IMF warns NZ on household debt levels, proposes better CGT, land tax; Says RBNZ should have DTI tool; NZ$ overvalued

IMF warns NZ on household debt levels, proposes better CGT, land tax; Says RBNZ should have DTI tool; NZ$ overvalued

New Zealand needs to target housing supply bottlenecks, redirect savings away from housing – with a better capital gains tax, increase research and development support, and further liberalise trade opportunities, according to the International Monetary Fund (IMF).

In town over the past couple of weeks for the fund’s latest review of the New Zealand economy, IMF officials in Wellington on Tuesday said the economy has a favourable outlook, given solid economic expansion in recent years.

However, housing-related macro-financial vulnerabilities are expected to increase in the near term, they said. “A root cause of these vulnerabilities is a demand-supply imbalance in the housing market, especially in Auckland, which has resulted in a house price boom and overvaluation, and high levels of household debt.”

Authorities have taken steps to enable more housing supply, they acknowledged. However, “even with these measures (which could be broadened) the resolution of demand-supply imbalances will take time, and vulnerabilities should be contained with macro-prudential policies in the meantime.”

They also warned that:

  • New Zealand household debt levels pose a risk to the economy, particularly if there were a large global economic shock,
  • The New Zealand dollar is “moderately” overvalued – perhaps by about 3%-4%,
  • The Reserve Bank needs to have a debt-to-income ratio tool in its macro-prudential regulation kit,
  • Bank balance sheet resilience should be strengthened and that New Zealand bank reliance on external funding should be addressed, although this is partly mitigated by offshore borrowing either being in NZD or fully hedged,
  • More efficient property taxation is required, for example a land tax.

Household debt of particular concern

New Zealand’s high household debt levels were of particular concern to the IMF officials, under a scenario that a large global economic shock hits. Figures out yesterday from the Reserve Bank of New Zealand showed household debt to disposable income rose to a record high of 168% in the latest quarter.

Potential shocks would most likely come from developments in “large economies,” they said. China is still at risk of a hard landing, due to medium term risks of high leverage in its financial sector, the officials said.

In relation to household debt, the IMF recommended the Reserve Bank is given a debt-to-income ratio tool for its macro-prudential kit. This would not need to be used now, the officials said, but it would signal a desire to stop growth in DTI ratios, and stabilise it – ratios needed to be more stable in five years time, they recommended.

New Zealanders also needed encouragement to stop investing in housing so much, relative to other asset classes, the IMF officials said.

While New Zealand does have a capital gains tax, they recommended extending the government’s bright line test out another few years. This would help “at the margins” to discourage so much housing investment they said.

How about a land tax?

More efficient property taxation was also recommended – for example the introduction of a land tax. Taxes like this should be considered to help fund investment in housing infrastructure, the IMF said. Without going into detail, the also suggested local council funding should be addressed and broadened from the current rates-led model.

Local council funding restrictions could be creating growth bottlenecks, they said.

“Measures, such as the Auckland Unitary Plan and the Housing Infrastructure Fund, should be complemented by a comprehensive reform of urban planning legislation and measures to support local infrastructure financing. The latter could include some central government funding (given wider agglomeration benefits, more efficient property taxation, and user charges,” the IMF said.

Other recommendations included:

  • Unexpected government revenue windfalls should be saved away.
  • Tax bracket creep should be addressed – and the government has the fiscal room to do so
  • Govt should consider implementing a deposit insurance regime, although IMF officials stressed they understood the RBNZ’s position that this can weaken self and market discipline and that NZ does have other options, including tweaking the existing open bank resolution regime.

Meanwhile, on the government’s proposal to raise the Superannuation age from 65 to 67 between 2037 and 2040, the IMF officials said the proposition dealt with a time frame slightly further out from where they had been assessing the economy.

The IMF in general has recommended governments push superannuation ages out in line with rising life expectancies, they said. “Most super plans are not sustainable in their current form.” It was good to manage changes in the Super age gradually and in a forward-looking manner, they said.

Productivity growth a concern; Unemployment near natural rate

New Zealand’s low productivity growth remained a concern, officials said. While there was no silver bullet, government had identified a number of areas to work on, they acknowledged. Encouraging innovation and interconnectedness should be a priority, they said. This could potentially be aided by New Zealand’s high net migration rates, they said.

Net migration levels were surprising, the IMF officials said, mirroring the Reserve Bank’s admission in February that growth was higher-than-expected. However, New Zealand’s strong fiscal position provided the room to accommodate the needs from strong population growth, they said.

The economy is reaching full capacity, with unemployment near its natural rate, the IMF said. Inflation meanwhile is expected to head back towards the Reserve Bank’s 2% target band mid-point.

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Or more succinctly - get off the fence and sort out this silly housing bubble, and while you're at it put in a deposit guarantee scheme to offer some protection for savers when she blows.

It is going to be very messy & RBNZ can take some credit.


You cannot spend unearned and / or unrealized income form the supposed windfall from the revaluation of your house .

Its just plain dumb , because this bubble will burst .

Yes you can

Re the NZ$ , we are to some extent a victim of our success , the NZ $ has been over-valued for too long , and it could get stronger because we have had really good YOY GDP growth , and we are likely one of very few OECD countries with a budget surplus and a good trade balance with China .

Its a sweet spot , BUT it makes us a fancy-pants safe haven currency for traders


Wrong. The interest rate differential makes the NZD a carry trade opportunity. The strength of NZD is only indirectly influenced by GDP, budget surplus, and trade balances with China. Case in point: the GFC when AUD and NZD sunk like stones more than any other currencies among developed countries. GDP, surplus / deficit, and trade balances had nothing to do with it.

I stand to be corrected , but I recall the Kiwi $ actually doing pretty well during the period bewteen 2008 and 2012

NZD has always done well when risk appetite is high since early 2000s, such as the period leading up the GFC and the post-GFC debt fest locally and globally. The interest rate differential still exists and is the key mechanism by which the value of NZD appreciates.

The kiwi is a risk-on currency & largely at the whims of international data. The carry trade plays a big part. GDP growth figures in NZ are entirely attributable to the strong immigration #'s - i.e. ZERO IMPROVEMENTS IN PRODUCTIVITY, largely due to poor policy - no R&D incentives etc.

National party response will be that it is a sign of confidence that people have about future that they are borrowing at this level. Sign of prosperity.

Think and vote - Election 6 months away.


Yes and make sure any children you have who can vote are encouraged to get up to speed with NZ politics and then actually vote.An increase in the number of 18-30 year olds voting could actually influence the results quite dramatically once they realise the affects of current policies on their futures.

Nothing surprising in there. One item is worth noting as it's contrarian with respect to kiwi investment strategy.

"New Zealanders also needed encouragement to stop investing in housing so much, relative to other asset classes, the IMF officials said."

They are just saying don't have all your eggs in one asset class.

the bright line test should have been 10 years with you having to prove it was your house of residence to be exempt.
that way long term investors and family homes are ok
there are so many holes with the current test you can drive a fleet of truck and trailers through it

Not when there is no CGT! People aren't going to invest in R&D for love. - needs a strong set of policies - Israel example.


Bring in dti. Professional investors probably expect it at some stage. Ponzi speculators will be....well get to experience the negative side of leverage.

Yes and because lots of them will be in interest only mortgages, they are exposed to dti WHENEVER that might be brought in! ie In 2yrs time, 5 yrs time etc.

The government is trapped on all directions.
1. Any direct intervention to ease off the demand side of the housing bubble such as capital gains tax, controlling immigration to control migrants and investors might crash the market prices considerably.
2. The supply side problems are plenty- land banking, lack of proper capital funding for construction activities, skill shortages, squeezed out construction margins etc.
3. Rents and debt coverage costs rising faster than income levels may hamper private consumption in the longer run. So the government may have to reduce infrastructure and welfare spending and divert those funds to an income tax cut.

Yes - unfortunately one of the downsides of a Ponzi is that the shakeout is a blast.

Once again poor ol Kiwis will have to relearn the painful effects of reverting to the mean.

Yes, a good time to scramble to take some risk off the table if not already done so...

A deposit insurance regime would undermine banks' "self and market discipline" less than the OBR. Depositors' insurance would protect the individual while the banks with less 'self discipline' would go to the wall, replaced by those that do. While the OBR just appropriates savers' assets to "keep the banks doors open" so giving banks a backstop and undermining 'self discipline'.

Why would a saver even care if the banks doors are open following "an event" when their money's been vaporised anyway?

this is a self defeating argument by the RB, they are arguing that with insurance banks will take on more risk, but is it not the RB that sets out the ratios of capital to make sure risks in certain classes are not over stretched.
we should have savers insurance up to a certain level, how it is implemented (clipped off interest) is a different conversation, maybe a choice for savers you can e.g two different rates depending if you take the insurance or not
after all banks used to require mortgage insurance (not sure now as haven't had a mortgage for 20 years)

I agree with you, except I believe the level of insurance needs to be 100%. Otherwise a run on bank funds will still occur which I imagine is an important reason for requiring the insurance in the first place.

The IMF is confusing who is being insured and by whom.

Under a depositor insurance regime, the saver is being insured by the Crown based on a premium paid by the saver. If the bank makes poor decisions, it still goes to the wall; but the saver gets her savings back (hopefully). Bank is still on the hook.

But under the Open Bank Resolution, the bank is insured by the Crown which uses the saver's savings as the insured sum, for no premium, with the sum insured being up to 100% depositors' funds. The bank gets free insurance so it can increase its risk tolerance. The Crown's perceived systemic risk of bank failure is lowered without cost to the Crown. The saver is told by the RB, "Well you would've lot your money anyway".

Innovation is going to keep killing jobs. Bit late for CG tax when the market has already blown a bubble. Tax just takes from those who work and value their money and gets wasted by government. Rates are already high, mine went up 1k this year alone, my accountant just wacked 2k on his account. All this non tradable inflation is going to lead to record unemployment.


It is crazy to me that there is not capita gains tax across the board for second properties as in other countries.
Introducing CGT would mean short term liquidity in market which would help banks and potential buyers with their current funding issues.
In the medium term it would stimulate more capital into business which is required.

Poor Bill English. Should take IMF advice; signal a capital gains tax on properties prior to the election.
Then he would have shot himself in both feet.
His call on superannuation - as well as a capital gains tax - are the right things but unfortunately political suicide.

Perhaps Bill's strapped the economic-change belt to his torso? I thought he was nuts to take the job ( for all sorts of reasons) but if he did because he knows that the only way to enact the change that so necessary is to 'get inside and pull the pin' then I'll understand his decision a lot better....

"NZ warned by IMF on household debt levels"

IMF knows I correct PM.

So many Kiwi and experts are shouting to take measure but am sure they too knows nothing

I am sure this IMF report will be ignored by all the major parties - a few things here neither Labour/Greens or National & Co want to discuss.


Looking more and more like John Key left the building because he realised the mess was becoming too bad and chickens might be coming home to roost.

You know it, I know it, everyone knows it except farmer Bill who is going to be left in the poo once again poor sod. Whether the shakeout occurs in Sept or further down the road is the only unknown.

Possum, headlights?


Don't know about you, but I will sure be grumpy if he appears on the next QB honours list (they might hold off till next New Year's list, so people go, "John Who?".

Now there's a thought. Sir John > 4th Term.

Perhaps Key calculated that his chances of a knighthood were greater should he bow out early - and make Bill naïvely grateful for the falling knife Bill's caught. The 4th term was a gamble and Key may have tanked his knighthood chances should the housing market collapse and National lose the coming election.

One in the Hand > Two in the Bush.

I suggest we rename the monument to the housing crisis - you know, the one on Queen's Wharf - the John Key House as a commemoration of his careful fostering of the housing crisis.

Not to mention the underlying theme of growing up in a state house before pulling the ladder up behind oneself.

I think one reason he shot through is that he went off in a huff that he didn't get associated with a new flag being cemented in place... A one off chance blown by the choice of the black flag option which was clearly worse than the red flag one.

Nah, this superannuation thing looks like the smoking gun to me

IMF have plenty to say on NZ debt,what have they been saying to GREECE,ITALY,CHINA,etc. and did they listen.
The USA trillions in debt what have they said to them.I know what Trump would say in reply and we should do the same.

I laugh at the childish chanting of these people in the IMF. They are saying we should have the same tax system as their own country like the UK. Trouble is the UK has a worse property inflation than NZ. They want our government to discourage investment in housing and redirect savings away from housing. Ok tell us what they consider a good industry to invest in. Do they not figure we are under invested in housing. That is why there is a shortage of housing. You can not create more houses unless you build them and that means you need to pay for them. Sure some people will arrange for a house to be built and not pay the builders. That is fraud. Those people get put in jail.

CGT is not a silver bullet. Nothing is in terms of housing. However, a comprehensive suite of demand and supply measures could collectively make a difference, including a CGT

The IMF is just another tool in America's imperial toolbox. They can be ignored.

this is an excellent piece on why Tony Alexander was so so wrong:

"Eyeballing the chart, it looks like Boomers – ie people born between 1950 and 1959 – had net negative savings rates throughout their 20s and 30s. They were borrowing more than they were spending. By comparison, people born between 1980 and 1989 – the unfairly-derided Millennials – appear to have saved upwards of 10% of their income in their mid-20s, in spite of the fact that many of them had to borrow to pay university fees."

"According to the CPI, the cost to buy housing has risen by an astonishing 350% since 1985. This outweighs price movements in just about any other CPI category"

They are really trying quite hard to sound like responsible grown ups. Presumably their current selection of fashionable ideas will turn out to be as useless as their previous efforts. These are the guys who didn't see the last crisis coming but managed to escape the public defrocking they deserved.

So the Govt encourages high immigration, open door access to foreign- related party house purchasing, high international student numbers, high tourism numbers, etc all designed to pump up house prices & capital inflows.
As a result, NZ citizens forced to take jumbo mortgages to buy their house.
Then IMF & Govt blame NZers for taking on big debt.
The assets and lifestyle and children's future in NZ is being given away by the Govt and globally-based organisations who have no regard for NZ, its people, or its values.
How can the NZ voter stop this?

"..designed to pump up house prices & capital inflows."

I don't think it is by design. It is just happening naturally. It would make sense for global corporations to not be specifically concerned about the character or values of a particular people. They would subscribe to the theory that values have no borders and are universal. In fact I think at my work there is a poster on the wall stating this.

Yet NZ students and under 30s are struggling with high housing costs, maybe its because they are too "lazy" to vote.

Application of the Divide and Conquer Rule - keep them divided

Divide and Rule (or Divide and Conquer, from Latin dīvide et īmpera) in politics is gaining and maintaining power by breaking up larger concentrations of power into pieces that individually have less power than the one implementing the strategy.

Are they too "lazy to vote"
Collectively the under 30 cohort could be heard loud and clear if they got out and voted

Noone made Auckland people get debted to the hilt to buy a house or Canterbury farmers do the same thing - it is risk & reward, high risk strategy can make these people very wealthy which I imagine is the motive, but it is a double edged sword... live within your means and you have nothing to worry about. Noone else is to blame.

Perhaps the only thing you need to worry about is the banks taking your savings if they've taken on too much risk too?

Not something you need to worry about if you save in silver... the global fractional reserve ponzi scheme does shake out from time to time... what is it called - creative destruction... be good to let the markets invisible hand dictate proceedings instead of a cartel of central bankers...

If you're bearish on the NZ banks, park some of your funds offshore - the kiwi is going to weaken a fair bit in the coming months - too many big negatives to the world economy which will dim risk appetite. Australia is a better bet with iron ore prices on the rebound.

Everyone wants to make money and so jump on the game of musical chairs making the music tempo ever greater, bound to end well.

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