The IMF is calling on the Tax Working Group to introduce a land taxes in a bid to help give the Government’s KiwiBuild project a leg up

The International Monetary Fund (IMF) says the Government should consider implementing a land taxes to help make sure KiwiBuild does not crowd out private housing developers.   

The Fund is lobbying the Tax Working Group (TWG) directly, saying raising the tax “would increase the recurrent cost of holding land, thereby encouraging its re-development.”

On Wednesday, the IMF released its 2018 Article IV Consultation – a yearly discussion and assessment on a country’s economy – for New Zealand.

The full report comes after IMF Asia and Pacific Division Chief Thomas Helbling and his team completed a fact-finding mission earlier this year.

Although much of the report did not stray from Helbling’s assessment at the time, its comments on the land tax are new.

The report says KiwiBuild can provide the certainty needed to redirect builders’ incentives toward lower-priced housing and adopt new, more cost-effective building technology.

“[But] the direct market intervention by the Government also comes with risks to the budget and risks of crowding out private housing supply and market distortions more broadly.”

Raising land taxes, the IMF says, will help the Government meet its KiwiBuild goal.

Calls for New Zealand to adopt a land tax are not new and have come from the likes of the OECD and the Productivity Commission before.

In fact, a Tax Working Group in 2010 said it would be one of the best ways to help improve housing affordability because it would reduce the value of land.

Finance Minister Grant Robertson has already told the TWG a land tax, on family land under the family home, was off limits.

But beyond that, there is scope, according to TWG Chair Michael Cullen who referred to a land tax in a discussion document in March.

“How would … a land tax (excluding the land under the family home) affect housing affordability, and would these taxes improve the current system for capital income taxation?” the paper asked.

Cullen outlined that both land taxes and a capital gains tax would be among the most “contentious issues” the group would have work through.

No further debt

The IMF also says Government debt does not need to go any lower than has already been forecast.

“While the authorities’ prudent fiscal management is commendable, there is, at a minimum, no need for faster debt reduction beyond that outlined in the FY2018/19 Budget.”

The Budget showed net Core Crown debt decreasing to 19.2% by 2022 – well below the Government’s 20% upper debt limit.

The report says instead of not taking on as much debt, the Government should further focus on rebuilding infrastructure.

“According to analysis published by the Global Infrastructure Hub, New Zealand is facing an annual shortfall of almost 0.3% of GDP on infrastructure investment in transportation, telecommunications, electricity and water services.”

This will, according to the report, translate into a cumulative gap of 9.5% of GDP by 2040.

The IMF also appears to be lobbying for the Reserve Bank to receive more funding from the Government.

It doubles down on its assessment that there was an “urgent need” for a debt-to-income (DTI) limit to be added to the Reserve Bank’s macro-prudential toolbox, as well as a beefing up of the supervisory pillar of the bank’s approach to regulation.

“Related reforms should be prioritised in the deliberations, implementation, and addition of resources,” the report says.

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

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

56 Comments

I can understand the comment about transportation, electricity and water infrastructure spending. i don't understand why they have commented on telecommunications given UFB roll out is mostly done and should be effectively finished by next year, and that we have considerable mobile and wireless coverage.

Did they just lump everything into a category or did they raise a legitimate issue?

up
15

What is the point of a land tax that excludes the family home? Who are these people? The primary argument for a land tax is it that applies to all land and is thus fair. Once you start exempting the family home, government land, council land and iwi land and any other Most Favoured Special Interest you completely mess it up. If applied to all land at a low level it appears to have merit as it encourages more productive land use, which is presumably a good thing, but only up to a point. You can easily have too much efficiency and the quality of life goes down.

While they are at it why not completely change local government funding to this system, raised nationally and distributed on a per capita basis to each council. I think the Swiss do some such thing and it works brilliantly, with each canton competing to attract residents.

up
14

It has to be all or nothing.

The exclusions get silly:
• what about the family home - ok we’ll exclude that
• what about the holiday home - ok we’ll exclude that
• what about the first rental property - ok we’ll exclude that.

Suddenly nobody is being taxed.

The point is to lower income tax. The more we raise through a land tax the more we lower income tax. We can tinker with the details to ensure people on low incomes who own a house (or have the cost passed on through rent) aren’t disadvantaged.

"The point is to lower income tax."

That will never happen, and it all comes down to responsibility.

While administratively heavy, the individual paying isn't responsible for the physical payment. Rather the Employers do the legwork, and take it before the employee has a chance to miss it. GST works well in this way too.

The individual never has to hand over any money/set it aside, and the tax is never "more" than they can afford as it is a percentage of income, or hidden within the overall cost of the good (Which they can opt not to buy)

Where you have taxation issues is when you are reliant on people to bear the responsibility of payment. Land taxes have been raised throughout history, but often end in some sort rebellion. As invariably they end up being more than an individual can afford. Just look at the contention around rates, now apply that at National level.

Or for a realistic situation, imagine the 6 o'clock news....

Here we have poor old Ethel, who through no fault of her own, lives in a ridiculously expensive house in Central Auckland. The 99 year old's dearly departed husband bought it to be the family home back in the day. Cue Ethel sobbing on tv about being made to pay an extortionate amount, and/or having to sell her family home she has lived in for the last 70 years.

Now to really add fuel to the fire. The next item on the news would be the big Govt announcement about the $x million "Invested" in the latest "professional" sport fixture where "athletes" gallivant around the world in a yacht

Even a completely "non-political" baby, couldn't spin their way out of that.

The elderly unable to pay get the tax rolled up and collected on death from the estate. Land tax or inheritance tax, either way is fine by me.

Inheritance tax - with a govt funded healthcare system.

A cynical person would point out the massive conflict of interest in that one.

Okay they bring in a land tax. What will they find to tax next week the Air that you breathe!!!
The whole tax system is a mess. GST was supposed to correct things. Yeah Right. No more taxes please

Excellent point Mr Noncents. You don't miss what you never had. Like our income tax cut, no protests in the street whatsoever. There probably will be protests about the petrol tax though, when petrol prices start rising and people get grumpy. Very cunning point indeed. I guess it's why we use the mega cyber spy corporations like Google and Facebook, too. Food for thought there, even, perhaps, a cunning plan, maybe.

Roger
You are absolutely right
Property &/or Land transfer tax must be universally applied with no exceptions.
The purpose is obvious when you see the Auckland Super City debt of over $5Billion and rising
How this extreme debt & its servicing restricts infrastructure investment in and around the city.
Imagine all those 1.5% transfer taxes the city would have collected from all those foreigners who speculated
in Aucklands home market for years tax free.
Property transfer tax long overdue
Also capital gains on all investment property (excluding the family home up to $1million)
There’s my policy & it works elsewhere

Okay , so I pay 33% income tax at the margin , 15 % GST , ACC levies , FBT , 30% tax on my business , Dividend withholding Tax , 30% tax on interest income , $7,000 a year to Auckland council in Rates and taxes , Road user charges , Fuel taxes .................. the list is endless

I am spinning from all of this , and we dont even have a mortgage

And according to the Stats on income distribution we are in the top 5% of household income , so how the other 95% manage I have no idea

They are probably better at math than you. You do not pay 33% income tax. Nobody ever said right w(h)ingers were smart.

Not so hasty Pragmatist, Boatman could be taking in a salary of about $30,000,000, at which point his tax rate would be as close to 33% as makes no difference...

Not so hasty Pragmatist, Boatman could be taking in a salary of about $30,000,000, at which point his tax rate would be as close to 33% as makes no difference...

Boatman
You don’t know how lucky you are
It is the high cost of Auckland housing that’s the problem
NZ has a high minimum wage & a decent standard of living compared with elsewhere
If I were back in Auckland I’d be making a fortune but life’s short you have to move on opportunities
If you aren’t happy with your earnings in NZ then go live in Australia

"Family home" is a loaded, emotive term that should be irrelevant.

A family having thier own property to live in, is not emotive.
It is commonsense.
Providing a home for your children is not irrelevant.

It should be irrelevant to the tax system. My salary is a "family salary" - should it be tax exempt? Family car? Family boat?

It's just a word stuck in front of something to make it sacrosanct and untaxable - that's the part that doesn't make sense.

Very well said

It should be irrelevant to the tax system. My salary is a "family salary" - should it be tax exempt? Family car? Family boat?

It's just a word stuck in front of something to make it sacrosanct and untaxable - that's the part that doesn't make sense.

Agree - Out goes farms on the family house grounds.

Very soon there is little left and the whole exercise becomes a wasted space.

Falling house prices is a scenario that they ned to address. Losses offset against future gains, other current income ?

A nightmare to administer.

A low level land tax with NO exemptions is so easy to implement - another line on the council rates bill.

Of course the trade-off is a reduction in personal rates to avoid higher tax collections as pollies are prone to to fund their next whim read rail to the airport.

Great article in this weeks Economist showing falling public transit utilisation in many cities which we need to heed. We need to build tomorrow's transport network - not yesterdays - as if innovation had ceased to exist - yet this is a market making huge strides in many forms of public transport.

How can the col resist, go for it

Very sensible recommendations from the IMF. Therefore, I suspect, they will be quickly ignored by the Government.

Like

I’m so for this but it’s not going to happen.

Hi guys, the link to the IMFs Article IV Consultation in the third paragraph appears to point to a file on Alex Tarrant's C: drive...

That is amusing! I've been wondering as to whether Jason Walls is a nom de plume for Alex...

Directors concurred that the ambitious housing policy agenda centered on strengthening supply and lowering tax distortions will help to restore broad-based housing affordability. They emphasized that the success of the agenda will depend on well-coordinated progress of the KiwiBuild program and the Urban Growth Agenda across the public sector. Many Directors noted the proposed ban of residential real estate purchases by nonresidents, which is assessed as a capital flow management measure under the Fund’s Institutional View, and encouraged the authorities to reconsider the measure. They considered that this measure would be unlikely to improve housing affordability, while the broad housing policy agenda, if fully implemented, would likely address most of the potential problems associated with foreign buyers on a non-discriminatory basis. A number of Directors, however, saw merit in taking into account the social and political economy considerations in the assessment, or did not think that the proposed ban would have a material impact on the balance of payments.

Interesting views on foreign buyers ban and property taxation from the IMF, emphasis mine.

So the IMF doesn't think a credit fueled asset bubble can can be abated by controlling credit. Just brilliant!

They are imperialists at heart. They fervently believe they should make the rules that others should obey.

At last. Something on the ' demand side ' that would make a difference.

They're just admitting that real growth is over.

So now they're mopping up. The third world has been sponged (or is that expunged?), the lower end was bled in '08, now it's the middle class.

To need to force activity, while claiming that market forces work without needing to force. Farcical.

Always said this rot would move it's way up the food chain, it's like a form of cannibalism

They would have to charge this land tax on every home and couldn’t exempt the family home.
If they brought in this tax then they will be gone from the political scene forever, as the CGT was not popular and that is why it was removed from their policies before the election.
This Labour led govt. are so out of their depth it is ridiculous.
How are people who are on low income but own a house going to afford to pay another tax??
It wont be happening as they are GONE!!!!!

Although a land-tax on it's own isn't ideal, in combination with a reduction in income tax it could have huge benefits for improving productivity.

... yes , that is the nub of the matter ... and often overlooked .... that the land-tax is designed to allow company and income tax cuts ... to shift the balance from overtaxing productive activity , as we currently do ... and to take a chunk out of the idle speculators , sitting on fat piles of untaxed capital gains from their land banking and dairy farms ...

Clear the way MF time to take speculators out of residential housing for now.

The mere fact that this Marxist policy is being touted by an organisation headed by a corrupt socialist should ring alarm bells. The IMF has been behind countless failures in many countries over the decades and has no credibility and a garbage track record. The scary part is that all this socialist claptrap seems to be in fashion these days. The alcoholics are now in control of the bar and it's free drinks all round!! Get into the trough before it dries up! Then they won't be talking about land taxes, it will be simple confiscation.

Actually, I suggest that the IMF have been everywhere on behalf of the US and/or big business (which until recently was the same thing). Loans if neoliberal policies are followed - which means selling the family silver at cut-rate prices to the circling vultures, who then charge you to help them help themselves.

https://inthesetimes.com/issue/24/12/moberg2412.html

I agree with the sentiment and I’m surprised more people aren’t up in arms about it. For me, this comes down to control - we know better than you so we will force you through monetary measures to do what we want with your property. If land tax goes ahead it could easily slide into the end of private property (some may argue rates already do that). Just another form of government taking more control and having the means to affect your decisions through compulsion.

LVT is too politically contentious -it will not happen. But an unimproved value rate on an urban growth corridor within walking distance of rapid transit services would be politically viable and could help pay for the needed infrastructure.

Unimproved value rates is essentially a localised version of LVT's -where the land is taxed but not the construction on the land.

This is what I argued for in my paper -'Why tax house building in a housing crisis.'
https://medium.com/land-buildings-identity-and-values/why-tax-house-buil...

Ideally the government would partner up with private providers to do the master planned housing projects, the lower cost housing prefabrication factories and to provide rapid transit and other trunk infrastructure.

I explain how this model could work for Christchurch here. But the same model could work for any growing/changing city in NZ.
https://medium.com/land-buildings-identity-and-values/ending-christchurc...

I believe the various announcements Cabinet Ministers such as Grant Roberton, Phil Twyford and Shane Jones have made in this space indicate this is the governments thinking on how to improve urban performance for NZ.

Yeah, that's my thought as well but I think it could be implemented without the need for central government involvement or law change, via a targeted rate under existing LG Rating Act provisions. See my below post.

Oh for goodness sake , not another tax being dreamt up ...........what is it with this unhealthy fascination with taxation since October 2017 ?

Are we going to be taxed until this Government runs out of our money to spend ?

When the goose has been consumed and there is nothing left ...........What then ?

Its all we hear about , either a new tax , a new levy , a new duty , or a new tarriff not to mention all manner of extras we will pay for on our city rates account ( now its a refuse fee to biodegradable food of $70 , plus additional waste-water fees )

We will all have to go and work in Aussie if we really want to get ahead in life

Why do you appear to be blaming the Government for an IMF suggestion?

Reflex. He hates democracy, and rants. *shrug*

This is all part of the great project to bring equality to the world. Unfortunately dear readers this means taking wealth from you and giving it to perfect strangers.Mass immigration plus wealth redistribution can only mean one thing to the average New Zealander, a poorer future.

Like people earning a wage and giving it to their landlord in Te Atatu South you mean? Or is that wealth distribution all good?

People don't give money to a landlord for nothing, they get a roof over their head, one of the most basic needs

Wrong Yvil. If they were allowed to own the house themselves, the tenants would still have a roof over their heads.

Theirs.

Well said Zach

Agree! Why are so many people so blindly willingly and happy to hand over even more tax???

If incentivising under-utilised/undeveloped land holders (i.e., increasing the cost of holding) is the intention of a land tax, then local government already has the ability to introduce such a tax via a targeted rate.

What you do is determine an acceptable ratio of Improvement Value to Capital Value, and if a residential zoned land title breaches that minimum, a targeted rate kicks in. Such a targeted rate would catch all vacant residential sections, as well as all low end properties (i.e., 'dumps') sitting on high priced land.

One doesn't then need to make any exceptions and importantly, rural and/or rural residential land is not covered - only residential zoned land.

This Reteurs article suggests IMF believe Government are making problems for themselves.....

https://www.odt.co.nz/business/nz-urged-reconsider-foreign-buyers-ban

I've encountered these types of international, 'superiority complex', neo-liberal types plenty of times in my career.
I really tire of them

Land Tax! we paid our tax when we earn't the money to buy our land.
Now successive governments have enlarged our population with immigration and want us to sponcer these immigrants with more tax money.
What a surprise that is? Didn't the immigrants bring roads, hospitals, schools and infrastructure and houses with them when they shifted to NZ? And we have still left the door open with an inward flow of 68,000 this last 12 months.
I have no interest in paying more tax to build infrastructure for population growth. Perhaps immigrants need to pay the govt $250,000 to be alegable to live here. Let them pay for the infrastructure they need. I don't want to pay for it.!

you are in a Ponzi.
we need more players.

If the IMF is so smart , I wonder how they are going to explain to ordinary Kiwis how a land TAX will make housing "more affordable " ?