The Productivity Commission chaired by Murray Sherwin has published an excellent report on the housing industry (http://www.productivity.govt.nz/sites/default/files/Draft%20Housing%20Report.pdf ). It has excellent material in it which we will be using to make submissions to government.
It is in stark contrast to a book published by leading anti property campaigner, Gareth Morgan entitled “The Great Kahuna” which launches a breathtakingly nasty attack on home ownership arguing it is a tax rort and a waste of our national capital.
On the other hand The Sherwin report, which is well written in English, provides quality analysis and rests on a good working knowledge of accounting principles and our tax system.
Sherwin concludes that home owners actually get little in the way of preferential tax benefits from their investment. He also notes the constricting affect of GST on new home ownership.
Unfortunately people like Morgan have fired up the lefties to crusade for capital gains taxes, which partly cost the Labour party the election.
Morgan suggests that if your home is worth $500,000 and you don’t have a mortgage i.e. equity of $500,000, then you should be earning 6% in returns on it (his idea of what all investments should earn despite his own KiwiSaver fund earning negatives, forcing him to get out). He then calculates 6% of $500,000 and makes that your assessable income for capital gains i.e. you get taxed at your marginal rate on $30,000 (even though the capital gain has not been realized). That’s about $10,000 extra tax a year for most of us just for owning a house and on top of your rates. This he thinks will force investment out of housing (because the capital gains will be fully taxed) and into more deserving industries. More likely even more people and their capital will head for Australia. As to those investments that will earn you more than 6% its no use asking him which ones exactly because after four years playing round with other peoples money in KiwiSaver (to the tune of about 700 million) he’s achieved minus 0.1% per annum in the balanced fund and a negative -3.4% p.a. in the growth fund and that’s before inflation of about 2.5 %.
He wants this capital gains tax applied not just to housing but to all assets in the country.
We don’t want to be too tough on poor Gareth because he too is obviously very embarrassed by the failure of his fund. At least he has been smart enough to flog it off before more than his face is covered with egg. Good old Kiwibank funded by the taxpayer has come to the rescue and paid handsomely for the privilege. This nonsense has to stop.
Figures out now show that the New Zealand Super Fund, (the brain child of Mike Cullen) during its eight year life has barely returned the Treasury bill rate of about 2.8% which is not much more than the rate of inflation and about half the rate the NZ government has to borrow at. In real turns it’s an absolute loser.
And as we predicted in our November issue in the September quarter KiwiSaver funds lost a cool 343 million dollars.
This is terrifying stuff. Have we got the same idiots loose that we had in all the Finance companies.
Is there something in our water supply.
We really are managing a banana republic when so much public money can go down the drain so quickly.
Similar management talent and an army of ticket clippers seems also to be descending on the Peoples Republic of Christchurch which is not an encouraging sign for those caught up in that mess.
So what will we be lobbying for on your behalf in an effort to get our domestic markets back into some semblance of normality…
We think KiwiSaver should be dumped now and the savings distributed provided they are reinstated in some form of fixed term investment which includes building or buying a house.
At 1.8 % p.a. inflation is under control. We need to reflate domestic demand and give the people working hard for us a boost of confidence.
In terms of disposable income it would be equivalent to a 4% wage rise and it would not cost employers a cent more. At the same time 50% of government investment, largely in infrastructure projects, should be put on ice.
The boost to private consumption from the effective wage increase will more than displace the drop off in public investment in terms of the effect on aggregate demand. And the boost will be much more widespread, not limited to capital and import intensive infrastructure supply companies.
What’s more the government simply can’t afford this scale of investment as its coming straight out of borrowing. It’s got enough on its hands with Christchurch.
Right now there are many families that could do with some more money in their pocket. If you like, it’s their share of the boom in commodity export prices and our record terms of trade.
And the economy will certainly get a jump start from it.
During the family holiday season it is a good time to reflect that the best investment we can ever make is in our families. Growing decent Kiwis who will become productive tax payers will in itself shoulder those future problems like old age super.
Now is not the time to be fretting about old age (although the fund managers will tell you otherwise).