You say Land Tax, I say think smarter
You say Land Tax, I say think smarter
No sooner than we have recovered for being the alleged Trust Tax Haven of the South Pacific for the WWW (World Wide Wealthy), we have another issue to concern ourselves with. Will the PM really bring in Land Tax? And only for non-residents?
I have read "Never in a Million Years" (by Ivor Baddiel & Johnny Zucker) a few times, so I won't fall into the trap of saying so, but what is he thinking? An acquaintance of mine, with no business experience or tax knowledge came up with a loop-hole within 20 seconds. And if he can, then the millions of "foreigners" desperate to buy a piece of Auckland's real estate will also!
Solving Auckland's cost of housing, lack of affordable housing, inability for our young people to buy into real estate cannot possibly be solved by throwing another tax at it. The 2015 Residential Land Tax rules will not stop it, and Land Tax is so last century. So old in fact that I have had to look up when it was abolished (I think we use to have it here - correct me if I'm wrong). Nope, can't find anything, it is that old, probably before computers were invented.
For those interested in these things, and for the pro's and con's on Land Tax you can always check out the September 2009 paper prepared for the Victoria University of Wellington's Tax Working Group by Policy Advice, Inland Revenue. First statistic says a 1% land tax could be expected to have a 16.7% fall in land values! It gets worse - just keep reading.
New Zealand property expert Dean Humphries, a national hotel broker and a former Auckland University lecturer, opposes a land tax and says a stamp duty is a far better option. Now stamp duty I can remember, went out sometime in the late 1980's. But it was simple, and was a one off that you paid when buying a property. It was based on percentage of the price of the property. You knew where you were and you factored that cost into the transaction. Land tax on the other hand is generally payable annually, whether you have the income / cash to pay it or not. "Asset rich, cash poor" a common saying based in reality.
Not that I'm too keen on Stamp Duty/Land Transaction Tax as it can also affect the market, and doesn't actually solve the problem. There are ways of getting around it too. But it is used overseas, is easy to understand, reasonably easy to impose, the rate can be scaled or changed as necessary. And a family home exemption can exempt the resident homeowner, but capture investors.
As Humphries says, imposing Land Tax on foreigners is not the answer, as the property market is not just driven by absentee owners, it is also fuelled by locals who are looking for a better return than other investments. New Zealander's are said to have a 'love affair with property' and if you lost a lot in the stock market in the 1980's you can understand why. Property values of course can go down, and if it does so thousands of investors could be up against the wall, because they are negatively geared on their investments. Bringing in a Land Tax would instantly drive prices down, but only for the interim. In the 1980's there were also rules around the deductibility of interest or a requirement to hold land for 10 years for example, which forced investors to have positive cash flow from the property investment. When those rules were removed there was a boom in property transfers.
It is said there are thousands of houses in Auckland sitting empty, because the owner is after the capital gain not the revenue stream (who would want annoying tenants after all, they might make the place look lived in). Perhaps the Inland Revenue might want to investigate these owners, because buying with the intention of selling is subject to income tax. And if there is no investment return but the capital gain, then you must suspect an intention exists.
Anyway, assuming there is a problem for affordable housing in Auckland, why are we trying to solve it with tax?
Why doesn't the Government and the Private Sector look at other ways to make housing more affordable? Here's a thought, move businesses out of Auckland! Last year the Government mused over the idea of moving beneficiaries out of Auckland to smaller cities and towns. The flaw was that there was insufficient State Housing available in those areas. But the concept could have been developed, especially if you abandon the view that housing must be provided by the State. In the past beneficiaries have taken up incentives to move to where work was available, and new migrants get additional points if they agree not to live in Auckland. The problem of course is that people want to stay close to family (which has a large migrant population), and there are more job opportunities in Auckland. So I say, move the job opportunities.
We need to stop the drift North, and start the shift South. Granted, some roles may need to be based around a location, but many do not. Call Centres don't need to be in Auckland. Head Offices of National and Multinational firms do not need to be in Auckland. There is life else where, and it is cheaper for everyone. Not only is accommodation cheaper in the South (office and residential), but salaries are as well (employees don't need to pay Auckland rents). Travel is much shorter (both time and distance). If you want travel 1 hour each way to work then in the South that could mean you live in a beautiful house in the country, by a beach or up a mountain. Or maybe, you would rather travel just 15 minutes and be home for dinner with the kids and the dog!
I think it is time for another Government Think Tank - this time on spreading our population, jobs and our housing requirements around New Zealand.
Posted: Friday 29 April 2016