In one of the responses posted on the TOP Party Tax Reform policy, you (or one of your team?) wrote: ''The centre of the unfairness in our income tax regime is owner-occupied property.''
I should like to point out that it's people owning more than one house which is kind of the issue: we all aspire to own a home that we don't have to rent (which shouldn't actually be unreasonable: it's nice to have stability and the security of not having your rent raised or the potential of evictions), and there are theoretically enough to go round.
However - to my understanding - the purchasing of additional properties, to do up and flick off for profit, is a major factor in the driving up of our house prices - not the ownership of family homes.
I reckon this policy has a strong potential to induce a disinclination among renters to actually own a home, as they'll in effect be renting it anyway even if they pay out 400k for the privilege of /not/ renting it - with the rates as well as this 'imputed rent' tax.
And I have to say, if I save up (while renting!) - perhaps using my kiwisaver savings, which have the quarterly returns taxed - and buy a house and pay my yearly rates, insurance, maintenance, and the mortgage (which all have tax components and are, with the exception of insurance, not things I face as a renter), and then also have to pay your tax (which is basically in place of the tax on the rent I'm no longer paying as a new home-owner), what point is there?
And if I do any maintenance myself am I liable to pay the tax that would have been paid had I hired a tradie to do it for me? Because as far as I can see, that's the direction this policy takes us in - not just tax on money that has been paid by tax on money that /would have/ been paid had I chosen the hiring/renting/service route instead of the owning/diy route.
I mean, I guess from the numbers you present and the snazzy graphs in the PDF that this policy would generate a significant amount of revenue for the theoretical TOP-led Government, but it seems to distribute the burden rather broadly and doesn't address the issues of speculation and the need for an actual comprehensive capital gains tax. And it'd be all very well to say it's a selfish point of view, but the fact is that it's a point of view probably shared by a lot of kiwis who'd like to step off the renter's cycle one day and settle down.
I don't believe it is fair to tax the hard working people who had initially struggled to purchase rental properties, with higher interest rates at that time and perhaps lower income. Yet sacrificing on luxury lifestyles, travelling etc and now coming to a stage where they see some sort of reward for all those hard work and sacrifice. Prime example is myself, who own rental property with hard work and sacrifice, and still we are not having a luxury lifestyle and travelling etc. We are still saving to pay the mortgage and once that is done, we will do more for the community than we are already doing now. It's never been easy to buy a home or rental property and maintain it and it's no different now. So, instead, focus on educating ppl on saving, compromising on life stye etc. And also, aim to increase wages/salaries as we are not getting enough pay as other countries are.
I think TOP does have the best proposal compared to other parties, but I have reservations.
The tax reform concept has a lot going for it in that it is difficult to evade, but I think it makes some overly simplistic and generalised assumptions about why people own homes.
I understand why it needs to include the family home. Rich people can sink vast amounts of wealth into an expensive home and enjoy it tax free if the family home is not included in tax assessment.
The trouble with the policy is that it assumes the motivation of all people to buy homes is investment.
Someone else (actually correcting a popular misconception about the policy that results in some people thinking it's worse than it is, ie many people don't seem to realise you ONLY pay the tax on the equity in your home, NOT the market value, so if you've just taken out a mortgage you won't actually pay a lot as the bank owns most of your home.), made a comment along the lines of how I'm thinking.
"Owning a home is not an investment, it's a basic human right." - Basically since the supply of caves stopped keeping up with demand, humans have been making themselves homes, and defending them as their own.
Even if it's mostly fair, I suspect there will be significant psychological barriers among most voters.
The assumption stated in the policy that people will naturally be rational overlooks a lot of human behaviour. Indeed there are many products and services on the market that depend on irrational behaviour of humans.
People are already conditioned to pay income tax, and it has dropped substantially over recent years, so even if dropping income tax still further while adding a new asset tax leaves many people better off, the psychology of a new tax may be enough to put many people off.
Not all homes are created equal, and someone who lives in a multi-million dollar mansion isn't merely satisfying their need for a roof over their head, but actually does have an investment, as they can sell up, realise any profits and downsize.
The same applies for anyone owning multiple homes.
For someone with a single, modest home who is the owner/occupier, they don't have that luxury. If other people have pushed the value of their home up through speculation, and they sell up, they'll make no gains, and possibly a loss through fees if they purchase elsewhere, yet they still end up being taxed for the excesses of other people's speculation.
If owner/occupiers are the major source of house price inflation, that suggests two possibilities. Either the population is increasing faster than the rate of house building and/or people are building increasingly lavish homes.
If it is the former, given that NZ's fertility rate is below replacement, then the source of population increase is from migration, and it's not fair to penalise New Zealanders for house price inflation driven by unsustainable immigration.
If it's the latter, it may be partially due to increasingly tough building standards and regulations that push the value of new homes higher.
The easy solution to this is to have the tax proposed, but to have a tax-free threshold on the family home tied to median incomes. This allows for not all homes being created equal, nor everyone's reason for owning a home necessarily being the same. The stated goal of the tax is to reduce the price of houses relative to incomes, and this would still provide a good incentive for this. If median incomes rise relative to house prices people can have more expensive houses without paying tax. People can get some or all of their home tax free, but only if they're affordable for a good part of the population.
That's likely to appeal to people's psychology. People have an aversion to tax, so if you impose a new tax, but also provide them with a way to avoid it that will only work if society gets fairer so that more people can afford homes, then you still achieve a positive outcome, and people are more likely to buy into it.
With regard to multinationals, I've seen some people suggest a financial transactions tax, and I think Gareth has said international agreement is required for this. I don't quite understand why this is the case, as banks already charge a form of financial transaction 'tax' (actually a bank fee) on international credit card transactions. If banks are capable of identifying international transactions and charging a fee on them, why is it not possible for them to collect a fee on behalf of the government? Thousands of New Zealand businesses are obliged to collect tax on behalf of the government in the form of GST, but financial services are exempt. To be fair, why can't banks do their bit to help collect tax too, especially where their systems would be helpful, such as purchases or money transferred offshore?
There may be other ways of dealing with the likes of Google and Facebook, but at the end of the day there has to be some concrete action on ensuring they pay their fair share of tax, as telling people you're going to tax equity in their family home while the government itself spends a good deal of taxpayers' money on advertising on Facebook and Google which goes offshore is hardly going to be seen as fair.
I agree that people who buy property beyond the primary residence should be taxed on that. Also, there is currently inequality in that a person is taxed at the same rate regardless of how many dependents they support. The idea of income tax is that you should pay at the level you can afford, adjusting for the number of people being supported by the income earner would be fairer.
The ToP tax proposal assumes that living in a house I own with no mortgage is unfair compared to renters? Really? I paid for it with funds on which I have already paid income tax, I continue to pay rates ( already an "asset" tax), and must pay for continued maintenance (something a renter does not have to worry about). I am retired with fixed "income." Changing to your new tax scheme does not work out to a zero sum game; I won't make up for the asset tax with a reduction in income tax. If you want to capture tax from the upper crust, I suggest you institute a capital gains tax (tax the gain when realised), excluding the first $500,000 gain on a primary residence. If that still won't pay for an income tax reduction, then try an estate tax (with a $1million exclusion); that should focus the tax burden where it won't hurt the common folk.
What you're proposing is basically the same as rates. We pay rates to live in our property, which is a tax that renters are not paying directly. So its already a level playing field.
Apparently I'm in the 20% of people who can afford to pay an extra tax. Well I'm living on $1,000 a month with no income. Even reducing my tax rate to zero isn't going to give me the extra cash to pay the tax. So fair seems to be a relative term.
The family home should like guaranteed income be protected. The though of retirees paying tax on their home doesn't sit well. But the policy ignores the impact of the pro cyclical creation of debt based money by banks ( they are not merely intermediaries between savers and lenders ) when they lend on residential property, to surging house prices speculation and high private debt. We should be talking about banks, private debt and money creation - when should it be created, for what purpose, and who should benefit.
I think you have forgotten that a lot
of people have their own home at great personal expense. There are emotions there that are not attached to rental properties . I would resent greatly paying any tax on my home . As such would never vote for this . Other tax reforms make sense. So stick with those .
dislike the tax on 'on paper' income from simply owning a property as the gains are not realised until the property is sold at whatever value the market deems it to be worth at the time.
I think there should be no capital gains tax on your main property whether you live in it or if you purchased an investment as your first home. but if you purchase more than 1 home, then tax the additional properties on their rental income and their capital gains at time of sale.
Also need more focus on helping first home buyers to buy, the LVR disadvantages those who do not have current equity.
Special housing areas need to be sold exclusively to first home buyers (FHB) so there is no competition from investors or offshore buyers.
Owning a property is a valuable tool in funding one's retirement, we are constantly reminded that we cant rely on a pension when we retire, and property is a stable investment, I think home ownership should be encouraged. Financial independance from govt in retirement means less pressure on govt / welfare services, and it's more dignified for the individual to have their own income and not be collecting welfare.
Shelter is a basic human right and should not be taxed , Most people have worked hard to be able to afford their homes and should not be penalised by another tax. I don't see how this would make houses more affordable. Tax the investors by all means!
If you own your own property, how can you pay tax on it? It is an unrealised gain. If you sell it within 5 years and make a profit in excess of any costs to renovate the property, then that should be taxed. In many areas of New Zealand we have people who own their own home, and through no fault of their own, their house prices have increased dramatically. Many of these people are already living on the breadline, and you propose to tax them for the unrealised gain in their houses price? OK, so you try to squeeze money out of these people, who don't have any money to start with, but have an expensive property. What happens when the prices go down? Can they get a refund? It's a stupid policy and will not hit speculators very hard at all. A capital gains tax will hit property investors in the pocket. I will not vote for you, if you continue with this absolutely stupid policy!
I don't think taxing people for utilization of private assets (living in their family home) is reasonable because;
1) Where do you draw the line on productive assets? Should we also tax everyone for owning a car (some cars are worth than a house), for owning a bicycle, for owning a sewing machine, for owning a fishing rod? All these are productive assets, providing us with value that we don't have to otherwise pay someone else to obtain. Why are some "productive assets" treated differently than others for the sake of being an asset. The real point is income or profit derived at some point in the life of the asset being subject to taxation. Owning property for the purpose of deriving profitable income - tax it. Buying an selling property with the intent of deriving profitable income - tax it. Selling a car/bike for more than paid for it - in a perfect world, tax it. Deriving profitable income by selling clothes made using your sewing machine - tax it. Deriving profitable income from selling the fish you catch with your fishing rod - tax it.
2) If the house you live in is to be taxed, it should be tax at one flat rate no matter what the value of the property is. If I live in a $70,000 house in Wairoa or a $3,000,000 house in Auckland, I am deriving the exact same utility from this asset - shelter. The only fair way to tax this would be to tax both scenarios the same.
3) A tax based on the capital represented by owning a property is not fair in this situation. Jane purchased her home in 1987 for $75,000. Jane has lived in this home for the past 30 years. Her home now has a RV of $1.5M. Over the 30 year period, Jane's wages have increased inline with the average wage. Jane has a modest amount of savings and makes enough money each week to pay for her living costs with a small buffer. Apparently according to the TOP party, Jane has $1.5M of capital that she is has not deployed efficiently, is avoiding paying tax on, and will now by taxed by the government. Jane is unhappy, because she doesn't feel like a millionaire, she feels the same as all the other middle class people she calls her friends. The problem here is for Jane to realize the $1.5M asset she has, would require her to sell her house. Jane doesn't want to sell her house, she just wants to live in it.
FWIW - I am 36, live in Auckland, and do not own property. Although it is really hard to get over the line to property ownership, I am close and will get there this year. While the current system is broken, I don't believe this solution is the answer.
In addition, as a business owner who employs 20 staff, the thing that pisses me off, is people who buy, sell, and rent property for the intention of deriving profitable income, but are not subject to tax. Gareth, please do something to tax profitable income from all sources, not the utilization of of assets.
We worked our arses off to buy a house, and forewent luxuries to do it. No Sky TV, smartphone, or lattes in this house. The reasons for the skyrocketing cost of housing are obvious but you don't attack them. Where are your statements on the well meaning but useless red tape hindering the trades, on the ridiculous zoning laws, on the lack of competition in building supplies, and on the impact of the RMA and associated appeals process on land price inflation and cost of housing? Over a million New Zealanders choose to live overseas, and your policy risks increasing that number.
my home isn't an investment. i cannot sell a bit of the fence, the letterbox and a bedroom. i'm not living under a rock in a ditch to please your tax grabbing. house prices are caused by cheap money, rotten money that needs laundering, council regs and land idiocy, and builders cartels, none of which was created by me yet you want me to take the hit. capital losses might break the tax system if a "fair" system allows refunds. a those losses could be easily manipulated by those in the know. address the underlying causes and don't attack the easy, vulnerable owner/occupier
Your current tax proposal is not workable. I'm all for taxing capital gains but taxing my home? That's simply silly and unworkable. I would have to be able to claim any interest on loans and any upkeep and what rate would you tax 'this pretend' income at? What income am I making? Whereas, if an investor buys a house and sells it 4 years later for 100% profit he doesn't pay ANY tax on the 400k he just made? Whereas, if the house I own's value goes up by 400% I'm now going to be paying more tax. Completely mental.
I understand the need to drive investment out of property and into other areas of the economy to grow jobs and wages through smarter investments. I understand what this policy could achieve, but at it's simplest this targets one of the fundamental dreams of most Kiwis - to own a home. For this reason I see a lot of people being turned off by the policy, which is a shame. There are a lot of people out there who own homes and have no idea where their money would be better invested. You can't tax peoples asset/home and not provide them with a better option, they'll end up just spending their money on other junk rather than saving/investing or creating any other wealth at all.
I think a more realistic goal would be to leave the home and batch out of it - at least for now. While a lot of people don't have either, there are a substantial amount of people who do - and it's not just the rich and wealthy that have two properties. I think a better idea would be to tax those who go past this, the speculators, developers and landlords. More than two residential properties enables people to still strive for that Kiwi dream, but discourages people going past this, driving prices up.
Tighter controls over who can buy property would also help. Obviously residents and citizens have that right, but I think we can come up with a smarter way to determine which foreigners are eligible. Perhaps it's a combination of how much tax they pay here as well as "areas of national significance". This could be determined by the demand in particular areas, which could be offset by building a new dwelling (not rebuilding/renovating)?
People who are actively investing in property as a primary means to create wealth are the people we don't want buying property. They are the ones looking for the opportunity, we should discourage them from looking at property and expose them to other avenues to grow their wealth. We shouldn't be trying to stop John and Fiona from Otorohanga who work as a Shepherd and at the local PaperPlus respectively, from buying their own home to raise a family in. Not now anyway. The vast majority of people need to be educated about this over time, not told they're doing the wrong thing and scorned for not caring enough about other people.
I like the idea in principle, but a longer term view should be taken. Softly, softly. We want to teach people to fish first, then get out of their way and watch them catch their fill. Otherwise this will never get off the ground unfortunately.
Yeah, I get the overwhelming vibe of "leave the family home out of it". This is quite understandable. It takes away the feeling of security that is supposedly the large point of owning a home. The real problem behaviour with property is the speculating and 'flicking' behaviour. The 'buy it for $1m now, sell it a month later for $1.5m" scourge that has overwhelmed the market (and human decency) as of late. THAT is what we should be focused on: people, especially non-residents, using desperately-needed houses - that basic human right - as fuel for a high-income lifestyle. Force overseas residents to build new houses, prohibit from buying existing stock - it seems only rich people are allowed into NZ anyway, so get our money's worth out of them.
Also, tax high incomes properly - I can't believe that tax brackets end after $70K. Not to mention NZ's status as a financial (and increasingly ACTUAL) hideaway for shady businesses and white-collar types. John Key was not prepared to address this stuff, I get the impression that Gareth Morgan would be more forceful on the topic and honest to kiwis about it. This would all go against status quo politics, which is about letting Big Biz put you over a barrel, but that's why I feel we need someone like GM to do it. Just leave the family home alone!
Targeting an asset tax at only one sector of the community - those who have bought their own home - is not fair. I would remove the tax-deductability of fees for overseas intellectual property and services from companies not domiciled in NZ (e.g Starbucks, Apple, Facebook). That's how they manage to pay less than their fair share of tax in NZ.