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.
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