Hard News: A Capital Idea?
246 Responses
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In purely economic terms I guess basic shelter is productive in that it better supports human capital. Improving insulation likewise.
Otherwise investing in housing rather than business 'produces' bugger all - and even the subsidiary industries could be doing something more useful (and foreign income earning) for our nation.
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Wolf-cries of rental hikes and shortages are not unlike those wolf-cries of Europe starving if the Common Agricultural Policy is abolished. And the sense of entitlement on the part of the vested interests maintaining the status quo is not much different either.
In any case, the Opposition finally has the cojones to train its crosshairs on a sacred cow.
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bmk.
Amen to that. -
Lucy Telfar Barnard, in reply to
In purely economic terms I guess basic shelter is productive in that it better supports human capital.
Indeed. And from that point of view, the "family home" is more productive than rental property, because home ownership generally improves tenure security/reduces residential mobility; and both tenure security and reduced residential mobility are associated with improved social outcomes.
(I can go away and find a reference if you like, but that would be a lot like work, whereas reading and posting here are work avoidance activities...).
'Course, it is true that the social return does not increase as the value of the asset increases (after inflation), but that just means that the return on investment is lower, not that it's not productive at all.
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A house that increases in value by 20% doesnt provide 20% more shelter… you cant suddenly fit more people in it…
Well, depends. If nothing changes and houses were all worth 20% more, then we'd call that a bubble or inflation, and it would be pointless, mere accounting jiggery-pokery. But suppose that everybody goes out and does their houses up a fair bit (puts in double-glazing, finally repaints the bathroom, rips up the tatty old carpet and puts down some nice new rugs etc), and suddenly people are willing to pay 20% more for those houses it is probably because they get more enjoyment out of that house.
And that's a good thing! You might say it isn't productive, but then we could all live in barracks and use iron money and so-on and be more `productive'. Housing is one of the most important ways to make people happier, and one of the great ironies of New Zealand is that we both over-invest in property and yet have consistently sub-par houses.
I reckon NZ's housing policy, and this is an area Labour really does fall down on, is pretty dismal. A capital gains tax is hopefully the first move away from a view of housing as a device for investing and speculating and toward a view of housing as machinery for living in.
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Islander, in reply to
O yes!
I’d dearly love to be able to improve my place (which for a +60yrold is now cold,
slightly dangerous, and uncomfortable.)
BUT – rates are extortionate and my earning ability limited.
To improve this place would require – errm, something *like* the advance mortgages -but with less punitive interest terms.
It’s a good basic home, in an especial area – but, because of very wealthy people lately building here, is now waaay over-valued (and that is not to my advantage.)Hint: my section initially cost me $600(1973) – it is now – risibly- valued at $169000.00. This is one eighth-acre of beach….
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andin, in reply to
we both over-invest in property and yet have consistently sub-par houses.
For many years little or no insulation, single glazing, crappy kitchens and bathrooms, bad floor plans and bad siting. And a house should be more than just shelter, something not even considered when many are built.
And I havent even got to the Mc Mansions. -
Islander, in reply to
Andin - I agree. And I admit I was the one who both designed & built my place, on a very limited budget, and I wasnt thinking about living past 50...
My house is actually a library (and I love it so) but - things now make it impractical
for me-in-my-60s...but I didnt factor them in, 30+ years ago.Do we want to legislate self-builders out of existence though?
Or enforce the kind of building codes that will ensure poor people cant build their own kind of shelter?We've already seen what cynical government-mandated building codes can do (all kudos to your sister, Hillary! Great stuff!) So - where does the regulatory mechanism come from?
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Islander, in reply to
Oh! but my kitchen area is superb! Macrocarpa bench that extends over 30’ round the octagon walls! Gourmet range (__with__ hot-water-heating = shower, sink etc.) AND a AEG gas-hob…enough cupboards to hold nearly everything.
Thread-collapse warning: NO dishwasher! -
andin, in reply to
Sounds like a lot of love and attention went into your house.
The kind of thing a self builder would do. And we as a country should encourage that, and NOT “this is an investment” to make money on.
Something I want to do again but building codes are prohibitive.
I have a terrible history when it comes to home owning, I always seem to get the shit end of the stick. Oh, Off to work yes at midnight. -
Islander, in reply to
Cheers & take care andin- there are others of us who also work the midnight hours...dawn, and wonderfully, a dawn chorus is my bedtime-
and very much yes- self-builders do have love & attention when building their places-
because we tend to live therein-mind you, for sheer aesthetic pleasure you wanna see the family-home my builder-brother created. With the input of his wife & kids. Has one of the most stunning views in all of our wonderous archipelago. Chooks and peacocks wander around. The hound is securely caged (but loose at nights.) Birds & dog have adapted to one another (urm, regarding those feathers...)
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I am against a capital gains tax - more tax doesn't make for better government.
Better government is part of the answer
NZ Governments fail to deliver effective frameworks both in legislation and in practice.
Recent major failings are apparent in:
*The Leaky Building crisis
*The collapse of Finance Companies.These two "thangs" will have a long term depressive effect on the economy as they squander the savings of people approaching retirement, - saving are the future spending - the same ay borrowing or credit is future income.
There are other thangs.
All tax burdens eventually filter down to the lowest income level because at that lower level there is no mechanism to pass on the burden.
I said this before: "I don’t think that taking money, from rent, out of circulation in the economy and giving it to the government is a good idea - it won’t solve the problem though it will make it harder for people renting.
In an equation where CGT becomes an input and rent is the output - the introduction of a CGT (Land Tax) rents will increase as a result. Landlords will need to collect more rent to pay for CGT and tenants will have to pay more rent to secure tenancy in a rental market with a shrinking stock of rental ppty."
I don't think I will get the opportunity to be proved right as a Labour coalition is unlikely to prevail and I am thankful for that.
NZ has a low wage economy as in essence it doesn't really have much of an economy - This is just the way it is - a CGT won't improve a thing - IMHO it will only make matter worse.
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• It probably won’t bring in as much revenue as Labour says it will, but it will make Labour’s other tax policy – the tax-free threshold – much more credible.
It also risks opening up a self-inflicted credibility gap if a CGT (of as yet unknown scope and reach) doesn’t cover their promises. Please rubbish away, but I don’t think I’m the only person who’s feeling more than usually ill-disposed towards politicians letting their mouths write campaign cheques their arses can’t cover. Perhaps my expectations of the media are unrealistically high, but it would be nice to see one or two economically literate hacks spending the next four months saying "and this will be paid for how?" a LOT.
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Sacha, in reply to
the Opposition finally has the cojones
fingers crossed - or it will be a very boring election
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I liked the Sydney Morning Herald's journalist interviwed on Morning Report this morning at about 7.30 (sorry, can't produce link from my iPhone). He pointed out that Australia does not have CGT as such - just an income tax. However, there's no such thing as unearned income (with some exceptions).
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Sacha, in reply to
Wolf-cries of rental hikes and shortages
Landlords have already become so afraid of a capital gains tax that an industry leader says they are bowing out of the market.
David Whitburn, president of the Auckland Property Investors Association, said prospective residential investors were spooked by Labour's 15 per cent tax proposal.
...One couple would probably buy rental property in Australia and leave New Zealand, Whitburn said.
"Then we lose $120,000 a year in incomes and their tax and the talent. I'm bored of that. Too many of my friends are in Singapore, Australia and London but they don't see New Zealand as an exciting place."
...Business and tax experts said Labour's idea was unworkable and landlords would easily escape it.
Yeah, cos no other country has ever managed to make it work. You'd think our local chest-thumping champions of industry were lacking ambition or summat.
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But you only have to pay the tax if you *sell the house*. Right? So if you're keeping the house, why should it affect rent except in some sort of nebulous future sense?
People are weird.
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Rich of Observationz, in reply to
I’m bored of that
Bored with. Not “bored of”. Why should we take economic advice from someone with all the literacy of Vicky Pollard? Also, how much “talent” does it take to rent a house out?
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Martin Lindberg, in reply to
One couple would probably buy rental property in Australia and leave New Zealand, Whitburn said.
"Then we lose $120,000 a year in incomes and their tax and the talent.LOL. Great idea! Let's buy rental property where they already have CGT (or equivalent). I'm not too worried about losing their talent.
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Sacha, in reply to
why should it affect rent except in some sort of nebulous future sense?
The market will price the future cost into today's rents as fast as they can get away with it - which is pretty much immediately despite any pretence of supply-demand balance.
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BenWilson, in reply to
It’s a good basic home, in an especial area – but, because of very wealthy people lately building here, is now waaay over-valued (and that is not to my advantage.)
You've considered trading down? It's a common choice for people who have an overvalued house. Sell it, buy something more appropriate, use the residual cash to be more comfortable in your retirement, or, and I hope this is the case for you, comfortable enough that you can finish that next book without worrying about catching enough fish to live on.
I'm not advising this, you should make up your own mind. Some elderly people I know have done that, moving from trendy old Herne Bay out to Pt Chev, selling off a house that was highly appropriate when they had 5 kids living there, not so much when it was just 2 of them. They selected a nice warm, sunny apartment, an easy walk to Pt Chev beach.
But I won't say they haven't had misgivings. They're further from the old life they forged, old friends, facilities that they liked, further from the city, substantially so by bus. I'm pretty sure there was a massive cull of stuff too, they were also bookworms, and they no longer live in their library.
It's an option, is all.
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Paul Campbell, in reply to
I liked the Sydney Morning Herald's journalist interviwed on Morning Report this morning at about 7.30 (sorry, can't produce link from my iPhone). He pointed out that Australia does not have CGT as such - just an income tax. However, there's no such thing as unearned income (with some exceptions).
This is kind of the point I tried to make at the start - in many places all income is taxed equally - there a "Capital Gains Tax" is a special lower rate you can claim for some useful (as defined by the govt) investment - in the US it's available at 25% for long term capital investments (2+ years you have to register your interest when you buy stuff) and at 0% for the family home - so for everyone else but NZ a CGT means LOWER taxes, not higher ones
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Craig Ranapia, in reply to
Some elderly people I know have done that, moving from trendy old Herne Bay out to Pt Chev, selling off a house that was highly appropriate when they had 5 kids living there, not so much when it was just 2 of them.
Well, yes. Not that long ago, I read a rather interesting bit of property porn about a woman in precisely that situation. It was also pretty strongly implied that while she had a sentimental attachment to the house she was born in, it was not only impractical for a single, elderly woman to manage a large house with extensive grounds but her pension wasn't covering the rates.
Very easy to forget that there are still people around who remember when Freeman's Bay was basically a slum and the construction of the Harbour Bridge made Ponsonby, Herne and Saint Mary's Bays much less fashionable than they are now (or were in the late 19th/early 20th centuries).
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Matthew Poole, in reply to
It also risks opening up a self-inflicted credibility gap if a CGT (of as yet unknown scope and reach) doesn’t cover their promises.
Possibly, but it's also an exercise in changing the political landscape. I don't see National being willing to reverse out a CGT that's Labour's creation, at least in part because it's been recommended by so bloody many tax reviews over the last few decades. If Labour have to take the heat for introducing one, National won't complain because it becomes something they don't have to do.
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BenWilson, in reply to
But you only have to pay the tax if you *sell the house*. Right? So if you're keeping the house, why should it affect rent except in some sort of nebulous future sense?
People are weird.
Not really, I think DexterX is right to fear the CGT, it certainly will bite property investors, since it will reduce speculation. Without the speculators, rapid property value rises are less likely, which could be something that would hit DexterX in the back pocket, if he's banking on that.
But it's quite possible for investors to simply change strategies, away from the buy/develop/flick mentality to buy/develop/hold. Which doesn't seem any less profitable in all the countries with CGT, since there is no change in the fundamentals driving the value of property. In fact, reduced volatility in those markets would seem to me to be one of the biggest things that drove Australia shrugging off the GFC. I know several people who are property investors in Oz, and they have all made mad cheddar right through.
Also, DexterX raises other issues which should not be ignored, that there are other things to fix too. But, I don't think the existence of other alternatives is a good reason to oppose CGT. It should be opposed on its own merits and failings.
Personally, I think the one thing that would really turn our economy Australia-ward would be to introduce compulsory super savings. I opposed the idea for many years, especially the time I was in Australia, because of the kind of objections DexterX raises regarding CGT, that I rated my own management of money as better. But the shameful truth is that the biggest stack of cash I personally have is still my Ozzie super fund, despite having only worked there for 5 years, and having been in NZ for 11 years on a similar income, I've fallen into the property trap too, worrying about the value of property, overleveraging, etc.
Also, on another ironic note, my own children have more cash than I do, because we set up Kiwisaver accounts for them, and have regularly contributed to them, and made a firm rule to never ever draw money from them, easily enforced because that would actually be stealing. But it doesn't seem like stealing when it's my own savings I'm working with, which is why I have bugger all of them. But in a sense, it is stealing, stealing from my own future.
If Labour platformed on that as well, I'd be sold. It would be a gutsy step, a hard sell, but IMHO it would make an enormous difference to our economy, very rapidly. It would stimulate the local stockmarket hugely, to have millions of quite large funds investing some proportion into them.
Yes, I know that high rates of saving caused economic stalling in both Japan and Germany. But if NZ had an economy that performed half as well as either of them during the period when they were poor and hungry countries, I'd be stoked. They stalled because they got rich and lost their hunger - is that so bad, really?
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