Currently young people are locked out of owning their own farm. They have to buy a farm at an exorbitant price, chalking up a huge debt in the process. They can never expect to generate enough income to pay off the debt through farming, and instead have to hope that the price of the land keeps rising. The old ways of building up the capital to buy a farm such as share milking are dying off, blocking off the few remaining pathways for youngsters. Hence we see the rise of farm hands and managers (many from overseas) and the ageing of owners.
The root cause of this problem is that we farm for capital gain, rather than profit. Our focus generation after generation has been on bidding up the price of farms as the way to get returns. Farmers struggle through their working lives eeking out a tiny return, and cash in when they sell up. It helps that capital gain is tax-free, while profit is taxed! But we are now seeing the limits of this approach. Land prices are so high that the only way to realise capital gain is to sell farms to foreigners, rather than Kiwis. Is this the future we want?
What if farms were affordable? Affordable enough to earn a decent return each year and cover the mortgage? Affordable enough to farm for profit rather than capital gain? Affordable enough not to have to intensify production and stuff the environment in the process?
This future is possible under our fair tax reform. All farms would have to pay a minimum level of tax based on the value of their farm. Farms paying at least this level of tax wouldn’t have to pay more, and so would be unaffected by the policy. This would ensure that land prices don’t get out of step with the profit that a farm can create. The days of bidding up farm prices for untaxed capital gain would be over – in fact speculative capital gain would be dead for good.
Obviously this would cause problems in the short term for those farms that are overvalued, which is why it needs to be phased in. The minimum level of tax would need to be slowly increased over time in order to hold land prices stable, allowing incomes and productivity time to catch up. Those farmers with high levels of debt would have time to get that down, without going into negative equity.
This would eventually return us to a place where young Kiwis could afford their own farm. They would no longer have to take on high levels of debt that keep them awake at night and put our entire economy at risk.
We can invest in our own country. We don’t need to rely on money from overseas. But to do this we need to stop putting all our money into speculation. We have to start investing in stuff that is actually going to create jobs and exports. That is how a country really gets rich – not buying houses and farms off each other.
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