Closing Tax loopholes

The Housing Crisis cannot just be blamed on Landlords - TOP

Last weekend Labour leader Andrew Little identified the villain that was causing all the woe in the housing market. In Labour’s book it’s rapacious, speculator-landlords who are gearing up as much as possible, paying more in interest than they receive in rent and in so doing fueling house price rises. Mr Little intends to target such behaviour by outlawing such negative gearing. But note, only negative gearing by speculators will be in the gun, not mum and dad landlords.


So Labour’s story has a villain, has a sheriff and has a judge who will interpret the law to differentiate between highly geared friendly mum and dad investors and rapacious opportunists. Such a plot is the stuff of cowboy movies but is about as far removed from solving the property market problem as it’s possible to be. Indeed National’s Steven Joyce is absolutely correct to claim Labour’s policy will make the rental market worse. Of course it will, it will unnecessarily remove landlords from the market. Negative gearing is a characteristic of all businesses starting out – why should landlords be any different? Mr Little really does need a lesson in business, his solution is terrible.

It’s difficult to treat Labour’s proposal seriously. It has all the hallmarks of political posture – telling the crowd there’s a villain and that Labour will hunt him down and slay him, and thereafter peace will prevail in the property market. Such hyperbole may appeal to the chronically naïve but has absolutely zero evidence base to convince thinking voters.

Establishment parties are in denial about the house ownership and rental crisis. National arrogantly denies there is one – so the voting public that is identifying it as the most critical issue is just wrong. Labour as always wants to eat the rich and blame everything on the financially successful, while the Greens see the solution as capital gains tax but excluding my $20 million dollar family home (which I’d buy as soon as their policy saw light of day).

There just is zero acknowledgement that the problem – and it is massive National so you need to turn and face it, not run away – lies in the taxation and regulatory rules that these Establishment parties have put in place. There is no villain to chase down, and selective capital gains taxes are a major market distortion.

The issue is a massive loophole in our income tax regime that is driving unfairness in our society. Our work values the size of this loophole at $11b, dwarfing the $150m that Labour is targeting. The loophole was identified by the McLeod Tax Review of 2001, and again by the Tax Working Group of 2010. And in both cases it was politicians (Cullen and English) who rejected the advice as politically too difficult. Neither denied, nor was able to produce any evidence to counter the validity of the advice.

The persistence of the issue is driven by the political cowardice on display here, the craven need for power that overrules all pretence at doing what is the right thing and addressing the issue from an evidence-informed perspective. Such is the character of career politicians who just want the job.

So let there be no mistake at who the villain is here – it is political cowardice. If voters are not prepared to have the loophole closed then the gap between house prices and household incomes will continue to rise. And along the way we’ll keep blaming others for our own inadequacy – rapacious landlords, immigrants – in essence everyone but ourselves.

And the victims will be those who cannot afford to get on the property ownership ladder and not even afford to rent. We are seeing this already as the prospect of a lifetime of renting looms for the coming generations and Accommodation Supplement costs balloon out as governments desperately try to bridge the gap between market rents and crushed wages. We have governments of paralysis now and to expect inequality, housing unaffordability and poverty to be addressed by those simply tinkering with the symptoms, is naïve in the extreme. It is time to rebel.

The Opportunities Party (TOP) has presented the solution to this in its tax reform that sees the tax break on asset ownership partially addressed at least and the proceeds all returned in the form of income tax rate cuts. By removing the tax privilege that owners of capital enjoy and having them taxed more fairly vis a vis wage earners, then investment will flow into businesses rather than into property hoarding. More jobs and higher wages and profits will follow. It really is a no-brainer but the voters have to want it. There is no way an Establishment party is going to lead on this. 

Last weekend just demonstrated yet again the lack of gumption of Establishment parties, one firmly in denial and happy to protect the privilege of asset ownership, the other inventing villains and trying to convince the dumbfounded that it’s all the fault of rapacious landlords.

Really the Establishment parties must think we’re dumb and dumber. It is time to shake the citadel


Image copyright:lightwise / 123RF Stock Photo

Showing 5 reactions

  • Steve Cox
    followed this page 2017-05-17 14:22:43 +1200
  • Oliver Krollmann
    commented 2017-05-16 16:20:24 +1200
    Always refreshing to read a TOP blog post debunking yet another Establishment Party’s lackluster election promise :-)
    As all we can hope for in this election is a slight shift (because way too many voters are locked in their views or stick with their choices out of a false sense of loyalty – if they care to vote at all), I really hope TOP makes the 5% and becomes the kingmaker, since TOP is open to work with any of the Establishment Parties. That way we would see at least some of the proposed (and overdue) change happen in our lifetime. It might be too late to save NZ and the planet, but one can hope …
  • Oliver Krollmann
    followed this page 2017-05-16 16:10:41 +1200
  • Matt Walkington
    commented 2017-05-16 12:29:36 +1200
    Aside from the politicking narrative Gareth well and truly bags above, what NZ Labour is suggesting is (as ever) a tinkering change that does not address a major issue (but merely pretends to by the age old technique of scapegoating). National, of course, have given up even pretending to act on many important issues. In case it escapes anyone, we exist within an incredibly rigged system that is designed to enrich the few like never before at the expense of the many and at the expense of the environment. The system is absolutely absolutely ripe for major change, if only we could agree on the path to an alternative. Voting in another government bound in to the established neoliberal paradigms with few effective policy ideas that they actually intend to implement will at best be a change in personnel – just fresh faces doing the same old same old. That may suit the section of society that is doing really well at the expense of the rest of us but we can certainly do better. A lot better and a lot fairer.
  • Greg Hoggarth
    commented 2017-05-15 14:36:40 +1200
    “Negative gearing is a characteristic of all businesses starting out – why should landlords be any different?”

    Because landlords are literally in the business of rent-seeking, not productively creating wealth. You’ve said it yourself – we won’t get rich selling houses to each other. So there’s a very simple reason why landlords should be treated differently from other businesses.

    Furthermore, you yourself have said you own several houses in Auckland that you don’t put tenants in, because they “dirty the carpets”. Assuming these houses are mortgaged, you’ll be running them at a loss, and claiming the loss against other income you have. Even if they aren’t mortgaged, there’ll still be a loss due to rates and insurance. So this policy will be a disincentive for people like you to buy houses and keep them empty. Will it be enough to force them to sell? Not necessarily, but then neither would your imputed rent policy necessarily be enough to force them to sell.

    If these landlords sell their houses, or decide to rent them out as a result of this policy, then very likely there will be some small number of people who can now move out of cars / garages and into houses.