset.

The IRD, circling like " 'ol turkey buzzard".

Sounds like the government slowly stealing somebody's house. Why not just exclude the primary residence and focus on multiple property owners?

Again, read the policy.

There will be reciprocal tax cuts to those paying tax on their property with the exception of high, wealthy, income earners. Pensioners included.

Could you give an example of this please? Say a solo pensioner living in a house worth 1.5 million like my neighbor. Gareth wants to tax her 5% as if it was income. That would put her on 75k a year. tax she would have to pay....say 20k yearly in tax roughly. Is Gareth really going to give her a 20k tax break to cover this?

Could someone give an example of how much tax break she would actually get in this situation and how much tax she will have to pay annually because she owns her house? Cheers

Rather than try and explain it in depth, here is a series of presentations from Gareth regarding his Big Kahuna concept from a few years ago.

https://thestandard.org.nz/gareth-morgans-big-kahuna/

The policy doesn't explain what the tax breaks might be. But, you seem to have an assumption that the policy should be tax neutral for your neighbour, is that right? If so, why?

If living in the US, the neighbour's estate, if asset(s) are in excess of a million would pay $345,000 initial tax plus 40% on the excess (just over $600K by my calculation).

https://en.wikipedia.org/wiki/Estate_tax_in_the_United_States

These sorts of taxes do not exist in NZ.

Thing is, your neighbour can't eat or spend the accumulated capital in the asset unless deciding to take out a mortgage on the property. And if the neighbour needs to take a mortgage out on the property because NZS isn't enough to live on - then surely there is merit in releasing some of that capital for productive (i.e., income generating) purposes?

But, if moving isn't an option, then, according to the policy, your neighbour (if there was net tax to pay) could charge this as a debt to IRD, payable only on sale of the asset.

One thing we can be sure this policy will do is create a much larger environmental problem for NZ. People say lets move capital into a more productive area as if this only has positive consequences. Lets take an example of a person owning a large lifestyle block mostly planted out in native bush. If this tax came in there would suddenly be a huge financial burden on the owner for not cutting down the forest and turning it into intensive farm land.
This policy is sold to us as a fairer NZ, but its not. Its taking away a large chunk of our ability to do what we want with our land. Lets force people into milking their land to make money.

When the value of her house returns to a more sane value her problem will be considerably reduced.

Precisely. The underlying idea is that the tax itself will reduce property appreciation to a trickle, reducing the tax exposure to a minimum.

Yes, let's encourage even more debt so it can be taxed. What happens to that debt if interest rates spiral and the Granny lives to get a letter from the queen? Ask the Grandkids to take on debt to pay Granny's tax?

...ah yes..yet another who hasn't read the policy document. Hopeless.

Really rastus & nymad???

Comment sections under an article is for people who have read the article. Don't get high and mighty just because you have read the policy document as well. The policy was only released yesterday.
If someone has made an uninformed comment because they have only read the above article correct them. Don't insult them. It's just petty.

So tax the people with multiple homes. Leave the family home alone.

Thanks Noncents. Seems like the obvious solution missing from the proposed policy

Looks like Boatman has come up with one driver of housing pressure (migration). That's one more than Gareth Morgan.

Whatever the logic may be and no matter how good, just and valid the accounting for it, this venture is political suicide. The only comparison, and in that regard I am talking about impact, is the ludicrously inept attempt by Thatcher and her poll tax. All she achieved with that was exit stage left for herself.

Yet Thatcher's poll tax was actually pretty fair in concept. Of course it will go nowhere no matter how logical and robust the argument is. Anyone who tries to implement it will never get elected, rather sad really.

It is worse, we borrow money from overseas to sell houses to one another.
But at the moment there appears no dilemma for folk with money to invest : at every barbecue this summer you will here that the only solution is investment in housing.
And why not?, every institution in NZ works to that at the mere whiff of a potential loss, interest rates will be lowered, savers will be separated from their savings, taxpayers will foot any bill, no expense will be spared to ensure that the property investor sector does not suffer from investment risk.

For those of us who were around at the time, and appreciate this is as unfair as it is unfounded, but this whole concept nevertheless has a sort of Social Credity feel to it

I’m tired of you viewing property investment/management unproductive? Tell that to my tenants Gareth and they will laugh at you. I own a 2 flat property in Mt Victoria and have added another little unit out the back on a separate section which now houses young professionals (how productive is that, I should get a medal for the rubbish I had to put up with from the RMA). I have 8 tenants living in the entire premises, all young professionals who are incredibly happy living a stone throw away from Courtenay Place precinct. You say this is unproductive? This is what I’d do if it became uneconomic to manage/own investment property through excessive taxation. I’d sell the whole thing off to someone who would no doubt be a hugely high income lawyer type who would probably then convert the 2 flats into a grand home, move in with his family and put Grandma out in the back unit to help with the kids, etc. Therefore, gone would be the 8 young professionals for good, never to return to a location which is 2 minutes from the best night life in the country as the dwellings would now be considered a family home. That is productive you say? In fact if it became not worthwhile to manage/own investment property anymore due to excessive tax everyone else would do this in Mt Victoria and gone would be all of the young people you are trying to protect, never to return to this area to live in. Not particularly productive at all as I'm happy to own this (which provides the State with a free service) for the next 30 years!

Point is, as long as your investment is returning greater than the deemed rate of return and you are paying tax on those earnings - it is a productive asset for the purposes of this policy and would not be subject to the tax (or perhaps I should say the policy is tax neutral for you).

This morning Paul Henry called it an "envy tax" - maybe Gareth needs to soundbite it with "non-performing asset tax" or something similar.

Gareth did not come across very well at all in this mornings interview.

I thought it was a brilliant exchange - it really highlighted the stark contrast between very real/common (and diametrically opposed) societal views. I loved it but they were going at it so fast and talking over one another, such that reading the transcript really helps. Both very think-on-your-feet and tell-it-as-you-see-it type people.

.. and , at the very least , Gareth Morgan is throwing out some new ideas to be discussed ... and on talk-back radio they certainly are ... taxation reform is finally back on the agenda ...

Whereas the Jolly Kid and Wild Bill have sat on their hands for 8 years ... steady as she goes , do not rock the boat ... do not countenance any opinions contrary to the status quo ...

... and then there's Little Andy ... not a clue ... no ideas in sight ... just hoping that with the Jolly Kid gone from the playground , the electorate will finally see him as a contender for the throne ... King Andy in the Magic Wellington Wendy House ... dreamer !

Exactly, however you put it, Lational or Nabour, neither have addressed the gradually emerging property fiasco for fear of short circuiting the vote-ometer. It's about time a party without skin-in-the-game emerged to bring the issues to the fore.

both without the self-control to listen before speaking without interrupting someone in a conversation. I'm teaching my 2 year-old how to do it at the moment.

Frankly Paul Henry needs to get beyond name calling as a dialogue. Just why so many people pay any attention to such as he rather than do their own homework is mind boggling.....

It’s the rest of his future policies which concern me, no doubt they will come out and there will be all kinds of tax. It’ll be back to the 70s again, a failed model from the past. The reason why the ratio to house prices is now 6 or so in Wellington and for the most part the rest of the main centres outside of Auckland. It’s because woman now work for full pay and mostly full time. They didn’t back in Gareth’s day, hence why the price to income was only 3. I can’t believe he hasn’t worked that out. A young couple with a combined salary in Wellington city of say 160k can easily afford a house for 600k+.

Haha.
You property investors are so far out there, huh.

Yes, miraculously in the past 4 years females have all just decided to start working.
I just love it when you people just don't even think about your comments before posting them.

What do you mean, the ratio has been like this for years. Wellington is not overpriced whatsoever, anyone not knowing that really doesn’t know what they are talking about.

...Why then is housing inflation substantially above wage inflation?
If the ratio was consistent, shouldn't those two be pretty closely correlated?

Average house size is now twice what it was in the early 70's - so that turns the 3 x multiple into a 6 for starters.

Add in direct and indirect costs imposed by Councils and its no wonder the price/income multiple is where it is.

Is the real building $/m2 cost flat since early 70's? I'd hazard a guess it is not.

Yes of course all couples with young families can't wait to dump their two year olds in day care for ten hours a day so they can both work and enjoy their mega mortgages. Who wouldn't?

"non-performing asset tax"

It just reeks of a poorly thought out idea, and leads to a very troubling path.

Tax my house, the money could have been used more "productively" in shares.
Better tax my car, that money could have gone into shares too.
That new Fridge I bought, money would have been better spent on shares.
Bought some eggs today to go in my fridge. A dozen no less. Only ate two for Breakfast. Better tax the other 10 as that money could have been spent on shares, rather than literally sitting in my fridge.

GM is basically saying shares are the only way forward. They are not.

Demand is what creates jobs, not owning shares.

Buying my house created a job (Real estate agent, Lawyer, Builder, Council person)
I got a mortgage, so a banker has a job.
I then had a mover to get me into my house.
Over the years, I have created demand for electricians, glaziers, builders, UFB installers, plumbers, roofers, and tilers.
I pay rates and insurance, a couple more jobs there for some people.
I have bought Couches, Fridges, Freezers, Lawn Mowers, sheds, plants, paint, tools, and materials. All things I never did when renting. So jobs for the retailers, middlemen, and factory workers.
I have been down to Mitre 10 more times in the last month, than in the whole 28 years of Life I had before owning a house. Lots of jobs there.
I should add that I pay TAX on every cent of the actual income I use to fund all of the above.
I also get to pay GST on every single good and service I used above as well.

Now because of all those jobs being created, and the fact that housing in somewhat integral to survival, more people now need one (not want - need). So demand increases - price goes up.

Why shouldn't I be rewarded for all the productivity I have had a hand in developing?

I own some shares too (Diversity and all), only job created so far is a dodgy financial advisor/broker that clipped the ticket.
- I didn't pay GST on the purchase of the share (only on the ticket clipping)
- The company I bought a share in never received any money (not from me at least, nor the 50 other shareholders before me)
- The dude/dudette that sold the share made a profit (It wasn't taxed)

Now, you tell me what the "Non-performing asset" is?

You confuse utility with productivity.

brilliant!but I can beat that,i have 32 houses crammed into a cardboard box with MONOPOLY printed on the lid.

Lol!

" I’d sell the whole thing off to someone who would no doubt be a hugely high income lawyer type who would probably then convert the 2 flats into a grand home, move in with his family and put Grandma out in the back unit to help with the kids, etc"

That's a fairly large assumption to back up your incredibly weak argument that you are being "productive". In your selling scenario who's to say your 8 tenants wouldn't buy your properties?

This type of taxation already exists in NZ for foreign investments. Anyone holding overseas shares/businesses worth more than $50k is subject to the FIF regime whereby you pay tax on an imputed income in place of actual income and capital gains.

As a long time user of the FIF regime, I can say that it is fair and makes you consider your investments more thoroughly. For example, if you want to invest in a growth share with no income, you need to pay tax as if it earns 5% then balance this against future capital growth.

Adopting this regime across all asset classes will extend this thinking to all capital leading to better decisions,

Yes. Exactly.

The majority of people don't purchase a house as an investment. Many other reasons take precedence - security upon retirement, stability, freedom to make renovations, have pets etc. I don't think we should be comparing international shares with a family home, the average kiwi probably isn't concerned with getting out a spreadsheet and working out 30 year scenarios based on what the 'risk free rate of return' might be.

Agree wholeheartedly. Although I'm obviously not average. I don't forecast. I just keep track of costs v expenditure.

My house cost X amount to buy. I have paid Y amount in interest. Technically you could add A through Z again (several times over) in terms of costs I have incurred that I would not have had if I rented.

But I will keep it simple.
X + Y = Z (real purchase price of house)
M = current market value of house. The market value has gone up since purchase.
At this point in time M

So because you or 'every other kiwi' or nonsense below don't prudently manage your finances, every one else needs to subsidise your decisions?

I mean that is fine for people to make crappy decisions, it's just that the risk or liabilities associated with that shouldn't be socialised.

Agree.

Let's also be clear on this - this policy will not stop you gambling all your money on property. All it will do is increase the tax bill in line with what a productive business would be paying to use the same amount of capital. If you think capital gains will compensate you for the increased tax then go ahead.

For example, at current FIF rates a $1m property would be tax of $16,500/year (with no other tax on the income and no capital gains on sale). If you think price appreciation will be more than 1.65%/year then you will still come out ahead.

And what if there is a price correction with the market dropping up to 30% like in 2008. Does the government dish out refunds?

Why should the government be liable for your risk position?

"Or even better, put all the cash into a bigger family home, and live like royalty rent-free."

Gareth, you've got to get this idea out of your head that buying a house is living rent free.

When you buy a home, there is an opportunity cost associated with it. Effectively you are giving up the opportunity to generate income from your money. As a home owner you are effectively paying rent through lost opportunity.

A private home isn't an investment, it's a place to live.

We should treat it like this for tax purposes. If you accidental make a profit (through market capital gain) then private homes should be taxed on the capital gains at the point of transfer (it's at this point the owner has the extra money to pay the tax).

All investment properties (private and commercial) must also be taxed on capital gains. But again gains are only realized at the point of sale/transfer.

I agree we need to tackle house prices and home ownership affordability. Currently 80% of home sales are to non residents and investors. This is the issue that needs to be tackled on the demand side.

You mention great rates for property investors. I imagine it's pretty simple for the RBNZ to increase the rate for property investment vs home ownership. Make investors pay an extra 2%, or hell an extra 4% like most business pay. Ramp it up over time if you;re worried about crashing the market.

For foreign buyers as a nation we need to decide what limits are appropriate. Stamp Duty (equivalent to GST rate) seems to make a lot of sense and would go a long way to recovering the infrastructure cost the new owner benefits from.

Or is a total ban of purchasing residential property by non residents the right thing to do? Too extreme, maybe, but it'll be effective.

Gareth has some great idea's, but this isn't one of them, too complex and unpopular.

A differential borrowing rate does not generate tax (other than on increased bank profits)

Bank profits don't increase because the spread is the same (assumes borrowing from the RBNZ).

Tax doesn't have to increase, that wasn't the point. The point is to drive capital to investment into productive areas of the economy.

If investment properties have a higher tax rate and capital gains are taxed appropriately then they sure as hell will become a lot less desirable as investment vehicles, causing investment to shift to other areas, a sell down in investment property increase supply to owner occupiers, and prices reduce.

Banks borrow offshore at the prevailing rate so increasing the rate they must charge will increase their margins. This policy is aimed at levelling the tax playing field so, yes, generating tax from property is required to allow tax from effort to decrease. The reduction in desirability of property is a welcome side benefit.

Its up there with his cat idea.
If he did manage to get rid of domestic and feral cats the rat population would explode and wipe out all NZ birdlife as a rat can get to any nest in any tree and will eat both eggs and chicks.
Gareth is great at speaking out without thinking through the consequences.
He's great for raising debate, but he's making me think Nationals inept governance wasn't so bad after all.

'We can’t get rich by buying houses off each other'
Many people did just that in the last few years, didn't they. It also has a name 'flipping'.

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The "we" part refers to NZ as a whole, not to the minority who are playing the system to their benefit.

Well said, lack of strategic insight and thought is un-common especially it seems in here.

Including the Banks, Councils, Agents, Developers, so on ?

"..productive businesses are starved of the capital they need to start and grow.."

Evidence Gareth? Or just rhetoric. I think you will find there's money awash everywhere with nowhere to go... Growth is dead, hence population ponzi nomics... which means ironically, Opportunity is on its deathbed.

Ive seen comments/writing that for the last decade (if not 2) while there has indeed been substantial credit its only really been willingly lent for housing. Growth is indeed dead, Peak oil is seeing to that....after peak oil is now coming.....oh dear.

OPEC have had to agree to cut back on production to jack up the price of oil ...

... there's too much of the ruddy stuff ... they can scarcely give it away ... a crude summation , but true ..

If you only see want to see short term sure. Price as always is a function of both supply and demand. So a short term glut due to a lack of demand and over-supply hiding a long term problem.

If you bother to read, if not.....good luck.

We can use faster extraction techniques to steal from the right hand side of the bell curve but this skewing will ultimately lead to a faster drop-off.

they agree to cut back production ... which helps the price up ... which drives shale cos to quickly lock in prices and get pumping ... the need for cashflow overrides the lack of demand for more volume... pump faster because prices are low!
It indeed hides a scarcity coming up.

Starved of the capital to grow - or starved of the cash rolling in from demand?

Seems cashflow is no longer important. The plan is simple.
1. List on the stock market, sell your company
2. quit as a millionaire, then watch as company goes into liquidation a few months later.
3. Watch your old employees lose their job, cut their spending, sell what little shares they have to pay the rent and buy food.
4. Now sit there on your giant pile of cash and wonder why no one is buying your mates shares so he can join you on holiday.

A worked example for you:
$1m property with $600k interest-only mortgage (max allowed under current LVR) at 4.25% rented for $700/week. Capital gains 10%/year. Rent increases 3%/year.

Current Regime - Year 1: Taxable income = $36,400 (rent) - $25500 (interest) = $10,900. Tax = $3,597 @33%
New Regime - Year 1: Taxable income = $400,000 (equity) * 5% (imputed rate) = $20,000. Tax = $6,600 @33%

Current Regime - Year 2: Taxable income = $37,492 (rent) - $25500 (interest) = $11,992. Tax = $3,957 @33%
New Regime - Year 2: Taxable income = $500,000 (equity) * 5% (imputed rate) = $25,000. Tax = $8,250 @33%

If Gareth Morgan is serious about tax inequalities as relate to housing, he would begin by proposing to remove deductibility of interest from residential rental income.

Why is this not being considered?

See worked example above. Under the new regime, you have no deductibility

We could begin a stepped reform by simply putting an end to the deductibility of interest on residential rental property. There is no need to create an entirely new tax system just to achieve that one change.

Or, alternatively, sufficiently funding the IRD to adequately enforce the system we already have would be the best start of all. There's no point in creating a new system if we lack the resources to enforce the one we already have.

why not stop interest deductibility across the board?

Encouragement of productive business activity through interest deductibility is not necessarily undesirable.

However, deductibility of interest against rental income is undesirable as it renders home buyers significantly less competitive than speculators. It should be remembered that having one's own home contributes to good health, prosperity and the ability to accumulate capital ... which can then be invested into productive business.

Gareth would be far better utilising his energy on entities that don't pay tax on their profits.
We all know who they are!
Property owners and investors already pay plenty of tax.
He is only bringing these housing topics in the last couple of days for publicity, including his appearance on Paul Henry where he clearly showed he is out of his comfort zone!

"Gareth would be far better utilising his energy on entities that don't pay tax on their profits."
Isn't this what the whole thing is about?

No one won that debate on Paul Henry this morning.
The only thing that was evident was the problem that all economists face talking with non economists about complex issues; A lack of ability to comprehend.
If you will, not too different to what we see on interest.co.nz on a daily basis.

Ha.... economists face that problem talking amongst themselves..... Economics is the only field of study I've come across that can have such divergent, often conflicting, points of view..

In my view.... a sign of someone who understands their subject deeply , is that they can explain things in simple terms.....
They have no need to dazzle with brilliance nor baffle with bullshit...

Fair call. We have never really had a Feynman or Cox of Economics, have we..

However, is it the fault of the economist that the point doesn't get across, or the fault of the recipient for not allowing a point to be made?
If we look at the case of Paul Henry (and interest.co.nz) today, has GM really been given the time of the day to explain his point? In the case of Paul Henry, he got talked over the top of and rubbished for the entire interview.
In the case of interest, 90% of people read nothing but the title of the articles before jumping into the comments section.

I think Gareth could have done a better job of explaining his position.... ie... have a far better rationale and reason for a Capital/Wealth tax.

I thought Paul Henry was asking the obvious questions.... and he made Gareth look like he was in "alice in wonderland"...

Gareth wont survive the Political debates with his idea of a taxable benefit of homeownership..

His idea that the benefits derived from people living in their own home is somehow untaxed income... just opens him up for negative attack.? (.. even thou in an intellectual sense what he says may be correct )
The argument of imputed income is quicksand.... ( the natural reaction will be distrust and a sense of unfairness... in my view ).... AND... the car example sinks him deeper..

He wants to tax this imaginary income stream.... ie.. there is NO actual cashflow of income..
The so called , tax free, benefit value is derived from what the homeowner COULD HAVE earned if they had invested that money.

AND...then Gareth jumps thru the hoop and starts talking about us all outbidding each other on houses....

In my view.... this line of argument is some kind of embarrassing political suicide......
he will be shot down by his political opponents ...and the average person will see this as unfair ...

My view is that there is a vein of intelligent comment on interest.co.nz... .. and based on what I've read on here.... Gareths' first policy is going to sink him like it was encased in concrete..

I do agree that PAYE is a very unfair tax.... and I'm not smart enuf to offer up a solution that fits in with first principles, that is not too distortionary...

ps... It would be far easier if Gareth simply explained it as a "wealth " tax.... people would get that...and the only thing Gareth would have to explain , in regards to Paul Henry, would be the issue of "envy".... he could do that by articulating the inequity of PAYE...???? .... ( just me thinking )

Yea, I agree.
It definitely has been explained poorly.

What I fail to see is how no one can fathom that there is economic income being realised through capital gains. And, that the fact that they are not taxed is so arbitrary.

Of course Gareth said that we are all outbidding each other on houses - is this not exactly what it is?

I agree it is political suicide. There is no way he succeed; constituents are simply too greedy and enjoy being lied to.
It's really not too much different to the climate science or creationist beliefs when it comes down to it..

I think most people would accept a capital gains tax....
When a property is sold and money changes hands.
That transaction is "real".... there is an exchange.. and at that point a tax might be fair..

BUT.... That is not Gareths policy... ie.. a Capital gains tax.

exactly

"constituents are simply too greedy"

I would't say the majority of constituents are greedy, but the majority do fear things they do not comprehend.

Frankly - it's un-saleable

If it is difficult to sell on interest.co, then how do you sell it to the peasants?

But the point is that property investors have a significant tax advantage over investors in other asset classes, hence the continued myopic focus on property as opposed to productive assets.

Property investors have got no tax advantages at all over other investments.
Name what they are?
We pay tax on profits just like any business!
People that own shares don't pay tax on profits unless they are classed as a trader just like a property trader.

Do we really have to keep going over this?
It is like the CPI arguments all over again.

The advantage of land owners over other investors: You do not get taxed equitably for the economic income you realise. In one simple example, you do not get taxed for any capital appreciation in your asset - an economic income.

People that own shares pay tax on profits/notional 'capital gains' due to the fact that in the vast majority of cases the market value of the share is a function of its expected period cashflows.

"You do not get taxed equitably for the economic income you realise."

So the answer is to tax unrealised gain?

Dunning - Kruger.
The last couple of days worth of comments has really characterised your username.

Generally speaking, good tax policy is to tax a lot of things at a low rate rather than one thing at a high rate. Income tax is still the largest source of tax revenue - very few seem to ideologically opposed to taxing income since I think most people are just used to it. A lot of people are complaining that this taxes them for living in their home but right now we tax people for working! What's the difference?

The tax proposed by TOP is not ground breaking as it has been discussed many times over the years - usually by economists on the right BTW. Right now we are not taxing a form of income and this policy would be neutral. The great thing about neutral is that people will not consider tax in their investment decisions as all investments are taxed at the same. If this reduces the current income tax then the most poor will benefit the most - that is something I can firmly support.

"A lot of people are complaining that this taxes them for living in their home but right now we tax people for working! What's the difference?"

The difference is eventually you won't be 'working', weather it's a period unemployment, maternity/paternity leave, sabbatical, volunteering or retirement,

Tying tax to income makes a lot of sense because you have the money to pay tax at the time you earn in.

Same goes for tying tax to spending makes a lot of sense as again you have the money to pay tax at the time you spend it.

Taxing things/people simply because they exist, seems like something from the dark ages.

Why it is a "glaring tax loophole" for anyone to live in their own mortgage free home? In my case I have paid the house off over the years with after-tax dollars. I chose to do this rather than refinancing to pay for overseas trips, meals out, new cars etc. I imagine that my lifetime earnings to date are a lot less than some of my peers who have chosen to be less thrifty and find themselves looking at skinny times in retirement. Gareth Morgan thinks people like me should be penalized by his newly conceived wealth tax to help even things out for the reckless among us. Now that's unfair!

Gareth is out of touch - many sensible Kiwis want nothing to do with investing in risky businesses including shares. For them securing their hard-earned capital in land, bricks and mortar is more relevant and important to them. I don't think more property taxes would change their thinking, as the alternative investment options would still be poor by comparison.

Australia has plenty of taxes on property, ie stamp duty, land tax and capital gains tax; what has that done to slow down its popularity and growth? Let's see some hard evidence here, not philosophy.

"Gareth is out of touch - many sensible Kiwis want nothing to do with investing in risky businesses including shares."
But that's the whole point; everyone wants the reward with no risk associated.
Essentially money for nothing. How is that sustainable or productive?
If you want zero risk, buy government bonds. Secure your money in a term deposit. At least do something productive with your cash.

One thing that was learned with the 87 sharemarket crash was that the experienced professional investors got out when Joe Everyman got in. When you think about it, its when everyone is into something it falls over, I can quote you numerous examples of it from kiwifruit to angora goats, from the sharemarket to the financial market. It could, in theory happen to the housing market if too many people tried to get in on the action, that is why it is in the residential property market, being overpriced is a plus, as it keeps you in clients, people who can't afford to buy.

Sorry, what are you trying to say?

denpal,

You are clueless and i am trying to be polite. I have both an investment property and a more extensive share portfolio and i have absolutely no doubt which has given me the better return,with the least hassle.
You clearly have no idea what the long-term performance of the NZ sharemarket has been. I look after my own portfolio and once I have paid the very modest fee for buying or selling on-line,I have no further costs,unlike my rental,where I have rates,insurance and maintenance. I have had the property for 16 years and have never had any tenant problems.The current tenant has been there for over 6 years and the property is in a sought after area(Mt Maunganui)
You mentioned 'hard evidence' and of course,produced none to back your argument.

All this talk is really hot air, Gareth Morgan will get nowhere if people think he is going to muck around with their properties, he will find that out in the next elections

Well here's an interesting article from Vancouver of how the surging house prices have led to massive home tax increases.

North Vancouver homeowners fight 361% increase in property assessment — and lose.
Plan to densify a neighborhood quadruples the value of a property and leaves an $18K tax bill

http://www.cbc.ca/news/canada/british-columbia/north-vancouver-property-...

A different kind of Nanny State is being proposed, with all these Luxury taxes being bandied about. It will be very regressive and may result in flight of capital and investment from the country. People use their income/money/savings/wealth for their well being, which includes having a home, car, etc. Where is the logic in taxing them, saying they are unproductive. Humans are not slaves to be always productive with their times and resources. It is plain stupid and waste of time.

Housing is like a roof on a factory, if you don't find protection from the elements via a roof and / or a place to sleep each night then your workforce wont be very productive...it forms whats called civilization and when we moved from out of the savanna of Africa and started making wooden huts we started to become just a tad bit more productive. GM's policies would like to see us going back to the stone age...

Just like how taxing labour has taken us to an age where nobody works any more? /sarc

Remind me, do companies pay taxes on the economic earnings of their assets?
Say, for instance, a roof?

"Do you put the money into something productive, something that could create jobs, something that could even earn precious foreign exchange, or do you put it into housing? "

It's all "could". A house can also create jobs - builders, plumbers, lawyers, councils, architects, engineers, lawn mowing men, landscapers, electricians, kitchen designers..... Not to mention all the junk to fill a house - Mitre 10, Harvey Normans, etc....

A share by itself is not productive unless it is an IPO. If I buy a second hand share, the company has no more means to create a job than it did the day before.

I still firmly believe a house should be a home first, rather than an investment. But GM needs to see the bigger picture. A share in Harvey Normans does not create a job. A householder requiring a new Fridge, Oven, and Dishwasher does.

I am curious if GM's policy came into being if NZers would simply move from selling each other houses to selling each other NZX50 shares, with the attendant issues that causes. In which case, as you say, there would be no real growth simply a change in asset class.

I still firmly believe a house should be a home first
agree, and that is where we need to get back too, take all the incentives away from buying an existing house to rent
and leave them in place for new builds

True it would be well worth looking to invest in solid investments other than housing. One could look in to investment areas such as Science and Tech, though these can be very hit and miss. Or precious metals, though those markets can be very volatile. Then there's smaller investments such as Wine and Art, we have a huge advantage of being a very creative nation so would be worth investing in it.

It would be good to see a Kiwi version of this taking more of a global position: https://www.saatchiart.com/invest-in-art?utm_source=collectors_non_purch...

Welcome to the MMP 1% club Gareth

repeated sorry