Taxing assets simply as a means to prevent housing speculation is looking at the issue of house price increases from entirely the wrong perspective, diagnosing the cause incorrectly, and applying the opposite solution to what is needed. Further, it creates a number of dangerous situations for the individual and the economy.
1. Population trends drive real estate prices... more people + not enough houses where those people want to live = increasing house prices
- As we shift from an agricultural economy to a knowledge and technology economy, that means increasing numbers of people wanting to live in main urban centres and not out in the back blocks
- People who commute to work don't want to live too far from where their jobs are, so urban pressure intensifies toward the CBD / transport infrastructure and arterial roadways.
2. Property speculators DON'T drive up prices. They aren't buying houses and destroying them to decrease supply in the market... they are simply making a prediction and attempting to ride the wave caused by the formula in #1 above.
3. Decentralizing cities (adding new satellite CBDs, and creating entirely new cities from the ground up (not attached to existing cities) and allowing people and businesses to populate that new and more affordable space, is a far better means to create affordable, quality, modern housing supply and thereby moderate prices in established centres.
4. People who have no or very low income can end up being stripped of their home, savings, and other assets that they've worked hard to pay off and save, or inherited (for example, a child who is orphaned and inherits a family home and possibly some other assets or money by which the remainder of their care can be paid until they are self-sufficient), assets received as a beneficiary of a Trust, a farmer who’s had a bad year economically but has a very high value piece of farm land, retirees, etc.
5. Earners won’t have ANY incentive to save, because accumulating money or putting it into an asset such as a home is the fastest way to pay more tax.
6. The Economic Incentive of taxing owned assets rewards those who rent for life and never know the stability of owning a home, those who spend every dollar they earn, and those intentionally stay asset-poor and living hand-to-mouth. Those rewarded the most are the ones who combine all 3 of these. Essentially, you’d incentivize every New Zealander to live paycheque to paycheque.
7. Wealth will be exported OUT of NZ. Why would anyone keep their money or assets in a country where those assets are taxed simply for owning them? Assets and wealth will flee for overseas markets, where they will be hidden from the IRD in overseas trusts, holding companies, and any manner of means.
8. Investment into NZ will stop immediately. Why would anyone with wealth send it to a country that is going to grab a piece simply because you own it?
9. Clawbacks + Interest + Inflation if the “assumed value” turn out to be inaccurate. Example: You’ve bought and paid off your house in the course of 20 years, during which you’ve also paid $600,000 in “asset taxes” over those same 20 years on your property based on it being valued at an annualized average “guesstimate” of it being worth $750,000. At the start of the 21st year, you sell the house and for any of a hundred reasons, it only sells for $500,000 — 1/3 of the “average guesstimated value” over 20 years. Does the Government then have to give you back $200,000 (1/3 of the tax collected), PLUS 20 years of interest, PLUS an allowance for 20 years of inflation due to having been wrong on the value the whole time? What if your house valued at $500,000 sells for $750,000? Does the IRD then assess you as owing $200,000 + 20 years of interest + 20 years of inflation during which you were under-charged?
10. When you take a % of total earnings on an annual basis, you avoid all of those guesswork issues. You earned A, you pay B… you earned X, you pay Y. There’s no disputing how much A and X are… and there’s no retroactive adjustment to balance out reality against decades of inaccurate guesswork.
The logical approach is to only tax INCOME — the Government earns a portion ALONG WITH the people — and everyone remains far more solvent, and there’s an incentive to keep wealth in NZ, and to save, and to invest, and to own a home.
Implement a Capital Gains Tax like every other OECD country to keep NZ on par… but DO NOT tax accumulated wealth simply because it’s sitting there. Raiding and pillaging people’s belongings is generally frowned upon in 2017.
Scrap this Asset-Taxing policy and replace it with a CGT in order to lower PAYE tax rates. It still hits "those who can afford it most" (which includes me, to be honest -- I'm happy to pay a fair tax if it helps build a stronger country and healthier, safer, more equitable, socially supported, and stable communities).
I would have ZERO hesitation in casting both my Candidate and Party vote for TOP. This one single policy is really poisoning the entire well, though.