This is not a housing capital gains tax, if it was it would be simple to understand, debate, and structure. Many countries have capital gains taxes - we would have plenty of experiences to evaluate the effect of the tax.
Instead, it's a new tax - a tax based on the perceived "risk free rate of return" that you could get for your money that you've spend because you are considered not a "productive investor" because you've built / bought a house. This tax will be applied even if your house value does not go up.
I'm surprised that this idea got past the beer and pretzels stage.
Firstly, the levels stated (6%?) are not real currently. The "risk free rate of return" currently in NZ is about 2% (Government bonds) not 6% - so income achieved through this tax is about 1/3rd of the proposal and will not balance the books for income tax relief.
Secondly, it seems to attack on of NZ's basic wants - which is to own your own house. There are many people who own one house - who are cash poor - and cannot pay this proposed tax. The ideas of reverse mortgages and deferred tax bills of hundreds of thousands of dollars are sure to cause issues in retirement and when moving to aged care / nursing homes.
If the tax was proposed on secondary houses, as well as all investment and rental properties then there would be acceptance that these properties are set-up for income, and rentals should be aimed at a level that does provide a return. In this case negative gearing using interest would become a foolish practice .. and the policy would make sense.
However, as it stands it seems to me that the proposal is far too wide ranging - and far too disruptive - to the New Zealand psyche to have any chance of acceptance or success. Start the scope with investment properties / rental properties / secondary homes and you have a chance to prove the worth of the scheme is a far less threatening way.
A "Rate of Return" tax on all properties? No way.
I can see several issues with Gareth's proposed tax on real property: accurate assessment of the value of the property- who decides?; accruing a tax burden even when economic conditions prevent having liquid cash to pay on any given year; how to handle a deflated housing market with value actually decreasing. Instead, a fairer regime would be a capital gains tax- pay a tax on the realised gain of property (or stocks or art work) when sold. You have the money for the tax, you know before hand what that will be, and a capital loss (or no gain) doesn't attract any tax burden. Maybe even give a credit for capital loss to offset future gains elsewhere? Fair is fair.
Like typical bean counters, you're obsessing over minutiae and getting carried away with theory. There is no such thing as 'fair". How to give everyone a chance however is to educate and provide employment. Do that by building infrastructure, it has been sorely neglected these last three decades, and obtain full employment that way. Employment = saving = home ownership = food on the table = children well schooled = build more infrastructure. And unleash NZ's mining potential, there are limitless resources being ignored (NZ is essentially made of coal and limestone). Then tax very little, scale government small, only essential services, defence (2% of GDP), health scale away from large hospitals and into day clinics in the suburbs, educate by getting the teachers to stay in the classroom (incentives currently are to get out of the classroom) and make lessons practical, the rest only the essentials, end the Nanny state.
How soon we forget our history.
Pakeha history: New Zealand was colonised by Anglo Saxons and Celts - very few Norman gentry showed up on these shores. With little more than the shirts on their back, these migrants left a land where they were tenants and debtors to find a new land where they could be their own free men and women. Owning a piece of land freehold, building one's home on it, and living as free peoples was most important to those founding families and it remains so today.
Maori history: In 1840, when staking those claims to land became messy because Maori already were there and tikanga was clashing with British land-law, a treaty was signed in which the Queen guaranteed the full, exclusive and undisturbed possession of local leaders and their extended families to their land, estates and other properties. Subject matter: undisturbed possession of land & estates. How clear can it be?
So whether you are of British descent or Maori, or you came here from somewhere else, land and estate (home) is sacrosanct.
Back in 2001, Rob McLoud chaired the government's Tax Review where he recommended that people who owned homes without debt should be taxed. The theory was that if they borrow money from the bank, they are not tying up capital that could otherwise be flowing through the economy. Of course another interpretation on could be that this is another subsidy for the banking system. It failed to gain political support.
In short, Mr. Morgan, land and estates in NZ are not a plaything for the politicians. Leave them alone. To be clear, I am talking about the family home, family business and family farm, not speculation and land banking.
Taxation is a very ineffective tool for social and economic engineering. It is strange that a man like Gareth Morgan does not see that what his son Sam Morgan did in creating a whole new private sector market called TradeMe, was far more effective than tinkering with taxes. For the ordinary person, not the rich, TradeMe created huge cash flow as personal property in people’s sheds and closets became items for sale – one person’s trash was another’s treasure and a lot of new small businesses arose when those amateurs realised that TradeMe gave them a national audience without needing a storefront.
Mr. Morgan, if you are worried about the way this country is going, then focus on how to create new employment and small businesses, especially now that broadband is finally vanquishing the tyranny of distance.
If you want to create opportunity, then create opportunity instead of tinkering with taxes.
If you want to create opportunity in a nation of small businesses, take back NZ Post and drop international shipping rates to lower than what Chinese companies apparently pay to send stuff here. Create simple conditions so that Kiwi businesses can sell domestic products online and ship to the world for competitive prices.
Subsidise air and sea freight charges. If you don’t understand this, go to DLH and look what it costs to ship a 31.5 kg package up to 1.2 x .6 x .6 cm from Germany to NZ? (€126). Then look what it costs to send the same box from NZ back to Germany (over $3,000). Why? Because Deutsche Post bought DHL and tilted the playing field so their small businesses (that use the post office) will export more.
Ditto Air New Zealand. Drop international airfares for business travel to next to nothing... for business people who hold APEC cards taking business trips, not overseas holidays that add to the negative balance of trade.
Make NZ a nation of entrepreneurs who sell to the world because their government does everything it can to help them succeed. We as a people are smart as entrepreneurs, but our government business ethos is not so smart.
Want more policies to consider Mr. Morgan?
Nationalise the fibre-optic broadband network and ensure that every business gets what in the US is called Google Fiber - 1 TB speeds - and make it free for all NZ businesses with no caps. Encourage 30 printing industries and the internet of things.
Boost Kiwibank small business lending and employ talented business advisors so that loans come with real expertise and connections. Then put in place very strong laws to end the duopolies and the wink-wink businesses that think they are smart raising the price of everything in search of the maximum price the market will bear. There are times I despair for the businesses that seem to think it’s smart to charge their domestic customers more than their international ones. We're eating our children.
Mr. Morgan, you named your party The Opportunities Party, but your first policy is not about opportunities but rejigging the tax system. You write "All productive assets - and that includes the house that provides you with your accommodation each year - are or can produce income each and every year.” Next you will be saying that if I grow food in my garden I should pay tax before I eat it. If I heat my home with solar panels, I should pay tax for the free energy from the sun.
Your view of what it is to be human is distorted. A house is not a productive asset, it is someone’s home. My house does not provide me accommodation, it is my home. I recommend you look up the word “accommodation” before equating it to “home”.
On your web site you write “home-owners benefit while those that are renting are punished." So your solution is to punish home-owners.
Let me suggest a different approach. Press for 99% home ownership in NZ. Make it easier and cheaper to buy a home than to rent one. Make the government the guarantor of all mortgages, and if someone gets into trouble because they lost their job, bring in WINZ to get them a temporary job so they can make their payments. Make them mortgages that are cleared at age 65, so all pensioners have a nest egg and then offer that any pensioner can swap their home for senior housing plus a liveable pension for life.
By taxing a simple % (i.e. 2.5-5%) on every exchange of money (or value of a traded asset) which has no way of being exempt, claimed back or avoided by any means. This one tax would take over income tax, company tax, gst & any other direct tax. Very easy to manage, simple to check & no hiding. Everyone & everything pays it's fair share. Business purchases, income, owner drawdown, bonuses, Charities, religious entities, inheritance, overseas purchases, house purchases, interest gained, donations & gifts ........ everything has a transactional tax. The hardest part is valuing a traded asset but this would also need to be done otherwise there would be a way to bypass the spirit of the law. Money only has value when it's spent & this treats everyone equally. The rich can't hide personal purchases as an expense & claim them back. Either way they buy, someone or something is paying that tax. Because this tax is charged at every point along products/services journey to the consumer it can actually be quite low & still gain a huge revenue for the government (which would pay for our social services). Whatever the % is, it needs to collect equal or greater tax revenue than we already collect.
This part of the policy was always gong to be difficult for many to accept and in principal it's probably right but you are now dealing with the emotional benefit of having one's own castle and this will be difficult to rationalise. Maybe it will need to be tweaked to exempt the family home but it will need to be policed to stop rorting by those who manage to change their family home at regular intervals and are never domiciled there. The rich never rest finding ways to subvert the rules which is why TOP has tried to keep it simple but compromise might be necessary.
1. Populism: The first thing you need to do is go after the Giant Multinationals that send profits offshore. No one here suffers from that idea, and it would be extremely popular. Tax the multinationals properly and drop taxes drastically on small businesses.
2. Nationalism: The second thing you need to do is adopt a philosophy of 'New Zealand-ism, not Globalism'. Come out against Free Trade deals, call both Labour and National leaders corporatist neoliberal hacks (and double down on this whenever questioned) and tell the New Zealand people we are going to 'Lead the world again' (good slogan idea too). We are going to lead the world on climate change and technological advancement (run ads featuring Ernest Rutherford, Sir Ed Hillary and Kate Sheppard with the slogan "lets lead the world again" featuring prominently.
3. Sympathy: You need to do lunches in low decile NZ schools, dedicate some resources to homeless shelters and food banks, and legalise low level drugs like weed (cite the strain it puts on our prison system and the tax payer). Visit low decile schools and look people in the eye and say your the only one who can help (all while the cameras roll of course).
Congratulations, you are now Prime Minister of New Zealand.
P.S. I'm available if you need a campaign manager!
I feel that this policy isn't clear or bold enough, it might have been better to look at stopping non-citizens or overseas investors from owning properties in New Zealand?
I pay council rates which is a tax. I purchase services such as water, phone and power on which I pay GST. I maintain and improve my property with my time which is a form of sweat equity. Over any given year I spend a countless amount on DIY goods on which I pay GST. I pay interest to the bank for the privilege of living in my own home and on top of all this you want to tax me? Sorry you lost my vote. Egalitarianism is a fallacy.
If you want to make this country fair get rid of Working for Families. Make the first $25K of income tax free and drop corporate tax to 15%.
The issue is clearly the investors making a poultice of money from multiple home investments. The private home owner who has diligently saved to provide security for their family should be encouraged to do so. In my case I have elderly parents reliant on us providing accommodation. Your policy assumes that just because we are home owners we can afford your tax. Get real Gareth, you had my respect taxing the property investors who are getting coached by people like property masters. I do not support you taxing my family home assuming this is your intent. I didn't work my backside off to own my own my home with a granny flat that supports my aging parents and children only for you to come along and tax my security. I am particularly appalled it seems that you expect aging home home owners who cannot afford your tax and expect them to take out a mortgage. If this is how you expect to get votes from Middle NZ, think again because so far I am unimpressed. We need a center party leader that rewards hard working middle NZ, encourages businesses to thrive and helps the under privileged to get a leg up. Penalising Mum and Dad home owners who work damn hard just seems unfair. Is this your intent?
If a person decides to own their home outright and then retire, they shouldn't be forced to pay very high rates to keep it. They've bought it, they own it, they pay council rates to cover services. It is when people INVEST in houses tax-free that we run into problems of malinvestment. Therefore, any rates or extra taxes should be applied to trusts, businesses, or any other legal entity which own property (other than a single family home). These could be identified as BUSINESS assets, and taxed according to your policy, if you so wish. An individual should be entitled to own one property without any sort of extra tax attached. Mortgage interest should be consistently treated as a tax write-off - either for everyone (PAYE/self employed) or for no-one. There should be an incentive to build new houses, not buy up old ones - perhaps only mortgage interest on new builds could be eligible to be written off? That would encourage people to abandon the current stock that they own a small portion of, and invest their money in building new to get a tax advantage.
The family home should NOT be included, only speculation properties. It needs means testing, I feel it puts a sanction on lots of hard working people who have retired with nothing other than their home.
Deal with the issue of international corporates paying v little tax. It is manifestly unfair and would affect fewer individuals than dealing with property tax. I also believe there are other issues behind our love of investment in property (eg wanting a tangible asset, not trusting in share release information) and other reasons for our property bubble (banks lending as much money as you like no matter what you earn). You won't fix these with property tax you'll just piss people off.
Using Germany as a comparison is unwise. The German property market is dominated by rentals - home ownership there and elsewhere in mainland Europe is very different from the UK or NZ. Taxing a family's single biggest asset will not provide a house for someone who cannot afford it.