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TOP’s policy to make New Zealand fair again; Some numbers

Take 8% of your gross income, and that’s your tax cut. Take 1.5% of the equity in your house and that’s the additional tax to pay. This gives you roughly (and I mean rough) the order of magnitude of how closing the loophole in the income tax regime affects you.

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Feedback from the beach BBQs so far this summer tells me people want some idea of how TOP’s flagship policy – making New Zealand fair again – affects them. While I’ve said 80% of people will be either better off or insignificantly affected, self-interest is hard for many to resist.

There are very good reasons for why I don’t want to be precise. The final shape of any package depends on so many variables – will we have minimum thresholds for asset values included or not (I favour none, I love the fact GST is so clean)? Will the income tax cuts apply across-the-board or be skewed towards those on lower incomes (my preference)? What minimum taxable income on assets will be imposed? What does the time profile of the transition to full implementation look like (remember there is no intention to “collapse” house prices)? And so on – the questions are endless. And well they might be until the final form is known. And that has to be negotiated with the government of the day.

The above are some very crude rules of thumb to work out what such a closing of the tax loophole might mean for you. This is how I can simplify it.

Most people have an average income tax rate of about 24%. For those people you can expect a cut in your average tax rate of about one third – around 8% of your declared income. As I’ve said I’d prefer the poor to receive larger tax cuts, but for now lets assume it is proportional across the spectrum. Meanwhile, we can assume the tax collect on your assets is maximum 1.5%.

We’ll start by looking at the median household; which earns $76k and has just under $300k in assets ($264k is in housing). They are saving $6k in income tax and paying $4k more. So under our tax plan the median household would be $2,000 better off each and every year; that is $40 a week. This should be no surprise, because like I said, 80% are better off.

Now lets look at the top 20%. The top 20% of households earn over $135k and have assets over $815k ($710 of which is in housing). Now wealthy households may not have a high income and vice versa but on average they do. So for households at this 80th percentile of society, their income tax falls by $11k, which is about the same as the extra tax they will pay. Assets tend to become much more significant after this point, so we’d expect the wealthiest 20% to pay more tax, and I’d argue they can afford it.

Final example – to ensure you’ve got the principle here, even if the numbers are crude. You earn $100k and you have net equity in the house of $200k. The tax cut is 8% of $100k or $8k and the effect of closing the loophole is to raise tax by 1.5% of $200k or $3k. You are $5k better off each year.

Now please, appreciate that these numbers are indicative only but should give you a feel for the nature of this revolt against tax unfairness.

If I have no declared income but own a $2m house without debt then my tax rises by $30k. If I’m a pensioner, that could be paid by a rising mortgage to the IRD (an amount that falls each year because your equity in the house drops). If not – well yes – it’s time for me to “rearrange my portfolio”. Now the reason I’d phase in the closing of the loophole, is precisely to give these people – who let’s face it are in the business of investing for capital gains – time to reposition, without house prices collapsing on them.

The way I evaluated the package is by simulating a whole lot of various combinations of rates and thresholds. The range of outcomes showed that anywhere between 75% and 90% of people would be left insignificantly affected or better off – so that’s why I talk about 80% in that category, and 20% being caught by the closing of this loophole.

So there’s a really rough set of numbers that you can use to think about this. It’s all about fairness and bringing to an end the vast dollops of wealth that people are accumulating through no effort – while merrily shutting more and more people out of the housing market.

To me it’s a no-brainer and overdue. You might say – bugger that, I like making money for no effort. Your call of course – but let’s not forget why this is necessary.

The tax loophole sees owners of assets (like me) escaping a lot of income tax that would not be possible if all forms of income (as income is identified in the GDP accounts) were taxed equally. The consequence of decades of allowing that anomaly to persist includes

(a) Housing is stupidly unaffordable now, rents chew way too much of family income and in short – those of us that own property, increase our wealth at the expense of those who do not. Nobody in his or her right mind should see that as okay. Of course there will be some of those who are benefitting greatly from this, and who don’t give a stuff about others. They would not vote TOP. But those of us who actually care about New Zealand, and not just ourselves – do see the need for change.

(b) Businesses are starved of investment capital because you and I don’t save and invest nearly enough. We don’t need to, I get richer and richer just by owning property, no effort required – yippee. Pity about the grandkids trying to get on the gravy train.

(c)  If businesses don’t get normal access to capital they don’t expand and create jobs to their potential. They certainly can’t afford to pay higher wages. While average per hour wage rates in New Zealand have risen about 1% pa above inflation over the last 20 years, the median wage rise is less – and of course allowing for fiscal drag (tax bracket creep) and the rise in housing costs, disposable incomes have been stagnant for many.

(d) inequality keeps rising – I’m okay Jack, I’ll buy another house or two and then let’s pull up the ladder behind us.

(e) We keep falling over ourselves to make it easier and easier for foreign companies to invest here. We give them tax breaks, subsidies and all manner of privileges – so gagging for their capital we have become, given we don’t save much ourselves nor invest those meagre savings productively.

So the problems are obvious, the cure is straightforward. But are we up for it? Hopefully some numbers might help you clarify for yourself whether you are prepared to make New Zealand fair again – and as a result see greater prosperity for all.

Showing 79 reactions

  • Earl Mardle
    commented 2017-01-12 22:11:00 +1300
    Steve Cox, you have hit one of the nails smack on the head when you say, “Now what happens if the landlord made more profit than what the TOP Tax implies?”. A major problem with this idea is that the “income” is imputed/deemed by some person or algorithm rather than the market.

    I have no problem with those who actually make a cashflow from the property, whatever it may be, only that those who use domestic real-estate to generate actual revenue don’t have an “unfair” advantage over those who own the same property as a place to live. If I am “deemed” to be earning an “income” from my property then I demand the same conditions as those who set out to earn an income from the same property. At the moment I have to pay all property costs out of tax-paid income and I don’t object to that because my property is not deemed to be earning anything, it has a special status as my possession, the same as any other possession that I have. To ask me to forego that protection while refusing me the right to the same conditions as anyone else in “business” is asking for a serious fight. Logically, if I earn an income from an asset I am therefore, like it or not, in business and should receive all the benefits of being in business.

    I would even accept that inflation aside, I should pay a capital gain tax on its sale, but ONLY once the market has determined what the real value of the proerty is, not some poltiically inspired/influenced/commanded calculation.
  • Dave Stanton
    commented 2017-01-12 19:48:41 +1300
    People only really object to local Government waste and inefficiency, leading to rate rises higher than inflation Steve.
    The advantage about using the Rates Bill is it isn’t seen as adding yet another tax, it is already collected, it could be coupled with a tax cut for low income families and it is less likely to be repealed by a future Government.
    You could move to all rates being levied monthly at the same time making rates less of a financial budgeting & nightmare for low income home owners.
  • Steve Cox
    commented 2017-01-12 19:30:05 +1300
    Hi Dave
    I don’t think we’re generally in opposition here, but Gareth wants to tax net equity, not gross. So getting your idea past him is going to be interesting.
    But I will disagree on interest. it is a business expense so should be deductible. What does need to change though is that any profit made on the sale of property should be taxed as income (except the family home).
    As for your idea being electorally acceptable: – lets just say there are enough complaints about the size of the rates bill already without increasing it by 30%.

    Steve Cox
    (Who started a B.Com without completing it, and knows he won’t get a high paid government consultancy job because he isn’t a neo-liberal who agrees with Treasury ideology).
  • Dave Stanton
    commented 2017-01-12 17:26:23 +1300
    Definitely should not be any allowance for deducting debt Steve all that would do is reward those who apply higher levels of borrowing and encourage 95-100% mortgages and speculation. What you want to do is level a tax quickly and simply with the minimum of bureaucrasy.
    So raising GST level on rates does it quickly simply and at minimal distortion. It lifts the cost of people owning or investing in property especially those with additional holiday houses, or vacant investment houses. It creams the capital gain profits back off housing, and to a lessor extent business and farms and the bread & butter productive sector. It taxes those overseas investing in housing and acts as a dis-incentive to speculators as we just raised their holding costs considerably and taxed their profits.

    Raising GST on Rates, smart, Quick simple, electorally acceptable and effective in reducing speculation and taxing capital gains.

    Dave Stanton
    (Having done a B COM, I should be a high paid Government consultant as that advise would be worth hundreds of thousands of dollars)
  • Steve Cox
    commented 2017-01-12 17:17:37 +1300
    Hi Earl
    When National finally introduced the Bright Line test other options looked at included ring-fencing rental losses and limiting any interest claimed to the income earned i.e. you couldn’t make a loss. I don’t recall if disallowing interest entirely was discussed seriously.

    A major factor of this tax is that for the home-owner it adopts a net result method. Gareth is saying that if you put $400,000 of equity into a rental property then you should have made a net profit; the tax on which is $6,000. From there the logic goes that if you were charging yourself market rent on your own home and claiming all the expenses then you also should have made a profit; the tax on which is $6,000 if you also had $400,000 equity.

    Where I’ll agree with you and others is that there is an element of unfairness if the landlord can claim all his costs and deduct them from non-rental income.

    So we could ring fence rental income and say regardless of the profit or loss you actually made the tax you owe is net equity times 1.5%. Now what happens if the landlord made more profit than what the TOP Tax implies? is the rest tax free? That I’m afraid would be an awesome incentive for slum landlords to proliferate.

    And then we run into the area of non-residential property – the factory owner or the farmer. A factory owner may have a mortgage over his property but the money is used for running the factory. Can he or can’t he claim his interest?

    There are so many angles to this tax. And those angles should be discussed as we are. Some of them Gareth probably hasn’t thought of. Lots of devils in the detail.
  • Earl Mardle
    commented 2017-01-12 15:19:16 +1300
    Steve Cox, your point about loading property with debt is important. If I do it, I am saddled with the interest and as you suggest, an interest rate shift would make a LOT more difference than the 0.5% tax. But the biggest inequity is STILL not being talked about and that is that a commercial landlord gets to write off the interest before their cash income is assessed while I have to pay that out of tax-paid income. I see nothing in the policy that suggests that this unfairness is ironed out.

    Plainly there would be no net benefit to the state if we ALL could discount our income by the interest on the mortgage and that would effectively work against the TOP policy objectives, so the logic is that commercial landlords have their interest deduction (and all other such deductions) removed. That would both diminish the community-provided benefits of commercial investing in property AND generate more tax revenue from those who do. I ought to drive out a number of landlords, reducing the commercial demand for property and effectively pushing down the value/price of the houses that would then come back on the market for general purchase.
  • Steve Cox
    commented 2017-01-12 13:47:05 +1300
    Hi John
    I understand your point and am actually ambivalent about which way it should go. You showed an example that disadvantaged the young couple buying a home in Auckland if a gross tax was applied.

    i offer the other side of the equation where the property speculator loads properties with as much debt as he can and as a result pays bugger all TOP Tax because he has minimal equity. Will that have any effect on slowing/halting house price rises? Is that fair?

    Fairness can be assessed from several angles, each possibly contradicting the others. So I would suggest fairness be measured by the primary purpose of the TOP Tax. – stopping effortless wealth accumulation.

    Basing the tax at 0.5% on gross rather than 1.5% on net equity would make the tax advantageous to those with below 2/3rds debt. Isn’t lowering our debt something we as a society should be aiming for?
  • Oliver Krollmann
    commented 2017-01-12 09:38:02 +1300
    I think a mistake many of us are making at the moment is to apply the TOP 1 policy to the status quo, and then judge it by its expected or anticipated effects on things as they are now. As TOP have said, the policy would have to be rolled out in stages, during which the playing field would already change, as home owners, renters, landlords and speculators adapted to the new rules. By the time it became fully effective, we would likely have seen a change in behaviour of people and the property market already – which is the whole point of the exercise.
    Many people knee-jerk by doing the math now, applying it to their current situation, concluding that they’d be worse off, feeling betrayed, and therefore rejecting the policy. If the policy ever comes into effect, it won’t be an overnight change causing widespread financial ruin, like it is being portrayed by many of us.
    Furthermore, nothing keeps us from making plans and getting started now, to adapt to a future policy like TOP 1 and be prepared. Putting all eggs in the property basket just because it was the most lucrative investment was always a risky thing to do, because one way or the other it’ll come to an end – if not by policy, then by the collective force of the markets.
  • John Hyndman
    commented 2017-01-12 08:08:17 +1300
    I think Gareth’s plan is to tax equity and not gross. Imagine a young couple buying a house in Auckland for $1,000,000. They put down a deposit of $200,000 and have a mortgage of $800,000. They will be struggling to pay the mortgage interest + capital (especially if interest rates rise). If an asset tax on gross was levied as well it would be very hard for them to hang on to their home. We are talking about fairness here and I suggest the tax should be on the equity only.
  • Steve Cox
    commented 2017-01-12 07:56:54 +1300
    Hi Dave
    You’ve still got me thinking on taxing the gross value.
    And the more I think about it the more I like that idea.
    But if it was the gross value that was taxed then the tax rate could probably be 0.5% rather than 1.5%. This would help the asset rich / income poor people and those who’ve worked to reduce their debt.
    But is 0.5% going to have any effect? That is of Reserve Bank OCR rate changes. Does a mortgage rate increase of that size have much impact on prices?
    More thinking required.
  • John Irving
    commented 2017-01-11 16:29:21 +1300
    You will also need to indicate how the retirees who are asset rich and cash poor will be treated. Presumably one approach could be modelled on the arrangements offered by the ACC that allows such homeowners to accrue their rate obligations as a debt due to ACC when the house is eventually sold.
  • Earl Mardle
    commented 2017-01-11 15:59:02 +1300
    Gary Rogers, It has cost you more than $217 a week to live in your house because the dollars in which you would be repaid on selling it are worth 20 years of inflation less than the ones you used to pay for it with. All of these calculations should be made in constant dollars and related to earnings changes for the individual. Yes, some have done very well in the last 20 years, others have seen the value of their actual earnings eroded while their property prices have risen sharply, fairness to those people needs to be seen to be done as well.

    That’s another matter that Gareth is no discussing. There are multiple reasons for a property to increase in price and/or value. If I do some renovation, add facilities, extend the place etc, I am adding value, although some will tell you that you may have over-capitalised it and you would not get back the money you put into it. Happened to me a while back where the renovations returned less than the difference between the original cost and its resale. Didn’t trouble me because what I had was the pleasure of living in the place more suited to my desires and that is unquantifiable.

    But other increased prices come from inflation/debasement of the currency, bank (central and commercial) lending policies and practices, migration flows, transport decisions such a motorway/railway building etc. None of those are under my control but as the price rises, I will be required to pay more tax. And, at this stage it doesn’t appear that the tax will be proportional in the sense that the council uses nominal housing values to apportion rates among citizens but rather a constant proportion of the nominal value to be paid in cash.

    Gareth has a lot of work to do in filling out this policy. Yes, we can’t know how much of his position he would have to negotiate away in coming to a deal with others, but if we don’t know his start position, there is no way I would vote for it. “Trust me” doesn’t do it any more.
  • Gary Rogers
    commented 2017-01-11 11:05:49 +1300
    I see far too many issues with this proposal.

    1. Who decides what my house is worth and therefore the amount of equity I have?

    At the moment I have a CV from the council which is ridiculously high given the state of my property, however I have little reason to dispute it. Under this proposal I would dispute the CV if this is the figure used and we would all be incentivised to keep the value of our properties as low as possible. Arbitration would be a nightmare!

    2. There is mention of a ‘soft landing’ for the property market, exactly what is that? If some economists believe that property is overvalued by 40% then what value must it fall by to create this proposed ‘fairness’?

    If, for example I have 10% equity in my house and house prices slide faster than the principal I am paying to the bank does this then run the risk of creating a scenario where I have negative equity in my house? If this is the case then surely I would be entitled to a proportionate tax rebate.

    3. What is ‘fair’, who is ‘poor’ and who are the ‘rich’?

    This country is already dependent on a small group of so called high-earning individuals that pay the bulk of the income tax. My understanding is that the top 3% of earners already pay 24% of the income tax. Is this fair? Depending on the definition of ‘poor’ it would seem that we are already giving back to these people by the way of tax credits and other benefits. The last figures I could find points to 663,000 households receiving more from the government than they pay in tax. Then there are thousands more who are tax neutral. Is this fair?

    4. I have an issue with how equity is defined for the purposes of taxation.

    For example, I purchase a house for $200K. Over a 20 year mortgage I pay in total interest to the bank of $140K. Insurance is another total of $6K. Rates are approximately $20K. Maintenance and improvements might be $60K. All up over 20 years my real costs are $226K. If my house is now ‘worth’ $500K and I am mortgage free my equity would surely be the value less my costs so $274K. Essentially it has cost me $217 per week to live in my house.
  • Chris O'Halloran
    commented 2017-01-11 10:32:25 +1300
    James Maunder – thanks for your response.
    “Although I would argue that in New Zealand, introduced mammalian predators pose the most imminent threat to what is left of our native ecology” – very much agree in NZ context, and this requires government, and hopefully philanthropic interests, to manage this in a coordinated way.
    “main motivations for purchasing a block of land is to allow us to protect it from development, and perhaps restore some lost biodiversity.” – and if covenants were applied that prevented the next owner from clear felling the land then I would argue Gareth’s equity tax could/should be waived. In all likelihood, the resale value of the land would diminish greatly and correspondingly, the equity tax.

    Paul Stocker
    A possible side effect of Gareth’s proposal is that it would keep ‘low income’ voters very focused on not having their property values increase. What a mind shift that would be on voters keen to reduce their tax obligations! What voting pressures would that bring on the Government in regard interest rates, land use, immigration, etc?
  • Dave Stanton
    commented 2017-01-11 10:28:21 +1300
    Exactly your present policy setting encourages debt, leverage and speculation.
    You can imagine by using the existing rate system it is readily acceptable to the electorate, doesn’t seem like the implementation of yet another tax, is less likely to get wiped at the next election and captures capital gains.
    It is also includes but is fairer on farms as Farms – Which have low income, High capital requirements, so it allows you to include these as they pay rates but not excessively tax productive investments like businesses & farms.
  • Steve Cox
    commented 2017-01-11 09:35:04 +1300
    Hi Dave
    You’ve got me thinking. Well done.
    You are suggesting the TOP Tax should be on the gross value, not the net value (gross minus mortgage) which is the TOP Tax policy.
    A speculator who buys a million dollar house in Auckland with an $800,000 mortgage is only going to pay $3,000 on the net value, not $15,000 on the gross. So where is the incentive to slow down / stop housing price increases if those who are driving it the most aren’t paying?
    Not only are the speculators paying less TOP Tax than home owners, they’re still walking away with a tax-free capital gain when they sell.
    Also collecting it via rates might be a better option than IRD having to create a new section dedicated to collecting this tax. Although I’d probably go with a line item on the rates bill rather than creating a new GST rate.
  • Dave Stanton
    commented 2017-01-10 23:31:51 +1300
    To simplify it Gareth and apply the KISS – Keep it simply Sam.
    Rates are based on property values – Why not just tax rates with a 50% GST rate.
    So for example If A house in Auckland costs $500,000 and the rates already levied are $9500 GST is currently applied at the rate of 15% $1425 but if a 50% GST were applied to Rates the GST raised would be $4500.

    There is no great new tax system needed and it would be applied quickly and simply across the Property sector.
    Property values go up and rates go up and the tax take goes up.

    Dave
  • Paul Stocker
    commented 2017-01-10 22:19:42 +1300
    This policy may be well intended but will be very harsh on some, namely the “asset rich, cash poor” folk. We have a lifestyle property we have owned for 34 years. We have never been property investors, in fact we bought our 10 acre block to “opt out”. We have a very, very modest house on the property. Through no fault of ours land prices have soared. Our combined income last year was $31000. Our land value is now over $800000. So our income tax drops by around $2500 but our additional 1.5% is $12000. So our combined tax payable is $17000, over half our income. Not pretty!!!
  • James Maunder
    commented 2017-01-10 21:58:01 +1300
    Steve Cox – Hi, I enjoyed reading your post, thanks.
    Yes I quite understand the point you are making about land as capital, and the necessity of capital being productive. Chris OHalloran has also alluded to this in one of his posts. Alongside a preference for living close to nature, one of our main motivations for purchasing a block of land is to allow us to protect it from development, and perhaps restore some lost biodiversity. So in that sense, the greater part by area of whatever we are able to buy will be completely unproductive.
    I guess at some point it reduces to a rather profound difference in beliefs: either an eco-centric or anthropocentric view of the world.
  • James Maunder
    commented 2017-01-10 21:41:54 +1300
    Chris OHalloran – thanks for replying to my post, however I must challenge some of the assertions you have made. You assert that “the biggest threat to the environment today is not climate change but habitat loss”, and then go on to argue that we should further intensify our agriculture and live in cities. I agree that habitat loss is a significant environmental issue, although I would argue that in New Zealand, introduced mammalian predators pose the most imminent threat to what is left of our native ecology, given that a large part of the remaining forested area in New Zealand has some form of protection under public ownership. Although it is difficult to quantify, I suspect that the implications of climate change for our native flora and fauna may be immense.
    The land we will be buying will not be prime agricultural land, most likely it will be steep and covered in scrub. The bush will regenerate (slowly), and we will make an effort to control the introduced pest plants and animals that will no doubt besiege us. So you can rest easy that no land will be taken out of “efficient production”.

    Your point that ‘the best thing to do is to live in a city’ is an interesting one. Certainly my own preference is to live close to nature. Academic studies suggest that the per capita carbon footprint of urban dwellers is less than that of people in rural areas, but it would seem to me strongly dependent on a) how you live, and b) the method of accounting used. Certainly to my mind, I appreciate the opportunity to practice a degree of self-sufficiency, and to live apart from the noise and pollution that inevitably seem to accompany life in most cities I have been to.

    Your second paragraph: I’m afraid I will have to resort to bullet points to keep it succinct for your four questions:
    - I don’t ever intend to retire, although I accept that our definitions of ‘retirement’ may differ.
    - We are already raising a family, and yes we will be beneficiaries of the public education system from which we may receive more than we contribute. Perhaps you have a point? I have never sat down and worked out how much tax I have paid, versus how much benefit I have received from the government. If it could be shown that on balance we took more than we gave, then I would have to consider taking less.
    - I do believe in, and am grateful for public healthcare. My point made above applies here also.
    - I think perhaps, again, we may have a difference in philosophy regarding how each of us defines ‘productivity’, which would be a separate discussion in its own right.

    I will have to think some more about the ethics of opting voluntarily for a lower income, thanks for your views.
  • James Turnbull
    commented 2017-01-10 17:17:52 +1300
    Chris OHalloran… You’re deluded man!

    ‘The State’ provides NOTHING.

    All that the people in governments (The State) do is take as much money as they can money from the population and distribute in the way they think will buy them the most votes while they hold office and to curry most favour with business when they leave office and seek other employment.

    Happens the world over !
  • James Turnbull
    commented 2017-01-10 17:10:22 +1300
    Those of us who own only our own homes DO NOT have any adverse effect on those who rent … there is have no linkage whatsoever that connects us.

    People who rent homes rent them from property INVESTORS not from HOME OWNERS.

    In recent years it has been PROPERTY INVESTORS who have have largely been responsible for the massive hikes in (esp) Auckland property prices and, as Auckland home owners have cashed out, they have joined with property investors in pushing up prices in the regions … most notably in Hamilton and Tauranga districts.

    A person buys a home to live in … not as an investment.

    Gareth has steadfastly refused to discuss the MASSIVE COSTS OF CREATING, INSTALLING AND RUNNING his proposed monster. In fact he’s refused to discuss any alternatives that have been discussed in other threads.

    So, regrettably, I became a founder member based upon TRUST and I find out later that actually, there never was any intention to found a party that has no intentions of growing in order to lead the country … and I really am profoundly ( insert profanity of choice and ad ‘ed’ ) to think that TOP is going to be nothing but another ACT or Dunne Party who exists solely so they can feed out of the public trough by prostituting themselves to National or Labour.

    Brilliant innit … party members feel conned and won’t vote for this … what a fiedd day the exisiting parties will have trashing this!
  • Chris Price
    commented 2017-01-10 17:06:31 +1300
    This seems to me to have a bunch of fishhooks I am retired after paying tax for 48 years I have a freehold home and assets. I dont drive a new car And my home is the only major asset I have. Things get a wee bit tight when rates/ power /heating and sundry other expenses crop up

    Now if I was in business or owned a farm or similar I could write all this extra tax off as a loss, and anything I buy I could claim the GST back as well
    So really whats the advantage for me?

    If you are so worried about the tax take maybe look at the heap of charities and big enterprises that are getting no tax privileges. When you sort that out come back and tell me I have to pay tax
  • Lloyd Penfold
    commented 2017-01-10 17:03:45 +1300
    Detroit
  • Earl Mardle
    commented 2017-01-10 16:57:41 +1300
    I can understand why Gareth doesn’t want to go into too much detail because the final form would have to be negotiated with other parties, but the devil is ALWAYS in the details. What he has NOT done, however, is stated whether he would balance the equation between those who buy an asset for earning (houses to rent) and those who buy to live. Will he remove the tax-deductible costs from businesses, such as the interest on mortgages plus rates, insurance, repairs and maintenance, vacancy etc which would still give rentiers a better deal than those who occupy their own home. Until THAT playing field gets leveled, and its effects on housing availability calculated, this doesn’t get my tick.

    As someone who owns in Auckland and is on the pension with no debt, I am not only going to be worse off, I am going to get creamed by this law. So the logic would be to take out the biggest possible reverse mortgage, live high on the hog, treat my family to holidays, meals and goodies galore and hand the place to the mortgagor at the end, instead of working my piece of land to be sustainable, productive and an performing asset.
  • Chris O'Halloran
    commented 2017-01-10 16:45:06 +1300
    James Maunder – you seem like a well-meaning person so I’d invite you to consider a few things.

    Firstly, your notion of a small ecological footprint. The biggest threat to the environment today is not climate change but habitat loss. Habitat loss is primarily caused by agriculture and especially agriculture for producing meat. To maintain the existing world population with adequate food and stop destroying wild habitats, humans need to intensify their existing agriculture and stop clearing wild habitats. Every ‘rural property’ aka ‘lifestyle block’ takes more existing farmland out of efficient production – meaning more natural habitats are forfeited elsewhere. From a habitat/ecological perspective, the best thing to do is live in a city.

    Secondly, you’re in your early 30s and hope to semi retire on a lifestyle block. Do you plan to have children? Do you expect the state to provide their education? Do you expect the state to provide for you and your children’s medical treatment and ultimately your retirement? Having the skills and talent to be so much more productive in society (if you’ve managed to save $500K in 10-15yrs working life), do think it’s fair to the rest of society to expect society to look after you for the next 35-40yrs? After all, the income tax on earning $20-30K year isn’t even going to pay for your Govt superannuation.

    Gareth’s proposal would go someway to making your lifestyle proposition more equitable (you’d be adding $7.5K per year to your tax bill).
  • Lloyd Penfold
    commented 2017-01-10 15:40:18 +1300
    This idea is simple. It in effect steals your property from you and gives it to the government. You will be renting your house off of them, like creating a lease out of thin air!! Its bad enough finding the rates, but at least you get something for them. Just because its called a tax makes no difference to the household budget. What difference is it if I can’t find the rent or the tax. None. And of course the stick will be forfeit of property if you can’t pay. Mortgagee sales in effect. Get this. My house belongs to me, what ever some third party wants to pay me for it is not going to determine the amount of tax I pay derrr. The economics of this country are the result of poor political management. Those of us that in spite of this have sailed our ship to a safe harbour are not going to give it over to the new bunch of pirates waiting on the quay. If the only way you can think of creating a more equitable society is by taxation of the home owning class then you have nothing new to offer, the leftwing have been doing it for years.
  • Martin Manning
    commented 2017-01-10 14:17:03 +1300
    I agree with Terry. Those of us who worked in the public service for the benefit of the country got our pensions decimated by Roger Douglas shifting how taxes were charged years ago and giving the government superannuation scheme no proper compensation for that. Now this proposed shift towards taxing the family home would mean that, because we put what we still had into something our children could inherit, we would just see that going back into the government purse as well. Having worked in the US for several years I have never been able to understand why we don’t just follow their approach for taxing second homes etc as that is much more balanced.
  • Terry Trembath
    commented 2017-01-10 13:42:30 +1300
    We are a retired couple a freehold home of around $750,000 our sole income is National Superannuation.
    We just scrape in meeting the unavoidable expenses of Power, rates etc,etc.
    Whilst, in principle I am in favour of what TOP is doing there would have to be some social conscience offsets here.
    Of all our outgoings I would wager the government gets the lion’s share already, a mortgage with IRD is just not going to happen. I would burn the house down first.
    SO, when the government (local as well as National) starts to show some fiscal responsibility i.e.. stop the grave train in it’s tracks, I would become a little more accommodating to the concept.
    Until then up goes the wall.
  • Steve Cox
    commented 2017-01-07 09:28:06 +1300
    Hi James
    This policy was written from an economist’s view of the world. If you have an asset it should achieve an acceptable rate of return. If you can’t achieve that rate of return then sell the asset to someone else who can.
    Extremist economists (which Gareth isn’t) would apply this to everything – education, healthcare, your children. Your children? – send them out to labour in the mines and factories to earn enough to pay back the cost of raising them. Return on investment is paramount.
    Back to your case. In effect you are being taxed for taking your land out of productive use. This will require a major mindset change for all those people around the world who believe that they can do what they want with their land because it is their land.
    I am looking forward to the Environment policy release and how it is going to interact with this policy. In simplistic terms one is going to say “Make lots of money from your land” and the other is going to suggest maybe not.
    A final thought; it’s a bit of detail, but if an area of natural bush has been covenanted, will it be taxable or exempted?